How Does the Suspension of RTS 27 and 28 Reports Affect a Firm's Best Execution Obligations? ▴ Question

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Concept

The suspension of the reporting obligations under Regulatory Technical Standards (RTS) 27 and 28 represents a fundamental recalibration of a firm’s engagement with its best execution duties. This development moves the process from a prescriptive, report-driven compliance exercise toward a more dynamic, evidence-based validation of execution quality. The core obligation to achieve the best possible result for clients, as mandated by Article 27 of MiFID II, remains unequivocally intact.

The change lies in the how ▴ the methodology by which firms must now substantiate their adherence to this principle. The removal of these specific reporting templates compels a deeper, more intrinsic integration of best execution monitoring into a firm’s operational fabric.

Originally, the framework was designed to foster transparency. RTS 27 required execution venues ▴ such as stock exchanges, multilateral trading facilities (MTFs), and systematic internalisers ▴ to publish detailed quarterly reports on execution quality. These reports contained a vast amount of standardized data points intended to allow for objective comparison across venues.

Concurrently, RTS 28 mandated that investment firms annually publish reports detailing their top five execution venues for each class of financial instrument, along with a summary of the execution quality achieved. The stated goal was to empower investors by giving them clear insight into where their orders were being routed and the quality of the outcomes.

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The Rationale for Suspension

The move by European and UK regulators to suspend these reporting requirements stemmed from a widespread consensus that the reports were failing to meet their objectives. Regulators, including the European Securities and Markets Authority (ESMA) and the UK’s Financial Conduct Authority (FCA), identified significant deficiencies. The sheer volume and complexity of the data in RTS 27 reports made them difficult for most market participants to interpret and derive meaningful comparisons from. In practice, these reports were rarely read by the end investors they were designed to protect.

Furthermore, inconsistencies in data formatting and reporting practices across different venues complicated analysis. The immense operational burden and cost associated with producing these detailed reports were ultimately deemed disproportionate to the limited value they provided to the market or consumers. The suspension, therefore, was a pragmatic response to the market’s reality, acknowledging that true transparency and effective oversight require a different approach.

The core duty of best execution was never defined by the reports themselves; the suspension simply removes a flawed evidentiary standard, demanding a more robust, firm-specific proof of process.

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The Unchanged Mandate

It is essential to understand that the regulatory actions concerning RTS 27 and 28 do not constitute a dilution of the best execution standard. The foundational requirement for firms to “take all sufficient steps to obtain, when executing orders, the best possible result for their clients” persists. What has changed is the method of demonstration.

Firms are no longer able to point to the production of an RTS 28 report as sufficient proof of their diligence. Instead, they must cultivate and maintain a comprehensive internal framework capable of actively monitoring, assessing, and evidencing the quality of their execution outcomes across all relevant factors.

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Strategy

With the structured reporting of RTS 27 and 28 removed, the strategic imperative for investment firms shifts from periodic, standardized disclosure to continuous, holistic self-assessment. A firm’s Best Execution Policy must evolve from a static, compliance-oriented document into a dynamic operational charter that guides and validates every facet of the execution process. This requires a strategic pivot toward building a robust, internal, and evidence-based monitoring system that is demonstrably more sophisticated than the public reporting it replaces.

The new strategic focus elevates the importance of the qualitative and quantitative factors that underpin the best execution obligation. While price and costs remain primary considerations, other execution factors ▴ speed, likelihood of execution and settlement, size, and the nature of the order ▴ now demand more explicit and demonstrable analysis within the firm’s internal governance structure. The absence of a public reporting mandate creates a vacuum that must be filled by a more rigorous and tailored internal process, capable of satisfying regulatory scrutiny on its own merits.

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From Prescribed Reports to Internal Intelligence

A successful strategy involves treating best execution monitoring as a source of competitive intelligence. This means systematically capturing and analyzing execution data to refine venue selection, improve algorithmic strategies, and ultimately deliver superior outcomes for clients. The focus moves from fulfilling a reporting obligation to building an analytical capability. This requires investment in technology and expertise to conduct meaningful Transaction Cost Analysis (TCA) and other forms of performance measurement.

The table below outlines the strategic shift in approach from the pre-suspension era to the current environment.

Table 1 ▴ Evolution of Best Execution Frameworks
Framework Aspect	Pre-Suspension Approach (RTS 27/28 Focused)	Post-Suspension Approach (Evidence-Based)
Primary Focus	Public disclosure and compliance with standardized reporting templates.	Internal governance, continuous monitoring, and demonstrable proof of process.
Data Sources	Primarily relied on RTS 27 reports from venues and internal data for top-five venue reporting (RTS 28).	Holistic data capture from EMS/OMS, market data providers, and direct venue/broker feedback.
Analytical Method	Largely descriptive, summarizing top venues by volume.	Advanced Transaction Cost Analysis (TCA), slippage analysis, spread analysis, and qualitative assessments.
Reporting Style	Static, annual public reports (RTS 28) with limited context.	Dynamic, internal management reports for governance committees with actionable insights.
Governance Role	Oversight of the production and publication of regulatory reports.	Active review of internal TCA, challenging execution outcomes, and refining the Best Execution Policy.

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Strengthening the Order Execution Policy

The Order Execution Policy (OEP) gains heightened importance in the post-suspension landscape. It must clearly articulate the firm’s methodology for achieving and monitoring best execution. This includes detailing:

Execution Factors ▴ The relative importance assigned to price, costs, speed, likelihood of execution, and other factors for different types of financial instruments and client orders.
Venue Selection ▴ The process for selecting, reviewing, and adding or removing execution venues from the firm’s approved list, supported by quantitative and qualitative evidence.
Monitoring Process ▴ A description of the internal systems and controls, including TCA, used to monitor the effectiveness of the execution arrangements.
Governance Structure ▴ The roles and responsibilities of the individuals and committees tasked with overseeing the best execution process.

This enhanced OEP serves as the central document that connects a firm’s strategy to its day-to-day operations, providing a clear framework for regulators and clients to understand how their interests are being protected.

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Execution

The execution of best execution obligations in a post-RTS 27/28 world is a matter of operational depth and analytical rigor. Firms must now construct and maintain a verifiable audit trail that demonstrates the consistent application of their Best Execution Policy. This is achieved through the systematic implementation of monitoring tools, governance procedures, and a data-driven culture of continuous improvement. The focus is on creating an internal system of record that is more insightful and robust than the public reports it supersedes.

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The New Evidentiary Burden a Data-Centric Approach

Without the crutch of standardized reports, firms bear the full burden of proof. This requires a disciplined approach to data collection and analysis that goes far beyond simply ranking venues by volume. The objective is to build a multi-dimensional view of execution quality for every relevant asset class and order type. This involves capturing a granular level of detail from internal systems like Execution Management Systems (EMS) and Order Management Systems (OMS), supplemented by market data feeds.

A firm’s ability to defend its execution quality is now directly proportional to the quality and granularity of the data it chooses to collect and analyze.

The following table presents a sample framework for an enhanced quantitative monitoring program. It details specific metrics that form the bedrock of a modern, evidence-based best execution process. This is a working tool for an internal best execution committee, designed to identify trends, challenge assumptions, and drive improvements.

Table 2 ▴ Enhanced Quantitative Monitoring Framework
Metric	Definition	Primary Data Source	Analysis Frequency	Illustrative Actionable Threshold
Effective Spread Analysis	Measures the cost of liquidity by comparing the execution price to the midpoint of the best bid and offer (BBO) at the time of the trade.	EMS/OMS, Market Data Vendor	Monthly/Quarterly	Consistent negative deviation from a benchmark spread for a specific venue.
Price Improvement vs. EBBO	Quantifies the frequency and monetary value of executions occurring at a better price than the European Best Bid and Offer.	Market Data Vendor, EMS	Quarterly	A venue showing a significantly lower rate of price improvement than its peers.
Slippage vs. Arrival Price	Measures the price movement from the moment an order is received by the firm to the moment it is executed.	OMS Timestamps, Execution Records	Per-order, aggregated quarterly	High average slippage on large orders routed to a specific algorithm.
Reversion Analysis	Analyzes short-term price movements after a trade to detect potential market impact or information leakage.	Market Data Vendor, Execution Records	Quarterly	Consistent post-trade price reversion against the firm’s executed direction.
Fill Rate & Partial Fills	Tracks the percentage of orders that are fully executed and the prevalence of partial fills for specific venues or order types.	OMS/EMS	Monthly	A venue with a high rate of partial fills on limit orders compared to others.

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Governance and Oversight in the New Regime

Effective execution requires robust governance. The role of the best execution committee or equivalent governance body becomes more critical. This body must move beyond a passive review function to become an active, challenging force within the firm. Its mandate is to ensure the Best Execution Policy is being followed in practice and remains effective.

A structured procedural approach is necessary for these governance meetings. A quarterly review process should follow a clear, documented agenda:

Review of Quantitative Analysis ▴ The meeting begins with a detailed review of the TCA and other quantitative reports, such as the one outlined in Table 2. The committee should scrutinize performance across different venues, brokers, and algorithms.
Qualitative Factor Assessment ▴ The committee must assess qualitative factors that are not captured by raw data. This includes the quality of settlement, counterparty responsiveness, access to unique liquidity, and the technological stability of venues.
Venue and Broker Performance Review ▴ Based on both quantitative and qualitative data, the committee must formally review and approve the list of execution venues. Any underperforming venues should be placed under review or removed.
Policy and Procedure Validation ▴ The committee should confirm that the firm’s execution practices are aligned with the documented Order Execution Policy. Any necessary amendments to the policy must be discussed, approved, and documented.
Documentation of Minutes and Actions ▴ Detailed minutes of the meeting must be kept, recording the evidence reviewed, the decisions made, and any action items assigned. This documentation is a critical component of the firm’s evidentiary record for regulators.

This rigorous, documented process transforms best execution from a passive obligation into an active, strategic function that continuously refines the firm’s ability to serve its clients’ best interests.

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References

Directive 2021/338 of the European Parliament and of the Council of 16 February 2021 amending Directive 2014/65/EU as regards information requirements, product governance and position limits, and Directives 2013/36/EU and (EU) 2019/878 as regards their application to investment firms, to help the recovery from the COVID-19 crisis.
European Securities and Markets Authority. (2024, February 13). ESMA issues statement on the RTS 28 reporting obligation. ESMA70-708036281-203.
Financial Conduct Authority. (2021, June). Changes to UK MiFID’s conduct and organisational requirements. Policy Statement PS21/5.
Moy-Loader, N. & Kokkinos, K. (2023). The RTS 27 & 28 Reports for CySEC regulated entities. SALVUS Funds.
Comerton-Forde, C. & O’Hara, M. (2009). Best Execution ▴ The Role of Information in Order Routing. Johnson School Research Paper Series.
Lehalle, C. A. & Laruelle, S. (Eds.). (2013). Market Microstructure in Practice. World Scientific Publishing.
Financial Conduct Authority. (2019). MIFID II ▴ Best execution ▴ our expectations.

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Reflection

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Beyond Compliance toward Systemic Intelligence

The regulatory shift away from RTS 27 and 28 reporting requirements prompts a critical introspection for every investment firm. The absence of these prescribed templates creates an opportunity to re-evaluate the very purpose of execution monitoring. Is it a task to be completed for regulatory approval, or is it a core component of the firm’s intelligence apparatus?

Viewing this change through a systemic lens reveals its true potential. The data collected for monitoring execution quality is the same data that can be used to refine trading strategies, optimize algorithmic parameters, and build a more resilient operational framework.

The knowledge gained from a truly effective best execution framework transcends its immediate application. It provides a feedback loop that informs every aspect of the trading lifecycle. It allows a firm to understand not just where it executes, but how and why it achieves certain outcomes.

This deeper level of understanding is the foundation of a durable competitive advantage. The ultimate question raised by this regulatory evolution is how a firm chooses to define its own standard of excellence when the external benchmarks are removed.