Best execution
Here, we provide links to the information on best execution:
MiFID requires that firms executing orders, or who place orders with other entities for execution when providing the service of portfolio management, or who transmit orders to other entities for execution when providing the service of reception and transmission of orders, must have arrangements in place to take all reasonable steps to obtain the 'best possible result' for their clients. The best possible result should be determined with regard to the following execution factors: price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of an order.
As part of these arrangements, the firm must have a policy. When establishing its policy, a firm should determine the relative importance of the execution factors, or at least establish the process by which it determines the relative importance of these factors, so that it can deliver the best possible result to its clients. For retail clients, MiFID provides that price and the costs related to execution will be the most important factors. Ordinarily, we would expect price to merit a high relative importance in obtaining the best possible result for professional clients as well. Appropriate information about the firm's policy should be provided to clients.
The new rules on Best Execution
The new rules on Best Execution are set out in COBS 11.2 in the FSA Handbook.
FSA publications
DP06/3: Implementing MiFID's best execution requirements (May 2006)
In this paper, amongst other matters, we explained the MiFID requirements and focussed discussion on the key challenges and solutions to meet those challenges for implementation.- CP06/19: Reforming Conduct of Business Regulation (October 2006)
Chapter 16, 'Dealing and Managing', in CP06/19 proposes an 'intelligent copy-out' approach to the implementation of the MiFID provisions relating to Best Execution. - PS07/2: Implementing the Markets in Financial Instruments Directive (MiFID) (January 2007)
Chapter 7 of CP06/19 states that respondents had agreed with the intelligent copy-out approach and we confirmed our implementation on this basis. - PS07/6: Reforming Conduct of Business Regulation - Feedback on CP06/19 and CP06/20 (May 2007)
Chapter 14 of PS O7/06 provides feedback on other points raised in CP06/19 on which decisions were not made in PS07/2. - PS07/15: Best Execution - Feedback on DP06/3 and CP06/19 (part) (August 2007)
PS07/15 provides feedback on DP06/3 and CP06/19 – matters 'deferred' whil e st CESR and the Commission completed their work in this area. - CP07/9: Conduct of Business regime: non-MiFID deferred matters
Chapter 13 of and corresponding PS07/18 discuss the application of best execution to non-MiFID scope business.
CESR work at Level 3
CESR has published its Q&A document on Best Execution – presenting CESR's answers to practical questions raised by firms and competent authorities about how firms should be complying with MiFID (May 2007).
Best Execution in the Level 1 and Level 2 MiFID text
MiFID comprises two levels of European legislation. 'Level 1', a Directive of the European Parliament and Council, was adopted in April 2004. In several areas, including best execution, Level 1 provides for its requirements to be supplemented by 'technical implementing measures' – known as Level 2 measures.
Article 21 in the MiFID Level 1 Directive Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 details the 'Obligation to execute orders on terms most favourable to the client'.
Articles 44, 45 and 46 of the Level 2 Directive Commission Directive cover 'Best execution criteria', 'Best execution: application to portfolio management and reception and transmission of orders' and 'Execution policy' respectively.