How Have MiFID II Reporting Requirements like RTS 27 and RTS 28 Evolved over Time?

Concept

The trajectory of MiFID II’s Regulatory Technical Standards (RTS) 27 and 28 provides a clinical study in the friction between a regulator’s architectural vision and the operational reality of market mechanics. These reporting requirements were not born from a desire for bureaucratic expansion; they were forged in the crucible of post-crisis reform, intended as core components of a new, transparent market superstructure. The central design principle was that granular, standardized data on execution quality would empower investors, enabling them to act as the ultimate arbiters of best execution and drive competition between venues and brokers.

RTS 27 mandated that execution venues, such as stock exchanges and systematic internalisers, publish quarterly data on execution quality. RTS 28, in a complementary role, required investment firms to annually disclose their top five execution venues for each class of financial instrument, along with a qualitative assessment of the execution quality obtained.

From a systems perspective, this was a laudable goal. It sought to create a feedback loop ▴ venues and firms would be compelled to optimize for execution quality, knowing their performance was publicly auditable. This data, rendered in a machine-readable format, was envisioned as the raw material for a new generation of analytics, allowing for empirical, cross-market comparisons of execution outcomes.

The ambition was to replace opaque, relationship-driven order routing with a market governed by verifiable performance metrics. The underlying assumption was that with enough data, the concept of “best execution” could be transformed from a qualitative principle into a quantifiable, objective benchmark.

The initial framework, however, contained the seeds of its own complications. The sheer volume and granularity of data required by RTS 27 proved to be immense, creating a significant operational and financial load on reporting entities. For many market participants, particularly those with complex or high-volume flow, the process of collecting, validating, and formatting this data was a monumental undertaking.

The standards, while aiming for uniformity, left room for interpretation, leading to inconsistencies that undermined the core objective of comparability. This dissonance between the intended systemic function and the practicalities of its implementation set the stage for the subsequent evolution and, ultimately, the dismantling of key parts of this ambitious transparency architecture.

Strategy

The strategic response to the RTS 27 and RTS 28 reporting mandates unfolded in distinct phases, moving from initial compliance efforts to a widespread, evidence-based critique that ultimately forced a regulatory retreat. The initial strategy for both firms and venues was one of brute-force compliance, involving substantial investment in data infrastructure, third-party reporting solutions, and internal expertise to meet the demanding requirements that came into force in 2018. This period was characterized by a focus on data acquisition and formatting, often with the strategic goal of simply avoiding regulatory sanction rather than producing genuinely insightful analysis.

The Data Deluge and the Diminishing Returns

Firms quickly discovered that the cost-benefit calculus of this new reporting paradigm was severely skewed. The resources required to produce the reports were immense, while the practical utility of the output was questionable. Stakeholder feedback, which regulators like the European Securities and Markets Authority (ESMA) began to collect, painted a clear picture ▴ the reports were rarely used by the investors they were designed to protect.

The data was often too complex, inconsistent across providers, and lacked the necessary context to allow for meaningful comparisons. An investor attempting to compare RTS 27 reports from two different multilateral trading facilities (MTFs) would struggle to draw a reliable conclusion about where to achieve superior execution for a specific order type.

The evolution of RTS 27 and 28 reflects a regulatory shift from mandated, granular data publication toward a more principles-based approach to ensuring best execution.

This led to a strategic shift within the industry, from passive compliance to active lobbying for reform. Financial institutions and trade bodies began to systematically document the operational burdens and the limited utility of the reports, presenting a compelling case to regulators that the regime was failing to meet its own objectives. The argument was no longer about the difficulty of compliance, but about the fundamental ineffectiveness of the entire exercise.

Regulatory Reassessment and the Path of Divergence

Regulators, faced with mounting evidence of the regime’s shortcomings, were compelled to reassess their initial strategy. ESMA and the UK’s Financial Conduct Authority (FCA) both initiated reviews that acknowledged the industry’s concerns. A key finding was that the sheer volume of data in RTS 27 reports made them difficult to digest and that the information in RTS 28 reports was not being used by clients to compare firms’ execution practices.

This acknowledgment marked a pivotal moment, signaling a move away from the original architectural vision. The subsequent strategies employed by the EU and the UK, however, began to diverge, particularly in the post-Brexit landscape.

• The UK’s Decisive Action ▴ The FCA moved relatively quickly. Recognizing the high costs and limited benefits, the UK government announced the removal of the RTS 27 and RTS 28 reporting obligations for UK firms, effective from December 2021. This was a clear strategic decision to reduce the regulatory burden on the UK financial services industry.
• The EU’s Phased Retreat ▴ The EU’s path was more protracted. It began with a temporary suspension of the RTS 27 obligation as part of the Capital Markets Recovery Package in 2021. This was followed by a longer period of review and political negotiation. Eventually, a consensus was reached to permanently remove the RTS 27 requirement and the RTS 28 obligation. However, the implementation involves a transitional period, meaning the formal removal is staggered as member states transpose the directive into national law.

The table below summarizes the core differences in the strategic approach to these reporting standards, highlighting the key drivers and outcomes.

Execution

The operational execution of the retreat from RTS 27 and 28 reporting reveals the intricate mechanics of regulatory change. This process was not a simple flick of a switch but a carefully managed, multi-stage procedure involving legislative amendments, supervisory guidance, and a fundamental recalibration of compliance systems within financial institutions. For firms, executing this change meant navigating a complex and, for a time, divergent set of rules across different jurisdictions.

The Systematic Decommissioning of RTS 27

The dismantling of RTS 27 was a response to its systemic failure to deliver on its primary objective. The execution quality reports were designed to be granular, but this granularity became their undoing. The sheer volume of data points, specified across numerous tables, created a product that was both enormously expensive to produce and practically impossible for end-users to consume effectively. The process of its removal was methodical.

1. Initial Suspension ▴ The first concrete step was the suspension of the reporting requirement by the MiFID II Amending Directive in February 2021, which provided a two-year reprieve. This was an explicit acknowledgment from legislators that the system was broken and needed a comprehensive review.
2. Industry Feedback and Review ▴ During this suspension, regulators formally gathered the evidence that had been circulating informally for years. Consultations confirmed that the reports were not being used by investors to make informed decisions and that the costs were disproportionate to the benefits.
3. Permanent Removal ▴ Armed with this evidence, the EU and UK moved towards permanent removal. The UK acted decisively, abolishing the requirement as part of its Wholesale Markets Review. The EU followed suit through the broader MiFID II/MiFIR review, which concluded that the obligation should be permanently deleted from the legislation.

The table below provides a glimpse into the complexity of a single section of an RTS 27 report for equity instruments, illustrating the operational burden it imposed. Each cell represents a complex data collection and calculation exercise that had to be performed for every trading day in a quarter, for every instrument traded.

The Survival and Adaptation of RTS 28

In contrast to the outright removal of RTS 27, the principles behind RTS 28 have shown more resilience, even as the specific reporting obligation has been eliminated. The requirement for firms to monitor and demonstrate best execution remains a cornerstone of MiFID II. The removal of the public RTS 28 report simply eliminates one specific, and ultimately ineffective, method of demonstrating compliance.

Firms are still required to have robust order execution policies and to be able to justify their venue selection to regulators and clients upon request. The execution of this change requires firms to pivot their internal systems.

Firms must now reallocate resources from public reporting to enhancing internal best execution monitoring systems and qualitative analysis.

The focus shifts from producing a public-facing, standardized report to maintaining a dynamic, internal evidence base. This involves:

• Strengthening Internal Monitoring ▴ Resources previously allocated to compiling RTS 28 reports are now being reinvested into more sophisticated Transaction Cost Analysis (TCA) and internal best execution monitoring systems.
• Qualitative Justification ▴ The emphasis moves to the qualitative summary that was part of the RTS 28 report. Firms must be able to clearly articulate the logic behind their venue and broker selection, considering not just price, but also factors like liquidity, settlement efficiency, and counterparty risk.
• Regulatory Dialogue ▴ Compliance execution now involves being prepared for a more direct and qualitative dialogue with regulators. Instead of pointing to a public report, firms must be ready to provide detailed, on-demand evidence of their best execution framework.

The evolution signifies a maturation of the regulatory approach. It recognizes that true oversight of best execution comes from a firm’s internal governance and analytical capabilities, not from a standardized public report that proved too cumbersome to be useful. The obligation on firms has become less about public disclosure and more about demonstrable internal diligence.

Reflection

The story of RTS 27 and 28 is a powerful reflection on the nature of financial regulation in the digital age. It underscores a fundamental tension between the pursuit of perfect, data-driven transparency and the complex, dynamic reality of market microstructure. The initial design represented a belief in the power of data as a panacea ▴ that sunlight, in the form of granular reports, would be the best disinfectant for suboptimal execution. What the subsequent evolution demonstrates is that data without context, utility, and a clear audience is merely noise, and generating that noise can impose a significant and ultimately counterproductive cost.

Beyond the Report

This journey forces a critical question for any market participant or regulator ▴ what is the true objective of a transparency mandate? If the goal is to produce auditable artifacts, then RTS 27 and 28 were, for a time, a success. If, however, the goal is to create a more efficient, competitive, and fair market, their failure provides a crucial lesson.

The focus must shift from the production of static reports to the cultivation of dynamic internal capabilities. The most effective regulatory frameworks are those that compel firms to build robust internal systems for monitoring, analysis, and governance ▴ systems that are used to make real-time decisions, not just to populate a template once a year.

The Enduring Principle

While the specific reports are gone, the principle of best execution is more entrenched than ever. The evolution from public reporting to internal diligence places a greater onus on firms to truly understand their execution quality. It demands a more sophisticated engagement with data, not for public consumption, but for internal optimization and risk management.

The ultimate lesson is that effective regulation is not an external constraint, but a catalyst for internal excellence. The demise of these reports does not signify a retreat from transparency, but rather a more mature understanding of how to achieve it.