FINRA’s Regulatory Notice 26-15 represents a fundamental administrative and microstructural misstep that attempts to erect an expansive, centralized command-and-control auditing regime over an unfinalized Federal legal vacuum. By conditioning its sweeping Best Execution (BestEx) overhauls on the passive assumption that the SEC will completely rescind Rule 611 and dismantle locked and crossed prohibitions under Rule 610(e), a.k.a. Order Protection Rules (OPR), FINRA is prematurely prejudging open SEC rulemaking under File No. S7-2026-20. This regulatory overreach seeks to force broker-dealers to absorb the costs, documentation burdens, and liability of a self-inflicted structural collapse. A fundamental limitation for policymakers pursuing evidence-based regulations is that every quantitative model faces a harsh trade-off between tractability and reality; liquidity is a moving target that no static framework can capture. If the foundational anchors of Reg. NMS are dismantled, the National Best Bid Offer will be legally stripped of its enforcement teeth, degrading the public consolidated tape into a series of unlinked, disconnected trading “echo chambers” streaming conflicting, uncoordinated prices. In this fragmented landscape, the public tape functions solely as one of the sources of access, not a universal anchoring reference price to depend on for compliance. Attempting to pass prescriptive, check-the-box routing standards, transaction-level mandates, or artificial safe harbors is a mathematical and statistical impossibility. Any attempt by FINRA to dictate how independent firms handle price improvement, verify connectivity, or navigate internalization mechanics will fundamentally morph a self-regulatory organization into a central-planning command economy, which destroys free-market pricing mechanics. This heavy-handed intervention directly contradicts the SEC’s stated principle under the current administration to encourage competing market forces to maintain the orderly function of the market and minimize regulatory intervention. FINRA cannot legally or logically restrict members’ engagement in activities that are explicitly or implicitly permissible under the SEC's policy choices. * The Invalidation of Safe Harbors and the “Europeanization” of US Markets: Proposing compliance-driven safe harbors under FINRA Rule 5310 is a futile exercise. Once the OPR pillar collapses, the definition of a single “best market” ceases to exist. The market will shift toward a fractured, Europeanized framework reminiscent of Europe’s deeply flawed MiFID II calibration regime, where rigid mathematical models misfired, perversely driving institutional volume away from transparent lit exchanges and into dark, unregulated pockets. * The Illegality of Transaction-by-Transaction Auditing Mandates: FINRA lacks statutory authority to mandate the order-by-order best execution review standard. Attempting to enforce a microscopic, transaction-level checking process directly contradicts established federal regulatory precedent. In 79 FR 5592 (Footnote 711) regarding the Dodd-Frank Volcker Rule, the joint regulatory agencies – including the SEC, CFTC, Federal Reserve, OCC, and FDIC – unequivocally rejected a “transaction-by-transaction” approach as “unduly burdensome,” “impractical,” and “inconsistent”. Fabricating an order-by-order standard against unlinked books creates an impossible compliance nightmare plagued by sub-millisecond sequence drift and artificial audit anomalies within the opaqued Consolidated Audit Trail (CAT). * The Cross-Asset Asymmetry and Derivative Blind Spots: The SEC and FINRA are operating in complete denial by trying to treat the equity and options markets as isolated, separate ecosystems. Options market makers do not quote derivatives in a vacuum; they survive by instantly delta-hedging their structural inventory risk using underlying NMS stocks. Completely unlinking equity protections while keeping the Options Order Protection NMS Plan active creates an uncompensated market asymmetry. To manage risk, firms rely heavily on CFTC-regulated futures, exotic derivative products, and complex cross-border sweeps executed through foreign affiliated entities – such as short-selling 23-hour E-Mini futures on CME Globex – all of which operate outside the statutory scope of the SEC and FINRA. Any attempt to pass rigid, equity-only routing standards ignores these vital global hedging loops and forces severe synthetic quote widening, perversely inflating transaction costs for investors. * The Reality of Algorithmic Warfare and Private Internalization: Real-world market participants are not passive bystanders; they are actively counting their own securities inventory and margin constraints, as well as those of their opponents. Forcing firms to disclose or standardize their “secret sauce” – such as automated Smart Order Routers (SOR), signal detection tools, and real-time obfuscation techniques used to play active defense or offense against toxic liquidity – is an invasive overreach. In an unprotected market, forcing uniform compliance parameters eliminates the “Variety” factor among the 4Vs of Big Data, creating synchronized algorithmic echo chambers that escalate the probability of flash crashes and systemic default cascades. * Boilerplate Retail Waivers versus Tactical Discretion: FINRA possesses the clear statutory authority to prohibit blanket, pre-emptive “not held” disclaimers embedded in new retail account documentation. These boilerplate waivers act as a predatory legal shield, allowing firms to systematically stall retail orders to pocket wider spreads or facilitate internal matching while claiming “discretionary immunity”. However, this contractual boundary is separate from the live algorithmic battleground. FINRA must stay out of micro-regulating real-time tactical order handling, signaling flags, and mid-flight re-categorizations (“held” to “not held” downstream), because the SEC provides absolutely no framework to judge underlying intent by realized economic outcomes – such as net-effective price improvement – rather than by mechanical routing semantics. * Technology-Specific Guidance Traps for AI and Tokenization: Standard tools like Transaction Cost Analyzer (TCA) and SOR are not the holy grail. Real-world market participants are actively counting the securities inventory and margin constraints of themselves and their opponents. Policy makers must recognize this microstructural reality rather than prescribing certain trade practices, technologies, or demanding additional data reporting requirements. Any added burden heightens the cost to transact in the US, eroding the competitiveness of US markets while completely failing to improve the trust factor if the market is left without OPR. FINRA should refrain from providing any BestEx guidance specific to the use of AI or tokenized securities. Before Congress and the Commissions sort through these jurisdictional entanglements, FINRA can only observe policy directions – not develop independent rules. Because an unprotected, crossed market tape strips broker-dealers of an objective baseline, FINRA must reject this arbitrary guidance expansion. FINRA’s objective enforcement boundaries would be narrowed to merely verifying the mechanical accuracy of public disclosures under SEC Rule 605 and Rule 606. If the regulators’ true objective is to deemphasize speed as a factor for trading success, the correct mechanism is mandating the use of time-lock encryption to make market data available securely in synchronized time across all venues. If the goal is to eliminate data-fee waste and protect the public tape from rent-seeking behaviors, the Commission must implement a Venue Trading Volume Threshold for Protected Quotes alternative (e.g., a rolling 1% ADV benchmark). This surgical model strips protection from illiquid platforms while anchoring a hyper-liquid, protected core tape that market makers can safely hedge against. Additionally, instead of implementing complex compliance requirements that benefit ONLY the lawyers and big consulting firms while exacerbating the gap between the “Haves” and “Have-Nots,” the Commission should adopt a Copyright Licensing Mechanism. By treating market data rebate incentives as standardized copyright royalties – drawing direct policy lessons from the music industry’s 4-part test objective rate-setting models – the clearinghouse can parse encrypted metadata tags to generate a robust cash cushion to absorb defaults, enhance capital velocity, and permanently lower the transaction cost barrier in the US. FINRA can, and should, warn and remind the Commission of how the SEC’s attempt to completely rescind OPR is fundamentally faulted, but cannot legally or logically demand that broker-dealers expend private capital to absorb and correct the fallout of that structural policy misstep. Download our full 45-page comment letter to FINRA at: https://www.databoiler.com/index_htm_files/DataBoiler FINRA BestEx 20260925.pdf

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Bitwise CIO Matt Hougan says the SECs new crypto rules are only a first step in unlocking Wall Street. While the SECs August 18 proposal creates a framework for crypto investment contracts up to 75M USD over 12 months, the real barrier is outdated trading rules like Rule 611, which still prevents DeFi integration. https://cryptoslate.com/secs-latest-crypto-rules-only-open-a-few-of-wall-streets-million-doors-bitwise-cio-matt-hougan/ #Web3 #Blockchain #Regulation