Most buy-side firms should have documented their revised best execution policies and procedures by now. Everyone accepts that best execution is an evolving process where the firm needs to continuously look at cost improvements. While it is rumoured that the regulators will give the buy-side at least 6 months to customise themselves with the new market structure before any thematic reviews, it is expected that unless the buy side have already documented their best efforts of having all procedures in place ahead of MiFID II, they may expect a regulatory fine.
K&KGC has shared best practice benchmarking with the buy side for years and recently showed them the buy-side’s proposed top-level audit preparation plans from previous research initiatives at the Alpha Trader Forums. The sense of fear and prospect of a regulatory audit and fines around best execution arrangements is vastly different between the buy side in the UK, Continental Europe and USA. The buy side in Continental Europe and USA mentioned at the Alpha Trader Forum in 2016 and 2017 that they were not aware of any buy-side firms in Europe and the USA of ever having been fined for sub-standard best execution policies and procedures. K&KGC is only aware of one case in Continental Europe.
TCA technology is maturing in equities and foreign exchange and there is hope of improved data delivering better reports for informed decision making. The buy side need to start analysing and dictating to their equity trading counterparties how their orders are routed to avoid venue toxicity. Due to the MiFID II transparency deferral arrangements within fixed income, there will be less expectations to get holistic real-time TCA reports. Most trading desks with a fixed income TCA solution in place today has opted for a technology that is quick and easy to implement as a regulatory check box. The buy side are keen to see what TCA solutions transpires in 2018.
K&K GLOBAL CONSULTING CROSS ASSET RESEARCH