For hedge funds and other investment managers with a thirst for information on how best execution will change under MiFID II, the Alternative Investment Management Association (AIMA) has just released its MiFID2 Best Execution Guide.
Best Execution under MiFID II differs from its predecessor’s provisions in two main ways. First, MiFID II requires investment firms to take “all sufficient steps” to ensure the best possible outcome when executing client orders, while MiFID I required only “all reasonable steps.” Second, it applies MiFID I’s best execution parameters – price, cost, speed and likelihood of execution and settlement, size and nature of orders – across a range of asset classes, whereas MiFID I applied only to equities.
According to AIMA, to comply with the new requirements, firms will need to review their execution policies and client disclosures (such as Investment Management Agreements). Fund managers also will be required to publish annual reports about their choice of trading venues and brokers.
AIMA’s guide aims to set out the practical considerations that firms will need to take account of in order to ensure they are ready for the MiFID2 deadline and maintain ongoing compliance standards. The guide was developed by AIMA in conjunction with a working group of members. The law firm Dechert LLP chaired the working group and is the sponsor of the guide.
Interestingly, AIMA reckons MiFID II’s reach will be felt outside of the EU. “Our recent MiFID2 survey indicated that some of our members with an international presence are setting the MiFID2 best execution requirements as their global standard,” says AIMA CEO Jack Inglis.