Best Execution Obligations
Chapters in this video
- 0:00 The "as favorable as possible" standard versus lowest price
- 0:47 Agent or principal: no exception to the duty
- 2:07 The five complete routing factors
- 3:21 Sam's quarterly, security-by-security review
- 4:19 Interpositioning: prohibited unless the customer benefits
- 5:29 Mutual funds and the prompt routing rule
- 6:54 Closed-end funds and ETFs need the full analysis
- 7:21 Rapid-fire exam recap
What this video covers
- Why "as favorable as possible under prevailing market conditions" is the true best execution standard, and why "lowest price" is a deliberate exam trap
- The five factors a firm must weigh completeally when routing orders: character of the market, size and type of transaction, number of markets checked, accessibility of the quote, and order terms and conditions
- Why the best execution duty applies with equal force whether the firm acts as agent or principal, and the nonexistence of any principal-trade exception
- How often and with what granularity a supervisor must conduct the regular and rigorous review: at least quarterly, security by security, and separated by order type
- When interpositioning (inserting a middleman broker-dealer) is prohibited versus permitted, and why the burden of proving customer benefit always falls on the firm
- Why best execution for mutual funds means prompt routing, not share-class selection or break point capture, which land under suitability and Regulation Best Interest duties
- The critical product-type distinction that closed-end funds and exchange-traded funds (ETFs) trade on exchanges and therefore require the full best execution analysis
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