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Statement for Investor Advisory Committee Meeting

June 10, 2021

Today, the Committee will be devoting the bulk of its meeting to discussions regarding a broker’s duty of best execution.  I appreciate the willingness of the panelists to participate in today’s meeting.  The issues you will be discussing have received increasing amounts of attention in light of the volatility associated with certain so called ‘meme stocks’.  However, the underlying dynamics and market structure issues are not new.  As is the case with most market episodes, they tend to elevate (or re-elevate) to the public discourse topics such as best execution, market data and market structure that the Commission has been grappling with for some time.

Broker-dealers have a legal duty to seek to obtain best execution of customer orders. The Commission has explained that this duty requires a broker to “execute customer orders at the most favorable terms reasonably available under the circumstances.”[1]  In addition, brokers must examine their procedures for seeking to obtain best execution in light of market and technology changes and modify those practices, if necessary.[2] 

Sounds simple enough, right?  Well, once you start digging below the surface things can get very complicated, very quickly.  That is why for several years now I have advocated for the Commission to provide non-prescriptive guidance on, or an interpretation of, the requirements for best execution.[3]  This guidance could include articulating relevant factors, explaining key terms such as “reasonably available,” and discussing methods to assess alternative execution venues.  In addition, such guidance may benefit from differentiating between types of order flow, for example institutional as compared to retail.

I have also previously stated that I believe the Commission should consider enhancing the monthly execution quality reports issued by market centers pursuant to Rule 605.[4]  These reports are supposed to assist brokers in fulfilling their best execution obligations by providing standardized assessments of execution quality.  However, these reports have not been updated in twenty years, during which time the equity market has undergone tremendous evolution.  Potential enhancements could include both refining certain data elements as well as adding new elements and metrics, including those that may be most relevant for institutional investors.

Beyond enhancing the existing Rule 605 reports, I think it may be worth developing a separate execution quality report to be issued monthly by retail broker-dealers.  The original premise behind Rule 605 was that it would work hand-in-hand with the order routing disclosures of Rule 606.  In other words, a customer would be able to see both to which venues the broker sent orders and what level of execution quality the customer could generally expect from those venues.  While I think this logic holds, I also think it may benefit customers if they could see the execution quality their broker actually received at each venue identified on the Rule 606 disclosures.  Developing standardized execution quality disclosures to be issued by retail brokers could promote competition by facilitating an apples-to-apples comparison of brokers by their customers.  

While there certainly is more we can do, I also think it is important that we acknowledge the important steps the Commission has taken in recent years relevant to best execution generally, and payment for order flow specifically.  In 2018, the Commission adopted amendments to Rule 606 that require brokers to provide detailed information regarding their routing of held orders.[5]  In fact, many of the statistics that have been publicly reported regarding payment for order flow are derived from information included in these reports. 

Importantly, amended Rule 606 requires a broker to include a description of “any term” of payment for order flow or profit-sharing arrangements it has with the venues identified on its report that may influence its routing decision.[6]  This requirement reflects the Commission’s historical preference for utilizing disclosure as a key tool in addressing potential conflicts.  Having reviewed some of these new disclosures I believe there can be improvements to the detail provided to be more consistent with the requirements and the plain language of the rule. 

Finally, in suggesting areas that may benefit from further Commission action, it is important to reiterate my previously articulated comparison of the rules governing the securities industry to the woven threads in a sweater.[7]  Pulling to tighten one thread typically loosens another elsewhere. Sometimes those effects are intended.  But other times, they are not.  These unintended effects may be even more significant than those we aimed to produce in the first place.[8]

Therefore, as the Commission pursues its continuous effort to evaluate and optimize our equity market structure we must all maintain a degree of humility and recognize that there are no silver bullets here.  Our equity markets are incredibly complex.  Policy prescriptions predicated on a clairvoyant contention of leading to a specific behavioral change will inevitably fall short.  Market conditions and technological innovations move too rapidly.  The Commission is at its best when it devotes its resources to competition enhancing initiatives that foster market integrity and lower costs for investors.  We should not prescribe outcomes.  And we should not pick winners and losers.  Instead, we should foster a transparent, resilient, and competitive environment that hopefully enables a diversity of participants to best meet the needs of their clients.

Given the complexity of these issues I have no doubt that any potential alteration to market structure rules will be the subject of reasonable disagreement.  In order for the Commission to be best positioned to reconcile competing points of view and facilitate a balanced approach it is imperative that we be guided by practical realities.  Earlier this year it was announced that we will be issuing a report regarding the market conditions observed this past January.  Hopefully, the report will provide a practical assessment of the current operation of our market structure and can serve as the foundation upon which we can have a robust dialogue about areas for improvement.

Until then, let me once again thank the panelists for their participation today.  I look forward to the discussion.  For those that want to discuss this further please reach out, my door is always open to anyone that would like to discuss these topics.

[1] See, e.g., 86 FR 18605 (Apr. 9, 2021).

[2] See id.

[3] See Elad L. Roisman, Remarks at the SIFMA Equity Market Structure Conference: The Dynamics of our Markets and the Changing Structure on which they are Built (Sept. 19, 2019), available at; Elad L. Roisman, Statement at Open Commission Meeting to Adopt Market Data Infrastructure Rules under Regulation NMS (Dec. 9, 2020), available at

[4] See Elad L. Roisman, Statement at Open Commission Meeting to Adopt Market Data Infrastructure Rules under Regulation NMS (Dec. 9, 2020), available at

[5] 17 CFR 242.606(a); 83 FR 58338 (Nov. 19, 2018).

[6] 17 CFR 242.606(a)(iv); 83 FR 58376 fn. 397 (Nov. 19, 2018) (“because such arrangements would influence a broker-dealer’s order routing decision, the amended rule requires disclosure of the details of any arrangement between a broker-dealer and a Specified Venue where the level of execution quality is negotiated for an increase or decrease in payment for order flow.”).  See also Division of Trading Markets, Responses to Frequently Asked Questions Concerning Rule 606 of Regulation NMS, Issue 14: Arrangements Affecting Execution Quality at a Venue available at

[7] See Elad L. Roisman, Remarks at the SIFMA Equity Market Structure Conference: The Dynamics of our Markets and the Changing Structure on which they are Built (Sept. 19, 2019), available at

[8] While these interconnections extend beyond market structure, it sometimes seems as if it receives a degree of attention unmatched by other areas of the broker-dealer business.  For example, if a premise behind Rule 606 disclosures is that customers have a right to understand the source and amount of compensation received by a broker for executing a trade, why have we not extended that premise to cash-sweep programs?  While a customer may know the interest received on its cash balance, that customer has no means of learning how the broker is paid under the terms of the sweep program.  As the industry and regulators consider shortening the settlement cycle, the incentives for brokers and customers to utilize sweep programs may continue to grow.  The Commission should assess the impact of pulling on this thread and consider whether customers should receive more disclosure about the incentives associated with cash sweep programs.

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