After last week’s explosive argument about trade execution, what do retail brokers think?

RTS28 is a lot of paper and hot air….


Last week, FinanceFeeds reported in detail with regard to an unprecedented and explosive argument which erupted in the public domain between some of the institutional FX industry’s most renowned and respected figures.

Each had an important issue to bring forward with regard to trade execution, and how the European trade execution reporting requirement RTS28 fits into the FX industry’s remit, along with whether it is a futile regulation or a valuable one.

Clearly, trade execution among prime of prime brokerages is a contentious point, and following the diatribe involving several senior executives, FinanceFeeds discussed these issues in detail with each company involved in order to provide a full insight into what matters with regard to trade execution.

This has always been a sore point, as brokerages, liquidity providers and even banks are not required to disclose the method by which they executed their trades, they simply have to be able to demonstrate that they act according to the trader or end user’s interests under ‘best execution’ guidelines, which are vague a best, and being challenged by senior industry executives to the extent that regulators are even considering dropping such guidelines.

Since the implementation of MiFID II across the European Union, in which infrastructure requirements were standardized by the European regulatory authority ESMA, some complex procedures were put in place, namely RTS27 and RTS28, which FinanceFeeds has discussed at length with specialists in this procedure.

The furious tirade was ignited by Yuriy Maevskiy, an FX project manager who has spent the last ten years within Cyprus-based brokerages.

Mr Maevskiy’s comment sparked an unprecedented battle among some of the leaders of the FX industry, from IS Prime, Advanced Markets & Fortex, and INVAST Global, who interacted vigorously with each other.

Responding to a LinkedIn publication by Eduardo Delgado, Managing Partner of Fintexify, in which Mr Delgado responded to an RTS report by the regulators by observing “It shows the own broker/LP as the only trading venue where 100% of the flow is executed: This means that the FX broker/LP is internalizing all the orders’ flow it’s receiving, taking the counterpart to the trades are managing the risk internally. It shows different brokers or liquidity provider and an unknown company as execution venues where x% of the flow is executed: This most probably means that the broker is sending the flow they want to STP to the LPs, and the flow they want to b-book to the unknown company”, Mr Maevskiy put forward his viewpoint.

Once our esteemed professionals had argued this out, the full extent of which can be viewed here, it was considered of value to look at this from a retail brokerage perspective.

Indeed, retail FX brokers are the direct audience and customer base of prime of prime brokerages, and they are also subject to the same rulings under RTS28. The question is, is RTS28 of any value, or is it an impedance which has been implemented by regulators who do not understand trade execution properly (I think it’s certainly the latter – Ed).

FinanceFeeds spoke today to Natalia Zakharova, Business Development Manager at FXOpen, a brokerage with licenses in all of the regions in which FX brokerages are populous.

Ms Zakharova explained to FinanceFeeds “The only thing that counts is how the trade has been filled.”

“When retail clients trade with us they legally face us as a counterparty and it is our job as a broker to protect their interests and choose the liquidity providers and prime brokers” continued Ms Zakharova.

“Should there be some issues with execution, we are the ones at risk. Pointing the finger at some counterparty down the line might be rightfully correct, but ultimately pointless from then reputational standpoint. Therefore, as long as prime of prime brokerages act in good faith and their business practices are fair, it doesn’t really matter with whom the trade was executed” concluded Ms Zakharova.

This echoes the current rationale among many OTC derivatives firms when choosing which Tier 1 counterparty to face. XTX Markets, along with some of its non-bank market making competitors now litter the top 10 Tier 1 FX dealers by market share like a vagrant on a beach.

This is clearly because the OTC derivatives industry understands well that the Tier 1 banks do not prioritise FX brokers, even though Tier 1 FX dealing is the core business activity of most American and British investment banks adorning the water’s edge here at London’s Canary Wharf.

Instead of rejecting fills, operating a cherry-picking last-look execution policy, and castigating OTC derivatives firms as a potential default risk by applying huge capital adequacy requirements alongside the extremely risk averse execution policies, non-bank market makers understand the OTC industry well and give the brokers what they want, that being quick fills, no last look and no slippage.

In effect, no messing about which banks call normal practice, yet FX brokers would be up before a judge for participating in.

So yes, RTS28 is a lot of paper and hot air.

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