Best Execution

Financial Industry Regulatory Authority (FINRA) Rule 5310 requires broker-dealers to use reasonable diligence to find the best market for a security and execute at the most favorable price for the customer.

Factors Considered

Factors considered in evaluating best execution:

• Price improvement opportunities
• Speed of execution
• Size of execution
• Likelihood of execution (for limit orders)
• Transaction costs
• Customer needs and expectations

Key Rules

• A firm cannot delegate its best execution obligation to another broker-dealer
• Firms must conduct regular and rigorous reviews of execution quality
• Payment for order flow arrangements do not alter best execution obligations

Exam Tip: Gotchas

• Best execution does not mean the absolute best price on every trade. It means the firm used reasonable diligence to obtain the most favorable terms under the circumstances. The exam tests the "reasonable diligence" standard vs. a guarantee of the best price.
• Payment for order flow (PFOF) creates a conflict of interest with best execution, but does not automatically violate it.