Best Execution Obligations
Chapters in this video
- 0:00 The best execution mandate and Carla the customer
- 1:52 Judging reasonable diligence: Sam the supervisor's five factors
- 2:51 Interpositioning: the illegal middleman trap
- 4:09 The broker's broker exception and the burden of proof
- 5:09 Payment for order flow: legal but with strings attached
- 6:38 Rapid-fire exam recap
What this video covers
- The best execution mandate and why it applies to all customer orders regardless of how they are received
- The five factors of reasonable diligence: character of the market, size and type of transaction, number of markets checked, accessibility of the quotation, and terms and conditions of the order
- Illegal interpositioning: adding an unnecessary middleman that results in a worse price for the customer
- The broker's broker exception: when using a third party is permitted because it actually improves execution quality
- Why the burden of proof for justifying interpositioning rests on the member firm, not the customer
- Payment for order flow (PFOF): why it is permitted, why it never excuses poor execution, and where it must be disclosed
- How to distinguish between legal routing decisions and violations when audit scenarios appear on the exam
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