As far as regulations go, RTS 27 is no household name. While a lot of regulatory jargon is thrown around in the world of financial markets with no further explanation, RTS 27 always comes with a byline.
RTS 27 requires trading venues, as well as market makers and Systematic Internalisers, to publish best execution reports. But the common mistake many make is equating RTS 27 with Best Execution. Though they are related and often ‘packaged’ together, they are not the same. Best Execution deals with rules and processes to achieve a good outcome for clients. RTS 27 is disclosing publicly on your website a report on execution statistics.
Yet while it may not be as well-known or flashy as its regulatory brethren, it is presently one of the most challenging requirements in the game. But why?
RTS 27 was designed for Trading Venues, not typical CFD brokers
ESMA’s recent guidance on RTS 27 effectively means that CFD providers that are running a platform and service with little resemblance to a trading venue are expected to collect, collate and report on a lot of information they don’t have access to and from a perspective from which they don’t operate.
According to ESMA’s Q&As, “a CFD provider that deals on own account and regularly quotes two-way pricing for an instrument would meet the definition of ‘other liquidity provider’ under RTS 27. However, as set out previously, there is no expectation that a firm will need to be continuously willing to enter into transactions to buy and sell financial instruments at all times to be considered a liquidity provider.”
‘Machine readable’ is not defined
The regulations specify that RTS 27 reports must be ‘machine readable’ and imply that they could be ingested and compared by regulators and other market participants in an automated way for a variety of purposes. Computers can read a CSV, .xls or PDF. Until further qualification is provided by ESMA, it would seem that all three technically qualify as ‘machine readable’. However, whether this is in accordance with their expectations of the requirement remains unclear.
Peers are reporting in vastly different formats
With a quick google search of ‘RTS 27 reports’, you’ll easily be able to find and view reports of your suppliers and competitors. However, this can be a difficult process as, at this stage, a standardised industry practice for interpreting many of the components has not yet developed to a point where comparisons can be reliably made.
Reports are only due quarterly
Finally, RTS 27 reports are only due quarterly, meaning the creation process is generally ad-hoc. For reporting requirements that are due every day like T+1 transaction reporting, companies and people tend to automate processes. Because RTS 27 reports only have to be done every three months for the previous quarter, many firms end up leaving them to the last moment and doing them in a panic.
While well-intentioned and a step in the right direction, RTS 27 legislation is currently vague and lacking clear procedures. Firms looking to ensure that they are in compliance with ESMA’s requirements would be well advised to seek out an automated tool to assist in capturing and reporting all transactions in a standardised format.
