Best ex transparency moves to the next level

The draft technical standards for MiFID II require exchanges to publish quarterly execution quality reports (RTS 6). Sell-side firms are expected to digest these and update their best execution policies accordingly. Additionally, sell-sides must publish their own execution quality reports annually (RTS 7), which obviously should be digested by the buy-side. While sceptics might argue that the biggest impact will be an increased demand for paper, outright opponents point to some details which could drive significant changes in market structure.

Firstly, the exchange report under RTS 6 is extensive, covering all trading activity that an execution venue undertakes in a specific instrument. Interestingly, all execution venues – not just trading venues – must publish the report, putting market makers for instruments without a trading obligation (such as ETFs) in scope too. Secondly, RTS 7 requires investment firms to quantify for their top five execution venues the client order volume, the execution costs, the rebates, and more. All that together could represent a valuable set of data, freely available to the wider market. While it is accepted practice in the Nordic markets to publish the market shares of all exchange members, MiFID II will potentially take this a lot further.