Viewpoint | Artur Fischer
Have there been any unintended consequences from best execution as a result of it being ushered in under MiFID?
Best execution could be said to have become less affordable. Previously, we had the concentration rule, which meant one got the best price at the venue that had the highest volumes and most diversified order flow. Subsequently, through MiFID, a plethora of new venues – MTFs/exchanges – emerged in Europe. Sometimes this resulted in better prices being achieved, but not always on the same venue. This meant that it became more complicated and expensive to actually identify where the best execution was. It also required technology to source the best price using Smart Order Routers (SORs). Now, if one comes to Equiduct, we calculate the best price and provide it to you at a low cost. Our system deploys a mathematical model to facilitate that low cost and offers the same quality of service that only SORs can offer. Under best execution the quality of your execution might have improved, however, it’s not for everyone – only for those that can afford it.
How can exchanges optimise technology to deliver best execution and re-engage investors? Best execution is not just about achieving the best price but also the lowest transaction cost. So, obviously we have to look continuously at reducing our costs, but at the same time we require low latency. Consequently it’s a struggle between being the cheapest and the fastest. Therefore your technology [at an exchange] has to provide a balance between being cutting edge and low cost. It’s not good enough just to have the best technology. To engage investors we don’t have to spend
€20m to educate our end users. In theory our website is visible to anybody and it’s just a matter of doing it smart and doing it right. We need to get our message out there and explain what the advantages are for end users to trade via our platform. However, in order to enable end users to access Equiduct’s offering in the first place, an
offering that in 2012 saved retail investors over €1.1 million by trading at the best price, retail
Best Execution | Spring 2013
banks and online brokers need to adopt our model and relay these benefits on to their clients.
Build versus Buy? With multiple exchanges using the same or similar technology providers, is in-house technology development the best way for exchanges to differentiate their product offerings? This all revolves around the issue of cost. Certain functions do not translate into competitive advantage. For example; connecting to a clearing house. As an exchange, I will not lose business if I opt to use a software component or services which are also provided to other parties needing to connect to a clearing house. I don’t care if I utilise it with ten other parties or on my own. So, certain services can be regarded as a commodity and do not help differentiate. As an exchange we cannot take any risk on board and the system has to be operationally safe. But in addition it has to be cheap. Other components can clearly provide
differentiation. Take the components relating to our market model. This is something we would not share with any other party. Equiduct has developed its own software and intellectual property, which distinguishes us. We have the ability to react swiftly to market demands, regulatory changes and beat the competition.
Can new networking tools such as Social Media be used to help educate and communicate with the end investor? As an exchange we are really trying to use Social Media, and believe we cannot afford not to be involved. It is a channel that allows us to interact with a diverse network, including the end investor. Currently it’s not making a significant difference in terms of impact, but potentially it will. Just like a lottery game at some stage you’ll get lots of followers and people connecting. We try to communicate daily through our Twitter account (@ Equiduct) relaying relevant statistics, such as price improvement on real orders that received a better price on Equiduct, as well as latest news and opinions, not necessarily on topics that have to do with our market (e.g. interacting with the media). ■
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