Best Execution

Price matters, but so do costs, speed, likelihood of execution, order size and settlement. A firm sets out an execution policy that explains which venues and brokers it uses and why, tells clients about it, and follows it. It monitors results, compares fills against benchmarks and reviews its policy at least yearly. Rules differ by market: MiFID II in Europe requires firms to take all sufficient steps and to publish annual summaries of its top execution venues, while US rules require reasonable diligence to find the best market. Conflicts matter, since a broker paid by a venue for routing orders may be tempted to favour it. For retail clients, total consideration (price plus costs) normally ranks first. The duty is about process and evidence, not a guarantee of the best price on every trade.

A wealth manager routes client share orders through one broker that pays it a rebate. A review of last year's trades compares execution prices with the market at the time and finds clients got slightly worse prices than at two other venues. The firm changes its policy to rank venues by total cost to clients, discloses the rebate and records the checks it makes each quarter.