The United States’ Securities and Exchange Commission (SEC) has adopted some amendments of its Rule 606 that require broker-dealers to disclose to investors new and enhanced information about the way they handle investors’ orders.
Specifically, the Commission on Friday amended the Rule 606 of Regulation NMS to require a broker-dealer, upon a request of a customer who places a “not held” order (e.g., an order in which the customer gives the firm price and time discretion), to provide the customer with a standardized set of individualized disclosures concerning the firm’s handling of the customer’s orders.
The new disclosures will provide the customer with information about the average rebates the broker received from, and fees the broker paid to, trading venues, amongst others.
The commission stated that the new disclosures were designed to help investors better understand how the broker-dealer routes and handles their orders and assess the impact of their broker-dealers’ routing decisions on order execution quality.
In addition, the Commission also adopted two exceptions aimed at minimizing the implementation costs of the new disclosure requirement on the broker-dealer industry, particularly small broker-dealers.
This is even as it set for dealer-broker compliance, the enhancements to the quarterly public reports that broker-dealers are already required to publish.
With the latest amendments to Rule 606 of Regulation NMS, the public disclosures must now describe any terms of payment for order flow arrangements and profit-sharing relationships, among other things.
Commenting on the regulatory step by the commission, the SEC Chairman, Jay Clayton, said: “In the eighteen years since the Commission originally adopted its order handling and routing disclosure rules, technology and innovation have driven significant changes in the way that our equities market functions and investors transact.
“This rule amendment will make it easier for investors to evaluate how their brokers handle their orders and ultimately make more informed choices about the brokers with whom they do business”, Clayton added.
