NYSE Arca Proposes New Best-Execution Rule

NYSE Arca proposed a new best-execution rule requiring its members and their associated persons to use "reasonable diligence" to ascertain the best market for a customer's security and execute the trade at the most favorable price obtainable under prevailing conditions. The proposed rule resembles corresponding rule already in place at FINRA.

The rule is explicitly modeled on FINRA Rule 5310 ("Best Execution and Interpositioning") NYSE Rule 5310 (see prior coverage) and Nasdaq PHLX's General 9, Section 11. Like the FINRA rule, the new NYSE Arca rule lists factors for evaluating reasonable diligence - the character of the market (price, volatility, liquidity, communications pressure), the size and type of transaction, the number of markets checked, quotation accessibility, and the order's terms - and it bars interpositioning a third party in a way inconsistent with the best-execution duty. Also tracking FINRA, the proposal puts the burden on retail firms to justify routing through an intermediary, and it makes clear that inadequate staffing or reciprocal business arrangements cannot excuse executing away from the best market.

NYSE Arca proposed the rule as non-controversial, effective on filing and operative 30 days later.