Knowledge Base
Identify the obligation to warn the client when they provide specific instructions for order execution
What is the consequence if a client imposes a limit price far from the current market price?
A client who imposes a limit price far from the current market price is giving a specific instruction on price conditions. This instruction may prevent the provider from achieving the best possible result for that part of the order, as the requested price may not be achievable.
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Items to categorize:
Duty to warn
Best execution obligation
The duty to warn is distinct from but complementary to the best execution obligation. It aims to inform the client of the consequences of their specific instructions, while best execution concerns the overall quality of order execution.
Under Article 27(1) of MiFID II, what is the essential condition for the provider to be deemed to have fulfilled its best execution obligation when the client gives specific instructions?
The duty to warn is rooted in Article 27(1) of MiFID II, which stipulates that a provider following a client's specific instructions is deemed to have fulfilled its best execution obligation for the aspect covered by those instructions. However, this provision can only function if the client has been warned beforehand of the consequences of their instructions.
True or False: The professional does not need to identify the duty to warn if the client is a professional investor.
The duty to warn applies to all clients, whether retail or professional. It aims to inform the client of the consequences of their specific instructions, regardless of their status.
True or False: The duty to warn applies only when the specific instruction covers the entirety of the order.
AMF Position DOC-2014-07 specifies that when a specific instruction covers only part of the order, the provider remains subject to the best execution obligation for all other aspects not covered. Therefore, the duty to warn is limited to the aspects covered by the instruction.
Legal basis of the duty to warn
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The duty to warn is rooted in Article 27(1) of MiFID II and Article 64(2) of Delegated Regulation 2017/565. These texts establish that the provider must warn the client of the consequences of their specific instructions.
In which situation does a client give a specific instruction on the execution venue?
A client who requests that their order be executed exclusively on Euronext Paris is giving a specific instruction on the execution venue. This means the client is imposing a particular venue for the execution of their order, which may affect execution quality.
According to Article 66(3)(f) of the Delegated Regulation, what must the execution policy contain regarding client specific instructions?
Article 66(3)(f) of the Delegated Regulation specifies that the execution policy must contain a clear warning indicating that specific client instructions may prevent the provider from taking the measures set out in its policy to achieve the best result.