What Specific Data Points Are Required to Demonstrate Best Execution under RTS 28? ▴ Question

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Concept

The operational mandate of Regulatory Technical Standard 28 (RTS 28) is a direct reflection of a fundamental market principle ▴ transparency is the bedrock of trust, and demonstrable execution quality is the currency of that trust. Your firm’s ability to navigate this requirement is a direct measure of its systemic maturity. The regulation compels investment firms to annually disclose their top five execution venues for each class of financial instrument, accompanied by a detailed report on the quality of execution achieved. This disclosure is an architectural schematic of your firm’s trading function, revealing the pathways and decision logic that guide client orders.

It presents a clear, data-driven account of how you fulfill your fiduciary duty of best execution. The core purpose is to provide clients and the market with a standardized, comparable dataset to evaluate how firms manage their order flow. This process moves the concept of best execution from a theoretical obligation into a quantifiable, evidence-based discipline.

Understanding RTS 28 requires viewing it as a component within the broader MiFID II architecture, a legislative framework designed to increase market integrity and investor protection. Within this system, RTS 28 functions as a critical reporting module. Its output is not merely a list of names; it is a structured data file containing both quantitative metrics and qualitative analysis. This forces an internal discipline, requiring firms to systematically capture, process, and analyze vast amounts of transactional data.

The process itself builds a powerful feedback loop. The act of preparing the report compels a rigorous internal review of execution policies, venue performance, and the complex interplay of execution factors. It transforms an abstract legal duty into a concrete operational workflow, with data as its primary input and a public declaration of performance as its output.

The core function of RTS 28 is to translate the abstract duty of best execution into a set of concrete, publicly disclosed data points and qualitative assessments.

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What Is the True Purpose of Venue Reporting?

The public disclosure of the top five execution venues serves a purpose that extends far beyond simple compliance. It provides a lens through which clients can assess the structural priorities of their investment firm. A firm whose flow is consistently directed to major lit exchanges signals a different execution philosophy than one that heavily utilizes systematic internalisers or specialized block trading venues. This data, when analyzed across the industry, illuminates the evolving landscape of liquidity.

It reveals where different types of risk are being transferred and how market participants are adapting their strategies to the prevailing microstructure. For the investment firm, the process of compiling this report is an annual strategic review of its liquidity sourcing strategy. It forces a data-backed confrontation with key questions ▴ Are our chosen venues delivering superior results against the core execution factors? Do our routing decisions reflect our stated execution policy? Where are the points of friction or inefficiency in our execution lifecycle?

The qualitative summary that accompanies the quantitative data is a critical component of this disclosure. This narrative section is where the firm articulates the “why” behind the “what.” It is an explanation of the firm’s execution philosophy in practice. Here, the firm must detail the relative importance it assigns to the primary execution factors ▴ price, costs, speed, and likelihood of execution. This explanation must be specific to each class of financial instruments, acknowledging that the optimal execution strategy for a highly liquid equity is fundamentally different from that for a complex, multi-leg derivative.

This qualitative report is the firm’s opportunity to demonstrate the sophistication of its execution framework, explaining how it balances competing priorities to achieve the best possible outcome for its clients. It is a testament to the firm’s understanding of market microstructure and its ability to navigate it effectively.

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The Interplay with RTS 27 Data

RTS 28 does not operate in a vacuum. It is designed to be consumed in conjunction with data produced under RTS 27, which mandates that execution venues themselves publish detailed data on their own execution quality. This creates a powerful, two-sided analytical framework. An investment firm, in preparing its RTS 28 report, can use the RTS 27 data from its chosen venues to validate its own findings and benchmark performance.

For example, a firm can compare its own internal metrics on price improvement against the venue’s published RTS 27 report to ensure consistency and identify any discrepancies. This symbiotic relationship between the two standards provides a mechanism for cross-validation, enhancing the overall integrity of the best execution reporting regime.

This systemic link empowers a more sophisticated level of analysis. A firm can use RTS 27 data to conduct a more informed venue selection process, comparing potential execution venues on a like-for-like basis using standardized metrics. This moves the decision beyond purely commercial considerations to a data-driven assessment of execution quality. When compiling its own RTS 28 report, the firm can then reference its use of this RTS 27 data as a key tool in its execution quality monitoring process.

This demonstrates a proactive and sophisticated approach to fulfilling its best execution obligations, showcasing a commitment to using all available market data to refine and improve its operational performance. The entire system is designed to create a virtuous cycle of transparency and competition, where venues compete on execution quality and investment firms are held accountable for their choices.

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Strategy

A robust strategy for RTS 28 compliance is built upon a foundation of systematic data management and rigorous analytical discipline. The objective is to construct an operational framework that not only fulfills the regulatory reporting requirements but also generates actionable intelligence for the firm. This framework must be capable of capturing every client order, enriching it with execution details, and classifying it according to a granular taxonomy of financial instruments and order types.

The strategic challenge lies in transforming this raw data into a coherent narrative that accurately reflects the firm’s execution practices and stands up to regulatory scrutiny. This is an exercise in data architecture and analytical integrity.

The first step in this strategic process is the definition of a comprehensive data model. This model must map directly to the fields required under RTS 28, ensuring that all necessary data points are captured at the point of trade execution. This involves integrating data feeds from various internal systems, including Order Management Systems (OMS) and Execution Management Systems (EMS). The data must be normalized to ensure consistency across different asset classes and trading venues.

For instance, the classification of an order as “passive” or “aggressive” needs a consistent definition that can be applied across equities, fixed income, and derivatives. This requires a clear, documented methodology that forms a core part of the firm’s execution policy. The entire data pipeline, from capture to reporting, must be designed for accuracy, auditability, and efficiency.

Effective RTS 28 compliance hinges on a strategic framework that treats regulatory reporting as a direct output of a well-architected data intelligence system.

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Constructing the Execution Policy Framework

The firm’s execution policy is the strategic blueprint that governs all trading decisions. The RTS 28 report is the public attestation of how that blueprint was implemented. Therefore, the strategy for RTS 28 must be deeply integrated with the execution policy itself. The policy must clearly articulate the relative importance of the different execution factors for each class of financial instruments.

This is not a static declaration; it is a dynamic framework that must account for varying market conditions and client instructions. The table below illustrates how a firm might strategically weight these factors across different instrument types.

Execution Factor Weighting Matrix
Financial Instrument Class	Price	Costs	Speed	Likelihood of Execution	Other Considerations (e.g. Liquidity)
Equities ▴ Shares & Depositary Receipts (Liquid)	High	High	Medium	Medium	Low
Equities ▴ Shares & Depositary Receipts (Illiquid)	Medium	Medium	Low	High	High
Debt Instruments ▴ Bonds	High	High	Low	High	Medium
Interest Rate Derivatives	High	Medium	Medium	High	Medium
Commodity Derivatives	High	Medium	Low	High	High

This strategic weighting must be reflected in the firm’s automated order routing logic and its manual trading procedures. The qualitative section of the RTS 28 report will then explain the rationale behind these weightings. For example, for a liquid equity, price and cost are paramount, as execution is highly probable.

For an illiquid corporate bond, the likelihood of finding a counterparty at a reasonable price becomes the dominant factor, and the firm may need to prioritize this over immediate execution speed. The strategy requires a system that can not only execute according to these priorities but also record the data necessary to justify those decisions in the final report.

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How Should Firms Structure Their Qualitative Analysis?

The qualitative report is the firm’s opportunity to provide the strategic context behind the quantitative data. A successful strategy treats this section as a formal analysis, not a mere formality. The analysis should be structured around the key topics mandated by the regulation. It must provide a clear and concise summary of the conclusions drawn from the firm’s execution monitoring throughout the year.

This summary should directly address the performance of the top five venues, explaining why they continue to be part of the firm’s execution strategy. It should also detail any changes to the list of execution venues and the analytical process that led to those changes.

A critical component of this strategy is the explanation of how the firm uses execution quality data, including any RTS 27 reports published by venues. The firm should describe the tools and processes it employs to conduct transaction cost analysis (TCA) and other performance measurements. This demonstrates a commitment to a data-driven approach to best execution. The qualitative report should also address any potential conflicts of interest, such as payments for order flow or common ownership with execution venues.

Transparency in this area is critical for building client trust. The overall strategy is to present a narrative that is consistent, evidence-based, and fully aligned with the quantitative data presented in the tables. This requires a collaborative effort between the trading desk, compliance, and data analytics teams to ensure that the final report is a true and fair representation of the firm’s execution practices.

Data Aggregation ▴ The process begins with the systematic collection of trade data from all relevant sources, ensuring every client order is captured.
Order Classification ▴ Each order is then categorized based on a predefined taxonomy, including instrument class, client type (retail or professional), and order characteristics (e.g. passive, aggressive, directed).
Quantitative Analysis ▴ The classified data is then aggregated to calculate the required metrics for the top five venues, such as total volume and number of trades.
Qualitative Review ▴ A parallel process involves the continuous monitoring of execution quality, comparing outcomes against the firm’s execution policy and the promises made by execution venues.
Report Generation ▴ The final step involves compiling the quantitative tables and drafting the qualitative summary, ensuring a coherent and compliant final disclosure.

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Execution

The execution of an RTS 28 reporting project is a complex operational undertaking that demands precision in data handling and analytical rigor. It is the final, tangible output of the firm’s entire best execution apparatus. The process translates the strategic framework into a set of standardized, machine-readable reports that are made public.

This section provides a granular, procedural guide to the construction of these reports, detailing the specific data fields and the structure of the qualitative narrative. The objective is to move from theoretical understanding to practical implementation, providing a clear playbook for compliance and operational excellence.

The foundation of successful execution is a well-defined data pipeline. This pipeline must source data from potentially disparate systems, validate its integrity, and transform it into the precise format required by the regulation. This often involves significant data engineering effort to create a “golden source” of trade data that is both complete and accurate. The logic for classifying orders ▴ distinguishing between passive, aggressive, and directed orders ▴ must be robustly implemented and consistently applied.

A passive order is typically one that provides liquidity, such as a limit order resting on the book. An aggressive order takes liquidity, such as a market order that crosses the spread. A directed order is one where the client has specified the execution venue. The accurate classification of these order types is fundamental to producing a meaningful report.

Executing RTS 28 reporting requires a disciplined, data-centric operation that transforms raw trade information into a compliant and insightful public disclosure.

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The Quantitative Reporting Mandate

The core of the RTS 28 disclosure is the quantitative data on the top five execution venues for each class of financial instrument. This information must be presented in a specific tabular format. The table below provides a detailed template for one such class, “Equities ▴ Shares & Depositary Receipts,” illustrating the required data points. This same structure must be replicated for every relevant instrument class the firm trades on behalf of clients.

RTS 28 Quantitative Report Template ▴ Equities ▴ Shares & Depositary Receipts
Execution Venue (Name and LEI)	Volume of client orders executed on this venue (as a % of total)	Number of client orders executed on this venue (as a % of total)	Percentage of passive orders	Percentage of aggressive orders	Percentage of directed orders
London Stock Exchange (213800XCXXXX)	45.2%	48.9%	60.1%	39.9%	2.5%
Cboe BXE (213800XXXX)	22.8%	20.5%	35.7%	64.3%	1.1%
Firm Systematic Internaliser (LEI)	15.1%	14.3%	N/A	N/A	0.0%
Turquoise (213800XXXX)	10.5%	11.2%	42.8%	57.2%	0.8%
Morgan Stanley MTF (487500XXXX)	6.4%	5.1%	25.0%	75.0%	0.3%

The generation of this table requires a sophisticated data aggregation process. The firm must calculate the total volume and number of client orders for each instrument class and then determine the proportion handled by each execution venue. This process must be repeated for both retail and professional clients, as the reporting requirements differ slightly.

The data must be precise and auditable, capable of being traced back to the original execution records. The percentages for passive and aggressive orders provide critical insight into how the firm is interacting with the market on behalf of its clients, revealing its liquidity provision and consumption patterns.

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What Information Comprises the Qualitative Report?

The qualitative report is a mandatory narrative that provides context and analysis for the quantitative data. It must be a clear and comprehensive document that addresses several specific topics. The execution of this report requires careful drafting and review by legal, compliance, and trading personnel. The following list outlines the core components that must be included in this qualitative disclosure:

Summary of Analysis ▴ A high-level summary of the conclusions the firm has drawn from its detailed monitoring of execution quality. This should include an assessment of whether the firm’s execution arrangements have delivered the best possible results for clients.
Explanation of Execution Factors ▴ A detailed explanation of the relative importance the firm gives to price, costs, speed, likelihood of execution, and any other relevant factors. This must be specific to each instrument class and justify the firm’s approach.
Conflicts of Interest ▴ A description of any close links, conflicts of interest, or common ownership structures the firm has with the execution venues it uses. This is a critical transparency requirement.
Specific Arrangements ▴ A description of any specific arrangements with execution venues regarding payments made or received, such as rebates or discounts. This also includes any non-monetary benefits received.
Changes to Venue List ▴ An explanation of any factors that led to a change in the list of execution venues included in the firm’s execution policy during the reporting period.
Client Categorization ▴ An explanation of how order execution differs according to client categorization (e.g. retail vs. professional), if the firm treats these categories differently.
Use of Execution Quality Data ▴ A detailed explanation of how the firm has used any data or tools relating to execution quality, including how it has utilized RTS 27 reports from execution venues in its analysis.

Executing this part of the report requires a systematic approach. The firm must have processes in place throughout the year to monitor execution quality, track changes to its venue list, and document any conflicts of interest. The final report is the culmination of this year-long monitoring process.

It should be written in clear, unambiguous language that is accessible to clients. The ultimate goal is to produce a document that not only meets the letter of the law but also provides a genuine, transparent account of the firm’s commitment to achieving the best possible outcomes for its clients.

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References

“RTS 28 Disclosure.” JPMorgan Workplace (Global Shares). Accessed July 20, 2024.
“Best Execution – MiFID II @ PwC.” YouTube, uploaded by PwC Belgium, 20 September 2017.
“Goldman Sachs International Bank ▴ Best Execution Reports under RTS 28.” Goldman Sachs. Accessed July 20, 2024.
“MiFID II’s RTS 28 compliance explained.” YouTube, uploaded by IHS Markit, 13 February 2019.
“ESMA public statement on reporting requirements under RTS 28.” Simmons & Simmons, 13 February 2024.
European Commission. “Commission Delegated Regulation (EU) 2017/576.” Official Journal of the European Union, 2017.
Harris, Larry. “Trading and Exchanges ▴ Market Microstructure for Practitioners.” Oxford University Press, 2003.
O’Hara, Maureen. “Market Microstructure Theory.” Blackwell Publishers, 1995.

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Reflection

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From Mandate to Mechanism

The process of complying with RTS 28 provides a unique opportunity for introspection. It compels a firm to look beyond the immediate demands of trade execution and to consider the entire architecture of its trading function. The data points and qualitative summaries required by the regulation are more than just compliance artifacts; they are the diagnostic outputs of your firm’s operational engine.

They reveal the efficiency of your data pipelines, the coherence of your execution policy, and the effectiveness of your venue selection strategy. The true value of this exercise lies not in the report itself, but in the institutional discipline it cultivates.

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How Does Your Data Framework Define Your Strategy?

Consider the data you collect. Does it merely satisfy the columns in a regulatory table, or does it provide the raw material for genuine strategic insight? A firm that views RTS 28 as a data-first challenge is better positioned to optimize its performance. The ability to seamlessly aggregate, classify, and analyze trade data is the foundation of a modern investment firm.

This capability allows you to move from a reactive, compliance-driven posture to a proactive, performance-oriented one. The systems you build to meet this regulatory mandate can become the same systems that identify new sources of liquidity, benchmark venue performance in real-time, and provide your traders with a decisive analytical edge. The ultimate question is not whether you can produce the report, but whether you have built an operational framework that makes the insights within it an integral part of your daily decision-making process.