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December 1, 2003

Firms Face Query on Practices

By Gregory Bresiger

Best execution refers to a trading process firms apply that seeks to maximize the value of a client's portfolio given each client's stated investment objectives and constraints.

That's according to one participant in the controversial debate over best execution practices. AIMR, the Association for Investment Management and Research (AIMR), is continuing to push its best execution practices and says it is going to survey institutional investment firms over the next few months. The objective is to see if they are using some - or all - of AIMR's best execution guidelines.

Positive Feedback

"The feedback that I have received on the guidelines so far has been very positive. That's because these guidelines are extremely flexible," according to Jonathan Boersma, vice president for Standards and Practices at AIMR.

Boersma said that AIMR encourages buyside firms to adopt all the guidelines. Still, he concedes that, for some firms, it "may be too complicated or expensive to do everything."

Best execution, according to the AIMR guidelines, is not necessarily the best price. It is not even something that can necessarily be measured on a trade-by-trade basis. Instead, it is a process that is not quantifiable, but is a set of quality standards. AIMR officials recently estimated that about 10 percent of trading firms are following all of its guidelines.

Ultimately, Boersma said the benefit of the guidelines is that "when a regulator comes knocking, they have a process, something tangible to point to, that says this is how we execute."