A new survey from the the Investment Industry Regulatory Organization of Canada (IIROC) uncovers a variety of concerns with dealers’ practices for achieving best execution, and suggests that the regulator will consider new rules or guidance in this area.

IIROC released the survey results on Friday. The survey, which examines the approaches dealers use to ensure best execution, was carried out between December 2013 and February 2014.

IIROC says that the survey was conducted to gauge the practices that firms use to achieve best execution, and that the results will be used as it considers the need for added rules and/or guidance.

The survey looks at a variety of areas, including: access to lit and dark marketplaces; use of smart order routers (SORs); best execution governance; order handling practices; treatment of marketplace fees and rebates; and, compliance and supervision practices; and, it flags a number of concerns for IIROC with dealers’ practices.

For example, IIROC has concerns with dealers treatment, and disclosure, of marketplace fees and rebates. It notes that the majority of firms do not pass marketplace rebates on to their clients, and that only a minority disclose this to all their clients. Most firms only disclose the passing on of marketplace fees, it says. “IIROC is concerned that disclosure about these fees and rebates may be incomplete or inconsistent,” it says.

Additionally, the survey notes that a significant proportion of dealers that don’t belong to an exchange have no procedures to supervise compliance with best execution, yet also maintain that they are “very confident” that they are achieving best execution for their clients. In response, IIROC suggests that it may review whether it needs to better articulate dealers’ supervisory obligations in this area.

IIROC also observes that firms have “a relatively low ability” to adjust their smart order routing (SOR) settings. “Participants should consider whether their best execution practices enable them to take into account, and if deemed appropriate respond to, changing market conditions,” it says.

The survey also found that a significant percentage of dealers that use SORs do not route orders to dark marketplaces. As a result, IIROC says it “may be missing price improvement opportunities for their clients and they should consider reviewing whether the reasons supporting their decision to not access dark liquidity are appropriate.”

IIROC also says that it is concerned that firms engaged in the online retail trading business that provide limited market data “may not be clearly describing the scope of the market data offered.”

“Clients that are unaware of the constraints of the market data provided may make uninformed and therefore sub-optimal order entry decisions,” IIROC says, adding that it believes “it is important for firms to provide disclosure that describes the scope of market data provided to clients.”

The regulator indicates that the survey will inform possible policy initiatives in a variety of areas, including: dealers’ policies and procedures for best execution; best execution governance; supervision of best execution practices; and, disclosure of order handling practices. It also notes that its compliance exams will focus on issues such as: insufficient processes for making order handling decisions; inadequate post-trade supervision of best execution practices; and, failure to seek price improvement opportunities in dark markets.

“Changes in technology and market structure have increased order handling complexity. The multiple-marketplace environment has also broadened the range of practices that can be used to achieve best execution,” said Wendy Rudd, senior vice president, market regulation and policy at IIROC. “These factors, combined with requests from dealers for additional guidance in this area, prompted IIROC to undertake the survey.”