Trade Supervision, Order Handling, and Best Execution
The supervisory review of trades
Trade supervision is the daily engine of the supervisor's role. Reviews should detect unsuitable trades, unauthorized trades, excessive trading (churning), excessive concentration, and trades inconsistent with the client's KYC. The supervisor compares the trade against the account's objectives and against the representative's book as a whole. Patterns matter more than single trades: a cluster of small trades generating commissions is a classic red flag.
Order handling and priority
Understand the sequence: client orders before firm orders, and no trading ahead of a client order (front running). Orders must be executed on the best available terms, considering price, speed, likelihood of execution, and cost. Best execution does not always mean the lowest commission; it means the best overall result under the circumstances, and the firm must have a written policy describing how it evaluates execution quality.
Traps to expect
Questions often confuse best execution with best price. Another trap is a representative allocating a profitable trade to a personal account after a client order was placed; that is front running regardless of intent. Also watch for questions about order errors and cancellation: an erroneous trade must be corrected through the firm's error policy, documented, and reported as required, not quietly reversed.
Worked example
A representative enters a client buy order and, before it fills, buys the same security for a personal account. Even if the client order later fills at a better price, the conduct breaches the priority and fair-dealing rules. The supervisor must escalate and document.
Rule of thumb
If you cannot explain in one sentence why a trade was in the client's interest at the time it was made, the trade needs a second look.