The applicability of the ICE case is somewhat limited by the circumstances surrounding
the trading. The fact that the shares were not publicly quoted, for example, obviates any
reference to the SETS price or any multiple market benchmark. Nonetheless, it does provide
insight into the application of fiduciary duty (and to a degree the shingle theory) to best
execution in the United Kingdom. There have been few recent cases in the United Kingdom
in which best execution is the central issue, and so future cases under the revised regula-
tions will be of particular importance in gaining insight into how the rules will be inter-
preted and applied in practice.
The foregoing review of recent decisions is useful in providing insight into the reasoning
which underlies the interpretation of best execution. By understanding the logic behind the
interpretation, we gain a better understanding of the practical application of the regula-
tions. This examination does not, however, imply that best execution is fundamentally a
legal issue which can be solved through redress in the civil courts. As was noted in Chapter 2,
civil remedies are only useful, indeed are only available, when the customer knows (and can
show) that he has not received best execution. This is likely to be rare, given the customer's
inherent dependence on his broker and trader, and the three cases described above are as
noteworthy in this respect as they are for their legal value.
6.5 Competition issues
The facilitation of competition in the marketplace is of such importance in financial
regulation that it is often enshrined in legislation. In discharging its duties, the FSA is
required by statute to have regard to, amongst other things, the ``desirability of facilitating
innovation in connection with regulated activities''
and the ``desirability of facilitating
competition between those who are subject to any form of regulation by the Authority''.
In the United States, a similar imperative appears in the Exchange Act. Section 23(a) of the
Act requires the SEC to consider the impact on competition of the rules it promulgates.
In an environment characterised by competing exchanges, the application of best
execution policy inherently impacts upon competition and innovation within the market-
place. The performance of an exchange is often considered in terms of its liquidity, the flow
of orders which interact with one another. It is in this respect that best execution touches on
market fragmentation and market structure.
Put simply, fragmentation potentially occurs when a security trades simultaneously in
more than one venue (exchange, alternative trading system, or other organised venue).
Fragmentation is not necessarily a bad thing as long as the benefits of a consolidated
market are preserved, as a report by the London School of Economics has indicated.
FSMA 2000, Section 2(3)(d).
FSMA 2000, Section 2(3)(f).
Securities and Exchange Act of 1934, Section 23(a)(2).
Board, John, Charles Sutcliffe and Stephen Wells. Market Regulation in a Dynamic Environment,
London School of Economics, September 2002, p. 9.
70 Part I: Best Execution