Better than best execution? The Financial Services Authority’s new proposals to reform UK best execution requirements
| DOI | https://doi.org/10.1108/13581980310810390 |
| Date | 01 March 2003 |
| Published date | 01 March 2003 |
| Pages | 37-44 |
| Author | David Capps |
| Subject Matter | Accounting & finance |
Better than best execution? The Financial
Services Authority’s new proposals to
reform UK best execution requirements
David Capps
Received: 14th October, 2002
Wilmer, Cutler & Pickering, 4 Carlton Gardens, London, SW1Y 5AA, UK;
tel: +44 (0)207 872 1036; fax: +44 (0)207 839 3537; e-mail: david.capps@wilmer.com
David Capps is a partner in the Financial
Services group of Wilmer, Cutler & Picker-
ing (WCP), based in the firm’s London
office. His practice focuses on financial
services advisory, disciplinary and enfor-
cement matters.
Prior to joining WCP in September, 2002,
David Capps was national head of the
Financial Regulatory Group at DLA where
he was responsible for its UK non-conten-
tious and contentious financial regulatory
practice. His previous experience includes
acting on behalf of the Financial Services
Authority (FSA) in relation to numerous
High Court enforcement and other disciplin-
ary and litigious matters, and advising and
reporting on other contentious issues and
matters. He also advised on enforcement
issues arising during the Financial Services
and Markets Act 2000 consultation.
ABSTRACT
The Financial Services Authority’s (FSA)
proposals to revise best execution obligations
will involve an extensive departure from exist-
ing practices. In particular, achieving the ‘best
price’ will no longer be paramount. Firms will
have to factor into the best execution equation
other direct and indirect costs of trading which
are relevant to achieving ‘the best outcome’ or
‘quality of execution’ for the consumer. This
will make the assessment far more complex.
The existing timely execution rule, making
immediacy of execution the benchmark, is likely
to be scrapped, to be replaced by an obligation
to deal at a time best calculated to deliver the
desired result for the customer. The existing
SETS ‘safe harbour’ may also be removed and
there will be extensive new customer disclosure
obligations in relation to firms’ execution poli-
cies and procedures, including information as to
deal flow through potential individual execution
venues, and execution specific disclosures of con-
flicts of interest.
Firms will also be obliged to review at least
annually their execution arrangements and
make changes if in the interests of their custo-
mers, and the FSA proposes rigorous transac-
tion monitoring obligations to ensure that the
revised best execution requirements are being
met in practice.
INTRODUCTION
The UK Financial Services Authority’s
(FSA’s) recent consultation paper
1
proposes
significant changes in the obligations of
firms to provide their customers with ‘best
execution’. While on the one hand, the
proposals are designed to keep pace with
market developments, they represent a
major departure from existing ‘best execu-
tion’ rules, and have potential implications
not only in terms of how trades must be
executed, but also from the perspective of
Page 37
Journal of Financial Regulation and Compliance Volume 11 Number 1
Journal of Financial Regulation
and Compliance, Vol. 11, No. 1,
2003, pp. 37–44
Henry Stewart Publications, 1358–
1988
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