How Should Governance Structures Be Adapted to Oversee Best Execution in a Post Rts 28 Environment?

Concept

The cessation of the mandatory Regulatory Technical Standard 28 (RTS 28) reporting obligation does not represent a dilution of regulatory oversight. Instead, it marks a fundamental recalibration of the entire best execution paradigm. The industry is moving away from a regime defined by standardized, public, and often retrospectively analyzed compliance reports towards an environment demanding continuous, demonstrable, and internally governed proof of execution quality.

The previous framework, while well-intentioned, engendered a “tick-the-box” culture, where the production of the report itself sometimes overshadowed the substantive analysis of execution outcomes. These reports were frequently criticized for their complexity and lack of utility for end-investors, creating a significant administrative load without a commensurate increase in transparency or actionable insight.

In this post-RTS 28 landscape, the core obligation under the Markets in Financial Instruments Directive (MiFID II) to “take all sufficient steps to obtain. the best possible result” for clients has been brought into sharper focus. The emphasis has shifted from public disclosure to internal demonstration. Governance structures must now be re-engineered to function as a dynamic, evidence-based oversight mechanism capable of proving execution quality not just annually, but on an ongoing basis and upon request from clients or regulators.

This requires a profound transformation in how firms approach data, analytics, and internal accountability. The challenge is no longer about populating a standardized template; it is about building and maintaining a robust, internal system of verification that is deeply integrated into the firm’s trading and operational DNA.

The new era of best execution demands that governance frameworks evolve from passive reporting functions into active, data-centric oversight engines.

The Inherent Limitations of a Standardized Reporting Mandate

The core deficiency of the RTS 28 framework was its one-size-fits-all nature. It attempted to distill the multifaceted concept of execution quality into a series of tables that struggled to capture the nuance of different asset classes, trading strategies, and market conditions. The resulting data was often too aggregated to be meaningful for sophisticated analysis and too complex for retail clients to interpret, failing to adequately serve either audience. Firms invested significant resources in collecting and formatting data for these reports, resources that could have been directed toward more substantive improvements in execution monitoring and technology.

Furthermore, the backward-looking nature of an annual report is ill-suited to the dynamic reality of modern financial markets. A report published in April detailing the top five venues from the previous calendar year provides little actionable intelligence for optimizing execution strategies in the present. Market structures evolve, liquidity profiles shift, and new venues emerge.

An effective governance structure must be capable of responding to these changes in near real-time, rather than documenting them as a matter of historical record. The removal of the RTS 28 mandate is, therefore, an opportunity to reallocate resources toward building this more agile and effective oversight capability.

Redefining Best Execution as a Continuous Process

True best execution is a continuous, iterative process, not a static state to be verified once a year. It involves a cycle of pre-trade analysis, in-flight monitoring, and post-trade evaluation. Each stage generates valuable data that should feed back into the system to refine future execution strategies. An effective governance structure must oversee this entire lifecycle, ensuring that the principles of the firm’s Order Execution Policy (OEP) are being applied at every step.

This process-oriented view requires a shift in mindset. Governance committees can no longer simply review a summary report. They must engage with the underlying data and the analytical tools used to interpret it. They need to ask probing questions about venue selection, algorithm performance, and the management of conflicts of interest.

The objective is to cultivate a culture of continuous improvement, where execution quality is treated as a key performance indicator for the trading function, subject to the same level of scrutiny and optimization as any other aspect of the investment process. The governance framework becomes the chassis upon which this culture of excellence is built, providing the structure, accountability, and strategic direction necessary to thrive in a world without the prescriptive guardrails of RTS 28.

Strategy

Adapting governance to the post-RTS 28 environment requires a deliberate strategic pivot. The objective is to transition the firm’s oversight function from a compliance-centric cost center into a strategic asset that contributes to superior investment performance and client trust. This involves re-architecting governance bodies, redesigning core policy documents, and strategically integrating new market infrastructure, such as the forthcoming Consolidated Tape (CT), into the oversight process. The guiding principle is to build a demonstrable, evidence-based capability that proves best execution from first principles, rather than relying on the proxy of a retired regulatory report.

Evolving the Best Execution Committee

The role and composition of the Best Execution Committee (or its equivalent governance body) must undergo a significant transformation. Previously, this committee might have focused on reviewing and signing off on the annual RTS 28 report. Its new mandate is far more dynamic and analytical. The committee must evolve into a center of excellence for execution oversight, equipped with the expertise and authority to challenge the status quo and drive continuous improvement.

This requires a membership that includes not just compliance and legal experts, but also senior representatives from the trading desk, quantitative analysis, technology, and risk management. The committee’s focus shifts from historical review to forward-looking strategy, actively overseeing the firm’s execution framework and its effectiveness.

The table below outlines the strategic shift in the committee’s responsibilities:

Transforming the Order Execution Policy into a Dynamic Framework

The Order Execution Policy (OEP) must be elevated from a static, compliance-driven document to a dynamic, operational framework that guides the firm’s execution strategy. In the post-RTS 28 world, the OEP is the central document that articulates how the firm delivers on its best execution obligation. It must be a detailed, evidence-based, and regularly updated resource that can be presented to clients and regulators to demonstrate the rigor of the firm’s approach.

The Order Execution Policy evolves from a static disclosure to the dynamic, central nervous system of the firm’s execution strategy.

Key strategic enhancements to the OEP should include:

• Granular Venue Analysis ▴ The policy must go beyond simply listing potential venues. It should detail the specific criteria used to select and approve each venue for different instrument classes. This analysis must be supported by both quantitative data (execution quality metrics) and qualitative factors (e.g. financial stability, operational resilience, conflict of interest management).
• Justification for Single-Venue Strategies ▴ If the firm uses a single execution venue for a particular class of instruments, the OEP must contain a robust justification, supported by data, demonstrating how this approach consistently delivers the best possible result for clients. This justification must be reviewed and re-validated regularly.
• Smart Order Router (SOR) Logic ▴ For firms using SOR technology, the OEP should clearly explain the logic and parameters governing the routing decisions. It should detail how the SOR is configured to prioritize the execution factors (price, cost, speed, likelihood of execution) for different order types and client categories.
• Conflict of Interest Management ▴ The policy must explicitly address how potential conflicts of interest are identified, managed, and mitigated. This is particularly important when executing on affiliated venues or dealing on own account. The framework must demonstrate that client interests are always placed first.
• Review and Update Triggers ▴ The OEP must define the specific events that would trigger a review of the policy and the firm’s execution arrangements. These should include material changes in market structure, the addition or removal of a key venue, a consistent degradation in execution quality from a particular venue, or the availability of new data sources like the Consolidated Tape.

Strategic Integration of the Consolidated Tape

The emergence of a European Consolidated Tape represents a pivotal strategic opportunity for best execution governance. The CT will provide a unified, high-quality source of post-trade data from across all EU trading venues. This creates, for the first time, a comprehensive and accessible market-wide benchmark against which firms can measure their execution performance. Strategically integrating the CT into the governance framework is essential.

It moves the analysis from being purely internal to being externally validated against the entire market. The CT will become the “golden source” for calculating price-based metrics like price improvement versus the true European Best Bid and Offer (EBBO), providing an objective and indisputable reference point for TCA. Governance committees should be planning now for the technological and procedural changes required to ingest CT data and incorporate it into their monitoring dashboards and analytical models.

Execution

Executing the strategic shift in governance requires a granular, methodical approach. This involves establishing a clear operational playbook, developing sophisticated quantitative models for monitoring, and embedding this new framework into the firm’s technological and procedural architecture. The goal is to create a system where the proof of best execution is a natural output of the firm’s daily operations, not a standalone project. This section provides the detailed components for building such a system.

The Operational Playbook for Governance Adaptation

Firms can follow a structured process to re-engineer their governance frameworks. This playbook outlines the key steps to move from a legacy, report-driven model to a dynamic, evidence-based system of oversight.

1. Conduct a Gap Analysis ▴ The first step is to benchmark the existing governance structure, OEP, and monitoring capabilities against the enhanced requirements of the post-RTS 28 environment. This involves identifying weaknesses in data collection, analytical capabilities, and the current mandate of the Best Execution Committee.
2. Re-charter the Best Execution Committee ▴ Formally redraft the committee’s charter to reflect its new, expanded mandate. This should include defining its composition, frequency of meetings, decision-making authority, and the specific Key Performance Indicators (KPIs) for execution quality it will oversee.
3. Revamp the Order Execution Policy ▴ Undertake a complete overhaul of the OEP based on the strategic enhancements outlined previously. This is a significant drafting exercise that requires input from trading, compliance, risk, and technology stakeholders. The final document should be a detailed, operational guide to the firm’s execution philosophy and practices.
4. Develop the Quantitative Monitoring Framework ▴ Design and implement the data models and dashboards that will provide the committee with the necessary insights. This involves defining the key metrics, sourcing the required data (including preparing for the Consolidated Tape), and building the analytical tools for TCA. This is the most technically demanding phase.
5. Establish a Formal Venue Review Process ▴ Create a structured, documented process for the initial due diligence and ongoing monitoring of all execution venues and brokers. This process should be embedded in the firm’s operational workflow and its outputs should be a standing agenda item for the Best Execution Committee.
6. Implement a Technology Integration Plan ▴ Develop a roadmap for the necessary technology changes. This includes integrating TCA systems with Order Management Systems (OMS), establishing data feeds from venues and market data providers (including the future CT), and creating a data repository for historical analysis and regulatory requests.
7. Train Staff and Socialize the New Framework ▴ The new governance framework is only effective if it is understood and embraced across the firm. Conduct training sessions for front-office staff, compliance teams, and management on the new policies, procedures, and the importance of the data-driven approach to best execution.

Quantitative Modeling and Data Analysis

The bedrock of the new governance model is a robust quantitative framework. The Best Execution Committee must be equipped with a scorecard of metrics that provides a multi-dimensional view of execution quality. This moves the conversation from subjective opinion to objective fact. The following table presents a model for a modernized Execution Quality Scorecard, which should be produced at least quarterly for review.

A data-driven governance framework transforms best execution from a qualitative principle into a quantifiable and optimizable outcome.

Predictive Scenario Analysis a Case Study

Imagine a quarterly meeting of the newly re-chartered Best Execution Committee at a mid-sized asset manager. The committee is reviewing the Execution Quality Scorecard for the previous quarter. The head of trading presents the dashboard, which shows strong overall performance in equities, with consistent price improvement and low slippage.

However, the quantitative analyst on the committee flags an anomaly. For the “Corporate Bonds ▴ High-Yield” asset class, one specific venue, “Venue X,” shows a consistently higher reversion metric (short-term price movement against the trade) compared to two other venues, despite having a slightly better fill rate.

The committee chair initiates a discussion. The head of trading notes that Venue X provides excellent liquidity and fast fills, which is why the SOR logic favors it for urgent orders. The compliance officer cross-references the OEP, which currently prioritizes fill rate and speed for this asset class.

The quant analyst presents a deeper dive, showing that while fills are fast, the post-trade price consistently moves back in a way that suggests the firm is paying a premium for that speed and liquidity. The cost of this reversion, when annualized, is higher than the benefit gained from the marginally faster fills.

Based on this data-driven evidence, the committee makes several decisions. First, they task the quant team with building a “reversion-adjusted cost” model to better capture the true cost of trading on Venue X. Second, they direct the trading desk to conduct a trial period where the SOR logic is adjusted to weigh Venue X less heavily for non-urgent high-yield bond orders. Third, they schedule a review of this specific issue for the next meeting to assess the results of the trial.

This entire process ▴ from data-driven anomaly detection to strategic intervention and scheduled review ▴ is documented in the committee’s minutes, forming a perfect, demonstrable record of the governance framework in action. This is the tangible proof of best execution that the post-RTS 28 environment demands.

System Integration and Technological Architecture

Underpinning this entire governance framework is a robust and integrated technological architecture. Firms must ensure that data flows seamlessly between systems to enable the kind of analysis described above. Key architectural components include:

• Data Normalization Layer ▴ A system to ingest execution data from various sources (OMS, EMS, broker reports, venue drop-copies) and normalize it into a consistent format for analysis. This is a critical first step.
• TCA Engine ▴ A sophisticated Transaction Cost Analysis engine capable of calculating the metrics on the Execution Quality Scorecard. This can be built in-house or sourced from a specialist vendor.
• Integration with OMS/EMS ▴ The TCA engine must be tightly integrated with the firm’s Order and Execution Management Systems. This allows for the analysis of parent and child orders and provides traders with pre-trade analytics to inform their execution strategy.
• Consolidated Tape API Connector ▴ A dedicated data feed and API connection to ingest and process data from the forthcoming Consolidated Tape. This will become the primary source for market-wide benchmark prices.
• Governance Dashboard ▴ An interactive business intelligence (BI) dashboard that presents the Execution Quality Scorecard and other key data points in an intuitive format for the Best Execution Committee. This allows for drill-down analysis during meetings.

This technological investment is fundamental. Without the right architecture, the data remains siloed and the analysis remains superficial. By building an integrated system, firms can create a virtuous cycle where execution data informs governance decisions, and governance decisions drive improvements in execution strategy, all supported by a seamless flow of information.

Reflection

From Mandate to Mandate

The dissolution of the RTS 28 reporting mandate does not absolve firms of their duties; it elevates them. The new environment presents a more profound mandate ▴ to build an internal system of intelligence so robust and transparent that it renders external, standardized reporting superfluous. This is an opportunity to move beyond the prescriptive and embrace the performative. The question for every governance body is no longer “Have we filed the report correctly?” but “Can we, at any moment, provide irrefutable, data-driven proof that our execution framework serves the best interests of our clients?”

The Governance Framework as a Competitive Differentiator

Viewing this shift solely through the lens of compliance is a strategic error. A superior governance framework is a competitive differentiator. The ability to analyze execution data with precision, to optimize routing strategies for better outcomes, and to manage costs with discipline translates directly into improved investment performance. When presented effectively, this capability becomes a powerful tool for client acquisition and retention.

It builds a foundation of trust based not on promises, but on demonstrable proof. The ultimate goal is to architect a system where operational excellence and fiduciary duty are two facets of the same integrated process, creating a self-reinforcing loop of performance, proof, and trust.