05 September 2017

Hedgeweek: Only 6 per cent of asset managers ready for MiFID II best execution standards

Some 61 per cent of respondents recognise their need to provide more granular detail to their policies, with a third planning to make changes to trading workflow, while over a quarter are specifically investing in technology to ensure a more systematic approach to best execution.

 “Best execution no longer means a mere ‘look back and check’ on the outcome of an individual order. It is now the creation and implementation of a process that enables the trader to be in possession of as much valuable information as possible, throughout the lifecycle of a trade,” says Rebecca Healey, Head of EMEA Market Structure for Liquidnet. “This information allows traders to adapt execution strategies that protect against adverse market conditions, or benefit from opportunities as they arise.”

While transaction cost analysis (TCA) has been the traditional way that asset managers use to measure best execution, the industry has begun to see a shift towards more holistic Best Execution Analysis (BXA) inclusive of TCA. This allows trading desks to better understand and measure the full context of larger orders, as well as better analyse high touch and fixed income trading.

 “With less than four months to go until full MiFID II implementation, firms now have to hit the reset button to ensure they meet the higher regulatory standards required,” Healey adds.

The survey reveals that 70 per cent of asset managers are now reviewing new liquidity providers outside of their traditional broker relationships. The execution landscape looks set for further change as a third of survey respondents plan to adjust their broker lists ahead of January 2018.

In addition, access to liquidity remains the number one requirement from 69 per cent of respondents in selecting execution partners, but how firms choose to access liquidity is diverging as unbundling demands a strategic re-think of which brokers to engage with, as well as where to trade.

 The impact of MiFID II implementation will extend beyond Europe’s borders given the operational complexity now required. Clients are demanding more detailed best execution evidence across the globe pre-, at and post- trade.

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