CESR Releases Best Execution Guidance

The paper covers execution arrangements, the content and differentiation of the best execution policy, the possibility of using single execution venues, the assessment of the relative importance of the best execution factors, the notion of total consideration and fees and commissions, disclosure of information, consent and the requirements of monitoring and review.

The Q&A intends to facilitate the way Level 1 and Level 2 Mifid requirements on best execution are implemented, says a CESR spokesperson. The consultation has considered the views of market participants and consumer representatives, adds the spokesperson.

The paper explains CESR's views on how firms can comply with the directive in the particular circumstances and situations that stakeholders have raised, say CESR officials. A sample of topics addressed by the document includes the overarching best execution requirement and what firms should do to comply with it. Representatives of the European Commission have participated as observers in the course of CESR's work on best execution.

During the open hearing on the Q&A document in March, CESR received 37 responses from the industry. The majority of respondents felt that CESR guidance would be "useful for implementation" but some respondents indicated that they would prefer CESR "not to provide guidance where it would restrict the discretion firms retain under Mifid," say CESR officials.

There was also a call for CESR to clarify when firms would have discretion in particular areas. These points are addressed in the paper, CESR officials say.

The Q&A is part of the last set of guidelines to implement the new trading regime in Europe released last week. The other CESR documents, also released last week, include recommendations on passporting and protocol on notifications, recommendations on inducements and guidelines on transaction reporting.

CESR is working on two additional documents in regards to Mifid: One focuses on whether Mifid should apply for non-equity transparency, such as the fixed-income market, and the other tackles the scope of Mifid regarding the commodity markets, says a CESR spokesperson.

CESR is currently consulting industry participants until June 8 on non-equity transparency and should publish its findings by the end of June. The final version of the document related to Mifid's scope within the commodities markets will be concluded in September, says the CESR spokesperson.

The Q&A has left "a lot" to the market to interpret, says P.J. Di Giammarino, CEO and founder of Mifid think tank JWG-IT Group. CESR has been more prescriptive in other areas, such as recordkeeping, he adds.

"CESR has given certainty about the fact that the industry needs to take principle-based regulation seriously and that it has to come up with its own views about how it's going to comply and more importantly, compute. Best execution is a market challenge that will be sorted out by the forces of competition over time," says Di Giammarino. The document should give more common direction around the basic definitions of Mifid and how enforcement is going to be put into practice, he adds.

The first step for the industry in regards to best execution is delineating who the clients are and who is responsible for best execution, says Di Giammarino. "Most of the financial institutions we speak with are trying to align their transactional systems, reference data systems and the unstructured data they maintain about the client to be able prove that the business was done as it should have been," he adds.

Full versions of the documents are available at CESR's Web site (www.cesr.eu).