NASD expands broker‐dealer's duty of best execution

This paper seeks to explain amendments to NASD Rule 2320(a), commonly known as the “best execution rule”, approved by the Securities and Exchange Commission on August 21, 2006.

Explains the scope of the best execution obligation, as amended; outlines factors relevant to a best execution determination; and suggests questions broker‐dealers should consider as they review their best execution policies and procedures in light of the amendments.

Most significantly, the amendments make the rule applicable to “any transaction for or with a customer or a customer of another broker‐dealer”, thus imposing the duty of best execution on a member that executes a customer order received from another broker‐dealer. The NASD also has reiterated that debt transactions are subject to the rule. In addition, the rule amendments update certain language and add new Interpretive Material regarding certain aspects of the rule.

A useful interpretation of recent amendments to the best execution rule.