Mar. 19, 2023
Dear Securities and Exchange Commission, I am writing to express my concern about the importance of best execution in trade execution for individual investors, especially those who may not fully understand the complexities involved in how trade executions are chosen. As such, I strongly urge the SEC to provide clear guidance on how to read and interpret the data in Regulation NMS Rule 605 reports, particularly for household investors who may not have a deep understanding of the markets. I believe that brokers owe their customers a duty of best execution derived from common law agency principles and fiduciary obligations. However, I also believe that this duty needs to become a rule that the SEC can enforce. Conflicted orders should never be included in a Best Execution Rule. And without a Best Execution Rule, customers may not be aware of revenue arrangements between brokers and subpar trading firms, or that they may be paying higher transaction prices. It’s also important to note that different trading venues may offer different prices, and slower execution can lead to missed opportunities. Information leaks can also inhibit a successful transaction. Furthermore, less reliable settlement processes can delay the receipt of proceeds. As evidence of the importance of best execution, I point to recent charges brought against Robinhood by the SEC in December 2020, for failure to satisfy its best execution obligation, resulting in an aggregate loss of $34.1 million for its customers. Robinhood was found to have made misleading statements, and failed to disclose payments received for routing trades to specific firms. In addition, 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. To address these issues, I strongly recommend that quarterly reviews of execution quality be conducted to provide transparency and accountability for broker-dealers' practices. Furthermore, the proposed Regulation Best Execution would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. In summary, I believe that 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 consideration of this important issue. Sincerely, Chris Eastvedt