REGULATION

Industry quiz Plato on MiFID II at Question Time event

Buy- and sell-side leaders debated MiFID II’s best execution requirements, trade reporting and TCA at the LSE this week.

By Hayley McDowell hayley.mcdowell@strategic-i.com May 11, 2017 10:25 AM GMT

Industry leaders and Plato Partnership founders gathered at the London Stock Exchange earlier this week to answer key audience questions on MiFID II.

Topics of discussion included MiFID II’s best execution requirements, transaction cost analysis (TCA), trade reporting.

A poll of the delegates revealed the industry is still undecided about whether to use assisted trade reporting, with 39% stating they are unsure even now.  The even also allowed audience members to anonymously submit questions to the panel to test their knowledge on the biggest issues facing the buy-side, with many asking about practical issues impacting their MiFID II implementation.

Mike Bellaro, global head of equity trading at Deutsche Asset Management, explained the debate around trade reporting has been going on for months and can be a very serious concern for a relatively small amount of trades.

“That’s my issue and I have a regulatory responsibility to trade report. We are exploring assisted reporting facilities as well as other options and will decide shortly which direction we will go”

Paul Squires, global head of trading and securities finance at AXA Investment Managers, added there is a risk trade reporting requirements could impact best execution.

“I don’t want our best execution decisions to be made on the basis of some complicated matrix as to whether we are responsible for the trade reporting,” he said.

Victoria Kelly, head of European trading at Fidelity Investments agreed with Squires and explained her desk has taken steps to ensure traders are not influenced by reporting requirements.

“We don’t want any strings attached, which could mean traders would decide not to trade somewhere because of a reporting mechanism, that shouldn’t filter into our process at all,” she said.

The panel also debated the possibility of an industry standard for applying TCA to improve best execution.

Squires told delegates standardisation of TCA for equities is a ‘great aspiration’.

“Although, we want to be slightly cautious of that because we don’t all want to be trading at the same benchmark,” he said. 

James Baugh, head of European market structure at Citigroup, added a standard would increase the objectivity of performance, which is line with best execution, and provide cost benefits.

On best execution governance, another audience poll found half of delegates believe best execution will see more of a process and data driven approach to trading.  

Sell-side panellists discussed how clients are seeking clarity on best execution governance, but it is more about adjusting existing frameworks. 

Sarah Hay, head of EMEA market structure and liquidity at UBS, explained: “We are seeing more clients making changes in terms of how they are selecting brokers, looking at order handling for example, and that comes out of the best execution process.”

Nej D'jelal, head of electronic equities product EMEA at Barclays, agreed although urged firms to consider other data driven aspects of the requirements under MiFID II.

“When we think about best execution as a process, I think it’s worth considering the broader interaction with the execution platform itself. We should consider how closely linked and bound those two thought processes are… there are many more data points related to the quality of execution for venues in the future,” he said. 

Plato also unveiled the web-based Plia Plato process management tool which it has developed in collaboration with Trade Informatics. Plia/Plato is geared to assist firms with best execution governance, process and documentation obligations under Article 27.

ESMA’s recent Q&A published last month said: “[best execution] involves the strengthening of front-office accountability and systems and controls according to which firms will ensure that their detection capabilities are able to identify any potential deficiencies. This will require firms to monitor not only the execution quality obtained but also the quality and appropriateness of their execution arrangements and policies on an ex-ante and ex-post basis...”

Sarah Hay, head of EMEA market structure and liquidity at UBS, explained: “We are seeing more clients making changes in terms of how they are selecting brokers, looking at order handling for example, and that comes out of the best execution process.”