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The duty of best execution requires a broker-dealer to execute customers’ trades at the most

Exhibit of SEC Proposes Regulation Best Execution

summary

The U.S. SEC proposed Regulation Best Execution to establish its first formal rule requiring broker-dealers to achieve the best possible trade execution for customers, mandate written policies and quarterly reviews for conflicted transactions like payment for order flow, and impose annual board reporting—without accusing any party of fraud.

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The U.S. Securities and Exchange Commission proposed Regulation Best Execution to codify the duty of best execution, requiring broker-dealers to use reasonable diligence to secure the most favorable terms for customer trades under prevailing market conditions. The rules mandate written policies and procedures for compliance, with enhanced obligations for conflicted transactions—including payment for order flow, riskless principal trading, and affiliate routing—along with quarterly execution quality reviews and annual board reports. No fraud charges are alleged; the document is a forward-looking regulatory framework with a public comment period ending March 31, 2023, and exemptions for introducing brokers and certain institutional or unsolicited orders.

narrative

The U.S. Securities and Exchange Commission proposed Regulation Best Execution to establish its first formal rule requiring broker-dealers to execute customer trades at the most favorable terms reasonably available, reinforcing fiduciary duties rooted in common law and federal antifraud provisions. The proposal mandates that broker-dealers create, maintain, and enforce written policies and procedures to ensure best execution, with additional requirements for conflicted transactions such as payment for order flow, principal trading, or routing orders to affiliates. Broker-dealers must conduct quarterly reviews comparing execution quality against other markets, revise practices accordingly, and document all findings, while also submitting annual reports to their boards of directors. Introducing brokers are exempt from core obligations if they regularly monitor and compare the execution quality of their executing brokers and maintain appropriate documentation. The rule also exempts transactions where institutional customers exercise independent judgment or customers provide unsolicited routing instructions. The SEC proposed amending Rule 17a-4 to require recordkeeping of all best execution documentation, but no individuals or firms are accused of misconduct—the document is purely a regulatory framework open for public comment until March 31, 2023.

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Scheme: non-corporate (100%)

Classified non-corporate(confidence 100%). No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →

Extracted insights

Entities 4

organization Financial Industry Regulatory Authority, Inc.
organization National Association Of Securities Dealers, Inc.
person regulation best execution
agency Securities and Exchange Commission

Triples 5

U.S. SECURITIES AND EXCHANGE COMMISSION proposed Regulation Best Execution
Proposed Rule 1100 would set forth the best execution standard
Broker-dealers must establish written policies and procedures to comply with the best execution standard
Broker-dealers must review the execution quality of their customer transactions at least quarterly
Broker-dealers must review their best execution policies and procedures at least annually and present a report to their boards of directors

PDF

The duty of best execution requires a broker-dealer to execute customers’ trades at the most · Source

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FACT SHEET
Regulation Best
Execution

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2

Why This Matters
The duty of best execution requires a broker-dealer to execute customers’ trades at the most
favorable terms reasonably available under the circumstances. This duty of best execution
derives  from  common  law  agency  principles  and  fiduciary  obligations  and  is  enforced
through the antifraud provisions of the Federal securities laws. While a best execution rule
was  first  established  in  1968  by  the  National  Association  of  Securities  Dealers,  Inc.,  the
predecessor  to  the  Financial  Industry  Regulatory  Authority,  Inc.,  there  has  not  previously
been  a  rule established  by  the  SEC.  Customers  benefit  from  broker-dealers’  robust
considerations  of  execution  opportunities  that  may  provide  customers  with  the  most
favorable  terms.  Accordingly,  promoting  the  best  execution  of  customer  orders  is  of
fundamental importance to investors and the markets and is an important aspect of investor
protection.  The  Commission  has  made  statements  concerning  the  duty  of  best  execution
over  the  years,  and  this  action  represents  the  first  time  it  has  proposed  its  own  rules
addressing best execution.

How The Rules Would Apply
Proposed  Rule  1100  under  proposed  Regulation  Best  Execution  would  set  forth  the  best
execution standard. Specifically, in any transaction for or with a customer or a customer of
another broker-dealer, a broker-dealer (or a natural person who is an associated person of

The Securities and Exchange Commission proposed Regulation Best Execution to, among other
things:
●    Establish a best execution standard for brokers, dealers, government securities brokers,
government  securities  dealers,  and  municipal  securities  dealers  (collectively  “broker-
dealers”);
●    Require   broker-dealers   to   establish,   maintain,   and   enforce   written   policies   and
procedures reasonably designed to comply with the best execution standard;
●    Require more robust policies and procedures for broker-dealers   that engage in certain
conflicted transactions for or with a retail customer;
●    Require broker-dealers to review the execution quality of their customer transactions at
least quarterly;
●    Exempt broker-dealers that qualify as “introducing brokers” from certain requirements if
they establish, maintain, and enforce specified policies and procedures; and
●    Require broker-dealers to review their best execution policies and procedures at least
annually and present  a  report  detailing  the  results  of  such  review  to  their  boards of
directors or equivalent governing bodies.

FACT SHEET | Regulation Best Execution

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2
the  broker-dealer) would  be  required  to  use  reasonable  diligence  to  ascertain  the  best
market  for  the  security  and  buy  or  sell  in  such  market  so  that  the  resultant  price  to  the
customer is as favorable as possible under prevailing market conditions.
Proposed  Rule  1100  would  exempt  a  broker-dealer  from  this  standard  when:  (1)  another
broker-dealer is  executing a  customer  order  against  the  broker-dealer’s  quotation;  (2)  an
institutional  customer,  exercising  independent  judgment,  executes  its  order  against  the
broker-dealer’s quotation; or (3) the broker-dealer receives an unsolicited instruction from a
customer  to  route  its  order  to  a  particular  market  for  execution  and  the  broker-dealer
processes that customer’s order promptly and in accordance with the terms of the order.
Proposed Rule 1101 would require broker-dealers   to establish, maintain, and enforce written
policies and procedures reasonably designed to comply with the best execution standard.
Proposed Rule 1101(a) would require these policies and procedures to address how broker-
dealers   will comply with the best execution standard and how they will determine the best
market and make routing or execution decisions for customer orders.
Broker-dealers   that engage in conflicted transactions with respect to retail customer orders
would  be  subject  to  additional  obligations  under  proposed  Rule  1101(b).  A  conflicted
transaction  would  be  any  transaction  where  a  broker-dealer:  (1)  executes  an  order  as
principal,  including  riskless  principal;  (2)  routes  an  order  to  or  receives  an  order  from  an
affiliate  for  execution;  or  (3)  provides  or  receives  payment  for  order  flow.  Proposed  Rule
1101(b)  would  require  additional  policies  and  procedures  for  conflicted  transactions  and
would require broker-dealers   to document their compliance with the best execution standard
for such transactions and any arrangement concerning payment for order flow.
Proposed  Rule  1101(c)  would  require  broker-dealers  to  review  at  least  quarterly  the
execution quality of their customer transactions; compare it with the execution quality that
might  have  been  obtained  from  other  markets;  revise  accordingly  their  best  execution
policies and procedures, including order handling practices; and document the results of the
review.
Proposed Rule 1101(d) would provide an exemption to “introducing brokers” from complying
with  proposed  Rules  1101(a),  (b),  and  (c)  if they  establish,  maintain,  and  enforce  policies
and  procedures  that  require  them  to  regularly  review  the  execution  quality  obtained  from
their executing broker, compare it with the execution quality they might have obtained from
other executing brokers, and revise their order handling practices accordingly. Introducing
brokers would be required to document the results of the review.
Finally, proposed Rule 1102 would require broker-dealers to review at least annually their
best  execution  policies  and  procedures,  including  their  order  handling  practices.  Broker-
dealers   would be required to document such reviews   and prepare and present written reports
detailing the results of the reviews   to  their boards of directors or equivalent governing bodies.
The  proposal  also  would amend  Exchange  Act  Rule  17a-4  to  require  broker-dealers   to
preserve records made pursuant to proposed Regulation Best Execution.

Additional Information:
The public comment period will remain open until March 31, 2023, or until 60 days after the date of
publication of the proposing release in the Federal Register, whichever is later.

OCR text (6,559c · tika · 95% conf)

FACT SHEET 
Regulation Best 
Execution 

 

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2 

 

 
Why This Matters 
The duty of best execution requires a broker-dealer to execute customers’ trades at the most 
favorable terms reasonably available under the circumstances. This duty of best execution 
derives from common law agency principles and fiduciary obligations and is enforced 
through the antifraud provisions of the Federal securities laws. While a best execution rule 
was first established in 1968 by the National Association of Securities Dealers, Inc., the 
predecessor to the Financial Industry Regulatory Authority, Inc., there has not previously 
been a rule established by the SEC. Customers benefit from broker-dealers’ robust 
considerations of execution opportunities that may provide customers with the most 
favorable terms. Accordingly, promoting the best execution of customer orders is of 
fundamental importance to investors and the markets and is an important aspect of investor 
protection. The Commission has made statements concerning the duty of best execution 
over the years, and this action represents the first time it has proposed its own rules 
addressing best execution. 

 

How The Rules Would Apply 
Proposed Rule 1100 under proposed Regulation Best Execution would set forth the best 
execution standard. Specifically, in any transaction for or with a customer or a customer of 
another broker-dealer, a broker-dealer (or a natural person who is an associated person of 

 
The Securities and Exchange Commission proposed Regulation Best Execution to, among other 
things:  

● Establish a best execution standard for brokers, dealers, government securities brokers, 
government securities dealers, and municipal securities dealers (collectively “broker-
dealers”); 

● Require broker-dealers to establish, maintain, and enforce written policies and 
procedures reasonably designed to comply with the best execution standard; 

● Require more robust policies and procedures for broker-dealers that engage in certain 
conflicted transactions for or with a retail customer; 

● Require broker-dealers to review the execution quality of their customer transactions at 
least quarterly;  

● Exempt broker-dealers that qualify as “introducing brokers” from certain requirements if 
they establish, maintain, and enforce specified policies and procedures; and 

● Require broker-dealers to review their best execution policies and procedures at least 
annually and present a report detailing the results of such review to their boards of 
directors or equivalent governing bodies. 



FACT SHEET | Regulation Best Execution 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2 

the broker-dealer) would be required to use reasonable diligence to ascertain the best 
market for the security and buy or sell in such market so that the resultant price to the 
customer is as favorable as possible under prevailing market conditions. 

Proposed Rule 1100 would exempt a broker-dealer from this standard when: (1) another 
broker-dealer is executing a customer order against the broker-dealer’s quotation; (2) an 
institutional customer, exercising independent judgment, executes its order against the 
broker-dealer’s quotation; or (3) the broker-dealer receives an unsolicited instruction from a 
customer to route its order to a particular market for execution and the broker-dealer 
processes that customer’s order promptly and in accordance with the terms of the order. 

Proposed Rule 1101 would require broker-dealers to establish, maintain, and enforce written 
policies and procedures reasonably designed to comply with the best execution standard. 
Proposed Rule 1101(a) would require these policies and procedures to address how broker-
dealers will comply with the best execution standard and how they will determine the best 
market and make routing or execution decisions for customer orders. 

Broker-dealers that engage in conflicted transactions with respect to retail customer orders 
would be subject to additional obligations under proposed Rule 1101(b). A conflicted 
transaction would be any transaction where a broker-dealer: (1) executes an order as 
principal, including riskless principal; (2) routes an order to or receives an order from an 
affiliate for execution; or (3) provides or receives payment for order flow. Proposed Rule 
1101(b) would require additional policies and procedures for conflicted transactions and 
would require broker-dealers to document their compliance with the best execution standard 
for such transactions and any arrangement concerning payment for order flow. 

Proposed Rule 1101(c) would require broker-dealers to review at least quarterly the 
execution quality of their customer transactions; compare it with the execution quality that 
might have been obtained from other markets; revise accordingly their best execution 
policies and procedures, including order handling practices; and document the results of the 
review. 

Proposed Rule 1101(d) would provide an exemption to “introducing brokers” from complying 
with proposed Rules 1101(a), (b), and (c) if they establish, maintain, and enforce policies 
and procedures that require them to regularly review the execution quality obtained from 
their executing broker, compare it with the execution quality they might have obtained from 
other executing brokers, and revise their order handling practices accordingly. Introducing 
brokers would be required to document the results of the review. 

Finally, proposed Rule 1102 would require broker-dealers to review at least annually their 
best execution policies and procedures, including their order handling practices. Broker-
dealers would be required to document such reviews and prepare and present written reports 
detailing the results of the reviews to their boards of directors or equivalent governing bodies.  

The proposal also would amend Exchange Act Rule 17a-4 to require broker-dealers to 
preserve records made pursuant to proposed Regulation Best Execution. 

 

Additional Information: 

The public comment period will remain open until March 31, 2023, or until 60 days after the date of 
publication of the proposing release in the Federal Register, whichever is later. 


	Why This Matters
	How The Rules Would Apply
	Additional Information:
	The public comment period will remain open until March 31, 2023, or until 60 days after the date of publication of the proposing release in the Federal Register, whichever is later.