When trading on behalf of a client the trading should be evaluated as per the client’s intention and potential inside information as well as the the executing trader’s behaviour.
Trading customer orders involves following the best execution policy the firm has defined. For venue selection a SOR helps in enforcing the venue related parts of the policy.
In order to indicate how a firm is trading their customer orders, they need to provide yearly summaries of the top five trading venues used, aggregated per customer classification and asset class category.
Besides using TCA to follow up best execution policies, a broker benefits from using TCA to evaluate how well they service their customers and to ensure they avoid unnecessary mistakes. Additionally, post-trade reports will be a marketing tool when the unbundling of research and execution costs comes into play, where execution will become a commodity.
Best execution policies should be based on facts, and since statistics show that very large proportions of the total values traded are now done outside of the primary markets it will be increasingly important to make sure the relevant MTFs can be accessed when trading client orders. To achieve the best possible execution results when accessing multiple venues, a SOR can automate decisions in line with the best execution policy.
With best execution policies now having to be followed in sufficient steps, using a SOR to automate the best execution enforcement allows users to focus on more relevant tasks than selecting the most favourable venue for a particular order.