Mar. 24, 2023
To whom it may concern, I wanted to write to you about the importance of best execution in trade execution for individual investors. It's crucial to make sure that investors are getting the best possible execution for their trades, especially since they may not understand all the complexities involved in choosing how to execute a trade. One way to help investors is to provide clear guidance on how to read and interpret the data in Regulation NMS Rule 605 reports. This is especially important 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, it needs to become a rule that the SEC can enforce. Conflicted orders don't belong in a Best Execution rule. Without the best execution rule, customers may not be 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. As you may know, Robinhood was charged by the SEC in December 2020 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. Similarly, Citadel paid the SEC $22.6 million in 2017 to settle best execution charges for executing customer trades at less favourable 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. 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. It would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. Cheers, Chris Morrow