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I have found no commonly agreed definition of "Best Execution" and suspect that it means (vastly) different things to different people, depending on their role in the markets.For those of you who execute trades, either for your fund or book or as a broker for institutional clients, what does "best execution" mean to you?Identifying your role would help provide further insight.

QuoteOriginally posted by: GregWallaceI have found no commonly agreed definition of "Best Execution" and suspect that it means (vastly) different things to different peopleThat might be because there is no commonly-used term "best execution," so the words are no greater than the sum of the parts - "best" and "execution."I believe there may be a legal term "best-price execution," which refers to the novel (post telephone speed-dial) fiduciary obligation of Nasdaq dealers to execute their customers' market orders at the best price (not including rebates) advertised across a defined subset of exchange facilities, and more generally to visibly publish their clients' non-marketable limit orders so that others will be forced to trade to, rather than through them.Promoters from the Island ECN have argued that "best-price execution" need not mean routing of an order to the exchange advertising the best price, since many high-frequency traders knew that the published inside market for QQQ's on the American Stock Exchange might not be as indicative as Island, of where they might actually get filled and, more importantly, when. The last I read, the SEC had not accepted this equalizing value of "speed" to make up for price in their definition of the obligations Nasdaq order-routing fiduciaries...

OK, I will re-phrase the question.How do you know if execution has been done well?If you are a portfolio manager, how do you know if your in-house dealer is doing a good job executing your orders?If you are an institutional dealer, how do you know if your broker is doing a good job executing your orders?Or how do you know if one broker is better than another at executing a particular type of order?If you are a sales trader at a broking firm, how do you know if you are doing a good job executing client orders?How do you know if you are doing a better job than other brokers?

Best Execution is tricky. Firstly, there are definitions used by the FSA and other regulatory bodies; though the definitions are different. One of the problems is that at least in the UK "best execution" does not mean that you get the best price. There is also a "service component". Think of a situation where you execute at the best available price in the market but the actual settlement of the trade costs you more than you have "saved" by going for the best price. This makes it very tricky for OTC products because you get the quotes by picking up the phones and speaking to a number of sales-desks. The principal of best execution is that as a fund manager you execute such that it benefits the clients; which is almost "obvious". But the details get very tricky.