Circular C343 dated 25.10.2019

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Circular C343 dated 25.10.2019 regarding the thematic review of best execution obligations of Cyprus Investment Firms (CIFs)

CySEC carried out a review of the Best Execution arrangements put in place by CIFs to ensure compliance with the provisions of Article 28 of the Investment Services and Activities and Regulated Markets Law (“the Law”).

Circular C343 sets out CySEC’s observations and draws the attention to CIFs to consider whether they comply with the best execution obligations and where appropriate, take corrective measures.

Regulatory Framework

CySEC based its review on the following:

  • Article 28 of the Law;
  • Articles 64 – 66 of the Commission Delegated Regulation (EU) 2017/565;
  • ESMA «Questions and Answers Relating to the provision of CFDs and other speculative products to retail investors under MiFID» -ESMA 35-36-794 – (Q1 and Q2 in Best Execution section);
  • ESMA «Questions and Answers on MiFID II and MiFIR investor protection and intermediaries’ topics» -ESMA35-36-349 (Q2 in Best Execution section).

Observations / Weaknesses identified by CySEC during their review

  • Weaknesses in the implementation of the Order Execution Policy and Best Execution arrangements;
  • Weaknesses in regards to the selection process for execution venues;
  • When CySEC assessed the CIFs’ use of technology or software to evaluate the settings and parameters used by the CIFs (i.e. bridges and plug-ins), the following alleged “unacceptable” practices were identified:
  1. Applying a longer latency than necessary before an order is executed to similar client orders (i.e. 4 seconds);
  2. Different treatment to different groups of clients based on the clients’ trading profitability, as well as based on the CIF’s hedging arrangements. Specifically, one CIF directed the order flow of its ‘profitable’ clients to a liquidity provider, which seemed to execute client orders with less favourable terms to the clients (i.e. asymmetric slippage and less likelihood of execution);
  • Asymmetric limitations to the maximum positive and negative ‘gapping’ (in favour of the client and to client’s disadvantage), above which client orders were rejected or re-quoted;
  1. Restrictions on certain type of orders (i.e. 2-minute minimum time to close a winning position).
  • CySEC observed that in some instances the information provided by CIFs to their clients in relation to the Order Execution Policy was not appropriate and was often high-level and generic;
  • CySEC observed that there was a lack of effective monitoring to identify best execution failures. Specifically, CySEC observed weaknesses regarding the monitoring of the execution quality of the venues and price sources used and the monitoring of the order execution arrangements;

Good Practices

CySEC through the review also identified some good practices and good examples of CIFs’ venue monitoring. For example, some CIFs had a robust scoring system for monitoring their liquidity providers and deployed sophisticated technology to support their real time, end-of-day and periodic monitoring program in order to ensure the fairness of the prices proposed to Clients. In addition, some CIFs developed specific software to continuously monitor price slippage and re-quotes for all trading activity, taking into account the number of orders, the volume of orders (i.e. in pips) and the value of orders for all order types.

Next Steps

All CIFs are expected by CySEC to consider the issues raised in the Circular regarding their Best Execution policies and arrangements and take remedial actions when necessary to ensure compliance.

Should you need more information or assistance regarding Best Execution requirements you may contact us on or 25 508 201.