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April 3, 2023

SEC Market Structure Reforms: Disclosure of Order Execution Information

Better Markets filed a comment letter with the Securities and Exchange Commission in response to the proposed Disclosure of Order Execution Information Rule, one of four reforms to the structure of U.S. stock markets.  This proposal seeks to expand the quantity and quality of disclosure pursuant to Rule 605 of Regulation NMS by, among other things, requiring that certain broker-dealers disclose information on a monthly basis about how investor orders are actually executed in the markets and by allowing market participants to better compare and evaluate execution quality, as measured by several factors such as price and speed.

Why It Matters.  Rule 605 and the reports it calls for, have not had a substantive revision since it was first issued over twenty years ago.  But during that time the technological nature of trading has changed immensely.  The SEC’s proposal seeks to modernize this important disclosure.   The simple fact is that in today’s securities markets, many investors—especially retail investors—are not getting the best available prices for their orders to buy and sell stock because of unfair trading practices and structural features that have become ingrained in the markets, including conflicts of interest, payments for order flow, minimal order competition, poor execution prices, limited transparency into order routing practices, predatory high-frequency trading, severe trading venue fragmentation, and increased trading on dark markets.  This state of affairs has arisen from a number of inter-related factors, but prominent among them is a lack of transparency regarding the way orders are routed in today’s complex and fragmented markets, where incentives and conflicts of interest between brokers, wholesalers, and other market participants abound.  Along with the other market structure reforms proposed by the SEC, the increased disclosure contained in the Disclosure of Order Execution Information Rule can shine new light into the opaque and complex world of securities trading, and ultimately help retail investors receive better prices and save money.

What We Said.  We strongly support the Disclosure of Order Execution Information Rule and suggest some modest improvements.  The Proposal will provide sorely needed updates and enhancements to Rule 605 for the benefit of retail investors and the market overall.  Better Markets agrees that modernized and enhanced execution quality reporting as proposed would improve the public’s ability to compare and evaluate execution quality among different market centers and broker-dealers.  In short, these reforms will increase transparency of order execution quality, ultimately improve execution quality, and help promote fair competition among market centers and broker-dealers.

Bottom Line.   The Disclosure of Order Execution Information Rule will expand the quantity and quality of disclosure of market centers pursuant to Rule 605, including, for the first time, larger broker-dealers if they take orders from customers for execution and then route those orders to execution venues.  Securities trading involves conflicts of interest that can undermine the quality of executions, especially for retail investors.  Collectively, inefficiencies such as these in the structure of the U.S. stock markets take billions of dollars out of Americans’ pockets every year in incremental losses due to subpar order executions.  Greater transparency can help expose and address these inequities.

Read our full Comment Letter here or click the button below.

Comment Letters

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