84 FR 18136 - Disclosure of Order Handling Information

The Commission is extending the compliance date for the recently adopted amendments to Rule 606 of Regulation National Market System (``Regulation NMS'') under the Securities Exchange Act of 1934 (``Exchange Act''), which require additional disclosures by broker- dealers to customers concerning the handling of customer orders. Specifically, the Commission is extending the compliance date for the recently adopted amendments to Rule 606. Following September 30, 2019, broker-dealers must begin to collect the information required by Rules 606(a) and 606(b) as amended. The compliance date remains May 20, 2019 for the amendments to Rule 605. The Commission is extending the compliance date for the recently adopted amendments to Rule 606 in order to give broker-dealers additional time to develop, program, and test for compliance with the new and amended requirements of the rule.

[Federal Register Volume 84, Number 83 (Tuesday, April 30, 2019)]
[Rules and Regulations]
[Pages 18136-18138]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2019-08675]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 242

[Release No. 34-85714; File No. S7-14-16]
RIN 3235-AL67


Disclosure of Order Handling Information

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; extension of compliance date for certain 
requirements.

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SUMMARY: The Commission is extending the compliance date for the 
recently adopted amendments to Rule 606 of Regulation National Market 
System (``Regulation NMS'') under the Securities Exchange Act of 1934 
(``Exchange Act''), which require additional disclosures by broker-
dealers to customers concerning the handling of customer orders. 
Specifically, the Commission is extending the compliance date for the 
recently adopted amendments to Rule 606. Following September 30, 2019, 
broker-dealers must begin to collect the information required by Rules 
606(a) and 606(b) as amended. The compliance date remains May 20, 2019 
for the amendments to Rule 605. The Commission is extending the 
compliance date for the recently adopted amendments to Rule 606 in 
order to give broker-dealers additional time to develop, program, and 
test for compliance with the new and amended requirements of the rule.

DATES: The effective date for this release is April 30, 2019. The 
amendments to Rules 600, 605, and 606 of Regulation NMS published 
November 19, 2018, at 83 FR 58338, became effective January 18, 2019. 
The compliance date for the recently adopted amendments to Rule 606 is 
extended, as discussed below. The compliance date remains May 20, 2019 
for all other amendments not subject to this extension.

FOR FURTHER INFORMATION CONTACT: Theodore S. Venuti, Assistant 
Director, at (202) 551-5658, Michael Bradley, Special Counsel, at (202) 
551-5594, Amir Katz, Special Counsel, at (202) 551-7653, Division of 
Trading and Markets, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On November 2, 2018, the Commission adopted amendments to Rules 
600, 605, and 606 of Regulation NMS under the Exchange Act.\1\ The 
recently adopted amendments to Rule 606(b) added a new disclosure 
requirement, set forth in new paragraph (b)(3), that requires a broker-
dealer, upon request of its customer, to provide specific disclosures 
related to the routing and execution of the customer's NMS stock orders 
submitted on a not held basis for the prior six months, subject to two 
de minimis exceptions. The Commission also amended the existing 
disclosure requirement in paragraph (b)(1) of Rule 606 to cover 
customer disclosure requests that are not covered by new paragraph 
(b)(3). In addition, the recently adopted amendments to Rule 606 
amended the existing quarterly public order routing disclosure 
requirement in Rule 606(a) to apply to NMS stock orders submitted on a 
held basis and made targeted enhancements. In connection with these new 
requirements, the Commission amended Rule 600 to include certain newly 
defined and redefined terms that are used in the amendments. The 
Commission also amended Rule 605 to require that the public order 
execution report be kept publicly available for a period of three 
years. Finally, the Commission adopted conforming amendments and 
updated cross-references as a result of the recently adopted rule 
amendments.
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    \1\ See Exchange Act Release No. 84528 (November 2, 2018), 83 FR 
58338 (November 19, 2018) (``Adopting Release''). Unless otherwise 
specified, the terms used herein have the same meaning as set forth 
in the Adopting Release.
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    The Commission understands that, as broker-dealers have worked to 
meet the May 20, 2019 compliance date set forth in the Adopting 
Release, some have determined that additional time is needed to 
complete the systems changes and implement business process changes 
necessary to comply with the amended rule. In this regard, the 
Financial Information Forum (``FIF'') \2\ has submitted a letter 
requesting that the Commission extend the compliance date for the 
amended Rule 606 requirements to October 1, 2019.\3\ FIF

[[Page 18137]]

requested this extension, among other things, to allow the requisite 
time for industry stakeholders to implement the full scope of the 
amended Rule 606 requirements including providing time to perform the 
systems and business process changes required by the amended rule.\4\
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    \2\ FIF is an industry membership group that focuses on 
implementation issues affecting the financial technology industry 
across the order lifecycle. See https://fif.com/aboutus/mission.
    \3\ See letter from Christopher Bok, Director, FIF, to Theodore 
S. Venuti, Assistant Director, Division of Trading and Markets, 
Commission, dated February 20, 2019 (``FIF Letter'').
    \4\ Id.
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    Regarding Rule 606(b)(3) in particular, FIF stated in its letter 
that broker-dealers subject to the rule will need to implement new 
systems and business processes in order to be able to obtain order 
execution data from other broker-dealers, exchanges and alternative 
trading systems, which currently is not obtained and not available on 
an order-by-order basis in most cases.\5\ FIF states that the system 
and business process changes necessary to provide all Rule 606(b)(3) 
reportable information in a format that is transferrable to end-
customers would require four to eight developer months of effort and is 
``not possible'' to achieve by the May 20, 2019 compliance date.\6\ FIF 
indicated that the same systems and process changes would be necessary 
to comply with the amended Rule 606(a) requirements, which require a 
broker-dealer to make publicly available for each calendar quarter, 
within one month after that end of the quarter, a report disclosing 
certain order routing information.\7\
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    \5\ Id. at 2-3.
    \6\ Id. at 3.
    \7\ Id. at 2-3 (describing the effort to develop a systematic 
and automated means for a broker-dealer to derive and report ``all 
applicable 606(a) and 606(b)(3) information at the Order or 
Execution ID level by each venue'' that is beyond the broker-
dealer's direct control).
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    The Commission believes that an extension of the compliance date 
for the recently adopted amendments to Rule 606 is reasonable to 
provide broker-dealers with adequate time to implement fully the 
systems and other changes necessary to comply with amended Rule 606 and 
also would align the quarterly disclosure obligation of the rule with 
the natural beginning of a quarter.\8\ Accordingly, the Commission is 
extending the compliance date for the recently adopted amendments to 
Rule 606. Following September 30, 2019, broker-dealers must begin to 
collect the information required by Rules 606(a) and 606(b) as amended. 
As a result of this extension, October 1, 2019 is the date on which a 
broker-dealer must begin to collect the information required by Rules 
606(a) and 606(b) as amended.\9\ The compliance date remains May 20, 
2019 for the recently adopted requirement in Rule 605 that public order 
execution reports be kept publicly available for a period of three 
years.
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    \8\ We note that FIF requested guidance regarding a number of 
implementation issues. We will continue to evaluate those questions 
but believe that the extension is appropriate under these 
circumstances.
    \9\ Rule 606(a)(2) requires a broker-dealer to make the Rule 
606(a) quarterly report publicly available within one month after 
the end of the quarter addressed in the report. Thus, broker-dealers 
have until the end of October 2019 to make their Rule 606(a) report 
(which is not required to contain the information required by the 
amended rule) publicly available for the third quarter of 2019. To 
comply with the amended Rule 606(a) requirements as of the beginning 
of the fourth quarter, broker-dealers must be prepared to begin 
capturing the data required by amended Rule 606(a) on October 1, 
2019.
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II. Economic Analysis

A. Introduction

    The Commission is sensitive to the economic effects, including the 
benefits and costs and the effects on efficiency, competition, and 
capital formation that could result from the extension of the 
compliance date for the recently adopted amendments to Rule 606.
    While the extension of the compliance date for the amendments to 
Rule 606 will delay benefits of the Rule, it will not reduce the 
eventual benefits of increased transparency resulting from the enhanced 
Rule 606 reports. In addition, to the extent broker-dealers have begun 
building and modifying systems to produce the required reports, an 
extension of the compliance date will have minimal effects on those 
broker-dealers' overall compliance costs. The potential economic 
effects of the delay are discussed in more detail below.

B. Economic Baseline

    Current Rule 606, as well as the changes in reporting and the 
reporting requirements brought by the recent amendments to Rule 606, 
serve as the baseline against which the extension's costs and benefits, 
as well as the effect on efficiency, competition, and capital 
formation, are discussed. The entities affected by the extension of the 
compliance date are generally customers that submit not held and held 
orders to their-broker dealers, and the broker-dealers that are 
required to prepare the 606 reports.
    In the Adopting Release, the Commission discussed the limited 
ability of customers to compare their broker-dealers' performance and 
conflicts of interest under the current reporting requirements.\10\ The 
Commission also stated that because the information on which broker-
dealers offer better terms of trade may currently be nonstandardized, 
customers may not be able to efficiently compare broker-dealers to each 
other to identify which provide better execution quality. In turn, the 
lack of standardization may reduce the incentives for broker-dealers to 
compete by offering better execution quality or to innovate on 
execution quality.
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    \10\ See Adopting Release, supra note 1, at 58393.
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    In the Adopting Release, the Commission discussed broker-dealers' 
incentives to improve execution quality and its effect on execution 
quality. In addition, the Commission discussed the possibility that 
higher transaction costs may imply higher friction in the market, which 
ultimately may have an adverse effect on capital formation.\11\
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    \11\ See id.
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C. Economic Effects

    In the Adopting Release, the Commission identified the benefits 
associated with the recently adopted amendments to Rules 600, 605, and 
606.\12\ The Commission believes that an extension of the compliance 
date for the amendments to Rule 606 will not reduce those benefits, 
including the eventual benefits to customers that submit not held and 
held orders to broker-dealers. Rather, the extension is reasonable to 
provide broker-dealers with adequate time to implement the systems and 
other changes necessary to comply with amended Rule 606. The Commission 
is not otherwise changing the reporting requirements.
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    \12\ See Adopting Release, supra note 1.
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    In its request, FIF stated its belief that an extension is 
appropriate to provide the industry with additional time to perform the 
systems and business process changes required to implement the full 
scope of the amended Rule 606 requirements.\13\ The Commission believes 
that the delayed compliance date will not reduce the eventual benefits 
to customers and instead will provide all stakeholders with reasonable 
time to prepare to comply with the full requirements of amended Rule 
606.
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    \13\ See FIF Letter, supra note 2.
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    The Commission acknowledges that the extension of the compliance 
date for the amendments to Rule 606 will delay the benefits. In 
particular, the extension will delay the increase in the transparency 
of the amended Rule 606 reports and therefore will postpone the 
enhanced ability of customers to better compare and monitor broker-
dealers' order routing practices. Specifically, customers that are 
interested in receiving additional information about their broker-
dealers' order routing may have planned to request the newly adopted 
standardized customer-specific reports shortly after the May 20, 2019

[[Page 18138]]

compliance date. Similarly, customers seeking to receive more 
informative public order routing reports under amended Rule 606(a) 
shortly after the May 20, 2019 compliance date also would need to wait 
to receive the enhanced public reports. In both cases, the extension 
could delay the ability of customers to better compare and monitor 
broker-dealers' order routing practices.
    However, as discussed above, the eventual benefits of amended Rule 
606 will not change. Moreover, as discussed above, to the extent that 
the delayed compliance date helps provide all broker-dealers with 
reasonable time to modify their systems and business processes to 
comply with the requirements of amended Rule 606 and provide complete 
order routing reports to customers, the costs associated with the 
extension of the compliance date are likely to be mitigated.
    The Commission further believes that the extension will have 
minimal effects on some broker-dealers' overall compliance costs. To 
meet the amended reporting requirements by the original compliance 
date, broker-dealers would have already spent considerable time 
developing or modifying their systems, or may have hired a vendor to 
create the required reports. Specifically, the extension may not change 
the compliance cost for those broker-dealers that are already several 
months into the process of developing systems to comply with the 
amendments and who are nearly ready to comply or who already have 
systems in-house to capture the data and produce the required reports. 
Therefore, the Commission believes that the extension of the compliance 
will have minimal effects on those broker-dealers' overall compliance 
costs.
    Further, the extension could potentially help facilitate some 
reductions in compliance costs for some broker-dealers. As discussed in 
the Adopting Release, some broker-dealers will need to build new 
reporting functionality or engage a third party vendor to comply with 
the adopted requirements.\14\ To the extent broker-dealers have not yet 
built or are in the process of building those reporting systems, the 
extension of the compliance date will provide additional time for them 
to consider ways to optimize their internal systems and potentially 
create a more cost-effective way to produce the required reports. 
Additionally, to the extent broker-dealers have not yet engaged a third 
party vendor, the extension of the compliance date may provide 
additional time to find a more efficient and cost-saving third party 
vendor to implement the requirements of the amended rule. Therefore, 
the Commission believes that the extension of the compliance date could 
help to facilitate cost reductions in complying with the reporting 
requirements for some broker-dealers.
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    \14\ See Adopting Release, supra note 1, at 58404, 58415.
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    Finally, in the Adopting Release, the Commission analyzed the 
effects of the amendments on efficiency, competition, and capital 
formation. The Commission believes that an extension of the compliance 
date for this short period of time will not materially alter these 
anticipated effects although the extension of time will delay them.
    The Commission believes that the extension does not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act because, as discussed above, the 
extension will give all broker-dealers subject to the requirements of 
Rule 606 additional time to develop, test, and implement the systems 
and processes necessary to comply with amended Rule 606.

D. Alternatives

    As an alternative to delaying the compliance date for the recently 
adopted requirements in Rule 606, we considered extending the 
compliance date for the amended Rule 606 requirements to July 1, 2019 
as well as not extending the compliance date. However, to the extent 
that further system and business process changes will facilitate the 
ability of broker-dealers to provide the full scope of the amended Rule 
606 requirements in a format that is transferrable to end-customers, a 
July 1, 2019 compliance date may not provide sufficient time, and, as 
discussed above, industry participants have asserted that in the 
absence of a compliance date extension, compliance is not possible for 
some broker-dealers.\15\
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    \15\ See FIF Letter, supra note 3 (recommending that the data 
collection period begin on October 1, 2019).
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III. Administrative Matters

    For the reasons cited above, the Commission, for good cause, finds 
that notice and solicitation of comment regarding the extension of the 
compliance date set forth herein are impractical, unnecessary, or 
contrary to the public interest.\16\ The Commission notes that the 
compliance date is quickly approaching, and that an extension of the 
compliance date for the reasons cited above will help facilitate the 
orderly implementation of the recently adopted amendments to Rule 606. 
In light of time constraints, a notice and comment period could not 
reasonably be completed prior to the original adopted May 20, 2019 
compliance date. Broker-dealers subject to the requirements of Rule 606 
will have additional time to comply with the provisions of Rule 606 
discussed above beyond the originally adopted compliance date. Further, 
the Commission recognizes that it is imperative for broker-dealers 
subject to the requirements of
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    \16\ See Section 553(b)(3)(B) of the Administrative Procedure 
Act (5 U.S.C. 553(b)(3)(B)) (stating that an agency may dispense 
with prior notice and comment when it finds, for good cause, that 
notice and comment are ``impractical, unnecessary, or contrary to 
the public interest''). This finding also satisfies the requirements 
of 5 U.S.C. 808(2), allowing the rules to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are ``impractical, unnecessary 
or contrary to the public interest,'' a rule ``shall take effect at 
such time as the federal agency promulgating the rule determines''). 
Also, because the Regulatory Flexibility Act (5 U.S.C. 601-612) only 
requires agencies to prepare analyses when the Administrative 
Procedure Act requires general notice of rulemaking, that Act does 
not apply to the actions that we are taking in this release.
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    Rule 606 to receive notice of the extended compliance date, and 
believes that providing immediate effectiveness upon publication of 
this release will allow them to adjust their implementation plans 
accordingly.\17\
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    \17\ The compliance date extensions set forth in this release 
are effective upon publication in the Federal Register. Section 
553(d)(1) of the Administrative Procedure Act allows effective dates 
that are less than 30 days after publication for a ``substantive 
rule which grants or recognizes an exemption or relieves a 
restriction.'' 5 U.S.C. 553(d)(1).

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    By the Commission.

    Dated: April 24, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-08675 Filed 4-29-19; 8:45 am]
 BILLING CODE 8011-01-P