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SEC Adopts New Order Handling, Routing Rules for Broker-Dealers

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The Securities and Exchange Commission adopted late Friday amendments to Rule 606 of Regulation NMS to require broker-dealers to disclose to investors new and enhanced information about how they handle investors’ orders.

The amended rule Rule 606(b)(3) requires a BD, upon a request of a customer who places a “not held” order (e.g., an order in which the customer gives the firm price and time discretion), to provide the customer with a standardized set of individualized disclosures concerning the firm’s handling of the customer’s orders, the agency explains.

The new disclosures will, among other things, provide the customer with information about the average rebates the broker received from, and fees the broker paid to, trading venues.

The amendments will be published on the Commission’s website and in the Federal Register and will become effective 60 days from the date of publication in the Federal Register.  The compliance date will be 180 days from the date of publication in the Federal Register.

SEC Chairman Jay Clayton said in announcing the amended rule that “in the 18 years since the Commission originally adopted its order handling and routing disclosure rules, technology and innovation have driven significant changes in the way that our equities market functions and investors transact.”

The rule amendment “will make it easier for investors to evaluate how their brokers handle their orders and ultimately make more informed choices about the brokers with whom they do business.”

Investors will be able to better understand how the broker-dealer “routes and handles their orders and assess the impact of their broker-dealers’ routing decisions on order execution quality,” the SEC states.

Two exceptions were also adopted to minimize implementation costs of the new disclosure requirement on small broker-dealers.

·  The requirement to provide a report on the handling of not held orders to customers will be subject to two de minimis exceptions, one at the firm-level and the other at the customer-level.

·  A BD is not obligated to provide the report to any customer if not held NMS stock orders constitute less than 5% of the total shares of NMS stock orders that the broker-dealer receives from its customers over the prior six months, and if a customer trades through the broker-dealer on average each month for the prior six months less than $1,000,000 of notional value of not held orders in NMS stock.

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