EU MiFID II/MiFIR Review: Commission adopts RTS on order execution policies after year-long hiatus

The European Commission has adopted the new RTS on investment firms’ order execution policies, almost a year to the day after the European Securities and Markets Authority (ESMA) had published its final report. The RTS seek to provide clarity and to harmonise the criteria which firms are obliged to take into account when they establish and assess their order execution policies.  

Although the Commission did make some amendments to the RTS, overall, they remain in line with the draft submitted by ESMA. The RTS build on existing requirements but are more prescriptive and include new requirements. For example, the RTS contain significant detail concerning expectations for the content of order execution policies, there are requirements to identify asset classes and potentially sub-asset classes for these purposes and to pre-select execution venues, specific requirements for firms dealing on own account when executing client orders, and more prescriptive requirements on client instructions. The RTS also provide more detailed requirements for the monitoring and review of execution quality and the effectiveness of order execution policies, including requirements to use comparison datasets for these purposes (with the RTS allowing firms to use CTP data, where available, or alternative datasets that meet specified conditions). 

Firms will need to look at the granularity and level of detail of existing order execution policies, review processes and related data collection and governance. 

The Council of the EU and European Parliament will now scrutinise the Delegated Regulation. If neither object, it will enter into force 20 days after being published in the Official Journal (perhaps in late Q2 / early Q3 2026). The RTS are set to apply 18 months later (around Q4 2027 / Q1 2028).

Key points from the new RTS

Classes of financial instruments

• Firms will need to distinguish between different financial instruments in their order execution policy. For these purposes, there will be a fixed list of instrument classes (set out in the Annex to the RTS) which is based on the RTS 28 instrument classes, i.e., nine instrument classes and a residual tenth instrument class. In its final report, ESMA had clarified that the categorisation of classes of financial instruments is for internal purposes only and is not intended to be disclosed to clients.
   
• Firms will be expected to identify sub-classes within these classes of financial instruments where:
  • the firm executes (or expects to execute) a significant number of orders in financial instruments within the same class through different execution methods; or
  • where the instrument classes do not allow for effective monitoring and assessment of execution quality.

Establishment of an order execution policy & selection of execution venues

• Firms should include in their order execution policies the internal procedures for selecting execution venues, and measures taken to ensure these venues are authorised (in the EU or a third country). The RTS apply in respect of the service of the execution of orders. But where a firm offers both the services of reception and transmission of orders and execution of orders for the same class of financial instruments, firms must set out in their policy how they comply with their obligations when deciding whether or not to execute the order.
   
• Firms must select execution venues by accounting for the characteristics and needs of their clients and certain further elements including order types, order sizes and frequencies and execution price and costs. When assessing execution price as part of venue selection, firms will need to compare execution prices of potential execution venues with a reference dataset, which may be data from consolidated tape providers (where available) or other datasets meeting certain specified conditions. 
   
• a firm selecting only one venue to execute client orders (for a given class of financial instruments or for all client orders) is obliged to set out in its order execution policy how this selected single venue ensures obtaining the best possible result for clients. In its assessment of the effectiveness of the order execution policy (see below), the firm will also need to assess whether the chosen single execution venue (compared to available alternative venues) obtains consistently the best possible result for clients.
   
• Firms will need to keep updated an internal list of the selected venues with certain information, such as the date and person or governance body that approved the venue, the classes of financial instruments and types of transactions for which the venue may be used, whether the venue may be used for retail and/or professional client orders, and any other limitations on the use of a venue.

Criteria for order routing

• When a specific client order may be executed on at least two venues, a firm is required to specify in its order execution policy the criteria the firm will take into account when deciding where to direct the order. The RTS specify that firms need to outline the criteria relevant to the firm's choice of execution venue and their relative importance. The selection criteria should take account of the relevant class of financial instruments, whether the client is a retail or professional client and certain factors, including:
  • all costs directly related to the execution of the order, including any fees and commissions charged by the investment firm itself;
  • size and nature of the order; and
  • market data (including historical data), where relevant and available,

although for retail client orders, firms should only take into account criteria that directly impact the total consideration.

• Firms that use an automatic order routing system must describe the main characteristics of the system in their order execution policy. Automatic order routing systems will need to consider all criteria the firm applies when selecting the best execution venue (see above).

Monitoring execution quality and assessing the effectiveness of order execution policies

• Firms must monitor the effectiveness of order execution policies. This will need to include execution prices against a reference dataset (which would include relevant CTP data which the firm may have used, where available). 
   
• Firms will also need to assess execution quality on a per asset class basis, using data from a representative sample of orders executed for clients. The performance of the monitored transactions will need to be compared against pre-set thresholds indicating the extent to which a certain number or volume of executed orders deviated from execution prices in a reference dataset. 
   
• Firms must review the effectiveness of their order execution policy at least annually, whenever monitoring indicates non-compliance with the order execution policy / best execution requirements, or whenever a material change occurs. Firms need to take account of costs of execution, the results of monitoring (see above), ability of the firm’s selected venues to obtain the best possible result for the firm’s clients, as well as other factors including the disappearance or restructuring of existing venues and/or the emergence of new execution venues and new functionalities or execution services provided by venues.
   
• Where the review so requires, firms will need to update their order execution policies and arrangements to correct any deficiencies as soon as possible “within a reasonable period after the assessment”, which will depend on the “seriousness of the deficiency”. 

Dealing with client instructions

• Firms should set out in their order execution policies the arrangements for dealing with specific instructions from clients in the clients’ best interests. In particular, firms need to spell out the impact of instructions on the criteria of venue selection and the firm's ability to obtain the best possible result for the relevant client.
   
• Firms will need to define in their order execution policy how to differentiate between orders with and without specific client instructions. Firms will be required to describe, at least, that a specific client instruction involves either (i) a choice of one option out of multiple options offered by the firm related to a part or aspect of the order (or all parts or aspects of an order, if “explicitly requested” by the client); or (ii) an instruction to the firm to handle the order in a different way than provided for by the order execution policy.
   
• Importantly, the RTS require that firms should only treat parts / aspects of an order specified by the client as being subject to client instruction, meaning that other aspects of the relevant order would be treated like an order without client instruction and therefore subject to best execution requirements. This could conceivably be difficult, as it assumes that it is possible to separate orders into different parts (without indicating what these might be), and as it may require firms to carefully analyse whether client instructions could be limited to parts of an order.
   
• Where firms offer the client a choice of execution venue, firms will (amongst other things) need to include in their order execution policy an explanation of how the policy prevents inducing a client to choose a specific execution venue. Clients should have the option of not specifying an execution venue, leaving it to the firm to execute the order in accordance with its order execution policy.
   
• In this context, ESMA’s final report had clarified that when an execution venue is pre-selected and not changed by the client, this does not constitute a specific instruction in accordance with Article 27(1) of MiFID in relation to the venue selection. Consequently, the best execution obligations fully apply and the responsibility for the choice of the venue entirely lies with the firm. This may make it practically difficult for firms to pre-select venues (unless there is another way for a client to confirm that they expressly wish to instruct the firm to execute an order on the specific, pre-selected venue). 

Dealing on own account 

• Firms whose execution policy permits them to execute client orders by dealing on own account will be required to specify in their order execution policy (amongst other things) how they ensure that they obtain the best possible result for clients when doing so. The policy must also outline how firms ensure a fair price for financial instruments executed through dealing OTC on own account. 
   
• Where available, firms will need to take into account the price of the financial instrument observed on the market. Where this price is not available, the price of a similar, comparable or underlying financial instrument should be considered. Only in cases where such price is not available should firms use internal pricing models to determine a price (which must then be based on reliable and accurate data that reflects market conditions).
   
• Firms will be required to set out in their order execution policies steps to ensure compliance with certain organisational requirements, including on conflicts of interest. 

Other points to note

• It is worth noting (as also confirmed by ESMA in its final report) that the RTS set out requirements for firms’ internal order execution policy and processes, rather than requirements for disclosures to clients. In contrast, Article 66 of Commission Delegated Regulation (EU) 2017/565 sets out what information on the order execution policy firms must provide to clients. ESMA had clarified in its final report that the new RTS do not change the requirements in Article 66. However, we note that changes to client disclosures may still be necessary if firms do update their internal policies in order to comply with the new RTS.

• The delegated act which introduces the new RTS on order execution policies will also repeal existing RTS 27 (on trading venue best execution reporting) and RTS 28 (on best execution reporting by investment firms). 

Timing and next steps

The Commission adopted the new RTS on 14 April 2026.

The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation. If neither object, it will enter into force 20 days after being published in the Official Journal (perhaps in late Q2 / early Q3 2026). 

The RTS are set to apply 18 months later (around Q4 2027 / Q1 2028) to give investment firms time to adjust their order execution policies and related procedures and IT infrastructure.

Documents

The European Commission adopted versions of the new RTS and Annex can be found here.

ESMA’s final report from April 2025 is here. Our client note on the ESMA final report is here.