Best Execution Obligations

What this video covers

• Why the duty of best execution applies equally to agent transactions and principal transactions, and why capacity is the first exam trap
• What non-delegable means: a firm can never transfer its best execution obligation to another broker-dealer, even when routing the order elsewhere
• How FINRA defines best execution using multiple factors (character of market, size and type, markets checked, accessibility of quotations, terms and conditions), not simply the lowest price
• Why routing orders solely for the highest rebate without considering speed or likelihood of execution violates the reasonable diligence standard
• What regular and rigorous reviews require when a firm skips order-by-order review: at minimum quarterly, on a security-by-security basis, separated by type of order
• Why payment for order flow (PFOF) is permitted but triggers heightened scrutiny, and how the exam tries to trick you into calling it prohibited
• When interpositioning is allowed: only if the third party mathematically produces a better price for the customer, never merely to collect an extra markup