The United States Securities and Exchange Commission, aka the SEC, has announced a proposal to establish an SEC rule setting forth a best execution standard for broker-dealers, according to an official statement.
Gary Gensler, Chair of the U.S. Securities and Exchange Commission released the statement back on December 14th, 2022, and expressed his support of the new rule, stating it would help ensure brokers have policies and procedures in place to seek best execution for investors.
The proposal is now open for public comment, and the public comment period will remain open until March 31st, 2023, or 60 days after the proposal’s publication date in the Federal Register, whichever is late
Gensler highlighted the following three such enhancements in his statement:
- Heightened requirements for transactions that involve conflicts of interest with retail investors: brokers would be subject to additional policies and procedures and documentation requirements if the broker has a conflict of interest with respect to a transaction. Additional policies and procedures include enhanced diligence in seeking best execution and documentation showing the basis for determining that conflicted transactions comply with the best execution standard.
- Narrowing best execution requirement exemptions for introducing brokers: for example, broker-dealers using wholesalers for execution would no longer be able to solely rely on the wholesaler’s quality reviews.
- More detailed policies and procedure requirements: policies and procedures would need to include specific considerations that the broker would need to address, such as market evaluation and specified price/non-price considerations, to comply with the new best execution standard.
