What Is Best Execution and How Can a Client Verify It?

Best execution is one of the core obligations applicable to a regulated investment firm when executing client orders under the European Union’s MiFID II framework, but it is also one of the most easily reduced to a slogan. The phrase is widely used, while the  technical requirements underlying it are not always clearly  explained.

IMPORTANT DISCLAIMER. This article is provided for general information and educational purposes only. It does not constitute investment advice, a personal recommendation, an offer or a solicitation to buy or sell any financial instrument, or an offer to provide or  enter into any investment service. Nothing in this article should be relied upon as a forecast, projection, or guarantee of future results. Investing in financial instruments involves risk, including the risk of losing part or all of the capital invested. Past performance is not a reliable indicator of future results, and any performance figures or examples presented in this article are provided for illustrative or historical purposes only and do not guarantee future results. Skanestas Investments Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC) under licence number CIF251/14. Independent professional advice should be sought as needed. Any reference to specific products or services is for general informational purposes only; the provision of investment services and the assessment of appropriateness or suitability, where applicable are subject to the applicable regulatory requirements and the firm’s relevant procedures.

 

This article describes what best execution actually means under MiFID II, what factors a firm must consider when executing client orders, where practical questions or areas of misunderstanding can arise, and the practical steps an investor can take to verify that the obligation is being met. The goal is to leave you better equipped to ask informed questions of any broker or portfolio manager you work with.The framing is informational; this article does not constitute investment, legal, or tax advice, and individual circumstances should be assessed with qualified counsel.

The Definition Under MiFID II

Article 27 of MiFID II requires investment firms to take all sufficient steps to obtain the best possible result for their clients when executing orders, taking into account the relevant execution  factors. The wording is deliberate. It is not a duty to obtain the best possible price on every individual trade — that would be impossible to evaluate after the fact. It is a duty to operate a process that, on a consistent basis, is designed to deliver the best overall outcome across the relevant factors.

The factors that the firm must take into account are price, costs, speed, likelihood of execution and settlement, size and nature of the order, and any other consideration relevant to the execution of the order. The relative importance of each factor depends on the characteristics of the client, the order, the financial instrument, and  the available execution venues.

Why Best Execution Is Not Just About Price

For retail clients, the regulation specifies that the best possible result is determined in terms of total consideration — the price of the financial instrument and all costs associated with execution, including venue fees, clearing fees, and any third-party costs. This is a stricter standard than headline price alone.

For professional clients, the relative importance of the execution factors may differ depending on the client’s characteristics, and the particular order, instrument, and execution circumstances, and the firm may place different weight on factors in addition to total consideration. A professional client trading a large block of an illiquid instrument may rationally prefer a venue with slower execution but lower market impact over a venue with fast execution but visible price movement. A retail client placing a small order in a liquid security generally benefits most from low total cost. The framework recognises these different needs and requires the firm to explain how it weighs the factors in its execution policy.

The Order Execution Policy

Every regulated investment firm must establish and maintain a written order execution policy. The policy must include, for each class of financial instrument, information on the different venues where the firm executes orders and the factors affecting the choice of venue. Clients must receive a summary of the policy in good time before any service is provided, and material changes must be notified.

Reading the order execution policy is one of the most undervalued protections an investor has. The document tells you which venues the firm uses, how it ranks factors, and which third parties may receive your order flow. If the policy is vague, generic, or unavailable on request, that itself is informative. A clear policy can help an interested client understand how the firm approaches order execution and the factors relevant to its execution arrangements..

Execution Venues

An execution venue is the place where the order is actually filled. Venues include regulated markets (such as the major European exchanges), multilateral trading facilities (MTFs), organised trading facilities (OTFs), systematic internalisers, and market makers or other liquidity providers. The same security can often be traded on multiple venues, with different liquidity, price, and cost characteristics.

A firm meeting its best execution obligation does not blindly route orders to a single venue. It evaluates the venues available for the relevant instrument, monitors execution quality across venues, and adjusts its routing as conditions change. For passive orders that simply rest at a stated price, venue choice may be straightforward. For more aggressive orders, the choice of venue can produce material differences in fill quality.

Internal Execution and Conflicts of Interest

Some firms execute client orders internally — by matching them against the firm’s own inventory or against other client orders within the firm — rather than routing them to an external venue. Internal execution can be efficient and fast, but it introduces conflicts of interest that must be carefully managed. A firm that is taking the other side of the client’s order has an incentive that, without strong controls, could conflict with the client’s best interest.

MiFID II requires firms to disclose when internal execution is used and to demonstrate that the resulting price is at least as favourable to the client as would have been obtained on an external venue. Investors may wish to understand whether and how their orders may be executed internally or through affiliated entities, and what arrangements the firm has in place to manage relevant conflicts of interest. This is not a problem if managed properly, but it is something the client should know about.

Monitoring and Periodic Review

Best execution is not a static obligation. Firms are required to monitor the effectiveness of their execution arrangements on an ongoing basis, identify deficiencies, and amend policies and procedures where appropriate. They must also conduct a more formal periodic review, at least annually, to confirm that the policy continues to deliver best execution given changes in markets, venues, and order flow.

The periodic review is documented internally and is subject to regulatory scrutiny. Investors do not normally receive the firm’s internal review documentation, but they may ask how frequently the firm’s execution arrangements are reviewed and whether material changes have been made to those arrangements.

Public Disclosures: RTS 27 and RTS 28 in Historical Context

Under the original MiFID II framework, firms were required to publish two types of public report. Execution venues published quarterly RTS 27 reports on execution quality. Investment firms published annual RTS 28 reports identifying the top five execution venues used for each class of instrument and a summary of execution quality. These disclosures gave investors a window into how their orders were being routed.

The European framework around these reports has evolved. The RTS 27/28 obligations have been the subject of regulatory simplification proposals, and the form of public best-execution disclosure has been adjusted under more recent legislative work. Investors evaluating a firm should ask what public best-execution reporting the firm currently provides under the prevailing rules in its jurisdiction. The principle of public visibility into execution quality remains an important part of the framework, even as specific reporting templates change.

Practical Steps to Verify Best Execution

Step 1: Read the Order Execution Policy

Find the document — it should be available on the firm’s website or on request. Note which venues are listed, how factors are weighted, and whether internalisation is used. Vague language may warrant further questions; specific descriptions provide greater transparency.

Step 2: Compare Fill Quality Against the Market

For active investors, the simplest check is to record the prevailing market price at the time you place an order and compare to the price at which your order was filled. For aggressive (market) orders in liquid instruments, comparing the execution price with the prevailing market conditions at the time of execution can provide a useful indication of execution quality.  . Persistent or unexplained differences may warrant further investigation.

Step 3: Review Cost Disclosures

Under MiFID II, firms must provide ex-ante and ex-post cost disclosures. The ex-post disclosure shows what you actually paid in fees and other charges over the year, including execution costs. Reviewing this disclosure year over year reveals trends — whether costs are stable, whether they correlate sensibly with your trading activity, and whether the total is what you expected.

Step 4: Ask Specific Questions

Direct questions are reasonable: which venues handle most of my orders? Are my orders ever internalised? When was the last best-execution review and what changed? What is the firm’s process for monitoring execution quality in the instruments I trade? A firm with well-developed best-execution arrangements should be able to explain these matters clearly.

Step 5: Check the Regulator’s Records

Best execution is an area of regulatory supervision and enforcement. Public regulatory actions, including fines and reprimands, are searchable on most national regulator websites. The absence of publicly available enforcement action may be reassuring, while a history of best-execution-related actions may warrant closer scrutiny.

Best Execution in Portfolio Management

When a portfolio manager executes trades on behalf of a discretionary client, best execution applies just as it does in pure brokerage. The manager is subject to the best-execution obligations applicable to the relevant service and must take all sufficient steps to obtain the best possible result for the client when executing orders.The fact that the client did not specifically authorise each trade does not remove the firm’s best-execution obligations; the client is relying on the firm’s execution arrangements and processes when the firm executes orders on the client’s behalf.

Skanestas operates an order execution policy applicable to both brokerage and portfolio management activities, with the firm’s authorisation as a CIF providing the operational basis for execution. The policy is published on the firm’s website, and clients are required to review it when opening any service relationship.

Common Misconceptions

‘Best execution means the absolute best price’

No. Best execution involves seeking the best possible result while taking into account price, costs, speed, likelihood of execution and settlement, the size and nature of the order, and other relevant considerations. A trade that gets the best displayed price but is filled too slowly to be useful is not necessarily best execution.

‘Best execution applies to every individual trade in isolation’

No. The obligation concerns the firm’s execution arrangements and the best possible result for the relevant order, rather than requiring the firm to demonstrate that every individual trade achieved the best price that was available somewhere in the market. The pattern across many trades is what the firm and the regulator examine.

‘If I am happy with my fills, I do not need to verify’

Subjective satisfaction is not a substitute for the disclosed protections. Periodic verification, even casually, is a reasonable habit. The cost is a few minutes; the value is sustained confidence in the firm’s process.

FAQ

Does best execution apply to my deposits and withdrawals?

No. Best execution applies to the execution of orders in financial instruments. Cash transfers and FX conversions are subject to different cost and disclosure obligations, but they are outside the best execution rule itself.

Can I require my firm to execute on a specific venue?

A client may give specific instructions concerning the execution of an order, including, where applicable, instructions concerning the execution venue.Where a client gives a specific instruction covering a particular aspect of execution, the firm follows that instruction and its best-execution obligation applies to the extent that the instruction does not determine the relevant execution factors. The client should understand that a specific instruction may affect the firm’s ability to apply its normal best-execution arrangements to the aspect covered by that instruction.

Are there any instruments where best execution does not apply?

The best-execution obligations apply broadly to the execution of orders in financial instruments within the scope of MiFID II, although the way the obligations operate can differ depending on the instrument and execution method. There are technical nuances for specific products (for example, requests for quote in OTC instruments), but the general principle of seeking the best possible result is consistent across the framework.

What if I think my firm has not delivered best execution?

Raise the issue with the firm’s compliance function in writing. If the response is unsatisfactory, the matter may be escalated to the relevant regulator or to the Financial Ombudsman, depending on jurisdiction. Document everything.

Conclusion

Best execution is a structural protection that depends on the firm maintaining effective execution arrangements and applying them appropriately, and the client understanding and, where appropriate, engaging with the information made available about those arrangements. Its practical value is greatest when the client understands what to look for.. Reading the order execution policy, reviewing periodic cost disclosures, and asking specific questions when something looks unusual are not difficult tasks. They are the practical mechanisms through which a regulatory obligation translates into a protection that actually works for you.

 

About this article: This material is published for general informational purposes by Skanestas Investments Limited, a Cyprus Investment Firm authorised and regulated by the Cyprus Securities and Exchange Commission under licence CIF251/14. The content reflects general industry practice and information available as at the date of publication may be updated from time to time without notice. The article does not establish a client relationship and does not replace the formal contractual, regulatory and client documents  that govern any portfolio management or brokerage relationship with the firm. Risk warning: Investing in financial instruments carries risk and the value of investments may rise or fall. You may receive back less than the amount invested. Please review the firm’s Risk Disclosure Statement and other regulatory documents before engaging with any service. The information provided is general in nature and should not be understood as a statement of the services provided by the firm. Last updated: 2026.