How 'PAT for MiFID' works

Articles 21, 22 of MiFID require investment firms, when executing orders, to take all reasonable care to obtain the best possible ‘result’ for their clients, taking into account factors such as price, incidental costs, size and nature of order, speed, the likelihood of execution, settlement or any other consideration relevant to the execution of the order. The articles also mention that investment firms need to be able to monitor order execution to assess execution quality.

In London, the FSA has indicated that each UK-based investment firm will be required to develop its own policy to ensure best execution and to establish procedures to ensure that this policy is followed.

The investment firm’s Order Management System database should store all the information required for Best Execution assessment, namely: price, size, order type, time of execution, and client instructions. Using the time-stamps on traders’ submissions and exchanges’ executions, we can describe how each order was executed, by linking up with a historical market database to generate a report for the relevant trades over the specified period.

‘PAT for MiFID’ would be able to access all this information but, because no single factor on its own is sufficient to assess Best Execution, PAT would act as a simple interface linking Order Histories and Market Data and could be used to generate reports which, taken together, would show whether or not a specific order was executed in accordance with the investment firm’s policy.

Installation and usage

There are two ways to install and use PAT for MiFID:

    1. Real-Time mode - PAT (or a PAT subsystem) provides order streams and corresponding market data monitoring and analysis in parallel with trading operations, sending alerts or saving calculation results in a specialized storage for a later review.

    2. Historical Mode – PAT reads stored order histories and market data and provides analysis of these data on request. PAT has basic interfaces to databases with historical data and can be adapted for any particular system in a very short time.