PT - JOURNAL ARTICLE AU - Kevin G. Chapman TI - Trading Best Execution: <em>A Framework for Comparison</em> DP - 2010 Mar 20 TA - Trading PG - 24--28 VI - 2010 IP - 1 4099 - http://guides.pm-research.com/content/2010/1/24.short 4100 - http://guides.pm-research.com/content/2010/1/24.full AB - The aftermath of the financial crisis has shone an even brighter spotlight on trading and the ways in which investment managers try to achieve “best execution.” Although it is difficult to define “best execution.” it is easier to evaluate trading execution by breaking it down to the individual components.In order to accurately measure the components of trading execution, the investment manager must have accurate data capture. An order management system that captures the time stamps from the life of the execution is imperative. Even when data are accurately captured, it is difficult to compare managers using different systems, so using common benchmarks to measure trading execution is standard practice. To measure trading cost versus standard benchmarks such as volume-weighted average price (VWAP), percentage participation volume-weighted average price (PVWAP), or implementation shortfall versus expected impact, one must break down the components of trade size, price, time horizon, as well as include commission and settlement costs. Even though commission is typically less than market impact cost, it is much more variable in today's environment than in “the old days” of five or six cents a share across every broker. Because of the different trading venues and ways in which execution can be achieved, commission rates vary significantly from manager to manager and across brokers. Understanding how an investment manager interacts with brokers and trading venues and comparing the inputs to the trading execution allows for a better determination of whether an investment manager is pursuing “best execution.”