Every trading team wants to deliver the best outcomes. But for heads of trading and compliance, it’s not just about performance, it’s also about proving it. 

That’s where best execution comes in. It’s the standard that keeps firms aligned with both client expectations and regulatory requirements. And while the concept is well known, achieving it consistently and demonstrating that you have it isn’t always straightforward. In this article, we’ll be breaking down what best execution compliance is all about, why it matters to traders, and practical steps for firms to fulfill their best execution obligations. Read on. 

Best Execution Regulation Explained

Trading teams have two core responsibilities to juggle: 

1. Deliver the best possible outcomes for clients on every trade. 

2. Meet legal and regulatory requirements by executing trades in a fair, responsible, and transparent manner. 

To meet these best execution obligations, traders must diligently seek the most favorable trade outcomes available for their clients, while also proving that they took every reasonable step to do so. This includes ensuring trades are transparent and reviewable, should regulators take a closer look. So, while best execution is about monitoring and maintaining trade data in a way that meets regulatory expectations, it’s equally about continuously improving and optimizing trade outcomes. The better the trades, the better the results for clients, and the more defensible your execution strategy will be in the eyes of regulators. 

Some key best execution regulations for trading teams to be aware of are SEC Rule 605 and Rule 606 in the United States, as well as the Markets in Financial Instruments Directive II (MiFID) in the European Union and the United Kingdom. 

Best Execution Obligations

When thinking about how we view the quality of a trader’s execution, best execution teams typically consider the following: 

1. Price: Did the trader obtain the most favorable price reasonably available in the market at the time? 

2. Speed of execution: Was the trade executed quickly enough to secure the desired price before market conditions changed?  

3. Costs: What additional costs were incurred by the client in achieving the trade (e.g., commissions, spreads, taxes, and fees)? 

4. Order size and quantity: Were the size and number of orders appropriate for the client’s goals? 

5. Market impact: Did the trade affect market price due to its size or timing, and was that impact managed? 

6. Likelihood of execution: Was the trade actually executed and settled as intended? 

So, what practical steps can traders and financial firms take to ensure they are fulfilling their best execution responsibilities?  

• Define clear policies that outline how best execution is measured and documented across trade types and asset classes. 

• Conduct regular post-trade reviews to evaluate execution quality and identify areas for improvement. 

• Maintain well-organized, complete trade data that can be easily retrieved and reviewed during audits or regulatory inquiries. 

• Review counterparty and venue performance to ensure your routing decisions are in line with client outcomes. 

• Partner with a vendor capable of analyzing trade data in a meaningful, scalable way and streamlining best execution workflows across teams. 

Conclusion

While these steps lay the foundation, many firms are finding that current systems and manual processes aren’t built for today’s expectations. Staying ahead means adopting tools that help you analyze execution quality, identify meaningful insights from your data, and document your process in a defensible way. 

If you’re exploring how to modernize your best execution workflow, Surveyor’s next generation best execution analytics tool just launched and is equipping firms to meet today’s demands with daily analytics, instant calculations, and an intuitive interface.  Contact us here to learn more.