The Association for Investment Management and Research has released its proposed “Trade Management Guidelines”. AIMR is calling on investment firms to always execute trades and manage the trading function in the best interest of clients.

The guidelines “bring the sunlight of measurement, evaluation and disclosure to a back-office area that until now has functioned behind the scenes in relative obscurity and even mystery, from the client’s perspective,” explained Ted Aronson, who chaired an AIMR task force of trade-execution experts which developed the guidelines.

The proposed guidelines seek for the first time to establish recommended best practices for trading. The guidelines define best execution as “well-informed trade execution decisions made with the intention of maximizing the value of client portfolios under the particular circumstances at the time.”

The AIMR Trade Management Guidelines outline more than 20 best execution practices in three broad areas – trade policies and processes, disclosures and record-keeping.

They recommend, for example, that investment management firms establish a trade management oversight committee, and implement a trade measurement process that assesses the costs and quality of trades.

They also suggest firms develop guidelines for broker selection and exploration of alternative trading venues, establish controls to monitor broker performance and measure execution quality, disclose details on order-routing practices and conflicts of interest involved in the trading function, and document the firm’s efforts to achieve best execution.

The guidelines do not prescribe a uniform method for how firms should measure best execution, noted Jessica Mann, AIMR vice president for professional standards. “We believe that what gets measured, gets managed. There are many valid approaches to measuring trade-execution quality. We don’t intend to dictate how individual firms should run their businesses. We want to allow firms the flexibility to implement the guidelines according to their unique circumstances and needs, but they should document their processes and implement them consistently.”

The public comment period is scheduled to last 90 days, through Feb. 12, 2002. The AIMR task force will review all comments and make final recommendations to the AIMR Board of Governors next spring. The final guidelines are expected to be issued in May 2002, according to Mann.