The European Securities and Markets Authority (ESMA) has initiated a consultation regarding draft technical standards. These standards aim to define how investment firms should establish and assess the effectiveness of their order execution policies. The primary goal of these proposed standards is to enhance investor protection by improving the order execution practices of investment firms.

Order Execution Policy Standards

ESMA is seeking input from stakeholders on several key areas. First, the establishment of an investment firm's order execution policy. This involves classifying the financial instruments used for executing client orders and selecting venues for the order execution policy.

Second, the investment firm's procedures for monitoring and regularly assessing the effectiveness of their order execution arrangements and policies. Third, the execution of client orders through the firm’s own account dealing. Lastly, how an investment firm should deal with client instructions during order execution.

ESMA and EC Coordination

The revised texts of the Markets in Financial Instruments Directive II (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) came into effect on 28 March 2024. The deadline for transposing the MiFID II amendments is set for 29 September 2025.

The amendments include many Level 2 measures that will be developed over the next six to eighteen months. Additionally, these regulatory changes will necessitate updates to ESMA's IT systems and relevant MiFIR registers.

ESMA is working with the European Commission (EC) to evaluate which provisions require further guidance and clarification. The EC has published a communication and an interpretative notice regarding the transitional provisions, supplemented by an ESMA statement.

Feedback Deadline and Report

Throughout the implementation phase of the MiFID II/MiFIR review, ESMA will consult the public on a series of technical standards. These will be released in consolidated consultation paper packages. The timeline for the adoption of Level 2 measures will depend on approval from the European Commission, the European Parliament, and the Council of the EU. An implementation period will also be provided where necessary.

ESMA will accept comments until 16 October 2024. Following this period, ESMA will prepare a final report based on the feedback received, which will then be submitted to the European Commission for the final draft of the technical standards.