How Do Firms Use RTS 27 and RTS 28 Reports to Validate Their Best Execution Policies? ▴ Question

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Concept

The validation of a firm’s best execution policies is a critical function, mandated by regulations like MiFID II, to ensure that investment firms are consistently acting in their clients’ best interests. At the heart of this validation process lie two key regulatory disclosures ▴ RTS 27 and RTS 28 reports. These reports provide the data-driven foundation for firms to monitor, assess, and evidence the effectiveness of their execution arrangements. Understanding how these two reports function in concert is fundamental to grasping the mechanics of modern best execution oversight.

RTS 27 reports are issued quarterly by execution venues, such as stock exchanges, multilateral trading facilities (MTFs), and systematic internalisers (SIs). These reports offer a granular, standardized set of data on execution quality. Think of RTS 27 as a public-facing performance report for each venue, detailing metrics like prices, costs, and the likelihood of execution for various financial instruments. It provides a broad, market-wide view of the execution quality available from different venues.

In contrast, the RTS 28 report is an annual disclosure made by the investment firm itself. This report identifies the top five execution venues the firm used for each class of financial instrument, based on trading volumes. More importantly, it requires the firm to provide a summary of the analysis and conclusions drawn from its monitoring of the execution quality obtained from these venues. Essentially, RTS 28 is the firm’s public declaration of where it has sent client orders and a justification for those choices, supported by a qualitative summary of its execution quality monitoring.

The interplay between these two reports is where the validation process takes shape. Firms use the broad market data from the RTS 27 reports of various venues as a benchmark. They can then compare their own execution outcomes, as disclosed in their RTS 28 report, against this benchmark.

This comparative analysis allows a firm to quantitatively assess whether its chosen venues and execution strategies are delivering the best possible results for its clients, considering factors like price, speed, and likelihood of execution. The RTS 27 data provides the context and the market-wide yardstick against which a firm’s own performance, summarized in RTS 28, can be measured and validated.

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Strategy

A robust strategy for leveraging RTS 27 and RTS 28 reports moves beyond mere compliance and transforms these regulatory requirements into a dynamic system for continuous improvement of a firm’s best execution policies. The core of this strategy is a structured, data-centric feedback loop that informs and refines execution decisions. This process can be broken down into several key stages, each designed to extract actionable intelligence from the reports.

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A Symbiotic Data Framework

The foundational step is to establish a system for ingesting, normalizing, and analyzing the data from both RTS 27 and RTS 28 reports. Given that RTS 27 reports are published by numerous venues in varying formats, this is a significant data management challenge. A successful strategy involves developing or procuring technology to aggregate these disparate reports into a unified database. This allows for meaningful, like-for-like comparisons across venues.

Firms must translate raw regulatory data into a coherent analytical framework to effectively challenge and validate their execution outcomes.

Once the data is aggregated, the firm can perform a multi-faceted analysis. This involves comparing the execution quality metrics from its top five venues (as identified in its upcoming RTS 28) with the metrics from a wider peer group of venues (from their RTS 27 reports). This comparative analysis is the linchpin of the validation process, providing objective evidence to support or challenge the firm’s venue selection and order routing logic.

The following table illustrates the distinct yet complementary roles of the two reports in a firm’s validation strategy:

**Table 1 ▴ Juxtaposing RTS 27 and RTS 28 in Execution Policy Validation**
Attribute	RTS 27 Report	RTS 28 Report
Originator	Execution Venues (Exchanges, MTFs, SIs)	Investment Firm
Frequency	Quarterly	Annually
Core Content	Granular, quantitative data on execution quality (prices, costs, speed, likelihood of execution) for specific financial instruments.	List of top five execution venues used by the firm, and a qualitative summary of the firm’s execution quality analysis.
Strategic Utility	Provides a market-wide benchmark for execution quality; enables comparison of potential and actual execution performance.	Documents the firm’s actual execution practices and serves as the basis for demonstrating compliance and the effectiveness of its policies.

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From Analysis to Actionable Intelligence

The strategic use of these reports culminates in the firm’s internal review and governance processes. The findings from the comparative analysis should be formally presented to the firm’s best execution committee or equivalent governing body. This review process should address several key questions:

Performance Assessment ▴ Are our chosen venues consistently performing well against the market benchmarks for the types of orders we send them?
Policy Adherence ▴ Do our execution outcomes align with the priorities set out in our best execution policy (e.g. prioritizing price over speed for certain order types)?
Identification of Deficiencies ▴ Are there instances where our execution quality is demonstrably poorer than what could have been achieved elsewhere, and if so, why?
Continuous Improvement ▴ What changes should be made to our order routing arrangements, venue selection, or overall execution policy based on this analysis?

This structured, evidence-based approach allows a firm to move from a passive, compliance-driven mindset to an active, performance-oriented one. The RTS 27 and RTS 28 reports, when used strategically, provide the necessary tools to not only validate existing policies but also to identify opportunities for improvement, ultimately leading to better outcomes for clients.

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Execution

The execution of a best execution validation process using RTS 27 and RTS 28 reports is a granular, data-intensive undertaking. It requires a disciplined, systematic approach to transform the raw data from these reports into a clear verdict on the efficacy of a firm’s execution policies. This section provides a deep dive into the operational protocols and analytical techniques involved in this process.

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An Operational Playbook for Validation

A firm’s compliance and trading functions should collaborate to implement a cyclical validation process. This process can be structured as follows:

Data Acquisition and Warehousing ▴ On a quarterly basis, the firm must systematically collect the RTS 27 reports from all relevant execution venues. This data should be stored in a structured database to facilitate analysis.
Data Normalization and Enrichment ▴ The raw RTS 27 data must be cleaned and normalized to account for differences in reporting formats. This data should then be enriched with the firm’s own internal execution data, including the details of every client order executed.
Benchmarking and Comparative Analysis ▴ This is the analytical core of the process. The firm must compare its own execution performance on a venue-by-venue and instrument-by-instrument basis against the market-wide data from the RTS 27 reports.
Reporting and Governance ▴ The results of the analysis must be compiled into an internal validation report. This report should be presented to the firm’s best execution committee, which is responsible for reviewing the findings and approving any necessary changes to the firm’s execution policy or arrangements.
RTS 28 Preparation and Publication ▴ The findings from the internal validation process directly inform the content of the firm’s annual RTS 28 report. The qualitative summary in the RTS 28 report should reflect the analysis performed and the conclusions reached.

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Quantitative Analysis in Focus

The true power of this process lies in the quantitative analysis. Firms can use the RTS 27 data to create a detailed, evidence-based scorecard for their execution venues. The following table provides a simplified, hypothetical example of such an analysis for a specific class of equity trades:

**Table 2 ▴ Hypothetical Venue Performance Analysis (Equities – Large Cap)**
Metric	Firm’s Top Venue (from internal data)	Venue A (from RTS 27)	Venue B (from RTS 27)	Venue C (from RTS 27)
Average Price Improvement vs. EBBO	0.5 bps	0.7 bps	0.4 bps	0.6 bps
Average Execution Speed (ms)	150 ms	120 ms	180 ms	140 ms
Likelihood of Execution (%)	99.5%	99.8%	99.2%	99.6%
Implied Costs (bps)	1.2 bps	1.0 bps	1.5 bps	1.1 bps
EBBO ▴ European Best Bid and Offer

In this hypothetical scenario, the analysis reveals that the firm’s top venue is being outperformed by Venue A and Venue C on several key metrics. This kind of quantitative evidence is invaluable. It allows the firm to have a data-driven conversation with its current top venue about improving their execution quality.

It also provides a strong justification for potentially rerouting some order flow to Venue A or C to achieve better outcomes for clients. This is the essence of using RTS 27 and RTS 28 reports to validate and enhance best execution policies.

By transforming regulatory disclosures into quantitative performance scorecards, firms can make objectively better decisions about where and how to execute client orders.

It is important to note that while the obligation to produce these reports has been subject to review and potential removal by ESMA, the underlying principle of monitoring and evidencing best execution remains a core regulatory expectation. The analytical frameworks developed to use RTS 27 and RTS 28 data will continue to be valuable for firms in demonstrating the robustness of their best execution arrangements, regardless of the specific reporting formats mandated in the future.

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References

S&P Global. (2018). Connecting the dots between Article 27, RTS 27, and RTS 28.
SALVUS Funds. (2018). Complying with the MiFID II Reporting Obligations of RTS 27 & RTS 28.
ICMA. (2016). MiFID II/R Fixed Income Best Execution Requirements.
European Securities and Markets Authority. (2024). ESMA public statement on reporting requirements under RTS 28.
DLA Piper. (2024). ESMA publishes statement on reporting requirements under RTS 28 of MiFID II.

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Reflection

The framework established by RTS 27 and RTS 28 reporting has embedded a data-centric discipline into the heart of best execution. While the future of these specific reports may evolve, the operational capabilities and analytical rigor firms have built in response to them represent a permanent upgrade in market intelligence. The process of systematically acquiring, normalizing, and analyzing execution data from across the market provides a powerful lens through which a firm can view its own performance.

This capability, once established, becomes a strategic asset, enabling a continuous cycle of evaluation, refinement, and optimization. The ultimate objective is an execution policy that is not a static document, but a living, data-informed system designed to consistently deliver a decisive edge for clients.