The industry has broadly welcomed the enhancements that the US Securities and Exchange Commission has made to Rule 605, which covers disclosures around the execution of orders.

Asset manager Fidelity said it was pleased that the changes to Rule 605 provides investors with more data that they can use to compare trading venues.

For many years, Fidelity has championed broader industry standardized statistics to measure the quality of trade executions. We are pleased this week @SECGov finalized Rule 605 updates to provide investors of all sizes more data upon which to compare their trading venue(s).…

— Fidelity Public Policy (@FidelityPolicy) March 8, 2024

Rule 605 was initially adopted in 2000 to help the public compare and evaluate execution quality at different market centers. Gary Gensler, chair of the SEC, said in a statement that in the 24 years since the rule Rule 605 was adopted, the US equity markets have been transformed by ever-evolving technologies and business models.

Gensler added : “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.”

KPMG highlighted some of the changes in a blog, which included market centers, brokers, and dealers having to make standardized, monthly reports available of statistical information concerning their order executions as well as a summary report that is publicly available. Separate reports will be required for a firm’s broker-dealer and its alternative trading system (ATS) activity, together with separate reports for any single dealer platforms that they operate.

https://kpmg.com/us/en/articles/2024/sec-final-amendments-rule-605-of-regulation-nms-reg-alert.html

The rule has been widened to include broker-dealers who introduce or carry 100,000 or more customer accounts; expanding the definition of “covered order”; to include certain orders submitted outside of regular trading hours; establishing four new order type categories; adding a timestamp convention of a millisecond or finer.

The changes also include expanding the scope of execution quality measures to include, among others, average effective divided by average quoted spread, measures relative to “size improvement”, and measures of “price improvement relative to the best available price.”

Tyler Gellasch, president and chief executive of the Healthy Markets Association, said the SEC has adopted a “badly needed update to order execution disclosures, and did a pretty fantastic job with decisions and analysis.”

His only big complaint is the lack of report centralization and he highlighted that retail may be annoyed that $250 is the smallest bucket.

There are some really great things in the final rule, but let me start with a stupid one — it drops centralized reporting.

This means the reports will remain hard to collect and compare … limiting their utility and accuracy. @ChristopherNagy will be pissed.
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— Tyler Gellasch (@TylerGellasch) March 6, 2024

The final rule also kept the proposed requirement that brokers that are also market centers to make separate reports for the disparate market roles. So that stayed in.
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— Tyler Gellasch (@TylerGellasch) March 6, 2024

The final rule would, as proposed, cover orders received outside of normal trading hours, but modified the details a bit.

This will be a bigger deal for "retail" investors…
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— Tyler Gellasch (@TylerGellasch) March 6, 2024

We have some new definitions to separate out the complex stop order inclusion, such as …

9/ pic.twitter.com/nLcJbqWlQz

— Tyler Gellasch (@TylerGellasch) March 6, 2024

Then there is this massive, change, which can only be described as a giveaway to retail brokers… the final rule abandons share-based order sizes, and goes to notional dollars. Worse, it starts at $250.

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— Tyler Gellasch (@TylerGellasch) March 6, 2024

Well, sort of. The problem is the SEC mitigated SOME of my concerns here by then adding back on top of the dollar threshold a (less than 1 share, odd lot, at least a round lot). Sooooo, you get this…

That's a lot of buckets. pic.twitter.com/o8sE9bxswZ

— Tyler Gellasch (@TylerGellasch) March 6, 2024

On the other hand, the SEC used… gasp… data from the oft-maligned Consolidated Audit Trail to show that orders often cluster at round dollar numbers.

15/ pic.twitter.com/fk18JfDQyx

— Tyler Gellasch (@TylerGellasch) March 6, 2024

And the final rule still includes so-called "size improvement" statistics. They're still bullshit, but will likely be less so, as the calculations have been revised to be a little more reflective of reality.

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— Tyler Gellasch (@TylerGellasch) March 6, 2024

BUT, and this is a big one, it the final rule abandoned the proposal to require the reporting of median and 99th percentile time-to-execution statistics for all order types.

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— Tyler Gellasch (@TylerGellasch) March 6, 2024

So, in sum, the @secgov adopted a badly needed update to order execution disclosures, and did a pretty fantastic job with decisions and analysis.

My only big complaint is lack of report centralization. And retail may be annoyed about $250 being smallest bucket.

Big day.

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— Tyler Gellasch (@TylerGellasch) March 6, 2024