The authorities that are in charge of regulating the financial markets especially the security markets are faced with a hard time in recent years. This is because the markets that they are meant to police have gotten quite big and complex. The modern financial market is more reliant on complex computer algorithms and programs than it has ever been before. This makes it quite the challenge for the regulators to monitor for best execution and prevent market abuses from occurring. Rather than wasting their limited resources on ineffective solutions, they have turned to technology. Having seen the effectiveness of technological solutions, they have directed their attention to the use of technology to enable self monitoring and more effective policing on their parts.
Best Execution Monitoring
This is the execution of a fundamental market principle. The firms that operate in the market as intermediaries and agents of the investing public must always act in the best interests of the client. The intention of this principle is to ensure that investor confidence is maintained at all times and thereby, keep the markets stable.
For a firm to claim compliance with this, they must demonstrate that they advised their clients of their actions, and provide the client with an accurate overview of the choices that he has. Furthermore, in the execution of any trades that the client has mandated, they must always strive to act in a manner that is consistent with the best interests of the client. This means that their mode of execution must be calculated to favor their clients.
Market Abuse Solution
The most prevalent form of market abuse is the relegation of client interests into the periphery when firms are conducting transactions. This is why the best market abuse solutions on the market are designed to monitor for compliance with best execution monitoring principles. These software solutions are installed as add-ons to monitor the electronic trade execution platform that the company uses.
Market abuse solutions have inbuilt data rules on the legal requirements that the firm is supposed to adhere to. All trades and transactions that the firm tries to execute are monitored in comparison with the data rules that are stored. The software will provide an alert or even prevent the trade from being executed. These solutions are helping the regulators monitor an extremely complex market setup that is highly reliant on technology since the breach of rules and law can be highly devastating for the trust of the clients.