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In December, the Commission proposed a new best execution standard for broker-dealers — “best ex” for short. What does that mean?

“Best ex” might sound like you’re best friends with your ex. It’s actually a central obligation for brokers: simply to seek best execution when you, their customers, are trading securities, like equities, fixed income, options, or crypto security tokens.

Though best execution has been an obligation for decades, when I started at the SEC, I was surprised to learn that we didn’t have our own “best ex” rule, outside of self-regulatory organization rules.

I think a best execution standard is far too important, too central to protect investors and the SEC’s mandate, not to have on the books at the Commission as well.

Our proposal makes important enhancements regarding brokers’ core duty to everyday investors.

Say you use a broker, through a brokerage app, that receives payment for order flow from an off-exchange wholesaler operating in the dark market. That presents a conflict of interest. This raises a question about how brokers handle their best execution obligations in light of those conflicts that may lead them to place their own interests ahead of your interests.

Well, how would this proposed regulation – “best ex” – address such conflicts?

Under the proposal, so-called introducing brokers — those are the ones who take your orders and send them off to executing brokers, often those off-exchange wholesalers in the dark markets — the introducing broker would have certain additional best execution requirements. Look, that broker is who you hired, and they would remain on the hook, rather than “outsourcing” the best execution obligation to the executing broker in the dark market.

Further, your broker would have to review the execution quality it actually gets from the wholesaler. Makes sense. In particular, your broker would have to compare that execution quality with what it might obtain from other markets. Your broker couldn’t just assume that the wholesaler paying for that order flow is providing the best execution quality.

On top of this, the proposal specifies in some detail the policies and procedures that all brokers would need to have when it comes to best execution.

This proposal is designed for you – the investing public – to get best execution, so please weigh in. We benefit greatly from your feedback. We’re accepting comments through the end of March.

Best ex might just turn out to be investors’ new bestie.