Best Execution and MiFID II arrived on January 2018. With it are new standards for Best Execution that financial institutions will need to adhere to. Cappitech is here to help.
Best Execution Requirements
To adhere with Best Execution, investment firms are required to “take all reasonable steps” to obtain the best possible price when executing client orders, taking into items such as costs, speed, size and likelihood of execution
According to ESMA (link), this includes:
- Creating an “order execution policy” that is published and available for clients to review
- Different asset classes should have specific policies applied to them such as the best venues to handle client executions
- Investment firms should have in place systematic methods to monitor that customer executions are following their policy
- A process should be in place to escalate any execution issues to management for remediation
- Per client request, investment firms are required to provide means to demonstrate to customers how their orders are executed within the execution policies
Solving Best Execution with Cappitech – How it Works
Cappitech connects with the customer’s database or trading platform to seamlessly integrate execution information into the platform and provide best execution analysis through a web-based dashboard.
For best execution and RTS 27 reporting, it is best practice to implement a daily systematic monitoring to ensure that the firm adheres to its best execution policies daily as opposed to only examining best execution once a quarter. Through systematic daily best execution analysis, any deviations are picked up in near to real-time and can be corrected for all future executions. This makes the RTS 27 reporting more accurate and ensures a higher level of trade execution. Even for those entities that are not required to report RTS 27 such as Asset Managers, Hedge Funds, Agency Brokers and the like, these companies can benefit greatly from Best Execution monitoring to ensure their broker provides them with best price and best execution practice.
How it works:
- Cappitech integrates with the customer’s database or trading platform to consume execution information.
- The broker or bank uses the platform to set details of their execution policy
- Client transaction prices are compared on a second by second basis to Bid/Ask quotes from a Tier 1 market data provider
- Any deviations from the execution policy is displayed on an interactive dashboard
- Quarterly RTS 27 Reports are available to download to share internally and with clients
Risk Management and Compliance
Along with detecting execution quality, the platform also provides risk management features. Using the solution, firms are also able to spot out of market trades. These may be the result of market data latency issues used to price securities or traders taking advantage of pricing errors.