What Are the Primary Differences between RTS 27 and RTS 28 Reporting Obligations?

Concept

The operational architecture of market transparency under MiFID II was constructed upon two distinct pillars of reporting ▴ RTS 27 and RTS 28. To comprehend their functions, one must view them not as parallel compliance tasks, but as a sequential flow of information designed to create a feedback loop between the providers of liquidity and the consumers of it. They represent a fundamental examination of cause and effect within the execution lifecycle. RTS 27 is the granular, quantitative disclosure from the supply side ▴ the execution venues themselves.

It is a public declaration of their operational efficiency, a technical specification sheet detailing how well they performed their function of matching orders. RTS 28, conversely, is the disclosure from the demand side ▴ the investment firms that route client orders. It is an annual attestation of their execution strategy, revealing the venues they trusted with client capital and the resulting quality of that execution.

The core distinction lies in their perspective and purpose. An RTS 27 report provides the raw data on execution quality for a single venue, offering a microscopic view of performance metrics like price, speed, and certainty of execution for each financial instrument. An RTS 28 report provides a macroscopic summary from the investment firm’s viewpoint, aggregating their order flow to identify the top five venues used for each class of financial instrument. The former is a tool for potential evaluation, allowing a firm to analyze a venue’s capabilities.

The latter is a tool for accountability, allowing clients and regulators to evaluate a firm’s venue selection choices. One provides the evidence; the other presents the verdict.

RTS 27 reports originate from execution venues detailing execution quality, whereas RTS 28 reports come from investment firms summarizing the top venues they used.

What Is the Architectural Purpose of RTS 27?

The design of RTS 27 was to enforce a radical level of transparency upon the market’s execution venues. This includes regulated markets, Multilateral Trading Facilities (MTFs), Organised Trading Facilities (OTFs), and Systematic Internalisers. The mandate required these venues to publish quarterly, machine-readable reports containing a vast dataset on execution quality. The objective was to create a standardized, comparable dataset across all European trading venues.

In theory, this would empower investment firms to conduct sophisticated, data-driven analysis when constructing their order routing and venue selection policies. The reports were intended to be the foundational data layer for any firm’s best execution monitoring system, providing objective metrics to validate or challenge their routing logic.

The information contained within an RTS 27 report is exceptionally granular. For each financial instrument traded, the report must provide details on:

• Price ▴ Data on the average price, best bid and offer, and any price improvements received.
• Costs ▴ Explicit costs such as trading fees and implicit costs reflected in the spread.
• Speed ▴ The time taken from order receipt to execution, measured in microseconds or milliseconds.
• Likelihood of Execution ▴ The probability that an order of a certain type and size will be executed.

This data was to be provided for each trading day within the quarter, creating an immense volume of information. The architectural intent was to commoditize execution quality data, removing the informational asymmetry between venues and their users and fostering a more competitive marketplace based on quantifiable performance.

The Function of RTS 28 within the System

RTS 28 operates at a higher level of abstraction. It is the investment firm’s annual public statement on its execution practices. The obligation applies to firms providing portfolio management, order reception and transmission, or direct execution of client orders. The report’s primary function is to disclose the top five execution venues where the firm sent client orders, measured by trading volume, for each class of financial instrument.

This disclosure must be accompanied by a qualitative summary of the execution quality obtained. This summary is the firm’s justification for its choices, explaining how it has acted to secure the best possible outcome for its clients.

The RTS 28 report serves as the critical link between a firm’s internal best execution policy and its actual, observable trading activity. It forces the firm to articulate its strategy and then back it up with data. For clients, this report is the primary tool for assessing whether their broker or portfolio manager is fulfilling their duty of best execution.

It allows them to ask pointed questions about why certain venues were preferred over others and to compare the venue choices of different firms. The regulation intended for this report to foster a dialogue between firms and their clients, making execution strategy a point of competitive differentiation.

The table below outlines the fundamental operational distinctions between the two reporting regimes.

Strategy

The strategic intent behind the dual RTS 27 and RTS 28 reporting structure was to engineer a more transparent and competitive market microstructure. The theory was that by forcing venues to publish their performance data (RTS 27), and then requiring firms to disclose where they traded (RTS 28), market forces would naturally compel firms to route orders to the highest-performing venues. This data-driven accountability was meant to replace opaque, relationship-based routing decisions with a quantifiable and defensible process. The strategy was to create a virtuous cycle ▴ venues would compete on execution quality to attract order flow, and firms would use the resulting data to refine their execution policies, ultimately benefiting the end investor.

However, the practical application revealed significant flaws in this architecture. The sheer volume and complexity of RTS 27 data made meaningful comparison exceptionally difficult. Stakeholders found that the reports were rarely read and did not effectively enable users to make meaningful comparisons based on the information provided. This data overload created a strategic challenge for firms.

While the information was available, the resources required to ingest, normalize, and analyze it to produce actionable intelligence were substantial. The intended goal of creating a simple, comparable benchmark was lost in a sea of granular, non-standardized data tables.

Strategic Utilization of Report Data

For a sophisticated institutional desk, the theoretical strategy for using RTS 27 data would involve a multi-stage analytical process. First, the firm would need to develop a system to automatically download and parse the machine-readable reports from dozens of competing venues. Second, it would need to normalize this data, as different venues might present the information in slightly different formats despite the “standardized” nature of the RTS.

Third, a quantitative analysis engine would be required to compare venues across the key best execution factors for specific instruments and order types. For instance, a small, passive order in a liquid equity might prioritize low explicit costs, while a large, aggressive order in an illiquid bond would prioritize certainty and speed of execution.

The strategic output of this analysis would be a dynamic, evidence-based routing table. This system would programmatically determine the optimal venue for any given order based on historical performance data. The firm’s RTS 28 report would then become a powerful marketing tool, demonstrating to clients a rigorous, quantitative, and unbiased approach to achieving best execution. It would be the tangible proof of a superior execution process.

The intended strategy was for RTS 27 data to feed into firms’ execution logic, with RTS 28 serving as the public proof of that data-driven process.

Why Did the Intended Strategy Fail?

The systemic failure of the RTS 27/28 framework stemmed from a disconnect between regulatory ambition and operational reality. The assumption that providing more data would automatically lead to better outcomes proved to be flawed. Several factors contributed to this breakdown:

• Data Overload and Complexity ▴ The quarterly RTS 27 reports were enormous, often containing millions of data points. For most firms, the cost of building and maintaining a system to analyze this information outweighed the perceived benefits.
• Lack of Standardization ▴ While intended to be machine-readable, subtle inconsistencies in formatting and reporting logic between venues made cross-venue comparison a significant data engineering challenge.
• Limited Utility ▴ Feedback from market participants consistently indicated that the reports were simply not used. Investors found them impenetrable, and many firms relied on their own internal analytics or data from third-party vendors, which they considered more reliable and commercially relevant.
• Static, Historical Data ▴ The reports are, by their nature, backward-looking. A quarterly report on execution quality may not be a reliable predictor of performance in a fast-moving market, diminishing its strategic value for real-time routing decisions.

This led to a situation where the production of the reports became a costly compliance exercise with little to no strategic payoff. The reports were being produced to satisfy the regulator, not because they were providing actionable business intelligence. Recognizing this, regulators have moved to dismantle the framework. The UK’s FCA has removed the obligations entirely, while the EU has suspended them pending a full legislative removal, acknowledging that the system did not achieve its desired goals.

Execution

From an execution standpoint, the obligations of RTS 27 and RTS 28 demanded the establishment of robust data capture, aggregation, and reporting infrastructures. These were not trivial tasks and required significant investment in technology and compliance resources. The execution of these reporting requirements can be broken down into the distinct operational workflows for venues and investment firms, highlighting the technical and procedural complexities involved.

For an execution venue, preparing an RTS 27 report was a major quarterly undertaking. The process began with the systematic capture of every single order event. The venue’s matching engine and market data systems had to be configured to log the precise timestamps and characteristics of each order received, modified, cancelled, and executed. This raw data would then be fed into a dedicated reporting engine.

This engine’s task was to aggregate the data along the numerous dimensions required by the regulation ▴ by financial instrument, by date, by order size, by order type, and across various execution quality metrics. The final output had to be a set of CSV files following a precise schema, ready for public dissemination.

What Did an RTS 27 Data Structure Entail?

The technical specification for an RTS 27 report is a clear illustration of its complexity. A venue had to produce multiple tables, each detailing a different facet of execution quality. For example, for a single stock, a venue would need to provide a table detailing price information for each trading day of the quarter. This was not a single price, but a rich dataset.

A hypothetical extract from an RTS 27 price information table might look as follows:

This level of detail had to be replicated for costs, speed of execution, and likelihood of execution, across every instrument traded on the venue. The operational challenge was ensuring data accuracy and completeness across billions of data points every quarter.

How Did Firms Execute RTS 28 Reporting?

For an investment firm, the execution of an RTS 28 report was an annual process focused on aggregating and summarizing its own order flow data. The first step was to pull execution data from its Order Management System (OMS) or Execution Management System (EMS). This data would need to identify the venue to which each client order was routed and the volume of that order. The core of the execution process was to aggregate this data by financial instrument class (e.g. equities, bonds, derivatives) and rank the execution venues by total volume for each class.

The practical execution of RTS 27 involved immense data aggregation by venues, while RTS 28 required firms to summarize and justify their aggregated order flow.

The qualitative summary was a critical component of the execution. The firm’s compliance and trading departments would need to collaborate to write a narrative that explained their venue selection process. This summary had to reference the firm’s best execution policy and explain how the chosen venues contributed to achieving the best possible results for clients. This involved analyzing factors beyond just volume, such as execution speed, price improvement, and the specific capabilities of each venue.

The final report would present the top five venues for each asset class, typically in a simple table, followed by the detailed qualitative analysis. While less data-intensive than RTS 27, the execution of RTS 28 required careful analytical work and clear articulation of the firm’s strategy.

Reflection

What Is the Future of Execution Transparency?

The dismantling of the RTS 27 and RTS 28 reporting regimes closes a chapter on a specific model of regulatory transparency. Its failure, however, provides critical intelligence. The core objective ▴ ensuring and demonstrating best execution ▴ remains a fundamental duty. The experience teaches us that the simple provision of raw data is an insufficient mechanism for achieving true transparency.

The future of execution analysis will likely be defined by more sophisticated, context-aware systems. Instead of relying on static, quarterly reports, the focus will shift towards real-time transaction cost analysis (TCA) and intelligent, dynamic order routing systems. The challenge for any institution is to determine how its own operational framework will evolve. How will you now source, analyze, and act upon execution quality data in the absence of this mandated framework? The answer will define your competitive edge in the years to come.