FINRA Rule 5310 is the operative text for brokerage firms, and its own title names the second half. The rule is "Best Execution and Interpositioning", and paragraph (a)(2) is the interpositioning half: no member may "interject a third party between the member and the best market for the subject security in a manner inconsistent with paragraph (a)(1)". Paragraph (a)(1) lists what counts toward reasonable diligence: the character of the market for the security, given as price, volatility, relative liquidity and pressure on available communications; the size and type of transaction; the number of markets checked; accessibility of the quotation; and the terms and conditions of the order as communicated to the firm. The list is expressly a list of factors rather than a checklist to be scored, which is why best execution cases turn on the quality of a firm's process rather than on any single trade.
Several paragraphs close the obvious escape routes. Where a firm cannot execute directly with a market and must use a broker's broker or some other intermediary, the rule puts "the burden of showing the acceptable circumstances for doing so" on the firm. Failure to maintain or adequately staff an order room "cannot be considered justification for executing away from the best available market", and neither can channeling orders through a third party as reciprocation for business. A firm that knowingly participates in an arrangement where the initiating firm has not met its own obligation is itself deemed to have violated the rule. And the obligations apply, in the rule's words, "not only where the member acts as agent for the account of its customer but also where transactions are executed as principal", which matters because a principal trade has no separate commission for a customer to compare.
The duty cannot be handed off, and the review requirement is specific. FINRA states that "no member can transfer to another person its obligation to provide best execution to its customers' orders". A firm that routes customer orders to other brokers on an automated, non-discretionary basis, or that internalizes order flow, must conduct regular and rigorous reviews of execution quality unless it reviews order by order. Those reviews must be done on a security-by-security, type-of-order basis, at least quarterly, and the firm must determine whether material differences in execution quality exist among the markets trading the security and either change its routing or justify not changing it. The factors it must weigh include price improvement opportunities, meaning the difference between the execution price and the best quotes prevailing when the order reached the market.
The adviser's version of the duty is differently shaped, and the difference is the most useful thing on this page. The SEC's 2019 interpretation states that an adviser's duty of care "includes a duty to seek best execution of a client's transactions where the adviser has the responsibility to select broker-dealers to execute client trades (typically in the case of discretionary accounts)". Note the condition: an adviser who does not choose the broker does not carry this particular duty. Where it applies, the adviser must seek execution "such that the client's total cost or proceeds in each transaction are the most favorable under the circumstances", with the goal of "maximizing value for the client under the particular circumstances occurring at the time of the transaction", and the SEC adds that "maximizing value encompasses more than just minimizing cost". It then states the point directly: the "determinative factor" is not the lowest possible commission cost "but whether the transaction represents the best qualitative execution", and an adviser should "periodically and systematically" evaluate the execution it is obtaining. So the FINRA formulation is anchored on the resultant price and the adviser formulation on total cost and value, and only the second attaches when someone else picks the broker.
There is no Regulation Best Execution, and the story of why is worth knowing. The SEC published a proposed rule in January 2023 that "would have changed the existing regulatory framework concerning the duty of best execution by requiring detailed policies and procedures for all broker-dealers and additional policies and procedures for broker-dealers engaging in certain transactions with retail customers, as well as related review and documentation requirements". On June 17, 2025 the SEC formally withdrew it, along with thirteen other proposals, stating that it "does not intend to issue final rules with respect to these proposals". Two things follow. The proposal is not law and must never be cited as though it were. And the SEC's own description of it confirms that an existing framework was already there, which is the answer to the reader's natural next question: the duty today comes from FINRA's rule and from the adviser's fiduciary duty, not from an SEC regulation of that name.
Where the duty rubs against how firms are paid. A firm that routes orders to a venue in exchange for payment, or an adviser that directs trades to a broker in exchange for research, has an interest in the routing decision that is not the customer's. Neither arrangement is unlawful and both are disclosed, but the tension is the reason the review obligations exist and the reason FINRA's rule separates the execution duty from the reasonableness of what the firm charges. Those charges are governed by a different rule, and a firm can in principle satisfy one and fail the other.
