TabbForum: MiFID II’s RTS 27 Data: Better Late Than Never?
March 7, 2018
by Graham Dick, Aquis Exchange
Execution quality statistics specified under MIFID II’s RTS 27 are intended to help firms compare venue execution quality as part of the criteria for best execution. But by the time all data has been collected and officially published, it may be rendered meaningless. Aquis Exchange argues venues should declare and publish this data on a T+1 basis for the benefit of the whole industry.
It is better for something to arrive late than not at all, or so the saying goes. When it comes to data on execution quality that trading venues are being obliged to report under MiFID II, however, this may not hold true.
At its heart, MiFID II requires a more open provision of data across all asset classes – on everything from payments for investment research, to quotes, transactions and even execution quality – in a way not seen before. The rationale of regulators is to enable institutions of all types to access and analyse data in a more-timely fashion, helping to promote transparency and better execution for the end investor.
The problem is that some of MiFID II’s data is so deferred that it may be rendered meaningless. Perhaps the best example are the execution quality statistics specified under MIFID II’s RTS 27. It states that all trading venues (including Recognised Investment Exchanges, Multilateral Trading Facilities and Systematic Internalisers) are obliged to collect pre- and post-trade execution data and report this to the regulator on a quarterly basis. The first RTS 27 reports under MiFID II are due by 30 June 2018, covering the first quarter of 2018. The next report will be due by 30 September 2018, covering the second quarter and so on.
The intention is to compare venue execution quality as part of the criteria for best execution; but by the time all data has been collected and officially published, the statistics could be nearly 6 months out of date and of little value.
As all trading venues, including SIs, will undoubtedly be already collecting this data on a T+1 basis for their quarterly submissions, why not get all venues to declare and publish this data on a T+1 basis for the benefit of the whole industry?
In total, there are 9 tables of data to report under RTS 27 and whilst certain variables are unlikely to change significantly, certain requirements – such as Table 3 (average executed price within specific time periods) or Table 7 (likelihood of execution and detail of book depths) – could have significant value if published on a T+1 rather than T+60 timeframe.
Only those venues that do not demonstrate strong liquidity and quality execution price criteria would resist such a move.
In any case, the publication of the data under RTS 27 will throw up a paradox in Europe’s current equity market structure, as shown in Exhibit 1, below. It is logical to suggest that available liquidity on any venue should correspond approximately to market share, but in the case of Aquis Exchange, this is clearly not the case.
Table 7 of RTS 27 will highlight this paradox in June, but perhaps Asset Managers, Investment Funds and private clients could/should be benefitting from such information far sooner in order to make sensible best execution choices.
Exhibit 1 – Available liquidity compared to market share in FTSE, CAC, DAX, SMI, MIB, STO30 stocks
Source: Aquis Exchange