Financial Education

Part of the responsibility of any investment manager is to seek the best possible execution for clients. Best execution is the trading strategy that maximizes the value of the client’s portfolio, subject to the investor’s objectives and constraints.

Some characteristics of best execution include:

• A tie to the investment decision (obtaining the right price or capitalizing on the information)
• Inability to know what the best execution will be prior to the actual execution, but an ability to measure and analyze the execution afterward
• A component of complex practices and relationships that are undergoing continuous refinement

To help achieve best execution, firms should establish processes around maximizing the asset value of client portfolios, and establish guidelines for measuring and managing execution. The compliance with these procedures should be documented and disclosed to clients.

Firms should also disclose general information about their trading techniques, venues and agents and also any potential conflicts of interest that may result.

For more information, see all articles on: Active Management, Governance, Institutional Investing, Investing in Stocks, Passive Management, Portfolio Management, Risk Management, Trading Execution

See also:

Crossing Trades Internally

Execution or Transaction Costs

Agency Trades

Using VWAP to Measure Transaction Costs

Trading Tactics