MIFID II RTS 27: Are your disclosures ready?

Introduction

MIFID II, which went live on 3 January 2018, introduced a significant raft of new rules for the financial services sector in Europe. However, rather than a once-and-for-all set of changes, the regulation specifies a number of actions which firms are expected to comply with by set deadlines. One of those deadlines was the 30 June 2018 date to publish a report on the quality of Best Execution.

What firms does the requirement apply to?

It applies to all execution venues which includes- Regulated Markets, MTFs, OTFS, Systematic Internalisers, Market Makers and other liquidity providers. Please note ‘execution venue’ covers all firms that “execute” client’s orders for the purpose of the Best Execution regime. It will include all firms that deal on own account or on matched principal basis.

What should the report say?

In summary, the report shows, for each instrument traded, the quality of execution achieved on each trading day in the preceding quarter. This is by reference to price, cost, likelihood and speed of execution. This information should be made public on the firm’s web site to allow their clients to monitor the quality of execution offered and/or use the data to select their service providers. The information should remain in the public domain for a period of two years.

How frequently should it be published?

Quarterly. It should also be placed in an easy to access location on the firm’s website.

What should firms be doing now?

Firms should already be in advanced stages of collating the data required for the report. Firms who are yet to commence any work may find the volume of data required to be collected quite daunting. It should be noted however that as this is the first report under the new regime, firms will only be expected to complete this on a best endeavours basis.

RTS 28: Top 5 execution venues

Also, note that MIFID II, as part of its rules towards improving best execution in the market required firms to publish on an annual basis the top 5 venues, in terms of trading volume, used to execute client orders in the preceding year. This requirement applies to execution venues (as per RTS 27 above), firms receiving and transmitting orders and portfolio managers. This report should also be published per class of instrument.

While both disclosures are driven by regulation, there is a possible commercial benefit for firms who are able to demonstrate achieving best execution on a consistent basis as private investors and investment firms could use this information to decide what firms to place orders with. If your firm is in scope of either or both disclosures and you are yet to have this published or need help, please do not hesitate to contact Compliancy Services for assistance.