Mar. 31, 2023
Best execution is important in trade execution, especially for individual investors with limited resources compared to professional traders. Brokers owe their customers a duty of best execution derived from common law agency principles and fiduciary obligations, and it is essential that the SEC enforces this duty. Conflicted orders do not belong in a best execution rule, as they can lead to customers paying higher transaction prices without being aware of revenue arrangements between brokers and subpar trading firms. Different trading venues may offer different prices, and slower execution can lead to missed opportunities, while information leaks can inhibit a successful transaction, and less reliable settlement processes can delay receipt of proceeds. Recent cases, such as the SEC's charges against Robinhood for failure to satisfy its best execution obligation, highlight the importance of best execution for household investors. 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 and the proposed Regulation Best Execution rule would provide transparency and accountability for broker-dealers' practices. The proposed rule would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. In summary, the proposed Regulation Best Execution is a necessary step in protecting household investors and promoting fair and efficient markets by ensuring that they receive the best possible execution for their trades.