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Non-Financial Risks, Regulation and Innovations

Best Execution: MiFID and TCA

This section focuses on two particular studies undertaken by EDHEC-Risk Institute on the subject of best execution: "MiFID: the (in)famous European Directive?", and "Transaction Cost Analysis in Europe: Current and Best Practices".

The first paper is a call for the industry to seriously embrace a reflexion on how the quality of service is and should be measured in order to adequately protect the end investor in a context where a deliberate fragmentation of supply might not be counter balanced by adequate measures.

The second paper reviews the conditions in which buy-side firms (traditional and alternative) are currently monitoring transaction costs and investigates the various issues related to transaction cost analysis in the context of the Markets in Financial Instruments Directive due to be enforced in November 2007, which contains an important provision related to best execution.



  • "MiFID: the (in)famous European Directive?"; Catherine d'Hondt, Jean-René Giraud; March 2007

    In this study, EDHEC-Risk Institute, while recognising that the directive allows the conditions in which investment companies can operate on the regulated markets or over-the-counter to be harmonised, warns of the eventual adverse effects relating to the obligation of transparency for systematic "internalisers" and the obligation of "best execution". The authors find, in the case of the obligation imposed on systematic “internalisers” to maintain a public spread of prices, that it is prejudicial for this restriction to be removed for the least liquid securities. This provision will lead, in a certain number of cases, (small-caps on markets that are centrally organised at present), to a deterioration in the pre-trade transparency that is currently provided to investors.


  • "Transaction Cost Analysis in Europe: Current and Best Practices"; Jean-René Giraud; January 2007

    This report, which was commissioned by HSBC Investment Bank, reviews the conditions in which buy-side firms (traditional and alternative) are currently monitoring transaction costs and investigates the various issues related to transaction cost analysis in the context of the Markets in Financial Instruments Directive (MiFID) due to be enforced in November 2007. This directive contains an important provision related to Best Execution.