Liquidnet, the global institutional trading network, today published its “Re-Engineering Best Execution” survey, which, among other things, reveals that only 6% of those surveyed believed they were currently ready to meet best execution requirements, and that 61% of respondents recognized their need to provide more granular detail to their policies.
The survey, developed to canvass the opinions of asset managers’ towards best execution requirements ahead of MiFID II, was based on 55 detailed interviews with heads of trading/dealing across Liquidnet’s member network of asset management firms throughout North America and Europe. Polled took place during April and May 2017, with 58% respondents from the UK, 25% from Continental Europe, and 16% from the US..
Rebecca Healey, Head of EMEA Market Structure for Liquidnet, said:
Best execution no longer means a mere ‘look back and check’ on the outcome of an individual order. It is now the creation and implementation of a process that enables the trader to be in possession of as much valuable information as possible, throughout the lifecycle of a trade. This information allows traders to adapt execution strategies that protect against adverse market conditions, or benefit from opportunities as they arise.
Healey went on to explain that with less than four months to go until full MiFID II implementation, firms would now have to hit the reset button in order to meet the higher regulatory standards required.
More holistic Best Execution Analysis (BXA) inclusive of TCA is becoming the norm for measuring best execution within the industry after shifting from the traditional transaction cost analysis (TCA). BXA allows trading desks to better understand and measure the full context of larger orders, as well as better analyse high touch and fixed income trading.
Key findings of Liquidnet’s research include:
- 70% of asset managers are now reviewing new liquidity providers outside of their traditional broker relationships
- Access to liquidity remains the number one requirement from 69% of respondents
- 64% believe they have a cohesive strategy for improving client outcomes—but over a third of respondents acknowledged that they still have more to do
- More than two-thirds are no longer choosing where to trade by broker alone
- The increased level of scrutiny over evidencing broker selection requires firms to move away from a static “look back” on trading performance to a more holistic approach of Best Execution Analysis requiring more accurate and reliable data. Yet just 35% are receiving all the FIX data they need from brokers.
In addition, 85% of asset managers acknowledged that individual firms could do more internally to improve execution performance. 89% of respondents said that delivering enhanced best execution would require a significantly different approach. The lack of a viable TCA product in Fixed Income is leading 39% of firms to rethink their use of TCA to deliver best execution, particularly when considering OTC products. The impact of MiFID II implementation will extend beyond Europe’s borders given the operational complexity now required.
Last month, Liqduidnet launched Targeted Invitations for Algos in Europe, allowing buy-side traders to seek out additional block liquidity by sending actionable invitations within the Liquidnet community, while still keeping both sides of the trade anonymous.
Following a series of appointments this year, including Stephen Grady as Non-Executive Director and Takis Christas as Head of Trading Strategies EMEA, Liquidnet tapped Patrick Strobel as Head of Technology in EMEA.