The US Securities and Exchange Commission (SEC) has amended disclosure rules required under Rule 605 of Regulation NMS for order executions in national market system stocks (NMS stocks).
The amendments expand the scope of equities subject to Rule 605, change the categorisation and content of order information required, and require reporting entities to produce an execution quality summary.
Rule 605 was adopted in 2000 to help the public compare and evaluate execution quality at different market centres. “In the 24 years since Rule 605 was adopted, our equity markets have been transformed by ever-evolving technologies and business models,” said SEC Chair Gary Gensler. “I am pleased to support this adoption because it will improve transparency for execution quality and facilitate investors’ ability to compare brokers, thereby enhancing competition in our markets.”
Broadening the scope pulls in broker-dealers with a larger number of customer accounts and single dealer platforms. In addition, 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 certain short sale orders. The amendments will capture more relevant execution quality information for certain order types by requiring statistics to be reported from the time such orders become “executable.”
The amendments also change how orders are categorised by order size, capturing execution quality information for fractional share orders, odd-lot orders, and larger-sized orders.
Changes have been made to the time-to-execution categories, requiring average time to execution to be measured in increments of a millisecond or finer and to be calculated for all orders.
In addition, the amendments modify the information required to be reported under the rule, including adding realised spread time horizons and requiring new statistical measures of execution quality, such as average effective divided by quoted spread (a percentage-based metric that represents how much price improvement orders received) and size improvement statistics. Finally, the amendments require all entities subject to Rule 605 to make a summary report publicly available.
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