I bumped into an old industry friend last week. We got talking about the state of the industry generally and agreed that everyone is having to take the whole concept of best execution a bit more seriously these days. Certainly in the UK the FCA has kicked off its “thematic review” and a number of fines are being doled out too. Best execution was the central plank in the original MiFID legislation, but has always been stymied by a lack of any universally agreed consolidated tape. What’s interesting now is that the FCA seems to be focussing on the actual outcome for clients rather than just insisting that firms maintain a documented best-ex policy. This is lifting the lid on exactly how tricky it is to best execute a client order, especially when you take into account volume discounts from exchanges, maker-taker rebates and concepts like asymmetric price slippage.
The real problem, however, still remains as the concept of best execution is all but meaningless to the man on the street. Putting the onus on the industry to show it performed well is one thing, but until the very end customer is empowered to question the executional prowess of the industry, best ex will remain as elusive as ever.