Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43270
Authors: 
Ende, Bartholomäus
Lutat, Marco
Year of Publication: 
2010
Series/Report no.: 
CFS Working Paper 2010/15
Abstract: 
The new regulatory environment triggered by MiFID has resulted in a transformed competitive landscape and increased fragmentation among execution venues in Europe. One key component of MiFID is best execution, i.e. investment firms are obliged to achieve the best result for customer orders on a consistent basis. Specifically for retail transactions, the total consideration, i.e. price and explicit transaction costs, shall apply as a benchmark for the best result. In contrary to RegNMS, MiFID does not require to achieve the best result based on a real-time comparison of available prices. Therefore, after the introduction of MiFID the question on the extent of suboptimal order executions after transaction costs arises. Applying order book data for EURO STOXX 50 securities of ten European execution venues, this paper analyses suboptimal order executions including transaction costs by simulating an optimal Smart Order Routing engine. The results show that after explicit transaction costs, specifically cross-system settlement costs, still an economically relevant number of suboptimal order executions prevails. The developed methodology and parameters enable for assessing and future tracking of the efficiency of order execution in European equity markets and the effectiveness of regulatory measures both on the trading level, e.g. MiFID, or on the posttrading level, e.g. the Code of Conduct for Clearing and Settlement.
JEL: 
G14
G15
G24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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