the best of the book under the magnifying glass

For several years, we have observed that retail investors often wonder that institutional traders would benefit from favorable conditions for placing orders in the stock market, whereas individual traders would not have access to them.

In reality, the European Financial Regulation (MiFID II), whose purpose is to protect investors and ensure the proper functioning of financial markets, provides particularly favorable conditions for individual investors, and this at different levels.

In this article we explain what the Euronext Best of Book service is – literally “the best of the book” – thanks to which retail investors can benefit from the best conditions when placing buy/sell orders on the exchange.

Explanation of the principle of “Best Execution” on the Stock Exchange

Let’s start with a reminder of the law

Since the adoption of the MiFID II directive by the European Commission in 2014, which aims to guarantee greater transparency in the financial markets thanks to harmonized regulations at European level, financial intermediaries (i.e. brokers) are obliged to carry out purchase- /sell orders for securities initiated by retail investors in accordance with the best execution policy.

The best execution policy states that a stockbroker must make every effort to ensure that orders will be executed at the most advantageous price for its retail clients.

Two factors must be taken into account by the broker in order for the best execution to be recognized as valid:

  • the execution price of the order (buy/sell);
  • the transaction cost that the broker must pay to perform the execution.

Note : So think twice before asking your stockbroker for professional investor status (for example to get higher leverage) because you will lose this right to guaranteed best execution.

Also read our article Free trading: the hidden face of stock market fees

How does it work in practice?

If your stockbroker is regulated in Europe, he must guarantee you “best execution”. But in recent years, new players have emerged that seek to compete with large exchanges. These are MHFs (“multilateral trading facility”) and “dark pools”, which do not necessarily apply the execution rules normally found on historical exchanges.

Please understand that MTFs and/or “dark pools” do not always execute orders at the best prices and rarely distinguish between retail orders and professional orders.

The best way to be sure of “best execution” is to approach a stockbroker who undertakes to execute all of his clients’ orders on one of the main exchanges subject to financial regulations.

See also our 10 tips for choosing the best stockbroker

Euronext and its Best of Book service

When your stockbroker transmits your order to buy or sell shares on Euronext Paris via the Best of Book service, it is executed at the best available price among all potential counterparties present on the exchange, including certain counterparties reserved for individuals. Your order will be identified as being an order initiated by a private investor and it will benefit from advantageous prices reserved for private individuals in the Euronext book, guaranteeing you:

  • access to the best prices available in Europe thanks to liquidity providers dedicated to improving your execution price;
  • an actual execution price of your order with a negotiation carried out in full competition within the Euronext Central Order Book (which means competition, means diversity of counterparties in the order book, which guarantees a competitive and impartial market);
  • higher execution quality, so you can achieve a price improvement. Best of Book is the trading platform that outperforms EBBO (European Best Bid & Offer) the most, the benchmark that reflects the best possible price available among all European trading platforms.

With these conditions, your orders can thus have a better closing price for the purchase or sale of securities. In addition, as a retail investor you will also have access to a number of additional available shares.

According to data provided by QuantHouse, in 2021, thanks to “Best of Book”, orders from retail investors benefited on average from a price improvement of €3.07 by placing their orders on Euronext instead of on an alternative platform. . In addition, Best of Book enabled individual investors to obtain a better buy or sell price for 98.68% of orders processed. In total, more than 106 million euros have been saved from individual investors.

Also discover our article Stock market fees: how not to be fooled

Example of execution of stock exchange orders for investors

In this illustrated example, we will compare the execution of an order for 100 shares that would have been initiated by a retail investor with the execution of an order for 100 shares that would have been initiated by a professional investor at the same time.

Source: Euronext

In the main order book (available to everyone) we see that 50 shares are available for sale at a price of EUR 250 and another 50 shares are available at a price of EUR 300.

The liquidity pocket, specially reserved for retail investors, shows that there are an additional 50 shares available at prices of €200.

Also read our file How to invest in the stock market? Our step-by-step guide

The case of the professional investor

Professional investors who want to buy 100 shares can buy 50 at a price of EUR 250 (top of the book) and 50 at a price of EUR 300 (level 2 liquidity). He will therefore have bought 100 shares at an average price of EUR 275.

The case of the retail investor

Individual investors who also want to buy 100 shares but have access to a reserve of special shares can buy 50 at a price of EUR 200 and 50 at a price of EUR 250. He will therefore have bought 100 shares at an average price of EUR 225.

Finally, remember to always ask your stockbroker where and how your stock orders are executed because, in addition to brokerage commissions, there may be indirect transaction costs that represent significant amounts over time.

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All of our information is generic in nature. They do not take into account your personal situation and in no way constitute personal recommendations for carrying out transactions and cannot be equated to a financial investment advisory service or to any incentive to buy or sell instruments. The reader is solely responsible for the use of the information provided, without recourse against the publisher of The responsibility of the publisher of cannot be held responsible in any way in case of errors, omissions or inappropriate investment.

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