Concept
The operational shift prompted by the deprecation of RTS 28 reporting represents a significant recalibration in the philosophy of regulatory oversight. The removal of this specific disclosure mechanism redirects a firm’s focus from a public-facing, standardized reporting exercise toward the rigorous maintenance of an internal, evidence-based execution framework. The core duty to achieve the best possible result for clients persists, unaltered in its importance.
What has changed is the method of demonstrating fidelity to this principle. The system now demands a more profound, continuous, and internally integrated process of verification.
This evolution moves the measure of compliance away from the periodic generation of a static report, which was found to offer limited utility in comparing execution quality across the market. Instead, the emphasis is now placed squarely on the firm’s own governance and the robustness of its order handling processes. The firm itself becomes the primary locus of proof.
Its internal systems, policies, and analytical capabilities are now the essential components in substantiating that client interests are being systematically protected. This requires a transition from a compliance function that is merely documentary to one that is deeply embedded in the firm’s trading and operational architecture.
The deprecation of RTS 28 reporting reframes best execution from a public disclosure task to a continuous internal validation of a firm’s execution quality system.
Understanding this transition is fundamental. The regulatory expectation has matured, presupposing that firms possess the sophistication to design and manage their own comprehensive monitoring systems. The core obligation is not diminished; on the contrary, the responsibility to evidence it has become a more dynamic and demanding institutional function. The firm must be able to produce, upon request, a coherent and data-rich defense of its execution strategy, demonstrating a systematic and thoughtful approach to achieving optimal outcomes for its clients across a spectrum of market conditions and financial instruments.
Strategy
From Static Reporting to Dynamic Analysis
A firm’s strategic response to the end of RTS 28 reporting necessitates a fundamental pivot in how execution quality is conceptualized and managed. The previous regime, centered on a standardized annual report, could inadvertently encourage a focus on fulfilling the reporting template. The new environment compels a move toward a dynamic, data-driven, and continuous system of self-assessment.
The strategic objective is to build and maintain a defensible best execution framework that is effective in practice, not just compliant on paper. This framework becomes a core component of the firm’s operational integrity and a tangible differentiator in its client value proposition.
This requires an elevation of the firm’s internal analytical capabilities. Transaction Cost Analysis (TCA) evolves from a supplementary tool to a central pillar of the execution strategy. A robust TCA function provides the granular, empirical evidence needed to validate execution venue and algorithm choices.
It allows the firm to dissect performance across a range of execution factors ▴ price, cost, speed, and likelihood of execution ▴ with a level of detail that the RTS 28 reports never could. The strategic focus shifts from merely listing top venues to actively demonstrating why those venues, and the methods used to access them, consistently produce the best results for specific types of client orders.
The Enhanced Execution Policy
The firm’s order execution policy transforms from a relatively static disclosure document into a living charter that guides and justifies the firm’s trading decisions. This policy must be integrated with the firm’s analytical outputs, creating a feedback loop where performance data continuously informs and refines the stated strategy. A critical part of this strategy involves articulating how the firm addresses both quantitative and qualitative factors. While TCA provides the quantitative backbone, the policy must also explain the firm’s approach to assessing qualitative elements like counterparty risk, clearing capabilities, and the strategic value of accessing specific pools of liquidity.
The table below contrasts the previous focus engendered by RTS 28 with the strategic imperatives of the new environment.
| Aspect of Execution | Previous Focus (RTS 28 Driven) | New Strategic Imperative (Internal Framework Driven) |
|---|---|---|
| Primary Goal | Annual public disclosure of top five venues. | Continuous internal validation of execution outcomes. |
| Data Utilized | Aggregated data sufficient for the report template. | Granular, order-by-order data for deep TCA. |
| Analytical Approach | Largely descriptive, focused on venue concentration. | Diagnostic and predictive, focused on optimizing execution quality. |
| Policy Function | A disclosure document updated periodically. | A dynamic operational guide integrated with real-time analytics. |
| Governance | Compliance-led, focused on report submission. | Business-led, focused on performance and client outcomes. |
This strategic realignment ensures that the firm is not only prepared for regulatory scrutiny but also actively enhancing its execution capabilities. The process of proving best execution becomes synonymous with the process of achieving it.
Execution
Constructing the Internal Verification System
In the absence of the prescriptive RTS 28 format, the execution of a firm’s best execution obligation depends on the construction of a robust and comprehensive internal verification system. This system is the operational manifestation of the firm’s execution policy and its primary defense against regulatory challenge. Its function is to systematically capture, analyze, and review trading data to ensure that the overarching principle of best execution is being met on a consistent basis. This is a multi-faceted undertaking, requiring a synthesis of technology, data analysis, and rigorous governance.
The foundation of this system is data integrity. Firms must ensure they are capturing a rich set of data for every client order. This extends beyond the basic trade details to include timestamps for every stage of the order lifecycle, the market conditions at the time of the order, and the specific execution instructions received from the client. This detailed data capture is the raw material for the analytical engines that power the verification process.
A firm’s ability to prove best execution now rests entirely on the quality and depth of its internal data analysis and governance framework.
The Modern Best Execution Monitoring Framework
The core of the verification system is a monitoring framework that goes significantly beyond the scope of the old RTS 28 reports. This framework should be designed to provide a holistic view of execution quality, blending quantitative metrics with qualitative assessments. It is not a report to be filed away but a dynamic tool for ongoing oversight and improvement. The following table outlines the key components of such a framework.
| Monitoring Component | Key Metrics & Data Points | Analytical Purpose |
|---|---|---|
| Price Analysis | Arrival Price, VWAP, TWAP, Implementation Shortfall | To measure performance against relevant benchmarks and quantify price improvement or slippage. |
| Cost Analysis | Explicit costs (fees, commissions, taxes), Implicit costs (market impact, spread capture) | To provide a complete picture of the total cost of execution beyond the headline price. |
| Speed & Certainty | Order-to-execution latency, Fill rates, Rejection rates | To assess the efficiency and reliability of execution venues and pathways. |
| Qualitative Factors | Counterparty risk assessments, Venue operational resilience, Settlement efficiency | To incorporate critical risk and service quality factors that are not captured by price and cost metrics alone. |
| Outlier Analysis | Identification of trades with significant deviation from expected outcomes. | To flag specific orders for detailed review and identify potential issues with venues or algorithms. |
Operationalizing the Review Process
With the system in place, the firm must execute a clear and repeatable process for reviewing the outputs and taking action. This operational workflow is a critical part of demonstrating a functioning best execution framework.
- Regular Reviews ▴ The firm’s governance body (e.g. a Best Execution Committee) must meet at a defined frequency (e.g. quarterly) to review the monitoring framework’s outputs.
- Material Change Trigger ▴ A process must be established to trigger an ad-hoc review in the event of a significant market event or a material change in the firm’s execution arrangements.
- Documentation ▴ All reviews, discussions, and decisions must be meticulously documented. This documentation is the primary evidence of the firm’s ongoing commitment to its best execution obligations.
- Policy Updates ▴ The review process should feed directly back into the firm’s order execution policy. If the data suggests that a particular venue or strategy is no longer optimal, the policy must be updated accordingly.
This disciplined, evidence-driven approach transforms the best execution obligation from a regulatory burden into a source of competitive strength, ensuring that the firm is systematically delivering and proving the highest quality of service to its clients.
References
- Iseli, Thomas, et al. “Legal and economic aspects of best execution in the context of the Markets in Financial Instruments Directive (MiFID).” Journal of Financial Regulation and Compliance, vol. 16, no. 2, 2008, pp. 145-162.
- Mainelli, Michael, and Mark Yeandle. “Best execution compliance ▴ new techniques for managing compliance risk.” Journal of Financial Regulation and Compliance, vol. 15, no. 3, 2007, pp. 250-265.
- Harris, Larry. Trading and Exchanges ▴ Market Microstructure for Practitioners. Oxford University Press, 2003.
- O’Hara, Maureen. Market Microstructure Theory. Blackwell Publishers, 1995.
- Foucault, Thierry, et al. Market Microstructure ▴ Confronting Many Viewpoints. Wiley, 2013.
- European Securities and Markets Authority. “ESMA35-335435667-5871 Statement on the deprioritisation of supervisory actions on the obligation to publish RTS 28 reports.” 13 Feb. 2024.
- Kennedy, Tom. “Best Execution Under MiFID II.” Thomson Reuters, 28 June 2017.
Reflection
The Execution Framework as a System of Intelligence
The removal of the RTS 28 mandate should not be viewed as a signal to dismantle reporting infrastructure. Instead, it is an invitation to repurpose it. The focus shifts from external disclosure to the cultivation of a powerful internal system of intelligence.
This system’s value extends far beyond regulatory compliance. It becomes a core component of the firm’s risk management apparatus, a tool for enhancing execution performance, and a source of deep insight into the functioning of the markets in which it operates.
Consider your firm’s current execution arrangements. Is the process of demonstrating best execution an integrated, data-driven function, or is it a periodic, documentary exercise? The deprecation of a single report provides a unique opportunity to examine the architecture of your entire execution framework.
The objective is to build a system so robust, so transparent, and so deeply embedded in your firm’s operations that its adherence to the principle of best execution is self-evident. The ultimate expression of compliance is a system that makes the optimal outcome for the client the most logical and consistent result of its design.
Glossary
Execution Framework
Rts 28
Execution Quality
Best Execution Framework
Transaction Cost Analysis
Order Execution Policy
Best Execution
Execution Policy
