Mar. 31, 2023
March 31, 2023 When acting as representatives for their clients, brokers are typically bound by a duty of Best Execution. This duty is not precisely defined, but it is derived from common law agency principles and fiduciary obligations. Although FINRA has a Best Execution rule, it is time for the SEC to enforce it. I endorse the Best Execution rule, but I do not believe that \"conflicted orders\" have a place in it. As long as payment for order flow remains, these \"conflicted\" brokers will continue to send our orders to wherever they can earn the most profit. Due to concerns about conflicts of interest, PFOF has been effectively outlawed in the United Kingdom, and I believe that the same policy should be adopted here. Rather than explicitly banning PFOF, the UK issued guidelines stating that PFOF is a conflict of interest. After some market makers attempted to redefine PFOF arrangements, the UK reminded them that PFOF is incompatible with Best Execution. FINRA has launched a targeted examination to investigate how not charging commissions will affect member firms' order routing practices and decisions, as well as other aspects of their business. FINRA has indicated that it will share its findings with member firms in the future, but I believe that this information should be made public as soon as it is available.