Achieving Market Integration

As the FSA pointed out in CP 154, the UK best execution policy must fit within the

regulatory framework of the European Union. As such, the proposals in the Consultation

Paper were made somewhat conditional, contingent upon the outcome of the proposals

being considered by the European Union at the same time. For this reason, and because of

its broader impact on European market integration in general, we now turn to regulation of

best execution at the European level.

Best execution in the United Kingdom

To provide best execution, a firm must:

1. Take reasonable care to ascertain the price which is the best available for the

customer order in the relevant market at the time for transactions of the kind and

size concerned; and

2. Execute the customer order at a price which is no less advantageous to the custo-

mer, unless the firm has taken reasonable steps to ensure that it would be in the

customer's best interests not to do so.

Source: FSA Handbook of Rules and Guidance: Conduct of Business, Section 7.5.

5.9 European Union regulation

Historically, there has been no standard definition of best execution in the European Union.

Unlike national jurisdictions, and in particular contrast to the US experience, there is no

single regulator to co-ordinate or direct changes to regulation. To the extent that such an

authority can be argued to exist, this function lies with the Commission, and now the

Committee of European Securities Regulators (CESR). The actions and products of these

organs, however, are prone to political compromise along national lines, and progress in

developing cross-market policies such as best execution has been slow. Each country in

Europe has operated under its own concept of best execution, making use of terms with

differing emphasis and levels of specificity. Of the fourteen countries represented below,

seven make specific reference to ``price'' (Austria, Denmark, Germany, Greece, Italy,

Norway and the UK), while the remaining six make less specific references, using terms

such as ``best conditions'' (Belgium) or ``best advantage'' (Ireland). In all cases, the standard

is qualified in terms of relevant markets or availability.

Best execution in other European countries

Austria `` . . . at best price on the relevant market within a reasonable

period of time . . . ''

Belgium ``Orders must be executed as rapidly as possible and at the best

conditions.''

Denmark `` . . . a securities dealer must always have a universal obligation to

ensure the customer the best possible price''

Finland `` . . . shall execute . . . in the customer's best interest without undue

delay.''

Chapter 5: Comparing Approaches 59