The Investment Management Association (IMA) has publicly expressed its opposition to the FSA's proposal to employ price benchmarks in dealer markets as part of MiFID's best execution process. MifID, the Markets in Financial Instrument's Directive, is a key part of the EU's Financial Services Action Plan, which is designed to create a single market in financial services.
Despite agreeing with the majority of the FSA Discussion paper DP 06/03 - Implementing MiFID's Best Execution Requirements, the trade body argues MiFID's text on best execution should, in certain instances, apply a duty of best execution to dealers on the basis the process should be divided across all firms involved in the chain.
"The issue of the responsibilities of the different participants in the execution chain is a crucial one and urgently needs to be resolved," said Sheila Nicoll, deputy chief executive of the IMA. "The FSA needs to adopt an approach that will allow those firms in the execution chain to deal with their duty of care in different ways rather than seeking a one-size fits all solution."
The IMA's stance is not unexpected as much uncertainty has arisen over the process and the exact responsibility of participants in the chain. As a result, the IMA has proposed an alternative approach to benchmarking, where the FSA should "copy out" the MiFID text and provide limited guidance in order to reinforce the principles that apply to the dealer when executing these orders.
The IMA has hoped the regulator would be able to provide underlying principles that apply to dealers when they execute a client order, as well as being attentive to the speed, size and nature of the order. There is also a hope the execution policy will have clear guidelines with regard to conflicts of interest.
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