Mar. 31, 2023
Proper transparency and regulatory legibility is important in trade executions for individual investors who may not understand the complexities involved in choosing how to execute a trade. The market must provide clear guidance on how to read and interpret the data in Regulation NMS Rule 605 reports, especially for unfairly uninformed household 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, but these expectations must become laws 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 or that they may be roped into buying inflated transactions. Different trading venues may offer different prices, slower execution can lead to missed opportunities. Information leaks can inhibit a desireable transaction, and less reliable settlement processes can delay receipt of proceeds. 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 favourable pricing when a better price was available. Both if which proving that financial entities can not be trusted to act in the best interest of their customers without proper regulations. 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. This would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistent and beneficial best execution practices. The proposed Regulation Best Execution is a necessary step in protecting household investors and promoting fair and efficient markets by ensuring that current and future household investors are receiving the best possible execution for their trades.