On November 2, the U.S. Securities and Exchange Commission (SEC) voted to adopt amendments requiring broker-dealers to provide investors with new and enhanced disclosures regarding handling of customer orders. As previously detailed in Sidley’s Client Update at the time of proposal, the primary focus of the newly adopted amendments is to provide a level of transparency not previously required for institutional customer orders while providing necessary updates and enhancements to disclosures for retail customer orders under Rule 606 of Regulation NMS.1 In a significant conceptual change, the amendments require broker-dealers to make institutional customer disclosures for all “not held” orders, as opposed to orders above $200,000,2 as originally proposed.3
Specifically, the amendments to Rule 606 require a broker-dealer, upon a request of a customer who places an order giving such broker-dealer discretion with respect to price and time (i.e. a "not held" order4), to provide its customer with a standardized set of individualized disclosures concerning the handling of the customer's orders.5 These disclosures will provide the customer with information about the broker-dealer's order routing decisions and statistics regarding order execution, including information on fees paid and rebates received from trading venues.
In addition, the amendments enhance previously existing requirements that broker-dealers provide public quarterly reports on retail customer order routing. The rule now requires such reports to cover NMS stock orders of any size that are submitted on a held basis. It continues to cover any order, whether held or not held, for an NMS security that is an option contract with a market value less than $50,000.
Background and further information on the amendments are below. In addition to changes related to Rule 606, the amendments provide a new retention requirement for reports produced pursuant to Rule 605 of Regulation NMS. The amendments are published on the SEC’s website and will be published in the Federal Register. The amendments will become effective 60 days from the date of publication in the Federal Register, and the compliance date will be 180 days from the date of publication in the Federal Register.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
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