Op-ed

Best Execution and RTS27 and 28 Abandonment in ESMA’s Pipeline

ESMA's stance on best execution explained.

In what will feels like unusually good news for compliance departments across Europe, ESMA’s recent publication has questioned the efficacy of best execution (including RTS 27 and 28) reporting stating “reports are rarely read by investors, evidenced by very low numbers of downloads from their website. It is, therefore, assumed that investors cannot or do not make any meaningful comparisons between firms on the basis of this data.”

Such analysis led to ESMA to consider whether it was appropriate to suspend best execution reporting requirements during the crisis caused by the pandemic, noting that such a measure would “free up resources

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currently used for the production of the report, without requiring firms and venues to invest in costly implementation…[and will] not lead to a decrease of consumer protection since investors currently do not read the reports at all.”

ESMA may be heading in a different direction on this requirement noting that if brokers do not prepare, the reports will not lead to a decrease of investor protection since investors currently do not read the reports at all,
and buy-side firms receive the relevant information through other means. Glimpses of an entire suspension of the requirements are being suggested to the European Commission by ESMA as part of the MiFID II review coming up in 2021.

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This follows ESMA’s relief earlier in the year where it clarified for market participants its expectations when it comes to best execution obligations during the 2020 global pandemic.

Acknowledging the challenges the health crisis presented, ESMA provided an extension for reporting where execution venues are unable to publish RTS 27 reports ‘as soon as reasonably practicable after the deadline and no later than by the following reporting deadline’.

CySEC promptly confirmed it would follow ESMA’s lead with the publication of Circular C375 extending reporting deadlines.

In guidance to regulators within the EU, ESMA asserted that regulators should not prioritise supervisory action against execution venues and apply a risk-based approach in the exercise of supervisory powers in their day-to-day enforcement of RTS 27 and 28 especially when it comes to deadlines.

Quinn Perrott is co-CEO and founder of TRAction

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