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SEC Proposes Making Brokers Reveal Where Client Orders Go

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Brokers may have to dish up more information on where they’re sending their client orders.

The U.S. Securities and Exchange Commission is proposing rules that for the first time would force brokers to provide standard data on where they send institutional clients’ orders to be completed. The rules, which the SEC agreed to propose at a meeting Wednesday, would require brokers to reveal data about potential conflicts of interest and how well they carried out orders for customers. Brokers would also need to publicly release the details on an aggregate level in reports, which would be posted on the SEC’s website.

“Investors expect — and deserve — to know how their orders are treated,” SEC Chair Mary Jo White said in remarks prepared for a meeting last Wednesday. “This proposal should provide investors with an important new tool to better assess whether a broker-dealer’s order routing practices are consistent with their investment objectives.”

The proposal comes as money managers look for more details on where their orders are being sent, and why. Critics say the rules that now underpin the U.S. stock market don’t require firms to share their practices in sufficient detail. The current requirement “falls short of the level of disclosure required to understand routing practices and allow for a meaningful comparison of all routers,” David Weisberger, a managing director at Markit Ltd., said in a letter to regulators in December.

Some of the data points that brokers would have to reveal include the average rebate the firm got for its orders, the average size of the orders it sent out and the percentage of trades that were carried out at a price favorable to the institution.

Brokers would also need to provide greater detail on where they send retail orders, and make the reports available on the Internet.


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