Best Execution Monitoring and RTS 28 Reporting

A broker tells a client, "we always get you the best price." How would the client — or a regulator — ever check that claim on any individual trade, let alone across millions of them? Best execution rules exist to make that promise checkable, not just trusted, and RTS 28 was the specific European reporting requirement, under MiFID II, that forced investment firms to publish where they sent client orders and to justify that the venues chosen actually served clients well.

Think of a real estate agent claiming they always get clients the best price on a home sale. You would want to see, across many sales, which buyers they approached, how the final sale price compared to similar recent sales, and whether the agent had a habit of steering business toward buyers who paid the agent a referral fee rather than whoever offered the most. Best execution monitoring does exactly this kind of audit for order routing: it compares actual outcomes against a fair benchmark, trade by trade, and flags patterns that look more like convenience or self-interest than genuine client service.

Measuring execution quality

A standard benchmark is implementation shortfall, comparing the price actually achieved against the price at the moment the order was decided:

$$\text{IS} = (P_{\text{exec}} - P_{\text{decision}}) \times Q \times \text{side}$$

Here $P_{\text{exec}}$ is the volume-weighted average price actually achieved, $P_{\text{decision}}$ is the price prevailing when the order was created (the "arrival price"), $Q$ is the quantity traded, and $\text{side}$ is $+1$ for a buy and $-1$ for a sell, so that a worse-than-arrival fill always registers as a positive cost. In words: implementation shortfall is the total dollar cost of everything that happened between deciding to trade and actually completing the trade — market impact, delay, and fees all bundled into one comparable number.

Worked example: computing implementation shortfall

A fund decides to buy 100,000 shares when the market price is $50.00 (the decision price). By the time the full order is worked and filled, the volume-weighted average execution price comes to $50.12.

$$\text{IS} = (50.12 - 50.00) \times 100{,}000 \times (+1) = 12{,}000$$

The order cost $12,000 more than an instantaneous fill at the decision price would have — roughly 2.4 basis points on the $50 million notional. A best-execution review compares this figure against peer benchmarks and against what alternative venues or algorithms would plausibly have achieved, not against a theoretical zero.

Worked example: a venue-routing red flag

A firm's RTS 28 disclosure shows that 70 percent of retail equity order flow was routed to a single market maker, well above the roughly 20 percent that venue represents of overall market volume. On its own this is not proof of a problem — the venue might simply offer better prices — but a regulator cross-checks it against execution-quality data: if that venue's average price improvement over the public quote is only 0.1 cents per share versus a market average of 0.3 cents, the concentration looks less like a client-driven outcome and more like the firm chasing payment-for-order-flow arrangements at the client's expense. This is precisely the pattern RTS 28's venue-disclosure requirement was designed to expose.

What this means in practice

Buy-side trading desks run implementation shortfall and related transaction-cost-analysis (TCA) reports on every order as a routine control, not just to satisfy regulators but because chronic execution slippage compounds directly into fund performance — a strategy earning 8 percent gross can lose a meaningful chunk of that to execution costs no one is watching. RTS 28 itself was formally suspended in the EU in 2021 after regulators judged the reports too voluminous and boilerplate to be genuinely useful, but the underlying obligation — to monitor and be able to demonstrate best execution — remains fully in force.

Key terms

• Best execution — the regulatory obligation to take all sufficient steps to obtain the best reasonably available result for a client's order.
• Implementation shortfall — the difference between the price at the decision to trade and the price actually achieved, capturing total execution cost.
• RTS 28 — the MiFID II technical standard requiring annual disclosure of top execution venues and execution quality by asset class.
• Payment for order flow — compensation a broker receives for routing orders to a particular venue, a common source of best-execution conflicts of interest.