Meet Your Best Execution Monitoring Requirements
ESMA introduced Best Execution monitoring as part of MiFID I in 2007. Since then, standards for complying with Best Execution have gotten stricter with investment firms being required to put in place methods to systematically monitor execution quality of client trades.
S&P Global helps firms meet these growing regulatory demands. Our Best Execution platform benchmarks trade details to monitor for pricing quality, execution latency and order slippage. The analytic dashboard then provides a graphical interface to view high level statistics as well as the ability to drill-down into second-by-second analysis of benchmark comparisons, latency and slippage.
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What is best execution under MiFID II?
Under MIFID II, there are two types of Best Execution. One is the requirement that firms have a system in place to review their execution quality the provide for clients. Second are yearly (RTS 28) and quarterly (RTS 27) reports that investment firms need to disclose on their websites.
How has best execution changed over the years?
Best execution was already introduced in 2007 under MiFID I Article 21 where it stated that investment firms (Ifs) are required to take “all reasonable steps” to obtain the best possible prices when executing client orders , taking into account items such as cost, speed, size and likelihood of execution. A higher requirements bar is now set in MiFID II as the regulation now requires to take “sufficient steps”.
What are methods to take ‘sufficient steps’ to monitor best execution?
When describing best execution tactics, regulators have provided various examples. Included are comparisons of executions to market accepted benchmark rates, monitoring of execution slippage and latency and review of why and how often are trades cancelled.
Should firms make public information on best execution?
As part of the regulation, firms need to have an execution policy as well as a system to show that they are reviewing and ensuring the policy in being maintained. Typically, the policy will be something like, ‘we review prices at three locations to get our clients a fair price for their execution’.
Why is best execution so important?
Best execution is part of a group of rules aimed at Investor Protection. Regulators consider best execution monitoring as a valuable method to confirm that investment firms are executing trades in their client’s best interests.
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