RTS 27 and RTS 28 in the FCA Spotlight

MiFID II specifies a number of actions which firms are expected to comply with on an ongoing basis. One of these relate to the publication by execution venues of the quality of best execution (RTS 27) and the top five venues on which trades were executed (RTS 28). The quality of these reports is expected to come under increased FCA scrutiny in 2021.

The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded. MiFID became effective in the UK in November 2007 and this was later revised by MiFID II which came into force in January 2018.

MiFID II introduced RTS 27 and RTS 28 and we would expect firms to already have the systems and processes in place for collating the data required for either or both reports. Whilst most firms already have a schedule for disclosing both reports, we have found that a substantial proportion of firms fail to report in an accurate and timely manner.

We would always recommend that systems and processes are regularly reviewed to ensure that the outputs remain accurate. It’s particularly important with RTS 27 and RTS 28 as these reports are used by market participants, so inaccurate reporting can lead to lasting reputational damage and possibly fines from the regulator.

We encourage compliance departments to take action now to ensure their reports are published in the manner and at the times specified in the regulations.

Explaining RTS27: execution quality

RTS 27 applies to all execution venues which includes regulated markets, MTFs, OTFs, systematic internalisers, market makers and other liquidity providers. The term ‘execution venue’ covers all firms that 'execute' clients' orders for the purpose of the Best Execution regime, including Matched Principal Brokers.

The report should be produced quarterly, within three months of the end of each quarter and in a machine readable format. In summary, for each instrument traded the report should show the quality of execution achieved on each trading day in the preceding quarter. This is by reference to price, cost, likelihood and speed of execution. This information should be made public on the firm’s website to allow their clients to monitor the quality of execution offered and/or use the data to select their service providers. The information should remain in the public domain for a period of two years.

Explaining RTS 28: top five execution venues

RTS 28 applies to execution venues (as per RTS 27), firms receiving and transmitting orders and portfolio managers.

The report should be produced annually by 30 April of the following year and in a machine readable format. The reports are intended to enable the public and investors to evaluate the quality of a firm’s execution practices, by requiring publication of valuable information about how and where the firm has executed client orders or transmitted orders for execution. It should state the top five execution venues in terms of trading volumes for all executed client orders per class of financial instruments traded. Separate tables should also be shown for retail and professional clients.

Our recommendation

Timely and accurate best execution reporting is a crucial component of public regulatory reporting. By regularly reviewing current processes for ongoing effectiveness, firms can ensure they don’t fall foul of the rules.