Unbundling versus Best Execution

By Steve Grob, director of group strategy, Fidessa

So, the September date looms forEsma’s final clarification on unbundling. What seems evident is that paymentfor research with trading commissions is definitely going to be out. What seemsless clear, though, is what can still be bundled into the definition of‘execution’ and therefore still be paid for in commission dollars. 

Presumably,post-trade TCA services are included as they could just be thought of as afancy form of invoice or, in the case of pre- or real-time analytics, as amechanism that allows customers to monitor what is going on. But what aboutmarket data, or the screen and other technical paraphernalia involved indisplaying those analytics? What about allocations and trade affirmations thatfinalise the execution process prior to clearing?

ESMA seems to distinguish betweenthe investment decision (what to trade and why) and the execution decision(where to trade and when). Taken literally then, anything that helps a buy-sidedecide how to trade an order could legitimately be paid for in commissiondollars. But this seems to fly in the face of unbundling’s twin brother – bestexecution. Surely each buy-side will need to independently assess the executioncapabilities of its brokers?

Whilst all the focus has been on how payment for research isgoing to work in an unbundled world, maybe the smart thing to do is think aboutwhat can still be included.

What does regulatory reform mean for how you do business?Find out at FOW's Regulation 2015 event in London on 8 September, sign up now: http://www.fow.com/events/details/8257/fow-regulation-2015/details.html