Last week, Thomson Financial, one of the giants in the world of trading support services, privately acquired the US’s Market Systems, a provider of best execution compliance technology, a key requirement of the Markets in Financial Services Directive (MiFID). This is part of Thomson’s aim of providing services across the whole of the trading cycle. The Market Services acquisition will significantly strengthen their order routing products and will facilitate compliance with the best execution requirements of MiFID in Europe and of Regulation NMS in the USA.
Best execution in MiFID places an obligation on brokers to execute trades at prices most favourable to the client and requires aspects such as settlement cost and duration also to be taken into account. Regulation NMS is perhaps simpler in calculating best prices but has an additional thorny requirement in that it forbids “market centres” from executing a trade at a price inferior to another market centre. This requires information connectivity that does not exist at the moment.
It also raises the question of how to validate best execution. In April, Z/Yen, a London trading services consultancy, announced the trialling of PropheZy, a product which enables large volumes of trades to be analysed for best execution anomalies. This research, in conjunction with Sun, the LSE and four London brokers, is planned for release in June.
Finally, also on the subject of MiFID, at a recent conference, David Wright, Director of Financial Services Policy and Financial Markets at the EC, assured delegates that they could start planning now, based on the recent draft directive, as there was little likelihood that there would be significant changes.
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