Providing the best execution available is an obligation of the trading services providers to their clients. However, this is not legally binding in most jurisdictions. And Singapore is going to change that.
The Monetary Authority of Singapore (MAS) issued a notification earlier that will mandate all the capital markets intermediaries to provide the best execution to their customers from March 3, 2022. Currently, there are no formal best execution requirements in place for firms in the Asian city-state.
Sophie Gerber, TRAction Fintech
“Capital markets service license holders, banks, merchant banks, and finance companies that conduct certain regulated activities (Capital Market Intermediaries) are subject to the Best Execution requirements,” Sophie Gerber, a Director at Sophie Grace and TRAction Fintech, explained.
“They must implement policies and procedures to execute customers’ orders on the best available terms.”
A New Regulatory Concept
But what exactly is Best Execution? Well, it legally mandates financial service companies to provide the best available terms of order execution for their clients. It is, however, a relatively new concept in the regulatory regime. Its primary goal is to bring transparency of execution and a higher level of disclosure in the transactions.
The upcoming rules are in line with the European regulatory requirements under the
MiFID II MiFID II MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s financial needs and to ensure a consistent level of consumer protection across the EU. MiFID II rules come into force for the European financial sector on January 3, 2018, which are set to have far-reaching consequences for the industry. MiFID II ExplainedMiFID II relates to the framework of trading venues/structures in which financial instruments are traded. MiFID is concerned with regulating the operation of the full range of trading venues and the processes, systems, and governance measures adopted by market participants. The newest version of MiFID updates requires trading transactions and information to be more transparent than ever before. MiFID II requires that all prices are posted before and after trades are completed, no matter the type of trading platform on which transactions occur. Giving investors access to a whole new scope of data and information and enables them to make more educated decisions regarding their clients’ portfolios. One of the primary purposes of this new requirement is to allow retail firms and their customers to find the best deals available by comparing prices and other factors from the newly available data. MiFID II looks to substantially increase the protection of retail investors and severely limit the types of financial instruments with which retail investors can complete transactions without being legally obligated to consult a trader or similar professional. MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s financial needs and to ensure a consistent level of consumer protection across the EU. MiFID II rules come into force for the European financial sector on January 3, 2018, which are set to have far-reaching consequences for the industry. MiFID II ExplainedMiFID II relates to the framework of trading venues/structures in which financial instruments are traded. MiFID is concerned with regulating the operation of the full range of trading venues and the processes, systems, and governance measures adopted by market participants. The newest version of MiFID updates requires trading transactions and information to be more transparent than ever before. MiFID II requires that all prices are posted before and after trades are completed, no matter the type of trading platform on which transactions occur. Giving investors access to a whole new scope of data and information and enables them to make more educated decisions regarding their clients’ portfolios. One of the primary purposes of this new requirement is to allow retail firms and their customers to find the best deals available by comparing prices and other factors from the newly available data. MiFID II looks to substantially increase the protection of retail investors and severely limit the types of financial instruments with which retail investors can complete transactions without being legally obligated to consult a trader or similar professional. Read this Term around best execution that came into effect at the beginning of 2018. Then European firms had an 18-month window to develop policies and procedures for offering the best execution to their customers.
MAS also provided a generous window to the Singapore-based capital markets to prepare their policies and procedures as it first communicated its decision in September 2020. “The Notice formalizes MAS’ expectations of Capital Market Intermediaries (CMIs) in respect of Best Execution policies and procedures,” Gerber said.
But, not every regulator agrees with the benefits of having the best execution rules. The Australian Securities & Investments Commission (ASIC) earlier decided to bring such best execution rules but excluded them in its final product intervention order.
Coming to MAS-specific rules again, the regulator is not slapping the new rules on all market participants. If the customers of a Capital Market Intermediaries (CMI) are institutional investors or if the non-retail investor does not rely on the CMI to achieve Best Execution, then the companies can receive an exemption from the upcoming rules.
The Singapore supervisor further confirmed that CMIs can determine the factors by which the firm uses to achieve Best Execution such as the characteristics of the
execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Read this Term, settlement, and customer order. It also expects the CMI to consider such factors proportionately to the size, nature, and complexity of their business.
How Should Companies Prepare?
“Given the deadline is less than 1 month away, brokers should be well-positioned and prepared to comply with their Best Execution obligations. However, firms that have not yet implemented the new rules may run the risk of non-compliance in the short term if they are not prepared to go live on 3 March 2022,” Gerber added.
“From a long-term perspective, the new rules may lead to more questions from clients regarding how their trades were executed. Although as a counter to that, Best Execution should help brokers more clearly articulate to clients (when asked) what factors go into a trade and if done correctly, reduce contested executions. Having processes in place to identify particular instruments and price feeds which are not meeting your firm’s execution parameters should mean you identify (and potentially rectify) them before they cause client concerns or complaints.”
Providing the best execution available is an obligation of the trading services providers to their clients. However, this is not legally binding in most jurisdictions. And Singapore is going to change that.
The Monetary Authority of Singapore (MAS) issued a notification earlier that will mandate all the capital markets intermediaries to provide the best execution to their customers from March 3, 2022. Currently, there are no formal best execution requirements in place for firms in the Asian city-state.
Sophie Gerber, TRAction Fintech
“Capital markets service license holders, banks, merchant banks, and finance companies that conduct certain regulated activities (Capital Market Intermediaries) are subject to the Best Execution requirements,” Sophie Gerber, a Director at Sophie Grace and TRAction Fintech, explained.
“They must implement policies and procedures to execute customers’ orders on the best available terms.”
A New Regulatory Concept
But what exactly is Best Execution? Well, it legally mandates financial service companies to provide the best available terms of order execution for their clients. It is, however, a relatively new concept in the regulatory regime. Its primary goal is to bring transparency of execution and a higher level of disclosure in the transactions.
The upcoming rules are in line with the European regulatory requirements under the
MiFID II MiFID II MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s financial needs and to ensure a consistent level of consumer protection across the EU. MiFID II rules come into force for the European financial sector on January 3, 2018, which are set to have far-reaching consequences for the industry. MiFID II ExplainedMiFID II relates to the framework of trading venues/structures in which financial instruments are traded. MiFID is concerned with regulating the operation of the full range of trading venues and the processes, systems, and governance measures adopted by market participants. The newest version of MiFID updates requires trading transactions and information to be more transparent than ever before. MiFID II requires that all prices are posted before and after trades are completed, no matter the type of trading platform on which transactions occur. Giving investors access to a whole new scope of data and information and enables them to make more educated decisions regarding their clients’ portfolios. One of the primary purposes of this new requirement is to allow retail firms and their customers to find the best deals available by comparing prices and other factors from the newly available data. MiFID II looks to substantially increase the protection of retail investors and severely limit the types of financial instruments with which retail investors can complete transactions without being legally obligated to consult a trader or similar professional. MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s financial needs and to ensure a consistent level of consumer protection across the EU. MiFID II rules come into force for the European financial sector on January 3, 2018, which are set to have far-reaching consequences for the industry. MiFID II ExplainedMiFID II relates to the framework of trading venues/structures in which financial instruments are traded. MiFID is concerned with regulating the operation of the full range of trading venues and the processes, systems, and governance measures adopted by market participants. The newest version of MiFID updates requires trading transactions and information to be more transparent than ever before. MiFID II requires that all prices are posted before and after trades are completed, no matter the type of trading platform on which transactions occur. Giving investors access to a whole new scope of data and information and enables them to make more educated decisions regarding their clients’ portfolios. One of the primary purposes of this new requirement is to allow retail firms and their customers to find the best deals available by comparing prices and other factors from the newly available data. MiFID II looks to substantially increase the protection of retail investors and severely limit the types of financial instruments with which retail investors can complete transactions without being legally obligated to consult a trader or similar professional. Read this Term around best execution that came into effect at the beginning of 2018. Then European firms had an 18-month window to develop policies and procedures for offering the best execution to their customers.
MAS also provided a generous window to the Singapore-based capital markets to prepare their policies and procedures as it first communicated its decision in September 2020. “The Notice formalizes MAS’ expectations of Capital Market Intermediaries (CMIs) in respect of Best Execution policies and procedures,” Gerber said.
But, not every regulator agrees with the benefits of having the best execution rules. The Australian Securities & Investments Commission (ASIC) earlier decided to bring such best execution rules but excluded them in its final product intervention order.
Coming to MAS-specific rules again, the regulator is not slapping the new rules on all market participants. If the customers of a Capital Market Intermediaries (CMI) are institutional investors or if the non-retail investor does not rely on the CMI to achieve Best Execution, then the companies can receive an exemption from the upcoming rules.
The Singapore supervisor further confirmed that CMIs can determine the factors by which the firm uses to achieve Best Execution such as the characteristics of the
execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Read this Term, settlement, and customer order. It also expects the CMI to consider such factors proportionately to the size, nature, and complexity of their business.
How Should Companies Prepare?
“Given the deadline is less than 1 month away, brokers should be well-positioned and prepared to comply with their Best Execution obligations. However, firms that have not yet implemented the new rules may run the risk of non-compliance in the short term if they are not prepared to go live on 3 March 2022,” Gerber added.
“From a long-term perspective, the new rules may lead to more questions from clients regarding how their trades were executed. Although as a counter to that, Best Execution should help brokers more clearly articulate to clients (when asked) what factors go into a trade and if done correctly, reduce contested executions. Having processes in place to identify particular instruments and price feeds which are not meeting your firm’s execution parameters should mean you identify (and potentially rectify) them before they cause client concerns or complaints.”
