Best Execution Reporting – headache for Forex brokers

Europe has tightened regulation in recent years to protect retail traders from losses. However, some aspects of regulation are perplexing and confusing among brokers. It is about RTS 27.

Simply put, RTS 27 is a requirement to publish quarterly reports on best execution. It applies to exchange platforms, market makers, and systematic internalizers (SI). However, many mistakenly think that RTS 27 is the same as the best performance.

Best execution refers to rules and processes aimed at getting a good result for customers. RTS 27 is public disclosure of performance statistics on a website.

RTS 27 was not intended for forex and CFD brokers initially

Forex and CFD brokers may be confused with regulation just because these rules were not developed for service providers in the CFD market, but trading floors.

As the trading and transactional, regulatory reporting service provider emphasized, ESMA’s latest RTS 27 guide actually means that CFD trading service providers must collect, collate and report information that they do not have access to and make forecasts based on the data they use. 

So what exactly is confusing about the RTS 27? In the recent interview Quinn Perrott, Co-CEO of TRAction Fintech, noted that the whole point was a lack of clarity regarding regulation.

He said that RTS 27 includes many terms and concepts that are not directly related to brokers in the Forex and CFD markets. Any regulation that requires a lot of interpretation brings a lot of inconvenience and problems until more detailed instructions and recommendations appear, or certain practices are formed in the industry.

What is the value of RTS 27 reports?

Ron Finberg, product specialist at Cappitech, does not find this requirement too complex. However, he noted that the value of these quarterly reports is highly doubtful.

In the interview, he said that understanding what regulators want is easy. According to him, another question is how valuable this requested data is. It is very difficult to extract at least some value from them, regardless of who provides them, brokers or market makers.

In connection with the coronavirus pandemic, ESMA delayed companies that did not manage to publish RTS 27 reports, provided that they did so as soon as possible, but before the next data set was published.