How Has the Removal of RTS 28 Reporting Changed Best Execution Supervision?

Concept

The operational architecture of best execution supervision has undergone a fundamental redesign. The decommissioning of the RTS 28 reporting mandate represents a calculated shift in the regulatory apparatus, moving the locus of proof from a public, standardized, and ultimately ineffective disclosure exercise to the core of a firm’s internal governance and data intelligence framework. Your experience of the previous regime was likely one of significant compliance overhead for a report that generated minimal engagement and offered little in the way of actionable competitive insight.

The system was built on the premise that public transparency would empower clients and discipline firms. The reality was a costly production of boilerplate documents that were, as market-wide data confirmed, scarcely ever read.

This change recalibrates the supervisory lens. The core question from regulators is no longer “Did you publish a report?” but rather “Can you provide a defensible, evidence-based reconstruction of your execution decisions?”. The focus has pivoted inward, demanding that firms build and maintain a robust, auditable system of record that demonstrates how their execution policy is applied in practice, day by day, trade by trade.

It elevates the firm’s own execution policy from a static compliance document into the central, dynamic blueprint for all execution-related activities. The supervisory expectation is now that this blueprint is alive, continuously monitored, and rigorously challenged from within.

The removal of RTS 28 redefines best execution supervision as a continuous, internal audit of a firm’s decision-making intelligence, replacing the previous static, public disclosure requirement.

What Was the Core Flaw in the RTS 28 Framework?

The foundational weakness of the RTS 28 reporting standard was its design as a blunt instrument of transparency. It mandated the annual publication of the top five execution venues used for each class of financial instrument, alongside a summary of the execution quality obtained. This approach suffered from a critical misalignment of intent and outcome. The reports were intended to provide clients with comparable data to judge the quality of their broker’s execution.

In practice, the high-level, aggregated nature of the data made meaningful comparison an analytical impossibility. Distilling a year’s worth of complex, multi-faceted execution decisions across countless market scenarios into a simple top-five list obscured more than it revealed.

Firms were incentivized to produce reports that met the letter of the law, resulting in a compliance exercise that consumed significant resources without fostering a competitive environment based on superior execution quality. The information was too generic for institutional clients and too complex for most retail investors, creating a transparency tool that served no real audience. The UK’s Financial Conduct Authority (FCA) noted the extremely low engagement with these reports as a key justification for their removal, a sentiment echoed by the European Securities and Markets Authority (ESMA). The framework produced data without context, failing to capture the critical rationale behind why a specific venue was chosen for a specific order at a specific moment in time.

Strategy

In the post-RTS 28 environment, the strategic imperative for investment firms is to re-architect their approach to best execution, moving from a paradigm of compliance-driven disclosure to one of continuous, evidence-based operational excellence. The absence of the public report magnifies the importance of a firm’s internal analytical and governance capabilities. A firm’s strategy must now be centered on creating a defensible, data-rich ecosystem that can withstand deep regulatory scrutiny at any moment. This is a strategic pivot from demonstrating compliance to demonstrating intelligence.

The cornerstone of this new strategy is the elevation of the Order Execution Policy (OEP). This document transforms from a static, annually-reviewed artifact into the dynamic, central nervous system of the firm’s trading function. It must articulate with precision the criteria and processes for venue and counterparty selection, and it must be directly linked to a robust Transaction Cost Analysis (TCA) framework.

The strategy is to build a closed-loop system where the OEP dictates execution logic, TCA measures the outcomes, and a dedicated governance function analyzes those outcomes to refine the OEP. This creates a perpetually improving system designed for superior execution, with the added benefit of producing a complete audit trail for supervisors.

A successful post-RTS 28 strategy integrates the Order Execution Policy, Transaction Cost Analysis, and governance into a single, dynamic loop that continuously refines execution quality.

How Does Data Analytics Strategy Evolve Post RTS 28?

The data analytics strategy must mature significantly. Previously, TCA might have been a retrospective, periodic check used to populate sections of the RTS 28 report. Now, it becomes the primary engine for both real-time decision support and post-trade supervisory defense.

The strategic focus shifts from merely reporting on costs to actively managing and minimizing them across the entire trade lifecycle. A modern analytics strategy encompasses pre-trade, intra-trade, and post-trade analysis.

• Pre-trade analysis involves using historical data and market condition forecasts to select the optimal execution strategy and venue before an order is placed. This demonstrates proactive diligence.
• Intra-trade analysis provides real-time monitoring of an order’s execution against benchmarks (e.g. VWAP, TWAP), allowing for dynamic adjustments to the strategy to minimize slippage and market impact.
• Post-trade analysis remains essential, but its purpose is elevated. It is used to measure performance against a wide range of benchmarks, identify outliers for review, and provide quantitative evidence to the governance committee that the execution policy is effective. This analysis provides the raw material for any regulatory inquiry.

This evolution requires investment in more sophisticated tooling and data management capabilities. The goal is to create a seamless flow of data that allows the firm to answer the fundamental supervisory question ▴ “For this specific order, why was this execution path chosen, and can you prove it was the best possible outcome for the client?”.

The following table illustrates the strategic realignment required.

Execution

Executing a best execution strategy in the absence of RTS 28 requires a disciplined focus on three core pillars ▴ a robust governance framework, sophisticated quantitative monitoring, and a meticulously maintained audit trail. The operational reality is that supervisors now have the mandate to look past public filings and directly into the machinery of a firm’s trading desk. A firm must be prepared to systematically deconstruct any trade, justifying the venue, algorithm, and timing with hard, contemporaneous data. The burden of proof has shifted entirely inward.

The execution of this strategy begins with the formalization of a dedicated governance body, often called a Best Execution Committee or a similar oversight function. This committee is responsible for the living Order Execution Policy. Its mandate includes the regular, data-driven review of execution quality reports, the formal assessment and approval of new execution venues or counterparties, and the investigation of any trades that deviate significantly from expected outcomes. This body’s minutes and decisions form a critical part of the supervisory audit trail, demonstrating active and intelligent oversight.

What Constitutes a Defensible Execution Rationale?

A defensible execution rationale is built upon a foundation of quantitative evidence and documented qualitative judgment. It moves beyond simply achieving the best price to encompass the full spectrum of execution factors outlined in MiFID II, including costs, speed, likelihood of execution and settlement, size, and nature of the order. For every significant order, a firm must be able to reconstruct the “why.” This is achieved by integrating TCA data directly into the compliance and oversight workflow.

The following table outlines key TCA metrics and how they contribute to building a defensible rationale for supervisors.

A complete and defensible audit trail is the primary deliverable in the new supervisory landscape, combining quantitative TCA reports with the qualitative minutes of governance committees.

The Operational Playbook for Venue Review

A critical execution component is the systematic and periodic review of all execution venues. This process must be formalized, evidence-based, and documented. It is a core function of the Best Execution Committee.

1. Data Aggregation ▴ Consolidate execution data from all sources, tagging each execution with the venue, order type, and prevailing market conditions. This data should include fills, rejections, and latency metrics.
2. Quantitative Analysis ▴ Analyze the aggregated data using the TCA metrics outlined above. Compare venues head-to-head for similar types of orders in similar market conditions. Assess factors like fill rates, price improvement statistics, and post-trade reversion.
3. Qualitative Assessment ▴ Evaluate venues on qualitative factors. This includes the stability of their technology, their creditworthiness (for OTC counterparties), the quality of their client service, and their settlement efficiency.
4. Committee Review and Decision ▴ Present the combined quantitative and qualitative findings to the Best Execution Committee. The committee formally discusses the results and makes documented decisions regarding the continued use, probation, or removal of venues from the approved list.
5. Policy Update ▴ Ensure that the Order Execution Policy is updated to reflect the outcome of the review, and disseminate any changes to the trading desk.

This structured process provides regulators with clear evidence that the firm is not merely using the same venues out of habit, but is making active, informed, and data-driven decisions to secure the best possible outcomes for its clients. It transforms the best execution obligation from a passive reporting task into an active, strategic function.

Reflection

From Mandated Report to Systemic Intelligence

The retirement of the RTS 28 report closes a chapter on a specific model of regulatory transparency. It prompts a necessary introspection for every investment firm. Is your operational architecture designed merely to produce artifacts for compliance, or is it engineered to generate genuine execution intelligence?

The data you were previously aggregating for a public report that few would read now becomes the proprietary fuel for a superior trading framework. The resources once dedicated to formatting and publishing can now be repurposed for deeper analysis and governance.

Consider your firm’s flow of information. Does your TCA data exist in a silo, reviewed historically, or is it integrated into a feedback loop that informs your execution policy in near real-time? Is your Best Execution Committee a procedural checkpoint, or is it a dynamic forum for strategic decision-making, empowered with the quantitative tools to challenge assumptions and drive improvement?

The shift in supervision provides an opportunity to build a system where demonstrating best execution to a regulator is a natural byproduct of actively pursuing it for your clients. The ultimate goal is an operational framework so robust and intelligent that its integrity is self-evident in the data it produces.