SEC Modifies Exemptions under NMS Disclosure Rule on Order Execution

The SEC issued an Order granting, modifying, and rescinding various exemptions on disclosure rules that require market centers and certain broker-dealers to publish monthly electronic reports on order execution quality for national market system stocks.

Key changes to the SEC Rule 605 ("Disclosure of order execution information") include:

• Fractional Shares: The SEC granted a limited exemption relieving customer-facing broker-dealers from producing separate Rule 605 market center reports if they only execute fractional share orders to help customers exit positions acquired through dividend reinvestment programs or stock dividends with a fractional component.
• Trading Halts: The Commission rescinded its previous exemption for orders received during trading halts and replaced it with a requirement that the report of the relevant orders should be based on the time the orders become executable, rather than the time of receipt.
• Crossed Markets: Orders requiring reference to a National Best Bid and Offer ("NBBO") that has been crossed for 30 seconds, or more, are exempt from Rule 605 reporting.
• Inactively Traded Securities: The existing exemption for inactively traded securities (averaging five or fewer reported transactions per day over the preceding six months) was expanded.
• Manual Orders: The SEC rescinded the exemption for manually received orders, noting that market centers and broker-dealers have developed automated systems capable of capturing nearly all orders electronically.