Best Execution and Payment For Order Flow

Following a thematic review of best execution (see Regulatory Roundup 53) the FCA has now published the results of its findings – TR14/13: “Best execution and payment for order flow”.

As will be apparent from the title, the FCA took the opportunity to incorporate into the review the practice of Payment for Order Flow (PFOF) to see how firms have responded to the Guidance issued in May 2012.


The review did not involve questioning or visiting buy-side firms but the Executive Summary makes it clear that the paper is relevant to all firms ‘including portfolio managers’.

The findings from the review, which took in a total of 36 firms ranging from CfD providers to wealth managers, makes depressing reading with the general overview that:

  • most firms are not doing enough to deliver best execution
  • firms need to improve understanding of the scope of their best execution obligations

We are reminded that ‘best execution’ is not the same as ‘best price’ but instead takes in a range of ‘execution factors’.

FCA expectations are that ownership of best execution monitoring resides with front-office but with an adequately equipped second line of defence to challenge conclusions reached by execution desks.

As for PFOF, the FCA view is that the practice creates a conflict of interest between a firm and its clients. The paper details arguments put forward by the Futures and Options Association and the Wholesale Markets Brokers Association in favour of the practice but this was rejected by the FCA.


All investment firms should review their best execution arrangements (and PFOF if relevant). Note that senior management also have a role to play in demonstrating the delivery of best execution on a consistent basis.

Firms should note that the findings have led the FCA to include both best execution and PFOF as two of the potential competition areas which the Regulator may study in more detail, so these issues will remain on the FCA radar as part of its wholesale conduct strategy which includes the need for “firms to put their clients’ best interests at the heart of their business strategy”.

How can we help?

Complyport’s experienced compliance consultants can help firms implement robust systems and controls to help meet your Best Execution obligations, as well as providing effective solutions to meet governance and conduct requirements. Speak to Peter Carlisle or Paul Grainger for more information.