Robert Powell, Director of Compliance, IPC
The first afternoon of Trade Tech 2016, held in Paris, was dedicated to “Best Execution”. As IPC’s Director for Compliance, I was invited to participate in the panel discussion. The topic for the very well-attended session was: “How are regulations and technology affecting the trading desk?”
The background to this question is that the burden to prove best execution for a particular transaction has, historically, fallen on the Sell-Side firm executing the deal. It has remained their responsibility to make sure that they were giving the “best outcome for the client” on any given order by proving that the trade took place at an appropriate market price. In a major change, this responsibility will soon be taken up by the Buy-Side firms under the new rules of MiFID II.
This means that Buy-Side firms who have traditionally been reliant on the technology and services of their Sell-Side trading partners will have to start to prove that they executed a trade at the best price available for the size and scope of the trade at the time that they performed the transaction. This represents a significant change and will require them to collect and store a great deal more data than they have had to do in the past.
For markets that are traded over the phone and not in an electronic exchange, the Buy-Side will now show a keener interest in the records retention and recovery process than they ever have up to this time. Many of these transactions start with a phone call or an electronic communication, so the Buy-Side will clearly have to get to grips with the new challenges of making sure that their recording and retention platforms are capable of retaining fixed line and mobile voice calls - along with their electronic communications. In the longer term, these records will be subject to advanced analytics, allowing them to be used in proving that participants have received the “best outcome”. The new rules also require firms to conduct surveillance on communications to make sure that they are complying with market regulations.
The Trade Tech panel itself was a wide-ranging discussion that touched upon IOIs (Indications of interest) and market manipulation. While all of the panellists had differing perspectives on the matter, it was interesting to note that the discussion ended with all of the panellists agreeing that the Buy-Side has some interesting challenges ahead of it to stay compliant with the new rules that are fast approaching.