The National Association of Securities Dealers will take a closer look at issuing best execution guidelines for bond trading because reports of several instances of alleged fair price fraud indicate more guidance is needed. "We haven't said that best execution applies to bonds but we haven't said it doesn't," Malcolm Northam, director of the NASD's fixed-income group, said at the American Law Institute-American Bar Association's annual Broker/Dealer Regulation forum last week in Washington. Northam added: "We need to be giving out bright yellow marker type guidance."
Lawyers say the over-the-counter nature of the debt market makes best execution a difficult proposition. Robert Cook, partner at Cleary Gottlieb Steen & Hamilton in Washington, noted there is no reference point for dealers who sell bonds from their own inventory and expects regulators to look closely at this gray area. Cook believes there should be regulatory guidance but advised firms to document the steps they have taken and put procedures in place to prove best execution attempts were made.
