From a declarative model to an evidenced best order execution

Introduction

On 14 April 2026, the European Commission adopted new regulatory technical standards (RTS). It is now published in the Official Journal on 23 July 2026¹ and specifies the criteria investment firms must apply when executing client orders.

These RTS are not just technical fine-tuning. They form part of a deliberate, multi-year effort by EU regulators to shift from “compliance by declaration” to “effectiveness by evidence.”

Investment firms will no longer simply declare the trading venues they work with. Instead, they will have to demonstrate the quality and fairness of the execution services they provide to their clients and regulators. What is currently considered best practice will become the minimum standard, implying higher operational burden and stronger governance.

New layer in a broader regulatory agenda: Protecting investors and strengthening trust

The new order execution RTS is part of a wider EU push to place investor protection at the core of financial regulation. Several parallel initiatives point in the same direction:

• The retail investment strategy and its value for money framework.
• Benchmarking work on costs and charges.
• The review of suitability and appropriateness.
• Increased supervisory focus on links between inducements, remuneration, and conflicts of interest.

This reflects a clear supervisory stance: simply stating compliance is no longer enough. Firms must now prove that they deliver good outcomes in practice. This requires consistently collected data, methodological monitoring and robust governance. The model must be steady enough to withstand both customer’s questioning and supervisory scrutiny.

Best execution sits at the heart of this agenda. Whether it is a retail client occasionally purchasing a fund unit or a bond, or an institutional client placing large daily equity orders, execution quality directly affects investment outcomes. Poor execution means real financial loss.

However for years, the European Securities and Markets Authority (ESMA) observed gaps between best execution rules, what firms in their reporting, and the actual attention paid in practice. Both the design of order execution processes and the monitoring of their application have often been too weak to ensure clients’ best interests were truly met.

Supervisory tolerance for generic policies and minimum monitoring frameworks has come to an end. And while these new requirements obviously apply to investment firms that route their own or their clients' orders to trading venues of their choice, it is equally important to note that:

• Delegation to or reliance on brokers do not relieve firms of their obligation to establish and monitor differentiated treatments for different types of trades.
• Where firms execute client orders through affiliated venues, internalize order flow, or deal on own account against client orders, they must be able to demonstrate, through an evidence-based best execution framework, that clients' interests are protected. This includes, among other things, effective management of conflicts of interest.

Order execution in MiFID III: A new philosophy

In March 2024, MiFID III² and the correlated MiFIR II³ entered into force. This package brought numerous changes, rolled out through a complex, phased implementation timeline, with differing impacts across capital‑market participants. 

To support its goals of stimulating investment, improving data availability, and simplifying transparency, this evolution affected trading venues, systematic internalizers, and newly-created roles of consolidated tape providers (CTPs), or designated publishing entities (DPEs). Within this broader framework, this latest and long-awaited order execution RTS is a major shift for investment firms.

The RTS fundamentally changes the philosophy of best execution from an obligation to declare to an obligation to provide evidence. Under the current MiFID II regime, Article 27 establishes the principle of best execution and requires firms to maintain an order execution policy but leaves most of the operational content to firms' discretion.

With MiFID III, ESMA was mandated to “develop draft regulatory technical standards to specify the criteria to be taken into account in establishing and assessing the effectiveness of the order execution policy […], taking into account whether the orders are executed on behalf of retail or professional clients.

Those criteria shall include at least the following:

(a) factors determining the choice of execution venues included in the order execution policy;
(b) the frequency of assessing and updating the order execution policy;
(c) the manner in which to identify classes of financial instruments […].”

An effective order execution policy: What criteria should be considered?

Under the new RTS for best order execution, investment firms are no longer required to publish execution quality reports (RTS 27⁴) or the “top five execution venue” list (RTS 28⁵). These  are replaced by a new model for selecting order execution venues and monitoring whether the best execution conditions are met.

The RTS sets out detailed criteria to be used when establishing and assessing order execution policies, including:

These arrangements should be regularly assessed for effectiveness, accounting for a firm's complexity and volume. In addition, firms should conduct ad-hoc reviews whenever a trigger event occurs.

Timeline and next steps

The text was published in the Official Journal on 23 July 2026. Investment firms will then have until 12 February 2028 to perform gap assessments, design their target policy, and implement and launch their revised best execution model. This will require significant updates to existing policies and procedures, as well as technical changes to systems.

Key tasks will include:

• Revising and documenting execution conditions at each trading venue.
• Segmenting asset classes and sub‑classes.
• Grouping orders by type and client category.
• Determining the most appropriate execution channel for each category.

These exercises will trigger internal discussions, and the inherent complexity should not be underestimated.

By providing an 18-month implementation period, the regulator has made clear that firms are expected to undertake a substantive—not merely superficial—upgrade of their best execution arrangements. This should be viewed not only as a compliance exercise, but also as an opportunity to strengthen a fundamental element of financial investment management to the benefit of clients and, ultimately, of investment firms themselves.