Although brokers, fund managers and regulators are still unable to concur on an exact definition of best execution, they all agree that any definition should take into account both speed and price.
So it’s disappointing to find that so few meet the billing. A study measuring the execution quality of market centres in the US by financial services technology consultancy Celent shows that for small marketable orders of stocks listed on the New York Stock Exchange just two brokers offer the desired combination of fast execution and good prices. Surprisingly, the two brokers are not bulge-bracket players but online discount brokers Scottrade and E*Trade.
Nasdaq investors trading small orders are even more poorly served. Only electronic brokerage Instinet provides fast execution and good prices.
For all orders, large and small, Instinet is ranked number one for Nasdaq stocks while the National Stock Exchange ranks first for all NYSE orders.
With fund managers and pension funds under intense pressure to get best execution for their trades, the lack of bulge-bracket firms in the top 10 should give pause for thought.
The study examined more than 4 billion orders for more than 10,000 equities and ETFs and covered 190 market participants.