Suspension of RTS 27 Reports Confirmed but RTS 28 Remains Due

RTS 27 regulation,  best execution

Investment firms are no longer required to publish the RTS 27 quarterly reporXesin 2021. Confirmation that a two-year suspension of publishing quarterly RTS 27 reporXeshas already commenced and has been received from the European Commission.

quinn perrott of tRActionQuinn Perrott, Co-CEO of Traction

Confusion arose when the enforcement date of the RTS 27 suspension seemed to be inconsistent with the entry into force of the Quick-Fix Directive published on 26 February 2021. Responding to industry enquiry, the European Commission confirmed the effective date of the two-year suspension.

“The legislative aim is to suspend the best execution reporXesfor two years as of the day following the entry into force of the amending directive… The consequence of this is that the reporXeswould no longer need to be published in 2021. Member States’ delegations are aware of this legislative aim and have been informed accordingly.”

Therefore, the two-year suspension of publishing quarterly best execution reporXeshas been applicable since 27 February 2021 and will continue until 28 February 2023. Whilst investment firms no longer have an obligation to publish the RTS 27 reports, completing the reporXesinternally remains of value, particularly as it addresses the continuing requirement to monitor:

  • spread;
  • slippage;
  • time to execute; and
  • rejections.

It also encourages investment firms to rectify any deficiencies that the monitoring may expose.

RTS 28 Reminder

RTS 28 is still in force and investment firms must publish their report by 30 April 2021. Investment firms are requsummariesummarise and publish their top five execution venues in terms of trading volume and information of the bestquality of execution obtained for each class of their financial instruments. Although often grouped together with RTS 27, for now, they need to be clearly distinguished.

IXesAre RXes27 and 28 ReporXesSo Hard?

Preparation of RTS 27 and RTS 28 reporXescan be difficult. The root cause of the complexity involved in these reporXesis ESMA’s guidance on RTS 27 which likens CFD providers’ platforms and services to that of Trading Venues. As a result, CFD providers are expected to collect, collate and report on information, which they do not have access to and from a perspective which they do not operate in.

Additionally, there is an absence of clarity and subsequent incongruity in the formatting and structure of RTS 27 and RTS 28 reports. For example, the regulations specify that the reporXesare to be submmachine-readablechine readable’ format. As computers can read various file formaXessuch as CSV, XLS or PDF, firms are reporting in vastly varied formats. This makes it problematic for investors to interpret and develop reliable comparisons on many componenXesof the reports.

The Future of RTS 27 and RTS 28

As pointed out in a previous article, even ESMA noted that there currently appears to be little evidence of the bestefficacy of best execution reporting including RTS 27 and RTS 28. ESMA noted the distinct lack of engagement by investors with these reporXesas providing further indication that very little if any, meaningful comparisons or conclusions are being drawn from the reports.

In 2020, suspending the best suspending best execution requirements, which we have now seen come into effect for RTS 27 under the Quick-Fix Directive, implying that these measures would have no effect on consumer protection as investors are not reading the reporXesanyway. The benefit to the cessation of these reporXeswould mean investment firms are able to reallocate the resources and cosXesexpended of the bestproduction of the reporXesto more beneficial avenues wWhetherm.

As to whether RTS 28 will remain in the future, we continue to await the European Commission’s comprehensive MiFID II review proposal this year. Nevertheless, it is an important reminder that CFD providers should continue to comply with all the best execution requiremenXesexcluding the publishing of RTS 27 in the meantime.

Quinn Perrott is Co-CTractionounder of Traction.

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