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MiFID II Best Execution Presents Challenges and Opportunities

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Markets in Financial Instruments Directive II (MiFID II) raises the bar on best execution, presenting significant data management challenges, but also opportunities to use best execution data to gain competitive edge. Where MiFID required investment managers to show they had taken ‘reasonable’ steps to demonstrate best execution, MiFID II requires ‘sufficient’ steps, suggesting a more absolute requirement.

The issues presented by compliance with the best execution element of MiFID II were discussed during a recent A-Team Group webinar – MiFID II: Data for best execution. The webinar was moderated by Andrew Delaney, chief content officer at A-Team, and joined by Rachel Przybylski, head of market structure at Saxo Capital Markets UK; Gaurav Bansal, MiFID II programme director at Tilney BestInvest Group; John Mason, global head of regulatory and market structure propositions in the financial and risk division at Thomson Reuters; and Dermot Harriss, senior vice president, regulatory solutions at OneMarketData.

Setting the scene for discussion, an early poll of the webinar audience showed 21% of respondents saying their firm is prepared for the best execution provisions of MiFID II, with 30% saying they are not ready, and 49% falling into the ‘maybe’ category.

Considering how MiFID II rules differ from those of MiFID, the webinar speakers noted the change from ‘reasonable’ to ‘sufficient’ steps to demonstrate best execution and a consequent rise in the volume of data that must be sourced, processed and reported. Bansal noted that the extended requirement means investment managers may need to make technology, operational and business changes to ensure they are actively looking at best execution results at different venues and changing venues when necessary.

Highlighting the need to consistently monitor venues’ performance to ensure best execution, Harriss said: “This provides an opportunity to turn the regulatory requirement into a competitive advantage as customers can use the extended transparency around best execution to choose between investment managers.”

The data management challenges of best execution were identified in a second audience poll, which found 48% of respondents saying data sourcing is the toughest challenge, 20% saying records retention and retrieval, 17% cross-asset class transactions, 11% venue onboarding procedures, and 3% raising connectivity levels.

Responding to the poll results, the panel suggested data management for best execution can be supported by a single coherent data store that can handle MiFID II queries on best execution and other aspects of the regulation, such as algo testing, and provide an accurate database for regulatory reporting. From a data vendor’s perspective, Mason said: “Data providers should source all the necessary data in the market and encapsulate it for best execution calculations.”

Listen to the webinar to find out more about:

  • Best execution requirements
  • Extensions of MiFID
  • Data management challenges
  • Best practice solutions
  • Regulatory opportunity
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