The push for greater transparency in financial markets has led to calls to broaden U.S. Securities and Exchange Commission rules surrounding execution quality and order routing to apply to listed options as well as to equities.

The rules, known as SEC rules 605 and 606, are intended to provide greater transparency to order routing decisions, and to make those decisions based on quality of execution rather than payment for order flow. Although the order routing disclosure rule, Rule 606, applies to listed options, the execution quality statistics rule, Rule 605, does not.

“One of the things that has been talked about multiple times is to generate a 605-type report for options,” said John Standerfer, chief technology officer at S3, a provider of execution analytics to exchanges, market makers, and broker-dealers.

In 2008, Sifma issued recommendations for improving the quality of execution reports for options exchanges. Under the Sifma proposal, data would be uniform, making comparison easier. The response from exchanges has been lukewarm, however.

“In response to the Sifma recommendations, the option exchanges were generating what they called Sifma reports which basically tried to show execution quality on each option exchange,” Standerfer said. “They were out for a few years and they’ve kind of fallen by the way side. I think some of the exchanges aren’t even updating them anymore.”

Industry working groups have been established about revamping rules 605 and 606 generally. “There’s talk about having all broker dealers publish the equivalent of a 605 style report, instead of only ones that make markets,” said Standerfer. “There’s also talk about having more detail in the 606 reports, where it shows the execution quality of the different destinations they route to.”

The Consolidated Audit Trail, an initiative launched by the SEC in 2012, will allow regulators to efficiently and accurately track all activity throughout the U.S. markets in certain securities known as National Market System securities.

Among other things, the rule requires SROs to jointly submit a plan – called an NMS plan – to create, implement and maintain a consolidated audit trail. The rule specifies the type of data to be collected, when the data is to be transmitted, and how the data is to be prepared for regulatory use.

“The other regulatory compliance issue that we’ve heard a lot of talk about is the impending Consolidated Audit Trail, and what would be involved as far as getting all of the information there,” said Standerfer. “There’s still big questions around the different order types, like what to do with manual orders or IPOs, and you have to consolidate orders that doesn’t have a single order ID associated with a single client whose going to pay for all this and lots of unanswered questions on that front.”

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