MiFID Best Execution Benchmark

Abstract

The Markets in Financial Instruments Directive, a cornerstone of the Financial Services Action Plan, was proposed in November 2002 to replace the existing Investment Services Directive of 1993. It was designed to cope with, and to further enable, the increased level of cross-border investment transactions. MiFID was adopted in April 2004 and will take effect in November 2007. Article 21 of MiFID covers Best Execution - a firm must take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order.

In this paper we propose a model to benchmark best execution quality; based upon parameters suggested by the EC. It is hoped that the model will go a long way in establishing a best execution benchmark that can be applied by firms to comply with MiFID guidelines concerning best execution.

Keywords: MiFID, Best Execution

JEL Classification: G10