24 Aug 2007, Victoria Pennington, Operational Risk & Regulation
LONDON – According to the Association of Private Client Investment Managers and Stockbrokers (Apcims), some UK stockbrokers are in a legal quandary about whether or not to go ahead and break new best execution laws established by the Markets in Financial Instruments Directive (Mifid), which comes into force on November 1.
All EU brokers are facing the same dilemma, Apcims said, as it becomes clear that most will not have their best execution policies in place for all clients – and so may be forced to execute trades off new venues without having written consent from clients as required under Mifid.
Retail brokers that serve millions of individual investors in the EU’s biggest financial market execute trades through an intermediary, often a major global bank. From November, some intermediaries will trade on new platforms that compete with exchanges and therefore client consent would be required. Moreover, the 12 intermediaries serving UK brokers have yet to announce where they will execute orders. With such little time left, brokers with thousands of clients know that they cannot obtain written consent in time.
Brokers will either have to decide to comply with Mifid and not execute an order from a client who has not given consent, or execute the trade and risk breaking the law. There will certainly be a takeover period before the Financial Services Authority follows this up or takes reprisals – although this is a grey area and not one that the FSA has issued any guidance on.