The Securities and Exchange Commission has proposed a new Regulation Best Execution that would establish a best execution standard, mandating that dealers in any transaction with a customer or a customer of another broker-dealer use reasonable diligence to determine the best market for the security and buy or sell so that the price is as favorable as possible.

The SEC commissioners voted 3-2 during the SEC’s Open Meeting on Wednesday to propose the regulation and solicit public comment.

The proposed rule, while applicable across equity and fixed income markets, would seem to have little impact on the municipal securities market as Municipal Securities Rulemaking Board Rule G-18 already established a best execution order for the muni market in 2015. The Financial Industry Regulatory Authority also has its own best execution rule for equity and fixed income markets that was developed in tandem with G-18, leading some dealer advocates question the need for the SEC to take this step.

“I haven’t seen any indication from the regulators that the MSRB best execution rule isn’t providing significant enough protections for individual investors with respect to municipal bond transactions or that it isn’t working,”  said Michael Decker, senior vice president for research and public policy at Bond Dealers of America. “Based on what I’ve seen so far, it looks like they haven’t really made a strong case for why this is necessary, especially given that there are already FINRA and MSRB best execution rules on the books.”

The proposal would require broker dealers to establish, maintain and enforce written policies and procedures reasonably designed to comply with the best execution standard and therefore would require the written materials to detail how they’re complying and how they will determine the best market and make routing or execution decisions on behalf of customers.

Broker-dealers that are engaged in conflicted transactions, that is, where a broker-dealer executes an order as principal, routes an order to or receives an order from affiliate for execution or provides or receives payment for order flow would now be required to document their compliance with the best execution standard and any arrangement in connection with payment for order flow.

They would also be required to review quarterly the execution quality of their customer transaction, compare it with the execution quality might have been obtained from other markets and revise accordingly their best execution policies and procedures including handling practices, and document the results of the review, the proposed rule sheet said.

It would also require broker-dealers to review annually their best execution policies and procedures, document such reviews and prepare and present written reports of the review to their board of directors and equivalent governing bodies.

The proposed rule would exempt a broker-dealer when another broker-dealer is executing a customer order against the broker-dealer’s quotation, when an institutional customer, exercising independent judgment, executes its order against the broker-dealer’s quotation or when “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,” the proposed rule said.

It also provides an exemption for “introducing brokers” from complying 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,” the proposed rule said. Introducing brokers would then be required to document the results of the review.

The proposal would amend Exchange Act Rule 17a-4 to require broker-dealers to maintain records in connection with Regulation Best Execution.

“The U.S. equity markets are incredibly efficient and resilient and investors, especially retail investors, have the greatest ease of access, lowest cost of trading and best execution in history,” said Kenneth Bentsen, president and chief executive officer of Securities Industry and Financial Markets Association.

Bentsen added that the SEC should take great care in its approach, and allow an adequate time for comments on this and other proposals put forth by the SEC Wednesday.