Mar. 31, 2023
Dear SEC Members, I am writing to discuss the importance of best execution in trade execution for individual investors, and the need for clear guidance and rules to ensure that investors receive the best possible execution for their trades. Firstly, it is important to recognize that many individual investors may not fully understand the complexities involved in choosing how to execute a trade. Therefore, providing clear guidance on how to read and interpret the data in Regulation NMS Rule 605 reports is crucial, especially for retail investors who may not have a deep understanding of the markets. Brokers owe their customers a duty of Best Execution derived from common law agency principles and fiduciary obligations. However, the Best Execution rule needs to become a regulation that the SEC can enforce. Conflicted orders do not belong in a Best Execution rule, as they can lead to customers paying higher transaction prices without being aware of revenue arrangements between brokers and subpar trading firms. Different trading venues may offer different prices, slower execution can lead to missed opportunities, information leaks can inhibit a successful transaction, and less reliable settlement processes can delay receipt of proceeds. Therefore, the Best Execution rule is critical to ensure that investors receive the best possible execution for their trades. In December 2020, Robinhood was charged by the SEC with failure to satisfy its best execution obligation, resulting in an aggregate loss of $34.1 million for its customers. Robinhood made misleading statements and did not disclose payments received for routing trades to specific firms. Citadel paid the SEC $22.6 million in 2017 to settle best execution charges for executing customer trades at less favorable pricing when a better price was available. Brokers recommending mutual funds with 12b-1 fees and revenue sharing arrangements with clearing brokers have also faced best execution charges from the SEC. Therefore, the proposed rule would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. Quarterly reviews of execution quality would provide transparency and accountability for the broker-dealers' practices. The proposed Regulation Best Execution is a necessary step in protecting household investors and promoting fair and efficient markets by ensuring that household investors are receiving the best possible execution for their trades. Thank you for your attention to this important matter. Sincerely, Kevin Cano Kevin Cano | Data Base Reporting Analyst