MiFID II Best Execution: Best Result for Clients

Key Takeaways

• MiFID II best execution requires firms to take all sufficient steps for the best client result.
• For retail clients, the best result is judged by total consideration: price plus all execution costs.
• A common error is reading best execution as simply the best headline price.
• Firms must maintain and disclose an order execution policy and monitor its effectiveness.

What It Is

Best execution under MiFID II is set out in Article 27 of Directive 2014/65/EU. It obliges an investment firm executing client orders to take all sufficient steps to obtain the best possible result, considering a defined set of factors.

The duty is not a single number to hit but a process to run and evidence. A firm must build an order execution policy, apply it consistently, monitor whether it actually delivers good outcomes, and tell clients how their orders will be handled. MiFID II raised the bar from the earlier MiFID I wording of reasonable steps to all sufficient steps, a deliberately tougher standard.

The Intuition

A client placing an order rarely knows where it will be executed or whether the firm got a good deal. Without a rule, a firm could route orders to whichever venue paid it the most, or simply to the easiest one, regardless of the client's outcome.

Best execution closes that gap by making the client's result the firm's measurable obligation. It recognises that the best outcome is not always the same thing. For a large institutional order, speed and certainty of completion may matter more than shaving a fraction off the price. For a retail saver, the all-in cost is what counts. The rule asks the firm to weigh the right factors for the right client and to show its work.

How MiFID II Best Execution Works

Article 27 lists the execution factors a firm must weigh:

price
costs
speed
likelihood of execution and settlement
size
nature of the order
any other relevant consideration

The firm sets the relative importance of these factors in its execution policy, which can differ by client type, instrument, and venue. For retail clients, the rule simplifies the test: the best possible result is determined by total consideration, meaning the instrument's price plus all costs of execution, such as venue fees and clearing and settlement charges. For professional clients, other factors like speed or size can dominate.

Historically, two technical standards supported the duty: RTS 27, under which venues published execution-quality data, and RTS 28, under which firms reported their top venues. A later review of the framework removed the requirement for firms to publish detailed annual RTS 28 venue reports, shifting focus toward the underlying execution policy and monitoring rather than standardised public reports.

Worked Example

A retail client asks a broker to buy 100 shares. Two venues quote slightly different prices. Venue A shows a marginally better headline price but charges a higher execution fee and a settlement cost. Venue B shows a fractionally worse price but lower all-in costs.

Under MiFID II, the broker judges this retail order on total consideration, not the headline price alone. Adding price and all execution costs together, Venue B delivers the lower total cost to the client, so the broker routes the order there and records why. Had this been a large professional order where completing the full size quickly mattered most, the broker might reasonably have weighted likelihood of execution and speed above the marginal cost difference and chosen differently.

Common Mistakes

1. Equating best execution with best price. Price is one factor among several. For retail clients the test is total consideration, and for professional orders speed, size, and certainty can outweigh a small price edge.

2. Treating the policy as a static document. Firms must monitor whether their execution policy actually delivers good results and update it. A policy filed and forgotten does not satisfy the duty.

3. Applying one weighting to every client. Retail and professional clients are judged differently. A single set of factor weights for all order types misreads the rule.

4. Assuming RTS 28 reports are still required. A later review removed the requirement to publish detailed annual top-venue reports. Continuing to treat those reports as the core obligation misses where the duty now sits.

5. Forgetting the all-in cost for retail. Total consideration includes venue fees, clearing, and settlement, not just the quoted price. Ignoring these costs can route a retail order to a worse overall outcome.

Frequently Asked Questions

What is MiFID II best execution in simple terms? MiFID II best execution is the rule that an EU firm must take all sufficient steps to get the best possible result for a client when carrying out an order. It looks at more than just price.

How does MiFID II best execution affect investment decisions? It means your broker must weigh price, cost, speed, and certainty appropriately for your order, and for retail orders judge the result by total cost. That should reduce the chance of paying a hidden premium through poor routing.

What is a real-world example of MiFID II best execution? A broker filling a retail buy order compares two venues and chooses the one with the lower all-in cost, even if its headline price is slightly worse, because the retail test is total consideration.

How can investors use MiFID II best execution effectively? Ask your firm for its order execution policy and how it judges results for your client category. Understanding the factor weighting tells you whether price, speed, or certainty drives where your orders go.

How is MiFID II best execution different from investor protection rules? Best execution is the duty to get the best result when executing an order. The broader investor protection rules govern whether a product suits you and how costs and conflicts are disclosed before you trade.

Sources

1. ESMA. "Article 27 MiFID II, Obligation to execute orders on terms most favourable to the client." https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii/article-27-obligation-execute-orders
2. ESMA. "Final Report and Final Draft RTS on order execution policies." https://www.esma.europa.eu/sites/default/files/2025-04/ESMA35-335435667-6253_Final_Report_-_MiFID_II_RTS_on_order_execution_policies.pdf
3. S&P Global Market Intelligence. "Connecting the dots between Article 27, RTS 27, and RTS 28." https://www.spglobal.com/marketintelligence/en/mi/research-analysis/connecting-the-dots.html
4. ICMA. "MiFID II/R Fixed Income Best Execution Requirements." https://www.icmagroup.org/assets/documents/Regulatory/MiFID-Review/ICMA_MiFID2_Best-Ex_October-2016_051016.pdf

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.