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MiFID: Regulators Launch New Round of Consultations on 'Best Execution'

The Markets in Financial Instruments Directive ("MiFID") introduces a new regulatory structure that is intended to unify the 30 or so members of the European Economic Area into a single market. As the Wikipedia states, "The key objectives behind the Directive are threefold: i) to complete the EU single market for investment services and ii) to respond to changes/innovations in the securities markets and iii) to protect investors."

"The MiFID Level 1 Directive Directive 2004/39/EC, which was implemented through the standard co-decision procedure of the Council of the European Union and the European Parliament sets out a relatively detailed 'framework' for the legislation. Some 20 articles of this directive stipulated the introduction of technical implementing measures (Level 2). These technical implementing measures were adopted by the European Commission, following the receipt of technical advice from the Committee of European Securities Regulators and negotiations in the European Securities Committee with oversight by the European Parliament. The implementing measures, in the form of a Commission Directive and a Commission Regulation, were officially published on 2 September 2006." The regulatory details of how to implement each of these 20 or so articles was left to Level 3.

As TCM posting on MiFID noted, MiFID will apply to virtually all financial instruments and derivatives. "Brokers will be required to check with all trading centers (and document the results) to ensure that 'best execution' has been achieved for each customer order. Market makers, such as exchanges, dealers and 'systematic internalizers', also face increased requirements for pre-trade and post-trade transparency. The complexity of the resulting regulations and resolving exactly how they are to be implemented has slowed the complete adoption of MiFID. More delays are possible."

Now comes news that "The Committee of European Securities Regulators ("CESR") has launched the fifth round of public consultation relating to MiFID Level 3 work program looking at best execution and transaction reporting. CESR intends to issue a number of recommendations that will set out a common approach to the MiFID best execution requirements “with a view to fostering supervisory convergence”. The consultation paper sets out a number of proposals and questions for a common approach on:

• Contents of execution policy and arrangements;
• Disclosure to clients;
• Client consent;
• Relationships between firms in chains of execution;
• Review and monitoring;
• Execution quality data.

The paper does not address the scope of application of the best execution requirements: CESR has asked the European Commission for clarification on some of these issues and is currently waiting for further guidance. It plans to publish an addendum to the consultation paper once it gets a formal response from the Commission." Full details on this fifth round of 'best execution' consultation is available here.