The answer: reporting, monitoring and controlling. It doesn’t sound that difficult, until you look into the specific mandates that will take effect in January.
MiFID I required that firms prove they provided Best Execution for equity trading. MiFID II extends those requirements across all asset classes. In addition, it also establishes more venues to aggregate.
What does MiFID II demand?
Like its predecessor, MiFID II demands that firms executing client orders establish and agree on policies with their professional and retail-classified clients about how they will achieve Best Execution in advance.
You need to make choices upfront about how to provide liquidity to clients: off their own book or by executing client orders on their behalf, and how to achieve the best possible result for their clients.
You need to consider which venues provide the best option, and publish reports on a regular basis.
Specifically, MiFID II requires execution venues — as well as market makers and SIs — to publish execution reports as stipulated by the Regulatory Technical Standard (RTS) 27. In addition, investment firms must also publish execution reports under the RTS 28 standard.
Data, analytics and technology are the keys
There is an expectation that your firm will constantly monitor and record performance. Clients can challenge you and demand evidence of Best Execution at any stage, so it will become essential to be able to replay scenarios. On top of that, you will need to review performance and adjust policies appropriately on a regular basis.
A constant challenge for the industry is finding a price for less liquid products and demonstrating Best Execution. With sparse pricing and trade data available as a reference point, market participants need to look for alternative sources and proxies.
To meet all these challenges, you need to design an approach to compliance and then build and deploy solutions, selecting the most effective partners to provide the necessary data and tools to support the Best Execution services.
Proven solutions are already helping the financial industry comply
Many of the products and services you need for performing and documenting Best Execution strategies already exist within our portfolio, and have proven themselves in the real-world marketplace.
Is already a market leader in aggregated data. It can absorb both real-time, reference, tick-history and client data, and enables your firm to address the three fundamentals of Best Execution — reporting, monitoring and controlling.
We also support additional monitoring across the extended asset classes, bringing traditional equities Transaction Cost Analysis (TCA) to a new set of instruments.
Velocity Analytics allows companies to apply the necessary controls such as policy effectiveness, calibration and case management ensuring their Best Execution policies are adhered to and remain effective.
Delivers cross market liquidity views for individual equities with both the .x RIC, providing a pan European Best Bid/Offer and Time and Sales, and the Blended Order Book object, providing a customisable view of the cross-market order book.
In addition, Eikon provides access to European Market Share Report, an on-demand reporting tool that provides historical insights in how individual instruments have been traded across Europe. These and other powerful new views and analytics will extend these aggregation capabilities to incorporate the full range of new trading venues and liquidity sources launched in the post-MiFID environment across full range of asset classes.
Enables even greater resolution to historical data, providing the ability to replay over 10 years of tick-by-tick data across the range of global asset classes.
Fixed Income Securities can often pose a challenge for pricing, benchmarking and proving Best Execution.
Is an independent, global evaluated pricing source covering over 2.5 million fixed income securities, derivatives and bank loans. With over 100 evaluators across the world, the service offers true global coverage with local knowledge, applying consistent and transparent pricing for all evaluations.
In conclusion, we are a single leading source that is helping the financial industry meet the three prongs of Best Execution: reporting, monitoring and controlling.