The FICC Market Standards Board (FMSB) recently published a spotlight review on the ability of FICC (fixed income, currencies and commodities) market participants to measure trade execution quality (the “Review”).
The Review comes amid increasing market interest in best execution and transaction cost analysis from both regulators and clients particularly in the wake of MiFID II. The Review notes that historically FICC market participants have “face[d] specific challenges in achieving high standards of transparency, fairness and openness”, in particular the ability of FICC market participants to measure execution quality and demonstrate regulatory compliance has often been considered to be limited by the quality and volume of data available to them.
The Review considers these issues and looks at some of the key areas of interest for regulators and market participants, including in summary:
| Topic | Key points |
| Observability of relevant data sources |
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| Reliability and quality of relevant data sources |
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| Variations in data observability and reliability |
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| Obligations and priorities in measuring execution quality |
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Finally, the Review considers best practice and ways in which transaction cost analysis (TCA) and best execution could be further improved. The Review warns that, in light of the diversity and scale of the FICC markets, it would be impossible to impose “one-size-fits-all” requirements for best execution and TCA. Rather, the FMSB proposes that the focus should be shifted to “standardised models and processes” that can function as principles of best practice. Continued development of industry best practice will be an important factor in continuing improvements to execution quality.
As this topic will clearly continue to be a focus for both regulators and clients, firms operating in the FICC markets should consider their existing execution models and related processes in light of the Review’s conclusions. It remains to be seen whether the FCA will, in future, look to apply more specific best execution standards in the FICC markets, but firms that have demonstrated an awareness of evolving market practice and a commitment to continuous development of execution quality are likely to find themselves in a more robust position in relation to both regulator and client expectations.
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