TR14/13 - Best execution and payment for order flow

Published: 31/07/2014     Last Modified: 31/07/2014

We publish our findings from our thematic review of best execution and payment for order flow.

Why are we issuing this thematic review?

This paper presents our findings from the review of best execution and payment for order flow (PFOF). Delivering best execution is fundamental to market integrity and to the delivery of good outcomes for clients who rely on agents to act in their best interests. These outcomes are also underpinned by a range of relevant rules and guidance, which set the parameters within which firms must operate.

Who is this thematic review aimed at?

This document is relevant to all firms that execute, receive and transmit or place orders for execution, including investment managers. Although this review did not cover investment managers, many of its conclusions will also be of interest to these firms, given their need to act in the best interests of their underlying clients.

TR14/13 - Best execution and payment for order flow

What are the next steps?

What will we do?

We will shortly be writing to all the firms in our thematic sample to provide individual feedback on our findings. We will require firms to take immediate action to address all relevant areas of our findings. As well as asking them to confirm they are no longer receiving PFOF, we will require confirmation that firms fully understand the scope of their best execution obligations to clients and the steps they are taking to reflect these obligations in their execution arrangements.

What do you need to do next?

Read the review to find out more about how all investment firms should review their arrangements for delivering best execution and ensure that your firm is not receiving PFOF. Firms need to ensure that business practices are fit for purpose and these are supported by appropriate second line of defence controls.

All firms also need to assess the risks and issues identified in this report in the context of future regulatory developments. Additional obligations in the recast Markets in Financial Instruments Directive (MiFID II) are intended to address some of the specific weaknesses observed in this work, in particular regarding the adequacy of monitoring. So firms need to improve their current systems and controls and be ready for the implementation of future policy change.

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