Managing best execution as a forex firm

forex broker life

The following article was written by Matt Smith, CEO of regulatory reporting solutions provider SteelEye.

Matt Smith, CEO of SteelEye

Matt Smith, SteelEye

Forex traders had until June 28th this year to become RTS27 compliant for Best Execution under MiFID II and, going forward, firms are required to publish, on a quarterly basis, data relating to the quality of execution in all products they offer. With fines levied upon firms of up to €5,000,000 or 10% of annual turnover, and personal liability for senior managers who fail to comply, it is critical that RTS27 reporting is done properly.

With many Forex firms not having published their best execution data in time for the first quarter, what do they need to do to hit the next deadline in September, but also ensure they are prepared for the long-term strategic implications of RTS27 reporting? Matt Smith, CEO of SteelEye, the compliance, tech and data analytics firm, outlines the key steps you should be taking now to ensure you are developing the right RTS27 strategy for the long-term.

Define the best execution policies for your firm

By defining your firm’s best execution policies, you ensure complete clarity on your obligations and clearly identify where you are required to take “sufficient” steps to obtain, when executing orders, the best possible result for your client.

Establish how much data you will be reporting on

The type of solution that your firm requires to ensure adequate RTS27 reporting depends entirely on the size and complexity of your operations, as well as the products it trades. Many smaller firms will be able to conform and undertake the analysis on a spreadsheet. However, medium-sized or large firms, or those with complex products would be better served using technology that amalgamates and analyses the data to help meet best execution reporting obligations. What’s important is that companies understand their regulatory reporting obligations and can identify the right solution to achieve compliance with them on an ongoing basis.

Use the data collected to analyse your own firm’s competitive edge

Firms’ best execution obligations under MiFID II are undoubtedly extensive and can be expensive if not managed correctly. While they create an additional compliance burden for firms, the new data and refined best execution processes they will generate can help firms develop a competitive business edge. The use of technology can definitely assist with this, as innovative new data feeds and performance measurement tools help firms to build more sophisticated and streamlined quantitative processes; these will help not only compliance reporting to the regulator but will facilitate smart analysis by the firm of the data thus brought together.

The Best Execution framework is far from complete. Different asset classes are required to on-board at different times and regulators are shifting timescales and changing expectations of what should be delivered when. Ultimately, it is the responsibility of compliance teams to start preparing for the long-term strategic implications of Best Execution and to ensure that they are engaged with stakeholders and internal departments to amend and refine policies and processes to avoid exposing the firm to any significant compliance or reputational risk. In addition, where they choose external software tools, they must take care to engage with firms who can respond nimbly to this shifting landscape.

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