At an Investor Advisory Committee meeting on June 10, 2021, SEC Chair Gary Gensler and SEC Commissioner Elad L. Roisman elaborated on recommendations for best execution and reform of the insider trading rule (SEA 10b5-1, "Trading 'on the Basis of' Material Nonpublic Information in Insider Trading Cases").

Mr. Roisman advocated for non-prescriptive guidance on best execution requirements, including (i) better articulating relevant factors, (ii) explaining key terms, such as "reasonably available," (iii) discussing methods to assess alternative execution venues and (iv) differentiating between types of order flow (e.g., institutional vs. retail). He said that monthly execution quality reports pursuant to Securities Act Rule 605 ("Filing and Use of the Offering Circular") have not been updated in 20 years and could be improved. Mr. Roisman also suggested that the SEC develop a separate standardized execution quality report to be issued monthly by retail broker-dealers, which would promote competition by "facilitating an apples-to-apples comparison of brokers by their customers."

Mr. Gensler reiterated his previous concern that a broker-dealer's best execution obligation may not be met by execution at the National Best Bid and Offer (or "NBBO"), which, he argued, fails to provide a "complete enough" representation of the market by ignoring dark pools and wholesalers. Mr. Gensler also highlighted previous recommendations for potential changes to 10b5-1 plans, including (i) a required "cooling off period" prior to a company insider's first trade after the adoption of a 10b5-1 plan, (ii) limitations as to when a 10b5-1 plan can be cancelled, (iii) disclosure requirements and (iv) restrictions on the number of 10b5-1 plans a company insider can adopt.

Additionally, SEC Commissioner Hester Peirce urged the Committee to consider a bifurcated approach to best execution: for retail investors, a "bright line" approach focusing on price; for institutional investors, a more flexible approach to reflect their varying priorities.

Primary Sources

  1. SEC Press Release: SEC Investor Advisory Committee to Meet Remotely on June 10
  2. SEC Statement, Gary Gensler: Prepared Remarks at the Meeting of SEC Investor Advisory Committee
  3. SEC Statement, Elad L. Roisman: Statement for Investor Advisory Committee Meeting
  4. SEC Statement, Hester M. Peirce: Remarks at Meeting of Investor Advisory Committee

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