How Might the Proposed Removal of RTS 28 Reports Change EU Best Execution Strategy?

Concept

The proposed removal of Regulatory Technical Standard 28 (RTS 28) reports represents a fundamental recalibration of the European Union’s best execution data framework. This development is not a simple reduction of administrative tasks; it signals a structural shift in how execution quality is defined, measured, and substantiated. The directive, born from the Markets in Financial Instruments Directive (MiFID II), compelled investment firms to publicly disclose their top five execution venues for each class of financial instrument, alongside a qualitative summary of the execution quality obtained.

The core purpose was to arm investors with transparent, comparable data to evaluate how effectively their orders were being handled. The underlying principle was that sunlight is the best disinfectant, and that mandated transparency would create a competitive environment where execution quality would naturally improve.

However, the operational reality of RTS 28 proved different from its theoretical intent. The reports were found to be resource-intensive for firms to produce and of limited practical use to the intended audience. Investors and other market participants rarely accessed these reports, finding them too complex and the data too dated to provide actionable insights for meaningful comparisons.

This disconnect between the high cost of compliance and the low utility of the output led regulators to reconsider the mandate’s value. The European Securities and Markets Authority (ESMA) has consequently advised national competent authorities (NCAs) to deprioritize supervisory actions against firms that cease to produce these reports, effectively signaling the end of the RTS 28 regime.

This regulatory evolution moves the locus of responsibility for execution validation inward. The external, public-facing reporting requirement is dissolving, but the foundational obligation for firms to achieve and evidence best execution remains firmly in place. The change compels a transition from a compliance-centric reporting model to a sophisticated, internally-driven analytical model.

Institutions must now construct their own evidentiary frameworks, relying on proprietary data and advanced analytics to scrutinize and defend their execution strategies. The removal of RTS 28 clears the path for a more mature, substantive, and ultimately more effective approach to best execution ▴ one based on deep, continuous internal analysis rather than periodic, standardized public disclosure.

The end of RTS 28 reporting shifts the burden of proof for best execution from a public compliance exercise to a private, data-intensive analytical imperative.

The Original Design and Its Unintended Consequences

The architecture of RTS 28 was rooted in a desire to empower the end investor. By forcing a public accounting of where orders were sent and the quality achieved, regulators aimed to create a clear feedback loop. An investor could, in theory, compare the RTS 28 reports of several firms to determine which one consistently used high-performing venues.

This was intended to commoditize execution quality, making it a visible and comparable factor in selecting an investment firm. The reports required a detailed breakdown by asset class, distinguishing between retail and professional clients, and covering various order types.

The practical application, however, was fraught with complexity. For asset classes like derivatives, the data was often not comparable, and the utility for wholesale market participants, who use more advanced methods to ensure best execution, was minimal. The static, annual nature of the reports meant the information was often obsolete upon publication, failing to capture the dynamic reality of market conditions and venue performance.

Firms incurred substantial costs in data aggregation, analysis, and report generation, resources that many argued could be better directed toward more effective methods of monitoring and improving execution quality. The result was a system that generated a vast amount of data that was rarely consumed and provided little of the intended clarity, leading to the consensus that its removal was a necessary step to reduce administrative burdens without diminishing investor protection.

Strategy

The discontinuation of RTS 28 reporting necessitates a strategic pivot for investment firms, moving from a paradigm of regulatory compliance to one of analytical self-reliance. The core challenge is to maintain, and demonstrably enhance, best execution capabilities in an environment with less public data. This requires a conscious re-architecting of a firm’s internal processes for data capture, analysis, and strategic decision-making. The new strategy must be built on a foundation of robust, high-granularity internal data and sophisticated analytical tools, with Transaction Cost Analysis (TCA) evolving into the central pillar of the execution quality framework.

Elevating Transaction Cost Analysis from Verification to Intelligence

In the RTS 28 era, TCA often served as a secondary tool to verify the outcomes summarized in the public reports. In the post-RTS 28 landscape, TCA becomes the primary engine for generating execution intelligence. A modern TCA framework must go beyond simple slippage calculations.

It must provide a multi-dimensional view of execution, incorporating a wide array of metrics and contextual data to deliver actionable insights. This involves a significant upgrade in both data infrastructure and analytical sophistication.

Firms must now systematically capture a richer set of order lifecycle data. This includes not just the time of execution, but the time of order creation, routing decisions, amendments, and cancellations. This granular data allows for a more precise analysis of latency, fill rates, and the impact of different routing strategies.

The analysis must also be contextualized with market data, such as the state of the order book, volatility, and liquidity at the moment the order was processed. This allows for a fair evaluation of execution quality relative to the prevailing market conditions.

The strategic objective is to use TCA not just for post-trade reporting, but for pre-trade decision support and real-time monitoring. Pre-trade TCA models can help traders select the optimal execution strategy and venue based on the characteristics of the order and the current market environment. Real-time TCA can alert traders to underperforming venues or algorithms, allowing for immediate intervention. This transforms TCA from a historical record-keeping tool into a dynamic, forward-looking strategic asset.

With RTS 28 reports gone, advanced Transaction Cost Analysis becomes the definitive source of truth for measuring and optimizing execution quality.

The following table illustrates the strategic shift in data sources and analytical focus for a firm’s best execution framework.

Redefining Due Diligence for Venues and Brokers

Without the standardized benchmark of RTS 28 reports, the process of evaluating and selecting execution venues and brokers becomes a more demanding, qualitative exercise. Firms can no longer simply review a public report; they must engage in a deeper, more probing due diligence process to understand the nuances of how their orders will be handled. This requires a shift in focus from what is reported to what can be discovered through direct inquiry and data analysis.

The new due diligence process must be built around a set of critical questions aimed at uncovering the underlying mechanics of a venue’s or broker’s execution process. Firms need to develop a standardized questionnaire and a structured process for evaluating the responses. This process should be integrated with the firm’s internal TCA data to validate the claims made by the venue or broker.

• Order Routing Transparency ▴ Firms must demand complete transparency into how their orders are routed. This includes understanding the logic of the smart order router (SOR), the venues it connects to, and the criteria used to make routing decisions. The goal is to ensure that orders are being sent to venues that offer the highest probability of best execution, rather than those that offer the highest rebates.
• Liquidity Analysis ▴ It is essential to understand the nature of the liquidity at a given venue. Is it primarily driven by retail or institutional flow? What is the average trade size? How does liquidity vary throughout the trading day? This information helps in assessing the potential for price impact and information leakage.
• Fill Quality Metrics ▴ Firms should request detailed data on fill rates, fill sizes, and the frequency of partial fills. This data, when analyzed in conjunction with the firm’s own TCA, can provide a clear picture of a venue’s ability to execute orders efficiently.
• Technology and Infrastructure ▴ An assessment of a venue’s or broker’s technology stack is critical. This includes understanding their co-location services, network latency, and data processing capabilities. A robust and resilient technology infrastructure is a prerequisite for high-quality execution.

Execution

Executing a best execution strategy in the absence of RTS 28 requires the construction of a new internal apparatus for monitoring, analysis, and governance. This is an operational undertaking that touches on data systems, analytical tooling, and the formal processes of oversight. The objective is to create a closed-loop system where execution data is continuously captured, analyzed, and used to refine trading strategies and venue selection. This system becomes the firm’s definitive record and defense of its execution quality.

Constructing the New Execution Quality Apparatus

The foundation of the new apparatus is a robust data architecture capable of capturing the full lifecycle of every order in granular detail. This data is the raw material for the entire system. The analytical layer then transforms this data into actionable intelligence, and the governance layer ensures that this intelligence is used to drive continuous improvement and maintain regulatory compliance. This systematic approach ensures that the firm can confidently demonstrate the effectiveness of its execution arrangements to both clients and regulators.

The following table outlines the key data points that must be captured in the new internal system. This level of detail is essential for conducting the kind of sophisticated TCA required to replace the insights that RTS 28 was intended to provide.

A Revised Governance Checklist

With the formal reporting cycle of RTS 28 removed, the internal governance process must become more rigorous and disciplined. The Best Execution Committee, or its equivalent, must adapt its procedures to focus on the analysis of internal data rather than the review of public reports. This requires a more hands-on, data-driven approach to oversight.

1. Establish Formal TCA Review Cadence ▴ The committee must schedule regular, in-depth reviews of TCA reports. This should occur at least quarterly and should cover all asset classes and significant execution venues. The reviews should focus on identifying trends, outliers, and areas for improvement.
2. Define Key Performance Indicators (KPIs) ▴ The committee must establish a clear set of KPIs for execution quality. These should go beyond simple price slippage and include metrics such as fill rates, information leakage, and venue latency. These KPIs should be tracked over time and benchmarked where possible.
3. Systematize Venue and Broker Reviews ▴ The qualitative due diligence process for venues and brokers should be formalized. This includes maintaining a central repository of due diligence questionnaires, responses, and internal assessments. The committee should formally approve all new execution venues and review existing relationships on at least an annual basis.
4. Document All Decisions and Actions ▴ The minutes of the Best Execution Committee meetings must be detailed and comprehensive. They should clearly document the data that was reviewed, the conclusions that were reached, and the actions that were taken. This documentation is the firm’s primary evidence of a robust and effective best execution governance process.
5. Integrate Feedback Loop to Trading Desk ▴ The insights generated by the committee’s analysis must be fed back to the trading desk in a structured and actionable format. This could take the form of updated routing tables, revised best practice guidelines, or targeted training sessions. The goal is to ensure that the governance process leads to tangible improvements in day-to-day trading activity.

The removal of a public reporting mandate elevates the importance of a rigorous, documented, and data-driven internal governance system.

Reflection

From Mandated Report to Strategic Asset

The phasing out of RTS 28 marks a significant maturation point for the European financial markets. It closes a chapter on mandated, and arguably ineffective, public transparency, opening a new one that challenges firms on their own terms. The fundamental question for every institution is no longer “How do we comply with the reporting requirement?” but rather “How do we construct an internal system of intelligence that produces a durable competitive advantage?”. The regulatory framework has removed a procedural checklist, and in its place, created an analytical imperative.

This transition requires a shift in mindset, viewing the resources previously allocated to compliance as an investment fund for building a superior operational framework. The challenge is to architect a system where data capture is seamless, analysis is insightful, and governance is dynamic. The firms that succeed will be those that recognize this change not as a loss of a public benchmark, but as an opportunity to build a proprietary, high-fidelity view of execution quality that is far more valuable than any standardized report. The ultimate measure of success will be the ability to translate this internal intelligence into consistently superior execution outcomes, creating a tangible and defensible edge in the marketplace.