What Are the Key Differences between RTS 27 and RTS 28 Reporting Requirements?

Concept

From a systemic perspective, the distinction between Regulatory Technical Standard 27 (RTS 27) and Regulatory Technical Standard 28 (RTS 28) is a study in informational architecture. These two reporting mechanisms, born from the MiFID II directive, represent a dual-pronged approach to illuminating the complex pathways of trade execution. They function as distinct, yet complementary, data streams designed to create a feedback loop within the European financial markets. One stream flows from the execution venues themselves, providing a raw, quantitative self-assessment of their performance.

The other flows from the investment firms, offering a qualitative and quantitative summary of their execution routing decisions. Understanding their differences requires seeing them as two sides of a single coin, each designed to provide a different lens on the principle of best execution.

RTS 27 is the foundational layer of this architecture. It is a public disclosure obligation imposed directly upon the market’s infrastructure providers ▴ execution venues such as regulated markets, multilateral trading facilities (MTFs), organised trading facilities (OTFs), and systematic internalisers (SIs). The core function of an RTS 27 report is to publish granular, instrument-specific data on execution quality. This is a periodic, standardized data dump, detailing metrics like price, cost, speed, and likelihood of execution.

It is, in essence, the venue’s declaration of its own efficiency and operational characteristics. The intended consumer of this data is the broader market, particularly investment firms who could theoretically use this information to conduct comparative analysis and inform their venue selection process. The report provides a quantitative baseline, a set of objective data points against which a venue’s performance can be measured.

RTS 27 provides a public, quantitative self-assessment of execution quality directly from the execution venues themselves.

RTS 28, conversely, operates at the next level of the information hierarchy. This report is the responsibility of investment firms ▴ the entities making active decisions on behalf of their clients. Its purpose is to provide transparency into where and why client orders were routed. Annually, firms were required to publish a report summarizing their top five execution venues for each class of financial instrument, based on trading volumes.

This report also required a qualitative summary of the execution quality obtained. This provides a narrative layer on top of the raw data. It explains the firm’s decision-making process, linking its execution policy to its actual execution practices. The audience for RTS 28 is primarily the firm’s own clients and the public, offering them a window into how their orders are being handled and whether the firm is genuinely acting in their best interests. It serves as an accountability mechanism, forcing firms to justify their routing decisions in the context of their best execution obligations.

The fundamental difference, therefore, lies in the source and the purpose of the information. RTS 27 is a supply-side report, offering a granular, quantitative look at the capabilities of the execution venues. RTS 28 is a demand-side report, providing a higher-level, more qualitative view of how investment firms utilize those venues. One is a report on potential performance; the other is a report on actual practice.

While both aim to enhance transparency and enforce best execution, they approach the problem from different angles, creating a system of checks and balances within the market’s structure. The subsequent regulatory evolution, including the suspension and removal of these reports, speaks to the practical challenges of implementing this ambitious transparency architecture, particularly the difficulty in making the vast quantities of data produced genuinely useful for meaningful comparison and decision-making.

Strategy

The strategic implications of the RTS 27 and RTS 28 reporting regimes extend far beyond mere compliance. For a systems architect designing an institutional trading framework, these reports represented two distinct sets of data inputs and outputs that needed to be managed, analyzed, and acted upon. The strategic challenge was to integrate these regulatory requirements into a cohesive best execution framework that not only satisfied the regulators but also delivered a tangible advantage in execution quality. The divergent paths taken by the UK and the EU regarding these reports further complicate the strategic landscape, requiring firms to maintain a flexible and adaptive compliance posture.

A Tale of Two Reports a Strategic Comparison

To fully grasp the strategic nuances, it is essential to dissect the two reports across several key dimensions. The following table provides a comparative analysis of RTS 27 and RTS 28, highlighting their core differences from a strategic standpoint.

How Do Firms Strategically Use This Data?

The intended strategic use of RTS 27 data was for investment firms to build a sophisticated, data-driven approach to venue analysis. A firm’s trading desk or quantitative team could, in theory, download and process RTS 27 reports from multiple venues to create a comprehensive picture of the execution landscape. This analysis would inform the firm’s order routing logic, allowing it to dynamically select the optimal venue for a given order based on factors like the instrument being traded, the size of the order, and the prevailing market conditions. This data was meant to be a key input into a firm’s Smart Order Router (SOR) and other algorithmic trading strategies.

RTS 28, on the other hand, was strategically about communication and justification. The process of creating the RTS 28 report forced a firm to conduct an internal review of its execution practices. It had to analyze its order flow, identify its most significant execution partners, and then articulate why those partners were chosen. This process served as an internal control mechanism, ensuring that the firm’s execution policy was not just a static document but a living framework that guided its daily operations.

The public nature of the report also had strategic implications for a firm’s brand and reputation. A report that demonstrated a thoughtful and diligent approach to best execution could be a valuable marketing tool, while a report that revealed a heavy reliance on a single, high-cost venue could raise uncomfortable questions from clients and competitors.

The Unraveling of a Grand Design

Despite the sound theoretical underpinnings, the practical application of RTS 27 and RTS 28 faced significant headwinds. The sheer volume and complexity of RTS 27 data made it incredibly difficult and costly for most firms to process effectively. Inconsistencies in how different venues reported the data further undermined its utility for like-for-like comparisons. As a result, many market participants argued that the reports were rarely read and did not provide the clear, comparable insights that regulators had envisioned.

This led to a divergence in regulatory strategy between the UK and the EU. The UK’s Financial Conduct Authority (FCA), taking a pragmatic approach, moved to abolish the RTS 27 and RTS 28 reporting requirements entirely, judging that the costs of compliance outweighed the benefits. The EU, while acknowledging the shortcomings of the reports, has taken a more cautious approach, initially suspending the requirements and then proposing revisions to make the data more focused and useful.

This creates a complex strategic environment for firms operating in both jurisdictions, requiring them to navigate two different sets of rules and expectations. For a systems architect, this means designing compliance and reporting systems that are modular and adaptable, capable of being switched on or off, or modified, depending on the specific regulatory obligations of a given entity or trading desk.

Execution

The execution of RTS 27 and RTS 28 reporting obligations demanded a significant investment in data infrastructure, analytical capabilities, and operational workflows. From a systems architecture perspective, compliance required the construction of a robust data pipeline capable of capturing, processing, and reporting vast quantities of trade data in a highly structured format. While these reporting requirements have been suspended or removed in some jurisdictions, understanding the mechanics of their execution provides valuable insight into the challenges of implementing large-scale transparency initiatives and the principles of data-driven execution monitoring.

The Operational Playbook for RTS 27

For an execution venue, producing the quarterly RTS 27 report was a major operational undertaking. The process involved a series of distinct steps, each with its own set of technical and logistical challenges.

1. Data Capture ▴ The first step was to capture all relevant data for every transaction executed on the venue during the reporting period. This included not just the price and size of the trade, but also a host of other data points, such as the time the order was received, the time it was executed, and any costs or fees associated with the transaction.
2. Data Enrichment ▴ The raw trade data then needed to be enriched with additional information required by the RTS 27 specification. This included details about the type of order, the size of the order relative to the normal market size, and whether the trade was executed under a specific waiver.
3. Metric Calculation ▴ With the enriched data set, the venue then had to calculate the various execution quality metrics specified in RTS 27. This involved complex calculations to determine things like the average effective spread, the average speed of execution, and the likelihood of execution for different types of orders.
4. Report Generation ▴ The calculated metrics were then compiled into a series of standardized tables, as defined by the RTS 27 technical specification. These tables had to be generated for each financial instrument traded on the venue, resulting in a report that could easily run to thousands of pages.
5. Publication ▴ Finally, the completed report had to be published on the venue’s website in a machine-readable format, making it publicly available at no charge.

Quantitative Modeling and Data Analysis in RTS 27

The heart of the RTS 27 report was its quantitative data. The report was structured around a series of tables, each designed to provide a different view of the venue’s execution quality. The following table provides a simplified example of the kind of data that would be included in an RTS 27 report for a single stock.

The Procedural Guide for RTS 28

For an investment firm, the annual RTS 28 report was a different kind of challenge. While less data-intensive than RTS 27, it required a careful analysis of the firm’s order flow and a clear articulation of its execution strategy.

• Data Aggregation ▴ The firm first had to aggregate its trading data for the entire year, breaking it down by class of financial instrument (e.g. equities, bonds, derivatives).
• Venue Ranking ▴ For each instrument class, the firm had to identify the top five execution venues it used, based on the volume of trades sent to each venue. This required a system for accurately tracking where every order was routed.
• Qualitative Summary ▴ The firm then had to produce a written summary of the execution quality it obtained from its top venues. This summary had to address the key execution factors laid out in MiFID II ▴ price, costs, speed, likelihood of execution, and any other relevant considerations. This required the firm to have a system for monitoring and evaluating the performance of its execution partners.
• Report Publication ▴ The final report, combining the quantitative list of top venues with the qualitative summary, was then published on the firm’s website.

The execution of these reporting requirements, while burdensome, forced firms to develop a more systematic and data-driven approach to best execution. The infrastructure and processes built to comply with RTS 27 and RTS 28 can be repurposed to create a more robust internal framework for Transaction Cost Analysis (TCA) and execution quality monitoring, even in the absence of the formal reporting obligations. This provides a lasting legacy for these regulations, pushing the industry towards a more quantitative and evidence-based approach to trading.

Reflection

The trajectory of RTS 27 and RTS 28, from ambitious transparency mandate to widespread suspension, offers a critical lesson in financial market architecture. The core principle of best execution remains a constant. The challenge is to build internal systems of intelligence that achieve this principle with genuine efficiency. The data points mandated by these reports, while cumbersome in their original format, represent the fundamental questions any institutional trader must ask of their execution process.

How fast is my execution? What is the true cost, both explicit and implicit? Where is my liquidity deepest and most reliable? The removal of the formal reporting obligation does not remove the need to answer these questions.

It simply shifts the responsibility for building the analytical framework from a public, standardized model to a private, proprietary one. The most sophisticated firms will view this as an opportunity to construct a superior execution monitoring system, one tailored to their specific strategies and client needs, transforming a compliance exercise into a competitive advantage.