A NEW LOOK.

Ian Peacock, UK CEO and global head of execution services at Kepler Cheuvreux talks to Best Execution about its new offering.

Has best execution improved since MiFID?

It is hard to measure the overall best execution in the marketplace since no general measure exists. However, I think MIFID has greatly improved best executions because now there is an industry standard for execution monitoring and transaction cost analysis. This was not the case before MiFID. Trading desks now have a greater focus on placing and monitoring orders and the control is enforced by market authorities. Greater attention is also paid to reporting.

What do you think the impact of MiFID II, and other regulation will have?

If you look at what has happened, the market has developed at such a pace, that regulators are addressing issues that were not there pre-the original directive. MiFID II is far from being implemented and it comprises two elements: regulation which should be applicable around mid-2014 and a directive not to be enforced before 2016.

There are six directions that focus on equities. The first is the definition and limitation of high frequency trading (HFT) through a dedicated fee structure that markets should implement. This type of trading has increased since new trading venues and fragmentation has occurred. The next focuses on OTC trading which is being moved onto listed exchanges. OTC trades will correspond to trading exceptions but they need to be clearly defined. Third, which is still under discussion, is pre-trade price transparency with the exceptions granted to dark pools. There is also talk of the possible creation of both a new trading platform OTF (organised trading facility) to better regulate broker crossing networks and a European consolidated tape. Last but not least is better best execution control or stricter obligations such as monthly reporting by intermediaries and platforms.

Altogether MIFID II should reduce HFT activity and increase market transparency.

And FTT?

There has been a push to get a European-wide FTT but so far some countries such as France and Italy have done it alone. However, there are differences between the two in that France allows the use of swaps or contracts for difference. This is not the case in Italy. Overall, I think the momentum is there for a European-wide FTT, which is very much politically, rather than financially driven but there need to be consistent rules. I do think though it could have a detrimental impact on volumes

You have recently launched a best execution offering. Can you provide more details about your best execution offering?

If you look at the surveys such as Greenwich Associates, flow is concentrated among the top ten brokers. We are on the list as the only non-conflicted agency broker with a multi-country offering. We are not an investment bank whereas the other nine on the list have a global business model. We focus on best execution and we need to be pre-eminent in that space. This means being a strong execution partner and having a comprehensive offering whether it is high or low touch. It is also very important to listen and talk to clients to develop an execution offering along with high quality service that meets their needs.

We have integrated the two trading desks of CA Chevreux and Kepler and now have one team and service that covers electronic trading, cash trading as well as portfolio trading. We offer a wide range of products including direct market access, algos, high touch trading and research. It is being run out of London, which has a greater focus on large cap stocks and Paris, which has a greater emphasis on small to medium-sized caps. We also have offices in all major European centres as well as New York, Boston and San Francisco.

What do you foresee as the challenges and opportunities?

When you talk about future challenges I think one thing is for certain, we are operating in an environment that will continue to change and evolve at a fast pace. With increased regulatory and political pressure now influencing the market structure the challenges of tomorrow will be very different to the challenges we face today. You only need to look at the unintended consequences of MiFID I implementation leading to widespread fragmentation and the explosion of HFT. You would have not predicted this in 2007.

As for opportunities, we will continue to focus on integrating the two brokers and to help our clients who are facing the same challenges as ourselves. We will also continue to reinforce our offering with innovative and new products.