What Are the Practical Implications of the E.U.’s Suspension of Rts 28 Reporting?

Concept

The operational framework of European financial markets has undergone a significant recalibration with the suspension of Regulatory Technical Standard 28, commonly known as RTS 28. This regulation was originally conceived as a core transparency component within the vast machinery of the Markets in Financial Instruments Directive II (MiFID II). Its primary function was to mandate that investment firms publicly disclose, on an annual basis, their top five execution venues for each class of financial instrument. This disclosure included a detailed summary of the execution quality obtained.

From a systems perspective, RTS 28 was designed to be a standardized information protocol, injecting a layer of public data into the marketplace intended to empower investors and facilitate a more empirical assessment of best execution practices across the industry. The objective was to create a feedback loop where the public availability of data would drive competition among brokers and venues, theoretically leading to improved outcomes for end clients.

The directive’s suspension, however, signals a fundamental reassessment of that protocol’s efficacy. Regulatory bodies and market participants alike reached a consensus that the intended feedback loop was failing. The data, while voluminous, was not achieving its principal objective. According to the European Securities and Markets Authority (ESMA), the reports were infrequently accessed by the investors they were meant to serve.

More critically, the inherent structural differences in how firms operate and report made meaningful, like-for-like comparisons of the data an exercise in futility. A lack of standardization in the qualitative summary and the nuances of classifying execution factors meant the reports created a high-volume, low-signal data environment. The cost of producing these detailed reports, a significant operational burden for firms, was determined to be disproportionate to the negligible benefits they provided to the market ecosystem. The suspension, therefore, is not a dismantling of the principle of best execution itself; it is the decommissioning of a flawed and inefficient reporting module that failed to deliver actionable intelligence.

The Original Design and Its Systemic Shortcomings

To fully grasp the implications of the suspension, one must first understand the architectural role RTS 28 was intended to play. It was part of a broader MiFID II ambition to illuminate the often opaque pathways of order execution. By forcing the publication of venue selection and quality analysis, regulators aimed to solve a classic information asymmetry problem. Clients, particularly on the institutional side, have always sought verification that their brokers are acting in their best interests.

RTS 28 was meant to be a public utility for this verification, a common informational resource against which all firms could be measured. The reports required firms to detail a range of execution factors beyond just price and cost, including speed, likelihood of execution, and settlement size, providing a supposedly holistic view.

The systemic failure of this design stemmed from a miscalculation of how market complexity would interact with standardized reporting. The sheer diversity of execution strategies, client instructions, and market conditions cannot be easily compressed into a uniform template. For instance, a high-touch order for an illiquid bond has a completely different execution quality profile than a low-touch algorithmic trade in a liquid equity. Forcing both through the same reporting schema often obscured more than it revealed.

The qualitative summary, where firms were to explain their venue selection, frequently devolved into boilerplate language, offering little genuine insight into the firm’s decision-making calculus. This resulted in a dataset that was theoretically public but practically unusable for its core purpose, leading to the regulatory conclusion that the system component itself needed to be removed and re-evaluated.

The suspension of RTS 28 marks a pivotal shift from mandated public disclosure to mandated internal diligence in the validation of best execution.

A New Locus of Responsibility

With the deactivation of this public reporting protocol, the entire system for validating best execution undergoes a fundamental re-architecting. The locus of responsibility for proving best execution shifts decisively inward. The suspension is an implicit statement from regulators that a one-size-fits-all, public-facing report is an inadequate tool for governing the complexities of modern execution. Instead, the onus is now squarely on the investment firms themselves to design, implement, and maintain robust internal systems for monitoring, analyzing, and evidencing their execution performance.

This represents a move away from a compliance model based on public disclosure towards one grounded in demonstrable internal governance and analytical rigor. Firms are no longer simply required to report; they are required to build and operate a sophisticated internal surveillance system capable of continuously validating their own performance against the duty of best execution. This is a far more demanding task, requiring a deeper investment in technology, data analytics, and human expertise.

Strategy

The strategic recalibration required in a post-RTS 28 environment is profound. The removal of the public reporting mandate fundamentally alters the competitive landscape and the very mechanisms by which firms demonstrate their value and adherence to best execution principles. The core strategic shift is from a paradigm of compliance-through-disclosure to one of performance-through-analysis.

This new operating model elevates the function of internal Transaction Cost Analysis (TCA) from a supplementary tool to the central pillar of a firm’s best execution framework. It is no longer sufficient to produce a standardized annual report; firms must now cultivate a dynamic, evidence-based internal culture of continuous execution quality monitoring and improvement.

This evolution necessitates a multi-faceted strategic response. It touches every aspect of the trading lifecycle, from pre-trade analytics and venue selection logic to post-trade reporting and client communication. The firms that will thrive in this new environment are those that view this change not as a removal of a burden, but as an opportunity to build a superior execution intelligence apparatus.

This apparatus becomes a key competitive differentiator, allowing firms to offer clients a more sophisticated and transparent view of execution performance than the old RTS 28 regime ever could. The conversation with clients shifts from “Here is our public report” to “Here is our detailed, data-driven analysis of your specific order flow, and here is how we are optimizing it.”

The Ascendancy of Proprietary Analytics

In the absence of a mandated public benchmark, the quality and sophistication of a firm’s proprietary TCA platform becomes its primary tool for both internal governance and external communication. A strategic commitment to developing this capability is paramount. This involves several key dimensions:

• Data Infrastructure ▴ Firms must invest in the systems necessary to capture and store highly granular trade data. This extends beyond basic execution details to include message timestamps, order book states, venue latency metrics, and the specific parameters of the algorithms used. This high-fidelity data is the raw material for meaningful analysis.
• Analytical Sophistication ▴ The TCA models themselves must evolve. Simple volume-weighted average price (VWAP) benchmarks are insufficient. A modern TCA framework must incorporate a range of benchmarks tailored to different order types and market conditions, such as implementation shortfall, participation-weighted price, and liquidity-seeking alpha models.
• Actionable Intelligence ▴ The output of the TCA system cannot be a static report. It must be a dynamic dashboard that provides actionable insights to traders, compliance officers, and management. It should highlight outliers, identify trends in venue performance, and allow for deep-dive analysis into individual orders.

This strategic focus on proprietary analytics transforms the best execution process from a retrospective compliance exercise into a real-time performance optimization engine. It allows a firm to systematically learn from its own order flow and continuously refine its execution strategies.

The end of RTS 28 reporting compels firms to build their own evidence, making sophisticated, proprietary TCA the new standard for demonstrating best execution.

Redefining the Client and Counterparty Dialogue

The suspension of RTS 28 also changes the nature of the dialogue between investment firms, their clients, and their execution venues. The standardized, public report provided a common, albeit flawed, language for these discussions. In its absence, the language becomes more bespoke, more technical, and more data-driven.

For clients, this means they must become more sophisticated consumers of execution services. They will need to ask more pointed questions about their broker’s TCA methodology and demand more customized reporting on their own order flow. The focus of due diligence will shift from reviewing a public document to assessing the quality of a broker’s internal execution management system.

For brokers, this presents an opportunity to deepen client relationships through consultative expertise. A broker that can provide a client with a detailed, insightful analysis of their trading costs and suggest concrete improvements is adding significant value beyond simple execution.

The table below illustrates the strategic shift in the data and diligence landscape for a buy-side firm assessing its brokers.

Execution

Transitioning to a post-RTS 28 operational reality requires a deliberate and systematic execution plan. This is not merely a matter of ceasing the production of a single report. It is a fundamental re-engineering of the firm’s internal control and quality assurance systems for trade execution.

The execution of this transition hinges on three core pillars ▴ upgrading the technological and analytical architecture, redesigning compliance and governance workflows, and managing the evolution of client and regulatory engagement. Success in this new environment is a direct function of how effectively a firm can build a robust, evidence-based system that proves its commitment to best execution from the inside out.

The work begins with a granular gap analysis. Firms must critically assess their existing capabilities against the heightened demands of an internally-driven verification model. This assessment must be uncompromising, identifying weaknesses in data capture, analytical modeling, and internal reporting. The output of this analysis forms the blueprint for a targeted investment and development program.

The ultimate goal is to construct a seamless operational flow where pre-trade analysis, in-flight order management, and post-trade analytics all feed into a unified, intelligent system for managing and evidencing execution quality. This system becomes the firm’s definitive record and its primary tool for meeting its obligations to clients and regulators.

Fortifying the Analytical Core

The central execution task is the enhancement of the firm’s data and analytics capabilities. The objective is to create a TCA function that is not just a reporting tool, but a core part of the trading process itself. This requires specific, concrete actions:

1. Enriching Data Capture ▴ The firm’s order management and execution management systems (OMS/EMS) must be configured to capture a far richer dataset. The focus must move beyond simple execution records to what can be termed “execution context” data. This includes:
   • Pre-trade benchmark snapshots (e.g. arrival price, spread, and book depth at the moment of order receipt).
   • Full order lifecycle timestamps, including time to broker, time to market, and time to fill.
   • Venue-specific data, such as fill rates for different order types and venue response latencies.
   • For algorithmic orders, the specific algorithm and all parameter settings used for the order.
2. Deploying Advanced TCA Models ▴ The analytical engine must be upgraded to move beyond simplistic benchmarks. The firm should implement a multi-benchmark framework that allows for the appropriate measurement of different trading strategies. Implementation shortfall analysis should become the standard for measuring the total cost of execution, capturing not just explicit costs but also the implicit costs of delay and market impact.
3. Integrating Pre-Trade and Post-Trade Analysis ▴ The system should create a closed loop between pre-trade expectations and post-trade results. Pre-trade cost estimates should be systematically compared against the actual costs measured by the TCA system. This feedback loop is critical for refining the firm’s routing logic and algorithmic models over time.

Revising Governance and Compliance Protocols

The procedural and governance frameworks within the firm must be updated to reflect the new internal locus of control. This is a critical step in embedding the principles of the new regime into the firm’s culture and operational DNA.

The Best Execution Committee, or its equivalent, assumes a significantly more important role. Its mandate must be expanded and its analytical capabilities enhanced. The table below outlines a sample action plan for such a committee in the wake of the RTS 28 suspension.

In the post-RTS 28 era, the Best Execution Committee transitions from a compliance oversight body to an active performance management engine.

This formalized governance structure ensures that the insights generated by the enhanced TCA system are translated into concrete actions and continuous improvement. It creates a clear chain of accountability for execution quality that runs through the entire organization, from the individual trader to the board level. This robust internal process becomes the firm’s most compelling evidence of its commitment to fulfilling its best execution obligations in a world without the flawed benchmark of a public report.

Reflection

From Mandated Report to Internal Mandate

The retirement of the RTS 28 reporting obligation closes a chapter on a specific regulatory experiment in market transparency. Its departure, however, opens a more significant inquiry for every investment firm. The core question shifts from “How do we comply with the reporting mandate?” to “How do we construct an internal system of analysis that generates unimpeachable proof of our commitment to our clients?” This is a move from a culture of compliance to a culture of evidence. The absence of a public, standardized benchmark does not diminish the duty of best execution; it elevates the requirement for internal mastery of the subject.

Consider your own operational framework. Is it designed merely to satisfy external rules, or is it engineered to produce a superior, quantifiable result? The data and analytical tools once marshaled for a backward-looking report must now be repurposed into a forward-looking intelligence engine.

This engine’s purpose is to refine every decision in the execution lifecycle, creating a continuous feedback loop that drives performance. The ultimate implication of this regulatory shift is the recognition that true best execution is not a report to be filed, but a dynamic, data-driven capability to be built, honed, and proven every single day.