Do you think a retail broker has to connect to all exchanges in Europe in order to offer best execution? Of course not! MiFID’s current definition of best execution is principles-based and takes into account more than just the execution price, but things are about to change. The latest MiFID II draft from the ECON vote contains a number of amendments that may cause you to reconsider your answer.

Firstly, Article 27 suggests a change to best execution policy for retail clients (defined as not professional clients described in Annex II of MiFID II) and reduces the number of input factors to price and directly related trading costs. Thus, no more speed and likelihood of execution for retailers.

Furthermore, Article 27 used to state that firms should take all “reasonable” steps to achieve best execution. Now, it says an investment firm must take all “necessary” steps.

Then, in Recital 78, it states that the Commission expects the industry to provide a market-driven consolidated tape. This consolidated tape must contain all markets and cannot focus on a sub-set of exchanges (see my previous blog Don’t buy it, if it’s not worth it!)

Taking these changes together, any retail best execution policy will heavily depend on an all-encompassing consolidated post-trade tape. In order to beat that benchmark, it might become “necessary” for all the retail brokers to connect to all the exchanges feeding into that consolidated tape via an Approved Publication Arrangement. After all, price and directly related costs are all that matter now and we don’t care about overheads and fixed costs anymore (apparently).