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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-96493; File No. S7-29-22]

RIN 3235-AN22

Disclosure of Order Execution Information

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule.

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) is

proposing to amend existing requirements under the Securities Exchange Act of 1934

(“Exchange Act”) to update the disclosure required for order executions in national market

system (“NMS”) stocks. First, the Commission is proposing to expand the scope of reporting

entities subject to the rule that requires market centers to make available to the public monthly

execution quality reports to encompass broker-dealers with a larger number of customers. Next,

the Commission is proposing to modify the definition of “covered order” to include certain

orders submitted outside of regular trading hours and certain orders submitted with stop prices.

In addition, the Commission is proposing modifications to the information required to be

reported under the rule, including changing how orders are categorized by order size as well as

how they are categorized by order type. As part of the changes to these categories, the

Commission is proposing to capture execution quality information for fractional share orders,

odd-lot orders, and larger-sized orders. Additionally, the Commission is proposing to modify

reporting requirements for non-marketable limit orders (“NMLOs”) in order to capture more

relevant execution quality information for these orders by requiring statistics to be reported from

the time such orders become executable. The Commission is also proposing to eliminate time-toexecution categories in favor of average time to execution, median time to execution, and 99th

percentile time to execution, each as measured in increments of a millisecond or finer and

calculated on a share-weighted basis. In order to better reflect the speed of the marketplace, the

Commission is proposing that the time of order receipt and time of order execution be measured

in increments of a millisecond or finer, and that realized spread be calculated at both 15 seconds

and one minute. Finally, the Commission is proposing to enhance the accessibility of the

required reports by requiring all reporting entities to make a summary report available.

DATES: Comments should be received on or before March 31, 2023.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments:

•

Use the Commission’s internet comment form

(http://www.sec.gov/rules/submitcomments.htm); or

•

Send an e-mail to rule-comments@sec.gov. Please include File Number S7-29-22 on the

subject line.

Paper Comments:

•

Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street

NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-29-22. This file number should be

included on the subject line if e-mail is used. To help the Commission process and review your

comments more efficiently, please use only one method of submission. The Commission will

post all comments on the Commission’s website (http://www.sec.gov/rules/proposed.shtml).

Comments are also available for website viewing and printing in the Commission’s Public

Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between

the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s

Public Reference Room. All comments received will be posted without change. Persons

submitting comments are cautioned that we do not redact or edit personal identifying information

from comment submissions. You should submit only information that you wish to make

available publicly.

Studies, memoranda, or other substantive items may be added by the Commission or staff

to the comment file during this rulemaking. A notification of the inclusion in the comment file of

any materials will be made available on the Commission’s website. To ensure direct electronic

receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to

receive notifications by e-mail.

FOR FURTHER INFORMATION CONTACT: Kathleen Gross, Senior Special Counsel,

Lauren Yates, Senior Special Counsel, Christopher Chow, Special Counsel, or David Michehl,

Special Counsel, at (202) 551-5500, Division of Trading and Markets, Commission, 100 F

Street, NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 17

CFR 242.600 of Regulation National Market System (“Regulation NMS”) under the Exchange

Act (“Rule 600”) to add new defined terms to and modify certain existing defined terms in Rule

600 that are used in 17 CFR 242.605 of Regulation NMS under the Exchange Act (“Rule 605” or

“Rule”) as proposed to be amended; as well as amendments to Rule 605.

Table of Contents

Introduction ............................................................................................................................. 5

II.

Current Reporting of Execution Quality Statistics ................................................................. 9

Adoption of Rule 11Ac1-5 ............................................................................................... 9

Scope and Content of Rule 605 ...................................................................................... 10

1. Scope .............................................................................................................................. 10

2. Required Information ..................................................................................................... 13

3. Procedures for making reports available to the public ................................................... 15

Other Relevant Rules ..................................................................................................... 16

Overview of Need for Modernization ............................................................................ 22

EMSAC Recommendations, Petition for Rulemaking, and Other Comments .............. 29

III.

Proposed Modifications to Reporting Entities ................................................................... 38

Larger Broker-Dealers.................................................................................................... 38

Qualified Auction Mechanisms...................................................................................... 64

ATSs and Single-Dealer Platforms ................................................................................ 70

IV. Proposed Modifications to Scope of Orders Covered and Required Information ............. 74

Covered Order ................................................................................................................ 74

1. Orders Submitted Pre-Opening/Post-Closing ................................................................ 74

2. Stop Orders..................................................................................................................... 80

3. Non-Exempt Short Sale Orders ...................................................................................... 82

Required Information ..................................................................................................... 86

1. Categorization by Order Size ......................................................................................... 87

2. Categorization by Order Type ........................................................................................ 96

3. Timestamp Conventions............................................................................................... 108

4. Changes to Information Required for All Types of Orders ......................................... 115

5. Additional Required Information for Market, Marketable Limit, Marketable IOC, and

Beyond-the-Midpoint Limit Orders .................................................................................... 137

6. Additional Required Information for Executable NMLOs, Executable Stop Orders, and

Beyond-the-Midpoint Limit Orders .................................................................................... 143

Proposed Summary Execution Quality Reports ................................................................. 147

VI. Paperwork Reduction Act ................................................................................................ 160

Summary of Collection of Information ........................................................................ 160

Proposed Use of Information ....................................................................................... 162

Respondents ................................................................................................................. 162

Total PRA Burdens ...................................................................................................... 163

Request for Comment................................................................................................... 171

VII. Economic Analysis .......................................................................................................... 172

Introduction .................................................................................................................. 172

Market Failure .............................................................................................................. 173

Baseline ........................................................................................................................ 177

1. Regulatory Baseline ..................................................................................................... 178

2. Current Rule 605 Disclosure Requirements ................................................................. 203

3. Markets for Brokerage and Trading Services for NMS Stocks under Current Rule 605

Disclosure Requirements .................................................................................................... 265

Economic Effects ......................................................................................................... 278

1. Benefits......................................................................................................................... 279

2. Costs ............................................................................................................................. 339

3. Economic Effects on Efficiency, Competition, and Capital Formation ....................... 361

Reasonable Alternatives ............................................................................................... 364

1. Reasonable Alternative Modifications to Reporting Entities ....................................... 364

2. Reasonable Alternative Modifications to Scope of Covered Orders ........................... 374

3. Reasonable Alternative Modifications to Required Information ................................. 382

4. Reasonable Alternative Modifications to Accessibility ............................................... 391

5. Other Reasonable Alternatives ..................................................................................... 401

F. Request for Comment ...................................................................................................... 402

VIII.

Consideration of Impact on the Economy .................................................................... 414

IX.

Initial Regulatory Flexibility Analysis............................................................................. 415

Statutory Authority and Text of Proposed Rule ......................................................................... 417

Introduction

The Commission is proposing to update the requirements to disclose order execution

information under Rule 605. Currently, market centers that execute investor orders are required

to make monthly disclosures of basic information concerning their quality of executions. The

required disclosures have provided significant insight into execution quality at different market

centers; however, both the scope and the content of Rule 605 reports have not kept pace with

technological and market developments. The proposal would require broker-dealers with a larger

number of customers (“larger broker-dealers”)1 to prepare execution quality reports, would

capture execution quality information for more order types and sizes, and would require timebased metrics to be recorded at a more granular level that reflects current market speed. By

providing more relevant and accessible metrics, the proposal would better promote competition

among market centers and broker-dealers on the basis of execution quality and ultimately

improve the efficiency of securities transactions, consistent with the national market system

objectives.2

The national market system objectives of section 11A of the Exchange Act include the

economically efficient executions of securities transactions; fair competition among brokers and

dealers, among exchange markets, and between exchange markets and markets other than

Throughout the release, the term “larger broker-dealer” refers to a broker-dealer that

meets or exceeds the “customer account threshold,” as defined in proposed Rule

605(a)(7). See also infra section III.A (discussing proposed Rule 605(a)(7)).

15 U.S.C. 78k-1.

exchange markets; the availability of information on securities quotations and transactions; and

the practicability of brokers executing investor orders in the best market.3 These objectives guide

the Commission as it seeks to ensure market structure rules keep pace with continually changing

economic conditions and technological advancements. However, these objectives, in particular

the goal of promoting opportunities for the most willing seller to meet the most willing buyer

(i.e., order interaction) and the goal of promoting competition among markets, can be difficult to

reconcile.4 The Rule, along with 17 CFR 242.606 (“Rule 606”) of Regulation NMS, was adopted

in 2000 and together these rules required the public disclosure of execution quality and order

routing practices.5 In adopting these rules, the Commission recognized the importance of

vigorous competition among buyers and sellers in an individual security.6 However, the

Commission also recognized the importance of competition among market centers, which entails

some fragmentation of order flow.7 Such competition has benefits to investors including the

development of innovative trading services, lower fees, and faster executions.8 The Commission

characterized the rules as a “minimum step necessary to address fragmentation”9 and stated that

See 15 U.S.C. 78k-1(a)(1)(C).

See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594, 3597 (Jan.

21, 2010) (“Concept Release on Equity Market Structure”).

See Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414, 75416

(Dec. 1, 2000) (Disclosure of Order Execution and Routing Practices) (“Adopting

Release”).

See id. at 75415.

See id. at 75416.

See id.

Id.

by making visible the execution quality of the securities markets, the rules are intended to spur

more vigorous competition among market participants to provide the best possible prices for

investor orders.10

Although the Rule has provided visibility into execution quality at different market

centers, the content of the disclosures required by the Rule has not been substantively updated

since the Rule was adopted in 2000.11 Changed equity market conditions and technological

advancements have eroded the utility of the Rule. The speed and nature of trading have changed

dramatically as a result of technological improvements and the markets’ response to the

changing regulatory landscape.12 Trading has moved from being concentrated on a given

security’s listing exchange13 to being spread across a highly fragmented market where national

securities exchanges, alternative trading systems (“ATSs”), single-dealer platforms (“SDPs”),

off-exchange market makers, and others compete for order flow. Orders may be matched, routed,

See id. at 75414.

In 2018, the Commission amended Rule 600, 605, and 606 of Regulation NMS (“the

2018 Rule 606 Amendments”). The 2018 Rule 606 Amendments modified Rule 605 to

require that the public order execution quality reports be kept publicly available for a

period of three years. See Securities Exchange Act Release No. 84528 (Nov. 2, 2018), 83

FR 58338 (Nov. 19, 2018) (“2018 Rule 606 Amendments Release”).

For example, since the adoption of the Rule in 2000, the Commission has periodically

revised certain of its NMS rules, including the adoption of Regulation NMS in 2005. See,

e.g., Securities Exchange Act Release Nos. 51808 (June 9, 2005), 70 FR 37496 (June 29,

2005) (“Regulation NMS Adopting Release”); and 90610 (Dec. 9, 2020), 86 FR 18596

(Apr. 9, 2021) (“MDI Adopting Release”).

For example, in January 2005, the New York Stock Exchange Inc. (“NYSE”) executed

approximately 79.1% of the consolidated share volume in its listed stocks, compared to

25.1% in October 2009. See Concept Release on Equity Market Structure, 75 FR 3594

(Jan. 21, 2010) at 3595.

or cancelled in microseconds and market information is transmitted nearly instantaneously. At

the same time, individual investor14 participation in the equity markets has increased.15 Further,

the average share prices of certain stocks have continued to increase over time.16

The Commission continues to believe that facilitating the ability of the public to compare

and evaluate execution quality among different market centers is an effective means of

reconciling the need to promote both vigorous price competition and fair competition among

market centers. Providing increased visibility into the execution quality of larger broker-dealers

would similarly encourage competition among market participants. It is the Commission’s task

continually to monitor market conditions and competitive forces and to evaluate whether the

structure of the national market system as it evolves is achieving its Exchange Act objectives.17

Section 11A of the Exchange Act18 grants the Commission authority to promulgate rules

necessary or appropriate to assure the fairness and usefulness of information on securities

transactions19 and to assure that broker-dealers transmit and direct orders for the purchase or sale

As used in this release, the term “individual investor” will refer to natural persons that

trade relatively infrequently for their own or closely related accounts.

See, e.g., Caitlin McCabe, “New Army of Individual Investors Flexes Its Muscle,” The

Wall Street Journal (Dec. 30, 2020), available at https://www.wsj.com/articles/new-armyof-individual-investors-flexes-its-muscle-11609329600.

See MDI Adopting Release, 86 FR at 18606-07 (citing Securities Exchange Act Release

No. 88216 (Feb. 14, 2020), 85 FR 16726, 16739 (Mar. 24, 2020) (“MDI Proposing

Release”) (stating that “between 2004 and 2019, the average price of a stock in the Dow

Jones Industrial Average nearly quadrupled”)).

See Securities Exchange Act Release No. 42450 (Feb. 23, 2000), 65 FR 10577, 10585

(Feb. 28, 2000) (“Fragmentation Release”).

15 U.S.C. 78k–1.

15 U.S.C. 78k–1(c)(1)(B).

of qualified securities in a manner consistent with the establishment and operation of a national

market system.20 Through the proposed updates to Rule 605, the Commission seeks to promote

increased transparency of order execution quality, increase the information available to investors,

and help to promote competition among market centers and broker-dealers, while ameliorating

the potentially adverse effects of fragmentation on efficiency, price transparency, best execution

of investor orders, and order interaction.21

II.

Current Reporting of Execution Quality Statistics

Adoption of Rule 11Ac1-5

When the Commission adopted Rule 11Ac1-5, which was later re-designated as Rule

605, in 2000, there was little publicly available information to enable investors to compare and

evaluate execution quality among different market centers.22 The Commission proposed and

adopted Rule 11Ac1-5 together with Rule 11Ac1-6, which was later re-designated as Rule 606,

requiring broker-dealers to disclose the identity of market centers to which they route orders on

behalf of customers. When adopting these rules, the Commission stated that, taken together, they

should significantly improve the opportunity for investors to evaluate what happens to their

orders after they submit them to a broker-dealer for execution.23 The Commission reasoned that

competitive forces could then be brought to bear on broker-dealers both with respect to the

15 U.S.C. 78k–1(c)(1)(E).

See Concept Release on Equity Market Structure, 75 FR 3594 (Jan. 20, 2010) at 3597.

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75416. For clarity, when this

release discusses the adoption of Rule 605, it is referring to the Adopting Release, supra

note 5.

See id. at 75414.

explicit trading costs associated with brokerage commissions and the implicit trading costs

associated with execution quality.24 Rule 11Ac1-5 was intended to remedy an absence of public

information about how broker-dealers responded to trade-offs between price and other factors,

such as speed or reliability, and establish a baseline level of disclosure in order to facilitate crossmarket comparisons of execution quality.25

Scope and Content of Rule 605

Scope

Currently, Rule 605 requires market centers to make available, on a monthly basis,

standardized information concerning execution quality for covered orders in NMS stocks that

they received for execution. Market centers must provide specified measures of execution

See id. at 75419. Although it is difficult to isolate the effects of the Rule given the

evolution of the equity markets over time, one academic study examining the

introduction of Rule 605 found that the routing of marketable order flow by brokerdealers became more sensitive to changes in execution quality across market centers after

Rule 605 reports became available. See Ekkehart Boehmer, Robert Jennings & Li Wei,

Public Disclosure and Private Decisions: Equity Market Execution Quality and Order

Routing, 20 Rev. Fin. Stud. 315 (2007) (“Boehmer et al.”). Another study attributed a

significant decline in effective and quoted spreads following the implementation of Rule

605 to an increase in competition between market centers, who improved the execution

quality that they offered in order to attract more order flow. See Xin Zhao & Kee H.

Chung, Information Disclosure and Market Quality: The Effect of SEC Rule 605 on

Trading Costs, 42 J. Fin. Quantitative Analysis, 657 (Sept. 2007) (“Zhao & Chung”).

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75418, 75419. Data obtained from

Rule 605 reports are used by the third parties including academics and the financial press

to study a variety of topics related to execution quality, including liquidity measurement,

exchange competition, zero commission trading, and broker-dealer execution quality. See

infra notes 545-547 and accompanying text.

quality, including effective spread, average amount of price improvement, number of shares

executed, and speed of execution.26

Market centers

Regulation NMS defines the term “market center” to mean any exchange market maker,27

OTC market maker,28 ATS,29 national securities exchange,30 or national securities association.31

This definition was intended to cover entities that hold themselves out as willing to accept and

execute orders in NMS securities.32 Further, a market center must report on orders that it

See 17 CFR 242.605.

“Exchange market maker” means any member of a national securities exchange that is

registered as a specialist or market maker pursuant to the rules of such exchange. See 17

CFR 242.600(b)(32).

“OTC market maker” means any dealer that holds itself out as being willing to buy from

and sell to its customers, or others, in the United States, an NMS stock for its own

account on a regular or continuous basis otherwise than on a national securities exchange

in amounts of less than a block size. See 17 CFR 242.600(b)(64).

“Alternative trading system” or “ATS” means any organization, association, person,

group of persons, or system: (1) That constitutes, maintains, or provides a market place or

facilities for bringing together purchasers and sellers of securities or for otherwise

performing with respect to securities the functions commonly performed by a stock

exchange within the meaning of 17 CFR 240.3b-16; and (2) That does not: (i) Set rules

governing the conduct of subscribers other than the conduct of such subscribers’ trading

on such organization, association, person, group of persons, or system; or (ii) Discipline

subscribers other than by exclusion from trading. See 17 CFR 242.300(a). See also 17

CFR 242.600(b)(4) (stating that “alternative trading system” has the meaning provided in

17 CFR 242.300(a)).

“National securities exchange” means any exchange registered pursuant to section 6 of

the Exchange Act. See 17 CFR 242.600(b)(53).

See 17 CFR 242.600(b)(46). “National securities association” means any association of

brokers and dealers registered pursuant to section 15A of the Exchange Act. See 17 CFR

242.600(b)(52).

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75421.

“received for execution from any person,” which was intended to assign the disclosure obligation

to an entity that controls whether and when an order will be executed.33

In many instances, broker-dealers accept orders from customers for execution and then

route these customer orders to various execution venues, but do not execute customer orders

directly. These broker-dealers generally do not fall within the definition of “market center” and

therefore fall outside of the scope of Rule 605’s reporting requirements.34

Covered orders

The covered order definition is limited by several conditions and exclusions in order to

include those orders that provide a basis for meaningful and comparable statistical measures of

execution quality. A “covered order” is defined to include any market order or any limit order

(including immediate-or-cancel orders) received by a market center during regular trading hours

at a time when the national best bid and national best offer is being disseminated, and, if

executed, is executed during regular trading hours.35 This definition serves two purposes: (1)

See id.

See, e.g., 17 CFR 242.605(a) (monthly electronic reports by market centers). In some

instances, broker-dealers accept orders from customers for execution and execute a small

portion of their order flow internally (e.g., fractional share orders), and therefore would

fall within the definition of “market center” in Rule 600(b)(46) with respect to the portion

of their order flow for which they hold themselves out as being willing to buy or sell for

their own account on a regular or continuous basis. However, if, for example, they only

act as a market center for orders smaller than 100 shares, then these market centers would

not be required to prepare Rule 605 reports currently because the portion of their order

flow for which they act as a market center would include only orders that fall below the

smallest order size category (i.e., 100 to 499 shares). See 17 CFR 242.600(b)(defining

“categorized by order size”); 17 CFR 242.605)(a)(1) (stating that a market center’s

monthly report “shall be categorized by security, order type, and order size”).

See 17 CFR 242.600(b)(22).

because the nature and execution quality for regular and after-hours trading differs, it avoids

blending statistics for orders executed after-hours with those executed during the regular trading

day; and (2) because many of the statistical measures included in the rule rely on the availability

of the national best bid and offer (“NBBO”) at the time of order receipt, it excludes orders for

which execution quality metrics could not be calculated.

Covered orders do not include any orders for which the customer requests special

handling, which include, but are not limited to, market on open and market on close orders, stop

orders, all or none orders, and “not held” orders.36 The Commission reasoned that special

handling instructions could skew general execution quality measures.37

Required Information

Rule 605 reports contain a number of execution quality metrics for covered orders,

including statistics for all NMLOs with limit prices within ten cents of the NBBO at the time of

order receipt as well as separate statistics for market orders and marketable limit orders. Under

See id. Generally, a “not held” order provides the broker-dealer with price and time

discretion in handling the order, whereas a broker-dealer must attempt to execute a “held”

order immediately. See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19,

2018) at 58340. As a general matter, if a customer submits an order for an NMS stock to

its broker-dealer, whether it be for a fractional share, whole shares, or whole shares with

a fractional share component, and the customer reasonably expects its broker-dealer to

attempt to execute such order immediately, then the broker-dealer generally should

categorize the order as a held order.

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75421.

the Rule, the information is categorized by (1) individual security,38 (2) one of five order types,39

and (3) one of four order sizes.40 These categories provide users flexibility in determining how to

summarize and analyze the information.41

Within each of the three categories, the reports are required to include statistics about the

total number of orders submitted as well as the total number of shares submitted, shares

cancelled prior to execution, shares executed at the receiving market center, shares executed at

another venue, shares executed within different time-to-execution buckets, and average realized

spread.42 For market and marketable limit orders, the reports also must include average effective

spread; number of shares executed better than the quote, at the quote, or outside the quote;

average time to execution when executed better than the quote, at the quote, or outside the quote;

as well as average dollar amount per share that orders were executed better than the quote or

See 17 CFR 242.605(a)(1).

See id. “Categorized by order type” refers to categorization by whether an order is a

market order, a marketable limit order, an inside-the-quote limit order, an at-the-quote

limit order, or a near-the-quote limit order. See 17 CFR 242.600(b)(14).

See 17 CFR 242.605(a)(1). The current size categories are: 100 to 499 shares; 500 to

1999 shares; 2000 to 4999 shares, and 5000 or greater shares. See 17 CFR

242.600(b)(11). On June 22, 2001, the Commission granted exemptive relief to any order

with a size of 10,000 shares or greater, reasoning that the exclusion of very large orders

would help assure greater comparability of statistics in the largest size category of 5,000

or greater shares. See Letter from Annette L. Nazareth, Director, Division of Market

Regulation to Darla C. Stuckey, Assistant Secretary, NYSE, dated June 22, 2001 (“Large

Order Exemptive Letter”).

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75417. For instance, a user could

analyze execution quality for a group of securities and by size and order type.

See 17 CFR 242.605(a)(1)(i).

outside the quote.43 In addition, time of order execution and time of order receipt are required to

be measured to the nearest second.44

The categorization by order type does not currently include away-from-the-quote

NMLOs, i.e., those orders with a limit price more than ten cents away from the NBBO. In

proposing to exclude these orders in 2000, the Commission indicated that the execution quality

statistics for these types of orders may be less meaningful because execution of these types of

orders may be more dependent on the extent to which the orders’ limit prices were outside the

consolidated best bid and offer (“BBO”) and price movement in the market than on their

handling by the market center.45

Procedures for making reports available to the public

The Rule 605 NMS Plan establishes procedures for market centers to make data available

to the public in a uniform, readily accessible, and usable electronic form.46 The Plan also requires

market centers to post their monthly reports on an internet website that is free of charge and

See 17 CFR 242.605(a)(1)(ii).

See 17 CFR 242.600(b)(91), (92).

See Securities Exchange Act Release No. 43084 (July 28, 2000), 65 FR 48406, 48414

(Aug. 8, 2000) (File No. S7-16-00) (Disclosure of Order Execution and Routing

Practices) (“Proposing Release”) (stating that the Commission preliminarily believed that

the rule’s statistical measures (e.g., fill rates and speed of execution) for this type of order

may be less meaningful because they would be more dependent on the extent to which

the orders’ limit prices were outside the consolidated BBO (and movements in market

prices) than on their handling by a market center).

See 17 CFR 242.605(a)(2) and Securities and Exchange Commission File No. 4-518

(National Market System Plan Establishing Procedures Under Rule 605 of Regulation

NMS) (“Rule 605 NMS Plan” or “Plan”). See also Securities Exchange Act Release No.

44177 (Apr. 12, 2001), 66 FR 19814 (Apr. 17, 2001) (order approving the Plan).

readily accessible to the public.47 Generally, reports are posted on market centers’ own websites;

however, they may be posted on a third-party vendor site if a market center uses a vendor to

prepare its reports.48 In addition, formatting for Rule 605 data is governed by the Plan. Among

other things, the Plan sets forth the file type and structure of the reports and the order and format

of fields, yielding reports that are structured and machine-readable.49

Other Relevant Rules

Rule 606 reports address order handling information and Rule 606’s reporting

requirements differ for held orders versus not held orders. With respect to held orders, Rule

606(a)(1) requires broker-dealers to produce quarterly public reports regarding their routing of

non-directed orders50 in NMS stocks that are submitted on a held basis. These reports must

identify certain regularly-used venues to which the broker-dealer routed non-directed orders for

Currently, the parties to the Plan are the 16 registered national securities exchanges

trading NMS stocks and 1 national securities association (the “Participants”). Although

not all market centers are Participants, the Participants are required to enforce compliance

with the terms of the Plan by their members and person associated with their members.

See 17 CFR 242.608(c). Market centers that are not Participants must make arrangements

with a Participant to act as their “Designated Participant.” See Plan at IV. Each market

center must notify its Designated Participant of the website where its reports may be

downloaded, and each Designated Participant must maintain a comprehensive list of links

for all market centers for which it functions as a Designated Participant. See Plan at IV,

VIII(c).

See Plan at n.3.

See id. at 2 (“Section V . . . provides that market center files must be in standard, pipedelimited ASCII format”).

A “non-directed order” means any order from a customer other than a directed order. See

17 CFR 242.600(b)(56). A “directed order” means an order from a customer that the

customer specifically instructed the broker or dealer to route to a particular venue for

execution. See 17 CFR 242.600(b)(27).

execution and provide data on the percentage of orders routed to each venue.51 These reports also

must provide information, for each venue identified, about the payment relationship between the

broker-dealer and the venue, including any payments made by a venue to a broker-dealer for the

right to trade with its customer order flow (i.e., payment for order flow or “PFOF”) or rebates,52

and a description of the material aspects of the broker-dealer’s relationship with the venue and

the terms of arrangements that may influence a broker-dealer’s order routing decision.53 In

addition, Rule 606(b)(1) requires broker-dealers to provide to their customers, upon request,

reports that include high-level customer-specific order routing information, such as the identity

of the venues to which the customer orders were routed for execution in the prior six months and

the time of the transactions, if any, that resulted from such orders.54 For orders submitted on a

held basis, the reports required by Rule 606 do not contain any execution quality information.

However, a customer of a reporting broker-dealer may access the execution quality reports

produced pursuant to Rule 605 by each venue identified as a routing destination in the brokerdealer’s Rule 606 reports, to the extent that venue is a market center.55

In contrast, Rule 606 requires broker-dealers to produce reports that provide detail

regarding execution quality in connection with not held orders, which are typically used by

See 17 CFR 242.606(a)(1)(ii) (stating that each section in the required report shall

include the identity of the ten venues to which the largest number of total non-directed

orders for the section were routed for execution and of any venue to which five percent or

more of non-directed orders were routed).

See 17 CFR 242.606(a)(1)(iii).

See 17 CFR 242.606(a)(1)(iv).

See 17 CFR 242.606(b)(1).

See supra note 23 and accompanying text.

institutional investors.56 Specifically, Rule 606(b)(3) requires broker-dealers to produce reports

pertaining to order routing upon the request of a customer that places, directly or indirectly, one

or more orders in NMS stocks that are submitted on a not held basis.57 These customer-specific

reports generally must include detailed information, by venue, including metrics pertaining to the

broker-dealer’s routing of the customer’s orders and the execution of such orders.58 In particular,

the venue-by-venue order execution information must include aggregated metrics such as fill

rate, percentage of shares executed at the midpoint, and percentages of total shares executed that

were priced on the side of the spread more favorable to the order and on the side of the spread

less favorable to the order.59

Current Rule 606 reflects significant changes that were made in the 2018 Rule 606

Amendments.60 When adopting the 2018 Rule 606 Amendments, the Commission identified

intensified competition for customer orders, the rise in the number of trading centers, and the

introduction of new fee models for execution services as the main concerns with held orders for

See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58345 (stating

that by using the not held order distinction, Rule 606(b)(3) as adopted will likely result in

more Rule 606(b)(3) disclosures for order flow that is typically characteristic of

institutional customers—not retail customers—and will likely cover all or nearly all of

the institutional order flow). In contrast, held orders are typically used by individual

investors. See, e.g., id. at 58372 (stating that retail investors’ orders are typically

submitted on a held basis and are typically smaller in size).

See 17 CFR 240.606(b)(3).

See 17 CFR 240.606(b)(3)(ii).

See generally 2018 Rule 606 Amendments Release.

NMS stocks that it sought to address with the proposal.61 The Commission stated that the more

prevalent use of financial inducements to attract order flow from broker-dealers that handle retail

investor orders created new, and in many cases significant, potential conflicts of interests for

these broker-dealers.62 Further, the Commission stated that enhanced public disclosures for held

orders should focus on providing more detailed information regarding these financial

inducements, as opposed to the different information geared towards not held orders from

customers that is set forth in Rule 606(b)(3).63 Therefore, the Commission adopted enhanced

public disclosures pursuant to Rule 606(a)(1) that focused on increased transparency for the

financial inducements that broker-dealers face when determining where to route held order

flow.64 The Commission stated that this enhancement would allow customers to better assess the

See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58372.

See id.

See id. The Commission also considered but did not adopt an aspect of the proposal that

would have required broker-dealers to make publicly available a report that would have

aggregated Rule 606(b)(3) order handling information pertaining to not held orders. See

id. at 58369-70. The Commission stated that its decision stemmed from fundamental

differences between held order flow and not held order flow, because held orders are

typically non-directed orders with no specific order-handling instructions for the brokerdealer. See id. at 58371 (stating that held order flow is handled similarly by brokerdealers—held orders are generally small orders that are internalized or sent to OTC

market makers if marketable or fully executed on a single trading center if not

marketable). The Commission further stated that, by contrast, not held order flow is

diverse and customers may provide specific order handling instructions to their brokerdealers, limit the order handling discretion of their broker-dealers, or have specific needs

that impact the broker-dealers’ handling of these orders. See id. Therefore, the

Commission concluded that the disparate behavior of customers when using not held

orders limited the potential ability for customers and broker-dealers to use aggregated

Rule 606(b)(3) order handling information to better understand broker-dealers’ routing

behavior or compare broker-dealers’ order routing performance. See id.

See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58373.

nature and quality of broker-dealers’ order handling services, including the potential for brokerdealer conflicts of interest, and would also benefit customers to the extent that broker-dealers

were spurred to compete further by providing enhanced order routing services and better

execution quality.65

At the time of the 2018 Rule 606 Amendments, the Commission considered suggestions

from the Equity Market Structure Advisory Committee (“EMSAC”) and other commenters that

the Commission include more or different execution quality statistics in the required

disclosures.66 But the Commission stated that the limited modifications to Rule 606(a) that it was

adopting were reasonably designed to further the goal of enhancing transparency regarding

broker-dealers’ order routing practices and customers’ ability to assess the quality of those

practices, and that the suggested execution quality statistics were not necessary to achieve that

goal.67 However, the Commission noted that its determination not to adopt the additional specific

See id. In comparison, with respect to the addition of customer-specific order-handling

disclosures in Rule 606(b)(3), the Commission stated that these disclosures are

particularly suited to customers that submit not held NMS stock orders because the

disclosures set forth detailed order handling information that is useful in evaluating how

broker-dealers exercise the discretion attendant to not held orders and, in the process,

carry out their best execution obligations and manage the potential for information

leakage and conflicts of interest. See id. at 58344. As part of the 2018 Rule 606

Amendments, the Commission added Rule 606(b)(3) to require broker-dealers to make

detailed, customer-specific order handling disclosures available to institutional

customers, in particular, who previously were not entitled to disclosures under the rule

for their order flow, or were entitled to disclosures that had become inadequate in a

highly automated and more complex market. See id.

See id. at 58379. See also EMSAC III at 2-3 (suggesting that the Commission modify the

enhancements to Rule 606 to include, among other things, execution quality statistics by

routing destination).

See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58379.

disclosures was not an indication that the Commission had formed a decision on the validity or

usefulness of the suggested execution quality statistics.68

Separately, each broker-dealer has a legal duty to seek to obtain best execution of

customer orders.69 The duty of best execution requires broker-dealers to execute customers’

trades at the most favorable terms reasonably available under the circumstances.70 When

adopting Rule 605 and Rule 606, the Commission stated that these rules do not address and

therefore do not change the existing legal standards that govern a broker-dealer’s duty of best

execution.71 The Commission recognized that the information contained in the Rule 605 reports

(and Rule 606 reports) will not, by itself, be sufficient to support conclusions regarding a brokerdealer’s compliance with its legal responsibility to obtain the best execution of customer

orders.72 As the Commission stated, any such conclusions would require a more in-depth

See id.

See, e.g., Regulation NMS Adopting Release, 70 FR at 37537; Newton v. Merrill, Lynch,

Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525 U.S.

811 (1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act

Release No. 40900, 53 SEC 1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444

F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636 (1948), aff’d sub nom. Hughes

v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). In addition, the Commission is separately

proposing a rule concerning broker-dealers’ duty of best execution. See Securities

Exchange Act Release No. 96496 (Dec. 14, 2022) (File No. S7-32-22) (Regulation Best

Execution). The Commission encourages commenters to review that proposal to

determine whether it might affect their comments on this proposing release.

See Regulation NMS Adopting Release, 70 FR 37496 (Jun. 29, 2005) at 37538 (referring

to the best reasonably available price and citing Newton, 135 F.3d at 266, 269-70, 274).

Newton also specified certain other factors relevant to best execution—order size, trading

characteristics of the security, speed of execution, clearing costs, and the cost and

difficulty of executing an order in a particular market. See Newton, 135 F.3d at 270 n.2.

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75420.

See id.

analysis of the broker-dealer’s order routing practices than will be available from the disclosures

required by the rules.73

Overview of Need for Modernization

The U.S. equity markets have evolved significantly since the Commission adopted the

Rule in 2000. For instance, the equities markets have become increasingly fragmented, as both

the market shares of individual national securities exchanges became less concentrated and an

increased percentage of order flow moved off-exchange. In 2000, there were 9 registered

national securities exchanges and one registered national securities association.74 A large

proportion of the order flow in listed equity securities was routed to a few, mostly manual,

trading centers,75 and the primary listing exchanges retained a high percentage of the order flow

for exchange-listed equities.76

See id. For example, the execution quality statistics included in Rule 605 do not

encompass every factor that may be relevant in determining whether a broker-dealer has

obtained best execution, and the statistics in a market center’s reports typically will

reflect orders received from a number of different routing broker-dealers. See id. See also

infra notes 564-565 and accompanying text for discussion of an investment adviser’s

fiduciary duty, including the duty to seek best execution of a client’s transactions where

the investment adviser has the responsibility to select broker-dealers to execute client

trades.

See Securities and Exchange Commission, Annual Report for fiscal year 2000, at 38

available at https://www.sec.gov/pdf/annrep00/ar00full.pdf.

See Securities Exchange Act Release No. 78309 (July 13, 2016), 81 FR 49432, 49436

(July 27, 2016) (“Rule 606 Proposing Release”); Fragmentation Release, 65 FR 10577

(Feb. 28, 2000) at 10579-80.

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75415 (stating that in September

2000, for example, NYSE accounted for 83.3% of the share volume in NYSE equities

and that the American Stock Exchange, LLC (“Amex”) accounted for 69.9% of share

volume in Amex equities). See also Concept Release on Equity Market Structure, 75 FR

3594 (Jan. 21, 2010) at 3595 (stating that in January 2005, NYSE executed

approximately 79.1% of the consolidated share volume in its listed stocks, as compared

In contrast, trading in the U.S. equity markets today is highly automated and spread

among different types of trading centers, allowing even more choices about where orders may be

routed. The types of trading centers that currently trade NMS stocks are: (1) national securities

exchanges operating SRO trading facilities;77 (2) ATSs that trade NMS stocks (“NMS Stock

ATSs”);78 (3) exchange market makers; (4) wholesalers;79 and (5) any other broker-dealer that

executes orders internally by trading as principal or crossing orders as agent.80 In the first quarter

of 2022, NMS stocks were traded on 16 national securities exchanges, and off-exchange at 32

NMS Stock ATSs and at over 230 other FINRA members.81 National securities exchanges

to 25.1% in October 2009). In addition, NYSE-listed stocks were traded primarily on the

floor of the NYSE in a manual fashion until October 2006, at which time NYSE began to

offer fully automated access to its displayed quotations. See Concept Release on Equity

Market Structure, 75 FR 3594 (Jan. 21, 2010) at 3594-95. However, stocks traded on the

NASDAQ Stock Market LLC (“NASDAQ”), which in 2000 was owned and operated by

a national securities association, were already trading in a highly automated fashion at

many different trading centers. See id. at 3595; Fragmentation Release, 65 FR 10577

(Feb. 28, 2000) at 10580.

See 17 CFR 242.600(b)(89) (defining “SRO trading facility” as, among other things, a

facility operated by a national securities exchange that executes orders in a security).

An “NMS Stock ATS” as used in this release is an ATS that has filed an effective Form

ATS-N with the Commission.

The term “wholesaler” is not defined in Regulation NMS, but is commonly used to refer

to an OTC market maker that seeks to attract orders from broker-dealers that service the

accounts of a large number of individual investors.

See 15 U.S.C. 78c(a)(4)(A) (defining “broker” generally as any person engaged in the

business of effecting transactions in securities for the account of others); 15 U.S.C.

78c(a)(5)(A) (defining “dealer” generally as any person engaged in the business of

buying and selling securities for such person’s own account through a broker or

otherwise). The term “broker-dealer” is used in this release to encompass all brokers, all

dealers, and firms that are both brokers and dealers. See also 17 CFR 242.600(b)(95)

(defining “trading center”).

See infra note 766 and accompanying text; Table 7.

executed approximately 60% of NMS share volume.82 The majority of off-exchange volume was

executed by wholesalers, who executed almost one quarter of total volume (23.9%) and about

60% of off-exchange volume.83 Some OTC market makers, such as wholesalers, operate SDPs

through which they execute institutional orders in NMS stocks against their own inventory.84

Broker-dealers that primarily service the accounts of individual investors (referred to in

this release as “retail brokers”) often route the marketable orders of individual investors in NMS

stocks to wholesalers.85 The primary business model of wholesalers is to trade internally as

principal with individual investor orders. They do not publicly display or otherwise reveal the

prices at which they are willing to trade internally as a means to attract individual investor orders

from broker-dealers. Moreover, it is generally more profitable for liquidity providers such as

wholesalers to execute against orders with lower adverse selection risk because of the reduced

risk that prices will move against the liquidity provider.86 Wholesalers may provide different

execution quality to different broker-dealers, depending on factors including the level of adverse

selection risk of their order flow.87

See infra note 767 and accompanying text; Table 7.

See infra Table 7.

See infra note 768 and accompanying text.

There are six wholesalers that internalize the majority of individual investors’ marketable

orders. See infra note 766 and accompanying text.

See infra note 608 and accompanying text.

Analysis of Consolidated Audit Trail (“CAT”) data from the first five months of 2022

found that wholesalers provide different execution quality to different retail brokers, and

in particular that broker-dealers with higher adverse selection risk systematically receive

higher effective spreads and lower price improvement than broker-dealers with lower

adverse selection risk. See infra notes 609-613 and accompanying text; Table 3. For

Some retail brokers may face conflicts of interest when making order routing decisions,

including whether to route to a particular wholesaler.88 For example, broker-dealers could face

conflicts of interest when making routing decisions due to their own affiliation with market

centers (e.g., if the broker-dealer operates its own ATS), from the presence of liquidity fees and

rebates on some market centers, or from payments that some retail brokers receive from

wholesalers to attract the order flow of their individual investor customers (PFOF).89

The Commission is concerned that variations in execution quality across broker-dealers

may be difficult to assess using current Rule 605 and Rule 606 reports. In particular, brokerdealers that route customer orders externally, rather than executing customer orders internally,

are not required to prepare Rule 605 reports because they do not meet the definition of market

center. Customers of a broker-dealer can use Rule 606 reports to identify market centers to which

the broker-dealer routes, and then access those market centers’ Rule 605 reports to review the

execution quality that the market center provides to all orders that the market center received for

execution. However, to the extent that the market center may provide different execution quality

to orders based on different order routing arrangements with different broker-dealers, current

further discussion of differences in execution quality across broker-dealers, see infra

section VII.C.1.a).

See infra section VII.C.3.a)(2). See also 2018 Rule 606 Amendments Release, 83 FR

58338 (Nov. 19, 2018) at 58372 (stating that financial inducements to attract order flow

from broker-dealers that handle retail investor orders have become more prevalent and

for some broker-dealers such inducements may be a significant source of revenue); supra

note 62 and accompanying text (stating that these financial inducements have created

new, and in many cases significant, potential conflicts of interest for these brokerdealers).

See infra notes 759-762 and accompanying text.

Rule 605 and 606 do not require reports that provide investors with a way to assess these

differences.

In addition, developments in trading, including the increased speed of trading, further

necessitate proposing updates to the Rule. Average stock prices have continued to increase over

time,90 and odd-lots91 and fractional shares92 continue to trade with increasing frequency.

Similarly, odd-lot quotes in higher-priced stocks continue to offer prices that are frequently

better than the round lot NBBO for these stocks,93 and this better-priced odd-lot liquidity is

See supra note 16.

See MDI Adopting Release, 85 FR 18612 (Apr. 2, 2020) at 18616 (describing analyses

included in the MDI Adopting Release confirming observations made in the MDI

Proposing Release that a significant proportion of quotation and trading activity occurs in

odd-lots, particularly for frequently traded, high-priced stocks). Analysis using the NYSE

Trade and Quote database (obtained via Wharton Research Data Services (WRDS)

(“TAQ data” or “NYSE TAQ data”) found that odd-lots increased from around 15% of

trades in January 2014 to more than 55% of trades in March 2022. An analysis of data

from the SEC’s MIDAS analytics tool available at

https://www.sec.gov/marketstructure/datavis.html#.YoPskqjMKUk shows that, in Q1

2022, odd-lots made up 81.2% of on-exchange trades (40% of volume) for stocks in the

highest price decile and 25% of on-exchange trades (2.72% of volume) for stocks in the

lowest price decile. See dataset “Summary Metrics by Decile and Quartile” available at

https://www.sec.gov/marketstructure/downloads.html.

Analysis using CAT data for executed orders in March 2022 found that an estimated

46.63 million originating orders with a fractional share component were eventually

executed on- or off-exchange. This represents approximately 2% of all executed orders

and 14% of executed orders from individual accounts. Generally, accounts classified as

“individual” in CAT are attributed to natural persons. See also infra note 647 and

accompanying text.

See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021)at 18729. In addition, a recent

academic working paper shows that odd-lots offer better prices than the NBBO 18% of

the time for bids and 16% of the time for offers. This percentage increases monotonically

in the stock price, for example, for bid prices, increasing from 5% for the group of

lowest-price stocks in their sample, to 42% for the group of highest-priced stocks. See

Robert P. Bartlett, Justin McCrary, and Maureen O’Hara, The Market Inside the Market:

distributed across multiple price levels.94 In addition, odd-lot rates have increased among lower

priced stocks.95 Because current Rule 605 size categories exclude orders smaller than 100 shares,

a significant proportion of market activity is currently excluded.96 An analysis of Rule 605 data

shows that Rule 605 coverage has likely declined in the decades since the initial adoption of Rule

605.97 Further, because order size categories are tied to the number of shares, the categories may

group orders of very different notional values, which may complicate comparisons of aggregate

Odd-Lot Quotes (Feb. 1, 2022), available at SSRN: https://ssrn.com/abstract=4027099

(“Bartlett, et al.”). See also Elliot Banks, BMLL Technologies, Inside the SIP and the

Microstructure of Odd-Lot Quotes (observing an upward trend in odd-lot trading inside

the NBBO from January 2019 to January 2022).

See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18613 n.202 (describing

analysis included in the MDI Adopting Release that examined quotation data for the

week of May 22-29, 2020 for stocks priced from $250.01 to $1000.00 and found that

there is odd-lot interest priced better than the new round lot NBBO 28.49% of the time,

and, in 48.49% of those cases, there are better priced odd-lots at multiple price levels).

For example, odd-lot rates for corporate stock price deciles 1-3 (the lowest priced

corporate stocks comprising 30% of all corporate stocks) have been higher on average in

2021 and June 2022 (34%, 39%) as compared to 2019 and 2020 (26%, 29%). Similarly,

exchange-traded products (“ETPs”) also exhibit higher average odd-lot rates in price

quartiles 1 and 2 (the lowest priced ETPs comprising 50% of all ETPs) on average in

2021 and June 2022 (26%, 29%) compared to 2019 and 2020 (20%, 23%). See SEC

market structure analytics data, available at

https://www.sec.gov/marketstructure/midas.html.

See supra notes 91-92. See also infra notes 619-622 and accompanying text (estimating,

based on analysis of Tick Size Pilot data, coverage of current Rule 605 reporting

requirements).

Analysis comparing one market center’s volume (NYSE) to TAQ data shows that an

estimated 50% of shares executed during regular market hours were included in Rule 605

reports as of February 2021, and shows that this number has been on a slightly downward

trend since around mid-2012. See infra section VII.C.2.b) and infra Figure 3.

execution quality. Finally, the speed of the market has increased exponentially since 2000,98

rendering the Rule’s current one-second timestamp conventions less meaningful.

Analysis of data from the SEC’s MIDAS analytics tool shows that the percent of onexchange NMLOs that are fully executed within one millisecond (as a percentage of all

fully executed on-exchange NMLOs) has increased from 2.1% in Q1 2012 to 10.3% in

Q1 2022 for small cap stocks, and from 5.9% in Q1 2012 to 15.7% in Q1 2022 for large

cap stocks. Further, in Q1 2022 more than half (51.6%) of NMLOs executed in less than

one second in large market cap stocks. See dataset “Conditional Cancel and Trade

Distribution,” available at https://www.sec.gov/marketstructure/downloads.html. See also

infra note 692 and accompanying text.

EMSAC Recommendations, Petition for Rulemaking, and Other Comments

The EMSAC99 as well as commenters responding to the Commission’s Concept Release

on Equity Market Structure100 and to the 2018 Rule 606 Amendments,101 have recommended that

See Transcript from EMSAC Meeting (Aug. 2, 2016), available at

https://www.sec.gov/spotlight/emsac/emsac-080216-transcript.txt (“EMSAC I”);

Transcript from EMSAC Meeting (Nov. 29, 2016), available at

https://www.sec.gov/spotlight/equity-market-structure/emsac-transcript-112916.txt

(“EMSAC II”); EMSAC Recommendations Regarding Modifying Rule 605 and Rule 606

(“EMSAC III”), Nov. 29, 2016, available at https://www.sec.gov/spotlight/emsac/emsacrecommendations-rules-605-606.pdf.

100

See, e.g., Letter from Christopher Nagy, CEO, and Dave Lauer, President, KOR Group

LLC (Apr. 4, 2014) (“KOR Group I”); Letter from Citigroup Global Markets Inc. and its

affiliates re Concept Release on Equity Market Structure (Release No. 34-61358; File No.

S7-02-10) (Aug. 7, 2014) (“Citigroup Letter”); Letter from Consumer Federation of

America re File Number S7-02-10, Comments on Concept Release on Equity Market

Structure (Sept. 9, 2014) (“Consumer Federation I”); Letter from BlackRock, Inc. re

Equity Market Structure Recommendations; Concept Release on Equity Market

Structure, File No. S7-02-10; Regulation Systems Compliance and Integrity, File No. S701-13; and Equity Market Structure Review (Sept. 12, 2014) (“BlackRock Letter”);

Letter from Financial Information Forum re Rule 605/606 Enhancements from a Retail

Perspective (Oct. 22, 2014) (“FIF I”); Letter from Securities Industry and Financial

Markets Association re Recommendations for Equity Market Structure Reforms (Oct. 24,

2014) (“SIFMA Letter”); Healthy Markets Proposal re SEC Rule 605/606 Reform

(referenced in Aug. 2, 2016 statement of Christopher Nagy before the EMSAC)

(“Healthy Markets II”) at 2; Letter from Healthy Markets re Notice of Meeting of Equity

Market Structure Advisory Committee Meeting (File No. 265-29); List of Rules to be

Reviewed Pursuant to the Regulatory Flexibility Act (File No. S7-21-16); Concept

Release on Equity Market Structure (File No. S7-02-10) (Apr. 3, 2017) (“Healthy

Markets III”); Letter from Healthy Markets re Potential Reforms Regarding the Provision

of Market Data, Concept Release on Equity Market Structure (Rel. No. 34-61358; File

No. S7-02-10), and Market Data and Market Access Roundtable (Rel. No. 4-729) (Jan. 3,

2020) (“Healthy Markets IV”). Comments on the Commission’s 2010 Concept Release

on Equity Market Structure are available at https://www.sec.gov/comments/s7-0210/s70210.shtml. As with various other comments referenced herein, including, without

limitation, comments received in connection with the Concept Release, the comments

were not provided with reference to the proposals discussed in this release.

101

See, e.g., Letter from James J. Angel, Ph.D., CFA, Georgetown University re Disclosure

of Order Handling Information, File S7-14-16 (Aug. 26, 2016) (“Angel Letter”); Letter

the Commission amend Rule 605 to modernize the Rule and increase the usefulness of available

execution quality disclosures. In addition, one broker-dealer petitioned the Commission to make

“modest rule amendments” to Rule 605 and further stated that “[i]mproving these metrics is

essential for a market participant to quantitatively and qualitatively assess whether any particular

broker-dealer obtained the most favorable terms under the circumstances for customer orders.”102

The EMSAC and commenters generally support expanding the Rule’s scope beyond

market centers.103 In particular, in November 2016, the EMSAC recommended that the

Commission “[e]xpand the scope of Rule 605 by requiring every broker-dealer to report with an

exemption for broker[-]dealers with de minimis order flow, aligning the scope of Rule 605

reporting with Rule 606.”104 The EMSAC’s recommendation acknowledged that there would be

compliance and implementation costs associated with this expansion, but stated that the use of

from Consumer Federation of America re File Number S7-14-16, Disclosure of Order

Handling Information (Sept. 26, 2016) (“Consumer Federation II”); Letter from Fidelity

Investments re Disclosure of Order Handling Information; File No. S7-14-16 (Sept. 26,

2016) (“Fidelity Letter”); Letter from Financial Information Forum re Release No. 3478309; File No. S7-14-16; Disclosure of Order Handling Information (Sept. 26, 2016)

(“FIF II”); Letter from Financial Services Roundtable re Disclosure of Order Handling

Information Proposal [File No. S7-14-16] (Sept. 26, 2016) (“Financial Services

Roundtable Letter”); Letter from Healthy Markets Association re Disclosure of Order

Handling Information (S7-14-16) (Sept. 26, 2016) (“Healthy Markets I”); Letter from

IHS Markit re Disclosure of Order Handling Information; Proposed Rule, Release No.

34-78309; File No. S7-14-16 (Sept. 26, 2016) (“IHS Markit Letter”). Comments

receiving in connection with the 2018 Rule 606 Amendments are available at

https://www.sec.gov/comments/s7-14-16/s71416.htm.

102

Letter from Virtu Financial re Petition for Rulemaking to Amend SEC Rule 605 (Sept.

20, 2021) (“Virtu Petition”) at 2, available at

https://www.sec.gov/rules/petitions/2021/petn4-775.pdf.

103

See EMSAC III at 2; IHS Markit Letter at 2; Healthy Markets II at 2.

104

EMSAC III at 2 (adopting recommendations of the Customer Issues Subcommittee).

third-party vendors may mitigate some of these concerns.105 Further, the EMSAC’s

recommendation stated that having all broker-dealers provide Rule 605 data would create an

opportunity for market participants, academics, and the press to evaluate these statistics in a

consistent manner.106

When the EMSAC met to consider this recommendation, panelists provided some

explanation of the gaps in current execution quality disclosures. One panelist stated that the

current reporting regime “miss[es] important information about the overall execution quality of a

covered order” because Rule 605 reports only pertain to order routing handled by market

centers.107 This panelist explained that orders are handled by smart order routers that may not be

located within a market center, and the Rule 605 data does not capture price slippage or delays

that may occur as these orders are received by multiple non-executing market centers or brokerdealers.108 Another panelist described the difficulties that he encountered when trying to compare

the execution quality of brokers using data available under the existing rules.109 According to the

panelist, he “had to make very rough inferences about the brokers’ executions because of the

gaps in the disclosure requirements.”110 Moreover, this panelist stated that one fundamental

105

See id.

106

See id.

107

See EMSAC I at 0103:23-0104:7 (Frank Hatheway, NASDAQ).

108

See id. at 0104:7-12 (Frank Hatheway, NASDAQ).

109

See id. at 0094:6-0100:12 (Bill Alpert, Barron’s).

110

Id. at 0096:12-15 (Bill Alpert, Barron’s). See also id. at 0097:3-8 (Bill Alpert, Barron’s)

(stating that “the only effective, objective way to use the available disclosures was to

score each broker with a weighted sum of their order flow fractions from the routing

reports and then weight those with the effective over quoted measures of the market

makers that they were sending their orders to”); 0096:25-0097:3 (stating that some

problem with making these inferences was that a market maker’s average execution quality

across all of its orders received from brokers may be better or worse than its execution quality

with respect to a particular broker’s order flow.111

One EMSAC committee member acknowledged that retail brokerage firms did not favor

the recommendation to expand Rule 605 reporting to broker-dealers, and stated that these firms

would argue that aggregate statistics are more important for retail investors, who they claim are

not going to look at the Rule 605 reports.112 This committee member stated that the counterargument to this position is that if everyone is preparing Rule 605 reports, it would be possible to

do various types of aggregation using that data.113 When the EMSAC met later to approve the

brokers voluntarily disclose execution quality information, but they use different

information and so the information is not comparable).

111

See EMSAC I at 0097:14-22 (Bill Alpert, Barron’s). See also id. at 0096:18-22 (Bill

Alpert, Barron’s) (stating that “almost every broker” claimed that the execution quality

that it received at a particular market maker was above average). This panelist also

argued, based on the introduction of voluntary disclosures regarding price improvement

for odd-lot orders by a few brokers and market makers, that disclosure improves

behavior. See id. at 0098:6-0099:9 (Bill Alpert, Barron’s) (stating the price improvement

on odd-lot orders improved within a year after voluntary disclosures started). See also id.

at 0132:6-11 (Brad Katsuyama, IEX) (stating that improving disclosures leads to

improved performance).

112

See id. at 0136:24-0137:7 (Manisha Kimmel, Thomson Reuters). But see id. at 0102:220103:2) (Frank Hatheway, NASDAQ) (“While individual retail investors generally don’t

review 605 statistics themselves, . . . the existence of the reports appears to provide

precisely the form of discipline that the Commission envisioned when it adopted Rule

605 and 606.”).

113

See EMSAC I at 0137:7-10 (Manisha Kimmel, Thomson Reuters). See also Statement of

Christopher Nagy, Healthy Markets Association, at 6 (suggesting that the Commission

mandate reporting of some execution quality statistics for retail orders); Healthy Markets

I at 5-6 (recommending that the Commission modify Rule 606 to include select execution

quality statistics from Rule 605 for each identified routing destination).

recommendation, one committee member stated that the goal is to make data publicly available

so that “experts can help people make better decisions” and that different groups would turn the

data into usable reports, so it is not necessary to scale back the disclosures for the consumer.114

When the Commission solicited comment on the 2018 Rule 606 Amendments, several

commenters recommended that the Commission expand the required reporting of execution

quality statistics to better cover retail investors.115 One commenter stated that the type of

standardized execution statistics that several firms voluntarily publish on a quarterly basis

measure the quality of trade executions on retail investor orders in exchange-listed stocks and

help investors evaluate their particular retail brokerage firm.116 Another commenter stated that

there is a “fundamental flaw” in the logic of Rule 605 and Rule 606 because “[t]he structure of

114

EMSAC II at 0065:1-16 (Brad Katsuyama, IEX). But see id. at 0064:18-24 (Jamil

Nazarali, Citadel) (stating that his firm’s retail broker clients expressed concerns with the

recommendation that Rule 606 include the execution quality of the market makers that

they route to, because there is a lot of important criteria that goes into routing and the

reports could be misleading).

115

See Angel Letter at 3 (recommending that brokers should be required to provide

execution quality statistics by providing information on individual trade confirmations

and displaying summary statistics on their websites); Fidelity Letter at 7-8

(recommending that the Commission require brokers to make publicly available certain

execution quality statistics); Healthy Markets I at 7, 11 (recommending that execution

quality metrics should be provided to retail customers); IHS Markit Letter at 2

(recommending that all brokers that receive client orders and subsequently route orders

on behalf of the client should provide information on the execution quality received at

each venue). See also Consumer Federation II at 10; Financial Services Roundtable

Letter at 4-5.

116

See Fidelity Letter at 7-8. For additional discussion about this voluntary effort to provide

aggregated execution quality statistics, see infra notes 450-451 and accompanying text.

See also Consumer Federation II at 10 (stating that voluntary disclosures by several

market participants show that such disclosures are possible, and undercut arguments that

doing so is too costly or burdensome).

the rules implicitly assumes that execution quality is solely a function of the market center and

that the brokerage firm has no impact on execution quality.”117 According to this commenter,

execution quality is a product of both the broker’s skill and the quality of the market center’s

execution, and therefore requiring brokers to show where they route orders does not provide

retail investors with useful information about the actual execution quality that their orders

receive.118 Another commenter stated that even though most retail investors may not use the

disclosures directly, disclosures provide indirect benefits by promoting competition and by

facilitating use by third-party analysts and academic researchers that provide an in-depth review

of the disclosures.119

One market participant, in a letter recommending that the Commission require brokerdealers to publish monthly cost of execution statistics, stated that Rule 605 and Rule 606

statistics published by market centers and broker-dealers do not provide a means for customers to

judge how their brokers have performed with respect to keeping commissions low without

117

Angel Letter at 3.

118

See id. However, this commenter also stated that the Rule 605 data on execution quality

is too raw for most investors to interpret. See id. at 2. See also Consumer Federation II at

10 (stating that the only way to assess whether customers are being best served by their

broker-dealer’s routing decisions is by requiring execution quality statistics); Financial

Services Roundtable Letter at 4-5 (stating that currently Rule 605 reports require

investors to draw an inference that they will achieve the same performance as the average

order sent to that venue, and additional data would help an investor compare the

execution quality that various broker-dealers obtain at a particular execution venue).

119

See Consumer Federation II at 10. See also IHS Markit Letter at 29-30 (stating that large

retail routing brokers use private, internal versions of Rule 605 reports to calculate

execution quality metrics for different market centers, leading to significant improvement

in execution quality statistics for covered orders, and that voluntary reporting of

execution quality metrics has also improved execution quality).

adversely affecting execution quality.120 This commenter further remarked that matching a

broker’s routing statistics up with a receiving market center’s execution quality statistics is

“essentially impossible.”121

Commenters have also suggested various ways to expand or modify the definition of

covered order, including broadening its scope to capture additional order types.122 In particular,

the petitioner for rulemaking recommended including short sales, stop orders, and pre-market

orders in Rule 605 reports.123 The petitioner stated that these order types are “critical to a

complete assessment of execution quality,” and stated that many retail brokers include these

orders when measuring the execution quality provided by market centers.124 A commenter to the

2018 Rule 606 Amendments also recommended including orders submitted prior to the market

120

See Letter from Thomas Peterffy, Chairman, Interactive Brokers Group (Aug. 1, 2014),

at 3 (“Interactive Brokers Letter”), available at

https://www.interactivebrokers.com/download/execution_stats_comment_letter.pdf

(“Payment for order flow has often been justified by its advocates based on the claim that

the receipt of such payments allows brokers to keep commissions low and does not affect

execution quality (or if it does, such costs are passed back to customers in the form of

lower commissions). . . . [T]he current Rule 605 and 606 statistics published by market

centers and brokers . . . do not provide a basis for regulators to judge these claims, or for

customers to judge their broker’s performance.”).

121

Interactive Brokers Letter at 3.

122

See Letter from Financial Information Forum re Request for Comment – FIF Rule 605

Modernization Recommendations (Jan. 30, 2019) (“FIF III”), available at

https://www.sec.gov/comments/s7-02-10/s70210-5002077-182848.pdf; EMSAC III; IHS

Markit Letter; Healthy Markets II; FIF Letter I; KOR Group I.

123

See Virtu Petition at 5.

124

Id.

open in Rule 605 reports and stated that the marketable or non-marketable characteristics of such

orders cannot be determined under the current framework.125

The EMSAC and commenters have also suggested bringing smaller and larger order sizes

within scope.126 The petitioner stated that bucketing orders solely by numbers of shares is

skewing comparisons.127 Another commenter, responding to the Commission’s Concept Release

on Equity Market Structure, recommended the following order size buckets: one share to 99

shares; 100 shares up to 9,999 shares, divided into 100 share increments; 10,000 shares to 24,999

shares; greater than 25,000 shares.128 One commenter that offered recommendations to modify

Rule 605 suggested including a $500,000 notional cap on all share size buckets.129 Another

market participant expressed support for that cap or a different one.130 The market participant

suggested that a cap of $200,000, consistent with the definition of “block size” in 17 CFR

242.600(b)(12)(ii), would make sense, but noted that benchmark has not changed with

125

See FIF II at 11-12.

126

See EMSAC III at 2; FIF III at 4; Healthy Markets II at 3; IHS Markit Letter at 9-10, 34.

127

See Virtu Petition at 5.

128

See Healthy Markets II at 4.

129

See FIF III at 4.

130

See “Would 605 Work Better in Dollars?”, Phil Mackintosh, Chief Economist and Senior

Vice President, Nasdaq (Sept. 16, 2021), available at:

https://www.nasdaq.com/articles/would-605-work-better-in-dollars-2021-09-16.

inflation.131 The market participant also stated that the use of notional buckets in the “categorized

by order size” definition would account for fractional share and odd-lot orders.132

Commenters have also raised concerns about the current provisions in the Rule for

timestamps, especially given the speed of today’s marketplace.133 Others have also suggested

modifications to improve the accessibility and standardizations of reports, including centralizing

report creation and requiring summary statistics.134 In several contexts in which the Commission

has received general feedback on equity market structure, commenters have suggested that the

Commission require a simplified execution quality report, particularly for retail investors. 135 One

commenter on the Concept Release on Equity Market Structure stated that if the Commission’s

goal was for execution quality statistics to make the markets more transparent for retail investors,

the commenter did not believe that was occurring, and the average retail investor might benefit

131

See id. The market participant stated that “a lower [than $500,000] notional cap makes

sense too, given the small sizes of retail orders, especially when we consider the limits of

the typical depth of book to fill covered orders.” Id.

132

See id.

133

See KOR Group I at 2, FIF I at 2.

134

See EMSAC I at 0099:25-0100:3, 0106:14-25; EMSAC III at 2; Healthy Markets II at 3;

BlackRock Letter at 3; Citi Letter at 8; Consumer Federation II at 6.

135

See, e.g., Citigroup Letter at 8 (suggesting in connection with the Concept Release on

Equity Market Structure that a simplified execution quality report geared towards retail

investors should contain a simple chart or graph showing how often a customer’s trades

are executed at the NBBO or better, how fast the trade is done, and whether the customer

received enhanced liquidity); SIFMA Letter at 12 (stating in providing recommendations

for equity market structure reforms that regulators should direct broker-dealers to provide

public reports of order routing and execution quality metrics that are geared towards

retail investors, and these reports should include relevant information in a uniform format

that is easy to understand).

more from a simplified version of the report.136 One EMSAC committee member stated that

some retail firms have argued that aggregate statistics are more important for the retail investor,

and that retail investors are not going to look at Rule 605 reports.137 This EMSAC committee

member further stated that an issue with aggregation is what to include in the aggregate statistics,

and depending on a firm’s business model, the firm may want to put in different things.138

Separately, the EMSAC, as well as a commenter to the 2018 Rule 606 Amendments,

recommended that the Commission incorporate Rule 605 and 606 data into the Commission’s

data visualization tool.139

III.

Proposed Modifications to Reporting Entities

Larger Broker-Dealers

Rule 605 of Regulation NMS requires market centers, such as national securities

exchanges, OTC market makers, and ATSs, to produce publicly available, monthly execution

quality reports. However, broker-dealers are not included within the scope of Rule 605’s

136

See Citigroup Letter at 8.

137

See EMSAC I at 0137:4-7 (Manisha Kimmel, Thomson Reuters). See also id. at 0137:710 (“The counter argument to that is, if everybody is doing the 605 [reports], then you

could have all sorts of aggregation based on that . . .”).

138

See id. at 0137:11-16 (Manisha Kimmel, Thomson Reuters).

139

See EMSAC III at 2; FIF II at 13. See also EMSAC I at 0139:20-0140:11 (Gary Stone)

(stating that individual investors need the Commission to provide the data, because they

cannot rely on vendors that will charge for that service); EMSAC I at 0105:20-0106:7

(Frank Hatheway, NASDAQ) (stating that before replacing these existing offerings by

data vendors of data visualization tools for Rule 605 and 606 data, the Commission may

want to consider alternatives for making the data widely available and accessible);

EMSAC I at 0140:12-15 (Bill Alpert, Barron’s) (stating that it would be salutary to have

competition between vendors, the Commission, and the press to develop easier to use

tools and better presentations).

reporting requirements unless they are market centers. Although Rule 606 requires brokerdealers to identify the venues, including market centers, to which they route customer orders for

execution, customers of those broker-dealers do not have access to comprehensive information

about execution quality. For example, to the extent that a market center’s execution quality

differs for orders received from one broker-dealer versus another broker-dealer, that difference

would not be apparent from currently available execution quality statistics.

The Commission is proposing to expand the scope of entities that must prepare Rule 605

reports to include larger broker-dealers, which have a customer-facing line of business. As

proposed, Rule 605 would include broker-dealers as reporting entities, in addition to market

centers, but exclude from that expanded requirement broker-dealers that do not introduce or

carry at least 100,000 customer140 accounts. This expansion of the scope of Rule 605 would

improve the usefulness of execution quality statistics, promote fair competition, and enhance

transparency by providing investors with information that they could use to compare the

execution quality provided by customer-facing broker-dealers. Further, limiting these reporting

obligations to broker-dealers that have a larger number of customers would focus the associated

implementation costs on those broker-dealers for which the availability of more specific

execution quality statistics would provide a greater benefit.

Rule 605 and Rule 606 operate together to allow investors to evaluate what happens to

their orders after investors submit their orders to a broker-dealer for execution.141 In the current

140

“Customer” means any person that is not a broker or dealer. See 17 CFR 242.600(b)(23).

141

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75414.

regulatory environment, customers that submit held orders (in many cases, individual investors)

have a limited ability to assess the execution quality that their broker-dealers are providing. A

customer of a broker-dealer can use a broker-dealer’s Rule 606 reports to identify certain

regularly-used venues to which the broker-dealer routes orders for execution. However, with

respect to held orders, these Rule 606 reports are not required to include any detailed execution

quality information.142 Moreover, Rule 605 reports prepared by market centers commingle orders

from all broker-dealers that send covered order flow to the reporting market center. Yet a market

center may provide different execution quality to customers of different broker-dealers, and in

some cases this difference may be substantial.143 Therefore, a customer of that broker-dealer

must make an inference about the execution quality achieved by that particular broker-dealer at a

market center based on a Rule 605 report that covers all orders received by the market center,

even though that inference may not be accurate.144

Due to this gap in the reporting requirements, variations in execution quality provided by

a market center to a particular broker-dealer submitting the order are not observable by market

participants and other interested parties using publicly available execution quality reports.145

142

See supra notes 50-55 and accompanying text.

143

See supra notes 108-110 and accompanying text (discussing an EMSAC panelist’s

observations after trying to infer execution quality based on available data that one

“fundamental problem” with making these inferences was that a market maker’s

execution quality may vary according to each broker’s order flow). See also supra note

87 and accompanying text.

144

See supra notes 107-111, 115-118, and 120-121 and accompanying text.

145

The Commission preliminarily believes that many institutional customers regularly

conduct, directly or through a third-party vendor, transaction cost analysis of their orders

to assess execution quality against various benchmarks, but this information is not

When requiring each market center to report on all orders that it received for execution, the

Commission intended to assign the disclosure obligation to the entity that would control whether

and when the order would be executed.146 The Commission required market centers to include in

their Rule 605 reports those orders that they routed to another venue for execution, thereby

recognizing that market centers’ decisions about whether and how to route orders can affect

execution quality.147 Likewise, broker-dealers that route customer orders make decisions that

affect the execution quality that their customers’ orders receive.

In addition, while the Commission adopted Rule 605 in 2000 as a “minimum step

necessary to address fragmentation,”148 the equities markets have grown even more fragmented

since that time.149 Broker-dealers have many choices about where to route customer orders for

execution. But broker-dealers may face conflicts of interest when discussing arrangements

regarding the outsourcing of customer order flow, including those that involve PFOF, and

publicly available. The Commission believes that some institutional investors may

currently use aggregated statistics or summaries of Rule 605 reports prepared by third

parties, who make these reports available for a fee. See infra section VII.C.1.c)(2).

146

See supra note 33 and accompanying text (citing Adopting Release, 65 FR 75414 (Dec.

1, 2000) at 75421).

147

When adopting Rule 605, the Commission stated that from the perspective of the

customer who submitted the order, the fact that a market center chooses to route the order

away “does not reduce the customer’s interest in a fast execution that reflects the

consolidated BBO” that is “as close to the time of order submission as possible,” and

that, consequently, in evaluating the quality of order routing and execution, it is important

for customers to know how the market center handles “all orders that it receives, not just

those it chooses to execute.” Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75423.

148

See supra note 9 and accompanying text.

149

See supra notes 74-84 and accompanying text.

making routing decisions.150 With respect to orders submitted on a held basis, broker-dealers

must include information about their payment relationships with execution venues in quarterly

reports prepared pursuant to Rule 606(a)(1).151 Without information about the execution quality

that broker-dealers in the business of routing customer orders obtain for those orders, market

participants and other interested parties lack key information that would facilitate their ability to

evaluate how these payment relationships may affect execution quality. Recognizing these and

other concerns, the EMSAC and other commenters in multiple contexts have suggested that the

Commission expand the scope of Rule 605 to require reporting by broker-dealers.152

Consequently, the Commission is now proposing to require larger broker-dealers to

prepare and publish execution quality reports pursuant to Rule 605, through the proposed

revisions to Rule 605 and the addition of proposed Rule 605(a)(7). This expansion of the scope

of reporting entities would increase transparency into the differences in execution quality

achieved by broker-dealers when they route customer orders to execution venues, and thereby

would make the execution quality statistics more useful to market participants and other

150

See supra notes 88-89 and accompanying text.

151

See supra notes 50-52 and accompanying text. As discussed above (supra section II.D),

Rule 606 requires broker-dealers to identify and report data according to execution

venue, rather than by market center. Not all execution venues reflected on Rule 606

reports will necessarily fall within Regulation NMS’s definition of “market center.” See,

e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58365

(stating that the Commission’s reference to “venues” for purposes of Rule 606(b)(3) is

meant to refer to external liquidity providers to which the broker-dealer may send

actionable indications of interest (“IOIs”), and that this category of market participants

likely would include market centers as defined in Rule 600(b)(38), but may not be limited

to such market centers).

152

See generally supra section II.E.

interested parties.153 This change would increase competition among broker-dealers that accept

customer orders for execution by providing information that market participants can use to

evaluate and compare broker-dealers’ execution quality. This could lead to faster executions,

better price improvement, and a shift in order flow to those broker-dealers offering the best

execution quality for their customers. This would further the national market system objectives

set forth in section 11A(a)(1) of the Exchange Act, including the efficient execution of securities

transactions, fair competition among market participants, the public availability of information

on securities transactions, and the best execution of investor orders.154

Specifically, the Commission is proposing to amend Rule 605 to apply the reporting

requirements contained therein to brokers and dealers, in addition to market centers. Where

current Rule 605 refers to “market centers,” the Commission is proposing to insert references to

“brokers” and “dealers.”155 The proposed expansion of Rule 605’s reporting requirements to

cover broker-dealers would also affect Rule 600 of Regulation NMS. Specifically, the definition

153

Among the commenters that raised concerns about the lack of available information

regarding the execution broker-dealers provide to their customers’ orders, one commenter

stated that there is a “fundamental flaw” in the logic of Rule 605 and Rule 606 because

these rules assume that execution quality is solely the function of the market center, but

instead execution quality is a product of a combination of the broker’s skill and the

quality of the market center’s execution. See supra notes 117-118 and accompanying text.

The proposal would address this concern by requiring larger broker-dealers to produce

execution quality reports, rather than leaving market participants and other interested

parties to rely solely on the execution quality reports produced by the market centers to

which a particular broker-dealer routes orders.

154

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75414 n.1, 75417 (citing 15 U.S.C.

78k-1).

155

See proposed Rules 605 (introductory paragraph), 605(a) (caption), 605(a)(1),

605(a)(1)(i)(D), 605(a)(3), 605(a)(4), 605(a)(5), and 605(a)(6).

of “covered order” in Rule 600(b)(22) refers to “any market order or any limit order (including

immediate-or-cancel orders) received by a market center.”156 The Commission is proposing to

amend this provision to refer to orders “received by a market center, broker, or dealer.”157

Further, as noted above, the Plan establishes procedures for market centers to follow in making

available to the public the monthly reports required by the Rule.158 Because of the proposed

amendments to the Rule, the existing Plan would no longer comply with proposed Rule

605(a)(3) and thus would need to be updated in order to incorporate references to broker-dealers

subject to the Rule.159 As is currently the case for market centers that are not Participants, the

Participants would be required to enforce compliance with the terms of the Plan by their

members and person associated with their members.160

156

17 CFR 242.600(b)(22). The Commission is proposing to renumber the definition of

“covered order” as proposed Rule 600(b)(30).

157

See proposed Rule 600(b)(30).

158

See supra section II.B.3.

159

The Plan details procedures for market centers to follow and, among other things,

specifies the order and format of fields in a manner that aligns with current Rule

605(a)(1). See Plan generally and section VI(a) of the Plan. Under current Rule 605(a)(2),

every national securities exchange trading NMS stocks and each national securities

association is required to act jointly in establishing procedures for market centers to

follow in making the reports required by Rule 605(a)(1) available to the public in a

uniform, readily accessible, and usable electronic form. See 17 CFR 242.605(a)(2). The

proposal would add brokers and dealers to the scope of entities to be covered by the

Plan’s procedures and renumber Rule 605(a)(2) as Rule 605(a)(3). See proposed Rule

605(a)(3). The Plan would also need to be updated to accommodate any new data

elements in the order and format of fields.

160

See 17 CFR 242.608(c). See also supra note 47 (describing Participants and Designated

Participants under the Plan).

The Commission is mindful that Rule 605’s execution quality reports contain a large

volume of statistical data, and as a result it may be difficult for individual investors to review and

digest the reports. The Commission considered the volume of execution quality statistics that

would be produced when adopting Rule 605, and stated that the large volume of statistics reflects

a deliberate decision by the Commission to avoid the dangers of overly general statistics that

could hide significant differences in execution quality.161 By requiring brokers-dealers to report

stock-by-stock order execution information in a uniform manner, the proposal would make it

possible for market participants and other interested parties to make their own determinations

about how to group stocks or orders when comparing execution quality across broker-dealers.162

Further, to the extent that certain market participants may not have the means to directly analyze

the detailed statistics,163 the Commission expects that independent analysts, consultants, brokerdealers, the financial press, and market centers will respond to the needs of investors by

analyzing the disclosures and producing more digestible information using the data, as the

161

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75419. See also id. (stating that

after this basic information is disclosed by all market centers in a uniform manner,

market participants and other interested parties will be able to determine the most

appropriate classes of stocks and orders to use in comparing execution quality across

market centers).

162

See, e.g., supra note 113 and accompanying text.

163

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75419, text accompanying n.27

(stating that most individual investors likely would not obtain and digest the reports

themselves). See also supra note 112 and accompanying text (EMSAC committee

member stating that retail investors will not look at the Rule 605 reports); note 118

(commenter stating that Rule 605 data is too raw for most investors to interpret); note 119

and accompanying text (commenter stating that most retail investors may not use the

disclosures directly).

Commission anticipated when approving the predecessor to Rule 605 and has observed since that

time.164 As discussed further below, the Commission also is proposing to require all market

centers and broker-dealers that would be subject to Rule 605’s reporting requirements to produce

summary reports with aggregated execution quality information.165 Requiring broker-dealers to

produce more detailed execution quality data would help ameliorate potential concerns about

overly general statistics, or about the specific categorization of orders and selection of metrics in

the summary reports, by allowing market participants and other interested parties to conduct their

own analysis based on alternative categorizations of the underlying data.

Proposed Rule 605(a)(7) states that a broker or dealer that is not a market center shall not

be subject to the requirements of Rule 605 unless that broker or dealer introduces or carries

100,000 or more customer accounts through which transactions are effected for the purchase or

sale of NMS stocks (the “customer account threshold”).166 The Commission is mindful of the

additional costs that broad expansion of the rule to broker-dealers would entail. The relative

benefit of having a broker-dealer prepare Rule 605 reports increases when the broker-dealer has

more customers. The Commission is proposing a minimum reporting threshold of 100,000

164

See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75419. See also supra notes 106,

114, 116 and accompanying text; infra notes 544-546 and accompanying text.

165

See infra section V.

166

In addition, as discussed further below, proposed Rule 605(a)(7) states that any broker or

dealer that meets or exceeds this customer account threshold and is also a market center

shall produce separate reports pertaining to each function.

customers to balance the benefits of having broker-dealers produce execution quality statistics

with the costs of implementation and continued reporting.167

Analysis indicates that approximately 85 broker-dealers (or approximately 6.7% of

customer-carrying broker-dealers) introduce or carry more than 100,000 customer accounts and

these broker-dealers together handle over 98% of customer accounts.168 Utilizing a 100,000

customer account threshold would allow the Rule 605 reporting requirements to capture those

broker-dealers that introduce or carry the vast majority of customer accounts, while subjecting

only a relatively small percentage of broker-dealers that accept customer orders for execution to

the reporting obligation and excluding those broker-dealers that introduce or carry a smaller

number of customer accounts. Although utilizing a lower customer account threshold, such as

10,000 customer accounts, would result in capturing substantially more transactions, the lower

customer account threshold would result in capturing only marginally more customer accounts.

167

See infra section VII.D.2 for a discussion of the costs of the proposed amendments to

Rule 605. As discussed further below, broker-dealers that were previously not required to

publish Rule 605 reports would incur initial costs to develop the policies and procedures

to post Rule 605 reports for the first time, and all broker-dealers would face ongoing

costs to continue to prepare them each month. Other potential costs include a potential for

less transparency or lower execution quality, and the costs to update best execution

methodology. See also infra section VII.E.1.a) for a discussion about the potential costs

of imposing Rule 605’s reporting requirements on broker-dealers with a smaller number

of customer accounts.

168

See infra Table 13 for cost-benefit analysis of different customer account thresholds

defining “larger broker-dealer” and infra note 1008 and accompanying text for

methodology. For example, approximately 45 broker-dealers introduce or carry more

than 500,000 customer accounts and these broker-dealers together handle over 96% of

customer accounts. Further, approximately 235 broker-dealers introduce or carry more

than 10,000 customer accounts and these broker-dealers together handle over 99% of

customer accounts. See infra Table 13.

This implies that the additional customer coverage would result from a small number of accounts

that trade in large volumes. Therefore, the additional coverage may not be as beneficial because

many of the additional customer accounts that would be included with a lower threshold likely

belong to institutional traders that have access to alternative execution quality information and

also are likely to use not held orders, which are not included in Rule 605 reports.169

The Commission considered using the volume of broker-dealers’ customer transactions,

rather than the number of their customer accounts, for purposes of establishing a reporting

threshold. Although establishing a reporting threshold using the number of customer transactions

would likely capture a larger number of customer orders than the proposed customer account

threshold, this approach would likely exclude broker-dealers that have a larger number of

relatively inactive customer accounts and include broker-dealers that have a small number of

customer accounts associated with large amounts of trading volume. In each respect, the

reporting threshold would be less likely to capture individual investor orders and more likely to

capture institutional investor orders, and therefore the threshold would be less likely to target the

types of orders that may be most useful for consumers of Rule 605 reports. In addition, utilizing

a threshold based on the number of customer transactions may result in a less stable set of

broker-dealers that are subject to Rule 605’s reporting requirements, because transaction volume

is more likely than customer account numbers to vary significantly from month to month based

on market conditions. Further, the number of their customer accounts is likely less costly for

169

See infra note 1011 and accompanying text; Table 13. See also infra section VII.E.1.a)

for further discussion of alternative customer account thresholds.

broker-dealers to calculate and track as compared to the volume of transactions associated with

their customer accounts.170

The Commission also considered EMSAC’s recommendation to expand the scope of

Rule 605 to cover all broker-dealers, which contemplated excluding only broker-dealers with de

minimis order flow.171 The Commission is preliminarily concerned that subjecting a significantly

larger number of broker-dealers to Rule 605’s reporting requirements would substantially

increase the costs of the proposal and that the increase in cost that would accompany the use of a

de minimis threshold would not be justified by the corresponding benefit.172 This concern about

requiring smaller broker-dealers to prepare Rule 605 reports is present with any de minimis

threshold, whether based on order flow as the EMSAC suggested or on some other measure such

as number of customer accounts.

The proposed customer account threshold would require brokers-dealers to include in

their calculations the public customer accounts that they introduce, as well as the customer

accounts that they carry.173 Rule 605 reports that reflect orders received from customer accounts

that a broker-dealer introduces or carries would provide useful information to market participants

because both introducing and carrying broker-dealers make decisions about where to route those

170

See infra section VII.E.1.c) for further discussion about using a threshold based on the

number of customer transactions.

171

See supra notes 104-106 and accompanying text.

172

See infra note 1011 and accompanying text and Table 13 (showing that, for example,

adjusting the customer account threshold from 100,000 customer accounts to 10,000

customer accounts would increase the estimated costs from approximately $5 million to

approximately $13.9 million).

173

See proposed Rule 605(a)(7).

orders and it would be helpful for customers to be able to evaluate the execution quality received

as a result of those decisions.174 An introducing broker-dealer may choose to utilize an omnibus

clearing arrangement and not disclose certain information about its underlying customer

accounts to the clearing firm.175 In such circumstances, because the clearing broker may not have

access to information about how many customer accounts a particular omnibus account

represents, the proposal specifies that when an omnibus clearing arrangement is used the

underlying customer accounts would be required to be counted as accounts carried by the

introducing broker-dealer rather than by the clearing broker. Therefore, for purposes of Rule 605,

a broker or dealer that utilizes an omnibus clearing arrangement for any of its underlying

customer accounts would be considered to carry such underlying customer accounts when

calculating the number of customer accounts that it introduces or carries.176

174

An introducing broker-dealer is a broker-dealer that has a contractual arrangement with

another firm, known as the carrying or clearing firm, under which the clearing/carrying

firm agrees to perform certain services for the introducing firm. Usually, the introducing

firm transmits its customer accounts and customer orders to the clearing/carrying firm,

which executes the orders and carries the account. See Securities Exchange Act Release

No. 31511 (Nov. 24, 1992), 57 FR 56973, 56978 (Dec. 2, 1992) (Net Capital Rule).

175

Some broker-dealers utilize an “omnibus clearing arrangement,” where the clearing firm

maintains one account for all of customer transactions of the introducing firm, rather than

a “fully disclosed introducing relationship.” In an omnibus arrangement, the clearing firm

does not know the identity of the customers of the introducing firm, whereas in a fullydisclosed arrangement, the clearing/carrying firm knows the names, addresses, securities

positions, and other relevant data as to each customer. See id. at 56978 n.16.

176

See proposed Rule 605(a)(7). For example, an introducing broker-dealer that utilizes an

omnibus clearing arrangement for 100,000 customer accounts and separately carries

50,000 customer accounts would be considered, for purposes of proposed Rule 605, to

carry 150,000 customer accounts. In contrast, a broker-dealer who introduces, on a fullydisclosed basis, 125,000 customer accounts would be considered, for purposes of

Requiring both introducing broker-dealers and carrying broker-dealers to prepare Rule

605 reports might result, in some instances, in the same underlying order being reflected on

multiple broker-dealers’ Rule 605 reports. However, Rule 605 does not require reports that

reflect execution quality on an order-by-order basis and the separate reports would provide

different views of execution quality specific to the group of orders handled by each brokerdealer. Moreover, the current structure of Rule 605 already contemplates that certain orders may

be reflected on more than one report, in the case of orders that are received by one market center

and then routed to another market center for execution.177

Proposed Rule 605(a)(7) states that any broker or dealer that meets or exceeds the

customer account threshold and is also a market center shall produce separate reports pertaining

to each function. Therefore, a broker-dealer that meets or exceeds the customer account

threshold and is also a market center would be required to produce one report that includes all of

the covered orders in NMS stocks that it received for execution when acting as a market center

and a separate report that includes all of the covered orders in NMS stocks that it received for

execution when acting as a broker-dealer. Requiring a firm to produce separate reports pertaining

to its market center function and its broker-dealer function would allow market participants and

other interested parties to view the firm’s execution quality from the perspective of how it

operates in each of these separate roles.

proposed Rule 605, to introduce 125,000 customer accounts. In both cases, the

introducing broker-dealers would exceed the proposed customer account threshold.

177

See 17 CFR 242.605(a)(1).

This aspect of the proposal would not change how a firm should determine when it is

acting as a market center, as that term is defined in Rule 600(b)(46).178 In particular, some firms

that are larger broker-dealers also act as OTC market makers, which are a type of market center.

Currently, to the extent that a dealer holds itself out as being willing to buy from and sell to its

customers, or others, in the United States, an NMS stock for its own account on a regular or

continuous basis otherwise than on a national securities exchange in amounts of less than a block

size, that dealer is defined as an OTC market maker.179 For example, if a broker-dealer executes

certain types of orders internally (e.g., fractional share orders, small-sized orders, or orders in

particular symbols), that broker-dealer may be acting as an OTC market maker, and thus a

market center, for those specific types of orders. Moreover, Rule 605 requires that any report

pertaining to a market center include all covered orders that it received for execution from any

178

See 17 CFR 242.600(b)(46). The Commission is proposing to renumber the definition of

“market center” as proposed Rule 600(b)(56).

179

See supra note 28. See also Securities Exchange Act Release No. 37619A (Sept. 6, 1996),

61 FR 48290, 48318-19 (Sept. 12, 1996) (Order Execution Obligations) (stating that

dealers that internalize customer order flow in particular stocks by holding themselves

out to customers as willing to buy and sell on an ongoing basis would fall within the

definition of “OTC market maker” as defined in the predecessor to Rule 602 of

Regulation NMS, even though they may not hold themselves out to all other market

participants, and that dealers that hold themselves out to particular firms as willing to

receive customer order flow, and execute those orders on a regular or continuous basis,

also would fall within the definition of an OTC market maker); id. at 48319 (stating that

broker-dealers will not be considered to be holding themselves out as regularly or

continuously willing to buy or sell a security if they occasionally execute a trade as

principal to accommodate a customer’s request, and that, in response to the suggestion of

some commenters, the Commission has modified the proposed amendment to the

definition of “OTC market maker” to make clear that more than an isolated transaction is

necessary before a dealer is designated an OTC market maker).

person, whether executed at the market center or at any other venue.180 As is the case under Rule

605 currently for market centers that route orders away, under the proposal, the fact that a larger

broker-dealer has routed certain covered orders away for execution would not alone be the basis

on which to determine that it did not act as a market center with respect to those orders.181

For a larger broker-dealer that is also a market center, the report pertaining to its brokerdealer function would cover all orders that the broker-dealer received for execution as part of its

customer-facing line of business, whether executed internally or routed away. An order would

need to be reflected on both the report regarding the firm’s market center function and the report

regarding its broker-dealer function, if the broker-dealer received the order from a customer and

also acts as a market center for that type of order. Each report would provide a different view of

the firm’s execution quality based on a different aspect of its business, and because reports

180

See 17 CFR 242.605(a)(1). We note that the staff has provided their views on a way that

a firm might determine the scope of covered orders for which it acts as a market center,

see Division of Market Regulation: Staff Legal Bulletin No. 12R (Revised), Question 4

(June 22, 2001), available at https://www.sec.gov/interps/legal/slbim12a.htm (“The Rule

applies to broker-dealers insofar as they act as a ‘market center’ with respect to orders

received from other persons. Consequently, for orders in securities for which Firm X

does not act as an OTC market maker, Firm X would not be acting as a market center in

those securities and therefore need not report on orders in those securities that it receives

as an agent and routes elsewhere for execution. Conversely, the orders that Firm X

receives from any person in the 500 securities in which it acts as an OTC market maker

(and therefore is a market center) generally must be included in Firm X’s monthly

reports, even if Firm X ultimately routes some of the orders to other market centers for

execution.”). Staff reports, Investor Bulletins, and other staff documents (including those

cited herein) represent the views of Commission staff and are not a rule, regulation, or

statement of the Commission. The Commission has neither approved nor disapproved the

content of these staff documents and, like all staff statements, they have no legal force or

effect, do not alter or amend applicable law, and create no new or additional obligations

for any person.

181

See supra notes 143-144 and accompanying text.

reflect orders grouped by symbol, order type, and size, would reflect different execution quality

metrics to the extent that the group of orders covered by the different reports did not overlap

completely.182

As proposed, pursuant to Rule 605(a)(7), a broker-dealer would be excluded from Rule

605’s reporting requirements only with respect to its customer-facing broker-dealer function (as

opposed to its function as market center, if applicable) as long as the number of customer

accounts that it introduces or carries continues to be less than the customer account threshold. A

broker-dealer would no longer be excluded from Rule 605 once and as long as it meets or

exceeds the customer account threshold; however, a broker-dealer that meets or exceeds the

customer account threshold for the first time would have a grace period before being required to

comply with Rule 605’s reporting requirements, as described further below.

Proposed Rule 605(a)(7) states that a broker or dealer that meets or exceeds the customer

account threshold shall be required to produce reports pursuant to this section for at least three

calendar months (“Reporting Period”). The Reporting Period would begin the first calendar day

of the next calendar month after the broker or dealer met or exceeded the customer account

threshold, unless it is the first time the broker-dealer has met or exceeded the customer account

182

For certain firms regarding certain symbols, order types, or order sizes, the group of

orders for which the firm acts as a larger broker-dealer may overlap completely with the

group of orders for which the firm acts as a market center. However, broker-dealer firms

are structured in myriad different ways, and the degree of overlap among reports might

not remain stable over time; therefore, requiring firms to produce reports according to the

orders for which they act as a market center and the orders for which they act as a brokerdealer would help keep the reports consistent with firms’ lines of business.

threshold.183 Any time after a broker or dealer has been required to produce reports pursuant to

this proposed section for at least a Reporting Period, if a broker or dealer falls below the

customer account threshold, the broker or dealer would not be required to produce a report

pursuant to this paragraph for the next calendar month.184 The Reporting Period would start on

the first day of the next calendar month after the customer account threshold has been crossed

because this timing would align with Rule 605’s monthly reporting period and avoid requiring

broker-dealers to produce a report that covers a partial month, which would be less comparable

with the monthly reports of other broker-dealers. Moreover, brokers-dealers that may at times

fall below the customer account threshold would be required to produce reports pursuant to Rule

605 for at least three calendar months, because this minimum reporting period would help ensure

a period of continuity in reporting. If instead a broker-dealer could fluctuate in and out of being

required to comply with the reporting requirements from month-to-month, it would potentially

be disruptive to the broker-dealer to have to coordinate compliance with the Rule on some

months but not others and could interfere with customers’ or market participants’ ability to look

at a broker-dealer’s execution quality over time by analyzing historical data.185

183

See proposed Rule 605(a)(7).

184

See id.

185

When discussing the 2018 amendments to Rule 605(a)(2) that required market centers to

keep Rule 605(a) reports posted on a public website for a period of three years, the

Commission stated that it expected customers and the public to use the historical

information to compare information from the same time period. See 2018 Rule 606

Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58380 (also stating that, with

respect to market centers voluntarily posting Rule 605(a) reports that were created prior

to the amended rule’s effectiveness, making historical data available to customers and the

public could be useful to customers or market participants seeking to analyze such data).

The Commission is proposing that, the first time a broker or dealer has met or exceeded

the customer account threshold, there would be a grace period of three calendar months before

the Reporting Period begins and the broker or dealer must comply with the reporting

requirements of Rule 605.186 A limited three-month grace period is appropriate because it would

provide a broker-dealer that crosses the customer account threshold for the first time with a

period of time in which to come into compliance with Rule 605’s reporting requirements. The

three-month grace period would afford a broker-dealer adequate time to develop the systems and

processes and organize the resources necessary to generate the reports pursuant to Rule 605,

while still requiring the broker-dealer to begin reporting without an overly long delay. At the

same time, should a broker-dealer subsequently fall below the customer reporting threshold, the

Commission preliminarily believes that the broker-dealer should already have the necessary

systems and processes in place and therefore a grace period would not be necessary if that

broker-dealer again meets or exceeds the customer account threshold and becomes subject to

Rule 605’s requirements. The Commission notes that Rule 606 similarly provides for a three-

186

See proposed Rule 605(a)(7). After the three calendar month grace period, the Reporting

Period would begin on the first calendar day of the fourth calendar month after the broker

or dealer has met or exceeded the customer account threshold. See id. As described

above, a broker-dealer that meets or exceeds the customer account threshold would be

required to produce Rule 605 reports for at least a Reporting Period. See supra notes 183184 and accompanying text. Therefore, a broker-dealer that crosses the customer account

threshold for the first time would be required to comply with the reporting requirements

of Rule 605 for at least a Reporting Period, even if that broker-dealer falls below the

customer account threshold during the grace period.

month grace period for brokers or dealers subject to Rule 606(b)(3)’s reporting requirements for

the first time only.187

Rule 605 requires that reporting entities calculate certain statistics based on the time of

order receipt.188 Moreover, Regulation NMS defines “time of order receipt” based on the time an

order was received by a market center for execution.189 In conjunction with the proposed

expansion of Rule 605 to cover larger broker-dealers, it is necessary to modify this definition to

specify how broker-dealers that are not acting as market centers would be required to calculate

“time of order receipt.” The Commission has considered requiring broker-dealers to calculate the

“time of order receipt” based on the time that the broker-dealer received the order or on the time

that the broker-dealer transmitted the order to a market center for execution. Measuring “time of

order receipt” based on when a broker-dealer received the order would provide a view of how

that broker-dealer handled that order from the time the order was within its control, rather than

limiting that view to what happened after the broker-dealer sent the order to a particular market

center for execution. In this way, calculating execution quality statistics based on the time that a

broker-dealer received the order could provide information about whether a broker-dealer’s

187

See 17 CFR 242.606(b)(4).

188

See, e.g., 17 CFR 242.605(a)(1)(ii)(D) (measuring, for shares executed with price

improvement, the share-weighted average period from the time of order receipt to the

time of order execution).

189

See 17 CFR 242.600(b)(92). See also Adopting Release, 65 FR 75414 (Dec. 1, 2000) at

75423 (“The definition [of ‘time of order receipt’] is intended to identify the time that an

order reaches the control of the market center that is expected, at least initially, to execute

the order.”). The Commission is proposing to renumber the definition of “time of order

receipt” as proposed Rule 600(b)(109).

delay in sending the order to a market center for execution may have affected the execution

quality obtained for that order, because the execution quality statistics would be measured based

on the prevailing market prices at that time.190 Accordingly, the Commission is proposing to

modify the definition of “time of order receipt” to specify that, in the case of a broker or dealer

that is not acting as a market center, the time of order receipt is the time that the order was

received by the broker or dealer for execution.191

The Commission is mindful that some of Rule 605’s execution quality statistics may as a

general matter differ for the larger broker-dealers, as compared to market centers, to the extent

that some of these larger broker-dealers generally or exclusively route orders away. However, it

is appropriate for broker-dealers to report on the same execution quality statistics as market

centers because the reported statistics can be understood in the context of the specific reporting

entity, and the detailed execution quality statistics would allow customers and other market

190

When adopting Rule 605, the Commission stated that a market center will use the time

and consolidated BBO at the time it received the order, rather than the time and

consolidated BBO when the venue to which an order was forwarded received the order,

to calculate the required statistics. See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at

75423. The Commission stated that a market center should be held accountable for all

orders that it receives for execution and should not be given an opportunity to exclude

difficult orders by routing them to other venues, and that from the customer’s perspective

the fact that a market center chooses to route the order elsewhere does not reduce the

customer’s interest in a fast execution that reflects the consolidated BBO as close to the

time of order submission as possible. See id. This same reasoning applies to orders that a

broker-dealer receives and then routes to another venue for execution, and supports

measuring the time of order receipt from the time that the broker-dealer receives the

order.

191

See proposed Rule 600(b)(109). The time that the order is received by the market center

for execution should be the same as the time that the order is received by the brokerdealer for execution when the broker-dealer also acts as a market center for that order.

participants to parse the differences among the statistics for each reporting entity. For example,

Rule 605 requires statistics for the number of shares executed at the receiving market center and

the number of shares executed at any other venue.192 As discussed above, broker-dealers that

generally route the orders that they receive to other venues for execution, and thereby would

report these shares as being executed at another venue, may execute certain portions of their

order flow internally (e.g., fractional shares).193 While the Commission considered whether or

not broker-dealers should be required to provide execution quality statistics for both shares

executed at the receiving broker-dealer and shares executed at any other venue, the Commission

decided to propose to keep both of these statistics in the Rule 605 reporting requirements for

broker-dealers so as to capture all orders that broker-dealers receive for execution as part of their

customer-facing broker-dealer function.194 Further, differences in certain statistics for brokerdealers as compared to market centers may be more reflective of differences in business models

rather than effectiveness in achieving execution quality for covered orders because of differences

in order handling practices. The Commission understands that these differences are well-known

and are taken into account by market participants when evaluating execution quality statistics.

For example, broker-dealers that route customer orders may have consistently longer time to

executions as compared to market centers for similar orders, because of the time it takes to route

these orders, but this difference is well understood by market participants.

192

See 17 CFR 242.605(a)(1)(i)(D) and (E). As discussed herein, the Commission is

proposing to modify Rule 605(a)(1)(i)(D) to also cover the number of shares executed at

the receiving broker or dealer. See supra note 155 and accompanying text.

193

See supra note 34 and accompanying text.

194

If a broker-dealer does not execute any covered orders internally, then that brokerdealer’s Rule 605 report would not reflect any shares executed at the receiving brokerdealer. For discussion of what orders broker-dealers that are market centers would

include in their reports pertaining to their market center function, see supra notes 178-180

and accompanying text.

The Commission is also mindful that, for orders routed to other venues for execution,

broker-dealers may not have all of the information needed to calculate the proposed statistics at

the time of order execution. However, these broker-dealers should be able to obtain the needed

information in time to prepare the required reports. Broker-dealers would need to calculate their

execution quality statistics, or engage a vendor to calculate the statistics on their behalf, on a

monthly basis. At the time that the broker-dealer or its vendor would need to calculate the

execution quality statistics, the broker-dealer would have received any needed information about

the order’s execution from the execution venue and be able to obtain any needed historical price

information from publicly available data sources, such as the exclusive plan processors

(“exclusive SIPs”).195 For example, a broker-dealer that routed an order away for execution

would receive time of order execution and execution price as part of the trade confirmation

provided by the execution venue. The broker-dealer could then use historical price information

available via the exclusive SIPs to determine the NBBO at the time of order receipt and at the

time of order execution, the number of shares displayed at the NBBO, and the best available

displayed price, if such price is being disseminated, and use this data to calculate the required

execution quality statistics.196

195

See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18598-99 (describing that the

exclusive SIPS, among other things, disseminate core data, which currently consists of:

(1) the price, size, and exchange of the last sale; (2) each exchange’s current highest bid

and lowest offer and the shares available at those prices; and (3) the NBBO). A securities

information processor (“SIP”) is defined in section 3(a)(22)(A) of the Exchange Act. See

15 U.S.C. 78c(a)(22)(A). Further, an “exclusive processor” (also known as an exclusive

SIP) is defined in section 3(a)(22)(B) of the Exchange Act. See 15 U.S.C. 78c(a)(22)(B).

196

With respect to NMLOs, the broker-dealer could also use this historical price information

available via the exclusive SIPs to determine when the order became executable, based

on when the NBBO first reached the order’s limit price.

Request for Comment

The Commission seeks comment generally on the proposed expansion of Rule 605

reporting requirements to include larger broker-dealers that meet or exceed the customer account

threshold, as well as the other proposed changes to Rule 605 and Rule 600(b) discussed above. In

particular, the Commission solicits comment on the following:

1. Should Rule 605 be expanded to apply to broker-dealers? Why or why not? Do

commenters agree that it would be useful for customers of certain broker-dealers to

be able to access execution quality statistics that are specific to those broker-dealers,

rather than needing to rely on the execution quality statistics reported by the market

centers to which the broker-dealers route? Do commenters agree that market centers

may provide different execution quality to orders based on the routing broker-dealer?

Please explain and provide data.

2. Do commenters agree that it would be useful for broker-dealers that are also market

centers to produce separate reports pertaining to each function? Why or why not? Do

commenters agree that broker-dealers that are also market centers should be required

to include in the report pertaining to their market center function all covered orders

for which they act as a market center, including as an OTC market maker, rather than

only those covered orders executed at the market center? Do commenters agree that

broker-dealers that are also market centers should be required to include in the report

pertaining to their broker-dealer function all of the covered orders in NMS stocks that

they received for execution from any customer, rather than only those orders that do

not pertain to their market center function (i.e., those orders for which they do not act

as a market center)? Would broker-dealers that are also market centers encounter any

specific difficulties when determining which orders to include in each report? Please

explain.

3. Is a numerical customer account threshold the proper criterion for determining

whether a broker-dealer should be subject to the Rule 605 reporting requirements? If

so, is 100,000 or more customer accounts the appropriate amount? Why or why not?

If not, should be it higher or lower (e.g., 500,000 or more customer accounts or

10,000 or more customer accounts)? If so, by what amount? Is it appropriate to

consider both the number of customer accounts that the broker-dealer carries and the

number of customer accounts that the broker-dealer introduces? Why or why not? Do

commenters believe that it would be more useful to consider the trading volume,

either based on share volume or notional volume, or both, of a broker-dealer’s

customers when setting the reporting threshold? Why are why not? Please explain and

provide data to support your argument. Are there alternative approaches that the

Commission should adopt in expanding Rule 605’s reporting requirements to brokerdealers? If so, please explain the approach in detail, including the benefits and costs

of the approach.

4. Should the Commission require all broker-dealers to report pursuant to Rule 605

irrespective of the number of customer accounts that the broker-dealer carries or

introduces? Or should such a requirement be subject to a de minimis exclusion? Why

or why not? If so, what would be an appropriate de minimis exclusion? Please explain

and provide data, if possible.

5. Is three months an appropriate timeframe to use for the Reporting Period, i.e., the

minimum length of time for which a broker-dealer would need to comply with Rule

605’s reporting requirements once its number of customer accounts meets or exceeds

the customer account threshold? Would a shorter or longer time period (e.g., one, two

or six months) be more appropriate? If so, by what amount? Does whether or not a

broker-dealer uses or could use an outside vendor to prepare reports pursuant to Rule

605 affect this answer? Please explain.

6. Is three months an appropriate grace period from Rule 605’s reporting requirements

for a broker-dealer that has met or exceeded the customer account threshold for the

first time? Would a shorter or longer time period be more appropriate (e.g., one

month, two months, or six months)? Do commenters agree that a grace period would

not be necessary for broker-dealers that have previously equaled or exceeded the

customer account threshold, but subsequently have fallen below the threshold and

stopped reporting and then need to restart reporting? If not, what grace period do

commenters think would be appropriate? Would one month be sufficient in this

context? Are there any other circumstances in which a broker-dealer that has met or

exceeded the customer account threshold would need an additional grace period from

Rule 605’s reporting requirements? Please explain.

7. Should a broker-dealer that is not a market center be required to calculate time of

order receipt based on when that broker-dealer received the order? Why or why not?

Would it be more useful to customers or other market participants for a broker-dealer

that generally routes customer orders to calculate time of order receipt based on when

that broker-dealer sent the order to a market center for execution? Please explain and

provide data, if possible.

8. Should broker-dealers be required to produce all of the detailed execution quality

statistics set forth in Rule 605? Why or why not? Do commenters agree that brokerdealers’ customers and other market participants would be able to interpret

differences in these execution quality statistics among reporting entities that may be

attributable to the context of their different types of business? Do commenters believe

that there are any additional execution quality statistics that would be useful to

require of broker-dealers? Please explain and provide data, if possible.

9. Would it be difficult for broker-dealers to obtain any of the information needed to

calculate the Rule 605 statistics? Why or why not? If so, which statistics in

particular? Would broker-dealers have some or all of the information needed to

calculate their Rule 605 statistics already, including to meet their obligations to assess

whether they are providing best execution for these orders? Do commenters agree that

broker-dealers would be able to obtain needed information from the execution venues

to which they routed the orders or publicly available sources? Should the Commission

exclude certain proposed execution quality statistics that are specific to certain order

types, such as executable NMLOs? Why or why not? Please explain.

Qualified Auction Mechanisms

Separately, the Commission is proposing rules that generally would require that

individual investor orders be exposed to order-by-order competition in fair and open auctions

designed to obtain the best prices before such orders could be internalized by wholesalers or any

other type of trading center that restricts order-by-order competition.197 Under those proposed

rules, a restricted competition trading center would not be allowed to execute internally a

segmented order for an NMS stock until after a broker or dealer has exposed such order to

competition at a specified limit price in a qualified auction that meets certain requirements and is

197

For a full description and discussion of the order competition rule proposal, see Securities

Exchange Act Release No. 96495 (Dec. 14, 2022) (File No. S7-31-22) (Order

Competition Rule) (“Order Competition Rule Proposal”); proposed Rule 615.

operated by an open competition trading center.198 An “open competition trading center” would

be a national securities exchange or NMS Stock ATS that meets certain requirements, including

being transparent and having a substantial trading volume in NMS stocks independent of

qualified auctions.199 A “qualified auction” would be an auction operated by an open competition

trading center pursuant to specified requirements that are designed to achieve competition.200

If the Commission adopts the Order Competition Rule Proposal and a national securities

exchange or NMS Stock ATS that serves as an open competition trading center is required to

prepare execution quality reports under current Rule 605, that national securities exchange or

NMS Stock ATS would be required to include covered orders that it received for execution in a

qualified auction within its blended executing quality statistics, which also would include trading

activity outside of the qualified auctions.201

198

See Order Competition Rule Proposal; proposed Rule 600(b)(87) (defining “restricted

competition trading center”); proposed Rule 600(b)(91) (defining “segmented order”);

proposed Rule 615(a) (describing the order competition requirement).

199

See Order Competition Rule Proposal; proposed Rule 600(b)(64) (defining “open

competition trading center”).

200

See Order Competition Rule Proposal; proposed Rule 600(b)(81) (defining “qualified

auction”); proposed Rule 615(c) (setting forth requirements for operation of a qualified

auction).

201

As discussed further below, the Commission is proposing to eliminate the separate

reporting categories for inside-the-quote limit orders, at-the-quote limit orders, and nearthe-quote limit orders, and create new reporting categories for executable NMLOs and

beyond-the-midpoint limit orders. See infra sections IV.B.2.a) and IV.B.2.b). While, as

proposed, orders submitted to qualified auctions may in many instances be classified as

beyond-the-midpoint limit orders, this reclassification would not resolve the

Commission’s concern about blending execution quality statistics for orders executed in

qualified auctions with orders executed outside of these auctions.

The Commission is concerned that there may be differences in execution quality for

orders executed within proposed qualified auctions, as compared to other orders executed by

market centers outside of these qualified auctions, that would not be apparent in blended

execution quality statistics. For example, orders submitted to a qualified auction may be more or

less likely to receive price improvement, and may have systematically different fill rates, as

compared to similar orders executed in other trading mechanisms. In addition, the Order

Competition Rule Proposal would propose both a minimum and maximum time period for the

qualified auction.202 Therefore, the time to execution statistics for orders submitted to a qualified

auction may be systematically different from the time to execution statistics of other orders

executed at a market center. Further, if a market center receives covered orders for execution in a

qualified auction, then that market center would not have discretion about whether to submit

these orders into a qualified auction and therefore the distinction between orders executed by the

market center within and outside of a qualified auction would not reflect any decision-making on

the part of the market center. Thus, it would be more useful for market participants to be able to

review execution quality statistics that are specific to covered orders submitted to a qualified

auction.

Accordingly, the Commission is proposing to amend Rule 605(a)(1) to state that market

centers that operate a qualified auction must prepare a separate report pursuant to Rule 605

pertaining only to covered orders that the market center receives for execution in a qualified

auction.203 This proposed requirement for separate reports is limited to market centers that

operate proposed qualified auctions, and would not extend to market centers or broker-dealers

that route orders away for execution in a qualified auction. Therefore, a market center or broker-

202

See Order Competition Rule Proposal; proposed Rule 615(c)(2).

203

See proposed Rule 605(a)(1).

dealer that routes covered orders to an open competition trading center for execution within a

proposed qualified auction would not be required to separately report on or otherwise distinguish

orders routed to qualified auctions from other types of orders routed away for execution in its

Rule 605 reports.204 In this way, the proposal would follow current Rule 605’s focus on the

overall execution quality that the reporting entity provided to all covered orders that it received

for execution.205 Having market centers and broker-dealers report on the execution quality

provided to orders, regardless of where they are executed, would inform market participants and

other observers about overall execution quality that the market center or broker-dealer is able to

obtain, including when the market center or broker-dealer decides whether and where to route

orders to receive such executions. Further, distinctions between whether an order was routed to a

qualified auction or not may depend on the characteristics of the order, such as whether it is a

segmented order, rather than the performance of the market center or broker-dealer that routed

the order. As such, it would be of more limited utility to have a market center or broker-dealer

that routes orders to a qualified auction to produce a separate Rule 605 report specific to such

orders.

204

If a larger broker-dealer is also a market center and its market center operates a qualified

auction mechanism, that aspect of the market center would be subject to the separate

reporting requirement.

205

For example, currently Rule 605 does not require market centers to distinguish among

covered orders routed to particular types of away market centers. Instead, a market

center’s execution quality statistics are blended statistics pertaining to all covered orders

that the market center received for execution, with the limited exception of the statistics

for cumulative number of shares of covered orders executed at the receiving market

center and at any other venue. See 17 CFR 242.605(a)(1).

Although market centers and broker-dealers would not be required to produce a separate

Rule 605 report pertaining to orders that they route to a qualified auction, Rule 606 requires

routing broker-dealers to disclose certain regularly-used execution venues to which they route

orders, and a report prepared by a broker-dealer pursuant to Rule 606 would be required to

indicate that orders were routed to a particular qualified auction.206 A customer of a brokerdealer could then analyze whether and to what extent the broker-dealer routes to a particular

market center’s qualified auctions (using reports prepared pursuant to Rule 606), and evaluate

the execution quality provided by that market center’s qualified auctions (using reports prepared

pursuant to Rule 605).

The Commission considered extending the proposed requirement for separate Rule 605

reports beyond proposed qualified auctions to include orders submitted to any trading

mechanism that seeks to provide liquidity to the orders of individual investors. For example,

several national securities exchanges operate retail liquidity programs.207 However, in the Order

206

See 17 CFR 242.606(a)(1). For example, if a broker-dealer operates an ATS and that

ATS has qualified auctions and a continuous order book, the broker-dealer’s Rule 606

report would be required to disclose information about orders that were routed to the

ATS’s qualified auctions separately from orders that were sent directly to the ATS’s

continuous order book.

207

Retail liquidity programs are programs for retail orders seeking liquidity that allow

market participants to supply liquidity to such retail orders by submitting undisplayed

orders priced at least $0.001 better than the exchange’s protected best bid or offer. Each

program results from a Commission approval of a proposed rule change made on Form

19b-4 combined with a conditional exemption, pursuant to section 36 of the Exchange

Act, from 17 CFR 242.612 (the “Sub-Penny Rule”) to enable the exchange to accept and

rank (but not display) the sub-penny orders. See, e.g., Securities Exchange Act Release

Nos. 85160 (Feb. 15, 2019), 84 FR 5754 (Feb. 22, 2019) (SR-NYSE-2018-28)

(approving the NYSE retail liquidity program on a permanent basis and granting the

exchange a limited exemption from the Sub-Penny Rule to operate the program); 86194

Competition Rule Proposal the Commission is proposing a prohibition on certain facilities that

are limited, in whole or in part, to the execution of segmented orders and this prohibition would

apply to many of the retail liquidity programs currently operated by national securities

exchanges.208

Request for Comment

The Commission seeks comment on the proposal to require a market center that operates

a qualified auction to prepare a separate report under Rule 605 for covered orders that were

submitted to a qualified auction if the Order Competition Rule Proposal is adopted. In particular,

the Commission solicits comment on the following:

10. Should market centers that operate a proposed qualified auction be required to

prepare a separate Rule 605 report for covered orders that are submitted to their

qualified auctions? Why or why not? Do commenters agree with limiting this separate

reporting requirement to market centers that operate a proposed qualified auction, and

not to either broker-dealers that are not market centers or market centers that do not

operate a qualified auction? Please explain.

11. Should this separate reporting requirement be limited to a trading mechanism that

meets the proposed requirements for a “qualified auction”? Would it be more useful if

a market center prepared a separate report for covered orders submitted to any trading

mechanism that seeks to provide liquidity to the orders of individual investors (e.g., a

(June 25, 2019), 84 FR 31385 (July 1, 2019) (SR-BX-2019-011) (approving Nasdaq BX,

Inc.’s retail price improvement program on a permanent basis and granting the exchange

a limited exemption from the Sub-Penny Rule to operate the program).

208

See Order Competition Rule Proposal. The Commission discusses a number of

alternatives in the Order Competition Rule Proposal. See id. To the extent that any retail

liquidity program is retained, separate execution quality statistics specific to orders

submitted to those programs may be useful to investors.

national securities exchange’s retail liquidity program), whether or not that trading

mechanism operates a “qualified auction”?

12. Do commenters believe that there are any additional execution quality statistics that

would be useful to require of a market center that operates a proposed qualified

auction to facilitate comparison among different qualified auctions? For example,

would it be useful for a market center that operates a proposed qualified auction to

provide data on any price improvement provided in the qualified auction as measured

in relation to any additional price matching offered by the wholesaler that routed the

order to the qualified auction? Please explain and provide data, if possible.

ATSs and Single-Dealer Platforms

Currently under Rule 605, firms that operate two separate markets must prepare separate

reports for each market center.209 For example, for a firm that acts both as an exchange market

maker and as an OTC market maker, each function would be considered a separate market center

and Rule 605 requires the firm to prepare separate reports. The requirement to produce separate

Rule 605 reports for separate markets allows market participants to assess the execution quality

of each market individually, and prevents differences in the nature of each market from

obscuring information about execution quality.

209

See 17 CFR 242.605(a)(1) (requiring “every” market center to produce a report). See also

Plan, at n.1 (“An entity that acts as a market maker in different trading venues (e.g., as

specialist on an exchange and as an OTC market maker) would be considered as a

separate market center under the Rule for each of those trading venues. Consequently, the

entity should arrange for a Designated Participant for each market center/trading venue

(e.g., an exchange for its specialist trading and an association for its OTC trading).”). For

a description of “Designated Participant” as defined in the Plan, see supra note 47.

Regulation ATS requires each ATS to register as a broker-dealer.210 Many broker-dealers

that operate NMS Stock ATSs have separate lines of business that are distinct from their ATSs,

yet also relate to the trading of NMS stocks.211 In addition, one EMSAC panelist suggested that

the Commission require all ATSs and dark pools (i.e., ATSs that do not publish quotations) to

report separately from their affiliated broker-dealers under Rule 605.212 The Commission

believes there is a need to address directly what Rule 605 requires with respect to reporting by

firms that operate ATSs. By specifying that a broker-dealer that operates an ATS must produce

Rule 605 reports that are specific to the ATS and separate from the broker-dealer operator’s

other trading activity, the Commission intends to increase transparency and regulatory

compliance. Accordingly, the Commission proposes to specify in Rule 605(a)(1) that ATSs (as

210

See 17 CFR 242.301(b)(1). 17 CFR 242.301 through 17 CFR 242.304 is generally known

as “Regulation ATS.”

211

See, e.g., Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38768,

38771 (Aug. 7, 2018) (Regulation of NMS Stock Alternative Trading Systems) (stating

that ATSs that trade NMS stocks are increasingly operated by multi-service brokerdealers that engage in significant brokerage and dealing activities in addition to operation

of their ATS, and that, for instance, the broker-dealer operator of an NMS Stock ATS

may also operate an OTC market making desk or principal trading desk, or may have

other business units that actively trade NMS stocks on a principal or agency basis in the

ATS or at other trading centers).

212

See Healthy Markets II at 2. See also Healthy Markets III at 4 (recommending that the

Commission modernize and mandate Rule 605 disclosure for all NMS ATS operators

separate and distinct from any affiliated broker-dealer). Additionally, a commenter to the

Concept Release on Equity Market Structure recommended that the Commission require

all ATSs and dark pools to report under Rule 605. See KOR Group I at 3.

defined in Regulation ATS213) shall prepare reports separately from their broker-dealer operators,

to the extent such entities are required to prepare reports.214

Some OTC market makers, such as wholesalers, operate SDPs through which they

execute institutional orders in NMS stocks against their own inventory.215 Institutional customers

often communicate their trading interest using immediate-or-cancel orders (“IOCs”) or IOIs on

SDPs.216 SDPs account for a nontrivial amount of trading volume overall (for example, SDPs

accounted for approximately 4% of total trading volume in Q1 2022) and a significant portion of

trading volume executed by wholesalers.217 Co-mingling SDP activity with other market center

activity in Rule 605 reports may obscure differences in execution quality or distort the general

execution quality metrics for the market center.218 It would be useful if SDPs reported execution

quality statistics separately from those of their associated broker-dealer under Rule 605, so that

their customers and other market participants would be able to distinguish SDP activity from

more traditional dealer activity. Separate statistics may be particularly useful if a dealer provides

213

17 CFR 242.300 et seq.

214

See proposed Rule 605(a)(1).

215

Wholesalers and other OTC market makers either execute orders themselves or instead

further route the orders to other venues. An SDP always acts as the counterparty to any

trade that occurs on the SDP. See, e.g., Where Do Stocks Trade?, FINRA.org (Dec. 3,

2021), available at https://www.finra.org/investors/insights/where_do_stocks_trade for

further discussion.

216

See infra note 615 and accompanying text.

217

See infra notes 618 and 769 and accompanying text.

218

For example, IOC orders typically have different execution profiles than other types of

orders, including lower fill rates, and therefore including orders submitted to a market

center’s SDP with its other orders will effect a downwards skew on the market center’s

fill rates. See infra note 723 and accompanying text; Table 6.

an SDP (i.e., a separate routing destination for the execution of orders) for a particular group of

customers or type of orders. Therefore, the Commission is proposing to require in Rule 605(a)(1)

that any market center that provides a separate routing destination that allows persons to enter

orders for execution against the bids and offers of a single dealer shall produce a separate report

pertaining only to covered orders submitted to such routing destination.219

Request for Comment

The Commission seeks comment on the proposal to specify that an ATS must produce

reports separately from its broker-dealer operator, and to require that any market center that

provides a separate routing destination that allows persons to enter orders against the bids and

offers of a single dealer must produce separate reports pertaining to orders submitted to that

routing destination. In particular, the Commission solicits comment on the following:

13. Is it useful for an ATS to produce reports pursuant to Rule 605 that are specific to

covered orders submitted to the ATS and separate from orders submitted in

connection with other trading activity of its broker-dealer operator? Why or why not?

14. Should a broker-dealer operating an SDP be required to produce reports pursuant to

Rule 605 that are specific to orders sent to that routing destination and separate from

other trading activity by that dealer, as proposed? Why or why not? Do commenters

agree that the description of “a market center that provides a separate routing

destination that allows persons to enter orders for execution against the bids and

219

See proposed Rule 605(a)(1). To the extent that a reporting firm produces more than one

Rule 605 report, the firm could label each report with the type of business reflected on

the report. As discussed above, the Commission proposes to expand the scope of Rule

605 to include larger broker-dealers. See supra section III.A. It is possible that firms

would need to prepare several Rule 605 reports if they are both a larger broker-dealer and

a market center and need to prepare more than one report as a market center, pursuant to

proposed Rule 605(a)(1).

offers of a single dealer” accurately describes SDPs? If not, what is a more accurate

description of an SDP? Please explain.

IV.

Proposed Modifications to Scope of Orders Covered and Required Information

Rule 605 reports group orders by both order size and order type, and require certain

standardized information for all types of orders and additional information for market orders and

marketable limit orders. The Commission is proposing to modify the order size and order type

groupings, and is proposing to make changes to the required information for: all types of orders;

market and marketable limit order types; and nonmarketable order types. The modifications

described below would apply to Rule 605 reports produced by all reporting entities, including

larger broker-dealers.

Covered Order

The Commission proposes to expand the definition of “covered order” in a number of

ways.220 The Commission proposes to include certain orders received outside of regular trading

hours and orders submitted with stop prices. Additionally, the Commission is addressing whether

Rule 605 requires non-exempt short sale orders to be incorporated into Rule 605 reporting when

a price test restriction is in effect for the security.

Orders Submitted Pre-Opening/Post-

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