has such a structure in the form of the European Commission and CESR, the degree to
which these organs are able to carry out the three functions, free from national interference,
remains to be seen.
The remaining columns address the characteristics of the policies in the three jurisdic-
tions (assuming current proposals survive largely intact). The table shows general consensus
on certain issues, such as the need for multi-market, rather than single-market, standards and
the need to consider customer costs. Each of the jurisdictions has also adopted a largely
process-based assessment of firm compliance rather than a trade-by-trade approach. The
primary difference in approaches is the degree to which price is used as a benchmark for best
execution. Though each jurisdiction makes reference in some manner to price and makes
room for some degree of flexibility, the United States remains apart in its approach, which
makes specific reference to a benchmark and requires firms to justify deviation from it.
Overall, though, the approaches are probably more similar than they are different. What
is not readily apparent from Table 5.1 is where the approaches are becoming more, or less,
similar to each other. The abandonment of the two-step, relevant market approach by the
United Kingdom and the European Union marked a clear and important trend towards
multiple market standards, at the same time that the inclusion of costs in the calculation
brought all three jurisdictions into alignment with the end result for the customer. Aban-
donment of the SETS safe harbour, on the other hand, marked a step by the United King-
dom away from price-based benchmarks and towards a more conceptual approach, an
approach shared by the European Union.
This survey of best execution in different jurisdictions highlights the various approaches
taken to the problem of best execution. In the United Kingdom, development of the policy
has been driven by changes in the national market structure from a single exchange to
multiple exchanges. The policy has adjusted periodically to take account of changes to this
structure and to new technology, but without taking specific measures to consolidate price
or trading information from amongst the various venues. The UK policy, then, has been
developed in the context of a shift from a single-exchange environment to a fragmented
In the United States, consolidation of markets through linkages was legislatively man-
dated, with a view that transparency, fragmentation and best execution are inextricably
linked and can only be addressed together. This multiple-exchange environment led to a
different set of issues such as ``reasonable availability''. These issues will become increas-
ingly relevant in markets such as the United Kingdom and the European Union as the
movement towards consolidation and linkage makes these markets appear more like a
network and less like a patchwork of isolated exchanges.
In Chapter 4, a framework was established for analysing the effectiveness of a best
execution policy, and we can use that standard to evaluate the approaches in these jurisdic-
tions. Of the three, the US policy probably best meets the standards, due to its closer focus on
price and the existence of the NBBO as a visible benchmark. For the policies proposed for the
United Kingdom and the European Union, potential enforceability problems are apparent.
Given the customer protection orientation of best execution, the absence of a clear bench-
mark may sacrifice too much enforceability for the sake of flexibility.
64 Part I: Best Execution
This Chapter has also aimed to show how policies take form in the real world. Here,
policies are the result of compromise and negotiation, and policy makers do not have the
luxury of political seclusion that theoreticians enjoy. Herein lies a lesson not to be forgotten:
the political and regulatory processes and the market environment often determine the
final shape of regulatory policy.
Chapter 5: Comparing Approaches 65

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