Best execution under MiFID II

Article 27(1) names the factors: price, costs, speed, likelihood of execution and settlement, size, nature, and any other consideration relevant to executing the order. The firm decides their relative importance using the characteristics of the client, of the order, of the financial instrument and of the execution venues available.

For a retail client the weighting is fixed by law. Article 64 of Delegated Regulation (EU) 2017/565 makes total consideration decisive: the price of the instrument plus all costs the client pays that relate directly to execution, including venue fees, clearing and settlement charges and any third-party fees. A firm cannot route a retail order to a venue with a better headline price and worse total cost and call that best execution.

The firm's own commissions enter the calculation too, where a choice of venue changes them, and a firm may not structure its commissions to discriminate unfairly between venues. That provision is what makes the routing decision and the pricing decision one question instead of two.

Article 27(5) and (7) require a policy, information to the client about it, and the client's consent before orders are executed. The policy names, for each class of instrument, the venues the firm uses and the factors that drive the choice. It is reviewed at least annually and whenever a material change occurs that affects the firm's ability to get the best result.

Article 27(4) adds the part firms skip: where a firm executes on only one venue, or passes orders to a single broker, the policy says so and explains why that arrangement still delivers the best possible result. A retail client who asks how execution works is entitled to an answer in sufficient detail and in a form they can understand, which rules out a policy written as a list of venue names.

It was removed. The MiFID II review reached political agreement in June 2023 and deleted the obligation in Article 27(6) to publish, annually and per class of instrument, the top five execution venues by trading volume together with information on the execution quality obtained. ESMA stated on February 13, 2024 that national authorities were no longer expected to prioritize supervision of that reporting duty, and the reason given was that the reports were not read and did not let anyone compare firms.

Two details matter for a firm reading this in Germany. The deletion arrived through Directive (EU) 2024/790, which member states transpose, so the duty formally ends when German law is amended, and ESMA's statement removed the supervisory pressure in the meantime. The earlier RTS 27 report, which venues published on execution quality, had already been dropped. ESMA is drafting a new technical standard on order execution policies, so the documentation duty grows while the publication duty shrinks.

Article 39a of MiFIR, inserted by Regulation (EU) 2024/791, prohibits an investment firm acting for retail or professional clients from receiving any fee, commission or non-monetary benefit from a third party for forwarding client orders to that third party for execution. Member states where the practice existed could allow it for clients in their own territory until June 30, 2026.

The reason the ban sits in a best execution discussion is the conflict it creates. A firm paid by the venue that receives its order flow has an interest in the routing decision that the client does not share, and the total consideration test for a retail client is exactly where that interest shows. Our page on neobrokers in Germany covers the business model side of this change.

The same 2024 regulation set up a consolidated tape for the Union: a single feed combining trade data from all venues and approved publication arrangements per asset class, with a provider selected by ESMA through a tender. For equities the tape carries post-trade data and, under the agreed design, the best bids and offers.

For best execution the tape answers a question firms could not previously answer cheaply: what the market actually showed at the moment of execution. Monitoring that relied on one venue's own data, or on an expensive commercial composite, gets a common reference, and a firm's claim that its routing achieved the best available result becomes testable against something outside its own systems.

With monitoring records, not with a published table. Article 27(7) requires a firm to monitor the effectiveness of its arrangements and its policy, to identify and correct deficiencies, and to assess regularly whether the venues in its policy deliver the best possible result. That means samples of orders compared against the market at the time, a documented conclusion, and evidence of the change when the conclusion was negative.

Most firms run this as a quarterly review of execution quality by instrument class and venue, with outliers investigated individually. The useful test of such a review is whether it ever changed a routing decision. A monitoring file that concluded for three years that everything was optimal describes a process nobody ran.

BaFin, under the Wertpapierhandelsgesetz, which transposes the MiFID II conduct rules into German law. BaFin examines execution policies, asks for the monitoring records behind them and has run market-wide reviews of how firms handle retail order routing.

The MiFID II provisions apply to a German investment firm and to a branch of a firm from another member state for the business conducted here, so a cross-border broker serving German retail clients answers to BaFin for its conduct toward them. The hub answer on MiFID II covers what the directive is, and this page stays on the execution duty.