Best Execution Compliance Workstation Helping Brokers Comply with MiFID
The project proved that PropheZy successfully predicted price movement bands. Setting the level of acceptable accuracy at “within 0 to 4 bands” out of 20, PropheZy was able to predict over 50% of the trades price bands acceptably.
Using these predictions, it was possible to set a level for best execution anomalies using price band prediction differences. Excluding trades inside the bid/offer spread from the PropheZy selection, the number of anomalies is reduced to approximately 1%.
Participating brokers said:
“This system would be a great way of seeing a small number of ‘odd looking’ trades that we could check - the fact that the same principles could be applied to fixed income and other instruments makes it particularly interesting.”
During the course of this research project the team built a prototype ‘Best Execution Compliance Workstation’ combining a number of tools (PropheZy, VizZy, FractalIntelligence and Decisionality) that helps a compliance officer process, visualise and manage best execution outliers:
Process: The compliance workstation has a workflow management tool that helps the compliance officer. The first stage of the process is filtering for anomalous trades. These trades are referred to the trader for explanation – do client instructions, market conditions, the size of the trade or any other factors explain the execution price? This system tracks investigations and provides a compliance ‘audit trail’.
Visualise: The compliance officer sees the predicted price movements plotted against the actual price movements. The length of the yellow link shows the difference between the actual and predicted values. The longer the link the more anomalous the trade.
Manage: The compliance workstation provides a ‘drill down’ tool for a compliance officer to home in on specific trades by drilling down through a variety of hierarchies. Shown here is a set of trades that fell outside the bid/offer spread and is arranged in 10 circles, showing trades with increasing differences between actual and predicted price movement.
- Project Summary
- Best Execution Compliance Workstation flyer
- Michael Mainelli and Mark Yeandle, "The Best Execution: Trader or Client?" , Fund AIM, Volume 1, Number 1, pages 43-46, Investor Intelligence Partnership (January 2007).
- Michael Mainelli and Mark Yeandle, "Best Execution Compliance Automation, Towards An Equities Compliance Workstation" , Journal of Risk Finance, Emerald Group Publishing Limited (June 2006).
- Michael Mainelli and Mark Yeandle, "Best Execution Compliance, New Techniques for Managing Compliance Risk" , Journal of Risk Finance, Emerald Group Publishing Limited (June 2006).
- Mark Yeandle, "Best Execution Compliance Automation", Financial Services Research (April 2006).
- PropheZy articles