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Best execution 

01 December 2011

Impact Amber traffic light

Medium impact - extra compliance obligations to produce more information about execution

Other areas to consider

Best interests of client; Pre-trade transparency; Trade reporting

Current MiFID rules

 Best execution obligation for firms executing orders

When executing orders (whether on a regulated market or OTC), a firm must take all reasonable steps to obtain the best possible result for its clients taking into account the execution factors.  The execution factors are price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of an order.

A firm must establish and implement effective ‘execution arrangements’ for complying with the best execution obligation. In particular, it must establish and implement an order execution policy to allow it to obtain the best possible result for its client orders

Best execution obligation for firms placing orders

A firm providing portfolio management services must act in accordance with the best interests of its clients when placing orders with other entities for execution that result from decisions by the firm to deal in financial instruments on behalf of its clients.

A firm providing the service of reception and transmission of orders must act in accordance with the best interests of its clients when transmitting client orders to other entities for execution.

A firm must provide “appropriate information” to clients on its order execution policy. This may be a summary of the salient points from the policy, rather than the full detail.

MiFID Level 1 Directive Arts: 21

MiFID Level 2 Directive Arts: 44 and 45 and recital 67

FSA rules

COBS 11.2


Proposed changes
Draft Directive
Recital (59) & (60)
Article 27 (2)

In response to feedback from investors in different Member States regarding the quality of information they receive in execution policies adopted by firms, the draft Directive proposes:

  • Strengthening the best execution requirements to ensure that firms provide appropriate information to clients on their order execution policy, including explaining clearly, in sufficient detail and in a way that can be understood by clients, how orders will be executed by the firm for the client.
  • obliging investment firms to summarise and make public on an annual basis, for each class of financial instruments, the top five execution venues where they executed client orders in the preceding year. ESMA will provide technical standards on this.
  • Requiring execution venues to make available to the public data on execution quality of transactions on each venue. ESMA will provide technical standards on this.
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