The European Securities and Markets Authority (ESMA) has published a final report in relation to the draft regulatory technical standards (RTS) specifying criteria for establishing and assessing the effectiveness of investment firms' order execution policies, accounting for whether the orders are executed on behalf of retail or professional clients. The report is accompanied by a press release. ESMA's mandate for developing the new RTS was included as part of the changes made to best execution requirements following the EU MiFID II/MiFIR review. During the review, areas for improvement were identified including insufficiently documented and demonstrated satisfaction of best execution processes. In addition, feedback from competent authorities and other stakeholders evidenced that further clarification of order execution policy requirements would be helpful.
The final report confirms that in certain areas, ESMA's proposed approach has been modified in light of feedback received. Key changes include: (i) simplifying the categorisation of classes of instruments in light of feedback that the original approach was overly granular; (ii) more specific requirements for firms using a single execution venue; (iii) additional proportionality requirements; (iv) further detail on firms executing client orders by dealing on own account; and (v) redrafting provisions to ensure that references to consolidated tape data are not interpreted as a de facto mandatory consumption requirements (as firms may use other data sources for the purposes of best execution).
ESMA has submitted the final report to the European Commission, which now has three months to decide whether to adopt the RTS.
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