In its response to an FSA discussion paper which was seeking views on how to demonstrate best execution in dealer markets, the ACT argues that best execution is an inappropriate concept to be applying.
By the nature of the qualification we offer as a professional body, our membership working in non-financial sector corporates tend to work in large companies – although we do have members in smaller companies in a variety of roles.
Our focus with regard to MiFID has been to seek to ensure that larger companies are able to “opt up” to eligible counterparty status in order that they may avoid the costs and complications which more protected status is likely to involve. Of course best execution is one of those complications, bringing with it likely increased cost for the service provider – paid for, ultimately, by the client.
In passing we should note that our members would be very concerned if the position UK here to consider not allowing corporates to act as eligible counterparties under Article 24.3.
We now turn to provisions regarding best execution where it is relevant – for smaller companies, for larger companies which do not choose eligible counterparty status and for retail clients and for matters where eligible counterparty status is not available. We will not comment on the retail client position.
“Best execution” seems to be a relatively clear concept in agency/broker (order-driven) markets. The requirement that a firm consider “how to obtain the best possible result for its clients”1 is appropriate. For systematic internalisers, the existence of the market in which the transaction may have been executed and its associated data flows simplifies the problem of a price comparator. We recognise the problem of illiquid markets where quotations are often historic or “notional”…We believe that the financial services trade bodies are in the best position to comment on these matters.
Our comments focus rather on dealer markets where “relatively clear” cannot be applied to the concept.
