What is best execution, and how would a compliance function monitor and evidence it?
A core Risk & Compliance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Best execution (under MiFID II and similar) is the obligation to take all sufficient steps to obtain the best possible result for clients when executing orders — considering price, costs, speed, likelihood of execution and settlement, size, and nature, weighted by client type and instrument (price/cost usually dominate for retail). Compliance monitors it by: ensuring an execution policy exists, is disclosed, and is followed; reviewing execution-quality data and venue selection; running exception reports for outlier prices versus benchmarks/market at the time; sampling trades and checking they met the policy; and overseeing required disclosures (historically RTS 27/28 venue/quality reports, now varying by regime). To evidence it, you keep the policy, the monitoring MI, exception investigations and their resolution, committee minutes (a best-execution committee), and client disclosures. The point is demonstrable, ongoing assurance — a written policy alone isn't best execution; you must show you monitored outcomes and acted on outliers.
WHAT INTERVIEWERS LISTEN FOR
- ✓Obligation to get the best possible result (price, cost, speed, etc.)
- ✓Factors weighted by client type/instrument; price-cost dominate retail
- ✓Monitor via execution-quality data, venue review, outlier exception reports
- ✓Evidence: policy, MI, exception resolution, committee minutes, disclosures
COMMON MISTAKES
- ✗Equating a written policy with best execution
- ✗No outlier/exception monitoring
- ✗No evidence trail of action taken
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