How Has the Suspension of RTS 27 and RTS 28 Reports Affected Best Execution Monitoring in Europe? ▴ Question

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Concept

The removal of the mandatory publication of RTS 27 and RTS 28 reports represents a fundamental recalibration of the European best execution information architecture. These reporting obligations were not isolated bureaucratic exercises; they were designed as public-facing data conduits within the broader MiFID II framework, intended to create a transparent marketplace for execution quality. Understanding their original function is the only way to accurately measure the systemic effects of their suspension. The suspension itself was a direct acknowledgment by regulators that the intended transparency had failed to materialize in a useful format, creating a significant compliance burden without a corresponding benefit to end investors.

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The Mandate of Transparency

The Markets in Financial Instruments Directive II (MiFID II) introduced a comprehensive regime aimed at enhancing investor protection and promoting market transparency. Central to this were the Regulatory Technical Standards (RTS) 27 and 28, which prescribed detailed public disclosures on execution quality.

RTS 27 ▴ The Execution Venue Report

This standard required execution venues ▴ such as stock exchanges, multilateral trading facilities (MTFs), and systematic internalisers (SIs) ▴ to publish quarterly reports. These were granular, machine-readable documents containing a vast amount of data on the quality of execution for each financial instrument traded on the venue. The objective was to allow market participants to compare execution quality across different venues based on objective metrics.

Price Data ▴ Included information on average effective spread, and the number of orders or requests for quotes received.
Cost Metrics ▴ Detailed explicit costs, such as fees and charges, and any rebates provided.
Speed of Execution ▴ Measured the time elapsed from order receipt to execution, providing insight into latency.
Likelihood of Execution ▴ Reported on the probability of an order being executed, a critical factor for illiquid instruments.

RTS 28 ▴ The Investment Firm Report

This standard mandated that investment firms (the “buy-side”) annually publish a report detailing the top five execution venues they used for each class of financial instrument. Firms were also required to provide a qualitative summary of the execution quality obtained on those venues. This was intended to give clients visibility into where their orders were being routed and the rationale behind those choices.

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The Rationale for Suspension

The initial vision of a market where investors could easily compare execution quality using these reports never fully came to fruition. The European Securities and Markets Authority (ESMA) and national competent authorities (NCAs) observed that the reports were rarely accessed or used by their intended audience. The reasons for this were multifaceted.

The immense complexity and volume of RTS 27 data made meaningful comparison a resource-intensive task, while RTS 28 reports often lacked the detail to facilitate informed decisions.

The data was often out of date by the time of publication, rendering it less useful for forward-looking decisions. Furthermore, the cost of producing, publishing, and maintaining these reports was substantial for both execution venues and investment firms. Resources that could have been allocated to improving internal monitoring systems were instead diverted to a public disclosure exercise of limited practical value. Consequently, regulators, starting with a temporary suspension that has since been made permanent, decided to remove the obligation, concluding that it did not enhance consumer protection and that the market had found other, more effective means of assessing execution quality.

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Strategy

The suspension of RTS 27 and RTS 28 reporting obligations has catalyzed a strategic pivot in how European financial firms approach best execution. The focus has decisively shifted from a model of public, standardized disclosure to one of sophisticated internal governance and data-driven analysis. This change compels firms to construct and maintain a robust internal framework that can demonstrably prove to regulators and clients that best execution is being achieved, not just reported.

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The Ascendancy of Internalized Intelligence

With the external reporting mandate removed, the strategic imperative for firms is to build a more powerful and nuanced internal monitoring capability. The absence of publicly available, standardized data from venues means that firms can no longer rely on these reports as a baseline for comparison. Instead, they must cultivate their own data sources and analytical tools to scrutinize execution quality. This has led to a greater reliance on Transaction Cost Analysis (TCA), which has evolved from a post-trade reporting tool into a comprehensive, multi-stage analytical discipline.

Pre-Trade Analysis ▴ Involves using historical data and market impact models to estimate the likely cost of a trade and select the optimal execution strategy and venue.
Intra-Trade Analysis ▴ Monitors execution in real-time against benchmarks, allowing for adjustments to the trading strategy to minimize slippage and market impact.
Post-Trade Analysis ▴ Provides a detailed review of execution performance against a variety of benchmarks (e.g. VWAP, TWAP, implementation shortfall) to refine future trading strategies and demonstrate compliance.

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A New Operational and Governance Blueprint

The strategic shift necessitates a re-architecting of a firm’s best execution policy and governance structure. The Best Execution Committee, or its equivalent, now plays a more critical and data-intensive role. Its function moves beyond reviewing summary reports to actively interrogating detailed TCA outputs and making informed decisions about venue selection, algorithm choice, and overall execution strategy.

Firms are now strategically compelled to invest in the technology and expertise required to transform raw execution data into actionable intelligence for governance and oversight.

This table illustrates the strategic evolution in best execution monitoring, contrasting the previous state with the current environment.

Table 1 ▴ Evolution of Best Execution Monitoring Strategy
Monitoring Aspect	Pre-Suspension (RTS-Centric) Approach	Post-Suspension (TCA-Driven) Approach
Primary Evidence	Public RTS 27 and RTS 28 reports.	Internal, multi-faceted Transaction Cost Analysis (TCA) reports.
Data Source	Standardized, public data from execution venues.	Proprietary and third-party data feeds, direct from venues and brokers.
Analytical Focus	Retrospective comparison of venue-level statistics.	Holistic analysis of individual order execution pathways and strategies.
Governance Role	Review of compliance with public disclosure requirements.	Active interrogation of TCA results to challenge and refine execution policies.
Technology Requirement	Systems for publishing and consuming standardized reports.	Sophisticated data analytics platforms for TCA and market impact modeling.

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Navigating the Fragmented Data Landscape

A key strategic challenge emerging from the suspension is the need to navigate a more fragmented and proprietary data landscape. Without the common baseline of RTS 27, firms must now source execution quality data directly from their brokers and venues or rely on third-party data vendors. This requires a more rigorous due diligence process to ensure the quality, consistency, and comparability of the data being used for analysis. The strategic advantage now lies with firms that can effectively aggregate and normalize diverse data sets to create a comprehensive, internal view of the execution landscape.

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Execution

In the post-RTS 27/28 environment, the execution of a best execution policy is an intensive, continuous process of data integration, analysis, and governance. It requires a firm to build and operate an internal monitoring engine capable of satisfying the core MiFID II obligation ▴ to take all sufficient steps to obtain the best possible result for its clients. This operational reality moves far beyond a simple compliance check, demanding a sophisticated, evidence-based framework.

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Constructing the Modern Monitoring Framework

The foundation of a modern best execution framework is a robust data and analytics capability. This is not a single piece of software but an integrated system of components designed to capture, process, and analyze every stage of the order lifecycle. The practical execution involves several key pillars:

Data Ingestion and Normalization ▴ Firms must establish reliable data pipelines to receive execution data from multiple sources, including direct FIX protocol feeds from brokers, proprietary data from trading platforms, and market data from vendors. This raw data must then be normalized into a consistent internal format to allow for meaningful analysis across different venues and asset classes.
Advanced Transaction Cost Analysis (TCA) ▴ The core analytical engine must be capable of performing sophisticated TCA. This involves calculating a range of benchmarks beyond simple metrics like arrival price. It should measure performance against interval Volume-Weighted Average Price (VWAP), assess market impact, and analyze reversion to the mean to identify hidden costs or signaling risk.
Qualitative Factor Integration ▴ Best execution is not solely a quantitative exercise. The framework must allow for the systematic integration of qualitative factors. This includes assessing counterparty risk, the quality of settlement and clearing, and the speed and reliability of a venue’s technology. This data, while not always numerical, must be captured and considered in venue analysis.

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The Operational Rhythm of Governance

Effective governance is the mechanism that translates analytical output into improved execution outcomes. The Best Execution Committee’s role becomes one of active oversight, driven by a structured and data-rich agenda. This operational rhythm ensures that the firm’s execution policies are not static documents but are continuously reviewed and refined based on empirical evidence.

The operational execution of best execution monitoring has transformed into a dynamic cycle of data analysis, committee review, and policy refinement, driven by internal intelligence rather than public disclosure.

The following table provides a sample of the key data points and questions that a Best Execution Committee would now address in its regular reviews, demonstrating the depth of analysis required.

Table 2 ▴ Sample Best Execution Committee Agenda Items
Agenda Item	Key Data Points for Review	Guiding Questions for the Committee
Venue Performance Review	– Slippage analysis by venue and order type. – Rejection rates. – Latency statistics (order acknowledgement to execution).	– Are certain venues consistently underperforming for specific asset classes? – Does high latency at a particular venue correlate with poor execution outcomes?
Broker & Algorithm Analysis	– Performance vs. implementation shortfall benchmark. – Market impact analysis of different algorithms. – Child order placement logic and fill rates.	– Which algorithms are most effective in different volatility regimes? – Is there evidence of information leakage from our algorithmic order flow?
Analysis of Costs	– Explicit costs (commissions, fees) per venue. – Implicit costs (spread, market impact) calculated via TCA. – Net execution performance after all costs.	– Are we overly focused on explicit costs at the expense of higher implicit costs? – How does our all-in execution cost compare to our pre-trade estimates?
Review of Qualitative Factors	– Counterparty incident reports. – Settlement failure rates by venue. – Feedback from traders on venue reliability.	– Does the operational risk associated with a low-cost venue outweigh the fee savings? – Are there recurring qualitative issues with any of our top execution venues?

This rigorous, evidence-based approach to governance is the definitive operational consequence of the RTS 27 and 28 suspension. It places the full responsibility on the firm to build its own system of checks and balances, a system that must be robust enough to withstand the scrutiny of regulators who now expect to see a dynamic and intelligent process, not just a static report.

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References

European Commission. “Commission Delegated Regulation (EU) 2017/575 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards for the data broadcasters have to publish.” Official Journal of the European Union, 2017.
European Commission. “Directive (EU) 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.” Official Journal of the European Union, 2021.
European Securities and Markets Authority. “Public Statement ▴ Suspension of the obligation to publish RTS 27 reports.” ESMA, 2021.
European Securities and Markets Authority. “Final Report on the MiFID II/MiFIR review report on the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments.” ESMA, 2019.
European Securities and Markets Authority. “Statement on the obligation to publish RTS 28 reports.” ESMA, 2024.
Financial Conduct Authority. “Markets in Financial Instruments Directive II (MiFID II) review.” FCA, 2022.
“The future of Best Execution reporting under MiFID II.” Deloitte, 2022.
Cumming, Douglas, et al. “Market-wide and security-specific determinants of execution costs on an automated stock exchange.” Journal of Financial Markets, vol. 14, no. 2, 2011, pp. 273-305.

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From Mandated Transparency to Engineered Insight

The departure from the RTS reporting regime marks a pivotal moment in the philosophy of market regulation. It signals a transition from a system reliant on mandated, public data dumps to one that places the onus of proof squarely on the internal architecture of the investment firm. The core obligation of best execution was never extinguished; its method of verification has simply been internalized. This presents a profound operational and strategic question for every market participant ▴ Is your internal framework for monitoring execution quality merely a compliance apparatus, or is it engineered to be a source of competitive intelligence?

The absence of public benchmarks creates a new terrain where the ability to generate proprietary insight from execution data is the defining characteristic of a market leader. The ultimate effect of the suspension, therefore, is the creation of a new performance gap between firms that view best execution as a historical report and those that treat it as a real-time system for strategic decision-making.