The Canadian Securities Administrators have published a concept paper dealing with “best execution” and “soft-dollar arrangements” in an effort to stimulate discussion and obtain feedback.

Based on the feedback received through the consultation process, the regulators will consider whether any action is required.

The CSA notes that other jurisdictions, including the U.S. Securities and Exchange Commission, the U.K.’s Financial Services Authority, and the Australian Securities and Investment Commission, are currently dealing with issues with respect to best execution and soft dollar arrangements.

The SEC has simply cited a duty to achieve best execution. The FSA is considering limiting the range of goods and services that fund managers can buy through commissions and requiring fund managers to make enhanced disclosure to their clients about the costs of execution and research. And, the ASIC recently issued a report on soft dollar benefits that describes types of soft dollar benefits, examines how benefits are being disclosed and comments on disclosure practices.

The CSA paper defines “best execution” as being based on the following key elements: price, speed of execution, certainty of execution, and total transaction cost. It asks whether requirements should be imposed to ensure best execution. And, it notes that most market participants agree that measurement is important in assessing best execution, however, there is currently no consensus regarding the appropriate means to do so.

And, it cites soft dollar arrangements (i.e., where advisors use commission dollars to pay for trading-related goods or services) as one area that raises issues about whether best execution is obtained. “In some cases, a mark-up may be applied above the commission rate that the client usually pays. If the commission is already a bundled commission and a mark-up is applied on top of that, it is difficult to understand how the ultimate client receives best execution,” it notes.

“In addition, measurement becomes more complex with soft dollar arrangements, as it is difficult to compare trading commissions that include a bundle of proprietary services against commission payments that include a portion to the dealer and a portion to third parties unless dealers are pricing all services separately.”

The concept paper was published today in the latest issue of the OSC Bulletin

The CSA is seeks comment on all aspects of the concept paper. Comments are due by May 6.