Tickmill: Fostering a Best-Execution Regime in the Brokerage Industry

As the retail Forex business matures and grows, the importance of providing high quality execution is more important than it has ever been.

It has become a regulatory mandate to provide transparency and integrity in the financial markets. With the aim of strengthening investor protection, “best execution” is based on the premise of acting in the best interest of the client by ensuring fairness and transparency in the trade execution process.

Regulatory Requirements

Considering the changes to the financial regulatory landscape and the introduction of MiFID II in 2018, investment firms are expected to focus their attention on providing best execution for their clients by monitoring and thoroughly testing the execution quality.
In line with MiFID II, brokerages are also required to provide information on the main execution venues they relied on for each of their products, and outline the methodology used to assess the quality of execution provided. Besides monitoring, the regulation stipulated by the European Securities and Markets Authority (ESMA) requires firms to oversee the appropriateness of their arrangements and policies on a pre- and post-trade basis to compare the quality of execution available from competing venues — before the trade — against the quality that was actually achieved.

“New data technology such as algorithmic analysis and cloud computing makes it easier for brokers to optimise and evaluate their execution performance.”

Regulatory bodies such as the UK Financial Conduct Authority expect firms to have contingency plans in place for periods of market distress and high volatility.

Foreign exchange brokers must rigorously evaluate the factors affecting the quality of execution of client trades, including the client characteristics (whether the order is for a retail or professional client), the size, nature and type of the order, and the speed and likelihood of execution.

Best Execution and Technology

There are many developments aiding the implementation and assessment of best execution. Data, analytics and technology are some of the key elements that firms tap into. Providers of financial services are expected to have robust internal reporting processes and controls, supported by a technological infrastructure that can take in, store and supply data in a timely manner.

New data technology such as algorithmic analysis and cloud computing makes it easier for brokers to optimise and evaluate their execution performance. The monitoring process is based on enhanced technologies that can crunch large data sets in real time, and whose analysis can help formulate actions to improve performance.

Upholding Best Execution Standards – The Example of Tickmill

Tickmill, the global provider of Forex and CFD products, takes pride in having an effective monitoring capability in place to measure best-execution performance. The broker takes the evaluation and implementation with professionalism, and in doing so, it strictly adheres to benchmarked policies, systems and controls.

The monitoring efforts of the company are based on a variety of metrics, taking into consideration all the relevant factors for attaining the best possible outcome for clients. Tickmill uses sophisticated digital tools that extract data about client transactions and the quality of execution across all relevant asset classes. This procedure is vital in determining the effectiveness of its order execution arrangements, and to correct potential deficiencies in the process and policy.

The dealing team monitors pricing on a retrospective basis, conducting regular reviews to ensure consistency in-line with the underlying market. This is primarily achieved by keeping track of data feeds and other pricing mechanisms while also assessing controls, alerts and statistics to identify any inconsistencies. The team closely monitors other significant parameters of trading, such as spreads and slippage, and any discrepancies are swiftly reported and corrected.

With a good understanding of the importance of low trading costs and the impact of costs on trade execution, the company sources the best available prices from selected liquidity providers. The company carries out periodic due diligence, and reviews of the liquidity providers and the quality of their service and execution. By following this procedure, the firm ensures clients benefit from the best possible prices, for instance spreads starting from 0.0 pips.

The company’s compliance and risk management functions play a key role to ensuring the firm exercises consistent standards and processes when executing trades on behalf of clients — regardless of the type of instrument or client involved in the transaction. Compliance also make sure policies, terms and conditions, and other disclosures about best execution are clearly communicated to improve clients’ understanding of the company’s approach.

Tickmill believes that adopting best-execution practices generates sustainable value for its clients, and enhances transparency in the wider financial ecosystem. It is committed to maintaining its systematic approach to ensuring quality of execution, while at the same time regularly reviewing and streamlining the relevant procedures and policies.