How Does the Removal of RTS 28 Reports Change Venue Selection Strategy?

Concept

The removal of Regulatory Technical Standard 28 (RTS 28) reports fundamentally re-architects the evidentiary basis of venue selection. Your prior operational rhythm, dictated by a standardized, compliance-driven disclosure framework, is now obsolete. The core challenge shifts from aggregating and publishing historical, and often inert, top-five venue data to constructing a dynamic, proprietary, and defensible execution quality framework from the ground up. The essential task is to replace a public-facing artifact of compliance with a living, internal system of analysis that directly informs every routing decision.

Before its removal, RTS 28 mandated that investment firms annually publish a summary of their top five execution venues for each class of financial instrument, alongside a qualitative summary of the execution quality obtained. This was a component of the broader MiFID II directive, designed to bring transparency to execution practices and empower clients to assess the quality of service. The reports required a detailed breakdown of the execution factors considered, such as price, costs, speed, and likelihood of execution, and an explanation for the choice of venues. The underlying premise was that this standardized data set would create a competitive market for execution quality, allowing investors to compare firms on a like-for-like basis.

The system, however, proved to be structurally flawed in its application. The data was aggregated at a high level, often masking the specifics of individual strategies and order types. As a result, the reports were rarely used by their intended audience. Both retail and wholesale market participants found the generalized information unhelpful for making specific, forward-looking decisions about where to route their next order.

The Financial Conduct Authority (FCA) in the UK, a key jurisdiction that led the removal, noted that downloads and views of these reports were exceptionally low, suggesting they had failed to become a meaningful part of the due diligence process. The data was perceived as a backward-looking compliance exercise, lacking the granularity and timeliness required for a sophisticated execution strategy.

The departure from RTS 28 signifies a move from a standardized reporting obligation to a principles-based requirement for demonstrating best execution through proprietary analysis.

Consequently, the removal of this obligation is a systemic event. It dissolves the common, albeit imperfect, data foundation upon which venue comparisons were officially framed. The immediate effect is a data vacuum. Without the mandated report, there is no longer a standardized, publicly available ledger of where a firm’s flow is directed.

This elevates the importance of a firm’s internal capabilities. The responsibility for collecting, analyzing, and acting upon execution data is now fully internalized. The conversation shifts from “Did we publish the report correctly?” to “Is our internal analysis robust enough to withstand regulatory scrutiny and deliver superior outcomes?”.

This change forces a re-evaluation of the very definition of venue analysis. It is no longer about justifying past decisions based on a static list of factors. It is about building a predictive engine for future decisions. The focus moves from historical reporting to real-time and post-trade Transaction Cost Analysis (TCA).

The qualitative factors that were once described in a summary report must now be quantified and integrated into a dynamic scoring system. The absence of a public benchmark compels the creation of a more sophisticated private one.

Strategy

The strategic recalibration required by the elimination of RTS 28 reporting is profound. It necessitates a transition from a compliance-centric posture to an analytics-driven one. Your firm’s ability to articulate and demonstrate best execution is no longer anchored to a public document but to the coherence and integrity of its internal data architecture and analytical frameworks. The core strategic imperative is to build a proprietary “best execution” narrative, substantiated by a more diverse and granular set of data points than ever before.

From Public Disclosure to Proprietary Intelligence

The primary strategic shift is the internalization of the proof of best execution. Under the RTS 28 regime, the report itself served as a key exhibit. In its absence, the burden of proof rests on the firm’s internal processes and the data that fuels them. This demands a strategic investment in data sourcing, normalization, and analysis capabilities that transcend the old requirements.

A successful strategy involves viewing venue selection through a multi-dimensional lens, where quantitative metrics are enriched with structured qualitative inputs. The goal is to create a holistic view of execution quality that is both defensible to regulators and, more importantly, a source of competitive advantage in achieving superior client outcomes. This requires moving beyond simple metrics of price and cost to incorporate a wider array of factors that influence execution quality in nuanced ways.

What Is the New Framework for Venue Due Diligence?

The new strategic framework for venue due diligence must be dynamic and evidence-based. It replaces the static, annual review process prompted by RTS 28 with a continuous, data-driven assessment. This framework should be formalized within the firm’s execution policy and operational procedures.

• Enhanced Data Collection ▴ The strategy must account for the ingestion of a wider range of data sources. This includes not just trade data from venues but also market impact models, liquidity profiles, venue uptime statistics, and even qualitative feedback from traders regarding venue responsiveness and support.
• Proprietary Scoring System ▴ A central pillar of the new strategy is the development of a proprietary venue scoring or tiering system. This system should assign weightings to various execution factors based on the firm’s specific client profiles and order types, as MiFID II’s principles still require.
• Systematic Review Process ▴ The strategy must define a systematic process for reviewing venue performance against these scores. This should occur at a higher frequency than the old annual cycle, allowing the firm to adapt quickly to changing market conditions or venue performance degradation.

The following table illustrates the strategic shift in venue selection analysis, moving from the RTS 28 paradigm to a post-reporting world driven by proprietary analytics.

How Does This Change the Role of the Execution Desk?

The execution desk’s role evolves from being a consumer of a static policy to an active participant in a dynamic intelligence-gathering system. Traders’ qualitative experiences ▴ such as the reliability of a venue’s technology, the quality of its support during outages, or the behavior of certain counterparties ▴ must be systematically captured and integrated into the quantitative analysis. This requires new tools and processes for capturing this “soft” data and structuring it in a way that it can inform the venue scoring model. The strategy effectively weaponizes the institutional knowledge of the trading desk, turning anecdotal evidence into structured, actionable intelligence.

Execution

The operational execution of a venue selection strategy in a post-RTS 28 environment is a matter of systems architecture. It requires the design and implementation of a robust, data-centric framework that translates strategic goals into tangible, repeatable processes. This framework must be capable of ingesting diverse data sets, applying a sophisticated analytical model, and producing actionable outputs that guide routing decisions and stand up to regulatory scrutiny.

Building the Modern Venue Analysis System

The core of the execution plan is the creation of a comprehensive Venue Analysis System. This is not a single piece of software but an integrated set of processes and technologies. Its function is to systematically evaluate and rank execution venues based on a proprietary, multi-factor model.

1. Data Aggregation Layer ▴ The first step is to establish a robust data pipeline. This layer must automatically collect and normalize data from multiple sources. This includes direct data feeds from execution venues (e.g. FIX protocol drop copies), third-party TCA providers, market data vendors, and internal order management systems (OMS). The goal is to create a single, unified data repository that contains all relevant information for analysis.
2. Quantitative Modeling Engine ▴ This is the analytical heart of the system. Here, the raw data is processed through a series of quantitative models to calculate key performance indicators (KPIs) for each venue. These KPIs should extend far beyond the basic factors listed in the old RTS 28 reports. They must include metrics like price reversion, signaling risk, fill probability at different order sizes, and latency measurements.
3. Qualitative Data Capture Module ▴ A critical and often overlooked component is the system for capturing qualitative data. This can be implemented as a structured feedback form integrated into the firm’s execution management system (EMS), where traders can rate venues on factors like “support responsiveness” or “stability during volatility” after executing a significant order. This data is then quantified and fed into the overall scoring model.
4. Integrated Scoring and Decision Support ▴ The final layer is the synthesis of quantitative and qualitative data into a single, actionable score. This is presented to the execution desk and the oversight committee via an interactive dashboard. This dashboard allows users to drill down into the data, compare venues across different scenarios, and understand the factors driving the rankings. It directly supports the decision of which venues to add or remove from the firm’s execution policy.

A Practical Venue Scoring Matrix

The output of this system can be conceptualized in a Venue Scoring Matrix. This matrix provides a transparent and data-backed foundation for all venue selection decisions. It moves the assessment from a subjective discussion to an objective, evidence-based evaluation. The weightings applied to each category would be determined by the firm’s specific business model and client needs, a core principle of the MiFID II best execution mandate that persists.

The operational imperative is to transform the abstract duty of best execution into a concrete, data-driven engineering problem.

How Should a Firm Document Its Decisions?

With the public report gone, internal documentation becomes paramount. Every decision to add, retain, or remove a venue from the execution policy must be supported by a time-stamped report generated from the Venue Analysis System. This report should include:

• The overall score for the venue in question and its primary competitors.
• A drill-down into the sub-component scores (Quantitative, Operational, etc.) that contributed to the overall rating.
• A qualitative summary from the execution oversight committee, explaining how the data was interpreted and why the decision was made, explicitly linking the choice to the firm’s obligation to act in its clients’ best interests.

This rigorous, evidence-based process not only ensures compliance with the spirit of MiFID II but also creates a powerful feedback loop. It systematically improves execution quality by ensuring that flow is consistently directed to the venues that provide the best possible results, proven by a robust internal system of record.

Reflection

The dissolution of the RTS 28 reporting mandate presents a fundamental question to your organization. Does your operational framework treat best execution as a compliance burden to be minimally satisfied, or as a dynamic system to be relentlessly optimized? The absence of a public reporting standard removes a collective shield; it exposes the true quality of your internal analytical capabilities. Your venue selection strategy is now a direct reflection of your firm’s commitment to data-driven decision-making.

Consider the architecture you currently have in place. Is it capable of capturing the nuanced, qualitative feedback from your most experienced traders and integrating it with high-frequency quantitative data? Can your system produce a defensible, evidence-based justification for why one venue was chosen over another for a specific type of flow, at a specific moment in time?

The new environment demands an infrastructure of proof, not an artifact of disclosure. The ultimate measure of success is the construction of a superior operational framework that provides a structural, measurable advantage in the pursuit of optimal execution.