In light of the increasing use of automated markets for equity securities and standardized options, and recent advances in trading technology and communications in the fixed income markets, the Financial Industry Regulatory Authority issued Regulatory Notice 15-46 to: (1) restate the best execution obligations applicable to firms when they receive, handle, route or execute customer orders in equities, options and fixed income securities; and (2) remind firms of the obligation to repeatedly and thoroughly examine execution quality likely to be obtained from the different markets trading a security.

The best execution obligations iterated in Regulatory Notice 15-46 include the obligation for members in any transaction to use reasonable diligence to determine the best market for the subject security and to buy or sell in such market. The determination as to whether a firm exercised reasonable diligence includes a facts and circumstances analysis, including factors such as the size and type of transaction, accessibility of the quotation, and the terms and conditions of the order.

The obligation to regularly and rigorously review for best execution has been incorporated into FINRA Rule 5310. FINRA believes that developments in routing technology have made it possible for firms to conduct order-by-order analysis and review of execution quality, and such order-by-order analysis is required of firms for any order they decide to execute internally. FINRA is requiring firms that route orders to have procedures in place to ensure that they periodically, at least quarterly, conduct a regular and rigorous review of execution quality for those orders.

Regulatory Notice 15-46 is available here.