Best execution
The duty to seek the most favourable terms reasonably available for a client's trade, weighing price, cost, speed, likelihood of execution and settlement, not commission alone.
Where you will meet it
Best execution appears in 6 learning outcomes on the CFA syllabus. A few of them:
- Assess whether a firm's trading processes, disclosures and records meet good governance standards
“Good trading governance starts with a written trade policy that defines best execution and how it is monitored.”
- Explain the forces that pushed markets toward electronic trading
“Regulation encouraged competition among trading venues and required best execution, which favoured systems able to route orders across venues.”
- Show firm command of the Code and Standards by applying them to professional integrity cases under Standard III, Duties to Clients
“Under III(A), a pension manager's loyalty runs to the plan's beneficiaries, not the sponsor's officers; commissions belong to the client, so soft-dollar research must help that client's decisions, and directed brokerage is honoured with a warning if it may cost best execution.”
- Explain what market fragmentation is and why it matters
“Traders therefore rely on smart order routers and algorithms to search venues and to split orders, and regulators rely on consolidated data and best execution rules to link markets.”
Practise it
Practise best execution until it is automatic: questions that explain every wrong option.
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