Market Watch 45 confirms that the FCA is currently undertaking a thematic review of best execution in different markets.
Although the findings will not be published until later this year, as the article also takes the opportunity to update industry ‘on some areas where firms may have mis-understood the requirements’ it may well be that the review found significant shortcomings – and indeed there are some bulleted issues on page 2. These include a reminder that best execution also applies to OTC trades and that specific instructions from a client does not override the basic concept of ‘best execution’.
Those operating in CFDs, spread-betting and rolling spot forex contracts for difference get a particular mention. Investment firms are reminded of the need to take into account the execution factors (see COBS 11.2.1) as well as the characteristics of their clients (this being one element of the ‘best execution criteria’ (COBS 11.2.6)) that a firm must consider when determining the relative importance of said execution factors. The need for firms to have in place an appropriate policy in respect of either execution of orders or, for most portfolio managers, the transmission of orders to a suitable executing broker is also mentioned.
The article concludes by reminding all that the FCA will seek to take further regulatory action if a firm is in breach of the rules.
As the best execution article is less that three pages in length we would recommend that firms set aside time to review it and to consider the merit of undertaking a review of their own processes and procedures relating to order execution.
