BEST EXECUTION REQUIREMENTS UNDER MIFID II

Applying from 12 February 2028, this new regulatory framework around best execution gives investment firms roughly 18 months to overhaul their execution policies, monitoring frameworks and, in some cases, the technology that sits behind them. 

We have highlighted some of the key points from the Delegated Regulation and the steps to be considered by investment firms below.

A key feature of the new framework is that investment firms must maintain a significantly more detailed and operational order execution policy than many firms have in place today. Pursuant to Article 2 of the Delegated Regulation, the policy must set out the internal governance procedures for selecting execution venues. Investment firms must maintain an up-to-date internal list of selected execution venues recording specific information for each venue.

Pursuant to Article 3, venue selection must take into account factors such as order type availability, typical client order size and frequency, execution prices compared against reference data (which may draw on consolidated tape data), and the costs charged to the investment firm.

Where an order could be executed on more than one listed venue, the policy must set out the routing criteria and the relative importance of each criterion, covering the instrument class, all costs directly related to execution (including the investment firm's own fees), the size and nature of the order, and relevant market data.

Investment firms using automatic order routing systems must describe the system's main characteristics and how it applies these same criteria.

Pursuant to Article 5, the order execution policy must specify what constitutes a specific client instruction and how the investment firm handles such instructions, since a specific instruction may prevent the firm from complying with all or part of its venue-selection requirements or from obtaining the best possible result. A specific client instruction arises where the client chooses one option out of several offered by the investment firm in relation to a part, or all, of the order, or instructs the firm to handle the order differently from the policy. Investment firms must distinguish between specific client instructions and non-instructed orders and must have arrangements for dealing with instructed orders in the client's best interest.

Where a client gives a specific instruction, that instruction only overrides best execution for the part or aspect of the order it actually covers; all other aspects of the order must still be treated as non-instructed and remain subject to the ordinary best execution requirements.

The Delegated Regulation clarifies that a specific client instruction does not automatically disapply the best execution obligation in its entirety. Instead, the instruction only prevails in relation to the particular element of the order to which it relates.

In accordance with Article 7, investment firms must monitor the effectiveness of their order execution policy on an ongoing basis, covering whether orders are executed in compliance with the policy, the execution quality obtained, the price of execution measured against reference data, and, for each instrument class, based on a representative sample, whether execution quality is achieved consistently against pre-determined thresholds. Those thresholds must cover the accepted deviation of execution prices from the reference data, the minimum proportion of traded volume meeting the reference values, and the minimum number of orders meeting them.

Pursuant to Article 8, firms must formally assess the effectiveness of their policy at least annually, and also whenever monitoring reveals non-compliance or a material change occurs that affects the investment firm's ability to continue obtaining the best possible result.

The periodic assessment must take into account, inter alia, costs and fees charged to the firm, the results of ongoing monitoring, financial market developments, and the emergence of new execution venues. Investment firms that rely on a single execution venue for a class of instruments, or for all client orders, must additionally compare that venue's results against available alternatives as part of the periodic assessment. Any deficiencies identified must be corrected as soon as possible.

Pursuant to Article 9, investment firms must classify the financial instruments for which they execute client orders using ten pre-determined classes set out in the Annex to the new regulation (e.g. shares, other equity like instruments, ETFs, bonds, listed options/futures, other derivatives). Firms must further identify separate sub-classes within a class where a significant number of orders is or is expected to be executed using different execution methods within that class, or where the Annex classes do not otherwise allow effective monitoring and assessment of execution quality, since grouping heterogeneous instruments into one class may hinder detection of insufficient execution quality.

The introduction of mandatory instrument classes and sub-classes is intended to prevent firms from aggregating heterogeneous instruments in a manner that obscures deficiencies in execution quality.

Ongoing monitoring becomes a formal obligation rather than good practice, and investment firms must track execution quality against objective market data on a continuous basis, assess policy effectiveness at least annually, and implement stronger and more detailed best execution policies.

Although the Delegated Regulation will apply from 12 February 2028, the implementation effort should not be underestimated. Many investment firms will need to update their order execution policy, establish formal monitoring and testing processes, define execution-quality thresholds, reassess venue-selection methodologies and, in some cases, enhance their technology and data capabilities.

The Delegated Regulation represents a shift from a disclosure-based model to an evidence-based model, requiring firms to demonstrate on an ongoing basis, and with reference to objective market data, that they are achieving best execution for their clients.

Accordingly, investment firms should consider the implications of the new rules on their best execution framework sooner rather than later and initiate an internal implementation process to ensure compliance with the new requirements.

The new RTS is adopted under MiFID II article 27 as amended by the MiFID review (directive (EU) 2024/790). In Norway, a public consultation regarding implementation of the amending directive ended in May 2025. However, no proposal for a law has been made and the amending directive has not been incorporated into the EEA Agreement. While it is unclear exactly when the rules may enter into effect in Norway, firms both with and without cross-border operations should consider updating their policies and procedures in alignment with the timeline in the EU.