Group Co.
Rule 606 Amendments Up Reporting Ante
This is the third article in a sponsored content series from S3
Traders Magazine Online News, February 20, 2019
Dude, where’s my order?
How was it handled? And why did you send it where you did?
All pertinent questions today’s buy-side trader is asking his sell-side counterpart in the current market structure. And now the Securities and Exchange Commission agrees and is making changes to its Order Handling Rule disclosures – Rule 606 – and making more data and reports available to the investing community. Whether one is a mega money manager with billions under management or small Mom and Pop office, you’re about to get more in your inbox.
Order routing has been driven and shaped by significant technological innovations that have completely changed the way markets function and the way broker/dealers trade. The original rules did not provide the requisite level of transparency needed to provide investors with the proper insights to make informed decisions regarding their trading partners and strategies. This has led to a cottage industry of vendors and others looking to assist the buy-and sell-side with the looming reams of new data as to where orders were sent and how they were handled.
S3 is one such company, providing trading compliance solutions to monitor and analyze trade execution and surveillance for equities, options, and fixed income securities. The firm, led by Chief Executive Officer Mark Davies, recognizes the need for order handling disclosure and recently announced the launch of its own Order Handling reports designed to meet the Securities and Exchange Commission’s (SEC’s) new Rule 606 reporting requirements.
Originally envisioned, Rule 606 states “broker-dealers that route customer orders in equity and option securities are required to make publicly available quarterly reports that, among other things, identify the venues to which customer orders are routed for execution. In addition, broker-dealers will be required to disclose to customers, on request, the venues to which their individual orders were routed.”
On November 2, 2018, the SEC upped the reporting ante and announced new regulations governing disclosure of order handling practices by broker dealers with a compliance deadline of May 20, 2019. In addition to requiring considerably more data and calling for changes in report formatting, these new rules apply to significantly more market participants than previous regulations have, and the new reports are substantially more complex, making them difficult to produce in house.
https://www.sec.gov/news/press-release/2018-253
Under REG NMS, the 606 will now be broken into two separate reports specific to the clients’ order flow.
606(1)(a) will be required to report only HELD order flow(A HELD order is one where the trader is “held” to the duty of best execution – meaning they have to provide a prompt execution at the best possible price.)
606(b)(3) will be mandatory for NOT HELD order flow(A NOT-HELD order is an order that gives the broker-dealer both time and price discretion.)
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