SEC Adopts Amendments to Require Disclosure of Order Execution Information

The SEC adopted amendments to Regulation NMS Rule 605 ("Disclosure of order execution information") to require "market centers" to make available standardized, monthly reports of statistical information concerning order executions in national market systems ("NMS") stocks. "Market centers" include exchange market makers, OTC market makers, alternative trading systems, national securities exchanges and national securities associations.

The amendments (i) expand the scope of reporting entities to include broker-dealers who introduce or carry 100,000 or more customer accounts and (ii) modify the definition of a "covered order" to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices.

The amendments:

• Expand the definition of "covered order" to include certain orders submitted outside of regular trading hours, certain orders submitted with stop prices and non-exempt short sale orders;
• Modify the existing order size categories to base them on both notional dollar value and whether an order is for a fractional share, for an odd-lot, or for a round lot or greater rather than number of shares;
• Establish four new order type categories: marketable immediate-or-cancel orders, market orders submitted with stop prices, marketable limit orders submitted with stop prices and non-marketable limit orders submitted with stop prices;
• Replace three existing categories of non-marketable order types with four new categories of order types: midpoint-or-better limit orders, midpoint-or-better immediate-or-cancel orders, non-marketable limit orders and non-marketable immediate-or-cancel orders. The amendments also scope in non-marketable orders and orders submitted with stop prices if they become executable during regular trading hours; and
• Require all entities subject to the rule to make a summary report publicly available that would be formatted in the most recent versions of the schema for CSV and PDF format renderer as published on the SEC's website.

Further, the Commission amended the content of the reports required under Rule 605 as follows:

• The time-to-execution reporting categories will be modified to use more granular time-to-execution buckets with timestamp conventions of a millisecond or finer;
• Realized spread statistics will be required to be calculated using additional time horizons ranging from less than 100 microseconds to 5 minutes after the time of order receipt; and
• New statistical measures of execution quality will be required.

The rules will become effective 60 days after publication in the Federal Register.

Statements

• SEC Chair Gary Gensler. Mr. Gensler argued that the adoption of the rules "improve transparency for execution quality and facilitate investors’ ability to compare brokers, thereby enhancing competition in our markets."
• SEC Commissioner Jaime Lizárraga. Mr. Lizárraga underscored that Rule 605, in its current form, had "fallen behind technological and market developments" and the adoption of the amendments will enhance the Rule.
• SEC Commissioner Caroline A. Crenshaw. Ms. Crenshaw said that the amendments will increase the relevance and use of information contained in the rule reports by (i) expanding the scope of reporting entities, (ii) modernizing the content of reports and (iii) broadening the reports' accessibility. Ms. Crenshaw said that the SEC's disclosure regime for direct information should be updated as markets innovate and change.
• SEC Commissioner Mark T. Uyeda. Mr. Uyeda said that the rule adoption "stands firmly" within the SEC's tradition of creating a competitive environment which best serves investors. Mr. Uyeda reaffirmed that the adoption of the amendments will enhance competition, which "should benefit investors and their trading needs."
• SEC Commissioner Hester M. Peirce. Ms. Peirce said that (i) the SEC must stay informed of possible gaps between market developments and regulatory framework and address them expeditiously, and (ii) the SEC must consider whether to engage in further rulemaking when the SEC does not have empirical evidence of the impacts of closely related, adopted (but not implemented) rules.