Best Execution

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Robert A

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For Soft Dollars:
Does “best execution” include the value of research?
Broker A is better executing trades. They can achieve lower transaction prices and quicker executions, but offer less valuable research. Broker B is the opposite. B doesn’t execute trades as well as A, but the value of research more than compensates.
When considering the value of research in the equation, the investment manager considers B a better value.
 
What is “range of services offered by the Broker?” Quality of research isn’t one of them?
Page 193 of the text: “In evaluating the Broker’s capability to provide Best Execution, the Investment Manager should consider …. the Commission rate or spread involved, and the range of services offered by the Broker.”
Yet, when you look at the top of page 202, it appears that you have to first determine best execution, and then evaluate the quality of research offered. This seems entirely unworkable given that only one broker can truly offer the best execution.
thedarkknight88 Wrote:
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> broker a .. best execution is the top priority ..
 
Research should be consideration when evaluating brokers, but executions is primary. If excecution is only marginally better then superior research could sway the decision. You have to consider it total context, not a vacuum.
 
“Best Execution refers to executing CLIENT TRANSACTIONS so that the clients total cost is most favourable under the particular circumstances at that time ”
P.189 Vol 1
 
Does “most favorable” mean the lowest nominal cost or does it mean the best overall value?
Moreover, on page 193 under III C., Best Execution is evaluated on more criteria than simply monetary cost, including “the range of services offered” (whatever that means).
Yet, in reading the case study that starts on 199, it appears that BE is evaluated independent of research but I’m not 100% certain.
Still in other passages, the text clearly acknowledges that seeking the lowest transaction cost (i.e. trade commission) is not controlling.
 
always trust what Batman says. its kind of funny that we are still debating this of all things……..
 
Total cost of a transaction doesn’t depend only on nominal cost .. it includes non tangible costs as well if you go to think of it .. so best execution is more than just least commission cost, and hence overall best execution is to be the priority then other tangible costs n services offered come into the picture. Atleast IMO :) …
All the best guys :)
 
So does that also include the amount of soft dollars provided as a factor?
——————————————————-
> Total cost of a transaction doesn’t depend only on
> nominal cost .. it includes non tangible costs as
> well if you go to think of it .. so best execution
> is more than just least commission cost, and hence
> overall best execution is to be the priority then
> other tangible costs n services offered come into
> the picture. Atleast IMO :) …
>
> All the best guys :)
 
Its A.
Best execution + Lowest transaction cost = must
Now regarding research, the analyst must be able to allocation the cost/benefit to the clients accounts that pay for the brokerage. If the allocation permits the cost. Then justify the brokerage for the client.
“#3 not to pay for research that does not meet these standards.
#4 to determine the portion of mixed-use research paid for with client brokerage. It should be a reasonable, justifiable, and documentable allocation. Only the portion applied to the investment decision-making process should be allocated. Reevaluate allocation at least annually.”
Since B does not indicate the justification. A is the answer.
 
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