The SEC Enhances Order Execution Disclosure Rules for Greater Market Transparency

The SEC Enhances Order Execution Disclosure Rules for Greater Market Transparency

SEC Enhances Order Execution Disclosure Rules for Greater Market Transparency

The Securities and Exchange Commission (SEC) has introduced new changes to improve the disclosure of order execution information, specifically for stocks listed on national securities exchanges, known as national market system stocks (NMS stocks). These changes are part of updates to Rule 605 of Regulation NMS, which was initially implemented in 2000 to help the public compare and assess the quality of order executions across different market centers.

SEC Chair Gary Gensler highlighted the need for these updates, emphasizing that advancements in technology and business models have transformed equity markets over the past 24 years. The amendments aim to enhance transparency surrounding execution quality, making it easier for investors to evaluate and compare brokers, thereby fostering greater competition in the markets.

The key changes include broadening the scope of entities subject to Rule 605, revising the categorization and content of order information required for reporting, and mandating the production of a summary report on execution quality. Specifically, the amendments extend the reporting requirements to include broker-dealers with a larger number of customer accounts and single dealer platforms. They also expand the definition of “covered order” to include certain orders submitted outside regular trading hours, those with stop prices, and certain short sale orders, capturing more relevant execution quality information for these order types.

Moreover, the amendments alter how orders are categorized by size and type, capturing execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. They also refine the time-to-execution categories and require average time to execution to be measured in increments as small as a millisecond for all orders. Additionally, the amendments modify the information required for reporting under the rule, introducing new statistical measures of execution quality such as average effective divided by quoted spread and size improvement statistics. Finally, all entities subject to Rule 605 are required to make a summary report publicly available.

These changes aim to provide investors with more comprehensive and detailed information about order execution quality, enabling them to make more informed decisions. The adopting release containing these amendments is accessible on and will be published in the Federal Register. The amendments will come into effect 60 days after publication in the Federal Register, with a compliance deadline set for 18 months after the effective date.

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