Best Execution is a relatively new regulatory concept which focuses on increasing the transparency of execution and level of disclosures in financial transactions – a key element to providing more clarity on the functioning of financial markets and to better protect investors.
The regime requires investment firms (IFs) and financial institutions to provide the best available terms for the execution of client orders under MiFID II and MAS regimes. The most favourable terms for the execution of client orders include considering a combination of factors:
- price;
- cost;
- speed;
- likelihood of execution;
- settlement size;
- settlement nature; and
- any other relevant consideration.
IFs and financial institutions must also create an execution policy and procedures, and regularly monitor the execution quality when executing orders on behalf of their clients.
TRAction assists firms in complying with Best Execution under both MiFID II and MAS. We have developed a Best Execution Monitor to meet the growing regulatory demands imposed on firms. Our Best Execution Monitor is a smart system that collects, analyses and compares your transaction data against market reference data to compute representative benchmarks that enable consistent and fair evaluation of performance.
For further information on Best Execution under MiFID II and MAS, please see the following links:
MiFID II Best Execution
Best Execution requires investment firms (IFs) to provide the best available terms for the execution of client orders under MiFID II. The most favourable terms for the execution of client orders include consideration of the following factors:
- price;
- cost;
- speed;
- likelihood of execution;
- settlement size;
- settlement nature; and
- any other relevant consideration.
IFs must also create an execution policy and procedures, and regularly monitor the execution quality when executing orders on behalf of their clients.
All IFs must comply with Best Execution which is embedded in Article 27 of MiFID II.
Who is required to report?
RTS 27 reports – execution venues including trading venues, systematic internalisers (SIs), market makers and liquidity providers. In addition, ESMA considers CFD/FX brokers who ‘deal on own account and regularly quote two-way pricing for an instrument’ would meet the definition of liquidity providers and therefore be subject to RTS 27 obligations.
RTS 28 reports – IFs (including CFD/FX brokers) who execute client orders through execution venues.
What information do I need to report?
RTS 27 reports aim to demonstrate the quality of execution of transactions and are composed of the following 9 tables of data:
| Table No. | Data/Information |
|---|---|
| 1 | Type of execution venue |
| 2 | Type of financial instrument |
| 3 | Intra-day price information |
| 4 | Daily price information |
| 5 | Cost information |
| 6 | Likelihood of execution information |
| 7 | Additional likelihood of execution information for continuous auction order book and continuous quote driven execution venues |
| 8 | Additional information for continuous auction order book and continuous quote driven execution venues |
| 9 | Additional information for quote execution venues |
RTS 28 reports require all IFs to demonstrate the top 5 execution venues that they used for client orders in each class of financial instrument.
When are reports to be published?
RTS 28 reports are to be published annually, as per the following table:
| Reports | Reporting Period | Publication Date |
|---|---|---|
| RTS 28 | 1 January - 31 December | 30 April (following year) |
MAS Best Execution
Best Execution requires financial firms to provide the best available terms for the execution of customer orders under MAS. The most favourable terms for the execution of customer orders include consideration of the following:
- price;
- costs;
- speed;
- likelihood of execution and settlement;
- size and nature of the order; and
- any other relevant consideration.
Financial firms must also create a Best Execution policy and procedures, and regularly monitor the execution quality when executing orders on behalf of their customers.
The new requirements are set out in a Notice on Execution of Customers’ Orders (the Notice) and accompanying guidelines, which will take effect on 3 March 2022. In the Notice, MAS formalised its existing expectation that financial institutions conducting dealing and fund management activities under the Securities and Futures Act (Cap. 289) (the Act) must do so fairly and act in the interests of their customers. The new requirements also align the Singapore position on execution of customer orders more closely with those which apply in jurisdictions such as the European Union.
Who is required to comply?
All capital markets intermediaries (CMIs) are required to establish and implement Best Execution policies and procedures which cover all capital markets products and all capacities in which it is acting in. A CMI is either:
- a holder of a capital markets services licence to carry on a business in one or more of the following regulated activities:
- dealing in capital markets products;
- fund management;
- real estate investment trust management; or
- a person exempted from the requirement to hold a capital markets services licence under section 99(1)(a), (b) or (c) of the Act in respect of one or more of the following regulated activities:
- dealing in capital markets products;
- fund management;
- real estate investment trust management.
How to comply?
You should periodically monitor your compliance with, and the effectiveness of, your Best Execution policies and procedures. In doing so, you should assess whether your execution of transactions has delivered the best available terms to customers on a consistent basis. Such monitoring should reflect the nature, scale, and complexity of your business.
TRAction’s Best Execution Monitor
Many Investment Firms (IFs) and financial institutions need to implement Best Execution processes under the MiFID II and MAS requirements. IFs and financial institutions need to provide the most favourable terms for the execution of client orders taking into account a number of factors. TRAction has developed a Best Execution Monitor to help our clients monitor their compliance with this requirement.
Our Best Execution Monitor is an award-winning smart system which collects, analyses and compares your transaction data against market data to identify where the execution received by clients is outside of your execution parameters.
Why use TRAction’s Best Execution Monitor?
- Key statistics and graphs – the platform displays a pie chart breakdown by trades in favour of your firm and by low medium or high deviations.
- Easy data connection or file upload – transaction data submitted to TRAction either by CSV file or through an API/data connection.
- Customisable – high medium and low deviation category settings are set by the user at either the asset class level or individual symbol.
- Market price comparison – the monitor displays statistics about the quality and pricing of execution by comparing against Refinitiv market data from the one-minute high and low for the relevant time the trades were executed.
- Easy search of any specific transaction – a specific transaction can be analysed by typing in a UTI or deal number.
- Single platform – all trades are monitored in a single platform (including those that are executed off-exchange) so that firms can implement a holistic execution policy.
How does the Best Execution Monitor work?
- Transaction data is submitted to TRAction either by file or through an API or data connection;
- The monitor displays statistics about the quality and pricing of execution via comparison against the market data from the one-minute high and low or the relevant time the trades were executed;
- A specific transaction can be analysed by typing in a UTI or deal number; and
- All trades are monitored on a single platform, not just those trades that require monitoring under MiFID II and MAS OTC derivative reporting. This includes trades that are not Traded on a Trading Venue (ToTV) or reported under MiFIR transaction reporting rules.
Signup Benefits for MiFID II and MAS Best Execution
Receive complimentary RTS 27 and 28 assistance when you sign up to TRAction’s Best Execution Monitor. Under MiFID II, IFs are required to publish their RTS 28 annually. Many IFs have struggled with RTS reports and sought our help. That’s why we provide assistance to firms preparing these reports.
How much does it cost?
We charge a combination of an account management fee and a cost per transaction/position. Contact us for a quote.
RegTech Insight Awards APAC by A-Team Group (2021)
TRAction awarded the Best Transaction Cost Analysis Solution for Best Execution.
