Mar. 19, 2023
Executing trades with best execution is crucial for individual investors, who may not fully comprehend the intricacies of trade execution. To assist household investors in interpreting the data in Regulation NMS Rule 605 reports, clear guidance should be provided. Although brokers are obligated to provide best execution based on common law agency principles and fiduciary obligations, it is imperative to turn it into a rule that the SEC can enforce. Conflicted orders should not be included in a best execution rule. In the absence of a best execution rule, customers may be unaware of revenue arrangements between brokers and subpar trading firms, resulting in higher transaction prices. Different trading venues offer different prices, and slower execution can lead to missed opportunities. Information leaks can hinder a successful transaction, and less reliable settlement processes can delay receipt of proceeds. The SEC charged Robinhood in December 2020 with failing to meet its best execution obligation, resulting in a total 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 $22.6 million to the SEC in 2017 to settle best execution charges for executing customer trades at less favorable pricing when a better price was available. Brokers who recommend mutual funds with 12b-1 fees and revenue sharing agreements with clearing brokers have also faced best execution charges from the SEC. Quarterly evaluations of execution quality would provide transparency and accountability for the broker-dealers' practices. The proposed rule would establish a more detailed and comprehensive standard for broker-dealers to adhere to, resulting in consistently robust best execution practices. The proposed Regulation Best Execution is a crucial step in protecting household investors and promoting fair and efficient markets by ensuring that they receive the best possible execution for their trades.