(HedgeCo.Net) The Securities and Exchange Commission today voted to propose rules that for the first time would require broker-dealers to disclose the handling of institutional orders to customers. The proposed rules also would expand the information included in existing retail order disclosures. <\/p>\n
\u201cThese proposed rules are intended to bring order handling disclosure in line with modern technology and market practice, providing valuable information to retail and institutional investors about how their orders are treated,\u201d said SEC Chair Mary Jo White. \u201cThis information should provide investors more transparency and a powerful new tool to more effectively monitor broker-dealer routing decisions, especially when combined with the additional disclosures from alternative trading systems proposed by the Commission late last year.\u201d<\/p>\n
Institutional Order Disclosures<\/p>\n
The proposed rules would require a broker-dealer to provide a customer, upon request, a report on its handling of that customer\u2019s institutional orders (orders in exchange-listed stocks with an original market value of at least $200,000), containing specified monthly data for the previous six months. The customer-specific report also would require detailed order handling information for each venue to which the broker-dealer routed institutional orders for the customer and would be presented in the aggregate and broken down by passive, neutral, and aggressive order routing strategies.<\/p>\n
Separately, the proposed amendments would require broker-dealers to make public on a quarterly basis aggregated reports of their handling of all institutional orders.<\/p>\n
Retail Order Disclosures<\/p>\n
The proposed rules also would enhance current retail order disclosures by requiring: <\/p>\n
More detailed information about the payments received by broker-dealers from execution venues or paid to such venues.
\nReporting by calendar month rather than by quarter.
\nSeparate reporting information for marketable and non-marketable limit orders.
\nThe Commission is seeking public comment on the proposal for 60 days following its publication in the Federal Register.<\/p>\n
Disclosure of Order Handling Information<\/p>\n
The Securities and Exchange Commission will consider whether to propose rules that for the first time would require broker-dealers to disclose specific data related to the routing and execution of institutional orders and enhance existing disclosure requirements related to the routing of retail orders. The proposed amendments would assist customers in assessing the services of their broker-dealers and comparing the services of multiple broker-dealers.<\/p>\n
Highlights<\/p>\n
Institutional Orders Disclosures<\/p>\n
The proposed rules would require broker-dealers to provide customers with standardized information about their institutional order handling and execution quality and to disclose publicly the same information on an aggregated basis across all customers. The customer-specific disclosures would help customers assess their broker-dealers\u2019 services, including the handling of potential conflicts of interest, risks of information leakage, and best execution. The public disclosures would assist market participants in assessing and comparing the institutional order handling services provided by broker-dealers.<\/p>\n
Customer-specific report on institutional order handling<\/p>\n
The proposed rules would require a broker-dealer to provide a customer, upon request, a report on the broker-dealer\u2019s handling of the customer\u2019s institutional orders (orders in National Market System (NMS) or exchange-listed stocks with an original market value of at least $200,000) that contains specified monthly data for the previous six months. The report would include the number of: <\/p>\n
Shares sent to the broker-dealer<\/p>\n
Shares executed by the broker-dealer as principal
\nInstitutional orders exposed by the broker-dealer through actionable indications of interest, and the venues to which they were exposed. The report also would include the following information for each venue to which the broker-dealer routed institutional orders for the customer, in the aggregate and broken down by passive, neutral, and aggressive order routing strategies as determined and assigned by the broker-dealer:<\/p>\n
Information on Order Routing<\/p>\n
Total shares routed
\nTotal shares routed marked immediate or cancel
\nTotal shares routed that were further routable
\nAverage order size routed<\/p>\n
Information on Order Execution<\/p>\n
Total shares executed
\nFill rate (shares executed divided by the shares routed)
\nAverage fill size
\nAverage net execution fee or rebate (cents per 100 shares, specified to four decimal places)
\nTotal number of shares executed at the midpoint
\nPercentage of shares executed at the midpoint
\nTotal number of shares executed that were priced on the side of the spread more favorable to the institutional order
\nPercentage of total shares executed that were priced at the side of the spread more favorable to the institutional order
\nTotal number of shares executed that were priced on the side of the spread less favorable to the institutional order
\nPercentage of total shares executed that were priced on the side of the spread less favorable to the institutional order<\/p>\n
Information on Orders that Provided Liquidity<\/p>\n
Total number of shares executed of orders providing liquidity
\nPercentage of shares executed of orders providing liquidity
\nAverage time between order entry and execution or cancellation, for orders providing liquidity (in milliseconds)
\nAverage net execution rebate or fee for shares of orders providing liquidity (cents per 100 shares, specified to four decimal places)<\/p>\n
Information on Orders that Removed Liquidity<\/p>\n
Total number of shares executed of orders removing liquidity
\nPercentage of shares executed of orders removing liquidity
\nAverage net execution fee or rebate for shares of orders removing liquidity (cents per 100 shares, specified to four decimal places).<\/p>\n
Public aggregated report on institutional order handling<\/p>\n
The proposed rules would require broker-dealers to make aggregated reports of their handling of institutional orders publicly available on a quarterly basis. Broker-dealers would be required to post the aggregated report on a free, publicly-accessible Internet website for three years.<\/p>\n
Format of Reports<\/p>\n
All reports on institutional and retail order handling and routing would be provided using XML and PDF formats as published on the Commission\u2019s website, so that the data in the report would be in a consistent, structured format that would facilitate search capabilities and statistical and comparative analyses across broker-dealers and date ranges. <\/p>\n
Disclosure of Order Execution Information<\/p>\n
Similar to the proposed requirement for the public order handling reports, the proposed rules would require market centers to make order execution reports publicly available for three years.<\/p>\n
Background<\/p>\n
Currently, Rule 606 requires broker-dealers to disclose publicly, on a quarterly basis, certain aggregated order routing information for customer orders in NMS securities, and to disclose separately, to a customer upon request, certain customer-specific order routing information for the past six months. The term \u201ccustomer order\u201d is defined as an order that is not for the account of a broker-dealer, and is less than $200,000 for NMS stocks and less than $50,000 for options. <\/p>\n
Rule 606 currently does not require disclosure of order routing information for institutional-sized orders. At the time Rule 606 was adopted, institutional-sized orders were excluded because they were handled by broker-dealers in a manual, individual manner. As such, generalized order handling information was not practical.<\/p>\n","protected":false},"excerpt":{"rendered":"
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