Best Execution service for retail Investors

23/06/2022 - 9:00AM CEST

Euronext is helping brokers to offer Best Execution to their retail clients with Best of Book, the Best Execution service dedicated to retail investors' orders, to ensure a fair trading environment according to MIFID II best execution requirements.

The rise of retail: challenges for banks and brokers

European financial markets have seen a strong rise in trading from retail investors since the start of the Covid-19 pandemic, resulting in the emergence of new investor profiles and investment strategies that have considerably and unexpectedly shaken up the trading landscape.

Retail investors are eager to explore growth opportunities in products traded on the exchange such as stocks or ETFs, but also to try their hands at trading the latest financial vehicles such as cryptocurrencies or NFTs.

They are also increasingly demanding cost-effective, fair and transparent trading solutions, challenging retail banks and brokers to continuously reinvent their services and stand out from their competitors, including newly launched neo-brokers that seemingly offer free and simplified trading platforms. In reality, many of these alternative low-cost platforms hide a model where the retail investor ends up losing out with an unfavourable execution price, making the overall cost of trading higher than it would be elsewhere.

Best Execution under MIFID II

At the same time, European regulation MiFID II sets out best execution rules requiring banks and brokers to execute orders on terms most favourable to their clients, taking into account both execution costs (trading fees) and market quality (price, timing, and likelihood of execution). Typically, this involves connecting to a range of venues to secure the most favourable execution solution for a given order.

Euronext Best of Book: helping brokers guarantee best execution for their retail clients

Euronext offers the deepest pool of liquidity in Europe, outstanding market quality, and a safe and reliable trading environment. It has regulated exchanges in Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo, and Paris, trading members connected across Europe and a large variety of retail and institutional investors worldwide. For the past five years, Euronext has enabled retail banks and brokers to guarantee best execution to their individual investor clients through its Best of Book (BoB) service.

Best of Books (BoB): the Best Execution Service by Euronext

Best of Book is a best execution service exclusively for retail orders sent from Euronext direct and indirect members. The service operates within Euronext’s robust Central Order Book for all liquid stocks on the Euronext Amsterdam, Brussels, Lisbon, Oslo and Paris markets. Dedicated Retail Liquidity Providers compete against each other and against the Central Order Book in absolute neutrality, to offer price improvement for retail order flow. Their quotes are at, or better, than the European Best Bid and Offer (EBBO) price.

“With the Euronext Best of Book service, we can deliver the best execution within the Euronext franchise to our retail investors,” says Roman Würsch, Head of Trading Product Development at Bank Vontobel AG. “We can make sure that retail investors receive the most un-toxic and natural liquidity available on a regulated exchange with all the additional advantages like a CCP post-trade setup and an immediate transparent trade reporting done by the exchange.”

Best execution success and an average price improvement

In 2021, Best of Book accounted for 98.68% best execution success and an average price improvement of €3 per trade (€2.8 net of fees), compared to competing venues. 17.79% of the time, BoB was better than the EBBO, and retail investors saved over €106 million (8.75 basis points) thanks to BoB’s superior execution quality. BoB remains the only multilateral trading venue improving the European Best Bid & Offer with full price competition.

“With the boom in retail activity that we have experienced since the pandemic, it’s more important than ever to provide our clients with increased liquidity,” comments Laurens Fontaine, Institutional Broker at KBC Securities. “The Best of Book service is a strong tool for this purpose.”

Brokers using Best of Book

Over 35 brokers have already chosen BoB to deliver the best service to their retail investor clients, and this number continues to rise. Over the last year, Euronext welcomed five new members to the BoB community: IBKR Interactive Brokers, KBC Securities, Nordnet, Oddo BHF and Vontobel.

Euronext is in regular dialogue with European regulators to ensure a fair trading environment that protects retail investors and enables brokers to meet their best execution requirements while providing a competitive solution to their retail clients.

How easy is it for a broker to benefit from Best of Book?

Euronext Best of Book is simple, safe, impartial and transparent, and is open to any bank or broker across Europe.

Brokers need to be a Euronext trading member – either direct or indirect – and then connect to Best of Book as a Retail Member Organisation (RMO). By simply flagging their retail clients’ orders with a dedicated RMO tag, these will be routed onto Best of Book. Onboarding is easy, and for existing Euronext members, very little IT development is required as the access is through their existing connection with no additional latency or cost.

Brokers will also receive daily and monthly best execution reports, provided via an independent data provider, so that they can monitor their best execution performance. Additionally, Euronext can produce individual client reports based on Client IDs with best execution details, which can be communicated to individual clients directly.

BoB enables brokers to offer the best execution prices and a fully transparent service to their retail clients who want to invest on the Exchange, guaranteeing that they are defending the interests of this important client group.