Concept
The removal of the RTS 28 reporting requirement represents a fundamental shift in the philosophy of regulatory oversight for best execution. It signals a move away from a compliance model centered on standardized, public disclosures toward one that places a greater emphasis on the integrity and robustness of a firm’s internal execution quality monitoring systems. The core obligation to achieve the best possible result for clients has not been diluted; rather, the mechanism for demonstrating compliance has evolved. This change acknowledges a critical reality of modern financial markets ▴ that meaningful assurance of execution quality comes from a dynamic, data-driven internal framework, not a static, annual report that was often criticized for being of little practical use to investors.
Originally, RTS 28 was conceived as a transparency tool. It mandated that investment firms publicly disclose their top five execution venues for each class of financial instrument, along with a summary of the execution quality achieved. The intention was to empower clients, allowing them to assess how their brokers were handling their orders and to make more informed choices.
In practice, however, the reports proved to be unwieldy, difficult to compare, and ultimately, “hardly read” by the investors they were meant to serve. The data, while extensive, often lacked the context necessary for meaningful analysis, failing to account for the nuances of different trading strategies, market conditions, and liquidity profiles that drive execution decisions in the real world.
The end of RTS 28 reporting reframes best execution from a public disclosure exercise to an ongoing demonstration of internal systemic integrity.
Understanding this transition requires a systemic perspective. The best execution mandate under MiFID II is a multi-faceted obligation that encompasses not just price, but also costs, speed, likelihood of execution and settlement, size, nature, and any other consideration relevant to the order. RTS 28 was just one component of this framework, a reporting layer that sat on top of the foundational duty. Its removal strips away a layer of procedural compliance, exposing the core operational capabilities of the firm to greater regulatory scrutiny.
Regulators are now less interested in the report itself and more interested in the systems, processes, and governance that underpin a firm’s execution decisions every single day. The focus shifts from what is reported to how a firm internally validates its own execution quality on a continuous basis.
This evolution places the firm’s own data and analytical capabilities at the heart of its compliance strategy. The absence of a standardized report means that the responsibility now rests squarely with the firm to define, measure, monitor, and evidence its performance against its own stated best execution policy. It elevates the importance of Transaction Cost Analysis (TCA), smart order routing (SOR) logic, and venue analysis from operational tools to critical components of the firm’s regulatory defense. In essence, the regulatory expectation has matured, moving beyond a check-the-box reporting exercise to a more substantive, evidence-based dialogue about how a firm’s trading architecture and governance structures work in concert to protect client interests.
Strategy
A New Locus of Proof
With the discontinuation of RTS 28 reports, the strategic imperative for investment firms shifts from external compliance reporting to the cultivation of a robust and defensible internal execution framework. The core legal and ethical obligation to clients remains unchanged, but the method of demonstrating adherence has become a more dynamic and evidence-led process. This new environment demands a strategic pivot towards enhancing internal data analytics, refining execution policies, and strengthening governance oversight. Firms must now operate on the assumption that regulators, when they inquire, will expect a comprehensive, data-rich demonstration of how execution quality is managed and monitored systemically, rather than simply pointing to a historical, public document.
The primary strategic adjustment is the elevation of the firm’s internal best execution policy from a static compliance document to the central pillar of its operational strategy. This policy must be a living framework that is not only clearly articulated but also deeply integrated into the firm’s trading systems and decision-making processes. It must detail the relative importance of the various execution factors for different types of clients and instruments and explain how the firm’s chosen execution venues and strategies align with these priorities. The policy becomes the benchmark against which the firm must continuously measure its own performance.
A firm’s strategy must now be centered on proving best execution through its own continuous monitoring and analytical capabilities, not through a retired reporting standard.
From Static Reports to Dynamic Analysis
A significant part of this new strategy involves a deeper investment in Transaction Cost Analysis (TCA). While TCA has long been a tool for performance measurement, its role now expands to become a primary source of regulatory evidence. Firms must move beyond basic TCA metrics to more sophisticated forms of analysis that can provide a nuanced view of execution quality across different venues, algorithms, and market conditions.
This requires capturing high-quality timestamped data and developing the analytical capacity to interrogate that data effectively. The goal is to create a continuous feedback loop where the outputs of TCA inform and refine the firm’s order routing logic and execution strategies.
The following table illustrates the strategic shift in focus for firms’ best execution frameworks:
| Area of Focus | Pre-RTS 28 Abolition Approach | Post-RTS 28 Abolition Strategy |
|---|---|---|
| Primary Evidence | Annual, public RTS 28 report summarizing top five venues and qualitative assessment. | Internal, dynamic, and data-rich evidence from TCA, execution monitoring systems, and governance records. |
| Regulatory Interaction | Reactive, based on the submission of the annual report. | Proactive, requiring the firm to be perpetually ready to demonstrate the effectiveness of its internal systems. |
| Role of Technology | A tool for data gathering to populate the annual report. | A critical component of the core compliance framework, providing real-time monitoring and ex-post analysis. |
| Governance Oversight | Focused on reviewing and signing off on the annual RTS 28 report. | Focused on the continuous oversight of the entire best execution framework, including policy, monitoring, and remediation. |
Furthermore, venue analysis must become a more rigorous and ongoing process. Firms can no longer simply list their top five venues in a report; they must be able to provide a detailed, data-driven justification for their choice of execution venues for different types of orders. This involves a qualitative and quantitative assessment of each venue against the full range of execution factors, including liquidity, resilience, clearing and settlement arrangements, and counterparty risk. The analysis must be forward-looking, considering not just historical performance but also any changes in market structure or venue offerings that could impact future execution quality.
Execution
Operationalizing the New Best Execution Framework
In the absence of the prescriptive RTS 28 reporting format, the execution of a compliant best execution strategy requires a disciplined and systematic approach to internal data management, policy implementation, and governance. The focus of execution now turns inward, demanding that firms build and maintain an operational architecture capable of continuously demonstrating the effectiveness of their trading decisions. This is a granular, data-intensive process that requires the integration of technology, analytics, and human oversight.
The first step in executing this new model is a comprehensive review and enhancement of the firm’s Best Execution Policy. This document must be transformed into a detailed operational playbook that clearly defines the firm’s approach to achieving best execution for different client types and financial instruments. It should explicitly state the relative importance of the various execution factors (price, costs, speed, etc.) and provide a clear rationale for the firm’s choice of execution strategies and venues. This policy becomes the foundational document against which all execution quality monitoring is measured.
Key Components of an Enhanced Execution Monitoring System
To effectively execute on the policy, firms must ensure their systems are configured to capture and analyze a wide range of data points. The following table outlines some of the critical data elements and their role in a modern best execution monitoring framework:
| Data Category | Specific Data Points | Purpose in Execution Monitoring |
|---|---|---|
| Order Characteristics | Instrument type, order size, order type (market, limit, etc.), client classification. | To segment analysis and apply the correct execution policy criteria for different types of orders. |
| Timestamps | Order receipt, order transmission, execution time (to the millisecond). | To calculate latency and slippage against relevant benchmarks. |
| Venue Analysis | Execution venue, fill rate, rejection rate, price improvement statistics. | To conduct ongoing, evidence-based assessments of venue performance and justify routing decisions. |
| Cost Analysis | Explicit costs (fees, commissions), implicit costs (market impact, spread capture). | To provide a complete picture of the total cost of execution, a key component of the best execution obligation. |
The execution of the strategy also requires the implementation of a structured and regular review process. This should be overseen by a dedicated committee or senior management function with the authority to challenge existing practices and mandate changes. This governance body is responsible for reviewing the outputs of the firm’s execution monitoring systems and ensuring that any identified deficiencies are promptly remediated.
Here are some of the key operational steps firms should take to adapt to the post-RTS 28 environment:
- Policy Enhancement ▴ Augment the best execution policy to provide a detailed, instrument-specific breakdown of how the firm prioritizes execution factors and selects venues.
- Data Infrastructure ▴ Ensure that the firm’s order management and execution systems are capable of capturing high-quality, granular data, including precise timestamps for all stages of the order lifecycle.
- Analytical Tooling ▴ Implement or enhance Transaction Cost Analysis (TCA) tools to allow for sophisticated, multi-dimensional analysis of execution quality. The analysis should be capable of comparing performance across different venues, algorithms, and time periods.
- Governance and Oversight ▴ Establish a formal governance process for the regular review of execution quality data. This process should include the documentation of all reviews, decisions, and any remedial actions taken.
- Staff Training ▴ Ensure that all relevant staff, from front-office traders to compliance personnel, are trained on the firm’s enhanced best execution policy and their specific responsibilities within the new framework.
Ultimately, the end of RTS 28 reporting requires firms to shift their operational focus from a periodic, report-based compliance exercise to a continuous, evidence-based system of internal control. The firms that will succeed in this new environment are those that invest in the technology, data, and governance processes necessary to build a truly robust and defensible best execution framework.
References
- European Securities and Markets Authority. (2024, February 13). ESMA clarifies certain best execution reporting requirements under MiFID II. ESMA.
- The TRADE. (2024, February 13). ESMA officially scraps ‘hardly read’ RTS 28 best execution reports.
- Malta Financial Services Authority. (2024, February 19). The European Securities and Markets Authority (“ESMA”) Clarifies Certain Best Execution Reporting Requirements under MiFID II.
- TRAction Fintech. (2024, February 14). RTS 27 and 28 ▴ The 2024 Status of These Reports in UK and EU.
- Simmons & Simmons. (2024, February 13). ESMA public statement on reporting requirements under RTS 28.
Reflection
The retirement of RTS 28 reporting marks a significant maturation in the regulatory landscape. It moves beyond prescribed disclosures and asks a more profound question of every investment firm ▴ is your internal system for ensuring and evidencing execution quality truly fit for purpose? The absence of this specific report creates a vacuum that can only be filled by a robust, data-driven, and intellectually honest internal framework. This is an opportunity to move from a culture of compliance to a culture of performance, where the pursuit of the best possible outcome for the client is not just a legal obligation, but the central organizing principle of the firm’s trading architecture.
Consider your own operational framework. Does it merely gather data, or does it generate intelligence? Does your governance process simply review reports, or does it actively challenge assumptions and drive continuous improvement? The end of RTS 28 is not an invitation to do less.
It is a challenge to do better, to build a system of execution quality management that is so robust, so transparent, and so deeply embedded in the fabric of your firm that it renders a standardized public report superfluous. The focus now is on the integrity of the system itself, and in this new environment, the quality of your internal framework is your most compelling evidence.
Glossary
Execution Quality Monitoring
Execution Quality
Investment Firms
Rts 28
Best Execution
Mifid Ii
Transaction Cost Analysis
Best Execution Policy
Execution Framework
Execution Factors
Execution Policy
Transaction Cost
Venue Analysis
Execution Monitoring
Cost Analysis
