Order handling, execution and trade reporting
What this domain tests
Order handling and execution test whether client orders are prioritised, executed on instructed terms, allocated fairly, and reported accurately.
Core rules and concepts
A dealer must act in the client's best interests and handle orders promptly and fairly. Key controls include recording the order with client, time, product, price, quantity, and instructions; time-stamping receipt; executing on the client's terms or seeking consent to vary; avoiding front-running; and preventing client orders from being used to benefit the firm or staff. Where orders are aggregated, allocate fills fairly and consistently under a documented policy. Trade confirmations must be accurate and timely. Errors and cancellations must be authorised, recorded, and remediated.
Best execution does not always mean the best price at a single moment; it means taking reasonable steps to obtain the best available outcome for the client, considering price, speed, likelihood of execution, and cost. Document the execution factors.
Worked example
A dealer receives a client buy order for 10,000 shares and has a proprietary order for the same stock. The firm executes the proprietary order first. That is front-running and a conflict breach. The correct sequence is to execute the client order first, or apply a documented order-handling policy that prevents the firm from trading ahead.
Traps
Treating best execution as a price-only test. Relying on oral instructions without a written record. Allocating favourable fills to staff accounts. Failing to report trade errors to the client and compliance.