1. The RTS 28 Report

The RTS 28 report, known as the Execution Quality Summary Statement (EQSS), provides information on the top five execution venues, including inter alia:

• the class of financial instruments,
• the venue name and identifier,
• the volume and number of client orders executed at that execution venue,
• the percentage between passive, aggressive and directed orders,
• a confirmation regarding the execution of less than one trade per business day on average, during the previous year for that class of financial instruments.

Furthermore, the report, contains a summary of the performed analysis during the previous year, indicating the importance given to each factor and any close links, conflicts of interest, and common ownerships. The report also discusses specific arrangements with other execution venues and any changes in the list of execution venues included in the firm’s order execution policy.

2. The RTS 27 Report

The RTS 27 Report consists of an obligation for investment services firms providing the service of Dealing on Own Account, acting as principal to client orders. It concerns data quality, and it is comprised of eight tables that provide explicit data on the execution quality of the orders.

More specifically, the information required to be disclosed for each financial instrument includes, among others, the following:

• general details e.g., the instrument’s classification and currency,
• daily information of all the trades or the first order executed, within the first 2 minutes from specific timeframes,
• daily price information for all transactions executed,
• the value of the costs and charges occurred as a percentage of the value traded,
• explicit data about the daily and intra-day likelihood of execution,
• average data regarding the effective spread, the volume and the number of cancellations.

In addition, the RTS 27 report must provide specific details in regard to the venue, the country of the competent authority, the market segment and the date of trading days.

3. The identified weaknesses

As per Directive (EU) 2021/338, the RTS 27 reports were rarely read and significant deficiencies were identified, that did not enable investors to make effective use of the data they presented, interpret the reports or provide investors with actual practical information.  Thus, the reporting obligation had been postponed until the end of February 2023, where revised reporting obligations were expected to come into effect for both RTS 27 & 28 reports.

As a note, one of the common deficiencies identified was the difficulty of retail investors to easily access the reports themselves.

Additionally, RTS 28 reports were providing incomplete data in relation to the execution quality, preventing in this way, the assessment and comparison between the different investment services firms. Indicatively, firms providing the service of reception and transmission of orders or portfolio management, as opposed to firms providing execution of transactions, were uncertain of what specific information was required to report.

On the RTS 27 front, it was noticed that a considerably high volume of data was being provided, in addition to reports across the different venues often lacking consistency. As a result, the analysis and comparison between the venues were complicated even more.

In short, the RTS 27 and RTS 28 reports were not fulfilling their intended purpose, which was to provide retail investors with clear and understandable information. The idea was that investors would effectively understand the reasons why certain execution venues are preferred over others and be assured that their trades were executed in the best possible way.

For that purpose, the legislative proposal on the review of MiFIR and MiFID II suggests amendments to the information disclosed, especially regarding the RTS 27 reporting obligation. The SALVUS Regulatory Compliance team designed a course that discusses the new regulatory changes of the RTS 27 & 28 should these come into effect.

Following, Circular C549 issued by the Cyprus Securities and Exchange Commission (CySEC), the proposal may not come into effect by the end of the suspension period, yet firms are advised to be proactive and understand their Best Execution obligations.

4. The Order Execution Policy

According to the thematic review conducted by CySEC on the best execution obligations of CIF regulated entities, publishing an Order Execution Policy is of critical importance.

The said policy shall provide investors with all the necessary details for making informed decisions before investing. A sound Order Execution Policy requires at least:

• disclosure of the execution venues and execution factors, including both quantitative and qualitative factors accompanied by their importance,
• specification of the cases where the CIF acts as the sole execution venue and the cases it may act as an agent,
• disclosure of the group structure and the use of a connected party as an execution venue,
• the remuneration received from connected parties allowing the CIF to act as a sole execution venue,
• the monitoring procedures established to evaluate the effectiveness of the policy,
• redirecting the customers to the RTS 27 & 28 reports of each execution venue used, including their own,
• details regarding the review and amendment of the policy along with material changes which may suggest amendment of the policy and the arrangements,
• a complaints section to allow investors to communicate their complaints or request clarifications regarding the policy.

Final thoughts

Following the re-application of the RTS 27 report and the new requirements expected to take place in relation to both reports, regulated entities will require the deployment of significant resources. To this end, employees holding key positions in CIF and other CySEC regulated entities shall be in a position to ensure the adequacy of the RTS 27 and RTS 28 reports published.

In this respect, SALVUS Funds in collaboration with the Institute for Professional Excellence (IforPE) has prepared a self-study course titled The new RTS 27/28 Requirements and Best Execution in Practice suited for the annual Continuous Professional Development (CPD) requirements of professionals employed in the investment services industry.

The course is designed to provide professionals with the necessary information on the responsibilities relating to best execution including the utilisation of advanced technological tools, the upcoming changes concerning the existing reporting obligations of RTS 27 & 28, as well as what to expect during a best execution regulatory inspection.

Lastly, the SALVUS Regulatory Compliance team through the FINVUS RegTech platform is able to assist Investment Firms, Funds, and other CySEC regulated entities, to achieve compliance with the Best Execution regulatory obligations through its Best Execution Monitoring Analysis system.

Do not hesitate to contact us at info@salvusfunds.com or call us at +357 7000 7898 if you have any questions about your Best Execution obligations or should you require more information about our Best Execution in Practice course on IforPE.

#StayAhead

Should you be interested to read more about compliance with Best Execution, Markets in Crypto Assets regulation or the RTS 27 & RTS 28 Reports, please visit the selected articles below:

• Best Execution for CySEC regulated entities
• MiCA and the CySEC CASP regime in Cyprus
• Complying with the MiFID II Reporting Obligations of RTS 27 & RTS 28

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.