Few asset manages appear ready to meet tighter standards for transacting securities in the interests of their clients.
Liquidnet, a trade execution platform provider, found just over three out of 55 firms polled believed they were currently ready to meet ‘best execution’ requirements.
Best execution is an investor protection element of the revised Markets in Financial Instruments Directive (MiFID II) and requires firms to take sufficient steps to achieve best execution of client orders, including cost and speed factors.
However, despite the uncertainty surrounding MiFID II compliance by the January 3, 2018, deadline, Liquidnet’s research suggested there was significant activity over best execution.
For example, many firms expected to review the brokers they worked with and others wanted evidence of best execution from brokers globally, not just in the EU where MiFID II is effective.
“Best execution no longer means a mere ‘look back and check’ on the outcome of an individual order. It is now the creation and implementation of a process that enables the trader to be in possession of as much valuable information as possible, throughout the lifecycle of a trade,” said Rebecca Healey, regional head of market structure at Liquidnet.
Just over 60% of respondents recognised their need to provide more granular detail to their execution policies, with a third planning to make changes to trading workflow and over a quarter investing in technology to ensure a more systematic approach to best execution, the research found.
Another finding was that, while transaction cost analysis (TCA) has been the traditional tool for measuring best execution, the industry is shifting towards a “more holistic best execution analysis that includes TCA”.
Healey added: “With less than four months to go until full MiFID II implementation, firms now have to hit the reset button to ensure they meet the higher regulatory standards required.”
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