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Regulation and Compliance > Federal Regulation > SEC

SEC to Propose New Regulation Best Execution

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The Securities and Exchange Commission plans to consider a new best execution rule, Regulation Best Execution, for client trades.

According to the Dec. 14 open meeting notice, the new rule “would establish a best execution standard and require detailed policies and procedures for brokers, dealers, government securities brokers, government securities dealers, and municipal securities dealers and more robust policies and procedures for entities engaging in certain conflicted transactions with retail customers, as well as related review and documentation requirements.”

SEC Chairman Gary Gensler noted the potential rulemaking in comments earlier this year, in which he noted upcoming rules aimed at overhauling the stock market. Gensler said he’d asked SEC staff to consider for the first time having the SEC define directly what it means for a broker to give its clients “best execution” to satisfy agency requirements.

Dan Gallagher, chief legal officer of Robinhood, said in July that “it would be nice” to have an SEC best execution rule.

Ron Rhoades, associate professor of finance at Western Kentucky University and director of its personal financial planning program, told ThinkAdvisor Wednesday in an email that if the Commission “truly desired to ensure best execution, they would outlaw payment for order flow.

“This would decrease bid-ask spreads significantly, but also result in the return of commissions,” he explained. “Overall, consumers would be better off, as greater transparency in how broker-dealers are compensated, along with the elimination of the conflict of interest inherent when brokers receive payment for order flow, would result in greater competition and reduced transaction costs.”


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