What Are the Specific Record-Keeping Requirements for Demonstrating Best Execution under RTS 27 and RTS 28?

Concept

The mandate to demonstrate best execution is a foundational principle of market integrity, a mechanism designed to align the interests of investment firms with those of their clients. Regulatory Technical Standards 27 and 28, born from the MiFID II framework, represent a systemic attempt to codify this principle through data. They were conceived as a transparent, dual-sided reporting architecture. RTS 27 required execution venues to publish detailed quarterly metrics on the quality of their execution, creating a standardized data set for public consumption.

Concurrently, RTS 28 compelled investment firms to annually disclose their top five execution venues and provide a qualitative summary of the execution outcomes achieved. This structure was intended to create a feedback loop, where empirical data from venues would inform and substantiate the execution policies of firms.

Understanding this framework requires seeing it not as a mere compliance task, but as an operational schematic for data-driven accountability. The core idea was to move the concept of best execution from a subjective assessment to a quantifiable, comparable process. For the first time, firms were not only required to have a policy but also to publicly substantiate their choices with data from the venues themselves.

This system was designed to expose the intricate details of the execution process, including price, costs, speed, and likelihood of execution, to systematic scrutiny. The interplay between the two reports formed a system of checks and balances, where a firm’s venue selection, disclosed in RTS 28, could be cross-referenced against the quality reports published by those same venues under RTS 27.

The dual-sided reporting architecture of RTS 27 and RTS 28 was engineered to transform best execution from a theoretical obligation into a verifiable, data-centric discipline.

However, the operational reality of this framework has evolved. Regulatory authorities in both the UK and the EU have suspended the mandatory production of these public reports. This decision was driven by a pragmatic assessment that the immense cost and complexity of generating the reports were not justified by their limited use among end-investors. This suspension does not dissolve the underlying obligation.

The legal and ethical duty to achieve the best possible result for clients remains firmly in place. Consequently, the record-keeping principles that underpinned RTS 27 and 28 have been repurposed. They now serve as the blueprint for a firm’s internal execution quality analysis (EQA) systems. The focus has shifted from public disclosure to building a robust internal repository of execution data, capable of demonstrating compliance and, more importantly, driving continuous improvement in execution strategy.

Strategy

A strategic approach to best execution in the current regulatory environment involves internalizing the logic of RTS 27 and RTS 28. The suspension of public reporting presents an opportunity to move beyond a compliance-driven exercise and develop a proprietary execution intelligence framework. The objective is to construct a system that not only satisfies regulatory scrutiny upon request but also generates a tangible competitive advantage through superior execution outcomes. This involves treating the data points specified within the original RTS mandates as the essential inputs for a dynamic, internal decision-making engine.

The Duality of Execution Data

The original RTS framework created a valuable conceptual separation between venue-specific data and firm-specific analysis. A sophisticated strategy maintains this distinction internally. One part of the system focuses on collecting and analyzing data equivalent to RTS 27, evaluating potential and utilized execution venues across a spectrum of quantitative metrics.

The other part, mirroring RTS 28, synthesizes this data to create a coherent narrative about the firm’s execution policy, its venue selection rationale, and the qualitative outcomes achieved for clients. This dual-track analysis allows for a more granular and objective assessment of performance.

For instance, a firm can systematically capture data on latency, fill rates, and price improvement from various liquidity providers. This internal “RTS 27” repository allows for an objective comparison of venues. Subsequently, the firm’s trading function can use this data to build its “RTS 28” analysis, justifying why certain venues were chosen for specific asset classes and order types, and demonstrating how those choices led to optimal results for clients. This creates a powerful feedback loop where performance data continuously refines execution policy.

Comparative Framework of RTS 27 and RTS 28 Logic

Even without the reporting mandate, the distinct functions of the two reports provide a powerful model for organizing internal analysis. The table below outlines this strategic separation.

Building an Internal Execution Quality Repository

The strategic imperative is to build a proprietary database that captures the spirit of the RTS requirements. This repository becomes the single source of truth for all execution-related inquiries, both internal and external. The following steps outline a process for creating such a system:

1. Data Point Identification ▴ Define the specific data fields to be captured, using the original RTS 27 tables as a starting point. This includes instrument-level details on price, costs, execution speed, and fill likelihood.
2. Automated Data Capture ▴ Implement technology to systematically capture this data from all execution venues and liquidity providers. This may involve integrating with FIX protocol data feeds or other trading system outputs.
3. Normalization and Standardization ▴ Because data from different venues can be inconsistent, a normalization layer is required. All data must be converted into a standard internal format to allow for accurate, like-for-like comparisons.
4. Analysis and Visualization ▴ Develop analytical tools and dashboards to interrogate the data. This allows traders and compliance officers to monitor execution quality in near real-time and identify performance degradation or improvement opportunities.
5. Qualitative Overlay ▴ Create a structured process for documenting the qualitative aspects of execution, as required by the RTS 28 logic. This includes commentary on venue selection, explanations for specific routing decisions, and an overall assessment of the quality achieved.

By adopting this strategy, a firm transforms a suspended regulatory requirement into a powerful internal tool. This system provides an auditable, evidence-based record of best execution practices, ready to be presented to regulators or clients, while simultaneously providing the intelligence needed to optimize trading performance continuously.

Execution

The operational execution of a best execution monitoring framework, modeled on the principles of RTS 27 and RTS 28, requires a meticulous and systematic approach to data management. The objective is to create an evidentiary record that is both comprehensive and defensible. This means capturing specific, granular data points at every stage of the order lifecycle and for every relevant financial instrument. While the public reports are suspended, these data fields represent the regulatory expectation of what a firm should be monitoring to substantiate its execution quality claims.

Core Record-Keeping for Venue Analysis (RTS 27 Principles)

To conduct a robust internal analysis of execution venues, a firm must capture data that illuminates performance across several key dimensions. The following table details the specific record-keeping requirements, organized by the type of financial instrument, as originally outlined in the RTS 27 framework. This structure serves as a definitive guide for building an internal venue performance database.

A granular, instrument-specific data capture system is the foundation of any credible execution quality analysis framework.

Firm-Level Reporting and Qualitative Assessment (RTS 28 Principles)

The second component of the execution framework is the synthesis and qualitative assessment, mirroring the original intent of RTS 28. This involves documenting the firm’s own execution practices and demonstrating how they serve the client’s best interests. The record-keeping here is less about raw data and more about structured analysis and commentary.

• Top Five Venue Reporting ▴ For each class of financial instrument, the firm must maintain internal records of the top five execution venues used, measured by trading volume. This list should be accompanied by a record of the percentage of client orders routed to each venue.
• Execution Quality Summary ▴ A detailed qualitative summary must be maintained. This document is a critical piece of evidence. It should articulate:
  • An explanation of how the firm’s execution policy was followed.
  • A description of how the execution quality data gathered (per the RTS 27 principles) informed venue selection.
  • Analysis of any conflicts of interest that may have affected execution outcomes.
  • Details on any specific arrangements with execution venues (e.g. payment for order flow, if applicable).
  • A comparison of the performance of different venues and the rationale for any changes in venue selection over the review period.
• Differentiation by Client Type ▴ The records must show how execution strategies differ for retail and professional clients. The best execution criteria can vary significantly between these two groups, and the firm’s policies and records must reflect this differentiation.

By meticulously maintaining these two sets of records ▴ the quantitative, venue-specific data and the qualitative, firm-level analysis ▴ an investment firm constructs a comprehensive and auditable best execution file. This internal system not only prepares the firm for any regulatory inquiry but also embeds a culture of continuous, data-driven improvement in its trading operations, turning a regulatory principle into a source of operational excellence.

Reflection

From Mandate to Mechanism

The suspension of RTS 27 and 28 reporting shifts the locus of responsibility inward. The framework’s true value was never in the public filing of reports, but in the institutionalization of a data-driven process for self-assessment. The question for firms now is how to evolve this mandated architecture into a proprietary intelligence system. An organization’s ability to systematically capture, normalize, and analyze execution data becomes a direct reflection of its commitment to its clients.

The principles behind the regulations offer a robust schematic for this system. Viewing the record-keeping requirements not as a historical artifact but as a blueprint for an internal execution quality analysis engine is the first step. The ultimate goal is to create a system where the demonstration of best execution is a continuous, automated output of the firm’s operational design, not a reactive, manual exercise. This transforms a regulatory concept into a core component of the firm’s operational and competitive identity.