On 10 April 2025, the European Securities and Markets Authority (ESMA) published a Final Report on the technical standards specifying the criteria for establishing and assessing the effectiveness of investment firms’ order execution policies.

Background

Directive (EU) 2024/790 which amended the Markets in Financial Instruments Directive II (MiFID II ) was published in the Official Journal of the EU on 8 March 2024.  Article 1(4)(e) of the Directive inserted a new paragraph 27(10) into MiFID II requiring that ESMA develop regulatory technical standards (RTS) on the criteria for establishing and assessing the effectiveness of investment firms’ order execution policies.

The objective of the draft RTS is to provide clarity and to harmonise the requirements related to the criteria which firms are obliged to take into account when they establish and assess their order execution policies. More specifically, the draft RTS specifies the requirements to ensure that firms’ order execution policies and the related order execution arrangements are effective and allow the firm to achieve the best possible result in the execution of client orders. This also enables firms to clearly demonstrate to Member State competent authorities their compliance with the relevant MiFID II best execution requirements. From a broader perspective, the draft RTS also seeks to enhance the execution quality for clients and contribute to ensuring appropriate investor protection under MiFID II.

On 16 July 2024, ESMA issued a consultation setting out draft RTS. The consultation closed on 16 October 2024.

Final Report

In the Final Report ESMA comments on the feedback it received to its consultation and sets out the final draft RTS (Annex II of the Final Report).

The draft RTS includes requirements on:

  • The establishment of an investment firm’s order execution policy; this includes the classification of financial instruments in which firms execute client orders and the selection of venues for the order execution policy.
  • The investment firm’s procedures and criteria to monitor and regularly assess the effectiveness of its order execution arrangements and order execution policy.
  • The investment firm’s execution of client orders through own account dealing.
  • An investment firm should deal with specific client instructions.

The draft RTS will apply 18 months after entry into force.

When commenting on the feedback received to its consultation ESMA makes certain points regarding the draft RTS including:

  • ESMA has observed that the possible use of one venue for client order execution is an existing market practice adopted by some firms. ESMA has in contrast to its consultation proposal addressed this issue more specifically in the draft RTS’ requirements for the initial selection of execution venues for the order execution policy. A firm selecting only one venue to execute client orders (for a given class of financial instruments or 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. The draft RTS also requires a firm to control in its assessment of the effectiveness of the order execution policy whether the chosen single execution venue obtains consistently the best possible result for clients.
  • To clarify the requirements for firms executing client orders by dealing on own account, ESMA has amended several points of the draft RTS in comparison to the provisions proposed in the consultation. For example, in response to stakeholders’ replies, ESMA has amended the requirement for a firm to set out in its execution policy how it ensures the fairness of the price when executing client orders in over-the-counter products.
  • ESMA clarifies that the draft RTS sets out requirements for the internal order execution policy and processes. It does not set out provisions 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 shall provide to clients, and ESMA does not intend to suggest any change to Article 66 as a result of the draft RTS.

Next steps

The draft RTS have been submitted to the European Commission for adoption.

The Commission shall decide whether to adopt the draft RTS within three months.