Mar. 07, 2023
March 7, 2023 Dear SEC / Other market participants, I am a retail / individual investor and I strongly support this rule proposal (S7-32-22). Prior to discussing any arguments, counterarguments or suggestions for this specific proposal I would like to emphasize the following with my unique perspective as a retail investor of which many of these rule proposals are addressing: - I DO NOT feel protected as an investor in the current market system - I DO NOT believe I am fairly represented by retail brokerages / market makers or large exchanges when handling my orders or in the public comments provided for these rule proposals - I DO NOT feel I as an individual am provided with sufficient transparency to allow me to instigate my own informed decisions on where best to place my orders or who provides me the best execution - I DO NOT feel I am receiving economically viable price improvement on my orders - I DO NOT feel I am receiving best execution on my orders and feel I am being scalped at the benefit of retail-orientated organisations for their benefit, not mine For the remainder of this letter I have segmented my response into the following: - Why do I agree with this proposal? - What are some counterarguments to this proposal? - What changes or improvements can be made to this proposal? - Final thoughts Why do I agree with this proposal? To my understanding this rule aims to codify a best execution policy by the SEC for broker-dealers to abide quantify with quarterly reviews/annual board of director review. I strongly agree with this position by the SEC. As a retail investor I currently feel that the best execution rule is not appropriately covered or fulfilled by the FINRA or MRSB best execution policies. This rule will strengthen SECs capacity as a regulatory body provide greater guidelines to ensure enforcement. It is preposterous that the best execution rule is reliant on enforcement by self-regulatory organisations (SRO), often headed by the very firms it aims to regulate. In fact I believe it is insane that SROs are even a viable form of regulation especially in the context of managing the largest group of financiers, with the greatest level of monetary influence the highest level of incentive to avoid regulation. The need for better enforcement / new policy is evident by a lack of enforcement of best execution often quoted with a lack of clear evidence broker-dealers were acting out of interest if enforced fined a miniscule amount relative to the overall benefit of the sche me. These claims of what I believe are wilful negligence should hopefully be reduced with additional best execution policy rules. The SEC needs to play a greater role enforcing rules on the market. Integral to these best execution policies is the annual presentation of policies to executives/boards of broker-dealers. I believe this is an essential step in ensuring the policies align with the incentives of these members that it can prevent claims of ignorance in relation to best execution if best execution is not provided. The quarterly review is also important in ensuring best execution is a prominent consideration that is constantly assessed improved by broker-dealers. I also support the inclusion of PFOF as a conflicted transaction. This is evident in other regulatory bodies around the world including places such as Singapore another economic hub where PFOF is outright banned. The ability to pay under the table to access a large portion of the market trade prior to other market participants is as clear of a conflict of interest as possible. This not even mentioning that some of these wholesalers providing PFOF even have designated market maker access and an operating hedgefund. The other suggested conflicts of interest such executing orders as principal and providing/receiving orders from affiliates are also common sense inclusions. Conflicts of interest are important to disclose do have material impacts on how retail investors determine broker-dealers. Conflicts of interest need to be more clearly presented this rule helps provide some of this clarity. This best execution policy by the SEC will increase my confidence in the market I believe add to a more fair, competitive efficient market. This policy will aim to put capital formation of clients in the forefront of broker-dealers agenda tighten any gaps present in the other best execution policies currently available. What are some counterarguments to this proposal? - FINRA MRSB already have best execution rules, this is too many? o I disagree. I do not believe I am effectively covered by the FINRA/MRSB best execution rules. I believe a rule such as best execution is so integral to the market that it must have an applicable rule provided by the SEC the main regulatory body of the markets. I do not believe this should be a negotiable topic. If market participants want to reduce the number of execution policies I suggest in the future considering altering/adjusting the FINRA/MRSB rather than inhibiting the SECs regulatory capacity. 3 written policies quarterly/annual reports are not excessive requirements and the quality of best execution should already be in place if FINRA/MRSB rules have been followed. - This rule is too prescriptive does not provide flexibility o The purpose of this rule is to protect investors inspire confidence in the markets. I do not believe these policies are too prescriptive, if anything it is a fair representation of the expectations we investors hold when dealing with broker-dealers. As above, 3 written policies quarterly/annual reports are not excessive requirements and the quality of best execution should already be in place if FINRA/MRSB rules have been followed. I commend the SEC for providing clear well documented guidance that can ensure broker-dealers follow the spirit of this rule. I am sure that in the absence of this clarity the most frequent counterargument would be that there is insufficient guidance to necessitate this rule. - Conflicts of interest are complicated sometimes necessary o I believe this should be treated as an exception rather than a rule. I believe in the vast majority of cases conflicts of interest significantly deteriorates confidence in the market values mandated by the SEC. This rule does not outright remove conflicted interests but provides more disclosure transparency when these situations arise. This rule furthers the protection of investors whilst also allowing conflicts of interests to be present when absolutely necessary. As a retail investor conflicts of interest disclosure would be monumental in my decision between broker-dealers I highly agree with the provision regarding conflict transactions. My only addition would be harsher penalties on those that wilfully use conflicted transactions without benefit to the client. - This may lead to increased costs to clients o If this rule leads to better execution for clients provides greater protection I am happy to pay these costs. I also believe this argument to be disingenuous as best execution policies should technically already be in place thus the only additions are 4 quarterly reports 1 annual report per year. I am sure the paper to print these reports are not out of reach for broker-dealers. - Best execution policies may lead to eventual monopolisation o Are you confused by this statement? I am as well. In the broad scheme if in this very specific example best execution leads to broker-dealers always trending toward a select few institutions that have the greatest capacity to provide best execution, then as long as best execution is provided well documented there is no clear disadvantage to the investor. In the future if this does appear to occur the SEC can continue to regulate adjust the parameters to promote healthy competition. This rule does not be delayed until this is in place as this rule is such a fundamental aspect of the market that it should be enacted immediately. In regards to concerns over monopolisation, it is clear that in many aspects such as wholesalers retail order-flow there is already a duopoly in place. - We should delay this rule in favour of other rules proposed for more data o I disagree partially. Of the 4 rules I think the most pertinent are the order competition rule the best execution rule. The order competition rule provides the greatest novel protection to investors whilst affecting the least number of market participants. The best execution rule is such a fundamental rule that it should have been implemented decades ago, thus should also not be further delayed. The other remaining rule though beneficial are better candidates for delays. The order execution information rule adds to disclosures that are already there but would increase transparency to retail. The tick size rule however seems to be the largest fundamental change to the markets since the implementation of the penny tick size cap. This would affect all market participants investors current future with minimal economically viable improvement for most participants. If any rule needs care consideration optimisation of data it will be the tick size rule. What changes or improvements can be made to this proposal? - Reduce exemptions to Introducing brokers o The best execution policies should apply in principle to all broker-dealers interacting with clients orders. Even if not directly executing orders, introducing brokers can still influence clients against their best interests such as with gamification or provision of incentives towards broker-dealers positions. I believe including these brokers to the regulation will strengthen the overall effect of best execution. - Ensure harsh penalties apply for broker-dealers wilfully utilising conflicted transactions without benefitting client or active disclosure o This should help deter bad actors overall improve the integrity of the market. It will provide confidence to investors that the SEC is actively regulating the market effectively. Final thoughts As a conclusion to this letter I would like to clearly state that I strongly support the SECs rule proposal on Best execution (S7-32-22) truly appreciate the effort, diligence and time spent on this proposal. This is a fundamental rule to markets that should be governed by the SEC the main regulatory enforcement body of the US stock market not by self-regulatory bodies with prominent conflicts of interest. I hope you take my full comments into consideration consider some of the suggestions I have proposed. I also hope you have an opportunity to read the comments I have also provided on the other 3 rule proposals (S7-29-22, S7-30-22 S7-31-22). Thank you for looking out for retail / individual investors considering our opinions. Kind regards, Aswin Joy Retail / Individual Investor