The AFG responded to ESMA’s consultation on criteria for establishing and assessing order execution policies.
The Directive amending the Markets in Financial Instruments Directive (MiFID II revision) was published in the Official Journal of the European Union (EU) on 8 March 2024. ESMA was empowered to develop the technical standards (RTS) specifying the criteria for establishing and assessing investment firms’ order execution policies, taking into account whether orders are executed on behalf of retail or professional clients, and consulted the industry before submitting its copy to the European Commission.
By its nature and purpose, an investment management company’s order execution policy should be descriptive and not intended to provide analytical results. The future RTS should not in any way transform the transparency requirement on order execution policies into a new reporting requirement under RTS 28 (which required publication of the top five execution platforms and was abolished in the MiFID II review).
The AFG believes that ESMA should be guided by the following when drafting the RTS:
– Criteria must be relevant to the intended recipients of the policy. Avoid requiring an unreasonable level of granular data that generates high production costs without producing useful results.
– A robust cost-benefit analysis should be carried out, as EU competitiveness is at stake
AFG responses highlight that :
– The policy is a generic document aimed at a wide range of (potential) investors.
– The categorisation of financial instruments within the policy should be standardised so that existing and potential clients can compare the order policies of different service providers.
– Level 2 texts should not introduce new obligations (e.g. mandatory use of Consolidated Tape).
– We are not aware of any problems emanating from individual (or institutional) investors that would justify the need to adopt such ambitious requirements.
With its particular emphasis on the “best price”, this proposal is not suited to markets where the price is imposed (price-takers).
Appropriate advice on best execution should not aim to encompass every aspect and detail of the trade. The selection of venues and counterparties, for example, is also closely linked to the investment firm’s risk management.
