The UK’s Futures and Options Association calls for a flexible, principles-based approach to ensuring best execution.

The FOA urges the British regulator, the Financial Services Authority, to adopt a principles-based approach to best execution and allow firms the discretion to determine the process and the factors relevant to measuring the quality of execution in dealer markets.

The trade group says that its position is the result of consultation with its members and is supported by a study commissioned by it from KPMG for the purpose of responding to the FSA’s discussion paper on the subject.

“In its report, KPMG observes that, firstly, price is only one of the several key factors that need to be taken into account when determining the quality of execution and that, while benchmarking can be used to measure price in the more centralized and standardized (particularly equity) markets, it supports the industry view that other methodologies are likely to be more appropriate for the quote-driven and structured products markets (eg. complex OTC derivatives),” it says.

Anthony Belchambers, chief executive of the FOA said, “The KPMG report demonstrates clearly that, while price benchmarking has a part to play in some markets, there is no single approach to best execution that suits all markets.” He added that, “What is ‘best’ should be judged by a firm in the context of the client’s objectives and the type and state of the market at the time of the transaction.”

Nigel Harman, head of Corporate and Investment Banking at KPMG, said “We approached the question of best execution by considering the points of view of a variety of market participants, including firms on the buy-side and the sell-side. We found a striking consistency of view in our discussions with our clients and other market firms: a workable outcome would allow a combination of approaches to demonstrating best execution, including the use of reliable benchmarks where they are available.”