# Can a Broker Fulfill Its Best Execution Duty While Still Accepting Payment for Order Flow? ▴ Question

**Published:** 2025-08-04
**Categories:** Question

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## Concept

The assertion that a broker can fulfill its [best execution duty](https://prime.greeks.live/area/best-execution-duty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) while accepting [payment for order flow](https://prime.greeks.live/area/payment-for-order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (PFOF) rests on a complex and heavily regulated framework. The core of the matter is the management of a significant conflict of interest. A broker-dealer’s fundamental obligation, rooted in common law agency principles and fiduciary duties, is to secure the most favorable terms reasonably available for a customer’s transaction. This duty of best execution is a cornerstone of investor protection.

Concurrently, payment for [order flow](https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) represents a direct financial incentive for the broker. In this arrangement, [wholesale market makers](https://prime.greeks.live/question/how-do-exchanges-define-stressed-market-conditions-for-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) compensate the broker for routing customer orders to them for execution. This creates a dynamic where the broker’s revenue is tied to its choice of execution venue, a choice that should be governed solely by the client’s best interests.

The regulatory architecture acknowledges this conflict. Longstanding guidance from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) permits the coexistence of PFOF and the [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) duty. The system’s integrity hinges on the principle that PFOF must not interfere with the broker’s efforts to obtain best execution.

A broker does not inherently violate its duty simply by receiving these payments. The violation occurs when the pursuit of PFOF revenue leads to routing decisions that disadvantage the customer, resulting in inferior prices or [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) compared to what was otherwise available in the market.

> A broker’s acceptance of payment for order flow is permissible only when it can be rigorously demonstrated that such compensation does not compromise the primary duty of achieving the best possible transaction outcome for the client.

To operate within the rules, a broker must engage in a process of “reasonable diligence.” This is a continuous and systematic evaluation of the markets and [execution venues](https://prime.greeks.live/area/execution-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to which it routes orders. The analysis is not limited to the execution price alone. It encompasses a broader set of factors, including the speed of execution, the likelihood of execution, and the opportunity for [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ▴ that is, executing a trade at a price more favorable than the current national best bid or offer (NBBO).

Therefore, the broker’s operational challenge is to build and maintain a system that quantifiably proves its routing decisions, even when influenced by PFOF, still result in the best overall outcome for its clients. This requires a robust data analysis framework and a transparent disclosure process, making the broker’s compliance a matter of demonstrable, ongoing effort.

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## The Anatomy of Best Execution

The duty of best execution is a multi-faceted obligation that extends beyond simply achieving the best possible price on a single trade. It is an encompassing requirement for a broker-dealer to use reasonable diligence to ascertain the best market for a security and to buy or sell in that market so the resulting price to the customer is as favorable as possible under prevailing market conditions. [FINRA Rule 5310](https://prime.greeks.live/area/finra-rule-5310/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) codifies this, providing a non-exhaustive list of factors that firms must consider in their diligence process.

- **Price Improvement** This refers to the opportunity for an order to be executed at a price better than the publicly quoted price. For retail orders, this is a critical metric used to justify routing to wholesale [market makers](https://prime.greeks.live/area/market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) who may offer sub-penny price improvements.

- **Speed of Execution** In volatile markets, the speed at which an order is filled can be as important as the price. A delay could result in a less favorable price, a concept known as slippage.

- **Likelihood of Execution** This pertains to the probability that an order, especially a large or complex one, will be filled completely without significantly impacting the market price. Different venues offer varying levels of liquidity and depth.

- **Size of the Transaction** A large order may need to be routed to a venue with sufficient liquidity to absorb it without causing adverse price movements.

![A sleek, futuristic apparatus featuring a central spherical processing unit flanked by dual reflective surfaces and illuminated data conduits. This system visually represents an advanced RFQ protocol engine facilitating high-fidelity execution and liquidity aggregation for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-options-rfq-liquidity-aggregation-interface.jpg)

## Payment for Order Flow Mechanics

Payment for order flow is a revenue model for many retail brokerage firms, particularly those offering commission-free trading. The SEC defines PFOF broadly to include not just direct cash payments but also rebates, credits, and other fee reductions. Wholesale market makers, who are large firms that stand ready to buy and sell securities, pay brokers for a steady stream of retail orders. This flow is valuable to them because retail orders are typically small, uninformed (not based on insider information), and provide liquidity.

This allows the [market maker](https://prime.greeks.live/area/market-maker/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to profit from the bid-ask spread with relatively low risk. The practice became widespread with the rise of online trading platforms, which used the revenue from PFOF to eliminate commissions, thereby attracting a large volume of retail investors. The cumulative earnings from these small, per-share payments can be substantial, reaching billions of dollars annually for the largest U.S. brokerages.

![An institutional-grade platform's RFQ protocol interface, with a price discovery engine and precision guides, enables high-fidelity execution for digital asset derivatives. Integrated controls optimize market microstructure and liquidity aggregation within a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/proprietary-institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-granular-market-microstructure-analysis-for-prime-os.jpg)

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## Strategy

The strategic framework for a broker-dealer to reconcile its acceptance of payment for order flow with its best execution duty is centered on two pillars ▴ rigorous, data-driven execution quality reviews and comprehensive public disclosure. The strategy is to build a defensible compliance architecture that can withstand regulatory scrutiny by proving that routing decisions prioritize client outcomes over PFOF revenue. This involves establishing a systematic process for regularly and rigorously comparing the execution quality of different market centers.

A broker must not simply “set and forget” its [order routing](https://prime.greeks.live/area/order-routing/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) logic. Instead, it must create an ongoing feedback loop. This process involves the periodic, typically quarterly, review of execution quality statistics from the venues to which it routes orders. The firm must compare these venues against each other and against other potential venues.

The core of this strategy is to quantify execution quality using a variety of metrics. While price improvement is a key factor, a comprehensive review will also consider [effective spread](https://prime.greeks.live/area/effective-spread/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), [execution speed](https://prime.greeks.live/area/execution-speed/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and fill rates. The broker’s strategy is to use this data to demonstrate that its chosen routing partners, who may be providing PFOF, are consistently delivering execution quality that is competitive with, or superior to, alternative venues.

> The broker’s strategic imperative is to transform the best execution obligation from a passive compliance requirement into an active, data-driven system of continuous performance evaluation.

The second pillar of the strategy is transparency. [Regulation NMS](https://prime.greeks.live/area/regulation-nms/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), specifically [SEC Rule 606](https://prime.greeks.live/area/sec-rule-606/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), mandates public disclosure of order routing practices. This rule requires broker-dealers to publish quarterly reports that detail the venues to which they route orders and the nature of any PFOF arrangements. The strategic use of these disclosures is to provide transparency to clients and regulators, showing how routing decisions are made.

A well-constructed [Rule 606](https://prime.greeks.live/area/rule-606/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) report can serve as a powerful tool to preemptively address concerns about conflicts of interest. It allows the broker to frame the narrative, explaining the material aspects of its relationships with market makers and presenting the data that supports its [routing logic](https://prime.greeks.live/question/how-can-a-firm-quantitatively-prove-its-order-routing-logic-prioritizes-best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). By combining rigorous internal reviews with transparent external reporting, the broker constructs a strategic defense of its business model.

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## Developing an Execution Quality Committee

A cornerstone of a robust best execution strategy is the formation of an internal [Execution Quality Committee](https://prime.greeks.live/area/execution-quality-committee/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This committee is typically composed of senior personnel from compliance, trading, and technology departments. Its mandate is to oversee the firm’s best execution policies and procedures. The committee meets regularly, at least quarterly, to review execution quality reports and to make decisions about the firm’s order routing logic.

This formalizes the review process and creates a clear line of accountability. The committee’s minutes and decisions serve as a critical record of the firm’s diligence, demonstrating a proactive approach to managing the conflict of interest inherent in PFOF arrangements.

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## How Does a Broker Quantify Best Execution?

To fulfill their duty, brokers must move beyond subjective assessments and quantify execution quality. This involves collecting and analyzing a range of metrics for every venue to which they route orders. The table below illustrates some of the key metrics used in this analysis.

### Execution Quality Metrics Comparison

| Metric | Description | Importance in PFOF Context |
| --- | --- | --- |
| Price Improvement (PI) | The amount by which an order is executed at a price better than the National Best Bid or Offer (NBBO). It can be measured in dollars per share or as a percentage of orders improved. | This is the primary metric used to argue that PFOF does not harm clients. A high rate of price improvement suggests clients are receiving superior execution. |
| Effective Spread | The difference between the price at which a market order is executed and the midpoint of the NBBO at the time of order receipt. A smaller effective spread is better for the client. | This metric captures the true cost of trading for the client, including any price improvement. It provides a more holistic view of execution quality than PI alone. |
| Execution Speed | The time elapsed between when the order is routed to a venue and when it is executed. Measured in milliseconds. | Faster execution reduces the risk of slippage in fast-moving markets. It is a key component of execution quality, although its importance varies depending on the trading strategy. |
| Fill Rate | The percentage of orders that are fully executed. | A high fill rate indicates a venue’s reliability and liquidity. It is particularly important for ensuring that clients’ trading intentions are fully realized. |

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## Disclosure as a Strategic Tool

Regulatory requirements for disclosure are not just a compliance burden; they are a strategic asset. SEC Rules 606 and 607 of Regulation NMS mandate specific disclosures about order routing and PFOF.

- **Rule 606(a)** requires broker-dealers to make publicly available a quarterly report on their routing of “held” orders. This report must identify the top ten venues to which orders were routed and any material aspects of the broker’s relationship with those venues, including the terms of PFOF arrangements.

- **Rule 607** requires broker-dealers to disclose to customers, upon opening an account and annually thereafter, their policies regarding payment for order flow and order routing.

By providing clear and comprehensive disclosures, a broker can build trust with its clients and demonstrate to regulators that it is transparent about its potential conflicts of interest. The strategy is to use these reports to proactively communicate the value proposition to clients, showing with data that the firm’s routing logic, despite PFOF, is designed to achieve best execution.

![A reflective digital asset pipeline bisects a dynamic gradient, symbolizing high-fidelity RFQ execution across fragmented market microstructure. Concentric rings denote the Prime RFQ centralizing liquidity aggregation for institutional digital asset derivatives, ensuring atomic settlement and managing counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-rfq-execution-for-institutional-digital-asset-derivatives-2.jpg)

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## Execution

The execution of a compliant [best execution framework](https://prime.greeks.live/area/best-execution-framework/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in the presence of payment for order flow is a detailed, operational undertaking. It requires the integration of technology, [quantitative analysis](https://prime.greeks.live/area/quantitative-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and rigorous internal controls. The objective is to create an auditable trail that documents the firm’s unwavering commitment to its best execution duty.

This process moves from the theoretical and strategic to the practical and procedural. It is about building the systems and processes that collect the data, perform the analysis, and inform the decisions of the Execution [Quality Committee](https://prime.greeks.live/question/how-does-a-best-execution-committee-quantify-and-compare-execution-quality-across-different-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

At the heart of this execution is the firm’s [Smart Order Router](https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SOR). The SOR is an automated system that makes millisecond decisions about where to route an incoming customer order. The logic of the SOR must be programmed to weigh the various factors of best execution. While the potential for PFOF can be a factor in this logic, it cannot be the determinative one.

The SOR must prioritize venues that have historically demonstrated superior performance on metrics like price improvement and effective spread. The firm must be able to document and justify the weighting of these factors in its SOR’s algorithm. This requires a deep technical understanding of [market microstructure](https://prime.greeks.live/area/market-microstructure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and the technological capabilities to implement a sophisticated routing system.

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## The Operational Playbook

A broker-dealer must establish a formal, repeatable process for satisfying its best execution obligations. This playbook outlines the key steps and procedures.

- **Establish an Execution Quality Committee** Formalize the committee with a charter outlining its members, responsibilities, and meeting frequency (at least quarterly).

- **Define and Document Routing Logic** Clearly document the rules and algorithms used by the Smart Order Router. This documentation should explain how the SOR weighs different execution quality factors.

- **Implement Data Collection** Establish data feeds (typically using the FIX protocol) from all execution venues to capture detailed execution data for every order. This data should include time of order receipt, time of execution, execution price, and the NBBO at both times.

- **Generate Quarterly Execution Quality Reports** Develop standardized reports that aggregate execution data and calculate key performance metrics for each venue. These reports are the primary analytical tool for the committee.

- **Conduct and Document Committee Reviews** The committee must meet to review the quarterly reports. Discussions, decisions, and any resulting changes to routing logic must be meticulously documented in the meeting minutes.

- **Prepare and Publish Rule 606 Reports** Use the collected data to generate the required public disclosures. Ensure these reports are accurate, comprehensive, and published on time.

- **Conduct Annual Policy Reviews** At least once a year, the committee should review and update the firm’s overall best execution policy to ensure it remains consistent with regulatory expectations and market developments.

![Precision-engineered modular components display a central control, data input panel, and numerical values on cylindrical elements. This signifies an institutional Prime RFQ for digital asset derivatives, enabling RFQ protocol aggregation, high-fidelity execution, algorithmic price discovery, and volatility surface calibration for portfolio margin](https://options.greeks.live/wp-content/uploads/2025/07/firm-fx-options-rfq-trade-system-key-microstructure-data-flow-core-engine.jpg)

## Quantitative Modeling and Data Analysis

The bedrock of a defensible best execution process is quantitative analysis. The firm must be able to compare execution venues on an “apples-to-apples” basis. The table below presents a hypothetical quarterly execution quality review for a retail broker routing orders for a popular stock, XYZ Corp. It compares three different wholesale market makers (MM1, MM2, MM3).

### Hypothetical Quarterly Execution Quality Analysis (XYZ Corp.)

| Metric | Market Maker 1 (PFOF ▴ $0.001/share) | Market Maker 2 (PFOF ▴ $0.0015/share) | Market Maker 3 (No PFOF) |
| --- | --- | --- | --- |
| Total Shares Routed | 10,000,000 | 15,000,000 | 5,000,000 |
| Avg. Price Improvement per Share | $0.0025 | $0.0022 | $0.0023 |
| Net Price Improvement per Share (PI – PFOF) | $0.0015 | $0.0007 | $0.0023 |
| Avg. Effective Spread | $0.0050 | $0.0056 | $0.0052 |
| Avg. Execution Speed (ms) | 150 | 145 | 180 |

In this scenario, Market Maker 2 pays the highest PFOF but offers lower price improvement and a wider effective spread than Market Maker 1. Market Maker 3, which pays no PFOF, offers good price improvement but is slower. The analysis reveals that routing to Market Maker 1, despite the PFOF, provides a superior combination of price improvement and a tight effective spread. Routing a majority of orders to Market Maker 2 would be difficult to justify based on this data, as the higher PFOF appears to come at the expense of execution quality.

The “[Net Price Improvement](https://prime.greeks.live/area/net-price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” line is a critical internal metric, demonstrating the client’s benefit after accounting for the broker’s revenue. The committee would use this analysis to justify its continued relationship with MM1 and potentially reduce the flow sent to MM2.

![Abstract spheres and a translucent flow visualize institutional digital asset derivatives market microstructure. It depicts robust RFQ protocol execution, high-fidelity data flow, and seamless liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-leveraging-rfq-protocols-and-atomic-settlement-across-prime-os.jpg)

## Predictive Scenario Analysis

Consider a retail brokerage, “CommissionFree Traders,” which has a significant PFOF arrangement with a large market maker, “Apex Liquidity.” A new, smaller market maker, “Quantum Execution,” enters the market, offering no PFOF but claiming superior execution technology. The Execution Quality Committee at CommissionFree Traders must evaluate this new venue. They decide to route a small, statistically significant portion of their order flow (e.g. 5%) to Quantum for one quarter.

During this trial period, they collect data on Quantum’s performance for the same basket of stocks routed to Apex. At the end of the quarter, the committee’s quantitative analysis reveals that while Quantum is marginally faster, Apex provides 15% more price improvement on average. The committee documents this finding and decides to maintain its primary routing arrangement with Apex. When regulators later inquire about the firm’s diligence, CommissionFree Traders can produce the detailed report comparing Apex and Quantum, along with the committee’s minutes. This documentation provides a robust defense, demonstrating that their decision to stay with the PFOF-paying venue was based on a data-driven conclusion that it provided the best outcome for clients.

![Abstract depiction of an institutional digital asset derivatives execution system. A central market microstructure wheel supports a Prime RFQ framework, revealing an algorithmic trading engine for high-fidelity execution of multi-leg spreads and block trades via advanced RFQ protocols, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-system-1.jpg)

## What Is the Role of Technological Integration?

The entire best execution framework relies on seamless technological integration. The Order Management System (OMS) is the central hub that receives customer orders. The OMS communicates with the Smart Order Router (SOR), which contains the routing logic. The SOR, in turn, sends orders to the various execution venues using the Financial Information eXchange (FIX) protocol, a standardized electronic communication protocol for financial transactions.

After execution, the venues send back execution reports via FIX, which are captured by the broker’s systems. This data is then fed into a data warehouse, where it can be queried and analyzed by the compliance team to generate the quarterly reports. The robustness of this technological architecture is paramount. Any failure in data capture or processing undermines the entire compliance framework.

![A modular, institutional-grade device with a central data aggregation interface and metallic spigot. This Prime RFQ represents a robust RFQ protocol engine, enabling high-fidelity execution for institutional digital asset derivatives, optimizing capital efficiency and best execution](https://options.greeks.live/wp-content/uploads/2025/08/principals-institutional-digital-asset-derivatives-prime-os-for-optimized-rfq-protocol-best-execution-system.jpg)

## References

- FINRA. (2021). Regulatory Notice 21-23 ▴ FINRA Reminds Member Firms of Requirements Concerning Best Execution and Payment for Order Flow. Financial Industry Regulatory Authority.

- Congressional Research Service. (2024). Payment for Order Flow (PFOF) and Broker-Dealer Regulation. CRS Report.

- Pitaro, V. (2021). FINRA Issues Notice on Best Execution Duties and Payment for Order Flow. Hedge Fund Law Report.

- Sidley Austin LLP. (2021). FINRA Clarifies Guidance on Best Execution and Payment for Order Flow. JD Supra.

- Winston & Strawn LLP. (2022). Duty of Best Execution and Payment for Order Flow ▴ A Review of Recent Civil Litigation. Traders Magazine.

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## Reflection

The intricate system governing the relationship between best execution and payment for order flow reveals a core principle of modern market structure. The presence of a conflict of interest is not, in itself, a disqualifying condition. Instead, the operational and ethical test is whether that conflict can be managed through a system of rigorous analysis, transparent disclosure, and demonstrable client benefit. The architecture of compliance, from the Execution Quality Committee to the logic of the Smart Order Router, constitutes a complex machine designed to produce a single output ▴ a defensible claim to having served the client’s best interest.

![An abstract composition of interlocking, precisely engineered metallic plates represents a sophisticated institutional trading infrastructure. Visible perforations within a central block symbolize optimized data conduits for high-fidelity execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-multi-leg-execution-layer.jpg)

## Considering Your Own Framework

This raises a critical question for any market participant. How does your own operational framework account for the incentives, both visible and hidden, that shape the execution of your transactions? The regulatory environment surrounding PFOF provides a model for interrogating any system where agency and financial incentive intersect.

The ultimate advantage lies in understanding these systems, not just as a set of rules to be followed, but as a framework for building a superior operational intelligence. The question moves from “Is this allowed?” to “Does our process yield the optimal result, and can we prove it?”

![A polished, dark teal institutional-grade mechanism reveals an internal beige interface, precisely deploying a metallic, arrow-etched component. This signifies high-fidelity execution within an RFQ protocol, enabling atomic settlement and optimized price discovery for institutional digital asset derivatives and multi-leg spreads, ensuring minimal slippage and robust capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/quantitative-finance-driven-rfq-workflow-for-best-execution-in-digital-assets.jpg)

## Glossary

<a href="https://prime.greeks.live/area/payment-for-order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A smooth, off-white sphere rests within a meticulously engineered digital asset derivatives RFQ platform, featuring distinct teal and dark blue metallic components. This sophisticated market microstructure enables private quotation, high-fidelity execution, and optimized price discovery for institutional block trades, ensuring capital efficiency and best execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-system-microstructure-core.jpg)

## Payment for Order Flow

Meaning ▴ Payment for Order Flow (PFOF) is a controversial practice wherein a brokerage firm receives compensation from a market maker for directing client trade orders to that specific market maker for execution. </a><a href="https://prime.greeks.live/area/best-execution-duty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Central polished disc, with contrasting segments, represents Institutional Digital Asset Derivatives Prime RFQ core. A textured rod signifies RFQ Protocol High-Fidelity Execution and Low Latency Market Microstructure data flow to the Quantitative Analysis Engine for Price Discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-core-system-high-fidelity.jpg)

## Best Execution Duty

Meaning ▴ Best Execution Duty, within the context of crypto asset trading, denotes a stringent obligation for entities handling client orders to obtain the most advantageous terms reasonably available for those orders. </a><a href="https://prime.greeks.live/question/how-do-exchanges-define-stressed-market-conditions-for-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central translucent disk, representing a Liquidity Pool or RFQ Hub, is intersected by a precision Execution Engine bar. Its core, an Intelligence Layer, signifies dynamic Price Discovery and Algorithmic Trading logic for Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-visualizing-microstructure.jpg)

## Wholesale Market Makers

Exchanges define stressed market conditions as a codified, trigger-based state that relaxes liquidity obligations to ensure market continuity. </a><a href="https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent, blue-tinted sphere, anchored to a metallic base on a light surface, symbolizes an RFQ inquiry for digital asset derivatives. A fine line represents low-latency FIX Protocol for high-fidelity execution, optimizing price discovery in market microstructure via Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-rfq-protocol-sphere-high-fidelity-execution-gateway.jpg)

## Order Flow

Meaning ▴ Order Flow represents the aggregate stream of buy and sell orders entering a financial market, providing a real-time indication of the supply and demand dynamics for a particular asset, including cryptocurrencies and their derivatives. </a><a href="https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated digital asset derivatives execution platform showcases its core market microstructure. A speckled surface depicts real-time market data streams](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-core-microstructure.jpg)

## Best Execution

Meaning ▴ Best Execution, in the context of cryptocurrency trading, signifies the obligation for a trading firm or platform to take all reasonable steps to obtain the most favorable terms for its clients' orders, considering a holistic range of factors beyond merely the quoted price. </a><a href="https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated modular component of a Crypto Derivatives OS, featuring an intelligence layer for real-time market microstructure analysis. Its precision engineering facilitates high-fidelity execution of digital asset derivatives via RFQ protocols, ensuring optimal price discovery and capital efficiency for institutional participants](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-module.jpg)

## Execution Quality

Meaning ▴ Execution quality, within the framework of crypto investing and institutional options trading, refers to the overall effectiveness and favorability of how a trade order is filled. </a><a href="https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered metallic and glass system depicts the core of an Institutional Grade Prime RFQ, facilitating high-fidelity execution for Digital Asset Derivatives. Transparent layers represent visible liquidity pools and the intricate market microstructure supporting RFQ protocol processing, ensuring atomic settlement capabilities](https://options.greeks.live/wp-content/uploads/2025/08/robust-institutional-digital-asset-derivatives-trading-platform-for-optimized-rfq-protocol-execution-and-deep-liquidity-access.jpg)

## Price Improvement

Meaning ▴ Price Improvement, within the context of institutional crypto trading and Request for Quote (RFQ) systems, refers to the execution of an order at a price more favorable than the prevailing National Best Bid and Offer (NBBO) or the initially quoted price. </a><a href="https://prime.greeks.live/area/execution-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, multi-segmented sphere embodies a Principal's operational framework for institutional digital asset derivatives. Its transparent 'intelligence layer' signifies high-fidelity execution and price discovery via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-digital-asset-derivatives-execution-engine.jpg)

## Execution Venues

Meaning ▴ Execution venues are the diverse platforms and systems where financial instruments, including cryptocurrencies, are traded and orders are matched. </a><a href="https://prime.greeks.live/area/finra-rule-5310/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated mechanism depicting the high-fidelity execution of institutional digital asset derivatives. It visualizes RFQ protocol efficiency, real-time liquidity aggregation, and atomic settlement within a prime brokerage framework, optimizing market microstructure for multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-execution-liquidity-aggregation-system.jpg)

## Finra Rule 5310

Meaning ▴ FINRA Rule 5310, titled "Best Execution and Interpositioning," is a foundational regulatory principle in traditional financial markets, stipulating that broker-dealers must use reasonable diligence to ascertain the best market for a security and buy or sell in that market so that the resultant price to the customer is as favorable as possible under prevailing market conditions. </a><a href="https://prime.greeks.live/area/market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A futuristic, metallic structure with reflective surfaces and a central optical mechanism, symbolizing a robust Prime RFQ for institutional digital asset derivatives. It enables high-fidelity execution of RFQ protocols, optimizing price discovery and liquidity aggregation across diverse liquidity pools with minimal slippage](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-platform-for-institutional-digital-asset-derivatives-rfq-protocol-optimized-execution-management-system-with-robust-liquidity-sourcing.jpg)

## Market Makers

Meaning ▴ Market Makers are essential financial intermediaries in the crypto ecosystem, particularly crucial for institutional options trading and RFQ crypto, who stand ready to continuously quote both buy and sell prices for digital assets and derivatives. </a><a href="https://prime.greeks.live/area/market-maker/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A symmetrical, multi-faceted structure depicts an institutional Digital Asset Derivatives execution system. Its central crystalline core represents high-fidelity execution and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-microstructure.jpg)

## Market Maker

Meaning ▴ A Market Maker, in the context of crypto financial markets, is an entity that continuously provides liquidity by simultaneously offering to buy (bid) and sell (ask) a particular cryptocurrency or derivative. </a><a href="https://prime.greeks.live/area/order-routing/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract depiction of an advanced institutional trading system, featuring a prominent sensor for real-time price discovery and an intelligence layer. Visible circuitry signifies algorithmic trading capabilities, low-latency execution, and robust FIX protocol integration for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-high-fidelity-rfq-protocols.jpg)

## Order Routing

Meaning ▴ Order Routing is the critical process by which a trading order is intelligently directed to a specific execution venue, such as a cryptocurrency exchange, a dark pool, or an over-the-counter (OTC) desk, for optimal fulfillment. </a><a href="https://prime.greeks.live/area/effective-spread/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A glossy, segmented sphere with a luminous blue 'X' core represents a Principal's Prime RFQ. It highlights multi-dealer RFQ protocols, high-fidelity execution, and atomic settlement for institutional digital asset derivatives, signifying unified liquidity pools, market microstructure, and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-core-for-best-rfq-digital-asset-derivatives-institutional-trade-flow.jpg)

## Effective Spread

Meaning ▴ The Effective Spread, within the context of crypto trading and institutional Request for Quote (RFQ) systems, serves as a comprehensive metric that quantifies the true economic cost of executing a trade, meticulously accounting for both the observable bid-ask spread and any price improvement or degradation encountered during the actual transaction. </a><a href="https://prime.greeks.live/area/execution-speed/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered, multi-layered system visually representing institutional digital asset derivatives trading. Its interlocking components symbolize robust market microstructure, RFQ protocol integration, and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-4.jpg)

## Execution Speed

Meaning ▴ Execution Speed, in crypto trading systems, quantifies the time interval between the submission of a trade order and its complete fulfillment on a trading venue. </a><a href="https://prime.greeks.live/area/regulation-nms/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise central mechanism, representing an institutional RFQ engine, is bisected by a luminous teal liquidity pipeline. This visualizes high-fidelity execution for digital asset derivatives, enabling precise price discovery and atomic settlement within an optimized market microstructure for multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-core-execution-system-1.jpg)

## Regulation Nms

Meaning ▴ Regulation NMS (National Market System) is a comprehensive set of rules established by the U. </a><a href="https://prime.greeks.live/area/sec-rule-606/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, light interface, a Principal's Prime RFQ, overlays a dark, intricate market microstructure. This represents institutional-grade digital asset derivatives trading, showcasing high-fidelity execution via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-prime-os-execution-system.jpg)

## Sec Rule 606

Meaning ▴ SEC Rule 606, as promulgated by the U. </a><a href="https://prime.greeks.live/question/how-can-a-firm-quantitatively-prove-its-order-routing-logic-prioritizes-best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract, precision-engineered mechanism showcases polished chrome components connecting a blue base, cream panel, and a teal display with numerical data. This symbolizes an institutional-grade RFQ protocol for digital asset derivatives, ensuring high-fidelity execution, price discovery, multi-leg spread processing, and atomic settlement within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-execution-1.jpg)

## Routing Logic

A firm proves its order routing logic prioritizes best execution by building a quantitative, evidence-based audit trail using TCA. </a><a href="https://prime.greeks.live/area/rule-606/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A refined object featuring a translucent teal element, symbolizing a dynamic RFQ for Institutional Grade Digital Asset Derivatives. Its precision embodies High-Fidelity Execution and seamless Price Discovery within complex Market Microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-for-optimal-execution-and-deep-liquidity-aggregation.jpg)

## Rule 606

Meaning ▴ Rule 606, in its original context within traditional U. </a><a href="https://prime.greeks.live/area/execution-quality-committee/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A specialized hardware component, showcasing a robust metallic heat sink and intricate circuit board, symbolizes a Prime RFQ dedicated hardware module for institutional digital asset derivatives. It embodies market microstructure enabling high-fidelity execution via RFQ protocols for block trade and multi-leg spread](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-dedicated-hardware-for-institutional-rfq-execution.jpg)

## Execution Quality Committee

Meaning ▴ An Execution Quality Committee, within the organizational structure of institutional trading firms, particularly those active in crypto, is a governance body tasked with overseeing and enhancing the effectiveness and fairness of trade execution processes. </a><a href="https://prime.greeks.live/area/best-execution-framework/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered metallic component displays two interlocking gold modules with circular execution apertures, anchored by a central pivot. This symbolizes an institutional-grade digital asset derivatives platform, enabling high-fidelity RFQ execution, optimized multi-leg spread management, and robust prime brokerage liquidity](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-core-for-institutional-trade-flow.jpg)

## Best Execution Framework

Meaning ▴ A Best Execution Framework in crypto trading represents a comprehensive compilation of policies, operational procedures, and integrated technological infrastructure specifically engineered to guarantee that client orders are executed under terms maximally favorable to the client. </a><a href="https://prime.greeks.live/area/quantitative-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intricate mechanisms represent a Principal's operational framework, showcasing market microstructure of a Crypto Derivatives OS. Transparent elements signify real-time price discovery and high-fidelity execution, facilitating robust RFQ protocols for institutional digital asset derivatives and options trading](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-protocol-engine-for-institutional-digital-asset-derivatives.jpg)

## Quantitative Analysis

Meaning ▴ Quantitative Analysis (QA), within the domain of crypto investing and systems architecture, involves the application of mathematical and statistical models, computational methods, and algorithmic techniques to analyze financial data and derive actionable insights. </a><a href="https://prime.greeks.live/question/how-does-a-best-execution-committee-quantify-and-compare-execution-quality-across-different-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract machinery visualizes an institutional RFQ protocol engine, demonstrating high-fidelity execution of digital asset derivatives. It depicts seamless liquidity aggregation and sophisticated algorithmic trading, crucial for prime brokerage capital efficiency and optimal market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-1.jpg)

## Quality Committee

A Best Execution Committee systematically architects superior trading outcomes by quantifying performance against multi-dimensional benchmarks and comparing venues through rigorous, data-driven analysis. </a><a href="https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Metallic rods and translucent, layered panels against a dark backdrop. This abstract visualizes advanced RFQ protocols, enabling high-fidelity execution and price discovery across diverse liquidity pools for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-rfq.jpg)

## Smart Order Router

Meaning ▴ A Smart Order Router (SOR) is an advanced algorithmic system designed to optimize the execution of trading orders by intelligently selecting the most advantageous venue or combination of venues across a fragmented market landscape. </a><a href="https://prime.greeks.live/area/market-microstructure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A stylized depiction of institutional-grade digital asset derivatives RFQ execution. A central glowing liquidity pool for price discovery is precisely pierced by an algorithmic trading path, symbolizing high-fidelity execution and slippage minimization within market microstructure via a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-high-fidelity-execution-1.jpg)

## Market Microstructure

Meaning ▴ Market Microstructure, within the cryptocurrency domain, refers to the intricate design, operational mechanics, and underlying rules governing the exchange of digital assets across various trading venues. </a><a href="https://prime.greeks.live/area/net-price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, metallic components with reflective blue surfaces depict an advanced institutional RFQ protocol. Its central pivot and radiating arms symbolize aggregated inquiry for multi-leg spread execution, optimizing order book dynamics](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-microstructure-for-institutional-digital-asset-derivatives.jpg)

## Net Price Improvement

Meaning ▴ Net Price Improvement signifies the economic benefit achieved when an executed trade occurs at a price superior to the prevailing best available bid for a sell order or the best available offer for a buy order at the moment of order routing. </a>

**Tags:** [Best Execution Duty](https://options.greeks.live/area/best-execution-duty/), [Fiduciary Duty](https://options.greeks.live/area/fiduciary-duty/), [Execution Quality Committee](https://options.greeks.live/area/execution-quality-committee/), [Rule 606](https://options.greeks.live/area/rule-606/), [Execution Speed](https://options.greeks.live/area/execution-speed/), [Market Makers](https://options.greeks.live/area/market-makers/)	

## Discover More

- 
### [How Does the Best Execution Committee Handle Conflicts of Interest like PFOF?](https://options.greeks.live/question/how-does-the-best-execution-committee-handle-conflicts-of-interest-like-pfof/)
![Geometric planes and transparent spheres represent complex market microstructure. A central luminous core signifies efficient price discovery and atomic settlement via RFQ protocol. This visualizes multi-leg spread execution across diverse liquidity pools for institutional digital asset derivatives on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-4.jpg)

A Best Execution Committee systematically manages PFOF conflicts by using data-driven reviews to ensure routing decisions prioritize client outcomes over broker incentives.

- 
### [How Does Payment for Order Flow Affect a Firm’s Best Execution Review?](https://options.greeks.live/question/how-does-payment-for-order-flow-affect-a-firms-best-execution-review/)
![A precision instrument probes a speckled surface, visualizing market microstructure and liquidity pool dynamics within a dark pool. This depicts RFQ protocol execution, emphasizing price discovery for digital asset derivatives. Elements represent volatility surface data and algorithmic trading probes ensuring capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-flow.jpg)

Payment for order flow introduces a structural conflict into a firm's best execution review, demanding a rigorous, data-driven analysis to ensure client interests remain paramount.

- 
### [How Does Payment for Order Flow Impact Retail Best Execution?](https://options.greeks.live/question/how-does-payment-for-order-flow-impact-retail-best-execution/)
![A sleek device, symbolizing a Prime RFQ for Institutional Grade Digital Asset Derivatives, balances on a luminous sphere representing the global Liquidity Pool. A clear globe, embodying the Intelligence Layer of Market Microstructure and Price Discovery for RFQ protocols, rests atop, illustrating High-Fidelity Execution for Bitcoin Options.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-execution-intelligence-layer-prime-os.jpg)

PFOF centralizes retail order execution with wholesalers, trading zero commissions for potential conflicts in achieving true best execution.

- 
### [Can a High PFOF Rate Ever Be Justified within a Broker’s Best Execution Obligations?](https://options.greeks.live/question/can-a-high-pfof-rate-ever-be-justified-within-a-brokers-best-execution-obligations/)
![A high-fidelity institutional digital asset derivatives execution platform. A central conical hub signifies precise price discovery and aggregated inquiry for RFQ protocols. Linear pathways represent advanced algorithmic trading routes, ensuring capital efficiency and best execution within market microstructure, crucial for options trading.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-high-fidelity-digital-asset-derivatives-execution-1.jpg)

A high PFOF rate is justifiable only when proven by persistent, quantitative data to contribute to a superior "all-in" client outcome.

- 
### [Can a Broker That Accepts Payment for Order Flow Still Genuinely Achieve Best Execution for Its Clients?](https://options.greeks.live/question/can-a-broker-that-accepts-payment-for-order-flow-still-genuinely-achieve-best-execution-for-its-clients/)
![A sleek, cream-colored, dome-shaped object with a dark, central, blue-illuminated aperture, resting on a reflective surface against a black background. This represents a cutting-edge Crypto Derivatives OS, facilitating high-fidelity execution for institutional digital asset derivatives. Its central aperture symbolizes intelligent price discovery and real-time market microstructure analysis, crucial for optimal RFQ protocol management and multi-leg spread strategies, embodying prime brokerage capabilities.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-prime-os-high-fidelity-rfq-execution-engine-intelligence-layer.jpg)

A broker's ability to achieve best execution while accepting PFOF is contingent on a robust, data-driven system that empirically validates execution quality against all viable alternatives.

- 
### [How Does Payment for Order Flow Interact with the Duty of Best Execution?](https://options.greeks.live/question/how-does-payment-for-order-flow-interact-with-the-duty-of-best-execution/)
![A luminous teal bar traverses a dark, textured metallic surface with scattered water droplets. This represents the precise, high-fidelity execution of an institutional block trade via a Prime RFQ, illustrating real-time price discovery. The droplets symbolize dynamic market microstructure and managed latent liquidity, crucial for optimal capital efficiency in digital asset derivatives RFQ protocols.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-real-time-institutional-digital-asset-rfq-execution-stream-visualizing-prime-os-liquidity-flow.jpg)

Payment for order flow creates a structural conflict that is managed by a fiduciary duty of best execution, verified through rigorous data analysis.

- 
### [What Are the Regulatory Implications for Best Execution under Different Routing Models?](https://options.greeks.live/question/what-are-the-regulatory-implications-for-best-execution-under-different-routing-models/)
![A sleek, black and beige institutional-grade device, featuring a prominent optical lens for real-time market microstructure analysis and an open modular port. This RFQ protocol engine facilitates high-fidelity execution of multi-leg spreads, optimizing price discovery for digital asset derivatives and accessing latent liquidity.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-execution-engine-for-high-fidelity-price-discovery-and-latent-liquidity-aggregation-across-multi-leg-spreads.jpg)

A firm's order routing model dictates its best execution compliance by defining the auditable logic used to seek the most favorable price.

- 
### [What Are the Key Differences in Best Execution Obligations between the US and Europe?](https://options.greeks.live/question/what-are-the-key-differences-in-best-execution-obligations-between-the-us-and-europe/)
![Sleek metallic components with teal luminescence precisely intersect, symbolizing an institutional-grade Prime RFQ. This represents multi-leg spread execution for digital asset derivatives via RFQ protocols, ensuring high-fidelity execution, optimal price discovery, and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-best-execution-system.jpg)

US best execution emphasizes a flexible, principles-based "reasonable diligence," while Europe's MiFID II mandates a prescriptive, data-driven "all sufficient steps" approach.

- 
### [What Are the Specific Disclosure Requirements under SEC Rule 606 and Rule 607?](https://options.greeks.live/question/what-are-the-specific-disclosure-requirements-under-sec-rule-606-and-rule-607/)
![A close-up of a sophisticated, multi-component mechanism, representing the core of an institutional-grade Crypto Derivatives OS. Its precise engineering suggests high-fidelity execution and atomic settlement, crucial for robust RFQ protocols, ensuring optimal price discovery and capital efficiency in multi-leg spread trading.](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-engine-for-institutional-digital-asset-derivatives.jpg)

SEC Rules 606 and 607 mandate broker-dealers to disclose order routing practices and payments, enabling data-driven execution analysis.

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```


---

**Original URL:** https://options.greeks.live/question/can-a-broker-fulfill-its-best-execution-duty-while-still-accepting-payment-for-order-flow/
