The European Securities and Markets Authority (ESMA) defines best execution
under MiFID II as a principle that
all financial services firms trading
on behalf of clients “must take all
sufficient steps to obtain the best
possible result, taking into account
price, costs, speed, likelihood of
execution and settlement, size,
nature or any other consideration
relevant to the execution of the
ESMA’s wording has left many
market participants scratching
their heads. Some have said it’s
impossible to achieve perfect best
execution with everything taken
into consideration. Others have
assumed best execution is simply
about getting the best price for
Director of trading analytics
at IHS Markit, Michael Richter,
describes the wording as “pretty
“As long as a firm evaluates all of
the above in its approach to trading, using all the tools available to
it on a pre- and post-trade basis as
well as taking the client instruction into account, it is possible to
achieve best execution, in the regulatory sense,” Richter explains.
He adds that achieving ‘best’
execution in a literal sense is
something of a red herring, but
‘better’ execution is a “real and
“While this seems like semantics, it isn’t, since ‘best’ implies
that each trade can be executed
optimally, while ‘better’ implies
substantive improvements to the
trading process as a whole,” Richter explains.
In October this year, ESMA
released a Q&A in an attempt to
answer some of the lingering questions on best execution.
According to the latest guidelines, the best execution requirement under MiFID II does not
need to be obtained for clients on
every single occasion, but firms
will need to verify efforts on an
ESMA said those executing on
behalf of clients must verify “their
execution arrangements work well
throughout different stages of the
order execution process”.
It added that all companies
should take “appropriate remedial actions if any deficiencies are
detected,” to prove they have taken
In a recent interview with The
TRADE, KCG’s chief executive
officer in Europe, Phillip Allison,
explained the firm is “pleased
about the focus on best execution
under MiFID II”.
“It’s a helpful catalyst for us to
move our business forward in
Europe and as a market maker, the
systematic internaliser framework
is a natural one for us to operate
in,” says Allison.
To follow up on the issue of best
execution, The TRADE spoke with
KCG’s recently appointed head of
execution sales, Michael Seigne.
“There are a whole series of angles and nuances to best execution,
but in essence it is possible and it
can be achieved,” he explains.
Most market participants appear
to agree that best execution is
something that can be achieved.