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Financial advisory
RES5Financial Advisory Services✓A hedge fund's stop-loss on a commodity future is triggered at 2.15pm in a fast, thin market. The dealer fills the whole order immediately at an average price eight ticks worse than the best bid shown a moment earlier, rather than working it for a better price. The client complains that the firm breached its best execution duty. How should the compliance officer assess the complaint?
RES 2B 5.5 and 5.5.1 state that a trade not executed at the best possible price does not necessarily violate best execution, and that speed and likelihood of execution may be prioritised over immediate price where there are large orders in illiquid markets or where a stop-loss has been triggered. MAS Notice SFA 04-N16 requires written policies and procedures for dealing with orders on the best available terms, and the firm must be able to show it followed them.
Best execution is judged on the process and the circumstances of the order, not on hindsight about the price.
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