RTS 28 Reporting under MiFID II – 18/2

21st March 2018


This regulatory briefing summarises the MiFID II requirements for firms within its remit to publish quantitative and qualitative details of their top five brokers and execution venues (“RTS 28 Disclosures”).

Firms should already be well on their way to preparing their RTS 28 Disclosures as the first publication deadline falls on April 30th, 2018. We expect the content of firms’ public disclosures to be of interest to the FCA, competitors, counterparties, investors and the media alike.


What is the regulatory rationale behind RTS 28?

The obligations underpinning RTS 28 disclosure is formulated with investor protection being at the centre of ESMA’s objective in maintaining fair and transparent markets, as well as the inherent need for investors to have access to more, rather than less information prior to making investment decisions. The FCA rules in COBS 11 support these objectives.


Who is subject to the RTS 28 Reporting obligation?

– Investment firms subject to MiFID II i.e. firms who execute orders on behalf of clients or acting to conclude agreements to buy or sell one or more MiFID financial instruments on behalf of clients

– Management companies of UCITS funds. This includes the whole of the management company’s business.

– Alternative Investment Fund Managers (“AIFMs”) in respect of certain MiFID top-up activities


Which activities trigger the requirement?

Direct order execution: under the MiFID II Level 1 Directive, firms that directly execute client orders must summarise and make public on an annual basis, for each class of financial instruments, the top five execution venues in terms of trading volumes, where it executed client orders in the preceding year, together with information on the quality of execution obtained. – Article 27(6) of MiFID II. The FCA implemented this rule in COBS 11.2A.38R.

Passing orders to another firm for execution (indirect execution): under the MiFID II Level 2 Delegated Regulation (2017/565), portfolio managers placing orders with other entities for execution, and firms providing the service of reception and transmission of orders, are subject to an equivalent rule to the above. When a firm selects another to provide order execution services, it must summarise and make public, on an annual basis, for each class of financial instruments, the top five investment firms in terms of trading volumes where it transmitted or placed client orders for execution in the preceding year and information on the quality of execution obtained. – (Article 65(6) of the Delegated Regulation).


When must firms publish their first RTS 28 Disclosure?

ESMA has confirmed that firms must publish their first disclosure by no later than 30 April 2018 in respect of client orders executed during the preceding year (2017).


What must the report contain

The report firms must publish has both quantitative and qualitative elements. Firms must gather data for each sub-class of MiFID financial instruments (there are 22 sub-classes in total, listed out in Annex I of RTS 28 on their trading volumes with different counterparties and on different venues.

A “venue” for the purposes of RTS 28 includes exchanges, multilateral trading facilities (MTFs), organised trading facilities (OTFs), systematic internalisers, market makers and other liquidity providers with whom the firm has traded directly (for example, as OTC counterparties).

In respect of RTS 28 Disclosures, the volume of execution and number of executed orders should be expressed as a percentage of a firm’s total execution volume and a percentage of the number of executed orders in that subclass of financial instrument –  absolute values are not necessary.

If the firm has professional clients and retail clients, then the firm is required to separate out its professional and retail client business and to produce a separate Venue Report and a separate Broker Report per instrument sub-class for each client type.

Quantitative disclosure:

There is a prescribed template for the quantitative element disclosure, as set out in Annex II of RTS 28.

The quantitative element of the report requires a firm to list, for each of the 22 separate sub-classes of financial instruments:

  • in respect of direct execution, its top five execution venues in terms of trading volumes for transactions that the firm has executed during 2017, including orders executed directly on a trading venue (i.e. as a member of or participant); or on an OTC basis directly with a counterparty (this would take the form of a “Venue Report”);
  • in respect of indirect execution, its top five brokers in terms of trading volumes for all transactions during 2017 resulting from placing orders with, or transmitting orders to, another entity (e.g. a broker) for that other entity to execute on the firm’s behalf (the” Broker Report”); and
  • It’s top five execution venues in terms of trading volumes for all executed orders in securities financing transactions during 2017.

Transaction volumes should be calculated by reference to the market price for securities trades and notional for derivatives trades.

Qualitative disclosure:

Firms are able to choose their own template for their qualitative disclosures as there is no prescribed format for such.

In terms of content, qualitative disclosure requires firms, for the previous year and each class of financial instrument, to produce a summary of the conclusions drawn from data gathered on the execution quality obtained from execution venues or brokers.

Firms must provide an explanation, based on the data on quality of execution obtained, that justifies why the relevant brokers/venues constitute the top 5. The qualitative element must also disclose any close links or conflicts of interests between the firm and the relevant venues/brokers reported in the top 5.


How should the RTS 28 Report be published?

Reports must be available to the public [on a website] without any charges, and not be placed behind a firewall, registration page or be subject to password encryption or other restrictions. The quantitative element of the RTS 28 Report must be in machine-readable format (e.g. a CSV file), available for downloading by the public.

Firms are required to maintain the information on their websites for a period of at least two years following publication.

Although investment firms are required to publish this data only once a year, MiFID II makes it clear that regulators expect firms to be actively reviewing this dataset much more regularly. This extends not just to the top five venues, but all data. Firms need to establish who will have responsibility for performing this analysis internally – for example, the front office, operations, or compliance. Organisations should consider the data from both a business and a risk perspective.


How does RTS 28 affect AIFMs?

The FCA stated in its July 2017 Policy Statement (PS17/14) that it would not “gold-plate” the obligation to require RTS 28 Reports of AIFMs in respect of their non-MiFID business. AIFMs will, therefore, continue to be subject to the best execution rules contained in AIFMD in respect of their non-MiFID business.

By virtue, however, of the provisions of the MiFID II Delegated Regulation (which has direct effect as a matter of EU law), the requirement to prepare a RTS 28 Report will apply to any MiFID business undertaken by an EU AIFM pursuant to any “top up” permission which permits the AIFM to carry on the MiFID activities of portfolio management or the reception and transmission of orders for non-AIF clients in respect of MiFID financial instruments.

This requirement applies only to order placement and order transmission activities, but not to direct executions by the AIFM. Therefore, any order placed with, or transmitted to, a broker for execution that results from decisions by the AIFM to deal in financial instruments on behalf of a client in the context of the AIFM’s MiFID business will be caught by the requirement and will need to feed into the AIFM’s Broker Report. However, EU AIFMs will not need to produce a Venue Report because direct executions are not caught by the requirement.


How can CPA Audit help?

The qualitative disclosure is required, as a minimum, to include certain prescribed information. We would be pleased to discuss further with our clients what this involves.

Please contact a member of our compliance team if you would like further information or require advice on any aspect of the RTS 28 Report.

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