Best execution is considered a key customer protection measure ensuring that firms obtain the best price for client orders. The review will consider whether the current rules need to be updated to take stock of recent market developments, particularly the establishment of new electronic trading venues that are changing the way financial markets function.

Michael Folger, FSA Director, conduct of business standards, says: "We recognise that markets are developing in ways that are making the existing rules increasingly difficult to interpret, not least the development of new electronic trading venues that offer a wider choice of execution options and possibly lower costs of trading. We are taking a fresh look at our policy and seeking the views of a wide range of firms, consumers and other interested parties."

He adds that best execution is an important consumer protection measure, particularly for retail customers who do not have access to the same information as market professionals and who therefore find it difficult to judge the quality of price that a firm has obtained.

A discussion paper published by the FSA sets out a number of issues for debate, including:
* questioning the use of a price benchmark as the best way of encouraging firms to achieve the best price;
* considering the merit of greater disclosure to customers of a firm’s execution policy (that is, how firms execute orders – which execution venues are used);
* the possibility of requiring execution venues to publish data on execution quality including information on volumes, prices, spreads and other relevant information so as to facilitate league tables;
* considering whether the FSA should require firms to have access to a minimum number of execution venues in order to ensure that firms obtain an acceptable price; and
* considering to what extent there should be a trade-off between price and other elements of an order, such as timely execution or settlement constraints.

The regulator says it will also consider the application of best execution in markets other than equities, especially OTC markets such as derivatives. The FSA is to publish a detailed consultation paper setting out its findings and any proposed changes later in the year.