"From Regulation NMS to MiFID II: Rethinking Best Execution in Fragmented and Latency-Sensitive Markets

This paper examines the legal and economic foundations of best execution under Regulation NMS (U.S.) and MiFID II (EU), highlighting the gap between formal equality in market data access and the reality of technological asymmetries. Drawing on key academic sources cited by regulators, it contrasts the legal vision of consolidated tape transparency with empirical evidence from proprietary ITCH/EOBI datasets. The analysis introduces the hot potato effect—a queue-jumping microstructural pattern observable at the intra-penny level—showing how high-frequency trading strategies can erode the intended protections of best execution. By bridging legal theory and market engineering, the work suggests that regulatory frameworks must evolve to address latency, venue microstructure, and strategic internalization, which replicate traditional dealer behavior in a modern electronic environment.