On July 13, the Securities and Exchange Commission voted to propose rules requiring broker-dealers to disclose the handling of institutional orders to customers for the first time and to expand existing retail order disclosures (Proposed Rules). The Proposed Rules seek to allow customers to more effectively monitor the services provided by their broker-dealers and to compare the routing decisions and execution quality of multiple broker-dealers.
The Proposed Rules would require broker-dealers, upon request from a customer, to provide a monthly report for the previous six-month period detailing the handling of such customer’s institutional orders in exchange-listed stocks with an original market value of at least $200,000. The report would be required to include information such as shares sent to the broker-dealer, shares executed by the broker-dealer as principal and information with respect to venues to which the broker-dealer routed institutional orders for the customer. Required information would have to be presented in the aggregate and broken down by order routing strategy (passive, neutral or aggressive). Broker-dealers will also have to make public aggregated reports pertaining to their handling of institutional orders on a quarterly basis for information pertaining to the three previous years.
The Proposed Rules also will require broker-dealers to disclose retail order routing information such as: (1) limit orders as marketable or non-marketable; (2) routing information by calendar month; (3) information pertaining to payments to certain venues; and (4) a description of terms of payment for order flow or profit-sharing arrangements that may influence a broker-dealer’s order routing decision. Market centers would be required to make public order handling reports for three years.
The Proposed Rules will be subject to a 60-day comment period from their date of publication in the Federal Register. The SEC’s announcement can be found here.