| Asia | Articles
More than 50% of fund managers have yet to fully implement the Singapore rules for best execution which went live on 3rd March, according to a recent poll. The MAS expects all firms to formalise and implement their policies and procedures and build a robust governance framework around them.
What the MAS expects
Firms must establish and implement written policies and procedures that are commensurate with the nature, scale and complexity of their business to place or execute customer’s orders on the best available terms.
The poll, conducted during a Bovill presentation at an industry event asked fund managers to rank their progress in implementing the rules. 53% of attendees admitted to either not having fully implemented the rules, or to having ‘material gaps’.
To satisfy MAS’ requirements and achieve the best available terms for the funds managed, there are five key areas where fund managers should focus: policy, best execution factors, broker selection, monitoring and governance.
Five focus areas for best execution compliance
Firms should have a comprehensive Best Execution policy. Having a thorough policy provides a positive insight into your processes and controls, especially when an inspection is conducted by the regulator on your firm. The policy should minimally cover these areas: governance, order placement and execution, selection of brokers and execution venues, best execution factors and relative importance, monitoring, and disclosure.
Best execution factors
On a day-to-day basis, fund managers should have a process for selecting how a trade/investment is dealt with. This in turn will depend on the circumstances such as market conditions, liquidity, investment strategy and restrictions. Hence, the relative importance of best execution factors (price, costs, speed of execution and so on) will often change according to such circumstances.
Generally, when deciding the relative importance and applicability of best execution factors, fund managers should take into account the following considerations:
- The investment objectives and any restrictions;
- The type of capital markets products being traded; and
- The characteristics of the Brokers and/or Execution Venues
For example, in relation to equities or bonds, the factor price will be of high relative importance in obtaining best execution, but this may change, where the size of the trade is large compared to the liquidity available, or where speed of execution is key.
Having a process to select the right execution/prime broker and/or execution venue based on the circumstance is important. In addition to choosing a broker that provides the best price and costs, fund managers should also consider the broker’s ability to work on low and high-volume orders, timely execution and settlement and fill rates. Only select brokers/execution venues that combine high quality service standards with effective best execution arrangements in order to obtain the best available terms consistently.
With a wide range of products, strategies, markets, execution venues and market participants in scope, monitoring can be a complex process when fund managers first start to gather all the market information and data onto one platform for analysis.
When comparing prices to assess whether the best available price has been achieved, firms can use a manual approach – for example with spreadsheets – or use specialist technology. This is often dependant on the volume and type of trades.
Fund managers who have yet to implement the monitoring process could start off with a manual monitoring process and move towards a semi-automated and automated monitoring solution as their trade volume grows. However, for certain types of fixed income, OTC derivatives and FX products – manual monitoring could be the only viable solution.
Formal oversight arrangements, such as a best execution committee should be commissioned to drive oversight of both the first and second lines. The committee should act as a forum for portfolio managers, traders, compliance, and other stakeholders to come together to review best execution outcomes. It also provides an important arena for compliance to challenge those who are directly responsible to achieve the best available terms for funds (i.e., portfolio managers and traders).
How we can help
As well as our team in Singapore, Bovill has experts internationally and we’ve been helping clients to implement Best Execution frameworks for several years. Here are a few examples of how we can help:
- Design an appropriate policy, procedure and oversight framework
- Determine the most appropriate monitoring approach for your trading footprint
- Regulatory advice and compliance support