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[ M A R K E T R E V I E W M | A L G O W H E E L S ] iFID II will see an increased emphasis on justifying choices made when executing a transaction. It requires traders to take ‘all sufficient steps’ to ensure best execution for clients on price, cost, speed, likelihood of execution and more. The key difference come January 2018 will be how firms plan, monitor and ultimately prove they have attempted to achieve best execution. Speaking to The TRADE earlier this year, Rob Board- man, CEO of ITG Europe, explained some of the impli- cations of the increased focus on conflicts of interest under MiFID II are not as well known as other aspects of the regulation like unbundling, market structure or dark caps. “On the trading side, there is a lot of scrutiny within asset management firms reviewing their compliance around choosing brokers,” Boardman said. “Regulators no longer accept the reasons often used in the past, instead they want solid evidence and proof.” MiFID II means the buy-side will be pressured to plan, monitor and demonstrate that an effective best execution process is in place. Alongside this, regula- tory technical standards have outlined the need for governance and testing for buy-side firms using algo- rithms. With countless algorithms available world- wide, firms are tasked with sifting through the noise in order to achieve the best result for clients. A repetitive, yet important task for any trader under MiFID II obligations is to select the right broker and algorithm based on a variety of factors. “Too many algo choices is a problem if a firm cannot efficiently navigate through them,” says Rich McGraw, senior vice president, global multi-asset EMS/OMS sales, FlexTrade. “If a buy-side firm has hundreds of algos and no way to consistently decipher which ones work well for specific order types, best execution could be at risk. “Without taking systematic steps, ranking brokers with difficult orders against brokers with easy orders will produce too much inaccurate analyses - or noise.” Traders are required to have a detailed knowledge of the functioning of the algorithms they use and 44 TheTrade Autumn 2017 they must evidence this. In this context, it can be difficult to claim a detailed working knowledge of more than a handful of algorithmic trading strategies and there can be a tendency to refine and focus the list of algorithmic providers. “The concern expressed by many is that if algo lists are curtailed, how can the trader know that his/ her shortlist is and continues to be the best?” says Chris Jackson, European head of Liquidnet’s execution and quantitative services (EQS) Group. “What process do they have for continuous evalua- tion of both the chosen algo set but also any new algos from different providers?” Broker randomisation tools, better known as algo wheels - a rel- atively new concept -burst onto the scene promising traders the ability to assess, monitor and justify algo and broker choices to regulators. With around 1,600 unique broker algorithms to choose from, iden- tifying a clear path through the forest becomes a daunting task. “The vast choice of algorithms, in conjunction with varying order characteristics and market con- ditions, makes it very difficult to determine what is ‘normal’ versus ‘outlier’ performance on any par- ticular broker algorithm or order,” says Scott Kurland, co-head of workflow technology at ITG. “In order to establish a best execution policy, you need to first establish a baseline of normal or expected performance of the