Broker/Dealers Will Be Required by SEC Rule to Disclose More Information on Execution Quality

The Securities and Exchange Commission finalized on Wednesday amendments to Rule 605 of Regulation NMS by a unanimous 5 to 0 vote. The revised rule will require more broker/dealers to disclose quality-of-trade-execution reports to investors and to use more data to measure the quality of execution.

Broker/dealers with at least 100 customer accounts will now be required to disclose reports on their executions of stock trades. The reports must now cover orders outside of business orders and certain types of orders with stop prices. When disclosing time-to-execute information, broker/dealers must use time increments of milliseconds or smaller and must include more information on average price spreads and price improvement.

Lastly, covered broker/dealers are required to publish a summary report of their data on a monthly basis.

SEC Chairman Gary Gensler argued at Wednesday’s open hearing that the rule will “foster more competition” by improving transparency and comparability. Commissioner Hester Peirce said the rule would provide a “clearer picture of execution quality” and will have positive effects for institutional and retail traders. She added that the summary reports will be helpful for the financial press, which will also help inform the public.

This rule was initially proposed in December 2022, along with three other proposals that are still pending. When regarded collectively, they are known as the market structure proposals. The other proposals included a best-execution standard; mandatory auctions for retail orders; and a reduction in pricing increments to sub-penny tick sizes for certain stocks.

The finalized amendments were by far the most popular within the industry of the market structure proposals, and many recommended that it come first, because it would provide additional data which would help clarify if the other three proposals would be useful. The proposal on price increments received mostly supportive feedback, while the other two were broadly opposed by industry.

The rule becomes effective 60 days after being entered into the Federal Register, and the compliance date will be 18 months after that—probably near the end of 2026.