Best Execution

When a broker executes a trade for a client, it can often choose between different exchanges, trading venues and market makers. Best execution rules require it to act in the client’s interest when making these choices.

Price is usually the most important factor, but not the only one. Firms must also consider costs, the speed and likelihood of execution and settlement, the size of the order and any other relevant factors. For retail clients, the total cost, combining price and costs, is often given the greatest weight.

For example, a broker routing a client’s order to a venue offering a slightly worse price because it receives a payment from that venue could breach best execution requirements.

Best execution is required by regulators in many markets, including under MiFID II in the European Union and FINRA rules in the United States. Firms must have execution policies, monitor the quality of their execution and review it regularly.