The European Securities and Markets Authority (ESMA) has published a consultation paper that proposes improvements to MiFID II's best execution reporting framework.
In the paper, ESMA highlights issues that relate to RTS27 and RTS28 reporting and proposes several technical changes that could improve the framework, deliver more value for market participants, and reduce the burden on reporting participants. The paper is largely focused on RTS27 (which was suspended for two years under the MiFID II amending directive) and proposes significant changes to both the scope and content of the technical standard.
We have highlighted the current challenges with RTS27 and RTS28 reporting and the suggested changes that ESMA has proposed.
Lengthy reports: There are a large number of fields required for reporting that are of questionable value.
Lack of consistency: Due to the different interpretations of the requirements (both definitions of reportable fields, and format of the actual report (XML, CSV, 1 instrument per table per day vs. 1 report for all tables for 1 instrument, etc.)), reports have varied in consistency. This has resulted in severe technical challenges in consuming the myriad of different RTS27 reports and translating them into meaningful insights. There also hasn't been any consistency in the 'housing' of the reports on venue websites.
Volume: Due to the reporting tables being split by instrument and due to ISIN proliferation (particularly in OTC products); the size of the actual reports can be very large.
Restrict reportable scope to transactions executed on Trading Venues and on those OTC transactions where an SI or another LP is a party to the transaction
Exclude market makers from the scope of obligations
Aggregate reports using MiFIR identifiers (i.e., shares, ETFs, equity-like instruments, etc.) and their associated liquidity profile rather than the current implementation which is by instrument
Limited consumption and utility: The RTS28 reports do not show much. ESMA noticed ‘good practices’ of firms extensively documenting their execution flow and approach alongside their RTS28 reporting.
Make a distinction between orders which a firm executes and orders a firm transmits for onward execution
Remove fields to distinguish between passive and aggressive order percentages. ESMA acknowledges these fields have added ‘little value’
Include information received for ‘payments for order flow’
Make CSV format obligatory
ESMA encourages stakeholders to provide feedback on how the best execution reporting regime could look in the future. According to ESMA, the outcomes will not lead to any immediate changes to the regime but they will take it into account on the proposals to the European Commission in 2022. The deadline for market participants’ comments is December 23, 2021.
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