FinanceFeeds takes a look at a new MIFID II regulatory tool for best execution that will be launched in November this year, and will report live from a MiFID II regulatory symposium in London today, hosted by its developer. Are you ready for MiFID II? Here is some vital information
The entirety of the OTC derivatives sector is currently subject to a major disruptive set of circumstances, however this time rather than this being a result of a technological innovation, it will be the pan-European regulatory authorities that will create the need for considerable adjustment in infrastructure and execution practice.
MiFID II, which is the market infrastructure directive set forth by the European Securities and Markets Authority (ESMA), will be implemented in January 2018, leaving electronic trading companies across all sectors, whether exchange executing venues, institutional providers or retail FX firms, just three months to comply with the entire, and somewhat ambiguous, set of requirements that will require considerable changes to trading infrastructure and procedure.
FinanceFeeds has been monitoring the advent to MiFID II closely, and it transpired some time ago that the authorities themselves had been very inactive with regard to providing full requirements to compliance officers with regard to what exactly their procedural requirements will be post-implementation, on all subjects ranging from how products are provided to a retail audience to how post-trade processing and clearing takes place.
During the course of the summer, FinanceFeeds has hosted a MiFID II symposium in London, and has provided substantial information from within the regulatory technology and trade clearing sectors with regard to how brokerages should comply with the impending new rulings.
In anticipation of the new MiFID II rulings, a further development in regulatory technology will emerge, with FinanceFeeds set to attend a regulatory symposium in London this week presented by the specialist firm that has developed it.
The solution, developed by boutique financial technology company Cappitech, is designed for brokerages to measure and comply with best execution requirements set out in MiFID II.
Currently, it is still in development, with Cappitech planning to launch it in November this year.
In terms of functionality, Cappitech’s R&D executives spoke to FinanceFeeds today to detail its key features, which include the ability for brokers to input their best execution policy calculations.
Further, client executions are compared to 3rd party benchmark prices to see if they conform to the best execution policy set out in the MiFID II rulings, and results are displayed on Cappitech’s best execution platform.
The need to report exactly how trades are conducted and executed has been examined in detail with senior regulatory figures in Europe, notably Cyprus and the United Kingdom, two regions with substantial electronic trading presence.
Price quality, speed of execution, likelihood of execution, settlement size, information relating to execution venue and financial instrument traded are all aspects that will be incorporated in MiFID reporting requirements, and the amount and nature of the reported data must be published and be made available for public viewing on a quarterly basis.
Areas that will be integral to the regulatory structure will include best execution, and that the directive targets investment firms and trading venues as well as liquidity providers and systematic internalizers that operate in any jurisdiction within the European Union.
With regard to investment firms of any type which execute client orders on European and third country execution venues, regulation under MiFID II will insist that trades are reported across the entirety of the execution thread, including from third country venues outside the European Union.
In short, the European authorities will expect full and detailed publication of every aspect of trade execution, hence any errors will result in punitive measures.
Cappitech’s new solution means that brokers can filter results by asset class and review individual orders that were executed out of the policy range, and it includes a risk managment feature for brokers to detect when they are pricing clients favorably and out of the market.
The solution is available to brokerages via a monthly subscription from Cappitech.
Cappitech’s perspective is that overall, MiFID II requires brokers to not only set a best execution policy, but also put in place a way to monitor that transactions are filled correctly. This platform from Cappitech will provide the monitoring and report functions to comply.