Overcoming the barriers of RTS 27 execution quality reports

Daniel Mathews

Feb 01, 2020 — 3 mins read
Overcoming the barriers of RTS 27 execution quality reports

Overcoming the barriers of RTS 27 execution quality reports

There are several hurdles to using RTS 27 execution quality reports. Here we walk through how BestExHub has overcome the barriers.

Systematic internaliser (SI), liquidity providers and trading venues have invested heavily into building processes to generate their quarterly RTS 27 execution quality reports. For those who have managed to download and make sense of the reports, they find there’s a wealth of incredibly valuable information to tap into (including data not published on the tape). But RTS 27 reports are not just for those firms who want to find competitive insights into the liquidity footprint of their competitors. RTS 27 reports are published for a broader purpose.

One of the key drivers of MIFID II is to improve transparency and investor protection. MiFID II is clear in MiFID II, Art. 27(7) of how investment firms executing client orders should be achieving this using RTS 27 and RTS 28 reports.

Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements, taking account of, inter alia, the information published under paragraphs 3 and 6.’

Paragraph 3 refers to RTS 27 reports, while paragraph 6 refers to RTS 28 reports (“Top five brokers” and “Top five venue reports”).

The RTS 27 quality reports provide a standard set of performance benchmarks relating to price, costs, speed and likelihood of execution for individual financial instruments. In total, 189 different benchmarks across nine tables (see figure 1).

Figure 1 - Summary of RTS 27 benchmarks by table

Figure 1 - Summary of RTS 27 benchmarks by table

The reports are not designed to replace traditional TCA, but to inform investment firms which SIs, liquidity providers or trading venues they should consider adding or replacing from their broker/venue selection in the future.

The barriers for usability

Although the regulation is prescriptive in terms of the benchmarks to be published, the structure and file format of the reports is less prescriptive. According to RTS 27 the prerequisite of the file format, without charge, is in a machine-readable electronic format via an internet website to enable the public to download, search, sort and analyse all the provided data. RTS 27 provides a set of templates for venues to use.

ESMA, in a recent Q&A , helpfully provided some guidance in terms of the file formats to use, however there are many different file formats and structures in use today. Get ready for file format alphabet spaghetti… We’ve seen JSON, XML, CSV, Excel (XLS, XLB), bespoke txt files and even PDF – yes. there are venues still publishing their RTS 27 reports in PDF files!

The complications do not stop there, while the file format may be consistent from one quarter to another, the structure of how the data is presented can change. Furthermore, ESMA, in the Q&A, notes the reports should be freely accessible and not be subject to any restrictions, allowing for computerised calculations and mass processing that is compatible with standard and easily accessible machine-reading processes. However, a small handful of trading venues and systematic internalisers have placed their reports behind dialog boxes limiting the ability for computers to automatically access and consume the data as intended.

Data rich, information poor

Format and structure are one challenge to overcome; the amount of data to consume is another. Let’s take the example of a bank Systematic internaliser / Liquidity provider, with 5,000 instruments. In one quarterly report, there will be between ~16 and 30 million data points published. A trading venue, because of the increased reporting of activity over Standard Market Size (SMS) or Size Specific to the financial instrument (SSTI) will publish between ~39 and 50 million data points. Now multiply that across the year, from 100 execution venues, and we are very quickly looking at over 3 billion data points to download and compare. Data rich.

The remaining question is ‘What do we do with all that data and how do we use it?’ Thankfully, that is where BestExHub comes in. We have normalised data from over 100 venues, allowing firms to access the data in one format and filter by trading day and instrument. By removing the excessive noise, you are able to be data rich and information rich. 



RTS27
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