The FSA (UK) published 2006-11-03 its General Counsel’s Division’s legal advice regarding the scope of the best execution duty under MiFID. The advice was not prepared on the basis that it should be used or relied upon by persons other than the FSA (UK) and those reading it should if necessary take their own advice if they are unsure how the directive will apply to their circumstances.
Summary
1. This note considers the scope of the best execution duty under MiFID.
2. It is generally accepted that:
• there is a general duty of best execution;
• it applies only in the course of providing a service to a client, not to a firm’s proprietary trading;
• it does not apply to transactions on exchange and between two exchange members (Article 42(4));
• it does not apply where there is a specific instruction from the client, when the firm must execute in accordance with the instruction;
• it need not be given to an eligible counterparty, including a fund manager, unless the counterparty has requested that it should.
3. This note considers two further propositions, that:
• it does not mean that an investment firm may only ever quote the best execution price;
• nor does it outlaw dealing on an ‘RFQ’ (request for quote) basis, even where there has been no opting out of best execution or transaction-specific instruction.
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