ESMA scales back best execution reporting plans for 2018

Reporting for best execution may not be full and complete in first year of MiFID II’s implementation.

Best execution reporting under MiFID II has been scaled back for the first year of implementation, as investment firms may not have access to “full and granular data”.

The European Securities and Markets Authority’s (ESMA) latest Q&A explained investment firms are expected to report on best execution efforts in the first quarter of 2018 within their annual reports, which should be published by June 2018.

However, as a practical matter some buy-side firms may not be able to fully report data from the year prior.

Firms may not have complete information on the exact proportion of passive and aggressive orders executed on each of the execution venues it used in the previous year, ESMA explained.

“ESMA wishes to clarify that unless the firm is using a specific tool or the services of a third party data provider to assess execution quality, it will most likely be unable to provide in the first annual report any information required of RTS 28,” the Q&A said.

MiFID II ‘s RTS 28 refers to the annual publication of information on execution venues and on the quality of execution.

In response to this, ESMA said information on the top five venues and a summary of the outcomes achieved will suffice in the first year and still provide useful information to investors.

ESMA has sought to redefine best execution rules from MiFID I to MiFID II.

MiFID I required firms to take “all reasonable steps” to obtain the best possible result for clients, whereas MiFID II requires firms to take “all sufficient steps”.

The authority outlined in October that companies still remain under the same obligations to obtain the best possible results on a constant basis, but MiFID II’s “sufficient” steps “sets a higher bar for compliance than reasonable steps.”