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Talking about “best execution” is easy, warns global securities market structure analyst Larry Tabb, founder and CEO of research firm TABB Group, “but defining it, putting it into context and actually determining best ex isn’t. While markets are governed by fairness, the brokers’ job isn’t to be fair to others; it’s to perform their fiduciary obligation of obtaining the best outcome for their clients.”
In the first of a multi-part series of commentaries on market structure, “Best Ex Is about More than Prints: Harnessing Process, Transparency and Measurement,” Tabb says that “best execution often depends on goals and perspective. For institutional orders, finding hidden liquidity, understanding the qualities of dark order flow, and knowing how to extract every ounce of price improvement for an order needs to be more about process, transparency and measurement than just prints.”
It also doesn’t help if measurement data isn’t available or investors can’t decipher it. Regulators need to follow SEC Chair White’s transparency directives and modernize the current reporting requirements for the SEC 605/606 Reports and develop new reports to help individual investors validate their execution experience. They also need to help institutional investors by both codifying the ICI/SIFMA transparency initiativesand enabling institutions that want to dig deeper into broker routing practices to more easily obtain and analyze routing data.
Tabb’s commentaries can be read in their entirety at http://www.tabbforum.com/, the 25,000-member professional community for peer-to-peer commentary covering current issues impacting the global capital markets.
