Key takeaways from 1H 2017 Alpha Trader Forum (ATF) regional buy-side debates:
Anita Karppi
NED | Board Advisor | Leadership | Strategy | Business Development | Founder
Pension funds are, from a strict regulatory perspective, not challenged the same way as other asset management firms with the necessity to comply with MiFID II regulation. Regardless of regulations, some pension funds are still trying to conform to the benchmark of what is expected as an industry minimum.
MiFID II
BEST EXECUTION
The major discussion topic within best execution is how the buy side should objectively prove to auditors and their clients that they have fulfilled their due diligence on their counterparties. There is a need for decisions about which processes and tools should be used and the need for additional documentation. On one side, there is a push to funnel business to fewer counterparties where one can prove proper due diligence.
On the other hand, specialisation is an area that is challenged due to regulatory capital restrictions so some buy side are signing up more counterparties to cover all markets. But additional complexity hits hard as specialised ad-hoc counterparties may not accept the associated technology connection fees for long unless there is re-occurring business. From an inducement perspective, is it right that the broker is solely paying for this connection?
Within foreign exchange we look forward to discussing how the buy side plan to prove best execution when trading through a custodian.
Transaction Cost Analysis (“TCA”) is an old subject we have been researching for years but the new MiFID II regulation suggests that buy side have established stronger ex-ante processes which automatically lead the discussion to pre-trade TCA. With additional asset classes being in scope of best execution, the buy-side head traders are trying to figure out the best technologies to satisfy the requirements for each asset class; should the choice be between best-of-breed or one solution for all? Whilst we all know MiFID II transparency is a double-edged sword, one expected benefit is better data and TCA analysis, especially for fixed income (it’s unlikely it can get any worse).
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