Training slides to illustrate how to prepare an RTS 28 report

1. The next MiFID 2 challenge
RTS 28 Disclosures
26 March 2018
Michael Booth
Regulatory Director, ES Consulting
Sally Rigg
Regulatory Director, ES Consulting
Adam Jacobs-Dean
Head of Markets, AIMA

2. Agenda
Background
1 Requirements
2 Practical Considerations
3
 What?
 Format
 Quantitative
disclosures
 Qualitative disclosures
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 2
 How?
 Q&A
 Why?
 When?
 Who?

3. Introduction
Why?
…has the EC decided on
this new regime?
Who?
…does the regime apply to?
How?
…can these be efficiently
applied within the firm ?
When?
…do you need to take action?
What?
…are the requirements?
?
Key points
 Deadline for MiFID 2 RTS 28 - 30 April 2018
 Relevant period calendar year 2017
 FCA / ESMA - “best endeavours basis”
 “Top 5” reports for professional and retail
clients
 Published on manager’s website
 Legal entity level
 More information can be provided by
managers to provide additional context
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 3

4. Why?
…has the EC decided on this new regime?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 4
Why?
Who?
How?
When?
What?
?
“This Regulation lays down rules on the content and the format of information to be
published by investment firms on an annual basis in relation to client orders executed on
trading venues, systematic internalisers, market makers or other liquidity providers or entities
that perform a similar function to those performed by any of the foregoing in a third country”
RTS 28, Article 1
 To enable the public and investors to evaluate the quality of an
investment firm's execution practices
 Understand which are the key venues / brokers the manager uses for
execution
 To fully assess the extent of the quality of execution being obtained on
execution venues/brokers used by investment firms to execute client
orders
 Help investment managers assess broker best execution oversight
practices

5. Who?
…does the regime apply to?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 5
Why?
Who?
How?
When?
What?
?
NB: Consider local jurisdiction gold plating e.g. The FCA is applying this regime to AIFMs in
relation to activities conducted under its “top up permissions” and also to UCITS ManCos.
 MiFID Firms
 Placement / reception and transmission (“RTO”) or orders
 Direct execution of orders
 Including Securities Financing Transactions (separate table)

6. Who?
…does the regime apply to?
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Why?
Who?
How?
When?
What?
?Direct Execution or placement / RTO
Methods Direct Placement
/ RTO
Via broker e.g. equities, CFDs, listed futures/options X ✔
Direct Market Access X ✔
Sponsored Access X ✔
Fixed income execution – no exchange or MTF ✔ X
OTC trades with ISDA counterparties ✔ X
Trades with a trading platform ✔ X
Trades as direct participant e.g. RFQ Platform ✔ X

7. What?
…are the requirements?
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Why?
Who?
How?
When?
What?
?
Quantitative
“ABC”

8. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 8
Why?
Who?
How?
When?
What?
?
A. Retail B. Professional
1. Direct Execution Table I Table II
2. Placement / RTO Table I Table II
3. Securities Financing Transactions (SFTs) Table III
 3 tables types
 2 investor types
 A separate table for each of the 22 different asset classes
NB: if you don’t trade a particular asset class you don’t need to have a table.
However, there is the potential for 110 tables.

9. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 9
Why?
Who?
How?
When?
What?
?Direct Execution: Table I & II
Class of Instrument
Notification if < 1 average trade per business day in the previous year
Top five execution
venues ranked in
terms of trading
volumes
(descending order)
Proportion of
volume traded
as a
percentage of
total in that
class
Proportion of
orders
executed as
percentage of
total in that
class
Percentage of
passive orders
Percenta
ge of
aggressi
ve orders
Percentage of
directed
orders
Name and Venue
Identifier (MIC or
LEI)
A
List of 22 asset classes
A

10. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 10
Why?
Who?
How?
When?
What?
?(a) Equities – Shares & Depositary Receipts
(i) Tick size liquidity bands 5 and 6 (from
2000 trades per day)
(ii) Tick size liquidity bands 3 and 4 (from
80 to 1999 trades per day)
(iii) Tick size liquidity band 1 and 2 (from 0
to 79 trades per day)
(b) Debt instruments
(i) Bonds
(ii) Money markets instruments
(c) Interest rates derivatives
(i) Futures and options admitted to trading
on a trading venue
(ii) Swaps, forwards, and other interest
rates derivatives
(d) credit derivatives
(i) Futures and options admitted to trading
on a trading venue
(ii) Other credit derivatives
(e) currency derivatives
(i) Futures and options admitted to trading
on a trading venue
(ii) Swaps, forwards, and other currency
derivatives
(f) Structured finance instruments
A

11. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 11
Why?
Who?
How?
When?
What?
?
(g) Equity Derivatives
(i) Options and Futures admitted to trading
on a trading venue
(ii) Swaps and other equity derivatives
(h) Securitised Derivatives
(i) Warrants and Certificate Derivatives
(ii) Other securitised derivatives
(i) Commodities Derivatives
(i) Options and Futures admitted to trading
on a trading venue
(ii) Other commodities derivatives
(i) Commodities derivatives and emission
allowances Derivatives
(i) Options and Futures admitted to trading
on a trading venue
(ii) Other commodities derivatives and
emission allowances derivatives
(j) Contracts for difference
(k) Exchange traded products (Exchange
traded funds, exchange traded notes and
exchange traded commodities)
(l) Emission allowances
(m) Other instruments
A

12. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 12
Why?
Who?
How?
When?
What?
?Direct Execution: Table I & II
B
Notification if < 1 average trade per business day in the previous year
B
Class of Instrument
Notification if < 1 average trade per business day in the previous year
Top five execution
venues ranked in
terms of trading
volumes
(descending order)
Proportion of
volume traded
as a
percentage of
total in that
class
Proportion of
orders
executed as
percentage of
total in that
class
Percentage of
passive orders
Percentage
of
aggressive
orders
Percentage of
directed
orders
Name and Venue
Identifier (MIC or
LEI)
B

13. Class of Instrument
Notification if < 1 average trade per business day in the previous year
Top five execution
venues ranked in
terms of trading
volumes
(descending order)
Proportion of
volume traded
as a
percentage of
total in that
class
Proportion of
orders
executed as
percentage of
total in that
class
Percentage of
passive orders
Percentage
of
aggressive
orders
Percentage of
directed
orders
Name and Venue
Identifier (MIC or
LEI)
What?
…are the Quantitative requirements?
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Why?
Who?
How?
When?
What?
?Direct Execution: Table I & II
C
Volume traded = The FCA has informally indicated that the volume of client
orders will be the market value of the transaction. For derivatives, the FCA
has informally indicated that firms should read across the measurements of
volume from Table 4 of Annex II of RTS 2.
C

14. Class of Instrument
Notification if < 1 average trade per business day in the previous year
Top five execution
venues ranked in
terms of trading
volumes
(descending order)
Proportion of
volume traded
as a
percentage of
total in that
class
Proportion of
orders
executed as
percentage of
total in that
class
Percentage of
passive orders
Percentage
of
aggressive
orders
Percentage of
directed
orders
Name and Venue
Identifier (MIC or
LEI)
What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 14
Why?
Who?
How?
When?
What?
?Direct Execution: Table I & II
D
Orders = The FCA has informally indicated that the number of orders will be
the number of client orders that have been sent to a venue / broker, rather
than the number of shares or units, or number of sub-orders into which a
client order is divided. Accordingly, a portfolio manager’s decision to deal
for a fund and two parallel accounts would be three client orders
D

15. Class of Instrument
Notification if < 1 average trade per business day in the previous year
Top five execution
venues ranked in
terms of trading
volumes
(descending order)
Proportion of
volume traded
as a
percentage of
total in that
class
Proportion of
orders
executed as
percentage of
total in that
class
Percentage of
passive orders
Percentage
of
aggressive
orders
Percentage of
directed
orders
Name and Venue
Identifier (MIC or
LEI)
What?
…are the Quantitative requirements?
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Why?
Who?
How?
When?
What?
?Direct Execution: Table I & II
E
ESMA has acknowledged in their Q&A…
E
E E

16. What?
…are the Quantitative requirements?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 16
Why?
Who?
How?
When?
What?
?
…that data in passive and aggressive
orders will have varying relevance to
the activities of portfolio managers.
Specifically, the Q&A notes that the
distinction is likely not relevant where
orders are sent to a broker for
execution and do not therefore need to
be disclosed. As an exception, the
distinction may be relevant and
therefore reportable where a portfolio
manager attaches a specific
instruction, which is understood to
mean that the broker will execute the
order in a way that is either passive or
aggressive.
And if a portfolio manager is executing
directly on a venue, then the distinction
will be relevant and should be
disclosed in the report, where
applicable. See ESMA Q&A (n 11) ch 1
(Best Execution).
E

17. What?
…are the Qualitative requirements?
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Why?
Who?
How?
When?
What?
?Must include the following:
 Relative factor importance
 Venue conflicts
 Venue payments
 Venue changes
 Client categorisation
 Retail factors
 Execution analysis tools
 CTP usage

18. How?
…to map securities to the list of instrument types?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 18
Why?
Who?
How?
When?
What?
?Type MIFID categorisation
Listed Equity (a) Equities - Shares & Depositary Receipts
Unlisted Investment (a) Equities - Shares & Depositary Receipts
Exchange traded fund (a) Equities - Shares & Depositary Receipts
Unlisted fund (m) Other Instruments
Depository Receipt (a) Equities - Shares & Depositary Receipts
Convertible
(b) Debt Instruments
(i) Bonds
Swap/Forward (IR)
(c) Interest Rates Derivatives
(ii) Swaps, Forwards and other interest rate derivatives
Swap (Credit)
(d) Credit Derivatives
(ii) Other Credit Derivatives
Credit Linked Note (EQ)
(g) Equity Derivatives
(ii) Swaps and other equity derivatives
Credit Linked Note (Debt)
(b) Debt Instruments
(ii) Money Market Instruments
Warrant
(h) Securitised Derivatives
(i) Warrant and Certificate Derivatives
Physical Real Estate N/A
Forestry N/A
Commodity (If FI) (m) Other Instruments
Commodity (if not a FI) N/A
Loan N/A

19. How?
…to complete the equity liquidity buckets?
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Why?
Who?
How?
When?
What?
?
ESMA Average Daily
Number of Transactions
(a) Equities – Shares & Depositary Receipts
(i) Tick size liquidity bands 5 and 6 (from 2000 trades per day)
(ii) Tick size liquidity bands 3 and 4 (from 80 to 1999 trades per day)
(iii) Tick size liquidity band 1 and 2 (from 0 to 79 trades per day)
A
https://www.esma.europa.eu/sites/default/files/equity_ticksize.xlsx
List of equities traded
(ISINs)
Assign liquidity band
Average size of trade /
average daily volume
Average Daily Number of
Transactions

20. How?
…to compute the number of orders?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 20
Why?
Who?
How?
When?
What?
?
Professional Client A
Professional Client A
Retail Client B
Decision to
deal for 500
of Stock
ABC
Placement – 200 (Broker
A)
Placement – 300 (Broker
B)
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Fill
Professional Clients  2 Orders
Retail Client  1 Order

21. How?
…to compute the number of orders?
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 21
Why?
Who?
How?
When?
What?
?
Professional Client A
Professional Client B
Decision to deal for 500
of Stock ABC
Professional Clients  6 Orders
Decision to deal for 100
of Stock XYZ
Decision to deal for 100
of Stock QWE

22. Questions
Eversheds Sutherland | RTS 28 Webinar | 26 March 2018 22
?

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