Procedures relating to customer orders at securities companies

In this report, five selected companies have been scrutinized with regard to:

• how orders are executed to give the customer the best possible terms
• internal controls to follow up that the customer receives the best possible terms
• information to customers regarding how orders are executed

FI's review shows that available written information regarding how orders are executed is very scarce. The companies justify this by explaining that customers do not request additional information.

As a result of new EU directives, new regulations will be incorporated into Swedish legislation by April 30, 2006. However, FI perceives a current need to strengthen consumer protection and will therefore issue regulations pertaining to how customers should be informed. The new rules, which will become effective from January 2005, will cover the following information requirements:

• Describe how an order can be executed, for example when an order is executed outside of the stock exchange or other marketplace.
• Explain when the order is executed on commission or when it is executed as a proprietary trade.
• Factors that are taken into account for various types of orders, such as price and time.
• Order administration processes, such as the routing system.
• Principles for aggregrating and assigning customer orders.

Order execution and all choices made by the company on behalf of a customer are to be made with the customer's best interests in mind. However, the review shows that the securities companies lack procedures for monitoring that customer orders are executed in an optimal manner. FI assesses that it is currently too early to introduce legislative requirements for companies to check that orders are executed with the customers' best interests in mind. However, there is nothing to prevent the securities companies from changing their procedures now.

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