Best Execution: Are You Doing Enough? What Is the Regulator Saying?

The Cyprus Securities and Exchange Commission (CySEC) recently carried out a review of the arrangements put in place by Cyprus Investment Firms (CIFs) to ensure compliance with their best execution obligations or, in other words, their overall requirements to execute orders on terms most favorable to their clients. CySEC published its results in Circular 343.

Following its findings, CySEC requests that all CIFs determine whether or not they comply with their best execution obligations and take the necessary corrective measures.

Under MiFID I, Investment Firms (IFs) had to take “all reasonable steps” to obtain the best possible results for their clients. However, under MiFID II, IFs are required to take “all sufficient steps.” According to ESMA’s Q&A on MIFID II and MIFIR investor protection, this means that the requirement for “sufficient” steps sets a higher bar for compliance than “reasonable” steps.

During its review, CySEC observed several weaknesses in the implementation and monitoring of order execution policies and arrangements. This review highlighted once more the importance of effective monitoring to identify best execution failures.

Furthermore, CySEC established that the monitoring carried out by CIFs did not reflect all the execution factors and information the CIFs are required to assess.

Among others, CySEC identified the following deficiencies:

  • A lack of systematic comparison of the CIFs’ quoted and executed prices against the price offered by independent sources or other venues in order to ensure price fairness;
  • A lack of use of benchmarks and statistics such as: i) average effective spread; ii) frequency of quote delays; iii) rejections and price re-quotes, and; iv) metrics on order latency that should play a fundamental role in the monitoring;
  • In many cases, the monitoring did not include: i) slippage metrics taking into account the number of orders; ii) the volume of orders, and; iii) the value of orders for all order types (stop-loss and take-profit orders, other limit orders and stopped out orders due to margin closeout);
  • Insufficient evidence to support that clients enjoyed lower costs (transaction fees, spreads and various other financing costs and charges), and;
  • In some cases where a monitoring programme existed, said programme was lacking in quality and substance as it was carried out manually on spreadsheets often using wrong methodologies or inadequate sample sizes, and/or the programme did not take into account all the execution factors CIFs are required to assess.

CySEC has praised CIFs that deployed sophisticated technology to support their monitoring program and ensure the fairness of execution. Many of these solutions were developed in-house by CIFs that invest heavily in IT, as well as by independent third parties, and they took into account the CIFs’ specific business model.

Performing all necessary checks manually or deploying an in-house solution can be very challenging for IFs due to the strain it puts on human resources and costs. Furthermore, these solutions can be prone to errors and incorrect analysis and add additional operational hassle. Hence, it is important for IFs to consider deploying a tested, automatic and sophisticated technological solution from a trusted vendor.

How can MAP FinTech assist you?

ΜΑΡ FinTech, a trusted technology provider to the financial services industry that specialises in regulatory technology solutions, offers a fully automated tool for Best Execution Monitoring. MAP Fintech’s platform not only satisfies the requirements of CySEC and MIFID II, but also offers a holistic view of your Best Execution provisions with more than 40 analytical checks applied on all execution components (price, cost, speed, likelihood and settlement, size, price continuity or any other consideration relevant to the order’s execution).

Checks include number of orders, percentages, volumes, monetary values, types of orders, types of costs, and benchmarks such as average industry speed, quote delay tolerance, application of charges and more. In addition, the system offers the ability to view complex analytics, input comments, record monitoring and corrective measures, set alerts, and export reports for record-keeping, business and proof of compliance purposes.

If you would like to receive more information about MAP-Best Execution Monitoring, please don’t hesitate to contact our team  via email at or give us a call at  +357 2535 1335 or +44 207 060 5540.