are required to be included in the reports.\302\ Specifically, the
Commission is adopting as proposed the required data points for
information on order routing specified in Rule 606(b)(3)(i), for
information on order execution specified in Rule 606(b)(3)(ii), for
information on orders that provided liquidity specified in Rule
606(b)(3)(iii), and for information on orders that removed liquidity
specified in Rule 606(b)(iv).\303\ The Commission also is adopting as
proposed the definitions of the terms ``orders providing liquidity''
and ``orders removing liquidity.''
---------------------------------------------------------------------------

    \301\ See Rule 606(b)(3). As discussed above, the Commission is
making two modifications to the format of the Rule 606(b)(3). First,
the Commission is not adopting the proposed order routing strategy
categorization. See supra Section III.A.5.a. Second, the Commission
is requiring that the Rule 606(b)(3) report be divided into two
separate sections--one for directed orders and the other for non-
directed orders. See Section III.A.5.b. The Commission also is
revising the Rule 600(b) definitions of the terms ``directed order''
and ``non-directed order.'' See id.; see also supra Section
III.A.1.b.vii.
    \302\ See Rule 606(b)(3).
    \303\ See id.
---------------------------------------------------------------------------

    Commenters broadly supported the Proposal to require broker-dealers
to provide more detailed order handling information to their customers
upon request, and expressed varied views on what specific or additional
metrics would be most useful and should be included in the report. Some
commenters suggested requiring additional execution quality-related
metrics in Rule 606(b)(3),\304\ such as: A spread capture metric that
measures the execution price relative to the NBBO or displayed
quote,\305\ information concerning the realized spread and the
effective spread and quoted spread percentages,\306\ price improvement
statistics,\307\ average time between order entry and execution or
cancellation for orders that remove liquidity,\308\ and median order
size routed and median fill size.\309\ Other comments related to fee
and rebate disclosures. Specifically, some commenters suggested
revising the data points in Rule 606(b)(3) by requiring an estimate of
execution fees and rebate information.\310\ One commenter asserted that
the fee and rebate disclosures in proposed Rule 606(b)(3)(iv) lack
actionable data, and recommended a completely revised version of the
Rule 606(b)(3) report.\311\ Another commenter, by contrast, supported
disclosure of the net execution fee or rebate and believed that broker-
dealers have the capability to track this information.\312\ Another
commenter suggested that broker-dealers should disclose to
institutional (and retail) customers the nature of payment for order
flow and profit-sharing relationships, including whether or not they
pass any of the rebates or order-flow payments to their customers, as
well as additional information that the commenter asserted is designed
to help investors understand the state of the market at the time of
execution and whether the broker-dealer was using a venue in which
there is a conflict of interest or economic routing inducement.\313\
One commenter believed that the Proposal does not address the economic
pressures or transaction-based costs incurred by the broker-dealer
prior to receiving the order, particularly in light of broker-dealer
use of order management systems (``OMSs'') and fees associated with
OMSs and connectivity, and suggested

that broker-dealers be required to disclose such fees to their
customers.\314\ Finally, some commenters suggested requiring execution
venues to provide standard liquidity indicators to broker-dealers,\315\
and one commenter broadly recommended that the Rule 606(b)(3) order
handling disclosures build off the FIX Trading Community's FIX
Execution Venue Reporting Recommended Best Practices in order to
achieve standardization and objectivity in the disclosures.\316\
---------------------------------------------------------------------------

    \304\ See, e.g., HMA Letter at 4, 11; ICI Letter at 9-10; Markit
Letter at 8-10, 24-26, Appendix A.
    \305\ See, e.g., HMA Letter at 11; ICI Letter at 9; BlackRock
Letter at 2. https://fif.com/images/Retail_Execution_Quality_Statistics/FIF_Rule_605-606_WG_-_Retail_Execution_Quality_Stats_Wholesaler_Template.pdf).
    \306\ See, e.g., BlackRock Letter at 2; Markit Letter at 24.
    \307\ See, e.g., ICI Letter at 9; Markit Letter at 24.
    \308\ See, e.g., FSR Letter at 6; ICI Letter at 10.
    \309\ See Capital Group Letter at 6.
    \310\ See Fidelity Letter at 5; Markit Letter at 16 and n.37,
25. One of these commenters also sought clarity as to what fee a
broker should use if a broker executes a trade on its own ATS. See
Fidelity Letter at 5. Rules 606(b)(3(ii) through (iv) requires the
broker-dealer to disclose the average net execution fees or rebates.
Thus, the Commission believes that a broker generally would need to
disclose this information to the extent relevant to execution of a
trade on its own ATS. If the broker incurs no fee or rebate for such
an execution, then that is what should be disclosed.
    \311\ See Markit Letter at 8-10, Appendix A.
    \312\ See HMA Letter at 11.
    \313\ See Better Markets Letter at 7-8. This commenter also
stated that, while broker-dealers are under ``best execution''
obligations, venues they route their orders to (which may themselves
re-route to other venues) are not subject to the same obligations,
and that the Commission should harmonize the duties of care. See id.
The Commission notes that harmonization of duties of best execution
and care across venues and broker-dealers is outside the scope of
this rulemaking.
    \314\ See Bloomberg Letter at 2-7. This commenter also contended
that the Proposal is predicated on positions regarding depth of book
data and a broker-dealer's duty of best execution that are odds with
an Initial Decision in a Commission Administrative Proceeding, and
that the Commission should address the fees charged by exchanges for
their market data products. See id. at 2-3, 7-11. The Commission
separately has issued an order dated October 16, 2018. See
Securities Exchange Act Release No. 84432 (October 16, 2018),
available at https://www.sec.gov/litigation/opinions/2018/34-84432.pdf.
    \315\ See Fidelity Letter at 5; Thomson Reuters Letter at 2.
    \316\ See KCG Letter at 6-7; see also EMSAC Rule 606
Recommendations, supra note 16, at 3. As the KCG Letter
acknowledged, however, these FIX recommended best practices focus on
institutional execution information and not order routing data. See
id. at 7. As such, the Commission does not believe that they would
be an appropriate basis for the order handling disclosures that are
the focus of the Commission's amendments to Rule 606(b)(3).
---------------------------------------------------------------------------

    While commenters suggested different order handling metrics that
could be useful to customers and provide more in-depth insight into how
broker-dealers handle not held NMS stock orders, the Commission's
intent in establishing the Rule 606(b)(3) disclosures is not to require
broker-dealers to provide every specific piece of data that may be
available for an order and potentially valuable to certain customers.
Rather, the Commission's intent is to provide a baseline of
standardized order handling information that (subject to two de minimis
exceptions) all customers that submit not held NMS stock orders to
broker-dealers are entitled to receive from their broker-dealers and
that customers can use to evaluate their broker-dealers' order handling
performance. Rules 606(b)(3)(i) through (iv) require broker-dealers to
provide detailed information regarding order routing, order execution,
orders that provided liquidity, and orders that removed liquidity. Each
of those four categories of information is further divided into several
subcategories of specific pieces of data that must be disclosed. The
Commission continues to believe that these data points are sufficient
to provide the Commission's intended baseline, standardized set of
information that customers can use to evaluate how their broker-dealers
handle their orders and, in particular, assess how their broker-dealers
comply with best execution obligations and manage the potential for
information leakage and conflicts of interest.
    The Commission does not believe that it is necessary for the
achievement of this goal to require, at this time, that the Rule
606(b)(3) order handling report include the additional order handling
statistics suggested by commenters. There is a large spectrum of types
of customers, and commenters suggested a wide range of order handling
statistics. While certain additional data metrics may be more useful to
certain types of market participants, the Commission does not view any
particular data element suggested by commenters as likely to
significantly enhance the degree to which the Rule 606(b)(3) report
provides a standardized baseline of order handling information that is
broadly useful to all customers that submit orders to their broker-
dealers.
    Moreover, incorporating additional metrics into the Rule 606(b)(3)
report may increase the complexity of the report and the associated
costs, and the Commission believes at this time that such costs and
complexity would not be justified by the expected benefits to customers
in evaluating the order handling performance of their broker-dealers.
As summarized above, commenters suggested revised or additional
disclosures related to execution quality and fee/rebate
information.\317\ While incorporating the suggested execution quality
and fee/rebate disclosures into the Rule 606(b)(3) reports may add
extra utility to the reports for certain customers, in adopting Rule
606(b)(3) the Commission must balance the cost of compliance against
the usefulness of the information that is required to be disclosed
under the rule. Requiring broker-dealers to make mandatory disclosures
imposes a cost on broker-dealers, and each additional required data
item potentially raises that compliance cost, as well as potentially
increases the complexity of the report. Incorporating commenters'
suggested disclosures into the Rule 606(b)(3) reports would, therefore,
likely raise compliance costs and add to the complexity of the report.
As but one example, requiring the broker-dealer to disclose the
displayed quote at the time when the broker-dealer routed an order to
an exchange could increase reporting complexity and costs in
calculating the displayed quote and the synchronization of clocks
between a broker-dealer and the venue.
---------------------------------------------------------------------------

    \317\ As is also summarized above, some commenters suggested
requiring execution venues to provide standard liquidity indicators
to broker-dealers. See supra note 315. The rule amendments being
adopted today enhance the order handling information that broker-
dealers must provide to their customers, and do not address
standardization of the information that execution venues provide to
broker-dealers. As such, these comments are outside the scope of
this rulemaking.
---------------------------------------------------------------------------

    In light of the fact that the Commission believes that the Rule
606(b)(3) disclosures are sufficient to provide a baseline,
standardized set of information that customers can use to evaluate how
their broker-dealers handle their orders, the Commission believes that
the compliance costs and added complexity associated with commenters'
suggested additional disclosures would not be justified by the marginal
utility that these disclosures may add to the report beyond that which
is provided by the disclosures. Specifically, the additional metrics
related to fees and rebates and economic incentives suggested by
commenters could provide customers with additional information on how
venue fees and rebates impact how their broker-dealers' handle their
orders, particularly in light of the potential for conflicts of
interest caused by fees and rebates; however, the Commission believes
that the Rule 606(b)(3) disclosures already contain sufficient fee and
rebate information for customers to adequately evaluate their broker-
dealers' potential conflict of interest. Thus, any added value in the
report created by the suggested fee and rebate information would, in
the Commission's view, not justify the additional complexity, as well
as the additional costs, associated with including the information.
Likewise, the additional execution quality metrics suggested by
commenters could provide customers with more information regarding how
their broker-dealers achieve best execution and attempt to prevent
information leakage, but the Commission believes that the Rule
606(b)(3) disclosures, as proposed, already provide a sufficient basis
for customers to evaluate their broker-dealers' performance in this
regard. Thus, any added value in the report created by the suggested
execution quality disclosures would not, in the Commission's view, be
justified by the additional costs and complexity associated with
including the information.
    The Commission believes that adopting the Rule 606(b)(3) report
content as proposed will help minimize the reporting complexity and
costs, while creating a report that is universally useful across the
spectrum of customer types, some of which may be more sophisticated
than others in their ability to digest the reported

information. The Commission did not receive comments suggesting that
the order handling statistics set forth in Rule 606(b)(3) as proposed
would be too difficult or complex for broker-dealers to generate or for
institutional customers in particular to use.
    This determination is not an indication that the Commission has
formed a decision on the validity or usefulness of the various
different order handling metrics that commenters suggested. Rather, in
light of the fact that, as noted above, the Commission believes that
Rule 606(b)(3), as proposed, is reasonably designed to provide a
standardized baseline of order handling disclosures that (subject to
two de minimis exceptions) all customers that submit not held NMS stock
orders to their broker-dealers are entitled to receive, the Commission
has determined to adopt Rule 606(b)(3) as proposed.
    As stated elsewhere herein, customers remain free to negotiate with
their broker-dealers for additional disclosures regarding broker-
dealers' handling of their orders, and broker-dealers of course remain
free to compete by providing more detailed information than is required
under Rule 606(b)(3). As a result of the rules being adopted today,
customers that choose to negotiate with their broker-dealers for
additional disclosures will be doing so from a more standardized
baseline of enhanced order routing disclosures, and in the case of
customers that previously did not receive detailed order handling
disclosures from their broker-dealers, from a strengthened and more
informed negotiating position. In light of the Commission's belief that
the disclosures required by Rule 606(b)(3), as proposed and as adopted,
are reasonably designed to provide such a standardized baseline of
order handling information for customers to use to assess their broker-
dealers' order handling performance, the Commission believes, at this
juncture, that the disclosure of additional order handling statistics
would be best left to competitive forces in the market and should not
be mandated by Commission rule.
    Accordingly, the Commission is adopting as proposed the requirement
that certain order routing information be disclosed within the proposed
venue segmentation in the Rule 606(b)(3) order handling report.
Specifically, Rule 606(b)(3) requires that the order handling
information specified in subparagraphs (b)(3)(i) through (iv) of the
rule be provided for each venue to which the broker-dealer routed
orders for the customer.\318\ In addition, Rules 606(b)(3)(i) through
(iv) specify the same required information on order routing, order
execution, orders that provided liquidity, and orders that removed
liquidity as was proposed. Further, Rule 606(b) is being amended to
define the term ``orders providing liquidity'' to mean orders that were
executed against after resting at a trading center,\319\ and the term
``orders removing liquidity'' to mean orders that executed against
resting trading interest at a trading center.\320\ The Commission
received no comments regarding these defined terms, and is adopting
them as proposed.
---------------------------------------------------------------------------

    \318\ See Rule 606(b)(3).
    \319\ See Rule 600(b)(54).
    \320\ See Rule 600(b)(55).
---------------------------------------------------------------------------

7. Rule 606(c) Quarterly Aggregated Public Report of Rule 606(b)(3)
Information
a. Proposal
    The Commission proposed to require a broker-dealer that receives
orders covered by Rule 606(b)(3) to make publicly available \321\ a
report that aggregates the Rule 606(b)(3) order handling information
for all such orders that it receives.\322\ As proposed, broker-dealers
would be required to make the report publicly available for each
calendar quarter, broken down by calendar month, within one month after
the end of the quarter.\323\ The Commission proposed that this public
aggregated order handling report be mandatory for all of the orders
subject to Rule 606(b)(3) that a broker-dealer handles within a
calendar quarter regardless of whether any of its customers request
customer-specific order handling reports pursuant to Rule
606(b)(3).\324\
---------------------------------------------------------------------------

    \321\ ``Make publicly available'' is defined in Rule 600 of
Regulation NMS. See 17 CFR 242.600(b)(36).
    \322\ See proposed Rule 606(c).
    \323\ See id.
    \324\ See id.; see also Proposing Release, supra note 1, at
49459.
---------------------------------------------------------------------------

    In addition, similar to the customer-specific order handling
reports required under proposed Rule 606(b),\325\ the Commission
proposed to require that the public aggregated order handling report be
made available using an XML schema and associated PDF renderer
published on the Commission's website.\326\ Further, the Commission
proposed to require that broker-dealers keep such public aggregated
order handling reports posted on a website that is free and readily
accessible to the public for a period of three years from the initial
date of posting on the website.\327\
---------------------------------------------------------------------------

    \325\ See supra Section III.A.3.
    \326\ See proposed Rule 606(c).
    \327\ See id. See Proposing Release, supra note 1, at 49458-59
for additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
    The Commission is not adopting proposed Rule 606(c), and thus the
Commission is not adopting the proposed requirement that broker-dealers
publicly report, on a quarterly basis, aggregated Rule 606(b)(3) order
handling information. As a result, under the rule amendments being
adopted today, for not held orders in NMS stock, broker-dealers are
required only to provide the customer-specific order handling reports
required by Rule 606(b)(3) (or Rule 606(b)(1), as applicable),\328\ and
there is no public reporting component of the information set forth in
Rule 606(b)(3).
---------------------------------------------------------------------------

    \328\ See supra Sections III.A.1.b.iv-v.
---------------------------------------------------------------------------

    Multiple commenters stated that directed orders should be excluded
from the proposed Rule 606(c) public aggregated reports, or
alternatively, that directed orders should be reported separately.\329\
Commenters asserted that including a customer's directed orders in the
public aggregated report could cause the report to be misleading
because routing behavior that was directed by the customer pursuant to
a directed order would be misrepresented in the report as routing
behavior determined by the broker-dealer itself pursuant to its
independent routing logic.\330\ One commenter stated that even a
directed versus non-directed order distinction in the public report
would be insufficient because institutional clients provide
instructions on orders without explicitly directing an order to a
venue, such as by directing a large portion of their order flow to
high-rebate venues or directing their brokers to avoid routing to a
specific

venue or type of venue, and instead the commenter suggested a more
nuanced distinction in the report between orders that solely reflect
the broker-dealer's routing decisions and orders that are subject to
specific client routing instructions.\331\ One commenter stated that
the proposed Rule 606(c) aggregated order handling report would not
serve its intended use and that a modified version should be available
only to institutional customers upon request.\332\ This commenter
expressed concern that the public aggregated report would be easy for
market analysts to misinterpret, creating confusion in the market, and
that it could present potential competitive concerns for broker-
dealers, such as with respect to the confidentiality of their business
operations and book of business.\333\ Some commenters believed that
public disclosure of aggregated order handling information could be
useful to market participants.\334\
---------------------------------------------------------------------------

    \329\ See SIFMA Letter at 2, 5; FIF Letter at 5; Fidelity Letter
at 6; STA Letter at 5-6; STA Letter II at 2; EMSAC Rule 606
Recommendations, supra note 16, at 3. One commenter suggested that
orders from individuals should be reported separately in the
quarterly public reports under proposed Rule 606(c), but that
suggestion was premised on the commenter's view that the proposal to
define ``institutional order'' based on dollar amount would result
in large orders from retail customers being considered institutional
orders. See ICI Letter at 10. Similarly, another commenter stated
that the quarterly public reports under proposed Rule 606(c) should
exclude retail block-sized orders. See Fidelity Letter at 6. As
discussed above, the Commission is adopting Rule 606(b) disclosure
requirements based on whether an order is held or not held and is
not adopting proposed Rule 606(c). As a result, retail block-sized
orders will not be included in quarterly public reports unless these
orders are subject to Rule 606(a)(1).
    \330\ See SIFMA Letter at 5; FIF Letter at 5; Fidelity Letter at
6; ICI Letter at 3.
    \331\ See SIFMA Letter at 5.
    \332\ See Fidelity Letter at 6.
    \333\ See Fidelity Letter at 6 and n.14.
    \334\ See HMA Letter at 4; CFA Letter at 9; Markit Letter at 27;
Better Markets Letter at 3-6.
---------------------------------------------------------------------------

    In light of the comments submitted and after further consideration,
the Commission is not adopting Rule 606(c) or any requirement that a
broker-dealer make publicly available an aggregated report with respect
to its handling of customers' not held NMS stock orders.\335\ The
Commission believes, upon further consideration, that the proposed
quarterly public reports of aggregated Rule 606(b)(3) order handling
information would be of limited utility. As discussed in greater detail
below, the Commission believes that the proposed reports would not
allow for fair ``apples-to-apples'' comparisons, and instead could
generate misleading impressions of broker-dealer order handling
practices. As a result, the aggregated Rule 606(b)(3) information in
the proposed public report may not allow for meaningful insight into
the quality of broker-dealers' order routing performance or comparisons
of order handling performance across broker-dealers, and is unlikely to
provide the same benefits as the aggregated Rule 606(a) public
disclosures for held orders in NMS stock because of the disparate
nature and trading behavior of customers that use not held orders in
NMS stock.\336\
---------------------------------------------------------------------------

    \335\ The Commission also received comment that provided
suggestions and modifications to proposed Rule 606(c), which the
Commission is not adopting. See, e.g., Capital Group Letter at 4-5;
Fidelity Letter at 6; Citadel Letter at 1; FIF Letter at 13; Markit
Letter at 27, 29.
    \336\ For similar reasons, the Commission is not requiring
broker-dealers to disclose additional information or a more detailed
order handling report as part of regular public reporting as was
suggested by some commenters. See, e.g., Better Markets Letter at 3-
6.
---------------------------------------------------------------------------

    As noted above, broker-dealers may have different types of
customers that utilize not held orders in NMS stock. For example, one
broker-dealer may serve as a broker-dealer for only quantitative
trading firms, while another broker-dealer may serve only investment
advisers. Each customer has a unique set of circumstances, goals, and
order flow that dictates how a broker-dealer handles that customer's
orders. For example, the trading objectives of a quantitative firm
primarily trading principally are different from the trading objectives
of another type of customer, such as a diversified mutual fund. In
light of this, the Commission believes that there would be limited
ability to understand the quality of broker-dealers' routing
performance or meaningfully compare broker-dealer order handling
performance based on the aggregated information for not held NMS stock
orders in the proposed public reports without requiring additional
disclosures regarding customers and potentially sensitive proprietary
information.
    Indeed, broker-dealers' order routing behavior differs based on the
customers they serve, and understanding the quality of their routing
performance would likely require an understanding of the investment or
trading needs of their underlying customers, which would not be
obtainable from the aggregated information in the public reports.
Moreover, some customers give complete discretion to a broker-dealer in
handling their orders while other customers may place limits on or
provide instructions regarding how a broker-dealer can handle their
orders. In fact, orders from certain customers frequently limit broker-
dealer discretion in some manner. For example, cost-sensitive customers
may place restrictions on the venues a broker-dealer may use to execute
their orders, which could have a significant impact on how the broker-
dealer routes those orders and the resulting execution metrics. In
particular, some customers choose cost-plus fee arrangements and
specify a desire to maximize rebates or low pricing venues to the
extent practicable. Or, customers may instruct broker-dealers to use
certain algorithms or strategies that preference certain routing
options or behavior. A taking algorithm acts differently than a posting
algorithm, and there may also be routing strategies or configurations
available with both taking and posting algorithms. Further, the
Commission believes based on its experience that quantitative firms,
for example, represent a large segment of the institutional marketplace
and a significant portion of them use largely passive trading
strategies, which can result in a demand for advantageous pricing
arrangements, including cost-plus arrangements with their broker-
dealers. This, in turn, can result in selecting rebate maximization
strategies. Such strategies are often meaningfully different than the
posting strategies used by long-only mutual funds, for example. The
Commission believes based on its experience that aggregating the order
handling information of cost-sensitive customers or customers that have
specified certain algorithms or trading strategies for the broker-
dealer to utilize with customers that have given the broker-dealer
complete routing discretion creates dilutive effects in the aggregated
information that wash out the routing nuances that are relevant to each
type of customer and important to understanding a broker-dealer's
routing decisions when granted full discretion.
    The proposed aggregated public disclosures for not held NMS stock
orders could therefore be unclear, and potentially misleading, due to
the nature or requests of a broker-dealer's specific customers. A
report may reflect apparently substandard order handling practices even
though the broker-dealer is performing competently or is satisfying
specific customer requests. Even a customer interested in comparing the
performance of its specific orders to other orders handled by its own
broker-dealer would likely be unable to meaningfully analyze the
aggregate order handling report because the customer likely would not
know the nature of, practices and requests of the broker-dealer's other
customers. Due to the limited utility of the public reports as
proposed, the Commission further believes that the burden of compiling
and publishing aggregate order handling information for not held NMS
stock orders does not at this time justify the expected benefits.
    In addition, the Commission recognizes that broker-dealers have
proprietary methods for order handling, and is cognizant of the
sensitive nature of such business practices and intellectual property.
The Commission believes that quarterly public disclosures as proposed
may risk the exposure of sensitive proprietary information on the
broker-dealers' order handling techniques. The Commission noted in the
Proposing Release that it

believed that any such risk would be minimal, but in combination with
the potentially limited utility of the public reports as proposed, the
Commission believes it is not appropriate to impose any such risk, no
matter how small. In addition, the risk may be more pronounced for
certain segments of customers than it is for others. In particular, new
or small broker-dealers with only a few customers may end up disclosing
confidential order routing information if such information is required
to be included in public reports. This could significantly disadvantage
new or small broker-dealers.
    Furthermore, the Commission believes that not held order handling
is not analogous to held order handling and that the benefits that
accrue from the public disclosure of aggregated held order handling
reports are not likely to accrue from the public disclosure of
aggregated not held order handling reports. Currently, Rule 606(a)
requires public aggregated reporting of certain order handling
information.\337\ As noted in the Proposing Release, some market
participants have stated that the public disclosure of meaningful data
in Rule 606 reports can assist broker-dealers in evaluating their own
performance relative to other firms.\338\ The Commission also has
previously noted its belief that these public aggregated disclosures
spur competition among broker-dealers to provide enhanced order routing
services and better execution quality.\339\
---------------------------------------------------------------------------

    \337\ See Rule 606(a).
    \338\ See Proposing Release, supra note 1, at 49461.
    \339\ See id.
---------------------------------------------------------------------------

    The Commission does not believe the same benefits would accrue to
customers that utilize not held orders due to the fundamental
differences between held order flow and not held order flow. Held
orders are typically non-directed orders with no specific order
handling instructions for the broker-dealer. Moreover, held order flow
generally is handled similarly by broker-dealers--held orders are
generally small orders that are internalized or sent to OTC market
makers if marketable or fully executed on a single trading center if
not marketable.\340\ By contrast, not held order flow is diverse and
fundamentally different from held order flow in that customers may
provide specific order handling instructions to their broker-dealers or
limit the order handling discretion of their broker-dealers in some
manner. As discussed above, broker-dealers' handling of customer not
held orders is impacted by specific customer needs such as cost
sensitivity, the preferencing or disfavoring of specific market venues,
or other requests that limit broker-dealer discretion. The disparate
behavior of customers when using not held orders limits the ability of
both customers and broker-dealers to utilize the aggregated Rule
606(b)(3) order handling information in the public reports to better
understand broker-dealers' routing behavior or perform meaningful
comparisons of order routing performance across broker-dealers.
---------------------------------------------------------------------------

    \340\ See Proposing Release, supra note 1, at 49460.
Internalization is the process in which a broker-dealer fills an
order to buy a security from its own inventory, or fills an order to
sell by taking a security into its inventory. See Proposing Release,
supra note 1, at 49439 n. 64.
---------------------------------------------------------------------------

B. Public Order Routing Report Under Rule 606(a)

    Prior to today, Rule 606(a) required, among other things, that
broker-dealers that route customer orders--which do not include orders
for NMS stock above $200,000 in market value or orders for options
contracts above $50,000 in value \341\--provide a quarterly public
report of certain information regarding non-directed orders in NMS
securities that is organized by listing market and that sets forth
material aspects of their relationships with the ten venues to which
they routed the largest number of total non-directed orders and with
any venue to which they routed 5% or more of such orders (collectively,
``Specified Venues'').\342\ In the Commission's view, customers have
benefited from the Rule 606(a) reporting requirements for customer
orders, as the Rule 606(a) reports spurred competition among broker-
dealers to provide enhanced order routing services and better execution
quality, which in turn motivated trading centers to deliver more
efficient and innovative execution services as they competed for order
flow.
---------------------------------------------------------------------------

    \341\ See Rule 600(b)(18).
    \342\ See Rule 606(a).
---------------------------------------------------------------------------

    But as noted above and detailed in the Proposing Release, changes
to market structure and order routing practices have led the Commission
to analyze the current requirements for public order routing disclosure
under Rule 606(a).\343\ The U.S. equity markets have evolved in recent
years to become more automated, dispersed, and complex, and the
resulting competition among trading centers has intensified practices
to attract order flow, including order flow from retail customers. As a
result of this market evolution, the utility of the Rule 606(a) public
reports and the degree to which they help achieve the rule's intended
benefits may be diminished. It is, therefore, important for the
Commission to enhance the Rule 606(a) public order handling reports in
a manner designed to update them consistent with market developments.
---------------------------------------------------------------------------

    \343\ See supra Section I; see also Proposing Release, supra
note 1, at 49461.
---------------------------------------------------------------------------

    Accordingly, the Commission believes that it is appropriate to make
limited updates to the Rule 606(a) requirements regarding broker-
dealers' public disclosure of their order routing practices, and in
conjunction with Rule 606(b)(3)'s applicability to NMS stock orders of
any size that are submitted on a not held basis, amend Rule 606(a) such
that it applies to NMS stock orders of any size that are submitted on a
held basis. Commenters were broadly supportive of enhanced Rule 606(a)
order routing disclosures.\344\ The Commission believes that the
amendments being adopted today to Rule 606(a), discussed in detail
below, should enhance broker-dealers' public order handling disclosures
by bringing them more up-to-date with current market and order routing
practices, and by focusing them on the types of NMS stock orders for
which the public disclosures are most relevant and would be most
useful. As a result, customers--and retail investors in particular--
that submit orders to their broker-dealers should be better able to
assess the quality of order handling services provided by their broker-
dealers and whether their broker-dealers are effectively managing
potential conflicts of interest.
---------------------------------------------------------------------------

    \344\ See, e.g., KCG Letter at 1-3; Ameritrade Letter at 3;
SIFMA Letter at 1; Better Markets Letter at 1, 8-9; HMA Letter at 3;
FSR Letter at 1; Citadel Letter at 1; and CFA Letter at 1.
---------------------------------------------------------------------------

1. Orders Covered By Rule 606(a) Public Disclosures
a. Proposal
    As discussed above,\345\ the proposed definition of ``institutional
order'' dovetailed with the current definition of ``customer order.''
This would allow the Commission to maintain Rule 606(a)(1)'s
applicability to orders in NMS stocks with a market value less than
$200,000 and NMS securities that are options contracts, and propose
enhancements to the existing disclosure requirements under Rule
606(a)(1) for such orders, without altering the substance of the
current definition of ``customer order'' in Rule 600(b). However, the
Commission proposed to rename the current ``customer order'' definition
as ``retail order'' without changing the substance of the definition

itself, such that an order for NMS stock would be categorized as either
an ``institutional order'' or a ``retail order'' under Rule 600(b) and
for the purposes of Rule 606 depending on its dollar value, and an
order for an NMS security that is an option contract for less than
$50,000 in market value would be categorized as a ``retail order.''
\346\
---------------------------------------------------------------------------

    \345\ See supra Sections III.A.1.a.
    \346\ See Proposing Release, supra note 1, at 49434, 49465-66
for additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
    As discussed above,\347\ the Commission is not adopting a
definition of ``institutional order'' or an order dollar value-based
approach to delineate the NMS stock orders covered by new Rule
606(b)(3). Consequently, the Commission is not renaming the term
``customer order'' as ``retail order'' in Rule 600(b), and the
Commission is amending Rule 606(a)(1) without any order dollar value
limitation on the rule's coverage of NMS stock orders.\348\ As amended,
Rule 606(a)(1) applies to NMS stock orders of any size that are
submitted on a held basis. Rule 606(a)(1) also continues to apply to
any order (whether held or not held) for an NMS security that is an
option contract with a market value less than $50,000, as the
Commission did not propose, and is not adopting, any modifications to
Rule 606's coverage of option orders.\349\
---------------------------------------------------------------------------

    \347\ See supra Section III.A.1.b.
    \348\ Moreover, in light of the fact that the Commission is not
adopting the proposed amendment to rename ``customer order'' as
``retail order'' in Rule 600(b), and instead is maintaining
``customer order'' as currently defined, there is no longer any
need, as proposed, to revise existing cross-references to ``customer
order'' in Rules 600(b)(19), 600(b)(23), 600(b)(48), 605, 606, and
607. See Proposing Release, supra note 1, at 49466.
    \349\ See supra notes 37 and 135.
---------------------------------------------------------------------------

    Specifically, Rule 606(a)(1), as amended, states that every broker-
dealer must make publicly available for each calendar quarter a report
on its routing of non-directed orders in NMS stocks that are submitted
on a held basis and in non-directed orders that are customer orders in
NMS securities that are option contracts during that quarter broker
down by calendar month. As noted above,\350\ the Commission is adopting
a modified definition of the term ``non-directed order'' that no longer
includes a dollar-value limitation on NMS stock orders,\351\ but
continues to exclude orders from a broker-dealer. Because Rule
606(a)(1) explicitly references ``non-directed orders'' in NMS stock,
the rule no longer covers only NMS stock orders with a market value
less than $200,000; rather, the rule now applies to NMS stock orders of
any size that are submitted on a held basis. With respect to orders for
NMS securities that are option contracts, however, Rule 606(a)(1)
explicitly references ``non-directed orders'' that are ``customer
orders.'' By virtue of this reference to ``customer orders,'' Rule
606(a)(1) continues to apply to an order for an NMS security that is an
option contract only if the order has a market value less than $50,000.
In both cases--held orders for NMS stock and orders for NMS securities
that are option contracts--Rule 606(a)(1) applies only if the order is
not from a broker-dealer.
---------------------------------------------------------------------------

    \350\ See supra Section III.A.1.b.vii.
    \351\ Consistent with the modifications discussed in Section
III.A.1.b.vii, supra, Rule 606(a)(1)(i) also is revised to no longer
refer to the defined term ``customer order.''
---------------------------------------------------------------------------

    Rule 606(a)(1)'s application to held NMS stock orders of any size
works in unison with the customer-specific disclosures contained in
Rule 606(b)(1) and Rule 606(b)(3) to ensure that all NMS stock orders
are covered by order handling disclosure rules and to avoid overlap
between such rules.\352\ If Rule 606(a)(1)'s coverage were not amended
in conjunction with Rules 606(b)(1) and (3), there would be overlap
between the these rules--e.g., Rule 606(a)(1) would apply to NMS stock
orders of less than $200,000 in market value, and Rule 606(b)(3) also
would apply to such orders to the extent that they were not held. As
discussed above, numerous commenters criticized the proposed order
dollar value-based distinction between the orders covered by Rule
606(a)(1) versus Rule 606(b)(3), and the Commission believes that it
would be more appropriate to differentiate the NMS stock orders covered
by each rule according to whether an order is held or not held.
---------------------------------------------------------------------------

    \352\ See supra Section III.A.1.b.
---------------------------------------------------------------------------

    For the same reasons as discussed above,\353\ the Commission
believes that this method of differentiation is appropriate because
broker-dealers generally handle not held orders differently from held
orders due to the discretion they are afforded with not held orders but
not with held orders. As a result, the information pertinent to
understanding broker-dealers' order handling practices for not held
orders is not the same as for held orders. Unlike with not held orders,
the Commission's concern regarding how broker-dealers handle held
orders is less about the difficulties posed by more automated,
dispersed and complex order routing and execution practices. Rather,
the Commission's main concern with held NMS stock orders is the impact
of intensified competition for customer order flow--particularly retail
investor order flow--that has arisen concomitant with the rise in the
number of trading centers and the introduction of new fee models for
execution services.\354\ Financial inducements to attract order flow
from broker-dealers that handle retail investor orders have become more
prevalent and for some broker-dealers such inducements may be a
significant source of revenue.\355\ These financial inducements create
new, and in many cases significant, potential conflicts of interest for
broker-dealers with respect to how they handle held orders from
customers--and retail customers in particular. The Commission believes
that enhanced public disclosures should focus on providing more
detailed information regarding these financial inducements, as opposed
to the different information geared towards not held orders from
customers that is set forth in Rule 606(b)(3).
---------------------------------------------------------------------------

    \353\ See id.
    \354\ See supra Section I; see also Proposing Release, supra
note 1, at 49434.
    \355\ See id.
---------------------------------------------------------------------------

    In practice, the coverage of Rule 606(a)(1) as amended is likely to
be largely similar to the rule's coverage under its pre-existing
application to NMS stock orders of less than $200,000 in market value.
The Commission expects that the majority of customer (i.e., non-broker-
dealer) NMS stock orders having a market value of at least $200,000
will be not held orders and therefore not be covered under Rule
606(a)(1).\356\ Retail investors' orders are typically submitted on a
held basis and are typically smaller in size.\357\ So the smaller NMS
stock orders that were covered by the pre-existing rule likely also
were held orders and therefore will be covered by Rule 606(a)(1) as
amended. The difference is that, under the rule as amended, any non-
broker-dealer NMS stock orders that are for at least $200,000 in value
and submitted on a held basis will now be covered by Rule 606(a)(1) and
thus subject to public aggregated required order routing disclosures
for the first time.
---------------------------------------------------------------------------

    \356\ See supra Section III.A.1.b.vi (citing Eric Kelley and
Paul Tetlock, How Wise Are Crowds? Insights from Retail Orders and
Stock Returns, 68 Journal of Finance 1229-1265 (2013) and Brad M.
Barber and Terrence Odean, Trading Is Hazardous to Your Wealth: The
Common Stock Investment Performance of Individual Investors, 55
Journal of Finance 773 (2000)).
    \357\ Accordingly, the Commission believes that the number of
higher value held orders for NMS stock that will be included in the
Rule 606(a)(1) public reporting regime will be limited.
---------------------------------------------------------------------------

    Under the Proposal, a non-broker-dealer NMS stock order with a
market value of at least $200,000 would have been defined as an
institutional order--regardless of whether it was a held or

not held order--and subject to the new customer-specific disclosures
set forth in proposed Rule 606(b)(3) and the new public aggregated
order handling report set forth in proposed Rule 606(c). The adopted
approach to NMS stock order handling disclosure is based on whether an
NMS stock order is submitted on a held or not held basis. In addition
to being appropriate for non-broker-dealer NMS stock held orders with a
market value of less than $200,000, the Commission believes that the
Rule 606(a)(1) public disclosures are appropriate for non-broker-dealer
NMS stock held orders with a market value of $200,000 or more because,
regardless of the order's dollar value or the nature of the customer
that submitted the order, broker-dealers must attempt to execute held
orders immediately. Thus, the Commission's concerns noted above for
held NMS stock orders are implicated regardless of the order's dollar
value or the nature of the customer that submitted the order. The Rule
606(a)(1) public disclosures are designed to address these concerns in
particular by focusing on providing enhanced transparency for financial
inducements faced by broker-dealers when determining where to route
held NMS stock order flow. Moreover, to the extent that it is a retail
customer that submits a larger held NMS stock order for $200,000 or
more, commenters appeared to agree that such orders would be
appropriately covered by Rule 606(a)(1).\358\ The Commission believes
that this enhancement over the current reporting regime will benefit
customers that submit held NMS stock orders, including large-sized
ones. They will be better able to assess the nature and quality of the
order handling services being provided by their broker-dealers,
including the potential for broker-dealer conflicts of interest. They
will also benefit to the extent that broker-dealers are spurred to
compete further by providing enhanced order routing services and better
execution quality, which in turn could motivate trading centers to
deliver more efficient and innovative execution services as they
compete for order flow.
---------------------------------------------------------------------------

    \358\ See, e.g., Fidelity Letter at 2-3; Wells Fargo Letter at
5; KCG Letter at 4; Thomson Reuters Letter at 1; FSR Letter at 3-4;
Citadel Letter at 2-3; Ameritrade Letter at 2.
---------------------------------------------------------------------------

2. Marketable Limit Orders and Non-Marketable Limit Orders
a. Proposal
    The Commission proposed to amend Rule 606(a)(1)(i) and (ii) to
require the public order routing report to split limit orders and
separately disclose them as marketable and non-marketable.\359\ In
connection with this new requirement, the Commission also proposed to
amend Rule 600(b) of Regulation NMS to include a definition of the term
``non-marketable limit order,'' which the Commission proposed to define
to mean any limit order other than a marketable limit order.\360\
---------------------------------------------------------------------------

    \359\ See Proposing Release, supra note 1, at 49462.
    \360\ See proposed Rule 600(b)(51). See Proposing Release, supra
note 1, at 49462 for additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
    The Commission is adopting as proposed the amendments to Rule
606(a)(1)(i) and (ii) to require the disclosure of order routing
information for marketable limit orders separately from non-marketable
limit orders.\361\ The Commission also is adopting as proposed the
definition of the term ``non-marketable limit order'' to mean any limit
order other than a marketable limit order.\362\ While one commenter
believed that the separation is unlikely to be valuable to retail
customers and that the separation will not promote additional
competition amongst broker-dealers,\363\ most commenters who addressed
this issue supported distinguishing between non-marketable and
marketable limit orders in the Rule 606(a) disclosures and believed
that this separation would provide customers with valuable and more
useful information.\364\
---------------------------------------------------------------------------

    \361\ See Rule 606(a)(1)(i)-(ii). As noted above, the Commission
also has revised Rule 606(a)(1)(i) to remove the reference to the
term ``customer order.'' See supra note 351.
    \362\ See Rule 600(b)(50).
    \363\ See FIF Letter at 9.
    \364\ See, e.g., EMSAC Rule 606 Recommendations, supra note 16,
at 3; CFA Letter at 4-5, 9; Fidelity Letter at 8-9; Ameritrade
Letter at 3.
---------------------------------------------------------------------------

    As noted in the Proposing Release,\365\ historically, trading
centers have offered payment for order flow or other financial
inducements to broker-dealers based upon whether their order flow is
marketable or non-marketable. As a result, whether an order is
marketable or non-marketable will often determine where the broker-
dealer routes the order. Certain broker-dealers route a large portion
of marketable investor orders to OTC market makers with whom they have
payment for order flow or other arrangements.\366\ Non-marketable
investor orders, on the other hand, are more frequently routed to
exchanges with a ``maker-taker'' fee schedule, to capture a rebate when
the non-marketable order is executed.\367\
---------------------------------------------------------------------------

    \365\ See Proposing Release, supra note 1, at 49440.
    \366\ See id.
    \367\ See id.
---------------------------------------------------------------------------

    In light of the different incentives broker-dealers encounter when
handling marketable limit orders versus non-marketable limit orders,
and the resulting differences in how and where broker-dealers route
marketable limit orders versus non-marketable limit orders, the
Commission believes that requiring that the Rule 606(a) reports
disclose order routing information separately for marketable limit
orders and non-marketable limit orders will significantly enhance their
utility. The Commission continues to believe that classifying limit
orders into marketable and non-marketable categories will provide
greater transparency into broker-dealers' different routing practices
for these two categories of limit orders, which will allow customers
and other market participants to more fully assess broker-dealers'
routing decisions for each type of order and the potential impact on
execution quality, including whether broker-dealers are effectively
managing their potential conflicts of interest. Providing greater
public transparency as to broker-dealers' distinct routing practices
for marketable limit orders and non-marketable limit orders also may
increase competition among broker-dealers and minimize the potential
conflicts of interest between maximizing revenue and the duty of best
execution.\368\
---------------------------------------------------------------------------

    \368\ See Transaction Fee Pilot Proposing Release, supra note 2,
at 13310; see also Robert Battalio, Shane A. Corwin, and Robert
Jennings, Can Brokers Have it All? On the Relation between Make-Take
Fees and Limit Order Execution Quality, 71 Journal of Finance 2193,
2195 (2016) (``Battalio, Corwin, and Jennings Paper'') (finding that
fill rates for displayed limit orders are lower on exchanges with
higher take fees).
---------------------------------------------------------------------------

3. Payment for Order Flow Disclosures--Rules 606(a)(1)(iii) and (iv)
a. Proposal
    The Commission proposed to amend Rule 606(a)(1) to require more
detailed disclosures regarding a broker-dealer's relationships with the
venues to which it routes orders.\369\ Specifically, the Commission
proposed to amend Rule 606(a)(1) to include in a new Rule
606(a)(1)(iii) a requirement that, for each Specified Venue, the
broker-dealer must report the net aggregate amount of any payment for
order flow received, payment from any profit-sharing relationship
received, transaction fees paid, and transaction rebates received, both
as a total dollar amount and on a per share basis, for each of the
following non-directed order types: (1) Market orders; (2) marketable
limit orders; (3)

non-marketable limit orders; and (4) other orders.\370\
---------------------------------------------------------------------------

    \369\ See Proposing Release, supra note 1, at 49463.
    \370\ See proposed Rule 606(a)(1)(iii).
---------------------------------------------------------------------------

    The Commission also proposed to amend the existing payment for
order flow disclosures and re-locate them to new Rule 606(a)(1)(iv),
which would require that the discussion of the material aspects of the
broker-dealer's relationship with a Specified Venue include any terms,
written or oral, of payment for order flow arrangements or profit-
sharing relationships that may influence a broker-dealer's order
routing decision including among other things: (1) Incentives for
equaling or exceeding an agreed upon order flow volume threshold, such
as additional payments or a higher rate of payment; (2) disincentives
for failing to meet an agreed upon minimum order flow threshold, such
as lower payments or the requirement to pay a fee; (3) volume-based
tiered payment schedules; and (4) agreements regarding the minimum
amount of order flow that the broker-dealer would send to a venue.\371\
---------------------------------------------------------------------------

    \371\ See proposed Rule 606(a)(1)(iv). See Proposing Release,
supra note 1, at 49462-63 for additional detail on the Commission's
proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
i. Rule 606(a)(1)(iii)
    The Commission is adopting Rule 606(a)(1)(iii) as proposed, and
therefore is requiring that, for each Specified Venue, the broker-
dealer report the net aggregate amount of any payment for order flow
received, payment from any profit-sharing relationship received,
transaction fees paid, and transaction rebates received, both as a
total dollar amount and on a per share basis, for each of the following
non-directed order types: (1) Market orders; (2) marketable limit
orders; (3) non-marketable limit orders; and (4) other orders.\372\
Since these requirements are part of Rule 606(a)(1), they apply to a
non-directed NMS stock order of any size that is submitted on a held
basis as well as a non-directed order (whether held or not held) for an
NMS security that is an option contract with a market value less than
$50,000.\373\ The Commission continues to believe that identifying
specific information regarding payments or rebates received by the
broker-dealer and fees paid by the broker-dealer for each category of
order type by Specified Venue will provide customers and investors
broadly with useful information to more completely evaluate the order
handling services provided by broker-dealers. Specifically, the
Commission continues to believe that disclosure of the information
required by Rule 606(a)(1)(iii) will allow customers to better
understand a broker-dealer's management of conflicts of interest when
routing orders to a particular Specified Venue.
---------------------------------------------------------------------------

    \372\ See Rule 606(a)(1)(iii).
    \373\ See Rule 606(a)(1); see also supra Section III.B.1.b.
---------------------------------------------------------------------------

    One commenter supported requiring the disclosure of the net
aggregate amount of any payment for order flow or rebates received from
or transaction fees paid to each venue based on order type on a dollar
amount and per share basis.\374\ Two other commenters stated that an
aggregate measure would not be meaningful and would vary based on the
amount of order flow handled by the broker.\375\ One of these
commenters suggested that a combination of average payment for order
flow with a description of the terms of any payment for order flow and
any profit sharing arrangements would be more meaningful,\376\ and the
other commenter argued that a more meaningful disclosure is the amount
of payment received on a per share/contract basis.\377\
---------------------------------------------------------------------------

    \374\ See CFA Letter at 9.
    \375\ See Schwab Letter at 2; Ameritrade Letter at 3-4. One of
these commenters noted that the Commission previously considered and
rejected imposing a requirement for brokers to disclose the
aggregate amount of payment for order flow from each venue. See
Ameritrade Letter at 3-4 (citing Rule 606 Predecessor Adopting
Release, supra note 7, at 75427).
    \376\ See Schwab Letter at 2.
    \377\ See Ameritrade Letter at 3-4.
---------------------------------------------------------------------------

    The Commission agrees with commenters that the disclosure of
payment for order flow on a per share basis will provide meaningful
information to customers regarding the importance of a specific venue
to their broker-dealer. The disclosure of the aggregate amount of
payment for order flow to a broker-dealer from a specific venue will
give customers an even greater understanding of the overall importance
of a specific venue to their broker-dealer. The additional cost to a
broker of providing this payment for order flow information in
aggregate form, if that broker-dealer is already providing this
information on a per share basis, will be minimal. The Commission
believes that an aggregate measure of a broker-dealer's financial
arrangements with Specified Venues will provide additional information
to investors and customers regarding the incentives and disincentives
underpinning a broker-dealer's routing strategy for customer orders. In
turn, this should help give investors and customers a more complete
understanding and comprehensive view of the potential conflicts of
interest faced by a broker-dealer when routing orders and how the
broker-dealer manages those conflicts. The aggregate measure will, by
its nature, vary with the amount of the order flow handled by the
broker-dealer, but the Commission does not believe that this renders
the measure meaningless. To the contrary, an aggregate measure will
provide customers and investors with transparency beyond that available
prior to these amendments regarding the volume of orders that a broker-
dealer handles subject to payment for order flow, profit sharing, or
other arrangements. This could be useful information to investors and
customers trying to assess what size or type of broker-dealer would
best suit their investment needs and goals.
    Moreover, the Commission adopted Predecessor Rule 606 primarily to
address the serious problems that can arise from market
fragmentation.\378\ As noted above,\379\ since Predecessor Rule 606 was
adopted in 2000, the equity markets have become significantly more
fragmented, dispersed, and complex, particularly in light of the onset
of electronic, automated trading. In addition, financial inducements to
attract order flow from broker-dealers that handle retail investor
orders have become more prevalent and for some broker-dealers such
inducements may be a significant source of revenue.\380\ The Commission
understands that most broker-dealers that handle a significant amount
of retail investor orders receive payment for order flow in connection
with the routing of such orders or are affiliated with an OTC market
maker that executes the orders.\381\ Thus, while one commenter pointed
out that the Commission declined to require an aggregate measure of a
broker-dealer's payment for order flow in Predecessor Rule
606(a)(1),\382\ the Commission believes that the market landscape has
changed significantly since the adoption of Predecessor Rule 606 such
that an aggregate measure is now warranted. With increased market
fragmentation and pervasive payment for order flow and other financial
arrangements between broker-dealers and execution venues, the
Commission believes that its prior concerns expressed in the Rule 606
Predecessor Adopting Release about requiring an aggregate measure--

namely, potential difficulty, subjectivity and costliness in generating
the measure due to variance in payment for order flow arrangements, and
a potentially inaccurate portrayal of the relative financial incentives
created by payment for order flow arrangements versus profit sharing
arrangements \383\--today are outweighed by the need to provide
investors and customers with a more complete understanding of the
degree to which broker-dealers are bound to such arrangements.
---------------------------------------------------------------------------

    \378\ See Rule 606 Predecessor Adopting Release, supra note 7,
at 75415.
    \379\ See supra Section I; see also Proposing Release, supra
note 1, at 49436.
    \380\ See Proposing Release, supra note 1, at 49441.
    \381\ See id.
    \382\ See supra note 375.
    \383\ See Rule 606 Predecessor Adopting Release, supra note 7,
at 75427.
---------------------------------------------------------------------------

    Additional commenters suggested other changes or limitations to
proposed Rule 606(a)(1)(iii).\384\ Specifically, one commenter
suggested removing fee and payment information from Rule 606(a)(1)(iii)
and instead providing it in a narrative section of the report, which
would include the net fees paid and net payments received in cents per
share for each execution destination.\385\ One commenter suggested a
more ``general disclosure'' that is more easily digestible around net
payment for order flow, as the commenter did not believe that the
proposed disclosures would contribute favorably to transparency for
retail customers due to the voluminous amounts of information that they
would produce according to the commenter.\386\ Another commenter
suggested that payment for order flow be characterized as ``negotiated
volume tiers,'' ``standard volume tiers,'' and ``value based'' to
represent arrangements that are negotiated with the venue that reflect
the perceived value of the order flow to that venue.\387\
---------------------------------------------------------------------------

    \384\ See, e.g., FIF Letter at 3, 5 and 11; FIF Addendum at 5;
STA Letter at 3; Markit Letter at 31.
    \385\ See FIF Letter at 3, 5 and 11; FIF Addendum at 5.
    \386\ See STA Letter at 3. This commenter also suggested a
twelve month period of time to review the new rule and determine
whether or not there are sufficient benefits, as measured by the
levels of retail inquiries, compared to costs of maintaining the
reporting regime. See id. Order flow payment information will be
contained in quarterly public reports under Rule 606(a)(1)(iii) and
not produced based on customer inquiry.
    \387\ See Markit Letter at 31.
---------------------------------------------------------------------------

    As noted above, prior to today's rule amendments, Rule 606(a)(1)
required a broker-dealer to provide a discussion of the material
aspects of its relationship with a Specified Venue, including a
description of any arrangement for payment for order flow or any
profit-sharing relationship. The Commission believes that the
disclosures set forth in Rule 606(a)(1)(iii) as adopted are reasonably
designed to provide an additional level of quantification and detail
regarding a broker-dealer's relationship with Specified Venues that
would help customers better assess the degree to which a broker-dealer
faces conflicts of interests in connection with its customer order
routing decisions, and how the broker-dealer manages those conflicts of
interest. At the same time, the Commission does not believe that the
information required by Rule 606(a)(1)(iii) would be overly complicated
or burdensome for customers--and retail customers in particular--to
consume. For example, Rule 606(a)(1) currently requires, in general,
disclosure of any amounts per share or per order that the broker-dealer
receives pursuant to any payment for order flow arrangement, any
transaction rebates, and the extent to which the broker-dealer would
share in profits derived from the execution of non-directed orders
under any profit sharing relationship with a Specified Venue.
    While some commenters suggested that the rule require different
methods of quantification or that the broker-dealer disclose different
metrics related to its financial arrangements with Specific Venues, at
this juncture, the Commission believes that the required disclosures
set forth in Rule 606(a)(1)(iii) are reasonably designed to provide a
significant enhancement in the usefulness of the information that
customers receive from broker-dealers' with respect to order routing,
and should help provide customers with a more complete understanding of
the conflicts of interest faced by broker-dealers and how those
conflicts are managed.
ii. Rule 606(a)(1)(iv)
    The Commission also is adopting Rule 606(a)(1)(iv) as proposed, and
therefore is requiring that the broker-dealer report the material
aspects of its relationship with each Specified Venue, including a
description of any arrangement for payment for order flow and any
profit-sharing relationship and a description of any terms of such
arrangements, written or oral, that may influence a broker's or
dealer's routing decision including, among other things, incentives for
meeting or disincentives for not meeting an agreed upon order flow
threshold, volume-based tiered payment schedules, and minimum order
flow agreements.\388\ The Commission has acknowledged that payment for
order flow arrangements are intensively fact-based in nature and may
vary across broker-dealers.\389\ At the same time, in light of market
structure changes since the Rule 606 Predecessor Adopting Release,
among other things, the Commission continues to believe that disclosure
of any terms, written or oral, that may influence a broker-dealer's
order routing decision would be useful for customers to assess the
potential conflicts of interest facing broker-dealers when implementing
their order routing decisions and would provide more complete
information for customers to better understand and evaluate a broker-
dealer's order routing decision.\390\
---------------------------------------------------------------------------

    \388\ See Rule 606(a)(1)(iv).
    \389\ See Proposing Release, supra note 1, at 49464.
    \390\ See id. at 49463-64.
---------------------------------------------------------------------------

    The Commission is requiring that a broker-dealer disclose any
incentives that a Specified Venue provides to the broker-dealer for
equaling or exceeding a volume threshold by offering additional
payments or a higher rate of payment, or conversely, any disincentives
that a Specified Venue provides to the broker-dealer for failing to
meet an agreed upon minimum order flow threshold, such as a lower
payment or charging a fee.\391\ The Commission understands that such
arrangements may vary among venues, as well as for each broker-dealer
sending orders to those venues, and some venues provide higher rebates
for meeting or exceeding order flow quotas or charge financial
penalties for failing to meet order flow quotas.\392\ The Commission
believes that such incentives and disincentives influence a broker-
dealer's decision to either meet or route additional order flow to
exceed the threshold, and should be disclosed to inform customers of
their broker-dealer's potential conflicts of interest. The broker-
dealer must describe any such incentives or disincentives in its
report, such as (but not limited to) any payment amounts or rates that
are based on target order volume flow thresholds, as these are terms of
the broker-dealer's relationship with the Specified Venue that may
influence its routing decision; it is not sufficient for the broker-
dealer just to disclose the fact that an incentive or disincentive
exists.
---------------------------------------------------------------------------

    \391\ See Rule 606(a)(1)(iv)(A) through (B).
    \392\ See Proposing Release, supra note 1, at 49463-64.
---------------------------------------------------------------------------

    Further, the Commission is requiring broker-dealers to disclose any
volume-based tiered payment schedules with a Specified Venue.\393\
Venues that offer these payment schedules typically offer incrementally
higher rebates or lower fees to broker-dealers for additional order
flow volume.\394\ The Commission believes that these payment schedules
can encourage a broker-dealer to route additional order flow to such
venue in

an effort to reap a financial benefit and should be disclosed.
---------------------------------------------------------------------------

    \393\ See Rule 606(a)(1)(iv)(C).
    \394\ See Proposing Release, supra note 1, at 49463-64.
---------------------------------------------------------------------------

    Additionally, the Commission is requiring broker-dealers to
disclose agreements regarding the minimum amount of order flow that a
broker-dealer would be required to send to a Specified Venue.\395\
These types of agreements typically specify that a broker-dealer must
send a minimum number of orders or shares to a venue during a
particular time period.\396\ The Commission believes that such
disclosures would help customers evaluate whether their broker-dealers
face conflicts of interest when determining where to route their
orders.
---------------------------------------------------------------------------

    \395\ See Rule 606(a)(1)(iv)(D).
    \396\ See Proposing Release, supra note 1, at 49463-64.
---------------------------------------------------------------------------

    Finally, the Commission acknowledges that as market structure
evolves, new types of arrangements not specifically listed may arise.
The four arrangements referenced in Rule 606(a)(1)(iv) are not an
exhaustive list of terms of payment for order flow arrangements or
profit-sharing relationships that may influence a broker-dealer's order
routing decision that are required to be disclosed. Rule 606(a)(1)(iv)
requires a discussion of the material aspects of the broker-dealer's
relationship with each Specified Venue, including a description of any
terms of such payment for order flow or profit-sharing arrangements
that may influence a broker-dealer's order routing decision for the
orders covered by Rule 606(a)(1),\397\ which orders, as discussed
above, include any non-directed NMS stock order of any size that is
submitted on a held basis as well as any non-directed order (whether
held or not held) for an NMS security that is an option contract with a
market value less than $50,000.\398\
---------------------------------------------------------------------------

    \397\ For example, if a broker-dealer receives a discount on
executions in other securities or some other advantage for directing
order flow in a specific security to a Specified Venue, or if a
broker-dealer receives equity rights in a Specified Venue in
exchange for directing order flow there, then all terms of that
arrangement must be disclosed including any securities covered by
the arrangement with any and all terms of the arrangement specific
to each security. If a broker-dealer receives variable payments or
discounts based on order types and the amount of such orders sent to
a Specified Venue, e.g., marketable orders, non-marketable orders,
or auction orders, then all terms of that arrangement must be
disclosed. In addition, because such arrangements would influence a
broker-dealer's order routing decision, the amended rule requires
disclosure of the details of any arrangement between a broker-dealer
and a Specified Venue where the level of execution quality is
negotiated for an increase or decrease in payment for order flow.
    \398\ See Rule 606(a)(1); see also supra Section III.B.1.b.
---------------------------------------------------------------------------

    As described above, because certain terms of payment for order flow
arrangements or profit-sharing relationships may encourage broker-
dealers to direct their orders to a specific venue in order to achieve
an economic benefit or avoid an economic loss, potential conflicts of
interest may arise. The Commission believes that disclosure of such
information will be useful for customers to assess the extent to which
a broker-dealer's payment for order flow arrangements and profit-
sharing relationships may potentially affect or distort the way in
which their orders are routed. The Commission further believes that
providing customers a comprehensive description of such quantifiable
terms of a broker-dealer's relationship with a Specified Venue will
allow them to fully appreciate the nature and extent of potential
conflicts of interest facing their broker-dealers and assist them in
evaluating the broker-dealers' management of such potential conflicts
of interest.
    Some commenters supported the disclosure of any agreement that may
influence a broker-dealer's routing decisions, including oral
agreements or arrangements.\399\ One commenter explicitly supported the
disclosure of payment for order-flow and profit-sharing arrangements
between broker-dealers and specified venues, including whether or not
the broker-dealer passes on any of the rebates or order-flow payments
to the same customers whose orders generated such payments.\400\ One
commenter suggested further requiring broker-dealers to describe in
more meaningful terms any payment for order flow arrangements and
profit-sharing relationships with certain venues that may influence
their order routing decisions.\401\ This commenter supported the
proposed enhanced disclosures but expressed concern that they only
require broker-dealers to provide a discussion of the material aspects
of their relationship with the top venues to which they route.\402\ One
commenter, however, believed that the proposed description of terms for
payment for order flow arrangements would result in the disclosure of a
large and unnecessary amount of information.\403\ Another commenter
believed that enhanced disclosures may result more in confusion than
clarity and that the information contained in the current disclosures
is generally adequate.\404\
---------------------------------------------------------------------------

    \399\ See, e.g., HMA Letter at 11; Markit Letter at 31.
    \400\ See Better Markets Letter at 4-6.
    \401\ See CFA Letter at 9.
    \402\ See CFA Letter at 5.
    \403\ See Fidelity Letter at 9. The commenter requested clarity
regarding whether this requirement means that broker-dealers must
duplicate exchange's rule filings containing volume tiered pricing.
See id. The Commission does not believe that such filings must be
``duplicated'' in an order routing report. However, the terms of
payments from an exchange must be included in the discussion of the
arrangement of terms with the Specified Venue.
    \404\ See FIF Letter at 11.
---------------------------------------------------------------------------

    Rule 606(a)(1) requires a discussion of the material aspects of a
broker-dealer's relationship with a Specified Venue regarding payment
for order-flow or profit-sharing. The expansion contained in new Rule
606(a)(1)(iv) is intended to capture all such arrangements with
Specified Venues as all such arrangements--whether written or oral--may
be relevant to the customer. The Commission acknowledges that some
commenters supported additional disclosure in Rule 606(a)(1)(iv), while
two commenters--representing the brokers who will be providing this
information as opposed to retail customers themselves--believed that
Rule 606(a)(i)(iv), as proposed, would disclose too much information to
retail customers. The Commission believes that Rule 606(a)(1)(iv)
strikes an appropriate balance by, on one hand, providing customers
with disclosures that will better enable them to assess their broker-
dealers' payment for order flow arrangements and profit-sharing
relationships, and the potential for resulting conflicts of interest,
while on the other hand providing information that will not be overly
voluminous or difficult to comprehend. The Commission believes the
information contained in the reports should be straightforward to
customers familiar with the operation of the markets, and will thus
generally conform to EMSAC's recommendations regarding clarity and
comprehension of the reports. To the extent a customer does not
understand these disclosures, the Commission expects that the customer
would ask its broker-dealer for greater explanation of the arrangement.
4. Format of Public Order Routing Report
a. Proposal
    The Commission proposed to require that the publicly available
quarterly order routing report required by Rule 606(a)(1) be made
available using an XML schema and associated PDF renderer published on
the Commission's website.\405\ The Commission also proposed to amend
Rule 606(a)(1) to require every broker-dealer to keep the Rule
606(a)(1) reports posted on a website that is free and readily
accessible to the public for a period of

three years from the initial date of posting on the website.\406\ These
proposed requirements were based on considerations similar to those
supporting the parallel format and website retention proposals for
order routing reports under proposed Rule 606(c).\407\
---------------------------------------------------------------------------

    \405\ See proposed Rule 606(a)(1).
    \406\ See id.
    \407\ See Proposing Release, supra note 1, at 49465-66 for
additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
i. XML/PDF Format
    The Commission is adopting as proposed the requirement that the
public order handling reports required under Rule 606(a)(1) be made
available using an XML schema and associated PDF renderer published on
the Commission's website. Of the comments received on the proposed
reporting format, most supported a machine-readable or standardized
format \408\ or XML in particular.\409\ The use of XML has been adopted
in a number of recent Commission rulemakings \410\ and the Proposal to
use an XML format here was supported by most commenters.\411\ The
Commission believes that it is appropriate, and would be useful to the
broadest segment of market participants, to adopt the requirement that
the customer-specific and publicly available quarterly customer order
routing reports be made available using an XML schema to be published
on the Commission's website.
---------------------------------------------------------------------------

    \408\ See, e.g., HMA Letter at 12; Markit Letter at 17.
    \409\ See, e.g., Capital Group Letter at 4; Better Markets
Letter at 2; CFA Letter at 11; FIA Letter at 2.
    \410\ See, e.g., Securities Exchange Act Release Nos. 79095, 81
FR 81870 (November 18, 2016) (adopting Investment Company Reporting
Modernization); 74246, 80 FR 14437 (March 19, 2015) (adopting
Security-Based Swap Data Repository Registration, Duties, and Core
Principles); 72982 (September 4, 2014), 79 FR 57183 (September 24,
2014) (adopting Asset-Backed Securities Disclosure and
Registration).
    \411\ See, e.g., Capital Group Letter at 4; Better Markets
Letter at 2; FIF Letter at 17; CFA Letter at 11; FIA Letter at 2.
For a detailed discussion of comments relating to the XML format,
see supra Section III.A.5.c.ii.
---------------------------------------------------------------------------

    The Commission continues to believe that providing the Rule
606(a)(1) quarterly public reports in the proposed format will promote
consistency and comparability of the reports. In contrast to
commenters' views noted above, the Commission believes that providing
these reports in the commonly used PDF/XML format will create benefits
of consistency and comparability of the reports for customers that
justify the costs. Accordingly, the Commission believes that it is
appropriate to adopt the amendment to Rule 606(a)(1) to require that
the quarterly public order routing report be made available using an
XML schema and associated PDF renderer published on the Commission's
website.\412\
---------------------------------------------------------------------------

    \412\ As discussed above, several commenters suggested
alternatives to the general use of an XML schema and associated PDF
renderer for the report, and other commenters called generally for
the inclusion of standardized headers for the report. See supra
Section III.A.5.c. The Commission is adopting the proposed use of
the XML schema and associated PDF renderer without header
information for the same reasons detailed above.
---------------------------------------------------------------------------

ii. Retention of Rule 606(a)(1) Reports
    The Commission is adopting as proposed the amendment to Rule
606(a)(1) to require every broker-dealer to keep the reports required
by Rule 606(a)(1) posted on a website that is free and readily
accessible to the public for a period of three years from the initial
date of posting on the website.\413\ The Commission received comments
addressing the proposed retention period of three years,\414\ with one
commenter supporting it,\415\ and other commenters calling for
different retention periods.\416\ The Commission believes that it is
appropriate to require that the publicly available quarterly order
routing reports under Rule 606(a)(1) be maintained for a period of
three years from the date of initial posting in light of the
consistency of this requirement with the requirement under Rule 17a-
4(b) that broker-dealers preserve certain documents for a period of not
less than three years.\417\ While one commenter noted that Rule 17a-
4(b) only requires that the documents be preserved in an ``easily
accessible place'' for the first two years,\418\ the Commission
believes that due to the public nature of the reports, the utility and
purpose of the reports, and the low burden of maintaining data on a
website for an additional year, the reports should be retained on a
public website for the full three years as proposed. Accordingly, the
Commission is adopting as proposed the requirement that the Rule
606(a)(1) publicly available quarterly order handling report be kept
posted on a website that is free and readily accessible to the public
for a period of three years from the initial date of posting on the
website.
---------------------------------------------------------------------------

    \413\ See Rule 606(a)(1).
    \414\ See Citadel Letter at 1; FIF Letter at 13; Markit Letter
at 29.
    \415\ See Citadel Letter at 1.
    \416\ See FIF Letter at 13; Markit Letter at 29.
    \417\ See 17 CFR 242.17a-4(b).
    \418\ See FIF Letter at 13.
---------------------------------------------------------------------------

    In a related issue, in question 116 of the Proposing Release, the
Commission asked whether it should require broker-dealers to make
publicly available the prior three years' worth of quarterly reports
from the effective date of the rule.\419\ One commenter opposed this
suggestion, commenting that it would be an extremely large undertaking,
and noting that circumstances may have changed over the last two to
three years that would make comparison of the data difficult and
possibly misleading.\420\ The Commission believes that it should not
adopt a requirement to make publicly available the prior three years'
worth of publicly available quarterly order routing reports from the
effective date of the rule, as this requirement may be too burdensome
and result in data that is not easily comparable across broker-dealers.
Nevertheless, while broker-dealers are not required by rule to post on
their website past Rule 606(a)(1) reports that were created prior to
the amended rule's effectiveness, the Commission believes that making
historical Rule 606(a) data available to customers and the public could
be useful to customers or market participants seeking to analyze past
routing behavior of broker-dealers. As such, the Commission notes that
broker-dealers are neither prevented nor discouraged from voluntarily
and publicly disclosing such historical data. The Commission believes
that some broker-dealers may engage in such voluntary disclosure in an
effort to compete more effectively for order flow by providing even
greater transparency than what is required under the rule.
---------------------------------------------------------------------------

    \419\ See Proposing Release, supra note 1, at 49466.
    \420\ See FIF Letter at 13.
---------------------------------------------------------------------------

    The Commission also received comments addressing whether broker-
dealers should be required to make the reports available on their own
websites or on a centralized website.\421\ Three commenters supported
centralizing reporting, specifically recommending that either FINRA or
the Commission host the data.\422\ One commenter stated that it did not
necessarily think that the Commission or FINRA should be forced to
cover the expense of maintaining a centralized website as long as the
data can be found publicly.\423\
---------------------------------------------------------------------------

    \421\ See Proposing Release, supra note 1, at 49461, 49466; HMA
Letter at 4; FIA Letter at 1; FIF Letter at 13; CFA Letter at 11;
HMA II Letter at 4, 7-8.
    \422\ See HMA Letter at 4, 7-8; FIF Letter at 13; CFA Letter at
11.
    \423\ See Markit Letter at 29.
---------------------------------------------------------------------------

    One of the chief goals of the rule amendments being adopted today
is to enable customers to more readily and meaningfully assess broker-
dealers' order handling practices. The

Commission acknowledges that locating each broker-dealer's Rule
606(a)(1) report in a centralized repository could help facilitate that
goal. At the same time, there are potentially significant cost and time
delays associated with developing a centralized repository and the
related mechanisms for allowing individual broker-dealers to upload and
manage their reports in a safe and secure manner. The Commission
believes that the obstacles associated with developing a centralized
repository pose a greater risk of hindering customers' ability to
assess broker-dealer order routing performance than is posed by the
necessity of accessing each broker-dealer's Rule 606(a) report on the
particular broker-dealer's website in the absence of a centralized
repository. Accordingly, the Commission is not adopting an additional
requirement that the Rule 606(a) quarterly public order handling
reports be maintained in a centralized public repository.
5. Division of Rule 606(a) Report's Section on NMS Stocks by S&P 500
Index and Other NMS Stocks
a. Proposal
    The Commission proposed to amend Rule 606(a)(1) to remove the
requirement that Rule 606(a)(1) reports be divided into three separate
sections for securities listed on the NYSE, securities that are
qualified for inclusion in NASDAQ, and securities listed on the
American Stock Exchange or any other national securities exchange.\424\
By proposing to remove this requirement, the Commission intended to
require broker-dealers to disclose the required order routing
information for NMS stocks as a group rather than divided by listing
market.
---------------------------------------------------------------------------

    \424\ See proposed Rule 606(a)(1). See Proposing Release, supra
note 1, at 49465 for additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
    The Commission is adopting as proposed the amendment to remove the
requirement that Rule 606(a)(1) reports be divided into three separate
sections for securities listed on the NYSE, securities that are
qualified for inclusion in NASDAQ, and securities listed on the
American Stock Exchange or any other national securities exchange. The
Commission notes that the language is stale, as NASDAQ is now
registered as a national securities exchange and the American Stock
Exchange is now known as NYSE American LLC.\425\ Further, the
Commission continues to believe that separating the Rule 606(a) order
routing reports by primary listing market is not particularly useful to
customers for the reasons noted in the Proposal.\426\ When the
Commission adopted what became Rule 606 (then Rule 11Ac1-6) in 2000,
the primary listing markets looked and operated very differently than
they do today. For example, NYSE and the American Stock Exchange were
primarily manual markets with limited electronic trading, while NASDAQ
was a quote-driven dealer market and not yet a national securities
exchange. Today, with the adoption of Regulation NMS and considerable
advancements in computerized trading technology, the trading landscape
is highly automated, dominated by electronic trading, and more widely
dispersed across different trading venues. As a result, the primary
listing markets no longer factor as prominently as they once did in the
execution of the securities that they list. In addition, the commenters
who addressed the issue supported the removal of the division of the
Rule 606(a) reports by listing market.\427\ Accordingly, the Commission
believes that the division of the Rule 606(a) reports by listing market
is no longer warranted or appropriate, as such division is no longer
particularly useful to customers interested in analyzing their broker-
dealers' routing practices.\428\
---------------------------------------------------------------------------

    \425\ See Rule 606 Predecessor Adopting Release, supra note 7.
In October 2008, the American Stock Exchange LLC was renamed ``NYSE
Alternext US LLC.'' See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-
62). In March 2009, NYSE Alternext US LLC was renamed ``NYSE Amex
LLC.'' See Securities Exchange Act Release No. 59575 (March 13,
2009), 74 FR 11803 (March 19, 2009) (SR-NYSEALTR-2009-24). In May
2012, NYSE Amex LLC was renamed ``NYSE MKT LLC.'' See Securities
Exchange Act Release No. 67037 (May 21, 2012), 77 FR 31415 (May 25,
2012) (SR-NYSEAmex-2012-32). In March 2017, NYSE MKT LLC was renamed
``NYSE American LLC.'' See Securities Exchange Act Release No. 80283
(March 21, 2017), 82 FR 15244 (March 27, 2017) (SR-NYSEMKT-2017-14).
    \426\ For example, from February 2005 to February 2014, NYSE's
market share in its listed securities declined from 78.9% to 20.1%.
See Memorandum from the SEC Division of Trading and Markets to the
SEC Market Structure Advisory Committee (April 30, 2015), available
at http://www.sec.gov/spotlight/emsac/memo-rule-611-regulation-nms.pdf.
    \427\ See Markit Letter at 32; Fidelity Letter at 9; FIF Letter
at 12.
    \428\ See FIF Letter at 3.
---------------------------------------------------------------------------

    The Commission requested comment in the Proposing Release regarding
whether the Rule 606(a) public order routing reports should instead be
categorized according to whether a particular security is included in
the Standards & Poor's 500 (``S&P 500'') index.\429\ Multiple
commenters believed that categorization by S&P 500 index would be
useful,\430\ while one commenter believed that segmenting by S&P 500
stocks and other stocks may be too complex.\431\ One commenter stated
that subscription to the S&P 500 index would present a cost to broker-
dealers and the commenter would only recommend such S&P 500 index
categorization if broker-dealers would not incur an additional
cost.\432\ In addition, the EMSAC recommended, among other things, that
Rule 606 reports be divided by securities included in the S&P 500 Index
and other NMS stocks.\433\
---------------------------------------------------------------------------

    \429\ See Proposing Release, supra note 1, at 49466.
    \430\ See Markit Letter at 32; Fidelity Letter at 9; Schwab
Letter at 3.
    \431\ See FIF Letter at 12.
    \432\ See Markit Letter at 32.
    \433\ See EMSAC Rule 606 Recommendations, supra note 16.
---------------------------------------------------------------------------

    While the Commission believes that the handling of NMS stocks no
longer varies materially based on their primary listing market, the
Commission believes that the handling of NMS stocks may vary based on
their market capitalization value and trading volume. Thus, customers
that place held orders in NMS stock could benefit from a delineation
based on S&P 500 index in the Rule 606(a)(1) report. Inclusion in the
S&P 500 is based on a variety of factors that may be of utility to
customers when reviewing their disclosures, including that S&P 500
constituents must be U.S. companies and must meet market
capitalization, public float, financial viability, liquidity, and price
requirements.\434\ As a result, the Commission is requiring that the
Rule 606(a)(1) report be categorized by whether the security is
included S&P 500 index as of the first day of the quarter or is another
NMS stock.\435\ The Commission also notes that the list of securities
included in the S&P 500 index is readily available on the internet on
many free websites, and thus there should be minimal cost to broker-
dealers to remain abreast of the composition of the index.\436\ The

Commission further notes that many data dissemination services obtain
this information from the S&P and redistribute this information as part
of data packages consumed by broker-dealers as a part of the broker-
dealers normal course of business.\437\ Thus, the Commission believes
that there will be few or no additional data costs to broker-dealers
resulting from this requirement. The Commission believes that this
amendment would help further modernize the Rule 606(a)(1) report and
provide customers that place held NMS stock orders--and retail
investors in particular--with more relevant information about how their
orders are routed.
---------------------------------------------------------------------------

    \434\ See S&P 500 Fact Sheet, available at https://us.spindices.com/indices/equity/sp-500.
    \435\ See Rule 606(a)(1). The Commission understands that
securities may move in and out of the S&P 500 during a quarter, but
that such movement is not common. The Commission further believes
requiring the reporting based on the composition as of the first day
of the quarter will be easily administrable and will allow broker-
dealers to know what securities they will need to track throughout
the quarter for inclusion in this reporting category.
    \436\ The Commission further notes that changes to the
composition of the S&P 500 are publicly announced. See, e.g., Press
Release, S&P Dow Jones Indices, Huntington Ingalls Industries Set to
Join S&P 500; Scientific Games to Join S&P MidCap 400 and Ultra
Clean Holdings to Join S&P SmallCap 600 (December 28, 2017),
available at https://us.spindices.com/documents/index-news-and-announcements/20171228-spdji-bard-huntington-games-ultra-press-release.pdf.
    \437\ The Commission understands that broker-dealers have access
to the constituent list for the S&P 500 through data feeds available
from widely used data dissemination services, such as Bloomberg,
Thomson Reuters, and Morningstar. The Commission understands that
most broker-dealers already pay for data feeds that contain this
composition information.
---------------------------------------------------------------------------

6. Calendar Month Breakdown
a. Proposal
    The Commission proposed to amend Rule 606(a)(1) to require that the
public order routing reports required by the rule be broken down by
calendar month.\438\ Rule 606(a)(1) currently requires that broker-
dealers make order routing reports publicly available for each calendar
quarter, and that such reports contain aggregate quarterly information
on order routing.
---------------------------------------------------------------------------

    \438\ See proposed Rule 606(a)(1). See Proposing Release, supra
note 1, at 49465 for additional detail on the Commission's proposal.
---------------------------------------------------------------------------

b. Final Rule and Response to Comments
    The Commission is adopting as proposed the amendment to Rule
606(a)(1) to require that the publicly available quarterly order
routing reports be broken down by calendar month.\439\ Several
commenters supported the proposed break-down by calendar month or
proposed requiring that the reports be made available on a monthly
basis.\440\ Another commenter believed that a quarterly breakdown is
adequate, and that monthly reports would not add value but rather could
confuse investors.\441\
---------------------------------------------------------------------------

    \439\ See Rule 606(a)(1).
    \440\ See, e.g., Markit Letter at 29; Fidelity Letter at 9.
    \441\ See FIF Letter at 13.
---------------------------------------------------------------------------

    The Commission believes that disclosing the information contained
in the Rule 606(a)(1) reports by calendar month will allow customers to
better assess whether their broker-dealers' routing decisions are
affected by changes in fee structures and the extent such changes
affect execution quality. In particular, a calendar-month breakdown
will provide customers and market participants generally with greater
insight into any month-to-month changes in routing behavior by broker-
dealers in response to monthly changes in trading center fee
structures.\442\ As indicated by the support expressed by commenters
for a calendar-month breakdown, the Commission believes that such
insight could be valuable to customers attempting to assess the quality
of broker-dealer order routing services and the extent to which broker-
dealers engage in rebate-seeking or fee-avoiding behavior when routing
customer orders. The Commission does not believe that presenting the
information as a monthly breakdown would be more confusing than the
current presentation of the information in the aggregate for the entire
quarter covered by the report.
---------------------------------------------------------------------------

    \442\ The Commission understands that trading centers generally
bill in monthly increments and modify their fee structures to
reflect such monthly billing. See Proposing Release, supra note 1 at
49465, and see, e.g., Securities Exchange Act Release No. 83025
(April 10, 2018), 83 FR 16410 (April 16, 2018) (SR-NASDAQ-2018-25).
---------------------------------------------------------------------------

7. Execution Metrics
    As discussed above, the Commission is adopting targeted, limited
enhancements to the public order routing disclosures required under
Rules 606(a)(1) that are designed to shed additional light on broker-
dealers' routing practices and the extent to which broker-dealers
encounter and manage potential conflicts of interest stemming from
payment-for-order flow arrangements, profit-sharing relationships,
trading venue fees and rebates, or other factors. As the Commission
previously noted, commenters were broadly supportive of these enhanced
order routing disclosures.\443\ However, the EMSAC and several
commenters suggested further enhancements to these disclosures--many
specifically to include more or different execution quality
statistics.\444\
---------------------------------------------------------------------------

    \443\ See, e.g., KCG Letter at 1-3; STA Letter I at 2-4;
Ameritrade Letter at 3; Better Markets Letter at 1, 8-9; HMA Letter
at 2-4; FSR Letter at 1; Citadel Letter at 1; CFA Letter at 1.
    \444\ See EMSAC Rule 606 Recommendations, supra note 16, at
3Markit Letter at 8-10, 25, 30; Fidelity Letter at 6-; Better
Markets Letter at 3-8; Angel Letter at 3-7CFA Letter at 10; Schwab
Letter at 2; HMA Letter at 7, 10-12; Ameritrade Letter at 3.
---------------------------------------------------------------------------

    As noted above, the Commission purposely did not propose
significant enhancements or modifications to the Rule 606(a) public
reports and did not include enhanced requirements regarding execution
statistics. Rather, the Commission proposed targeted, limited
enhancements in Rule 606(a) that focus on financial inducements
connected to broker-dealers' order routing. The Commission believes
that these enhancements are appropriately designed to enable
customers--and retail customers in particular--to better assess their
broker-dealers' order routing performance and, in particular, potential
conflicts of interest that their broker-dealers face when routing their
orders and how their broker-dealers manage those potential conflicts.
    Accordingly, the Commission continues to believe that the limited
modifications to Rule 606(a) as proposed are reasonably designed to
further the goal of enhancing transparency regarding broker-dealers'
order routing practices and customers' ability to assess the quality of
those practices. The Commission does not believe that it is necessary
for the achievement of this goal to require, at this time, that the
Rule 606(a) public order handling reports include the additional,
specific execution quality statistics suggested by some commenters. The
additional disclosures suggested by the commenters would raise
compliance costs and add to the complexity of the report. In adopting
the amendments to the report, the Commission is seeking a balance
between updating the current reports to provide useful additional
information to customers and the cost of compliance by broker-dealers.
The Commission believes that the required disclosures, including the
new disclosures adopted today, contain sufficient information for
customers to make an informed decision to evaluate their broker-
dealers' order routing performance. In order to reach this balance
between cost and benefit, the Commission is not adopting the additional
disclosures recommended by commenters at this time.
    The Commission notes, as stated above, that this determination is
not an indication that the Commission has formed a decision on the
validity or usefulness of the various different execution quality
statistics that commenters suggested. Rather, in light of the
Commission's belief that Rule 606(a), as proposed, provides an
appropriate level of insight into the widespread financial arrangements
between broker-dealers and execution venues that may affect broker-
dealers' order routing decisions, the Commission believes that it is an
appropriate and a balanced approach at this juncture to adopt Rule
606(a) as proposed. The

Commission believes that adopting the Rule 606(a) report content as
proposed will help minimize the reporting complexity and costs, and
help create a report that is more universally useful across the
spectrum of customers.
C. Amendment to Disclosure of Order Execution Information
    The Commission proposed to amend Rule 605(a)(2) to require market
centers to keep reports required pursuant to Rule 605(a)(1) posted on a
website that is free and readily accessible to the public for a period
of three years from the initial date of posting on the website.\445\
One commenter supported the Proposal,\446\ while another commenter
suggested a two-year time period and further suggested that comparing
what it characterized as ``out-of-date'' information may lead to
misleading analysis due to circumstances changing over time.\447\
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    \445\ See Proposing Release, supra note 1, at 49466.
    \446\ See Citadel Letter.
    \447\ See FIF Letter.
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    The Commission is adopting, without any change, the proposed
amendment to Rule 605(a)(2) to require market centers to keep reports
required pursuant to Rule 605(a)(1) posted on a website that is free
and readily accessible to the public for a period of three years from
the initial date of posting on the website.\448\ While one commenter
suggested a two-year posting period instead of a three-year period, the
three-year period is consistent with the identical posting requirement
for the Rule 606(a)(1) reports that the Commission is adopting today
and, for the same reasons as expressed with regard to the Rule 606(a)
report, the Commission believes that the three-year posting requirement
is appropriate. In particular, the Commission notes, again, that a
three-year retention period is consistent with the requirement under
Rule 17a-4(b) that broker-dealers preserve certain documents for a
period of not less than three years.\449\ Furthermore, while all
historical reports would be ``out-of-date'' information, the Commission
believes that the reports will be useful and not lead to misleading
analyses because the Commission expects customers and the public to use
the historical information to compare information from the same time
period. The public information also will provide a historical record of
a market center's order execution information. As also noted above,
even though market centers are not required by rule to post on their
website past Rule 605(a) reports that were created prior to the amended
rule's effectiveness, the Commission believes that making historical
data available to customers and the public could be useful to customers
or market participants seeking to analyze such data, and market centers
are neither prevented nor discouraged from voluntarily and publicly
disclosing such historical data.
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    \448\ See Rule 605(a)(2).
    \449\ See 17 CFR 242.17a-4(b)
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IV. Paperwork Reduction Act

    Certain provisions that the Commission is adopting today contain
``collection of information requirements'' within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\450\ The Commission
published a notice requesting comment on the collection of information
requirements in the Proposing Release \451\ and submitted relevant
information to the Office of Management and Budget for review in
accordance with the PRA.\452\ The current collection of information for
Rule 606 entitled ``Disclosure of order routing information'' is being
modified in a way that creates new collection of information burden
estimates and modifies existing collection of information burden
estimates. The existing collection of information for Rule 605 entitled
``Disclosure of order execution information'' is being modified in a
manner that does not alter the collection of information burden
estimate. Compliance with these collections of information requirements
is mandatory. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the agency
displays a currently valid control number.
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    \450\ 44 U.S.C. 3501 et seq.
    \451\ See Proposing Release, supra note 1, at 49477.
    \452\ 44 U.S.C. 3507; 5 CFR 1320.11.
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    The hours and costs associated with complying with the rule
amendments being adopted today constitute reporting and cost burdens
imposed by the collection of information for Rule 606. As described in
more detail below, certain estimates have been modified, as necessary,
to conform to the adopted amendments and to reflect the most recent
data available to the Commission.
    The Commission requested comment on the collection of information
requirements in the Proposing Release. As noted above, the Commission
received comment on the Proposing Release. Views of commenters relevant
to the Commission's analysis of burdens, costs, and benefits of the
rule amendments being adopted today are discussed below.

A. Summary of Collection of Information

    The amendments to Rule 606, as adopted, contain ``collection of
information requirements'' within the meaning of the PRA for broker-
dealers that receive and handle certain orders in NMS stocks. As
detailed in Section III, supra, in adopting the amendments, the
Commission has made certain changes to the amendments as originally
proposed.
1. Customer-Specific Disclosures Under Rule 606(b)(3)
    Rule 606(b)(3) of Regulation NMS, as adopted, requires a broker-
dealer, on request of a customer that places with the broker-dealer,
directly or indirectly, NMS stock orders of any size that are submitted
on a not held basis (subject to two de minimis exceptions) to
electronically disclose to such customer within seven business days of
receiving the request, a report on the broker-dealer's handling of such
orders for that customer for the prior six months, broken down by
calendar month. The report would contain certain information on the
customer's order flow with the reporting broker-dealer as well as
certain columns of information on orders handled by the broker-dealer,
as described below, categorized by venue and separated by directed and
non-directed orders.\453\
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    \453\ See supra Sections III.A.6.a.ii, III.A.6.b.ii.
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2. Amendment to Current Public and Customer-Specific Disclosures
    Rule 606(a) of Regulation NMS, as amended: (1) Breaks down the
existing limit order disclosures into separate categories of marketable
limit orders and non-marketable limit orders; \454\ (2) requires
certain disclosures for each Specified Venue; \455\ (3) requires
certain disclosures by broker-dealers relating to terms of payment for
order flow arrangements and profit-sharing relationships; \456\ (4)
requires that such reports be broken down by calendar month; \457\ (5)
requires that such reports be kept posted on a website that is free and
readily accessible to the public for a period of three years from the
initial date of posting on the website; \458\ and (6) replaces the
requirement that the Rule 606(a)(1) report be divided into three
separate categories by listing market with a requirement that the
report be divided into two categories: Securities included in the S&P
500

Index as of the first day of the quarter; and other NMS stocks.\459\
These disclosures are available for non-directed orders in NMS stocks
submitted on a held basis having any market value. For orders in NMS
securities that are option contracts, these disclosures are available
whether the order is submitted on a held or not held basis, but only
for customer orders, i.e., orders having a market value of less than
$50,000.\460\
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    \454\ See supra Section III.B.2.
    \455\ See supra Section III.B.3.
    \456\ See id.
    \457\ See supra Section III.B.6.
    \458\ See supra Section III.B.4.
    \459\ See supra Section III.B.5.
    \460\ See supra Section III.B.1.
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    Rule 606(b)(1), as amended, does not modify any of the current
customer-specific disclosure requirements but only requires those
disclosures for certain categories of orders. Broker-dealers must now
provide the information only for: (i) Orders in NMS stocks that are
submitted on a held basis; (ii) orders in NMS stocks that are submitted
on a not held basis and are exempt from the disclosure requirements of
Rule 606(b)(3); or (iii) orders in NMS securities that are option
contracts.
    The amendments would require reports produced pursuant to Rules
606(a) and 606(b)(1) to be formatted in the most recent versions of the
XML schema and the associated PDF renderer as published on the
Commission's website.
3. Amendment to Current Disclosures Under Rule 605
    Rule 605(a)(2), as amended, requires market centers to keep reports
required pursuant to the Rule 605(a)(1) posted on a website that is
free and readily accessible to the public for a period of three years
from the initial date of posting on the website.

B. Use of Information

    The order handling disclosures required under the adopted
amendments to Rule 606 will provide more detailed information to
customers that will enable them to evaluate how their orders were
handled by their broker-dealers, assess potential conflicts of interest
facing their broker-dealers in providing order handling services, and
have the ability to engage in informed discussions with their broker-
dealers about the broker-dealer's order handling practices. The adopted
order handling disclosures can inform future decisions on whether to
retain a broker-dealer's services or engage the services of a new
broker-dealer. In addition, broker-dealers may use the public
disclosures to compete on the basis of order routing services, and
academics and others may use the public disclosures pursuant to Rules
605 and 606 to review and analyze broker-dealer routing practices and
trading center order executions.
1. Customer-Specific Disclosures Under Rule 606(b)(3)
    Rule 606(b)(3), as adopted, provides detailed order routing and
execution information to a customer regarding its specific NMS stock
orders of any size that are submitted on a not held basis (subject to
two de minimis exceptions) during the reporting period. Generally, the
five groups of information contained in the order handling report will
enable customers to understand where and how their not held NMS stock
orders were routed or exposed, as well as where their orders were
executed during the reporting period. Customers may use the information
contained in the order handling report to assess any considerations a
broker-dealer may have faced when routing its not held NMS stock orders
to various venues and whether those considerations may have affected
how a broker-dealer handled its orders, as well as to assess whether a
broker-dealer's order routing practices may have led to risks of
information leakage.\461\
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    \461\ See Proposing Release, supra note 1, at 49468.
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    The requirement that broker-dealers produce one report for directed
orders and one report for non-directed orders will provide a customer
with a more precise reflection of how and where its broker-dealer is
routing the customer's not held NMS stock orders pursuant to the
discretion it is afforded.\462\ As noted above, customers may use the
order handling disclosures to inform future decisions on whether to
retain a broker-dealer's services or engage the services of a new
broker-dealer.
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    \462\ See supra Section III.A.5.b.
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2. Amendment to Current Public and Customer-Specific Disclosures
    Rule 606(a), as amended, requires broker-dealers to break down the
limit order disclosure in the public order routing reports into
separate categories of marketable limit orders and non-marketable limit
orders.\463\ The adopted requirement of Rule 606(a) that a broker-
dealer disclose the net aggregate amount of any payment for order flow
received, payment from any profit-sharing relationship received,
transaction fees paid, and transaction rebates received, both as a
total dollar amount an on a per share basis, for specified non-directed
order types for each Specified Venue, may allow customers to determine
how broker-dealers route different types of orders relative to any
economic benefit or consequence to the broker-dealer. The requirement
in adopted Rule 606(a)(1) that the quarterly reports be broken down by
calendar month may allow customers to determine whether and how their
broker-dealers' routing decisions changed in response to changing fee
and rebate structures in the marketplace, which often change at the
beginning of a calendar month. The adopted requirement that such
reports be kept posted on a website for three years may allow customers
and others, such as researchers, to analyze historical routing behavior
of particular broker-dealers. The adopted requirement that broker-
dealers categorize the quarterly public Rule 606(a)(1) disclosure by
securities included in the S&P 500 Index and other NMS stocks should
provide customers and the public with more detailed information on
securities that have more similar liquidity and trading
characteristics, and should provide a clearer way for customers to
review order routing information for securities included in the S&P 500
Index, which attract significant trading interest.\464\ In addition,
the adopted requirement for broker-dealers to describe any terms of
payment for order flow arrangements and profit-sharing relationships
with a Specified Venue that may influence their order routing
decisions, including information relating to specific incentives or
volume minimums, may allow customers to understand how their broker-
dealers route their orders and whether and how such routing is
influenced by payment for order flow and/or a profit-sharing
relationship.
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    \463\ The Commission discussed the general use of this
collection in the Proposing Release. See Proposing Release, supra
note 1, at 49468-69.
    \464\ See supra Section III.B.5.
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    As noted above, the amendments to Rule 606(b)(1) do not create new
data collection obligations but require the disclosures for certain
categories of orders.
3. Amendment to Current Disclosures Under Rule 605
    The adopted requirement that reports required under Rule 605 be
kept posted on a website that is free and readily accessible to the
public for a period of three years from the initial date of posting on
the website may allow customers and others to analyze historical order
execution quality at various market centers, such as researchers that
could provide analysis to better inform investors. The three years of
data may be useful to those seeking to analyze how execution quality
has changed over time, in addition to changes in response to regulatory
or other developments.

C. Respondents

    The respondents to the amendments being adopted today are broker-
dealers that handle held orders and not held orders received from
customers and market centers that create reports pursuant to Rule 605.
1. Initial Estimate
    In the proposing release the Commission estimated, as of December
2015, that there were approximately 4,156 total registered broker-
dealers. Of these, the Commission estimated that 266 were broker-
dealers that route retail orders. The Commission estimated that 200
broker-dealers were involved in the practice of routing institutional
orders, all of whom also routed retail orders. The Commission estimated
that there were 380 market centers to which Rule 605 applies.\465\
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    \465\ See Proposing Release, supra note 1, at 49469.
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2. Estimate for Adopted Rule [Amendments to 605 and 606]
    The Commission estimates that of the approximately 4,024 total
registered broker-dealers,\466\ 292 are broker-dealers that handle
orders in NMS stocks on a held basis that would be subject to the
public disclosure requirements of Rule 606(a) or the current customer-
specific disclosure requirements of Rule 606(b)(1).\467\ The Commission
estimates that 200 broker-dealers would be subject to the new customer-
specific disclosure requirements of Rule 606(b)(3) and not meet the
requirements for a firm-level de minimis exception under Rule
606(b)(4), i.e., broker-dealers that are involved in the practice of
routing NMS stock orders of any size that are submitted on a not held
basis, where such order flow constitutes greater than 5% of their total
NMS stock order flow.\468\ The Commission estimates that there are 381
market centers to which Rule 605 applies.\469\
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    \466\ The Commission is basing its estimate on data compiled
from responses to Form BD.
    \467\ The Commission estimates that both clearing and
introducing brokers handle such orders.
    \468\ For the purposes of estimating burden under the PRA, the
Commission believes that all broker-dealers that handle or route
orders in NMS stocks will have a mix of customers that are and are
not subject to the customer-level de minimis exception described in
Rule 606(b)(5). See supra Section III.A.1.b.iv. Accordingly, the
Commission estimates that all 200 broker-dealers that handle orders
subject to the customer-specific disclosures required by Rule
606(b)(3) and all 292 broker-dealers that route orders subject to
the public disclosures required by Rule 606(a) and the existing
customer-specific disclosures required by Rule 606(b)(1) will have
to modify their systems to comply with those respective rules. If a
broker-dealer handles orders subject to the new customer-specific
disclosure requirements of Rule 606(b)(3) but qualifies for both de
minimis exceptions required by Rules 606(b)(4) and (b)(5), then it
is not a respondent to the collection of information required by
Rule 606(b)(3) but would still be counted among the respondents to
the collection of information required by Rule 606(b)(1).
    \469\ The Commission derived this estimate based on the
following: 214 OTC market makers (not including market makers
claiming an exemption from the reporting requirements of the Rule),
plus 21 exchanges, 1 securities association, 104 exchange market
makers, and 41 ATSs.
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D. Total Initial and Annual Reporting and Recordkeeping Burdens

1. Customer-Specific Disclosures Under Rule 606(b)(3)
a. Initial Reporting and Recordkeeping Burden
i. Baseline Burden
    Of the 200 broker-dealers involved in routing orders subject to the
customer-specific disclosures described in Rule 606(b)(3), the
Commission initially estimated that 25 broker-dealers that handle