The loss of the concentration rule, combined with the rise of fragmentation, dark liquidity and exotic structured instruments has turned ‘best execution’ into a “strange and unfamiliar challenge,” comments Bob Giffords, independent banking technology analyst in the forward of MiFID Joint Working Group’s (JWG) discussion paper entitled ‘high-level best execution principles’, released Tuesday.
To demonstrate what is 'best' for the client in a multi-factor, multi-context, multi-venue world, a number of intellectual challenges must first be tackled. For one thing, it is hard to see how all parties can achieve the best possible execution for any particular trade, points out Giffords. "There will inevitably be results that are no better than average and in some cases are worse than expected," he explains.
Furthermore, "'best' may become the enemy of 'good'," states Giffords. 'Good execution' involves taking the sorts of risks that are not permissible under MiFID's 'best execution' legislation, according to Giffords.
By bringing together market practitioners, specialists and technologists with a broad knowledge base and global perspectives, MiFID JWG's Best Execution Sub Group (BESG) aims to shed light on some of MiFID's grey areas.