Best Execution Regulations
FINRA Rule 5310
While FINRA Rule 5310 states that firms must use reasonable due diligence when executing client orders proving that the trader followed best execution rules is extremely challenging in some markets where analytics and data may create ambiguous scenarios. Dealers also what to use best execution technology to evaluate how well they are executing orders for maximum profit without violating regulatory rules. To accomplish these two somewhat conflicting objectives firms should include best execution in their strategic plans to address:
• Modified definitions and criteria on trading accounts and trading desks
• Significant trading threshold raised from $10b to $20b
• New reportable metrics on transaction volume and positions
• New Foreign Banking Organization covered activities
Resources:
FINRA Rule 5310
FINRA Rule 2232
FINRA Rule 2232
The intra-day liquidity rules imposed on banks by US and foreign regulators will have a direct impact on a bank's ROI the bank liquidity management program is not efficient and optimized for capital usage and FTP. Banks will need to:
• Develop an effective working model for liquidity management that optimizes capital usage and funding costs
• Invest in new technology that integrating trading, treasury and collateral management activities in real-time
• Monitor intraday liquidity as part of the firm's intraday risk management activities
Resources:
Federal Reserve Supervisory Rule SR14-1
Basel Committee on Banking Supervision (BCBS) 248
FDIC Resolution Plans
The UK and European financial markets have been undergoing dramatic changes in oversight and reporting beginning first with MiFID I and then MiFID II. MiFID II imposed the most direct best execution reporting requirements to date by requiring firms report on the quality of the executions across all asset classes via two reports defined by RTS 27 and RTS 28.
MiFID RTS 27
RTS 27 requires firms to report client orders details on a quarterly basis where the firm acts as a trading venue, systematic internaliser, market maker or liquidity provider.
Each RTS 27 report includes nine tables covering average execution prices, high and low prices, costs, rebates, spreads, likelyhood of execution data, mean and median time between order acceptance and execution.
• If no trades were executed in the first two minutes after T then the firm must report the first trade after T including price, time, size, trading system, trading mode, trading platform and best bid/ask
Resources:
ESMA RTS 27
ESMA RTS 27 ANNEX
ICMA MiFID II/RFixed Income Best Execution RequirementsRTS 27 & 28
MiFID RTS 28
RTS 28 requires firms to report annually on the top five venues where they execute client orders. This includes venues, other dealers, systematic internalisers including themselves.
Each RTS 28 report consists of tables where firms report for each class of security the top five venues by volume separated by asset class and retail or professional client
Resources:
ESMA RTS 28
ESMA RTS 28 ANNEX
ICMA MiFID II/RFixed Income Best Execution RequirementsRTS 27 & 28