"UNRECOVERABLE: Timeout During Enrichment"

Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION 

17 CFR Parts 240 and 242 

[Release No. 34-99679; File No. S7-29-22] 

RIN 3235-AN22 

Disclosure of Order Execution Information 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) is adopting 

amendments to a rule under the Securities Exchange Act of 1934 (“Exchange Act”) that requires 

disclosures for order executions in national market system (“NMS”) stocks. First, the 

amendments expand the scope of reporting entities subject to the preexisting rule that requires 

market centers to make available to the public monthly execution quality reports to encompass 

broker-dealers with a larger number of customers. Next, the amendments modify the definition 

of “covered order” to include certain orders submitted outside of regular trading hours and 

certain orders submitted with stop prices. In addition, the amendments modify the information 

required to be reported under the rule, including changing how orders are categorized by order 

size as well as how they are categorized by order type. The amendments, as part of the changes 

to the order size categories, modify the rule to capture execution quality information for 

fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the amendments 

modify reporting requirements for non-marketable limit orders (“NMLOs”) in order to capture 

more relevant execution quality information for these orders by requiring statistics to be reported 

from the time such orders become executable. The amendments modify time-to-execution 

categories and require average time to execution to be measured in increments of a millisecond 



2 

or finer and calculated on a share-weighted basis for all orders. The amendments require that the 

time of order receipt and time of order execution be measured in increments of a millisecond or 

finer, and that realized spread be calculated at multiple time intervals. Finally, the amendments 

enhance the accessibility of the reported execution quality statistics by requiring all reporting 

entities to make a summary report available. 

DATES: Effective date: The final rules are effective June 14, 2024.  

Compliance date: See section VII, titled “Transition Matters,” for further information on 

transitioning to the final rules. 

FOR FURTHER INFORMATION CONTACT: Kathleen Gross, Senior Special Counsel, 

Lauren Yates, Senior Special Counsel, Susie Cho, Special Counsel, Christopher Chow, Special 

Counsel, David Michehl, Special Counsel, or Laura Harper Powell, Special Counsel at (202) 

551-5500, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 

20549. 

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 17 CFR 

242.600 (“Rule 600”) to add new defined terms to and modify certain existing defined terms in 

Rule 600 that are used in 17 CFR 242.605 (“Rule 605”) as amended, as well as amendments to 

Rule 605; and to make conforming amendments to defined terms in 17 CFR 242.602, 242.611, 

and 242.614; and conforming amendments to defined terms in 17 CFR 240.3a51-1, 240.13h-1, 

242.105, 242.201, 242.204, and 242.1000. 

Table of Contents 

I. Introduction and Background .......................................................................................... 4 
A. Overview of Need for Rule Modernization ..................................................................... 7 
B. Overview of the Proposal and Comments Received...................................................... 15 
C. Overview of Final Rule 605 ........................................................................................... 21 

II. Modifications to Reporting Entities ............................................................................... 24 
A. Larger Broker-Dealers ................................................................................................... 24 

1. Proposed Approach ........................................................................................................ 24 



3 

2. Final Rule and Discussion .............................................................................................. 28 
B. Qualified Auction Mechanisms ..................................................................................... 51 

1. Proposed Approach ........................................................................................................ 51 
2. Final Rule and Discussion .............................................................................................. 52 

C. NMS Stock ATSs and SDPs .......................................................................................... 53 
1. Proposed Approach ........................................................................................................ 53 
2. Final Rule and Discussion .............................................................................................. 54 

III. Modifications to Scope of Orders Covered and Required Information ......................... 62 
A. Covered Order ................................................................................................................ 62 

1. Orders Submitted Pre-Opening/Post-Closing ................................................................ 63 

2. Stop Orders ..................................................................................................................... 71 
3. Non-Exempt Short Sale Orders ...................................................................................... 81 

B. Required Information ..................................................................................................... 83 
1. Categorization by Order Size ......................................................................................... 83 

2. Categorization by Order Type ...................................................................................... 104 
3. Timestamp Conventions and Time-to-Execution Statistics ......................................... 116 

4. Execution Quality Statistics ......................................................................................... 128 

IV. Summary Execution Quality Report ............................................................................ 180 
A. Proposed Approach ...................................................................................................... 181 

B. Final Rule and Discussion ........................................................................................... 182 
1. Required Information ................................................................................................... 188 

2. Required Format ........................................................................................................... 205 
3. Investor Testing and Education .................................................................................... 207 

V. Requirements for Making Rule 605 Reports Available to the Public ......................... 210 
A. Proposed Approach ...................................................................................................... 210 

B. Final Rule and Discussion ........................................................................................... 211 
1. Accessibility of Rule 605 Reports ................................................................................ 211 
2. Alternatives to Rule 605 Proposal ................................................................................ 215 

VI. Existing Commission Exemptive Relief and Staff Statements .................................... 221 

VII. Transition Matters ........................................................................................................ 223 

VIII. Paperwork Reduction Act ............................................................................................ 229 
A. Summary of Collection of Information........................................................................ 230 
B. Proposed Use of Information ....................................................................................... 231 

C. Respondents ................................................................................................................. 231 
D. Total PRA Burdens ...................................................................................................... 232 

IX. Economic Analysis ...................................................................................................... 241 
A. Introduction .................................................................................................................. 241 
B. Market Failure .............................................................................................................. 242 

C. Baseline ........................................................................................................................ 248 
1. Regulatory Baseline ..................................................................................................... 249 
2. Use of Reports under Rule 605 Prior to Rule Amendments ........................................ 264 

3. Disclosure Requirements under Preexisting Rule 605 ................................................. 276 
4. Markets for Brokerage and Trading Services for NMS Stocks under Preexisting Rule 



4 

605 Disclosure Requirements ...................................................................................... 338 
D. Economic Effects ......................................................................................................... 349 

1. Benefits......................................................................................................................... 350 
2. Costs ............................................................................................................................. 440 
3. Economic Effects on Efficiency, Competition, and Capital Formation ....................... 471 

E. Reasonable Alternatives............................................................................................... 475 
1. Reasonable Alternative Modifications to Reporting Entities ....................................... 475 

2. Reasonable Alternative Modifications to Scope of Covered Orders ........................... 484 
3. Reasonable Alternative Modifications to Required Information ................................. 493 
4. Reasonable Alternative Modifications to Accessibility ............................................... 514 
5. Other Reasonable Alternatives ..................................................................................... 522 

X. Regulatory Flexibility Act Certification ...................................................................... 524 

XI. Other Matters ............................................................................................................... 526 

Statutory Authority ..................................................................................................................... 526 

 

I. Introduction and Background 

On December 14, 2022, the Commission proposed amendments to Rule 605 under 

Regulation National Market System (17 CFR 242.600 through 242.614) (“Regulation NMS”) to 

update the disclosure of order execution quality statistics in national market system (“NMS”) 

stocks.1 Rule 605, formerly known as Rule 11Ac1-5, was adopted in 20002 and requires market 

 

1  See Securities Exchange Act Release No. 96493 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) (“Proposing 

Release”). 

2  See Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414 at 75416 (Dec. 1, 2000) 

(Disclosure of Order Execution and Routing Practices) (“Rule 11Ac1-5 Adopting Release”). Along with 

Rule 11Ac1-5, the Commission also adopted Rule 11Ac1-6 as part of the Rule 11Ac1-5 Adopting Release. 

See 17 CFR 242.606 (“Rule 606”). When the Commission later adopted Regulation NMS in 2005, Rule 

11Ac1-5 was re-designated as Rule 605, and Rule 11Ac1-6 was re-designated as Rule 606. See Securities 

Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (“Regulation NMS 

Adopting Release”). Rule 606 requires the public disclosure of order routing practices and was amended in 

2018. See Securities Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) 

(“2018 Rule 606 Amendments Release”). 



5 

centers3 to make available standardized monthly reports of statistical information concerning 

covered orders4 in NMS stocks5 that they received for execution.6 Prior to these amendments, the 

Rule 605 report contained a number of execution quality metrics for covered orders.7 The 

 

3  Regulation NMS defines the term “market center” to mean any exchange market maker, over-the-counter 

(“OTC”) market maker, alternative trading system (“ATS”), national securities exchange, or national 

securities association. See final 17 CFR 242.600(b)(55). “Exchange market maker” means any member of a 

national securities exchange that is registered as a specialist or market maker pursuant to the rules of such 

exchange. See final 17 CFR 242.600(b)(37). “OTC market maker” means any dealer that holds itself out as 

being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its 

own account on a regular or continuous basis otherwise than on a national securities exchange in amounts 

of less than a block size. See final 17 CFR 242.600(b)(75). “Alternative trading system” or “ATS” means 

any organization, association, person, group of persons, or system: (1) That constitutes, maintains, or 

provides a market place or facilities for bringing together purchasers and sellers of securities or for 

otherwise performing with respect to securities the functions commonly performed by a stock exchange 

within the meaning of 17 CFR 240.3b-16; and (2) That does not: (i) Set rules governing the conduct of 

subscribers other than the conduct of such subscribers’ trading on such organization, association, person, 

group of persons, or system; or (ii) Discipline subscribers other than by exclusion from trading. See 17 

CFR 242.300(a). See also final 17 CFR 242.600(b)(4) (stating that “alternative trading system” has the 

meaning provided in 17 CFR 242.300(a)). “National securities exchange” means any exchange registered 

pursuant to section 6 of the Exchange Act. See final 17 CFR 242.600(b)(63). “National securities 

association” means any association of brokers and dealers registered pursuant to section 15A of the 

Exchange Act. See final 17 CFR 242.600(b)(62). 

4  Prior to these amendments, a “covered order” was defined to include any market order or any limit order 

(including immediate-or-cancel orders) received by a market center during regular trading hours at a time 

when a national best bid and national best offer (“NBBO”) is being disseminated, and, if executed, is 

executed during regular trading hours, and did not include any orders for which the customer requests 

special handling, including, but not limited to, market on open and market on close orders, stop orders, all 

or none orders, and “not held” orders. See prior 17 CFR 242.600(b)(22). Generally, a “not held” order 

provides the broker-dealer with price and time discretion in handling the order, whereas a broker-dealer 

must attempt to execute a “held” order immediately. See 2018 Rule 606 Amendments Release, 83 FR 

58338 at 58340, n.19 (Nov. 19, 2018). 

5  “NMS stock” is defined under Regulation NMS as any NMS security other than an option. See final 17 

CFR 242.600(b)(65). An “NMS security” is defined as any security or class of securities for which 

transaction reports are collected, processed, and made available pursuant to an effective transaction 

reporting plan, or an effective national market system plan for reporting transactions in listed options. See 

final 17 CFR 242.600(b)(64). 

6  See prior 17 CFR 242.605. The procedures for market centers to make their execution quality data 

available to the public are set forth in the National Market System Plan Establishing Procedures Under 

Rule 605 of Regulation NMS (“Rule 605 NMS Plan”). See prior 17 CFR 242.605(a)(2) and Securities and 

Exchange Commission File No. 4-518 (Rule 605 NMS Plan). See also Securities Exchange Act Release 

No. 44177 (Apr. 12, 2001), 66 FR 19814 (Apr. 17, 2001) (order approving the Rule 605 NMS Plan) (“Rule 

605 NMS Plan Release”). 

7  See prior 17 CFR 242.605(a)(1); Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423-25 (Dec. 1, 

2000). 



6 

information was categorized: by (1) individual security, (2) one of five order types,8 and (3) one 

of four order sizes.9 Within each of the three categories, the Rule 605 report that was required 

prior to these amendments included statistics about the total number of orders submitted, and the 

total number of shares submitted, shares cancelled prior to execution, shares executed at the 

receiving market center, shares executed at another venue, shares executed within different time-

to-execution buckets, and average realized spread.10 For market and marketable limit orders 

specifically, the report required by Rule 605 prior to these amendments also included statistics 

about the (1) average effective spread; (2) number of shares executed better than the quote, at the 

quote, or outside the quote; (3) average time to execution when executed better than the quote, at 

the quote, or outside the quote; and (4) average dollar amount per share that orders were 

executed better than the quote or outside the quote.11 To calculate the required statistics, the time 

of order execution and time of order receipt were measured to the nearest second.12  

At the time the Commission adopted Rule 11Ac1-5, there was little publicly available 

information to enable investors to compare and evaluate execution quality among different 

 

8  See prior 17 CFR 242.605(a)(1). Prior to these amendments, “Categorized by order type” referred to 

categorization by whether an order is: (1) a market order, (2) a marketable limit order, (3) an inside-the-

quote limit order, (4) an at-the-quote limit order, or (5) a near-the-quote limit order. See prior 17 CFR 

242.600(b)(14). 

9  See prior 17 CFR 242.605(a)(1). Prior to these amendments, the size categories were: 100 to 499 shares; 

500 to 1,999 shares; 2000 to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13). 

On June 22, 2001, the Commission granted exemptive relief to any order with a size of 10,000 shares or 

greater (“Large Order Exemptive Relief”), reasoning that the exclusion of very large orders would help 

assure greater comparability of statistics in the largest size category of 5,000 or greater shares. See letter 

from Annette L. Nazareth, Director, Division of Market Regulation to Darla C. Stuckey, Assistant 

Secretary, NYSE Group, Inc., dated June 22, 2001 (“Large Order Exemptive Letter”). 

10  See prior 17 CFR 242.605(a)(1)(i). 

11  See prior 17 CFR 242.605(a)(1)(ii). 

12  See prior 17 CFR 242.600(b)(91), (92). 



7 

market centers.13 Rule 605, along with Rule 606 of Regulation NMS, was adopted in 2000, and 

together these rules required the public disclosure of execution quality and order routing 

practices.14 The Commission intended Rule 11Ac1-5 to provide awareness about how broker-

dealers responded to trade-offs between price and other factors, such as speed or reliability, and 

establish a baseline level of disclosure in order to facilitate cross-market comparisons of 

execution quality.15 The Commission reasoned that once investors could evaluate execution 

performance provided by various broker-dealers, competitive forces could then be brought to 

bear on broker-dealers both with respect to the explicit trading costs associated with brokerage 

commissions and the implicit trading costs associated with execution quality.16 

The information disclosed under Rule 605 has provided significant insight into execution 

quality at different market centers.17 However, Rule 605 has not been substantively updated 

since it was adopted in 2000. In the interim, equity market conditions have changed due in part 

to many technological advancements that have altered the speed and nature of trading. In 

 

13  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). For clarity, when this release 

discusses the adoption of Rule 605, it is referring to the Rule 11Ac1-5 Adopting Release, supra note 2. 

14  See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). 

15  See id. at 75418. Data obtained from Rule 605 reports are used by the third parties including academics and 

the financial press to study a variety of topics related to execution quality, including liquidity measurement, 

exchange competition, zero commission trading, and broker-dealer execution quality. See Proposing 

Release, 88 FR 3786 at 3833, n.545-547 (Jan. 20, 2023) and accompanying text. 

16  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). Although it is difficult to 

isolate the effects of Rule 605 given the evolution of the equity markets over time, one academic study 

examining the introduction of Rule 605 found that the routing of marketable order flow by broker-dealers 

became more sensitive to changes in execution quality across market centers after Rule 605 reports became 

available. See Ekkehart Boehmer et al., Public Disclosure and Private Decisions: Equity Market Execution 

Quality and Order Routing, 20 REV. FIN. STUD. 315 (2007) (“Boehmer et al.”). Another study attributed a 

significant decline in effective and quoted spreads following the implementation of Rule 605 to an increase 

in competition between market centers, who improved the execution quality that they offered in order to 

attract more order flow. See Xin Zhao & Kee H. Chung, Information Disclosure and Market Quality: The 

Effect of SEC Rule 605 on Trading Costs, 42 J. FIN. QUANTITATIVE ANALYSIS, 657 (Sept. 2007) (“Zhao & 

Chung”). 

17  See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 at 3604, n.55 (Jan. 21, 2010) 

(“Concept Release on Equity Market Structure”).  



8 

addition, the participation of individual investors in the equity markets has increased.18 

Accordingly, the Commission is adopting amendments to Rule 605 to update and improve the 

disclosure of execution quality information by expanding the scope of entities subject to Rule 

605, modifying the information required, and making key execution quality metrics more 

accessible to investors. 

A. Overview of Need for Rule Modernization 

The U.S. equity markets have evolved significantly in the last couple of decades. For 

instance, the equities markets have become increasingly fragmented, as both the market shares of 

individual national securities exchanges have decreased and an increased percentage of order 

flow has moved off-exchange. In 2000, there were nine registered national securities exchanges 

and one registered national securities association.19 A large proportion of the order flow in listed 

equity securities was routed to a few, mostly manual, trading centers,20 and the primary listing 

exchanges maintained a high percentage of the order flow for exchange-listed equities.21 

 

18  See Proposing Release, 88 FR 3786 at 3787-88 (Jan. 20, 2023). As used in this release, “individual 

investor” refers to natural persons that trade relatively infrequently for their own or closely related 

accounts. 

19  See Securities and Exchange Commission, Annual Report for fiscal year 2000, at 38 available at 

https://www.sec.gov/pdf/annrep00/ar00full.pdf. 

20  See Securities Exchange Act Release Nos. 78309 (July 13, 2016), 81 FR 49432 at 49436 (July 27, 2016) 

(“Rule 606 Amendments Proposing Release”); 42450 (Feb. 23, 2000), 65 FR 10577 at 10579-80 (Feb. 28, 

2000) (“Fragmentation Release”). 

21  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75415 (Dec. 1, 2000) (stating that in Sep. 2000, for 

example, the New York Stock Exchange Inc. (“NYSE”) accounted for 83.3% of the share volume in NYSE 

equities and that the American Stock Exchange, LLC (“Amex”) accounted for 69.9% of share volume in 

Amex equities). See also Concept Release on Equity Market Structure, 75 FR 3594 at 3595 (Jan. 21, 2010) 

(stating that in Jan. 2005, NYSE executed approximately 79.1% of the consolidated share volume in its 

listed stocks, as compared to 25.1% in Oct. 2009). In addition, NYSE-listed stocks were traded primarily 

on the floor of the NYSE in a manual fashion until Oct. 2006, at which time NYSE began to offer fully 

automated access to its displayed quotations. See id. at 3594-95. However, stocks traded on the NASDAQ 

Stock Market LLC (“NASDAQ”), which in 2000 was owned and operated by a national securities 

association, were already trading in a highly automated fashion at many different trading centers. See id. at 

3595; Fragmentation Release, 65 FR 10577 at 10580 (Feb. 28, 2000). See also Proposing Release, 88 FR 

3786 at 3791, n.76 (Jan. 20, 2023). 



9 

In contrast, trading in the U.S. equity markets today is highly automated and spread even 

more among different types of trading centers, allowing even more choices about where orders 

may be routed. The types of trading centers that currently trade NMS stocks are: (1) national 

securities exchanges operating self-regulatory organization (“SRO”) trading facilities;22 (2) 

ATSs that trade NMS stocks (“NMS Stock ATSs”);23 (3) exchange market makers; (4) 

wholesalers;24 and (5) any other broker-dealer that executes orders internally by trading as 

principal or crossing orders as agent.25 Some OTC market makers, such as wholesalers, operate 

single-dealer platforms (“SDPs”) through which they execute institutional orders in NMS stocks 

against their own inventory.26 In the first quarter of 2023, NMS stocks were traded on 16 

national securities exchanges, and off-exchange at 33 NMS Stock ATSs and at over 220 other 

Financial Industry Regulatory Authority (“FINRA”) members.27 Approximately 56% of NMS 

 

22  See final 17 CFR 242.600(b)(100) (defining “SRO trading facility” as, among other things, a facility 

operated by a national securities exchange that executes orders in a security). 

23  An “NMS Stock ATS” as used in this release is an ATS that has filed an effective Form ATS-N with the 

Commission. 

24  The term “wholesaler” is not defined in Regulation NMS, but is commonly used to refer to an OTC market 

maker that seeks to attract orders from broker-dealers that service the accounts of a large number of 

individual investors. The primary business model of wholesalers is to trade internally as principal with 

individual investor orders. They do not publicly display or otherwise reveal the prices at which they are 

willing to trade internally as a means to attract individual investor orders from broker-dealers. 

25  See 15 U.S.C. 78c(a)(4)(A) (defining “broker” generally as any person engaged in the business of effecting 

transactions in securities for the account of others); 15 U.S.C. 78c(a)(5)(A) (defining “dealer” generally as 

any person engaged in the business of buying and selling securities for such person’s own account through 

a broker or otherwise). The term “broker-dealer” is used in this release to encompass all brokers, all 

dealers, and firms that are both brokers and dealers. See also final 17 CFR 242.600(b)(106) (defining 

“trading center”). Broker-dealers that primarily service the accounts of individual investors (referred to in 

this release as “retail brokers”) often route the marketable orders of individual investors in NMS stocks to 

wholesalers. 

26  See Proposing Release, 88 FR 3786 at 3860, n.768 (Jan. 20, 2023) and accompanying text. 

27  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.766 (Jan. 20, 2023) and 

accompanying text; and 3861 (Table 7). 



10 

share volume was executed on national securities exchanges.28 The majority of off-exchange 

share volume was executed by wholesalers, who executed over one quarter of total share volume 

(26.9%) and about 61% of off-exchange share volume.29  

In addition, developments in trading further point toward the utility of amending Rule 

605. Average stock prices have continued to increase over time,30 and odd-lots31 and fractional 

shares32 continue to trade with increasing frequency. In addition, odd-lot quotes in higher-priced 

stocks continue to offer prices that are frequently better than the round lot NBBO for these 

 

28  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.767 (Jan. 20, 2023) and 

accompanying text; and 3861 (Table 7). 

29  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3861 (Table 7) (Jan. 20, 2023). 

30  See Securities Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 at 18606-07 (Apr. 9, 2021) 

(“Market Data Infrastructure (“MDI”) Adopting Release”) (citing Securities Exchange Act Release No. 

88216 (Feb. 14, 2020), 85 FR 16726 at 16739 (Mar. 24, 2020) (“MDI Proposing Release”)) (stating that 

“between 2004 and 2019, the average price of a stock in the Dow Jones Industrial Average nearly 

quadrupled”). See also Proposing Release, 88 FR 3786 at 3787, n.16 (Jan. 20, 2023). 

31  See MDI Adopting Release, 86 FR 18596 at 18616 (Apr. 9, 2021) (describing analyses included in the 

MDI Adopting Release confirming observations made in the MDI Proposing Release that a significant 

proportion of quotation and trading activity occurs in odd-lots, particularly for frequently traded, high-

priced stocks); and Proposing Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023) (describing analysis using 

the NYSE Trade and Quote database (obtained via Wharton Research Data Services (“WRDS”)) (“TAQ 

data” or “NYSE TAQ data”) that found that odd-lots increased from around 15% of trades in Jan. 2014 to 

more than 55% of trades in Mar. 2022). An analysis of data from the SEC’s Market Information Data 

Analytics System (“MIDAS”) analytics tool available at 

https://www.sec.gov/marketstructure/datavis.html#.YoPskqjMKUk shows that, in Q1 2023, odd-lots made 

up 80.5% of on-exchange trades (37.3% of volume) for stocks in the highest price decile and 18.8% of on-

exchange trades (1.2% of volume) for stocks in the lowest price decile. See dataset “Summary Metrics by 

Decile and Quartile” available at https://www.sec.gov/marketstructure/downloads.html. See also Proposing 

Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023). 

32  Analysis using Consolidated Audit Trail (“CAT”) data for executed orders in Aug. 2023 found that an 

estimated 67.4 million originating orders with a fractional share component were eventually executed on- 

or off-exchange. Orders with a fractional share component represented approximately 4% of all executed 

orders and 22% of executed orders from “individual” accounts. Generally, accounts classified as 

“individual” in CAT are attributed to natural persons. See also Proposing Release, 88 FR 3786 at 3792, 

n.92 (Jan. 20, 2023). 



11 

stocks,33 and this better-priced odd-lot liquidity is distributed across multiple price levels.34 In 

addition, odd-lot rates35 have increased among lower priced stocks.36 Because Rule 605 size 

categories prior to these amendments excluded orders smaller than 100 shares, a significant 

proportion of market activity was excluded.37 An analysis of Rule 605 data shows that Rule 605 

coverage has declined in the decades since the initial adoption of Rule 605.38 Further, because 

order size categories were tied to the number of shares, the categories may have grouped orders 

 

33  See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis using data from 

May 2020 and finding that approximately 45% of all trades executed on exchange and approximately 10% 

of all volume executed on exchange in corporate stocks and exchange-traded funds (“ETFs”) (6,926 unique 

symbols) occurred in odd-lot sizes (i.e., less than 100 shares) and 40% of those odd-lot transactions 

(representing approximately 35% of all odd-lot volume) occurred at a price better than the NBBO). In 

addition, a recent academic working paper shows that odd-lots offer better prices than the NBBO 18% of 

the time for bids and 16% of the time for offers. This percentage increases monotonically in the stock price, 

for example, for bid prices, increasing from 5% for the group of lowest-price stocks in their sample, to 42% 

for the group of highest-priced stocks. See Robert P. Bartlett, Justin McCrary, and Maureen O’Hara, The 

Market Inside the Market: Odd-Lot Quotes (working paper Feb. 1, 2022), available at 

SSRN: https://ssrn.com/abstract=4027099 (retrieved from SSRN Elsevier database) (“Bartlett, et al.”). See 

also Elliot Banks, BMLL Technologies, Inside the SIP and the Microstructure of Odd-Lot Quotes 

(observing an upward trend in odd-lot trading inside the NBBO from Jan. 2019 to Jan. 2022). See also 

Proposing Release, 88 FR 3786 at 3792, n.93 (Jan. 20, 2023). 

34 See MDI Adopting Release, 86 FR 18596 at 18613 n.202 (Apr. 9, 2021) (describing analysis included in 

the MDI Adopting Release that examined quotation data for the week of May 22-29, 2020 for stocks priced 

from $250.01 to $1000.00 and found that there is odd-lot interest priced better than the new round lot 

NBBO 28.49% of the time, and, in 48.49% of those cases, there are better priced odd-lots at multiple price 

levels). See also Proposing Release, 88 FR 3786 at 3792, n.94 (Jan. 20, 2023). 

35  The odd-lot rate is the total number of odd-lot trades divided by the total number of all trades. 

36  For example, odd-lot rates for corporate stock price deciles 1-3 (the lowest priced corporate stocks 

comprising 30% of all corporate stocks) have been higher on average in 2021, 2022, and Sep. 2023 (34%, 

34%, 34%) as compared to 2019 and 2020 (23%, 27%). Similarly, exchange-traded products (“ETPs”) also 

exhibit higher average odd-lot rates in price quartiles 1 and 2 (the lowest priced ETPs comprising 50% of 

all ETPs) on average in 2021, 2022, and Sep. 2023 (26%, 28%, 28%) compared to 2019 and 2020 (19%, 

22%). Analysis has been updated based on MIDAS, available at https://www.sec.gov/opa/data/market-

structure/marketstructuredownloadshtml-by_decile_and_quartile. See also Proposing Release, 88 FR 3786 

at 3792, n.95 (Jan. 20, 2023). 

37  See Proposing Release, 88 FR 3786 at 3792, n.91-92 (Jan. 20, 2023). See also id. at 3840, n.619-622 and 

accompanying text (estimating, based on analysis of Tick Size Pilot data, coverage of current Rule 605 

reporting requirements). 

38  See id. at 3841 (Figure 3) (describing analysis comparing one market center’s volume (NYSE) to TAQ data 

that showed that an estimated 50% of shares executed during regular market hours were included in Rule 

605 reports as of Feb. 2021, and showed that this number has been on a slightly downward trend since 

around mid-2012). 



12 

of very different notional values, which might have complicated comparisons of aggregate 

execution quality. Finally, the speed of trading in the market has increased exponentially since 

2000,39 rendering the 1 second timestamp conventions of preexisting Rule 605 less informative. 

Moreover, since the adoption of Rule 605, the Commission and its staff have continually 

assessed market events and their impact on market structure, with much of this effort aimed at 

achieving enhanced transparency for investors.40 In 2010, the Commission issued a Concept 

Release on Equity Market Structure seeking public comment on, among other things, the metrics 

for assessing the performance of the current market structure and the effectiveness of tools such 

as Rule 605 reports to protect investor interests.41 In 2015, the Commission formed the Equity 

Market Structure Advisory Committee (“EMSAC”), which considered issues related to 

Regulation NMS and equity market structure.42 The EMSAC recommended that the Commission 

 

39  Analysis of data from the SEC’s MIDAS analytics tool shows that the percent of on-exchange NMLOs that 

are fully executed within 1 millisecond (as a percentage of all fully executed on-exchange NMLOs) has 

increased from 2.1% in Q1 2012 to 11.7% in Q1 2023 for small cap stocks, and from 5.9% in Q1 2012 to 

14.0% in Q1 2023 for large cap stocks. Further, in Q1 2023 nearly half (48.0%) of NMLOs executed in less 

than 1 second in large market capitalization stocks. See dataset “Conditional Cancel and Trade 

Distribution,” available at https://www.sec.gov/marketstructure/downloads.html. See also infra notes 1216-

1217 and accompanying text. See also Proposing Release, 88 FR 3786 at 3792, n.98 (Jan. 20, 2023). 

40  For example, since the adoption of Rule 605 in 2000, the Commission has periodically revised certain of its 

NMS rules, including the adoption of Regulation NMS in 2005. See, e.g., Regulation NMS Adopting 

Release, 70 FR 37496 (June 29, 2005); and MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 

41  See Concept Release on Equity Market Structure, 75 FR 3594 at 3605 (Jan. 21, 2010). 

42  The archives of these meetings are available at https://www.sec.gov/spotlight/emsac/emsac-archives.htm. 



13 

amend Rule 605 to modernize it and increase the usefulness of available execution quality 

disclosures.43 In addition, one broker-dealer petitioned the Commission to amend Rule 605.44 

In 2018, the Commission modified Rule 606, which requires broker-dealers to disclose 

the identity of market centers to which they route orders on behalf of customers.45 Rule 

606(a)(1), which focuses on held orders,46 requires broker-dealers to produce quarterly public 

reports regarding their routing of non-directed orders47 in NMS stocks that are submitted on a 

held basis and these reports include the identity of regularly used venues, the percentage of 

orders routed to each venue, and information about the broker-dealer’s relationship with each 

venue.48 When adopting the 2018 Rule 606 Amendments, the Commission identified intensified 

competition for customer orders, the rise in the number of trading centers, and the introduction of 

new fee models for execution services as the main concerns with held orders for NMS stocks that 

it sought to address with the proposal.49 The Commission adopted enhanced public disclosures 

 

43  See Transcript from EMSAC Meeting (Aug. 2, 2016), available at 

https://www.sec.gov/spotlight/emsac/emsac-080216-transcript.txt (“EMSAC I”); Transcript from EMSAC 

Meeting (Nov. 29, 2016), available at https://www.sec.gov/spotlight/equity-market-structure/emsac-

transcript-112916.txt (“EMSAC II”); EMSAC Recommendations Regarding Modifying Rule 605 and Rule 

606 (“EMSAC III”), Nov. 29, 2016, available at https://www.sec.gov/spotlight/emsac/emsac-

recommendations-rules-605-606.pdf. 

44  See Letter from Virtu Financial re Petition for Rulemaking to Amend SEC Rule 605 (Sept. 20, 2021) 

(“Virtu Petition”), available at https://www.sec.gov/rules/petitions/2021/petn4-775.pdf. 

45  The amendments to Rule 606 in 2018 (“2018 Rule 606 Amendments”) also modified Rule 605 to require 

that the public order execution quality reports be kept publicly available for a period of three years. See 

2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018). 

46  See supra note 4 (discussing held and not held orders). 

47  A “non-directed order” means any order from a customer other than a directed order. See final 17 CFR 

242.600(b)(66). A “directed order” means an order from a customer that the customer specifically 

instructed the broker or dealer to route to a particular venue for execution. See final 17 CFR 

242.600(b)(32). 

48  See 17 CFR 242.606(a)(1). Held orders are typically used by individual investors. See, e.g., 2018 Rule 606 

Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018) (stating that retail investors’ orders are 

typically submitted on a held basis and are typically smaller in size). 

49  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018).  



14 

pursuant to Rule 606(a)(1) that focused on increased transparency for the financial inducements 

that broker-dealers face when determining where to route held order flow.50 The Commission 

also adopted Rule 606(b)(3) to require detailed, customer-specific order handling disclosures that 

can be requested by a customer that places, directly or indirectly, one or more orders in NMS 

stocks that are submitted on a not held basis.51 

At the time of the 2018 Rule 606 Amendments, the Commission considered suggestions 

from the EMSAC and other commenters that the Commission include more or different 

execution quality statistics in the required disclosures.52 But the Commission stated that the 

enhancements to Rule 606(a) that it was adopting were 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 customer orders and how their broker-dealers manage those potential conflicts.53 

The Commission further stated the limited modifications being adopted at that time were 

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, and that the 

suggested execution quality statistics were not necessary to achieve that goal.54 However, the 

 

50  See id. at 58373. 

51  See 17 CFR 242.606(b)(3); 2018 Rule 606 Amendments Release, 83 FR 58338 at 58345 (Nov. 19, 2018) 

(stating that by using the not held order distinction, Rule 606(b)(3) as adopted will likely result in more 

Rule 606(b)(3) disclosures for order flow that is typically characteristic of institutional customers—not 

retail customers—and will likely cover all or nearly all of the institutional order flow). 

52  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). See also Proposing 

Release, 88 FR 3786 at 3790, n.66 (Jan. 20, 2023) and accompanying text. 

53  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). 

54  See id. The Commission further stated that the amendments to Rule 606 provide an appropriate level of 

insight into the widespread financial arrangements between broker-dealers and execution venues that may 

affect broker-dealers’ order routing decisions. See id. 



15 

Commission stated that its determination not to adopt the additional specific disclosures was not 

an indication that the Commission had formed a decision on the validity or usefulness of the 

suggested execution quality statistics.55 

Separately, each broker-dealer has a legal duty to seek to obtain best execution of 

customer orders.56 The duty of best execution requires broker-dealers to execute customers’ 

trades at the most favorable terms reasonably available under the circumstances.57 When 

adopting Rules 605 and 606, the Commission stated that these rules do not address and therefore 

do not change the existing legal standards that govern a broker-dealer’s duty of best execution.58 

The Commission recognized that the information contained in the Rule 605 reports (and Rule 

606 reports) will not, by itself, be sufficient to support conclusions regarding a broker-dealer’s 

compliance with its legal responsibility to obtain the best execution of customer orders.59 As the 

Commission stated, any such conclusions would require a more in-depth analysis of the broker-

 

55  See id. 

56  See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537 (June 29, 2005); Newton v. Merrill, 

Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525 U.S. 811 

(1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900, 53 SEC 

1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 

SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). In addition, the 

Commission has separately proposed a rule concerning broker-dealers’ duty of best execution. See 

Securities Exchange Act Release No. 96496 (Dec. 14, 2022), 88 FR 5440 (Jan. 27, 2023) (“Regulation Best 

Execution Proposing Release”). See also Proposing Release, 88 FR 3786 at 3790, n.69 (Jan. 20, 2023). 

57  See Regulation NMS Adopting Release, 70 FR 37496 at 37538 (June 29, 2005) (referring to the best 

reasonably available price and citing Newton, 135 F.3d at 266, 269-70, 274). Newton also specified certain 

other factors relevant to best execution—order size, trading characteristics of the security, speed of 

execution, clearing costs, and the cost and difficulty of executing an order in a particular market. See 

Newton, 135 F.3d at 270, n.2. See also Proposing Release, 88 FR 3786 at 3791, n.70 (Jan. 20, 2023). 

58  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75420 (Dec. 1, 2000). 

59  See id. 



16 

dealer’s order routing practices than will be available from the disclosures required by the 

rules.60 

B. Overview of the Proposal and Comments Received 

In acknowledgment of the myriad changes to the securities markets since the adoption of 

Rule 605 more than two decades ago, the proposed amendments to Rule 605 sought to ensure the 

continued transparency and utility of the execution quality statistics required by Rule 605. The 

Commission proposed to amend Rule 605 by expanding the scope of reporting entities to include 

broker-dealers with a larger number of customers (“larger broker-dealers”).61 The Commission 

also proposed to modify the set of required data to capture execution quality information for 

more order types and sizes, require time-based execution statistics to be at a more granular level, 

and enhance the utility of the statistics.62 The Commission further proposed to require that 

reporting entities provide a report of summary execution quality statistics, in addition to the more 

detailed reports.63  

 

60  See id. For example, the execution quality statistics included in Rule 605 do not encompass every factor 

that may be relevant in determining whether a broker-dealer has obtained best execution, and the statistics 

in a market center’s reports typically will reflect orders received from a number of different routing broker-

dealers. See id. See also infra notes 1097-1098 and accompanying text for discussion of an investment 

adviser’s fiduciary duty, including the duty to seek best execution of a client’s transactions where the 

investment adviser has the responsibility to select broker-dealers to execute client trades. See also 

Proposing Release, 88 FR 3786 at 3791 (Jan. 20, 2023). 

61  See Proposing Release, 88 FR 3786 at 3796-3801 (Jan. 20, 2023). Throughout the release, the term “larger 

broker-dealer” refers to a broker-dealer that meets or exceeds the “customer account threshold,” as defined 

in final Rule 605(a)(7). See also infra section II.A. 

62  See Proposing Release, 88 FR 3786 at 3804-22 (Jan. 20, 2023). 

63  See id. at 3823-25. 



17 

The Commission received numerous comment letters in response to the Proposing 

Release, a large portion of which were from individual investors.64 Many commenters supported 

updating the disclosures required by Rule 605.65
 Several commenters, including industry groups, 

broker-dealers, financial services firms,66 and investor advocacy groups, suggested clarifications 

or changes to the scope of reporting entities and to certain proposed metrics included in the 

detailed report or summary report.67 Other commenters broadly supported the more detailed 

recommendations of other commenters.68  

 

64  The Commission received comments from a wide range of market participants, including individual 

investors, broker-dealers, academics, securities industry groups, national securities exchanges, and investor 

advocacy groups. Comments received on the Proposing Release are available on the Commission’s 

website, available at https://www.sec.gov/comments/s7-29-22/s72922.htm. 

65  See, e.g., letters from: Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Mar. 

31, 2023) (“SIFMA Letter II”) at 2; Stephen John Berger, Managing Director, Global Head of Government 

and Regulatory Policy, Citadel Securities (Mar. 31, 2023) (“Rule 605 Citadel Letter”) at 1; Stephen W. 

Hall, Legal Director and Securities Specialist, Better Markets, Inc. (Mar. 31, 2023) (“Better Markets 

Letter”) at 1-2. 

66  As used in this release, “financial services firm” refers to an entity that includes multiple types of affiliated 

entities providing financial services, including broker-dealers, investment advisers, or banks.  

67  See, e.g., SIFMA Letter II at 27-28; and letters from: Howard Meyerson, Managing Director, Financial 

Information Forum (Mar. 31, 2023) (“FIF Letter”) at 2-5; Tyler Gellasch, President and CEO, Healthy 

Markets Association (Mar. 31, 2023) (“Healthy Markets Letter”) at 16-18; Douglas A. Cifu, Chief 

Executive Officer, Virtu Financial, Inc. (Mar. 30, 2023) (“Virtu Letter II”) at 10-12. These and other 

comment letters discussing the scope of reporting entities and proposed metrics included in the detailed 

report or summary report are described infra throughout this release. 

68  See, e.g., Rule 605 Citadel Letter at 5; and letters from: Ryan Kwiatkowski, Chairman of the Board, and 

James Toes, President & CEO, Security Traders Association (Apr. 3, 2023) (“STA Letter”) at 4-5; Derrick 

Chan, Head of Equities, Fidelity Capital Markets (Mar. 31, 2023) (“Fidelity Letter”) at 2, 8; Naureen 

Hassan, President, UBS Americas, Robert Karofsky, President, UBS Investment Bank, and Suni Harford, 

President, UBS Asset Management, UBS (Mar. 31, 2023) (“UBS Letter”) at 2; Tim Gately, Managing 

Director, Head of Equities Sales, Americas, Citigroup Global Markets Inc. (Mar. 31, 2023) (“CGMI 

Letter”) at 1-2, 3; Jason Clague, Managing Director, Head of Operations, The Charles Schwab Corporation 

(Mar. 31, 2023) (“Schwab Letter II”) at 2, 30, 33. These and other comment letters discussing the 

recommendations of other commenters are described infra throughout this release. Several individual 

investors stated that in Dec. 2022, FINRA and the Commission sent out risk alerts regarding a lack of 

compliance with reports pursuant to Rule 606 of Regulation NMS and that “one would suspect that brokers 

will be as non-compliant with the new 605 reports.” Letter Type D; Letter Type E; and Letter Type H at 

https://www.sec.gov/comments/s7-29-22/s72922.htm. The Commission will monitor the implementation of 

the amendments to Rule 605. 



18 

One industry group recommended that the Commission reissue the proposed rule after 

incorporating comments from it and other market participants “to ensure that the final rule 

achieves the Commission’s intended purpose and allow market participants to identify additional 

enhancements.”69 A broker-dealer stated that the Commission should provide market participants 

the opportunity to review and comment on such a revised proposal prior to finalization.70 The 

Commission does not agree with these commenters. Delaying the adoption of a final rule, and 

thereby delaying the benefits of Rule 605, is not warranted. The Commission has reviewed and 

carefully considered the extensive comment file,71 which included input from a broad array of 

market participants, and as discussed below, has made certain changes in response to these 

comments.72 For these reasons, re-proposal of the Rule 605 amendments is not necessary. 

Contemporaneously with the proposal to modify Rule 605, the Commission issued three 

other proposals related to separate aspects of equity market structure and Regulation NMS.73 A 

 

69  Letter from Howard Meyerson, Managing Director, Financial Information Forum (June 22, 2023) (“FIF 

Letter II”) at 11. See also letter from Howard Meyerson, Managing Director, Financial Information Forum 

(Feb. 14, 2024) (“FIF Letter III”) at 2, 5. 

70  See letter from Stephen John Berger, Managing Director, Global Head of Government & Regulatory 

Policy, Citadel Securities (Dec. 5, 2023) (“Equity Market Structure Citadel Letter II”) at 3. 

71  The Commission voted to issue the Proposing Release on Dec. 14, 2022. The release was posted on the 

Commission’s website that day, and comment letters were received beginning the same day. The comment 

period closed on Mar. 31, 2023. The Commission has considered comments received since Dec. 14, 2022. 

72  In addition, as discussed above, the EMSAC and commenters responding to the Commission’s Concept 

Release on Equity Market Structure and to the 2018 Rule 606 Amendments recommended that the 

Commission update Rule 605 and one broker-dealer petitioned the Commission to amend the Rule. See 

supra notes 40-44, 52, and accompanying text. The Commission considered these suggestions when 

proposing amendments to Rule 605. See Proposing Release, 88 FR 3786 at 3792-95 (Jan. 20, 2022).  

73  See Regulation Best Execution Proposing Release, 88 FR 5440 (Jan. 27, 2023) (proposing rule that would 

establish Commission rule-based best execution standards); and Securities Exchange Release Nos. 96494 

(Dec. 14, 2022), 87 FR 80266 (Dec. 29, 2022) (“Minimum Pricing Increments Proposing Release”) 

(proposing amendments to Regulation NMS to reduce minimum pricing increments, add a minimum 

trading increment, reduce access fee caps, improve transparency of exchange fees and rebates, and enhance 

the transparency of market data infrastructure); 96495 (Dec. 14, 2022), 88 FR 128 (Jan. 3, 2023) (“Order 

Competition Rule Proposing Release”) (proposing rule that would enhance competition for the execution of 

marketable orders of individual investors). 



19 

number of commenters provided comments on all four proposals jointly.74 Some commenters 

requested that the Commission publicly release anonymized subsets of CAT data used in 

connection with the tables and figures in the proposals’ economic analyses.75  

The Commission is not releasing anonymized subsets of CAT data used in connection 

with the proposals, including CAT data used in connection with data and figures in the Proposing 

 

74  See, e.g., SIFMA Letter II (Mar. 31, 2023); Equity Market Structure Citadel Letter II (Dec. 5, 2023); and 

letters from: Michael Blaugrund, Chief Operating Officer, NYSE Group, Inc., Jason Clague, Managing 

Director, Head of Operations, Charles Schwab & Co., and Joseph Mecane, Head of Execution Services, 

Citadel Securities (Mar. 6, 2023) (“NYSE, Schwab, and Citadel Letter”); Christopher A. Iacovella, 

President & Chief Executive Officer, American Securities Association (Mar. 31, 2023) (“American 

Securities Association Letter II”); Hope Jarkowski, General Counsel, NYSE Group, Inc. (Mar. 31, 2023) 

(“NYSE Letter”); Stephen John Berger, Managing Director, Global Head of Government & Regulatory 

Policy, Citadel Securities (Mar. 31, 2023) (“Equity Market Structure Citadel Letter”); Jason Clague, 

Managing Director, Head of Operations, The Charles Schwab Corporation (Mar. 22, 2023) (“Schwab 

Letter”); Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative (Mar. 24, 2023) (“Modern 

Markets Initiative Letter”); Joanna Mallers, Secretary, FIA Principal Traders Group (Mar. 31, 2023) (“FIA 

PTG Letter II”); Peter D. Stutsman, Global Head of Equity Trading, and Timothy J. Stark, Head of Equity 

Markets and Transaction Research, The Capital Group Companies, Inc. (Mar. 31, 2023) (“Capital Group 

Letter”); Andrew Hartnett, NASAA President and Deputy Commissioner, Iowa Insurance Division, North 

American Securities Administrators Association, Inc. (Mar. 31, 2023) (“NASAA Letter”); David Howson, 

Executive Vice President, Global President, Cboe Global Markets, Nathaniel N. Evarts, Managing 

Director, Head of Trading, Americas, State Street Global Advisors, Kimberly Russell, Market Structure 

Specialist, Global SPDR Business, State Street Global Advisors, Mehmet Kinak, Global Head of Equity 

Trading, T. Rowe Price, Todd Lopez, Americas Head of Execution Services, UBS Securities LLC, and 

Douglas A. Cifu, Chief Executive Officer, Virtu Financial, Inc. (Mar. 24, 2023) (“Cboe, State Street, et al., 

Letter”); John A. Zecca, Executive Vice President, Global Chief Legal, Risk & Regulatory Officer, 

Nasdaq, Inc. (Mar. 30, 2023) (“Nasdaq Letter”); Jennifer W. Han, Executive Vice President, Chief Counsel 

& Head of Global Regulatory Affairs, Managed Funds Association (Mar. 30, 2023) (“Managed Funds 

Association Letter”); Jonathan Kanter, Assistant Attorney General, Antitrust Division, U.S. Department of 

Justice (Apr. 11, 2023) (“DOJ Letter”); Nathanial N. Evarts, Managing Director, Head of Trading, 

Americas, and Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global 

Advisors (Mar. 30, 2023) (“State Street Global Advisors Letter”); Michael Markunas, Deputy General 

Counsel, Chief Compliance Officer, B. Riley Securities, Inc. (Mar. 31, 2023) (“B. Riley Letter”). 

75  See, e.g., Virtu Letter at 1; Equity Market Structure Citadel Letter at 16-17; Schwab Letter II at 3-4 (“there 

is a distinct absence of economic data to support many aspects of the Proposals and to support the 

Commission’s analysis of costs versus benefits . . . CAT data is not publicly available and thus public 

commenters … do not have access to the very data on which the Commission relies”); and letters from: 

Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Feb. 8, 2023) (“SIFMA 

Letter”) at 3-4; Kristen Malinconico, Director, Center for Capital Markets Competitiveness, U.S. Chamber 

of Commerce (Mar. 31, 2023) (“Chamber of Commerce Letter”) at 2-3. Some of these commenters also 

requested that the Commission identify the specific broker-dealers whose Rule 605 and Rule 606 reports, 

which are publicly available, were used in the proposals. See, e.g., SIFMA Letter at 2; Virtu Letter at 1-2. 



20 

Release. The CAT database contains highly sensitive and granular market information.76 The 

Commission fully described in the Proposing Release and this Release the CAT data used, the 

methodology for analysis, and the results of its analyses. This provides notice of the 

Commission’s use and analysis of CAT data in support of this rulemaking.77  

Market participants, such as broker-dealers, may analyze their own order and transaction 

information as well as commercially available data and use this analysis to provide meaningful 

comment on the Proposing Release from their own perspectives.78 The level of aggregation that 

would be required to protect market and proprietary information so that it cannot be used, either 

itself, or with other commercially or publicly available information, to reverse engineer or 

otherwise reveal market participants’ identities, market positions, or trading strategies would also 

 

76  See, e.g., Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 at 56978 (Aug. 1, 

2012) (stating that maintaining the confidentiality of customer and other information reported to CAT “is 

essential” and that “[w]ithout adequate protections, market participants would risk the exposure of highly-

confidential information about their trading strategies and positions”); Securities Exchange Act Release No. 

84696 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (stating that a security breach involving CAT data 

could, among other things, “leak highly-confidential information about trading strategies or positions, 

which could be deleterious for market participants’ trading profits and client relationships” or “expose 

proprietary information about the existence of a significant business relationship with either a counterparty 

or a client, which could reduce business profits”).  

77  In addition, the Commission declines to provide the identities of the specific broker-dealers whose Rule 

606 reports were used in connection with the Proposing Release. See supra note 75. The reports themselves 

are publicly available and interested parties can analyze these reports using their own selection of broker-

dealers. As with the CAT data, the Commission has fully described in the Proposing Release the Rule 606 

data used, the methodology for analysis, and the results of its analyses. This information provides notice of 

the Commission’s use and analysis of Rule 606 data used in support of this rulemaking. 

78  For example, the SEC’s MIDAS analytics tool collects and processes data from the consolidated tapes as 

well as from the separate proprietary feeds made individually available by each equity exchange. See 

MIDAS: Market Information Data Analytics System, SEC, available at 

https://www.sec.gov/marketstructure/midas-system. See also letter from John Ramsay, Chief Market Policy 

Officer, Investors Exchange LLC (“IEX”) (Oct. 13, 2023) (“IEX Letter”) at 3 (stating that there are 

“myriad sources of information that . . . market participants draw on to consider how orders are handled 

and how markets compete with and compare to each other,” including NYSE TAQ data, other exchange 

proprietary and consolidated market data, and FINRA’s reports on off-exchange trading). See also, e.g., 

infra note 330 (FIF Letter) and accompanying text; notes 113-114 (Professor Christopher Schwarz, 

University of California Irvine, Professor Brad Barber, University of California, Davis, Professor Xing 

Huang, Washington University in St. Louis, Professor Philippe Jorion, University of California, Irvine, 

Professor Terrance Odean, University of California, Berkeley (Feb. 7, 2023) (“Professor Schwarz et al. 

Letter”)) and accompanying text.21 

mean that the dataset would be substantially dissimilar from the actual data used in the 

Commission’s analysis.  

In addition, several commenters suggested a sequencing of the equity market structure 

proposals, such that the Commission would implement the amendments to Rule 605 and evaluate 

the execution quality data from the updated reports, before undertaking further action on the 

remaining equity market structure proposals.79 One group of members of Congress 

recommended that no equity market structure rule “should be finalized or implemented” until the 

Commission “[c]onduct[s] a comprehensive cost-benefit analysis of the aggregate impact of 

[these rules] and seek[s] public comment on this analysis[,]” and proposes “a reasonable, 

workable, and staggered schedule for public comment on the adoption and implementation of the 

 

79  See, e.g., SIFMA Letter II at 2 (“[o]nce an amended Rule 605 is implemented, the Commission will have 

the data it needs to fully assess market quality and consider whether additional rulemaking is needed and 

how any such rulemaking should be designed”); Equity Market Structure Citadel Letter II at 1-3; NYSE, 

Schwab and Citadel Letter at 1-2; STA Letter at 4; Modern Markets Initiative Letter at 2; Cboe, State 

Street, et al. Letter dated Mar. 24, 2023 at 1-2; Managed Funds Association Letter at 2; T. Rowe Letter at 3; 

UBS Letter at 1-2; Virtu Letter II at 2; SIFMA Letter II at 11; Professor Schwarz et al. Letter at 5; and 

letters from Bill Foster, French Hill, Henry Cuellar, Bill Huizenga, Wiley Nickel, Andy Barr, Ritchie 

Torres, Ann Wagner, Brittany Pettersen, Dan Meuser, Josh Gottheimer, Mike Flood, Vicente Gonzalez, 

Byron Donalds, Mike Quigley, Michael V. Lawler, David Scott, Andrew R. Garbarino, Gregory W. Meeks, 

Monica De La Cruz, Sean Casten, Scott Fitzgerald, Bradley S. Schneider, Erin Houchin, Jim Himes, Young 

Kim, Steven Horsford, Ralph Norman, Gwen Moore, Tom Emmer, Marc Veasey, and Zach Nunn, United 

States House of Representatives (Sep. 26, 2023) at 2; Michelle Bryan Oroschakoff, Managing Director and 

Chief Legal Officer, LPL Financial (Mar. 31, 2023) (“LPL Financial Letter”) at 3-4; Chester Spatt, Pamela 

R. and Kenneth B. Dunn Professor of Finance, Tepper School, Carnegie Mellon University and former 

Chief Economist, U.S. Securities and Exchange Commission (2004-2007), Thomas Ernst, Assistant 

Professor of Finance, Smith School of Business, University of Maryland, Andrey Malenko, Professor of 

Finance, Carroll School of Management, Boston College, Jian Sun, Assistant Professor of Finance, Le 

Kong Chian School of Business, Singapore Management University (Nov. 29, 2023) (“Professor Spatt et 

al. Letter”) at 5; see also letter from Patrick McHenry, French Hill, Frank Lucas, Pete Sessions, Bill Posey, 

Blaine Luetkemeyer, Bill Huizenga, Ann Wagner, Andy Barr, Roger Williams, Tom Emmer, Barry 

Loudermilk, Alexander X. Mooney, Warren Davidson, John Rose, Bryan Steil, William Timmons, Ralph 

Norman, Dan Meuser, Scott Fitzgerald, Andrew R. Garbarino, Young Kim, Byron Donalds, Mike Flood, 

Michael V. Lawler, Zach Nunn, Monica De La Cruz, Erin Houchin, and Andy Ogles, United States House 

of Representatives (Sept. 26, 2023) (“McHenry et al. Letter”) at 2. But see IEX Letter at 5 (“the premise 

that Rule 605 updates must be a precondition to any other changes looks more like a calculated stall than an 

argument for careful, reasoned decision making”); letter from Stephen W. Hall, Legal Director and 

Securities Specialist, Better Markets, Inc. (Oct. 31, 2023) (“Better Markets Letter II”) at 5 (“argument that 

the Commission should first get more information is a delaying tactic designed to forestall meaningful 

reforms that are already clearly necessary and appropriate”). 



22 

proposals, considering their overlapping nature, significant compliance and operational burdens, 

and if they may be insurmountable for smaller or emerging firms.”80 As discussed below in the 

economic analysis, the Commission uses as a baseline the world as it exists today, including 

adopted rules but not proposed rules.81 Comments on how the adoption of the Rule 605 

amendments should affect the timing or sequence of the other equity market structure proposals 

will be considered if and when those rules are acted on. Similarly, because the effects of the final 

rule are measured against the existing regulatory baseline, which does not include rules that have 

not been adopted, the Commission does not agree that an additional analysis of the aggregate 

impact of the several equity market structure rules is necessary before the adoption of the Rule 

605 amendments.82 

The proposed amendments to Rule 605, as well as the costs and benefits of the proposed 

amendments, were detailed in the Proposing Release and received substantial public comment. 

The proposed amendments to Rule 605 received broad support from many commenters. The 

Commission has considered the comments received, updated its data analysis where needed, and, 

in some instances, has modified the proposal in response to comments received.  

 

80  See McHenry et al. Letter at 2. As discussed further below, Rule 605 as amended imposes reporting 

requirements only on market centers and larger broker-dealers that meet the customer account threshold 

(i.e., introduce or carry at least 100,000 customer accounts) and thus does not bring smaller or emerging 

firms within scope on the basis of their customer-facing broker-dealer business. The Commission addresses 

the impact of its rulemaking on smaller or emerging firms in its releases, including this release. See infra 

section IX.D.1.d)(1). Further, the Regulatory Flexibility Act (“RFA”) (5 U.S.C. 601 et seq.) requires 

Federal agencies, in promulgating rules, to consider the impact of those rules on small entities. See infra 

section X for further discussion of the Commission’s consideration of the impact of the amendments on 

small entities. 

81  See infra note 981. 

82  See id. The Order Competition Rule Proposing Release, the Regulation Best Execution Proposing Release, 

and the Minimum Pricing Increments Proposing Release mentioned by commenters remain at the proposal 

stage. To the extent that the Commission takes final action on any or all of those proposals, the baseline in 

each of those subsequent rulemakings will reflect the regulatory landscape that is current at that time. See 

also infra section IX.C.1.d). 



23 

C. Overview of Final Rule 605 

After reviewing the comments received and considering the recommendations from 

commenters,83 the Commission has determined to adopt the proposal with several modifications. 

In some cases, final amendments to Rule 605 add new data elements that provide additional 

context and information for both the detailed and summary execution quality reports. In adopting 

the final amendments to Rule 605, the Commission aims to provide individual investors, 

institutional customers, and broker-dealers with information that they can use to choose market 

centers or broker-dealers that align with their investment and execution objectives. Further, as 

with Rule 605 reports prior to these amendments,84 the Commission anticipates that third parties, 

such as academics and journalists, will also utilize the reported execution quality data for 

comparison purposes and analysis of market conditions. 

As discussed in section II (Modifications to Reporting Entities) below, the Commission is 

adopting the amendments to the scope of reporting entities largely as proposed, with a few 

modifications. The Commission is retaining in the adopted amendments to Rule 605 the 

proposed requirements that brokers and dealers introducing or carrying 100,000 or more 

customer accounts prepare Rule 605 reports and that separate reports be prepared for a firm’s 

broker-dealer activity and its market center activity. The Commission is also providing 

additional explanation of these requirements. The Commission has determined not to require 

market centers that operate a proposed qualified auction to prepare a separate report for covered 

orders received for execution in the qualified auction. The Commission is specifying that ATSs 

must prepare Rule 605 reports separately from their broker-dealer operators as proposed and is 

 

83  See, e.g., FIF Letter, SIFMA Letter II. 

84  See, e.g., supra note 16 (discussing studies by Boehmer et al. and Zhao & Chung). 



24 

also retaining the proposed requirement that a broker-dealer that operates an SDP prepare a 

separate report for activity specific to the SDP, but with a modified description of what 

constitutes an SDP. 

In addition, as discussed in section III (Modifications to Scope of Orders Covered and 

Required Information) below, the Commission is adopting amendments to the information 

required to be reported in the detailed report required by Rule 605(a)(1) with modifications from 

the proposal. The Commission is adopting amendments to the scope of covered orders largely as 

proposed, with changes to the coverage of orders with stop prices. The Commission is also 

revising the categorization by order size from the proposal to incorporate notional size buckets 

and whether an order is for less than a share, is an odd-lot, or is a round lot. With respect to the 

categorization by order type, the Commission is adopting the categorization of executable 

NMLOs as proposed, but is modifying the categorization of NMLOs priced at or better than the 

midpoint and adding more categories of immediate-or-cancel orders and more categories related 

to orders submitted with stop prices. The Commission is also adopting a timestamp convention 

of at least a millisecond as proposed, but eliminating the proposed statistics for median and 99th 

percentile time to execution in favor of utilizing more granular time-to-execution buckets. 

Further, the Commission is adopting the other required statistics for inclusion in the detailed 

report with several changes from the proposal, including: (1) adding realized spread statistics for 

more time intervals; (2) calculating effective spread and effective spread divided by quoted 

spread for marketable order types and NMLOs priced more aggressively than the midpoint only; 

(3) utilizing spread-based weighting to calculate effective spread divided by quoted spread; (4) 

adding statistics for average quoted spread, average midpoint, and cumulative notional size; (5) 

measuring size improvement at time of order receipt rather than time of execution, adding an 



25 

additional size improvement statistic focused on orders that can receive size improvement, and 

calculating these size improvement statistics for marketable order types and NMLOs priced more 

aggressively than the midpoint only; and (6) adding a relative fill rate statistic for NMLOs based 

on order executions occurring on national securities exchanges. 

Further, as discussed in section IV (Summary Execution Quality Report) below, the 

Commission is adopting a requirement for a summary report pursuant to Rule 605(a)(2), with 

several changes from the proposal. The Commission is changing the weighting of certain 

statistics and grouping orders into notional size buckets. The Commission is modifying the 

required statistics related to average order size in shares; share-weighted average percentage 

price improvement; and effective spread divided by quoted spread. The Commission is including 

additional metrics in the summary report for share-weighted average midpoint; share-weighted 

average notional size; average percentage quoted spread; and average percentage realized spread 

as calculated at two time horizons. The Commission also is requiring that the summary report be 

provided in an alternative format. 

Finally, as discussed in section V (Requirements for Making Rule 605 Reports Available 

to the Public) below, the Commission is adopting procedures for making the Rule 605 reports 

publicly available as proposed. 

 The Commission endeavors to ensure that investors are provided with timely and 

accurate information needed to make informed investment decisions, and the final amendments 

to Rule 605 reflect the Commission’s ongoing commitment to enhance transparency for 

investors. Facilitating the ability of the public to compare and evaluate execution quality among 

different market centers, brokers, and dealers, is an effective means of reconciling the need to 

promote both vigorous price competition and fair competition among market centers and broker-



26 

dealers, to the benefit of individual investors. Section 11A of the Exchange Act85 grants the 

Commission the authority to promulgate rules necessary or appropriate to assure the fairness and 

usefulness of information on securities transactions86 and to assure that broker-dealers transmit 

and direct orders for the purchase or sale of qualified securities in a manner consistent with the 

establishment and operation of a national market system.87 By requiring the uniform public 

disclosure of useful and accessible statistics, amended Rule 605 will better promote competition 

among market centers and broker-dealers on the basis of execution quality and ultimately 

improve the efficiency of securities transactions, consistent with the objectives of our national 

market system.88  

II. Modifications to Reporting Entities 

A. Larger Broker-Dealers 

1. Proposed Approach 

Prior to the adopted amendments, Rule 605 of Regulation NMS required only market 

centers, such as national securities exchanges, OTC market makers, and ATSs, to produce 

publicly available, monthly execution quality reports. The Commission proposed to expand the 

scope of entities that must prepare Rule 605 reports to include larger broker-dealers that 

introduce or carry at least 100,000 customer89 accounts. The Commission reasoned that the 

 

85  15 U.S.C. 78k-1. 

86  15 U.S.C. 78k-1(c)(1)(B). 

87  15 U.S.C. 78k-1(c)(1)(E). 

88  The national market system objectives of section 11A of the Exchange Act include the economically 

efficient executions of securities transactions; fair competition among brokers and dealers, among exchange 

markets, and between exchange markets and markets other than exchange markets; the availability of 

information on securities quotations and transactions; and the practicability of brokers executing investor 

orders in the best market. See 15 U.S.C. 78k-1(a)(1)(C). 

89  “Customer” means any person that is not a broker or dealer. See final 17 CFR 242.600(b)(28). 



27 

proposed expansion would “improve the usefulness of execution quality statistics, promote fair 

competition, and enhance transparency by providing investors with information that they could 

use to compare the execution quality provided by customer-facing broker-dealers.”90 As 

discussed further below, the proposed minimum reporting threshold of 100,000 customers was 

intended to balance the benefits of having broker-dealers produce execution quality statistics 

with the costs of implementation and continued reporting.91 

To implement this proposed expansion, the Commission proposed to insert references to 

“brokers” and “dealers” where prior Rule 605 referred to “market centers.”92 In addition, the 

Commission proposed to revise the definition of “covered order” in prior Rule 600(b)(22), which 

referred to any market order or any limit order (including immediate-or-cancel orders) “received 

by a market center,”93 to refer to orders “received by a market center, broker, or dealer.”94  

Proposed Rule 605(a)(7) stated that a broker or dealer that is not a market center shall not 

be subject to the requirements of Rule 605 unless that broker or dealer introduces or carries 

100,000 or more customer accounts through which transactions are effected for the purchase or 

sale of NMS stocks (the “customer account threshold”).95 As explained in the Proposing Release, 

the Commission analyzed available data to determine the proposed customer account threshold 

 

90  Proposing Release, 88 FR 3786 at 3795 (Jan. 20, 2023). 

91  See id. at 3797. 

92  See id. at 3796 (discussing amendments to Rule 605 in proposed Rule 605 introductory text, (a) heading, 

(a)(1) introductory text, (a)(1)(i)(D), and (a)(3), (4), (5), and (6)). 

93  Prior 17 CFR 242.600(b)(22).  

94  See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); proposed Rule 605(b)(30). The Commission 

also proposed to require all market centers and broker-dealers that would be subject to Rule 605’s reporting 

requirements to produce summary reports with aggregated execution quality information. See infra section 

IV for further discussion of the summary report. 

95  See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). 



28 

given the additional costs that broad expansion of the rule to broker-dealers would entail.96 

Utilizing a 100,000 customer account threshold as proposed would allow the Rule 605 reporting 

requirements to capture those broker-dealers that introduce or carry the vast majority of customer 

accounts, while subjecting only a relatively small percentage of broker-dealers that accept 

customer orders for execution to the reporting obligation and excluding those broker-dealers that 

introduce or carry fewer customer accounts.97  

The proposed customer account threshold also required brokers-dealers to include in their 

calculations the public customer accounts that they introduce, as well as the customer accounts 

that they carry.98 Because an introducing broker-dealer may use an omnibus clearing 

arrangement and not disclose certain information about its underlying customer accounts to the 

clearing firm, the Commission proposed that, for purposes of Rule 605, a broker or dealer that 

utilizes an omnibus clearing arrangement for any of its underlying customer accounts would be 

considered to carry such underlying customer accounts when calculating the number of customer 

accounts that it introduces or carries.99  

 

96  See id. at 3797, 3886-87. 

97  See id. (discussing analysis of the estimated number of broker-dealers that would be subject to Rule 605 

reporting requirements according to different definitions of the customer account threshold). See infra note 

146 and accompanying text for a discussion of an updated analysis. 

98  See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). An introducing broker-dealer is a broker-

dealer that has a contractual arrangement with another firm, known as the carrying or clearing firm, under 

which the clearing/carrying firm agrees to perform certain services for the introducing firm. Usually, the 

introducing firm transmits its customer accounts and customer orders to the clearing/carrying firm, which 

executes the orders and carries the account. See Securities Exchange Act Release No. 31511 (Nov. 24, 

1992), 57 FR 56973 at 56978 (Dec. 2, 1992) (Net Capital Rule). Alternatively, some broker-dealers utilize 

an “omnibus clearing arrangement,” where the clearing firm maintains one account for all customer 

transactions of the introducing firm, rather than a “fully disclosed introducing relationship.” In an omnibus 

arrangement, the clearing firm does not know the identity of the customers of the introducing firm, whereas 

in a fully disclosed arrangement, the clearing/carrying firm knows the names, addresses, securities 

positions, and other relevant data as to each customer. See id. at 56978, n.16. 

99  See Proposing Release, 88 FR 3786 at 3797-98 (Jan. 20, 2023); proposed Rule 605(a)(7). 



29 

Proposed Rule 605(a)(7) stated that any broker or dealer that meets or exceeds the 

customer account threshold and is also a market center shall produce separate reports pertaining 

to each function.100 Further, as proposed a broker-dealer is excluded from Rule 605’s reporting 

requirements only with respect to its customer-facing broker-dealer function (as opposed to its 

market center function, if applicable) if the number of customer accounts that it introduces or 

carries is less than the customer account threshold.101 However, under the proposal, a broker-

dealer that meets or exceeds the customer account threshold for the first time has a grace period 

of three calendar months before being required to comply with Rule 605’s reporting 

requirements.102  

Prior to the amendments, Rule 605 required that reporting entities calculate certain 

statistics based on the time of order receipt.103 Moreover, Regulation NMS defined “time of 

order receipt” based on the time an order was received by a market center for execution.104 In 

 

100  See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 

101  See id. at 3798-99. Proposed Rule 605(a)(7) stated that a broker or dealer that meets or exceeds the 

customer account threshold shall be required to produce reports pursuant to this section for at least three 

calendar months (“Reporting Period”). See id. at 3799. As proposed, the Reporting Period shall begin the 

first calendar day of the next calendar month after the broker or dealer met or exceeded the customer 

account threshold, unless it is the first time the broker-dealer had met or exceeded the customer account 

threshold. See id. Any time after a broker or dealer has been required to produce reports pursuant to this 

proposed section for at least a Reporting Period, if a broker or dealer falls below the customer account 

threshold, the broker or dealer shall not be required to produce a report pursuant to this paragraph for the 

next calendar month. See id. 

102  See id. at 3799. The Commission also proposed that after the three-calendar month grace period, the 

Reporting Period shall begin on the first calendar day of the fourth calendar month after the broker or 

dealer has met or exceeded the customer account threshold. See id. As proposed, a broker-dealer that 

crosses the customer account threshold for the first time is required to comply with the reporting 

requirements of Rule 605 for at least a Reporting Period, even if that broker-dealer falls below the customer 

account threshold during the grace period. See id. 

103  See, e.g., prior 17 CFR 242.605(a)(1)(ii)(D) (measuring, for shares executed with price improvement, the 

share-weighted average period from the time of order receipt to the time of order execution). 

104  See prior 17 CFR 242.600(b)(92). See also Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 

1, 2000) (“The definition [of ‘time of order receipt’] is intended to identify the time that an order reaches 

the control of the market center that is expected, at least initially, to execute the order.”). 



30 

conjunction with the proposed expansion of Rule 605 to cover larger broker-dealers, the 

Commission proposed to modify the definition of “time of order receipt” to specify that, in the 

case of a broker or dealer that is not acting as a market center, the time of order receipt is the 

time that the order was received by the broker or dealer for execution.105 

2. Final Rule and Discussion 

The Commission is adopting amendments to Rule 605 to include larger broker-dealers as 

proposed and addresses certain commenters’ questions below. These amendments will provide 

enhanced transparency to investors, allowing them to compare and evaluate execution quality 

among different customer-facing larger broker-dealers and promoting competition among these 

broker-dealers. As discussed in section II.A.2.a), the Commission is adopting the customer 

account threshold as proposed. In addition, as discussed in section II.A.2.b), the Commission is 

adopting as proposed the requirement that larger broker-dealers that are also market centers 

produce separate reports pertaining to each function. Finally, as discussed in section II.A.2.c), 

the Commission is adopting as proposed the requirement that all reporting entities, including 

larger broker-dealers, measure certain statistics from the time of order receipt.  

The Commission received comments from a variety of market participants on the 

proposed expansion to require larger broker-dealers to provide Rule 605 reports. Certain 

individual investors supported the proposed expansion of publicly available Rule 605 reports to 

include broker-dealers because this expansion would increase transparency and encourage 

 

105  See Proposing Release, 88 FR 3786 at 3799-800 (Jan. 20, 2023); proposed Rule 600(b)(109). The time that 

the order is received by the market center for execution should be the same as the time that the order is 

received by the broker-dealer for execution when the broker-dealer also acts as a market center for that 

order. 



31 

competition among broker-dealers.106 One such commenter stated that the proposal would: (1) 

require broker-dealers to provide more detailed information about the execution quality of their 

trades, including data on execution speeds, price improvements, and order routing practices, 

which would help retail investors “make more informed decisions about where to route our 

orders and which broker-dealers to work with”; (2) provide more data on execution quality that 

would “help level the playing field between individual investors and large institutional players 

who currently have an information advantage”; and (3) “encourage broker-dealers to compete on 

the quality of their executions, which would ultimately benefit all investors.”107 Two other 

individual investors supported the inclusion of broker-dealers and the proposed rule overall, 

stating that it would “provide a more detailed and comprehensive standard for broker-dealers to 

follow, resulting in consistently robust best execution practices.”108 In addition, an academic and 

an individual investor suggested expanding the Rule 605 reporting requirement to include all 

broker-dealers, rather than just larger broker-dealers.109 

For reasons similar to those offered by individual investors, financial services firms, 

industry groups, and a group of academics supported the proposed expansion of Rule 605 

 

106  See, e.g., letters from: Dylan Hodges (Dec. 27, 2022); Edward Murray (Dec. 26, 2022); Dr. Paul Pritchard 

(Dec. 27, 2022); Cody Welch (Mar. 7, 2023) (“Welch Letter”); Abanes (Mar. 3, 2023) (“Abanes Letter”); 

Ryan Macarthur (Feb. 24, 2023) (“Macarthur Letter”); David Genco, Jr. (Feb. 24, 2023) (“Genco Letter”). 

107  Letter from Caleb C. (Mar. 18, 2023). 

108  Letters from Justin West (Mar. 19, 2023); Ankit (Mar. 19, 2023). 

109  See letter from Aswin Joy (Mar. 7, 2023) (“Joy Letter”); letter from James J. Angel, Georgetown 

University (Mar. 31, 2023) (“Angel Letter”) at 2-3. See infra section II.A.2.a) for additional discussion 

about the scope of the broker-dealer reporting requirement. 



32 

reporting requirements to larger broker-dealers.110 One financial services firm stated that the 

proposed expansion would “fill a gap in coverage that currently obscures the order handling 

practices of many broker-dealers” because many customer-facing broker-dealers do not meet the 

definition of a market center and thus do not produce Rule 605 reports.111 This commenter stated 

that the customers of these broker-dealers are left without any “reliable way to evaluate and 

compare broker-dealer performance.”112 A group of academics that authored an academic 

working paper concerning the execution quality of market orders received from various broker-

dealers113 also submitted a comment letter supporting the proposed expansion and cited the need 

 

110  See Fidelity Letter at 9 (stating that expanding Rule 605 reporting requirements to new entities will provide 

greater transparency into execution quality differences and increase the ability to measure retail order 

outcomes in a competitive environment); letter from Gregory Davis, Managing Director and Chief 

Investment Officer, and Matthew Benchener, Managing Director, Personal Investor, The Vanguard Group, 

Inc. (Mar. 31, 2023) (“Vanguard Letter”) at 3 (stating that the proposal will increase transparency by 

empowering investors to compare execution quality across broker-dealers and make more informed 

decisions about their choice of broker-dealer); Healthy Markets Letter at 16 (stating that Rule 605 reports 

should cover large brokers that route orders for investors); Better Markets Letter at 5 (stating that the 

proposed expansion of entities subject to Rule 605 disclosures will help the public compare and evaluate 

execution quality among different market centers and broker-dealers, and thereby increase transparency of 

order execution quality, increase information available to both retail and institutional investors, and help 

promote competition among market centers and broker-dealers); Professor Schwarz et al. Letter at 2; and 

letter from John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Co-Chair, 

Committee on Capital Markets Regulation (Mar. 31, 2023) (“CCMR Letter”) at 14 (stating that the 

proposed expansion “will allow retail investors to determine the execution quality of their orders” and 

“would likely enhance competition among retail broker-dealers based on price improvement and overall 

execution quality”). 

111  See Vanguard Letter at 3. 

112  Id. at 3-4 (stating that requiring larger broker-dealers to make Rule 605 disclosures would address this 

coverage gap and give their customers a “direct line of sight into broker-dealer performance”). See also 

NASAA Letter at 5-6 (stating that the proposed expansion of reporting entities would “provide the public 

with a more comprehensive view of order execution quality across the national market system” and “allow 

brokerage customers to compare execution quality among different broker-dealers”). 

113  See Proposing Release, 88 FR 3786 at 3832, n.529 (Jan. 20, 2023) and accompanying text (citing 

Christopher Schwarz et al., The ‘Actual Retail Price’ of Equity Trades (Aug. 28, 2022)). 



33 

for improved public transparency based on their research.114 These commenters stated that, even 

if retail investors do not pay attention to broker-level disclosures about execution quality if the 

dollar cost to retail investors is low, such disclosures are likely to be scrutinized by brokers, 

leading to greater competition and ultimately better execution for retail investors.115 A broker-

dealer supported the proposed expansion to retail brokers, stating that it will make order 

execution quality, and the marketplace generally, more transparent to retail investors.116 This 

commenter also stated that, given the “highly competitive state of the current retail brokerage 

market,” it is not certain that the proposed enhancements to Rule 605 would improve execution 

quality for individual investors because outcomes for such investors could be “asymmetric.”117 

However, this commenter stated that to the extent that there are opportunities to optimize 

execution quality for individual investors, “empowering investors to compare execution quality 

 

114  See Professor Schwarz et al. Letter at 1-2 (strongly supporting the inclusion of large broker-dealers given 

their research study finding that shows economically and statistically significant price execution variation 

across brokers; the level of such differences was previously unknown to retail traders and a large portion of 

the financial industry). A group consisting of some of these academics submitted another comment letter in 

which they cited a more recent academic working paper regarding competition among wholesalers and 

stated that their results “emphasize the need for further price execution disclosure at the broker level.” 

Letter from Xing Huang, Philippe Jorion, and Christopher Schwarz (Dec. 12, 2023) (“Huang et al. Letter”) 

at 1 (attaching Xing Huang, Philippe Jorion, Jeongmin Lee & Christopher Schwarz, Who Is Minding the 

Store? Order Routing and Competition in Retail Trade Execution (Nov. 19, 2023)).  

115  See Professor Schwarz et al. Letter at 3. See also Better Markets Letter at 9-10 (stating that even though 

some retail investors may not read Rule 605 reports, these investors will benefit indirectly by virtue of 

enhanced disclosure that will “promote competition, improve regulatory oversight, and facilitate use by 

third-party researchers and academics” to expose problematic order routing and execution practices). 

116  See Virtu Letter II at 3. 

117  See id. at 9. This commenter stated that the proposal “may lead to changes in the equilibrium mix of 

customer types at each broker” because investors would migrate towards brokers that have better execution 

quality statistics. See id. at 9, n.24. This commenter explained that “order execution quality tends to be 

inversely related to the aggregate cost to provide liquidity to that broker’s customers’ orders because 

market makers are willing to provide more price improvement to orders that are less expensive to service.” 

Id. This commenter also stated that if the proposal “induces retail investors with more costly to service 

orders to move to brokers that previously had less costly to service orders, it could cause execution quality 

to worsen at the broker with previously less costly to service orders.” Id. 



34 

across retail brokers (and consequently to switch brokers based on this information) would be the 

most efficient and effective way to address these concerns.”118  

Some broker-dealers and financial services firms opposed the proposed expansion to 

include larger broker-dealers, citing costs and the risk of confusion, especially for individual 

investors.119 One such broker-dealer stated that retail customers are not asking for or seeking 

information at the level of granularity required by the proposed rule, stating that the potential risk 

of investor confusion seems disproportionate to the defined transparency benefits it may 

provide.120 Another commenter opposed the proposed expansion because the 605 reports are 

“overly complicated for the average investor” and may give a “false sense of comfort” about 

order execution practices and quality.121 

After considering the comments, the Commission is adopting the requirement for broker-

dealers that meet the 100,000 customer account threshold to produce Rule 605 reports, as 

proposed. To implement this requirement, the Commission also is adopting the related 

 

118  Id. at 9. 

119  See Robinhood Letter at 41-42 (stating that adding the proposed expansion to include larger broker-dealers 

is not realistically going to get usable execution quality information in the hands of individual investors 

because the voluminous data are in a format proven not to be particularly useful for them and that the 

Commission underestimates the costs for a type of report not generally prepared by broker-dealers that are 

not also market centers); letter from Seth A. Miller, President Advocacy & Administration, Cambridge 

Investment Research, Inc. (Mar. 31, 2023) (“Cambridge Letter”) at 7 (stating in its capacity as a broker-

dealer and investment adviser that the broad scope of the proposed inclusion of larger retail broker-dealers 

will impose significant costs and is “likely to lead to misaligned, misleading comparisons between totally 

different entities”); Schwab Letter II at 35 (stating that differences in certain execution statistics such as 

E/Q may be attributable to different business models across firms rather than actual differences in E/Q 

among comparable business models, and thus would create investor confusion rather than provide useful 

information); Tastytrade Letter at 4-5 (observing that the proposal will significantly increase the number of 

reported data points per ticker on approximately 10,000 NMS traded products, and expressing concern 

about the ability of customers to digest the additional “confusing and complicated” data points in Rule 605 

reports). 

120  See Tastytrade Letter at 4 (“While we agree in general that greater transparency results in a level playing 

field for retail customers, it seems counterproductive to do so in a manner that risks confusion.”).  

121  See letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Mar. 31, 2023) (“Data 

Boiler Letter”) at 27-28. 



35 

amendments to Rules 600 and 605.122 The Commission agrees with commenters who recognized 

the need for Rule 605 data pertaining to customer-facing larger broker-dealers. Larger broker-

dealer reporting will be useful in increasing the transparency of larger broker-dealers’ order 

execution quality so that investors have information available to compare and evaluate order 

execution quality and order routing practices among market centers and larger broker-dealers. As 

discussed further in section II.A.2.a) below, by limiting Rule 605 reporting requirements to 

larger-broker dealers that meet the customer account threshold only, Rule 605 will balance the 

benefits of broker-dealer reporting with the costs. 

The Commission disagrees with commenters’ concerns that larger broker-dealer 

reporting will be too confusing or misleading to investors, or will create a “false sense of 

comfort” about order execution practices and quality.123 Individual investor commenters 

expressed interest in receiving access to execution quality statistics pertaining to larger broker-

dealers because this increased transparency would allow individual investors to make more 

informed decisions and encourage competition among larger broker-dealers.124 Due to the 

expansion of Rule 605 reporting requirements to larger broker-dealers, customers of these 

broker-dealers, including individual investors, and other market participants will no longer need 

to make inferences about these broker-dealers’ execution quality based on a combination of 

 

122  See final 17 CFR 242.605(a)(7) (establishing the customer account threshold for larger broker-dealer 

reporting requirements, production of separate reports, and applicable Reporting Period). See also final 17 

CFR 242.605 (inserting references to “brokers” and “dealers” in introductory text, heading for (a), (a)(1) 

introductory text, (a)(1)(i)(E), and (a)(3), (4), (5), and (6)). See also final 17 CFR 242.600(b)(27) (inserting 

references to orders received by a “broker” or “dealer” in definition of “covered order”) and final 17 CFR 

242.600(b)(103) (specifying that the definition of “time of order receipt,” in the case of a broker or dealer 

that is not acting as a market center, is the time (at a minimum to the millisecond) that an order was 

received by the broker or dealer for execution). For further discussion of these amendments, see Proposing 

Release, 88 FR 3786 at 3796, 3798-99 (Jan. 20, 2023). 

123  See supra notes 119-121 and accompanying text. 

124  See supra notes 106-108 and accompanying text. 



36 

broker-dealers’ routing information contained in reports required by Rule 606 and market 

centers’ Rule 605 reports. Instead, customers will be able to use execution quality information 

contained in larger broker-dealers’ Rule 605 reports to make comparisons across these broker-

dealers and select those broker-dealers that offer better execution quality. The availability of 

information about larger broker-dealers’ execution quality also is expected to increase the extent 

to which these broker-dealers compete on the basis of execution quality when making their order 

routing decisions. Further, to the extent that broker-dealers increase the extent to which they 

route orders to the market centers offering better execution quality, increased liquidity at those 

venues may further improve execution quality, as a result of promoting the flow of orders to 

market centers that offer better execution quality. 

The stock-by-stock order execution information that will be provided in the detailed 

report will allow market participants, including individual investors familiar with data analysis, 

to make their own determinations about how to group stocks or orders when comparing 

execution quality information across broker-dealers. However, the Commission is mindful that 

the detailed report will contain a larger volume of statistical data and many market participants, 

including individual investors, may not have the means to directly analyze the detailed report. As 

discussed further below, the Commission is adopting a requirement that every market center, 

broker, or dealer produce a summary execution quality report in addition to the more detailed 

report required by Rule 605(a)(1).125 These summary reports will make available to market 

participants and other interested parties readily accessible, aggregated data that will allow them 

to compare some of the more significant aspects of the execution quality provided by specific 

 

125  See infra section IV.B. 



37 

market centers and larger broker-dealers. These summary reports will provide human-readable 

information that any investor, including individual investors, can assess without needing 

technical expertise or relying on an intermediary.126 Moreover, even individual investors that do 

not read Rule 605 reports from larger broker-dealers will benefit from independent analysts, 

consultants, broker-dealers, the financial press, or market centers analyzing and producing more 

digestible information using Rule 605 data.127 

One industry group stated that it remains unclear whether broker-dealers’ Rule 605 

reports would increase competition.128 This commenter stated its concern that producing Rule 

605 statistics without accounting for different broker-dealer business models could lead investors 

to make incorrect decisions regarding broker-dealer selection.129 This commenter further stated 

that differences in execution quality could be the result of a myriad of factors, including “the 

customers . . . different brokers serve and the equities the customers trade.”130 In response to this 

 

126  See infra section IV.B.2. For a discussion of comments regarding investor education or testing related to 

the summary reports, see infra section IV.B.3. As the new Rule 605 requirements, including the expansion 

of scope to include larger broker-dealers, are implemented, the Commission will consider whether there is a 

need for additional educational resources to assist investors. 

127  See infra notes 1075-1077 and accompanying text (discussing ways in which third parties have used Rule 

605 reports to produce information that is meant for public consumption). 

128  See SIFMA Letter II at 29. 

129  See id. at 30. This commenter also stated it does not understand on what basis the Commission believes 

that differences in business models are well-known by market participants, and particularly retail investors, 

for purposes of evaluating execution quality statistics. See id. (discussing Proposing Release, 88 FR 3786 at 

3800 (Jan. 20, 2023)). However, the Commission’s statement in the Proposing Release was made in 

specific reference to market participants’ use of Rule 605 reports to compare a market center and a broker-

dealer, rather than use of Rule 605 reports to compare broker-dealers with one another. The Commission 

agrees with the commenter that differences between broker-dealer business models may not be ex ante 

well-known to market participants. However, market participants, including individual investors, will be 

able to use the information in Rule 605 detailed reports and the Rule 605 summary reports to account for 

differences in broker-dealer order flow, and broker-dealers are not precluded from separately providing 

their customers with information that can be used to contextualize the information in the Rule 605 reports.  

130  See id. at 30 (stating that when pointing to potential shifts in order flow from one broker-dealer to another, 

the Commission does not account for any potential effects on execution quality caused by the shifting of 

the order flow itself or the potential for order flow to consolidate among a smaller number of firms, thereby 

reducing competition and ultimately hurting execution quality). 



38 

commenter, the Commission agrees that, as a result of different business models, a particular 

broker-dealer’s order flow may be made up of a different mixture of securities, order types, and 

order sizes, which may impact or constrain that broker-dealer’s overall execution quality level.131 

However, under these amendments, larger broker-dealers will be required to categorize the 

execution quality information required by Rule 605 by individual security, different types of 

orders, and different order sizes. Giving market participants access to this information in Rule 

605 reports will help ensure that they are able to control for these differences in order flow 

characteristics and make apples-to-apples comparisons when assessing and comparing execution 

quality information across broker-dealers.132 

An industry group suggested that the Commission allow firms an opportunity to provide 

a statement in their Rule 605 reports explaining how to contextualize the report based on the 

nature of the firm’s order flow.133 In addition, a broker-dealer suggested that the Commission 

permit retail brokers to provide background and contextual information to explain how their 

obligations are different from those of wholesalers or other market centers that currently report 

under Rule 605.134 The Commission is not adopting the suggestion to include a descriptive 

statement within the Rule 605 reports because it would be inconsistent with the structure of these 

reports, which are designed to be structured, standardized, machine-readable, quantitative 

 

131  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023). See also infra note 984 for an example of how 

differences in order flow characteristics may impact inferences about execution quality. For further 

discussion, see infra section IX.C.1.a). 

132  That some of the information contained in the summary execution quality report will be useful for 

controlling for differences across differences in order flow characteristics of broker-dealer was supported 

by comment. See, e.g., comments in support of including average notional order size and average realized 

spreads in the summary reports, discussed in infra section IV.B.1.b). 

133  See SIFMA Letter II at 31. 

134  See Virtu Letter II at 3-4. 



39 

disclosures.135 As the Commission stated in the original adopting release for Rule 605, Rule 605 

is intended to establish a baseline level of disclosure and facilitate cross-market comparisons of 

execution quality.136 Similarly, the adopted amendments to Rule 605 provide a baseline level of 

disclosure that all market centers and larger broker-dealers must meet. Rule 605 does not 

preclude larger broker-dealers from disclosing additional information concerning their order 

execution practices that they believe would provide useful context concerning the quality of their 

services on their websites or through other means of communication.137 

A broker-dealer recommended that rather than expanding Rule 605 to include larger 

broker-dealers, the Commission should update Rule 606, which already applies to nonmarket 

center broker-dealers, to require additional information regarding execution quality.138 In 

response to the commenter’s suggestion, the Commission considers the inclusion of larger 

broker-dealers in Rule 605 as adopted to be the preferable option. Although providing Rule 605 

data within an expanded version of the existing Rule 606 reports could result in lower 

compliance costs as a result of broker-dealers’ existing experience with preparing and filing Rule 

606 reports, many of the costs associated with the initial reporting of execution quality statistics 

would still be incurred by broker-dealers and therefore broker-dealers would not benefit from a 

significant reduction in compliance costs overall. Moreover, the format and frequency of the 

 

135  See Rule 605 NMS Plan at 2 (providing that the detailed report must be in standard, pipe-delimited ASCII 

format); final 17 CFR 242.605(a)(2) (providing that the summary report must be made available using the 

most recent version of the schema for CSV format and the associated PDF renderer). 

136  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). 

137  Any such statements will be subject to applicable securities laws and regulations. 

138  See Robinhood Letter at 42 (“Instead of unnecessarily imposing additional costs on the industry to create 

new Rule 605 reports that may not have the desired result of empowering investors to analyze broker-

dealers’ execution quality, the SEC should require broker-dealers that already publish Rule 606 reports … 

to add execution quality statistics to their Rule 606 reports.”). 



40 

Rule 606 reports differs because the data are more aggregated and the reports are issued 

quarterly.139 In contrast, Rule 605 reports are monthly and provide detailed, symbol-by-symbol 

data that will allow market participants and other users of the report to analyze the data and 

consider the execution quality that a broker-dealer provides for orders with specific 

characteristics. Further, while Rule 606 covers all brokers or dealers, subject to a de minimis 

exception, as described below, the customer account threshold will focus the Rule 605 reporting 

requirement on those larger broker-dealers for which the provision of Rule 605 data will include 

data for most of the customer accounts handled by broker-dealers and, therefore, will balance the 

benefits of broker-dealer reporting with the costs of reporting.140 

a) Customer Account Threshold 

An investor advocacy group and a national securities exchange specifically supported the 

proposed customer account threshold that would include in scope a broker or dealer that 

introduces or carries 100,000 or more customer accounts.141 An academic and an individual 

 

139  See supra notes 45-51 and accompanying text (discussing Rule 606(a)(1) reports that provide quarterly 

information about order routing and payment arrangements). 

140  See infra section II.A.2.a) (discussing the Commission’s analysis to support the adoption of the customer 

account threshold, which indicates that approximately 85 broker-dealers introduce or carry more than 

100,000 customer accounts and these broker-dealers together handle over 98% of customer accounts). See 

also infra section IX.E.5.b) (discussing a reasonable alternative to expand Rule 606 reporting 

requirements). 

141  See Healthy Markets Letter at 16, n.38; Nasdaq Letter at 43 (stating that the proposed customer account 

threshold “appears to balance the associated implementation costs on those broker-dealers that may provide 

the execution quality statistics with the greatest benefit”).41 

investor suggested that all broker-dealers should be required to submit Rule 605 reports.142 In 

contrast, a broker-dealer stated that it is not clear why it is necessary to include such a broad 

scope of larger broker-dealers.143 According to this commenter, the proposal would require larger 

retail broker-dealers to produce execution quality reporting and metrics that are identical to those 

required of securities exchanges and market makers, even if those broker-dealers do not direct 

client orders.144 

After considering the comments, the Commission is adopting the 100,000 customer 

account threshold, as proposed. The Commission’s analysis of available data on the number of 

broker-dealers that will meet the minimum reporting threshold of 100,000 customers confirmed 

that such threshold will balance the benefits of having broker-dealers produce execution quality 

statistics with the costs of implementation and continued reporting,145 given the smaller amount 

of benefits relative to costs that there would be if the Rule 605 reporting requirements extended 

to broker-dealers that introduce or carry a smaller number of customer accounts. Specifically, 

 

142  See Joy Letter; Angel Letter at 2-3 (stating that all broker-dealers should be required to show execution 

quality information, and that CAT could easily produce Rule 605 reports at low incremental cost). See also 

Robinhood Letter at 44-45 (recommending that, if the Commission decides to proceed with the proposed 

rule, it should require all broker-dealers to report under Rule 605, because the number of large broker-

dealers is relatively small (6.7% of all broker-dealers); the limited application of the rule would create an 

information gap about execution quality for investors that use smaller broker-dealers and new retail broker 

entrants). With respect to the commenter’s suggestion that CAT data could be used to produce Rule 605 

reports, see infra section V.B.2.b) for a discussion of the potential alternative to generate order execution 

quality reports using CAT data. 

143  See Cambridge Letter at 7 (“such breadth cannot be justified in light of the likely significant costs to be 

imposed on certain participants”). 

144  See id. 

145  See infra section IX.D.2.a)(1) for a discussion of the costs related to expanding the scope of Rule 605 

reporting entities. As discussed further below, broker-dealers that were not previously required to publish 

Rule 605 reports will incur initial costs to prepare and post Rule 605 reports for the first time, which may 

include developing any policies and procedures that may be needed to do so, and all broker-dealers will 

face ongoing costs to continue to prepare the reports each month. See also infra section IX.E.1.a) for a 

discussion about the estimated costs of utilizing a different number of customer accounts as the minimum 

reporting threshold. 



42 

this analysis indicates that approximately 85 broker-dealers introduce or carry more than 100,000 

customer accounts and these broker-dealers together handle over 98% of customer accounts.146 

The Commission is not subjecting all broker-dealers to Rule 605 reporting requirements, as 

suggested by certain commenters, because of the lower benefits relative to costs for broker-

dealers with a smaller number of customer accounts.147 Conversely, the Commission disagrees 

with the commenter that states that the scope of larger broker-dealers that will be required to 

provide Rule 605 reports is overbroad.148 The relative market-wide benefit of having a broker-

dealer prepare Rule 605 reports increases when the broker-dealer has more customers.149 The 

Commission’s updated analysis indicates that utilizing a lower customer account threshold, such 

as 10,000 customer accounts, would nearly triple both initial and ongoing costs for non-market 

 

146  Analysis from the Proposing Release was repeated regarding the estimated number of broker-dealers that 

will be subject to Rule 605 reporting requirements according to different definitions of the customer 

account threshold. See Proposing Release, 88 FR 3786 at 3886-87 (Jan. 20, 2023). For a description of how 

this analysis differs from the analysis in the Proposing Release, see infra note 1747. This updated analysis 

indicates that approximately 85 broker-dealers (or approximately 6.7% of customer-carrying broker-

dealers) introduce or carry more than 100,000 customer accounts and these broker-dealers together handle 

over 98% of customer accounts. See infra Table 13 for a cost-benefit analysis of different customer account 

thresholds that could be used to define “larger broker-dealer” and accompanying text for methodology. For 

example, approximately 244 broker-dealers introduce or carry more than 10,000 customer accounts and 

these broker-dealers together handle over 99% of customer accounts. Further, approximately 1,245 broker-

dealers introduce or carry at least 1 customer account.  

147  See infra section IX.E.1.a) (reducing the customer account threshold from 100,000 to 10,000 would almost 

triple both initial and ongoing costs); see also infra section IX.E.1.b) (discussing the alternative of requiring 

all broker-dealers to prepare Rule 605 reports).  

148  See supra notes 143-144 and accompanying text. It is unclear, and the commenter does not explain, why 

any of the required execution quality metrics will not be appropriate for reporting by a larger broker-dealer 

and the commenter does not suggest any alternative metrics. It is also unclear, and the commenter does not 

explain, how a Rule 605 report prepared by a retail broker will be less useful if the retail broker did not 

direct client orders. Even though the same underlying order may be reflected on multiple Rule 605 reports, 

the aggregated statistics within each report will provide different views of execution quality specific to the 

group of orders received by each reporting entity. Thus, a Rule 605 report prepared by a retail broker will 

allow that retail broker’s customers, as well as other market participants, to view the execution quality 

specific to those orders received by the specific retail broker.  

149  See Proposing Release, 88 FR 3786 at 3797, n.167 (Jan. 20, 2023) and accompanying text (discussing 

potential initial and ongoing costs that broker-dealers would incur as a result of the proposed amendments 

to Rule 605). 



43 

center broker-dealers (which are not otherwise subject to Rule 605’s reporting requirements) and 

yet would result in capturing only modestly more customer accounts than the 100,000 customer 

account threshold.150 The Commission’s updated analysis also indicates that utilizing a higher 

customer account threshold, such as 250,000 customer accounts, would lower costs but also 

decrease coverage of customer accounts and customer order originations.151 Thus, utilizing 

100,000 customer accounts as the adopted minimum reporting threshold will better balance the 

benefits of having broker-dealers produce execution quality statistics with the costs of 

implementation and reporting.  

The customer account threshold will require brokers-dealers to include in their 

calculations the customer accounts that they introduce, as well as the customer accounts that they 

carry. Rule 605 reports that reflect orders received from customer accounts that a broker-dealer 

introduces or carries will provide useful information to market participants because both 

introducing and carrying broker-dealers make decisions about where to route those orders and it 

will be helpful for customers to be able to evaluate the execution quality received as a result of 

those decisions. 

One industry group requested an exception from the Rule 605 reporting requirement for 

an introducing firm that routes all of its customer orders to its clearing firm, on a non-directed 

basis, where the clearing firm makes all routing decisions and the introducing firm does not 

 

150  See infra section IX.E.1.a) and Table 13 (demonstrating that, for example, reducing the customer account 

threshold from 100,000 to 10,000 would increase estimated initial and ongoing compliance costs from 

about $3.4 million and $4.4 million, respectively, to about $9.8 million and $12.6 million, respectively, 

while increasing the coverage of customer accounts by 1.4% and the coverage of customer order 

originations by 21%). See also infra notes 1749-1751 (discussing why lowering the customer account 

threshold to include these customers might not be particularly beneficial). 

151  See Table 13 (demonstrating that raising the customer account threshold to 250,000 would lower estimated 

initial and ongoing compliance costs to about $2.4 million and $3.1 million, respectively, while decreasing 

the coverage of customer accounts by 1.1% and the coverage of customer order originations by 55.7%). 



44 

receive payment for order flow (“PFOF”).152 This commenter explained that its request would 

reduce the reporting burden for smaller introducing firms.153 This commenter stated that, given 

its suggested conditions for the exception from reporting requirements that an introducing broker 

would be required to examine the clearing firm’s Rule 605 report and not have reason to believe 

the clearing firm’s report materially misrepresents the introducing broker’s order flow, the 

quality of the disclosure should not be impacted.154 A second industry group made a similar 

request for an exception from reporting for certain introducing broker-dealers, stating that when 

introducing broker-dealers send customer orders to a clearing broker that makes the routing 

decisions, the introducing broker may not be in the best position to generate Rule 605 reports.155 

The Commission considered these commenters’ suggestion that Rule 605 provide an 

exception for certain introducing broker-dealers, but is not adopting the suggested exception for 

the following reasons: (1) Rule 605 reports prepared by larger broker-dealers will provide market 

participants and other interested parties with information relevant to evaluating how relationships 

among broker-dealers may affect execution quality, and the payment of PFOF is not the only 

circumstance that leads to conflicted relationships between an introducing broker-dealer and its 

customers;156 (2) an introducing firm would not be able to determine whether or not its clearing 

 

152  See FIF Letter at 6. 

153  See FIF Letter II at 2. 

154  See id. 

155  See letter from William C. Thum, Managing Director and Assistant General Counsel, SIFMA AMG (Mar. 

31, 2023) (“SIFMA AMG Letter”) at 6. 

156  For instance, retail brokers potentially face conflicts of interest when making order routing decisions, 

including whether to route to a particular wholesaler. See infra section IX.C.4.a)(2). As an example, broker-

dealers face conflicts of interest when making routing decisions due to their own affiliation with market 

centers (e.g., if the broker-dealer operates its own ATS), from the presence of liquidity fees and rebates on 

some market centers, or from payments that some retail brokers receive from wholesalers to attract the 

order flow of their individual investor customers (i.e., PFOF). See infra notes 1300-1304 and 

accompanying text. 



45 

firm’s Rule 605 report materially misrepresents the introducing firm’s order flow without 

independently calculating its own execution quality statistics, and if the introducing firm needed 

to make these calculations to do this assessment, then any additional burden due to the 

requirement to prepare Rule 605 reports will be minimal; (3) different firms could have differing 

interpretations of how much variation there could be in execution quality statistics between an 

introducing firm and its clearing firm before the clearing firm’s Rule 605 report would 

“materially misrepresent” the introducing firm’s order flow; and (4) even if an introducing firm 

determined that it has no reason to believe that its clearing firm’s Rule 605 report materially 

misrepresents the introducing firm’s order flow, the introducing firm’s customers could consider 

certain differences between the execution quality statistics of the introducing firm and its 

clearing firm to be meaningful.157 

An industry group asked for clarification regarding how firms would calculate their 

number of customer accounts for purposes of the customer account threshold.158 In response, the 

Commission is providing the following guidance. First, the introducing broker-dealer generally 

should only count the institutional top-level account when an introducing broker-dealer that is 

 

157  In some instances, the same underlying order may be reflected on the Rule 605 reports provided by both an 

introducing firm and its clearing firm, but the separate reports will provide different views of execution 

quality specific to the group of orders handled by each broker-dealer. See also Proposing Release, 98 FR 

3786 at 3798 (Jan. 20, 2023).  

158  See FIF Letter at 5-6 (requesting clarifications on how a firm would calculate its number of accounts to 

determine whether it meets the customer account threshold in the following circumstances: 1) an 

introducing firm that is not a clearing firm, where the introducing firm establishes a top-level trading 

account for an institutional asset manager and the asset manager allocates trade executions to sub-accounts; 

2) a firm that has accounts for non-U.S. customers; 3) a firm that provides routing services for other broker-

dealers; and 4) a firm that has authorized an account to trade NMS stocks but that account has never traded 

an NMS stock or has not traded an NMS stock for an extended period of time). 



46 

not a clearing broker-dealer establishes a top-level account for an institutional asset manager.159 

The Commission recognizes that in such instances the introducing broker-dealer often utilizes an 

omnibus clearing arrangement and thus does not have specific knowledge of how many 

underlying accounts a top-level account may represent.160 Second, broker-dealers generally 

should count and only count the accounts for all of their customers that are authorized by their 

broker-dealers to trade NMS stocks, including non-U.S. customers. A focus on customers that 

are authorized to trade NMS stocks generally should align with the scope of Rule 605 reports 

because these reports relate to covered orders in NMS stocks.161 Third, broker-dealers that 

provide routing services for other broker-dealers could have customer accounts for that portion 

of their business and the routing broker-dealer generally should consider whether a top-level 

account pertains to customer orders and count only those top-level accounts that the routing 

broker-dealer introduces or carries that are associated with customer orders. Fourth, broker-

dealers generally should count only active customer accounts. Broker-dealers generally should 

consider customer accounts as active in the same manner as defined and reported in their 

Financial and Operational Combined Uniform Single (“FOCUS”) Reports on Form X-17A-5.162 

Consistent with their FOCUS reports, larger broker-dealers reporting under Rule 605 generally 

 

159  In this scenario as presented by the commenter, the asset manager submits orders using this top-level 

account and separately establishes multiple underlying accounts with the clearing broker-dealer to allocate 

trades post-execution. See id. at 5-6.  

160  See supra note 98 and accompanying text (discussing omnibus clearing arrangements in which the clearing 

firm does not know the identity of the customers of the introducing firm). Having an introducing broker-

dealer count the top-level account through which trading occurs is consistent with the approach for 

reporting transactions to the CAT. See FINRA CAT FAQ M4, available at https://catnmsplan.com/faq 

(stating that in scenarios involving managed accounts where an order may be placed in a master account 

with subaccount allocations made at a later time, the identifier representing the master/top account should 

be reported to CAT for transaction events requiring such identifier). 

161  See final 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(7). 

162  See Instructions to FOCUS Report – Form X-17A-5 at 2. 



47 

should count only active accounts that have a non-zero cash or securities balance at the end of 

the reporting period. Leveraging an existing classification of active accounts in these FOCUS 

reports generally should facilitate the identification of inactive accounts. 

b) Production of Separate Reports 

Two investor advocacy groups expressed their support for the proposed requirement that 

larger broker-dealers that are also market centers produce separate reports for each activity.163  

After considering the comments, the Commission is adopting the requirement that larger 

broker-dealers that are also market centers produce separate reports pertaining to each function, 

as proposed. As explained in the Proposing Release, requiring a firm to produce separate reports 

pertaining to its market center function and its broker-dealer function will allow market 

participants and other interested parties to view the firm’s execution quality from the perspective 

of how it operates in each of these separate roles.164  

An industry group stated that the proposed distinction between broker-dealer activity and 

market center activity in Rule 605 reports requires clarification and asked specific questions to 

clarify this distinction for purposes of grouping orders to prepare the separate reports.165 In 

 

163  See Healthy Markets Letter at 16 (“[B]rokers that are also market centers (including as OTC market 

makers) should be required to separately report their market center functions for all covered orders (e.g. 

ATS or SDP operations).”); Better Markets Letter at 5, n.12.  

164  See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 

165  See SIFMA Letter II at 28 (asking the following questions as to how a firm should group different 

transactions for Rule 605 separate reports: 1) “If a firm is an OTC market maker and introduces or carries 

100,000+ customer accounts, how should the firm determine which orders to report as broker-dealer trades 

versus those executed as a market center?”; 2) “If a firm engages in a mixed capacity trade involving both a 

portion executed as agent and a portion executed as principal, would this order need to be bifurcated 

between the two reports?”; 3) “If a firm trades in a riskless principal capacity, but the transaction was part 

of its internal broker-dealer business and not its OTC market making business, should the firm nonetheless 

attribute the riskless principal trade to its market center Rule 605 report? The Commission only discusses a 

market center engaging in riskless principal transactions, but it seems possible that a non-market center 

might transact on a riskless principal basis as well.”). 



48 

response, the Commission provides the following clarifications. First, a firm that is an OTC 

market maker and introduces or carries over 100,000 customer accounts (i.e., meets the customer 

account threshold for larger broker-dealers) generally should include in its Rule 605 report 

pertaining to its broker-dealer function all covered orders in NMS stocks that the firm’s broker-

dealer received for execution as part of its customer-facing line of business. The firm generally 

should include in its Rule 605 report pertaining to its market center function all covered orders in 

NMS stock that the firm received for execution that are the type of order for which the firm 

serves as an OTC market maker. The set of orders pertaining to a firm’s broker-dealer function 

may overlap with the set of orders pertaining to its market center function. The firm generally 

should include an order in both of its Rule 605 reports if its broker-dealer received the order 

from a customer and the firm also acts as a market center for that type of order. 

Second, a firm that engages in a mixed capacity trade (i.e., a trade involving both a 

portion executed as agent and a portion executed as principal) generally should include in its 

Rule 605 report pertaining to its broker-dealer function the entire covered order that it received 

for execution as part of its customer-facing line of business and subsequently executed in a 

mixed capacity. Based on the firm’s execution of a portion of the order as principal, as a general 

matter, the firm acts as an OTC market maker for that type of order and, because an OTC market 

maker falls within the definition of a “market center,”166 that portion of the order generally 

should be included in its report pertaining to its market center function. The firm’s execution of a 

portion of the order as agent generally should not be determinative of whether the firm acts as an 

OTC market maker for that type of order. The firm also generally should include in its Rule 605 

 

166  See final 17 CFR 242.600(b)(55). 



49 

report pertaining to its market center function the portion of the covered order that it executed as 

agent if it received the order for execution as an OTC market maker.167 Whether the firm 

received the entire covered order in its capacity as an OTC market maker (and thus as market 

center) or only a portion of the order in its capacity as an OTC market maker generally will 

depend on the types of orders for which it acts as an OTC market maker.168 

Third, a firm that trades in a riskless principal capacity with respect to a transaction 

handled by its non-market center, internal broker-dealer business rather than its OTC market 

making business generally should not need to include the transaction in its Rule 605 report 

pertaining to its market center function because this division of business lines suggests that the 

firm is acting in its capacity as a broker-dealer only. However, the firm generally should evaluate 

whether or not it acts as an OTC market maker in connection with its internal broker-dealer 

 

167  When a market center, broker, or dealer receives a covered order for execution, it may execute in part at the 

receiving market center, broker, or dealer and in part at an away venue, but the entire covered order will be 

included in the firm’s Rule 605 report. See final 17 CFR 242.605(a)(1)(i)(E) (requiring a market center, 

broker, or dealer to report the cumulative number of shares of covered orders executed at the receiving 

market center, broker, or dealer, excluding shares executed on a riskless principal basis) and final 17 CFR 

242.605(a)(1)(i)(F) (requiring a market center, broker, or dealer to report the cumulative number of shares 

of covered orders executed at any other venue). 

168  The Commission agrees with the previous guidance provided by the staff that the Rule 605 reporting 

requirement for market centers generally should apply to broker-dealers insofar as they act as a market 

center with respect to orders received from other persons. See Proposing Release, 88 FR 3786 at 3798, 

n.180 (Jan. 20, 2023) (citing Division of Market Regulation: Staff Legal Bulletin No. 12R (Revised), 

Question 4 (June 22, 2001), available at https://www.sec.gov/interps/legal/slbim12a.htm). The Commission 

provides the following example to illustrate. Assume that Firm A generally acts as an OTC market maker 

for XYZ stock. If Firm A receives an order for 100 shares of XYZ stock, it may choose to execute as 

principal 50 shares of XYZ stock that it holds in inventory and execute as agent the 50 shares of XYZ stock 

necessary to fill the entire order. Firm A generally would have received the entire 100-share order in its 

capacity as an OTC market maker, notwithstanding its execution of a portion of the order as agent. In 

contrast, Firm B acts as an OTC market maker for XYZ stock but not ABC stock. If Firm B receives an 

order for 50 shares of XYZ stock and an order for 50 shares of ABC stock, Firm B generally would have 

received the order for 50 shares of XYZ stock in its capacity as an OTC market maker, regardless of 

whether it executed those shares as principal or as agent. In this scenario, Firm B generally would not have 

received the order for 50 shares of ABC stock in its capacity as an OTC market maker and therefore 

generally would have received this order in connection with its broker-dealer function only.  



50 

business, in which case that portion of the business may be a market center and thus be required 

to be reported as such. 

A financial services firm requested clarification of whether a broker-dealer that 

principally facilitates the trading of fractional shares must publish a separate Rule 605 report as a 

market center.169 In response, the Commission clarifies that under the adopted amendments to 

Rule 605 a reporting entity must produce a separate Rule 605 report as a market center if it meets 

the definition of an “OTC market maker” and receives “covered orders” for execution in such 

capacity.170 As stated in the Proposing Release, as a general matter, a broker-dealer generally 

should categorize a customer’s submitted order for an NMS stock, whether it be for a fractional 

share, whole shares, or whole shares with a fractional share component, as a “held” order (and 

thus a covered order) if the customer reasonably expects its broker-dealer to attempt to execute 

such order immediately.171  

One group of academics suggested that the Commission require separate disclosures for 

each account type at each broker-dealer to reflect the observation that execution quality differs 

across platforms with different commission and PFOF structures.172 A group consisting of some 

of these academics also suggested that the Commission require separate disclosures of specific 

 

169  See Fidelity Letter at 9-10. 

170  See supra note 3 for the definition of “OTC market maker.” The term “covered order” is defined in final 17 

CFR 242.600(b)(27). As discussed above, a firm may act as an OTC market maker for certain types of 

orders only. For example, Firm C acts as an OTC market maker for fractional shares only. If Firm C 

receives an order for 51.25 shares of XYZ stock, it may execute as principal 0.25 shares of XYZ stock and 

execute as agent 51 shares of XYZ stock. Firm B generally would have received only the fractional share 

component of the order (i.e., 0.25 shares) in its capacity as an OTC market maker and therefore only the 

fractional share component generally should be included in Firm C’s Rule 605 report pertaining to its 

market center function. 

171  See Proposing Release, 88 FR 3786 at 3789, n.36 (Jan. 20, 2023). 

172  See Professor Schwarz et al. Letter at 5. See also Better Markets Letter at 5, n.14 (agreeing with this 

recommendation). 



51 

“broker-wholesaler pairs” consisting of a broker-dealer and each wholesaler to which the broker-

dealer routes orders from retail investors.173 A broker-dealer stated that execution quality 

metrics, including the proposed summary reports, would be more informative if Rule 605 reports 

differentiated between retail investors and professional customers because the nature of order 

flow and resulting execution quality may be quite different.174 Another broker-dealer stated that 

“each firm’s order flow is unique” and suggested that the Commission “consider the balance of 

this additional transparency of order flow” both: (1) “in the context of reporting fragmentation 

for trading venues that have built in segmentation (i.e., ATS with multiple pools or an exchange 

that has a continuous order book and a retail price improvement order book)”; and (2) “in the 

context of retail brokers where experience may be materially different within a broker-dealer 

(i.e., a retail broker chooses to offer retail customers different experiences within the same 

broker-dealer).” 

The Commission is not adopting these commenters’ suggestions that larger broker-

dealers be required to produce multiple reports that differentiate between account types, business 

segments, or routing destinations. Requiring larger broker-dealers to split their orders amongst 

multiple Rule 605 reports pertaining to their broker-dealer function would create additional 

implementation costs and potentially undercut the goal of having standardized reports that are 

comparable across entities. For instance, differences among how firms structure different 

 

173  See Huang et al. Letter at 1 (“[O]ur results suggest that disclosures for each broker-wholesaler pair should 

provide additional helpful information to monitor broker and wholesaler performance. This would allow 

within-broker comparisons of execution quality that are more meaningful than comparisons solely across 

brokers.”). 

174  See Rule 605 Citadel Letter at 8 (recommending that the Commission engage with market participants to 

appropriately define a retail order, such as by reference to an order or trade threshold and stating that forty 

trades per day would be inappropriately high). 



52 

business lines would pose challenges in ensuring that each firm is capturing order flow with 

similar characteristics in the same way, which could impede the comparability of reports. 

c) Time of Order Receipt 

One investor advocacy group stated that broker-dealers should be required to calculate 

time of order receipt based on when that broker-dealer received the order because, in the 

commenter’s view, the use of the time the order was received would show if there are order-

delays and thereby provide a useful metric for anyone examining order-routing latency across 

brokers.175 An industry group and a financial services firm suggested instead of the proposed rule 

text that broker-dealers should be required to calculate time of order receipt based on the time 

that the broker-dealer first routes the order.176 The industry group questioned whether execution 

metrics should be measured before or after the broker-dealer has applied risk controls and 

decided whether to reject the order.177 This commenter stated that current order management 

systems may not generate a timestamp for when risk controls have been applied and it would be 

costly to generate such markers.178 For this reason, this commenter suggested permitting a 

routing firm to use the time of its first route as the time of order receipt and stated that the time 

of first route would be consistent with the Staff frequently asked questions (FAQs) regarding 

 

175  See Healthy Markets at 16-17. 

176  See FIF Letter at 18-19; Schwab Letter II at 33; letter from Jason Clague, Managing Director, Head of 

Operations, The Charles Schwab Corporation (Sep. 28, 2023) (“Schwab Letter III”) at 5. 

177  See FIF Letter at 19. 

178  See id. 



53 

Rule 606.179 The financial services firm stated that Rule 605 reports for a non-market center 

should use the time of order routing, not the time of order receipt, because broker-dealers 

perform necessary review activities following receipt of the order but prior to routing the 

order.180 

After consideration of comments, the Commission is adopting the requirement that larger 

broker-dealers calculate time of order receipt based on the time that they received the initial 

order, as proposed.181 Time of order receipt, rather than order route time, is more relevant to 

customers of a broker-dealer because it will show how the broker-dealer handled the order from 

the time of receipt by the broker-dealer. Time of order receipt will show any delays in executing 

the order, and any resulting consequences on the execution quality the broker-dealer obtained for 

that order, because the execution quality statistics will be measured based on the prevailing 

market prices at the time the order was received. In addition, counting time of order receipt from 

the time that a broker-dealer initially receives the order will allow broker-dealers to assign a time 

of order receipt in a prompt and uniform manner and thus help to ensure that the time of order 

receipt is assigned in a non-manipulatory manner.182  

 

179  See id. (citing Rule 606 Staff FAQs, FAQ 11.01). Rule 606 Staff FAQs are available at: 

https://www.sec.gov/tm/faq-rule-606-regulation-nms. Staff reports, Investor Bulletins, and other staff 

documents (included those cited herein) represent the views of Commission staff and are not a rule, 

regulation, or statement of the Commission. The Commission has neither approved nor disapproved the 

content of these staff documents and, like all staff documents, they have no legal force or effect, do not 

alter or amend the applicable law, and create no new or additional obligations for any person. 

180  See Schwab Letter II at 33; Schwab Letter III at 5 (“The use of order receipt time rather than route time 

would result in some execution quality statistics like execution speed not being fairly represented in the 

reports due to outliers caused by market access review activities.”). 

181  See final 17 CFR 242.600(b)(103). 

182  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000) (discussing a commenter’s 

concern that a market center might attempt to manipulate the time of receipt for its order flow by, for 

example, monitoring market movements before and/or after receipt of any order and assigning the NBBO 

that is most favorable to them during that brief option period). 



54 

A financial services firm that suggested the use of order route time stated that larger share 

orders are more likely to be sent to a review queue and could have a “disproportionate negative 

impact” on average execution speed.183 This commenter further stated that, “[c]onsequently, 

using order receipt time could create a perverse incentive for firms to diminish time spent on 

necessary reviews in an effort to improve execution speed statistics.”184 The Commission 

disagrees that broker-dealers will be incentivized to circumvent their risk controls because time-

to-execution statistics take into account the period during which a broker-dealer is performing 

various reviews and before the broker-dealer routes an order. Broker-dealers have multiple 

reasons to implement risk controls upon the receipt of customer orders. For example, broker-

dealers are subject to other regulatory requirements, including the Commission’s market access 

rule, that will continue to apply.185 The existence of such requirements means that broker-dealers 

will continue to utilize risk controls necessary to comply with these requirements, including risk 

controls implemented to comply with the market access rule, because the potential consequences 

of failing to comply with these requirements likely would counterbalance any perceived benefits 

of being able to report faster execution times. Broker-dealers also have reputational and business 

concerns that serve as additional incentives to continue to apply risk controls. Further, to the 

extent that larger orders received by broker-dealers may result in slower execution times due to 

the application of risk controls, measuring time to execution at the time of order receipt may 

motivate broker-dealers to make their risk controls more efficient. Moreover, time-to-execution 

 

183  See Schwab Letter II at 33; Schwab Letter III at 5. 

184  Schwab Letter II at 33; Schwab Letter III at 5. 

185  See 17 CFR 240.15c3-5.  



55 

statistics are only one aspect of execution quality statistics and price-based execution quality 

statistics will provide a different dimension of the reporting firms’ execution quality. 

An industry group requested confirmation that orders rejected based on the application of 

risk and compliance controls would not count as having been received for purposes of Rule 605 

reporting.186 In response, the Commission confirms that a broker-dealer generally should not 

include orders rejected based on the application of risk and compliance controls within its Rule 

605 reports. Including these rejected orders in Rule 605 reports would not provide data useful to 

understanding the execution quality provided by the reporting broker-dealer because these orders 

would not have been received by the firm in a form where execution was possible. Thus, these 

rejected orders generally should not be treated as “received” by the broker-dealer for Rule 605 

reporting purposes. 

B. Qualified Auction Mechanisms 

1. Proposed Approach 

In today’s equity markets, retail brokers often identify and route the marketable orders of 

individual investors in NMS stocks to wholesalers and the wholesalers often internalize these 

orders.187 At the same time that the Commission proposed the amendments to Rule 605 

discussed herein, the Commission separately proposed rules that generally would require that 

individual investor orders be exposed to order-by-order competition in fair and open auctions 

designed to obtain the best prices before such orders could be internalized by wholesalers or any 

 

186  See FIF Letter at 19.  

187  This practice of separately identifying and routing the marketable orders of individual investors to 

wholesalers is a form of “segmentation.” 



56 

other type of trading center that restricts order-by-order competition.188 The proposal focused on 

the treatment of segmented orders, which the Commission proposed to define as an order for an 

NMS stock that is for an account that is: (1) of a natural person or an account held in legal form 

on behalf of a natural person or group of related family members; and (2) in which the average 

daily number of trades executed in NMS stocks was less than 40 in each of the six preceding 

calendar months.189 The intent of the proposed definition was to encompass the marketable 

orders of individual investors that retail brokers currently route to wholesalers for handling and 

execution.190 Under those proposed rules, a “restricted competition trading center” would not be 

allowed to execute internally a segmented order for an NMS stock until after a broker or dealer 

has exposed such order to competition at a specified limit price in a “qualified auction” that met 

certain requirements and was operated by an “open competition trading center.”191  

If the Commission adopts the order competition rule proposal, a national securities 

exchange or NMS Stock ATS that serves as an open competition trading center and is required to 

prepare execution quality reports under Rule 605 would be required to include covered orders 

that it received for execution in a qualified auction within its blended execution quality statistics. 

 

188  For a full description and discussion of the order competition rule proposal, see Order Competition Rule 

Proposing Release, 88 FR 128 (Jan. 3, 2023); proposed 17 CFR 242.615 (“Rule 615”).  

189  See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023); proposed Rule 600(b)(91) 

(defining “segmented order”). 

190  See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023). 

191  See id. at 243; proposed Rule 600(b)(87) (defining “restricted competition trading center”); proposed Rule 

615(a) (describing the order competition requirement). An “open competition trading center” would be a 

national securities exchange or NMS Stock ATS that meets certain requirements, including being 

transparent and having a substantial trading volume in NMS stocks independent of qualified auctions. See 

Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed Rule 600(b)(64) 

(defining “open competition trading center”). A “qualified auction” would be an auction operated by an 

open competition trading center pursuant to specified requirements that are designed to achieve 

competition. See Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed 

Rule 600(b)(81) (defining “qualified auction”); proposed Rule 615(c) (setting forth requirements for 

operation of a qualified auction). 



57 

Because of concerns that differences in execution quality for orders executed within proposed 

qualified auctions as compared to orders executed outside of these qualified auctions would not 

be apparent in blended execution quality statistics, the Commission proposed to amend Rule 

605(a)(1) to state that market centers that operate a qualified auction must prepare a separate 

report under Rule 605 pertaining only to covered orders that the market center receives for 

execution in a qualified auction.192  

2. Final Rule and Discussion 

In this release, the Commission is not acting on the proposal to require separate Rule 605 

reports for orders that a market center receives for execution from a qualified auction. The 

Commission received generally supportive comments from a variety of market participants, 

including individual investors, on this proposed amendment.193 Some industry commenters 

suggested that Rule 605 reports should distinguish between segmented and non-segmented 

orders, as described in the Order Competition Rule Proposing Release.194  

The Commission is still considering the order competition rule proposal and the proposal 

to require separate Rule 605 reports for orders that a market center receives for execution in a 

qualified auction. Therefore, the qualified auctions contemplated by the Order Competition Rule 

Proposing Release do not exist as a place of execution at this time. Accordingly, in this release, 

 

192  See Proposing Release, 88 FR 3786 at 3802 (Jan. 20, 2023).  

193  See, e.g., Joy Letter; Pritchard Letter; and letters from Julio Cesar (Feb. 24, 2023) (“Cesar Letter”); Nevin 

Varghese (Dec. 26, 2022) (“Varghese Letter”). 

194  See FIF Letter at 13 (stating that segmented orders would likely need to be separate from non-segmented 

orders); Fidelity Letter at 9 (recommending that the Commission distinguish Rule 605 data by segmented 

and non-segmented order flow and display such orders separately in detailed reports and summary reports); 

SIFMA Letter II at 29 (stating that it is unclear why retail broker-dealers should have to report on 

segmented orders because execution quality will depend on the qualified auction rather than actions by the 

originating broker, and suggesting instead a single Rule 605 report that evaluates all qualified auctions). 



58 

the Commission is not acting on the proposed separate Rule 605 reporting requirement for orders 

a market center receives for execution in a qualified auction. 

C. NMS Stock ATSs and SDPs 

1. Proposed Approach 

Under Rule 605 prior to the amendments, firms that operate two separate markets must 

prepare separate Rule 605 reports for each market center.195 This requirement allows market 

participants to assess the execution quality of each market individually and prevents differences 

in the nature of each market from obscuring information about execution quality. The 

Commission proposed to specify in Rule 605(a)(1) that an NMS Stock ATS (as defined in 

Regulation ATS196) shall prepare reports separately from their broker-dealer operators to the 

extent such entities are required to prepare reports.197 The Commission also proposed to require 

in Rule 605(a)(1) that any market center that provides a separate routing destination that allows 

persons to enter orders for execution against the bids and offers of a single dealer shall produce a 

separate report pertaining only to covered orders submitted to such routing destination.198 This 

provision would have covered an SDP operated by a broker-dealer and required a separate report 

 

195  See prior 17 CFR 242.605(a)(1) (requiring “every” market center to produce a report). See also Rule 605 

NMS Plan at n.1 (“An entity that acts as a market maker in different trading venues (e.g., as a specialist on 

an exchange and as an OTC market maker) would be considered as a separate market center under the Rule 

for each of these trading venues. Consequently, the entity should arrange for a Designated Participant for 

each market center/trading venue (e.g., an exchange for its specialist trading and an association for its OTC 

trading).”) For a description of “Designated Participant” as defined in the Rule 605 NMS Plan, see infra 

note 869. 

196  17 CFR 242.300(k). “Regulation ATS” consists of 17 CFR 242.300 through 242.304 (Rules 300 through 

304 under the Exchange Act).  

197  See Proposing Release, 88 FR 3786 at 3803 (Jan. 20, 2023). 

198  See id. To the extent that a reporting firm produces more than one Rule 605 report, the firm could label 

each report with the type of business reflected on the report.  



59 

pertaining to those orders submitted to the SDP, allowing customers and other market 

participants to distinguish SDP activity from more traditional dealer activity.199 

2. Final Rule and Discussion 

The Commission is specifying that NMS Stock ATSs must report separately from their 

broker-dealer operators, as proposed, and adopting a separate reporting requirement for SDPs 

largely as proposed. In each instance, separate reporting under Rule 605 will bring transparency 

to these segments of the OTC equity market. 

The Commission received generally supportive comments from a variety of market 

participants regarding having firms produce separate Rule 605 reports for NMS Stock ATSs and 

for SDPs.200 After considering the comments, and for the reasons discussed in the Proposing 

Release, the Commission is specifying the separate reporting requirement for NMS Stock ATSs 

as proposed.  

Two commenters requested clarification and confirmation that order and execution 

management systems (“OEMSs”) will not need to register as ATSs under the Commission’s 

 

199  See id. 

200  See, e.g., Healthy Markets Letter at 16 (“[B]rokers that are also market centers (including as OTC market 

makers) should be required to separately report their market center functions for all covered orders (e.g. 

ATS or SDP operations).”); Better Markets Letter at 5, n.10 (“[R]equiring SDPs and ATSs to produce Rule 

605 reports independently from their broker-dealers operations would increase transparency by allowing 

market participants to distinguish such activity from more traditional broker-dealer activity.”); Varghese 

Letter (“Expanding the scope of entities subject to Rule 605 to include … single dealer platforms will 

ensure that a wider range of market participants are held to the same standards of transparency and 

accountability.”). 



60 

proposal to amend the definition of “exchange” under 17 CFR 240.3b-16 (“Rule 3b-16”)201 and 

thus need not comply with Rule 605’s separate reporting requirement for NMS Stock ATSs.202 

The Commission is still considering whether to adopt the proposed changes to the definition of 

“exchange” discussed in the 2022 Regulation ATS/Definition of Exchange Proposing Release 

and 2023 Regulation ATS/Definition of Exchange Reopening Release. Any need to comply with 

Rule 605’s separate reporting requirement under any future rulemaking is outside the scope of 

this rulemaking. 

An industry group and a broker-dealer requested additional clarity around what 

constitutes an SDP.203 The broker-dealer suggested that the Commission avoid an over-inclusive 

definition of SDPs by focusing on the order types used by non-retail investors to interact with 

SDPs, such as immediate-or-cancel (“IOC”) orders and fill-or-kill orders (“FOKs”), while also 

capturing substantially similar trading activities to ensure a level playing field.204 This 

 

201  Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) (“2022 

Regulation ATS/Definition of Exchange Proposing Release”). The comment period was reopened on May 

9, 2022, and ended on June 13, 2022: Securities Exchange Act Release No. 94868 (May 9, 2022), 87 FR 

29059 (May 12, 2022). The Commission reopened the comment period for the 2022 Regulation 

ATS/Definition of Exchange Proposing Release again in the 2023. See Securities Exchange Act Release 

No. 97309 (Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (“2023 Regulation ATS/Definition of Exchange 

Reopening Release”). The 2023 Regulation ATS/Definition of Exchange Reopening Release provided 

supplemental information and economic analysis regarding trading systems that trade crypto asset 

securities that would be newly included in the definition of “exchange” under the proposed rules. See id. 

202  See letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic 

Trading, Samantha DeZur, Managing Director, Global Public Policy Group, BlackRock, Inc. (Mar. 31, 

2023) (“BlackRock Letter”) at 4-5 (“Unlike market centers, OEMSs only route orders based on explicit 

order handling direction provided by a user. … OEMSs would not have the necessary data – and are not 

structured in a manner – that would allow them to file Rule 605 reports.”); Managed Funds Association 

Letter at 5-6 (“[I]t would be inappropriate for [OEMSs] to fall within the communication protocol systems 

definition. … [OEMSs], which are essentially software systems that help to facilitate and manage trade 

executions, do not have (and should not be required to develop) the operational capabilities to gather and 

disseminate information required by Rule 605 reports … due to [their] limited role.”). 

203 See SIFMA Letter II at 28 (noting that the Commission provides no formal SDP definition); Rule 605 

Citadel Letter at 7 (stating its views about the importance of clearly defining what constitutes an SDP). 

204  See Rule 605 Citadel Letter at 7 (recommending that the Commission review FINRA Regulatory Notice 

18-28, and the comments submitted in response, to define “SDP” more precisely).61 

commenter stated that “the Commission should consider whether certain Rule 605 metrics may 

be unduly impacted by differences in SDP business models, rather than execution quality” (e.g., 

“a SDP that sends indications of interest (“IOIs”) to customers may have materially higher fill 

rates than a SDP that solely receives blind IOCs”).205 This commenter further suggested that the 

Commission “conduct a more holistic review of the Rule 605 reports already produced by ATSs 

in order to determine whether any additional revisions are warranted in order to accurately report 

execution quality for non-retail orders” (e.g., “the definition of a ‘covered order’ may need to be 

amended in order to ensure that the Rule 605 reports are sufficiently comprehensive for non-

retail orders”).206 Another broker-dealer opposed the separate reporting requirement for SDPs, 

stating that it is “unnecessary to report these execution quality statistics separately, as users of 

SDPs are all sophisticated entities capable of carrying out their own execution quality 

measurements,” and thus the requirement “imposes an additional cost on SDPs without any clear 

benefit.”207  

After considering the comments, the Commission is adopting separate reporting for SDPs 

largely as proposed. The Commission acknowledges that SDPs have different business models 

and that SDPs that receive blind IOCs throughout the trading day (so-called “blind pinging”) 

would likely have execution quality statistics that differ significantly from the statistics of SDPs 

that send out IOIs. Although a commenter raised concerns about potential differential impacts on 

Rule 605 metrics for SDPs with different business models,208 in the Commission’s experience 

 

205  Id. at 7. 

206  Id. at 8. 

207  Virtu Letter II at 12-13. 

208  See Virtu Letter at 12. 



62 

SDPs largely receive institutional orders and therefore those market participants that send orders 

to SDPs generally are or represent sophisticated market participants that would likely be aware 

of and understand these differences in business models; thus these market participants can 

contextualize the Rule 605 reports appropriately. To the extent that OTC market makers 

operating SDPs think that additional context would help market participants understand their 

Rule 605 reports, these firms generally should consider whether to provide additional 

explanation on their websites about the nature of their order flow and how it affects the particular 

SDP’s execution quality statistics.  

In response to one commenter’s statement that imposing a separate reporting requirement 

on SDPs lacks any clear benefit to justify the additional cost,209 these order flow differences 

highlight the transparency benefits that justify the costs of requiring OTC market makers 

operating SDPs to produce Rule 605 reports separate from their other trading activity.210 

Otherwise, commingling SDP activity with other market center activity in Rule 605 reports may 

obscure differences in execution quality or distort the general execution quality metrics for the 

market center. Moreover, Rule 605’s description of what constitutes SDP activity for purposes of 

the separate reporting requirement will help ensure that the SDP-specific Rule 605 reports reflect 

comparable activity.  

In response to one commenter’s suggestion that the Commission consider revisions to 

Rule 605 “in order to accurately report execution quality for non-retail orders,”211 no further 

 

209  See supra note 207 and accompanying text. 

210  See section IX.D.2.a)(1) for a discussion of compliance costs related to expanding the scope of Rule 605 

reporting entities. See also section IX.D.1.a)(2) for a discussion of the benefits of requiring separate Rule 

605 reports for SDPs. 

211  See supra note 206 and accompanying text. 



63 

changes to Rule 605 are necessary to accommodate reporting by SDPs. Prior to the amendments, 

market centers included non-retail orders in their Rule 605 reports, to the extent that such orders 

were held orders, and therefore the reporting requirement for SDPs will not represent the first 

time that market centers were required to report execution quality for non-retail orders. It is more 

appropriate in the context of Rule 605 to require the same metrics for all reporting entities. As 

discussed above, market participants that utilize SDPs generally understand nuances of different 

market centers. Further, the Commission is adopting a requirement that SDPs prepare Rule 605 

reports separate from the Rule 605 reports of their associated broker-dealers so that their 

customers and market participants will be able to distinguish SDP activity from more traditional 

dealer activity and separately evaluate reporting firms’ execution quality with respect to each 

type of activity. It is not necessary for the achievement of this goal to make adjustments to the 

scope of Rule 605 to include more non-retail orders because the amendments to Rule 605 

address this separation of SDPs’ execution quality statistics. 

The Commission also agrees with the two commenters regarding the need for additional 

clarity around the scope of entities that are SDPs for purposes of Rule 605. After considering 

commenter suggestions,212 the Commission is replacing the proposed description of what type of 

broker-dealer activity constitutes SDP activity for purposes of the separate SDP reporting 

obligation. In its place, the Commission is adopting a modified description of SDP activity that 

states: “Any OTC market maker that provides a trading system for only a single dealer213 to 

 

212  In response to the commenter’s suggestion that the Commission consider FINRA Regulatory Notice 18-28 

to define “SDP” more precisely (see supra note 204), the Commission observes that FINRA requested 

comment on a definition of SDP but did not propose or adopt a definition. See FINRA Regulatory Notice 

18-28. 

213  A dealer is defined in Exchange Act section 3(a)(5), 15 U.S.C. 78c(a)(5). 



64 

solely buy and sell securities against all other persons entering orders in that system shall 

produce a separate report pertaining only to covered orders entered in such trading system.”214 

Specifically, the Commission’s modified SDP description contains two substantive changes to 

the proposed SDP description. First, the Commission is replacing the term “market center” with 

the term “OTC market maker” because the term “market center” would have been overbroad. 

“Market center” includes an ATS, national securities exchange, or national securities association, 

none of which can be a single dealer.215 Second, the Commission is replacing “separate routing 

destination” with “trading system” to focus on the activity that occurs on SDPs and adding 

“only” before “a single dealer” to clarify that the trading system offered will not be for multiple 

dealers and instead will be limited to one dealer.216  

A broker-dealer recommended that the Commission clarify: (i) the circumstances in 

which an SDP can be considered to be embedded within an ATS (e.g., by constituting a separate 

tier within an ATS that can be specifically targeted by IOC or FOK orders), and (ii) whether SDP 

 

214  Final 17 CFR 242.605(a)(1). Compare final 17 CFR 242.605(a)(1) with proposed Rule 605(a)(1) (“Any 

market center that provides a separate routing destination that allows persons to enter orders for execution 

against the bids and offers of a single dealer shall produce a separate report pertaining only to covered 

orders submitted to such routing destination.”). SDPs are a type of market center as defined in Regulation 

NMS Rule 600(b)(55) because the description of an SDP in the adopted amendments to Rule 605 includes 

the term “OTC market maker” and the definition of “market center” lists OTC market maker as one of the 

included entities. See final 17 CFR 242.600(b)(55). Therefore, as a general matter, SDPs are a type of 

market center and, as such, are within the scope of Rule 605 reporting entities without reference to the 

100,000 customer account threshold. 

215  See final 17 CFR 242.600(b)(55) (defining “market center” to mean any exchange market maker, OTC 

market maker, ATS, national securities exchange, or national securities association). Compare final 17 CFR 

242.600(b)(75) (defining “OTC market maker” to mean any dealer that holds itself out as being willing to 

buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a 

regular and continuous basis otherwise than on a national securities exchange in amounts of less than a 

block size). 

216 Unlike an ATS, on an SDP the broker-dealer operator is the only counterparty to any trade that occurs on 

the SDP. See, e.g., Where Do Stocks Trade?, FINRA.org (Sep. 28, 2023), available at 

https://www.finra.org/investors/insights/where-do-stocks-

trade#:~:text=The%20most%20familiar%20type%20of,in%20popularity%20in%20recent%20years. In 

contrast, an ATS meets the criteria of 17 CFR 240.3b-16(a) and “brings together the orders for securities of 

multiple buyers and sellers.” 



65 

activity includes orders received from both the client (whether a broker-dealer or not) and from 

internal smart order routers.217 First, executions that occur on or through an NMS Stock ATS are 

attributable to that NMS Stock ATS and covered orders received for execution on or through an 

ATS must be included in the Rule 605 report pertaining to the ATS rather than on a separate 

Rule 605 report.218 Therefore Rule 605 reporting requirements are not dependent on whether “an 

SDP [could] be considered to be embedded within an ATS.” The Commission understands that 

certain NMS Stock ATSs offer counterparty selection and segmentation procedures that may 

allow the orders of a particular participant to interact with the orders of only a subset of 

participants, and in this respect trading activity that occurs on certain NMS Stock ATSs may 

resemble trading activity that occurs on SDPs.219 Providing separate Rule 605 reports for SDP-

like activity on ATSs would not be practicable given the lack of uniformity among NMS Stock 

ATSs’ operations, particularly their counterparty and segmentation procedures. Another factor 

that could decrease comparability across reports if they were divided, as suggested by the 

commenter, is that trading activity on an NMS Stock ATS occurs within the context of 

 

217  See Rule 605 Citadel Letter at 7. 

218  See final 17 CFR 242.605(a)(1). 

219  NMS Stock ATSs may offer counterparty selection or certain segmentation profiles that allow a single 

participant to interact with one or certain counterparties. Form ATS-N requires public disclosures about 

these aspects of an NMS Stock ATS. See Form ATS-N, Part III, Items 13 and 14. An NMS Stock ATS that 

permits a subscriber to use its counterparty selection or segmentation procedures to trade with only one 

subscriber or a certain subset of subscribers can be required, depending on its operations and arrangement 

with the subscriber, to disclose additional information in response to other requirements of the Form ATS-

N. These disclosures can include, among others, Part II, Item 2 (Affiliates Trading Activities on ATS), Part 

II, Item 4 (Arrangements with Trading Centers), Part III, Item 7 (Order Types and Attributes), Part III, Item 

11 (Trading Services, Facilities, and Rules), and Part III, Item 18 (Fees). 



66 

regulatory requirements specific to NMS Stock ATSs.220 In contrast, SDPs (as defined for 

purposes of Rule 605) operate as broker-dealer trading systems that are not ATSs and thus that 

are not subject to ATS regulatory requirements. Given the differences in operations and 

regulatory requirements between the types of trading systems, which affect order interaction and 

execution, the execution quality statistics for SDP-like trading activity occurring on ATSs could 

significantly vary in a manner that differs from the variation in execution quality statistics among 

SDPs, thereby reducing the utility of comparing execution quality statistics for trading activity 

occurring on SDPs. Second, SDP activity includes orders received from both a client (whether or 

not a broker-dealer) and internal smart order routers. Orders received from internal smart order 

routers are included in Rule 605 reports specific to SDPs because the determination that a trading 

system is an SDP for purposes of Rule 605 reporting requirements depends on the type of trading 

system that receives the orders and the single dealer counterparty that interacts with the orders 

that the system receives.221 

An industry group asked specific questions about how to distinguish between OTC 

market making and SDP activities in Rule 605 reports.222 The Commission provides the 

 

220  See, e.g., 17 CFR 242.301(b)(3) (containing requirements for ATSs pertaining to order display and 

execution access); 17 CFR 242.301(b)(5) (containing requirements for ATSs that have a significant 

percentage of overall trading volume in a security or category of securities during a certain period of time 

to comply with fair access requirements, which include, among other things, that the ATS establish written 

standards for granting access to trading on the ATS and not unreasonably prohibit or limit access by 

applying those access standards in an unfair or discriminatory manner). 

221  See final 17 CFR 242.605(a)(1) (defining an SDP as a trading system for only a single dealer to solely buy 

and sell securities against “all other persons entering orders in that system”). 

222  See SIFMA Letter II at 28 (posing the following interpretive questions to distinguish between OTC market 

makers and SDPs: 1) “Is the Commission suggesting that an SDP is a type of OTC market maker and 

therefore a market center?”; 2) “Would an SDP be considered an OTC market maker for purposes of any 

other rule?”; 3) “Is the Commission assuming that an SDP only accepts IOC orders?”; 4) “Under what 

circumstances can an SDP be considered to be embedded within an ATS (such as when an SDP can be 

specifically targeted within an ATS by IOC or FOK orders)?”; 5) “Would SDP activity include orders 

received from both a client (whether or not a broker-dealer) and from internal smart order routers?”). 



67 

following responses. First, Rule 605(a), as adopted, defines the separate Rule 605 reporting 

obligation as applying to any OTC market maker that provides a separate trading system that 

meets specified criteria; therefore, as it pertains to Rule 605 reporting, any SDP required to 

prepare Rule 605 reports will be a type of OTC market maker and therefore a market center.223 

Second, the Commission is not changing the definition of “OTC market maker” in Rule 600. 

Thus, any other rule that refers to an “OTC market maker” will utilize the same definition in 

Rule 600. Third, the Commission is not assuming that an SDP accepts only IOC orders. As such, 

an SDP is not limited to accepting or receiving a particular type of covered order for execution. 

Fourth, as described above, although a subscriber’s activity on an NMS Stock ATS may 

resemble SDP activity, the trading activity occurs on the ATS and thus is attributable to the ATS 

for purposes of Rule 605 reporting requirements. Fifth, as described above, SDP activity includes 

orders received from both a client (whether or not a broker-dealer) and from internal smart order 

routers. 

III. Modifications to Scope of Orders Covered and Required Information 

The reports required by Rule 605(a)(1) prior to these amendments grouped orders by both 

order size and order type and included certain standardized execution quality metrics for all types 

of orders, as well as additional metrics for market orders and marketable limit orders. For all 

reporting entities, including larger broker-dealers, the Commission proposed to: (1) modify the 

order size and order type groupings; and (2) make changes to the required information for all 

types of orders, market and marketable limit order types, and non-marketable order types. The 

Commission is adopting the proposed changes to Rule 605 largely as proposed, with certain 

 

223  See supra note 214.  



68 

modifications discussed below. Section III.A. describes the ways in which the Commission is 

modifying its proposed definition of “covered order” in the adopted amendments. Section III.B. 

describes the modifications that the Commission is making to the information contained in the 

detailed execution quality reports required by Rule 605(a)(1), including how orders are 

categorized by size and type, the timestamp conventions, and which execution quality statistics 

are included.  

A. Covered Order 

The scope of Rule 605’s reporting requirements is limited to covered orders.224 The 

Commission proposed expanding the definition of “covered order” to include: (1) certain orders 

received outside of regular trading hours; and (2) orders submitted with stop prices. The 

Commission also addressed whether non-exempt short sale orders would be covered orders when 

a price test restriction is in effect for the security. 

1. Orders Submitted Pre-Opening/Post-Closing 

a) Proposed Approach 

Prior to these amendments, Rule 605 reports were required to include only orders 

received during regular trading hours225 at a time when an NBBO is being disseminated. When 

the Commission adopted Rule 11Ac1-5, the Commission excluded orders submitted during the 

pre-opening or after the close, among other order types, from the scope of reporting because 

nearly all of Rule 605’s statistical measures required the availability of the NBBO at the time of 

 

224  See prior 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(1). See supra note 4. 

225  “Regular trading hours” is defined as the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other 

time as is set forth in the procedures established pursuant to 17 CFR 242.605(a)(3). See final 17 CFR 

242.600(b)(88).  



69 

order receipt as a benchmark.226 Similarly, orders for which customers requested special 

handling, including orders to be executed at a market opening price, were excluded from Rule 

605 reports because of a concern that their inclusion would skew the general statistics.227  

In the Proposing Release, the Commission proposed to: (1) expand the scope of Rule 605 

reporting to include certain NMLOs submitted outside of regular trading hours if they become 

executable after the opening or reopening of trading during regular trading hours;228 (2) amend 

the definition of “marketable limit order” to specify that the marketability of an order received 

when the NBBO is not being disseminated would be determined using the NBBO that is first 

disseminated after the time of order receipt;229 and (3) exclude from Rule 605 reports market or 

limit orders received during regular trading hours at a time when an NBBO is being disseminated 

but prior to the dissemination of the primary listing market’s first firm, uncrossed quotations for 

a trading day (“Opening Exemption”),230 thereby incorporating previously granted exemptive 

 

226  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000). 

227  See id. 

228  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). The Commission proposed to revise the 

definition of “categorized by order type” to include executable NMLOs and executable orders submitted 

with stop prices. See id. at 3804, n.227; proposed Rule 600(b)(20). The Commission also proposed to 

expand the definition of “covered order” to cover NMLOs received by a market center or broker-dealer 

outside of regular trading hours or when an NBBO is not being disseminated and, if executed, executed 

during regular trading hours. See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023); proposed Rule 

600(b)(30). 

229  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). Specifically, the Commission proposed that an 

order received at a time when a national best bid and national best offer is not being disseminated would be 

a marketable limit order if it is a buy order with a limit price equal to or greater than the national best offer 

at the time that the national best offer is first disseminated during regular trading hours after the time of 

order receipt, or if it is a sell order with a limit price equal to or less than the national best bid time at the 

time that the national best bid is first disseminated during regular trading hours after the time of order 

receipt. See id.; proposed Rule 600(b)(57). 

230  See Proposing Release, 88 FR 3786 at 3804-05 (Jan. 20, 2023); proposed Rule 600(b)(30). The 

Commission stated that, pursuant to the proposed amendments to Rule 605, NMLOs (including orders 

submitted with stop prices) received outside of regular trading hours or at a time when an NBBO is not 

being disseminated would have been considered covered orders, provided the NMLOs were not executed 

outside of regular trading hours. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 



70 

relief into the proposed definition of “covered order.”231 The Commission’s proposed definition 

of “covered order” would have excluded market orders and marketable limit orders submitted 

prior to open or during a trading halt; therefore, any limit order received outside of regular 

trading hours or during a trading halt that is marketable based on the first disseminated NBBO 

during regular trading hours after the time of order receipt would not have been a covered order 

for purposes of Rule 605.232 Additionally, the Commission proposed amending Rule 605(a)(1) to 

require a market center, broker, or dealer to include in its monthly report, in addition to the 

covered orders in NMS stocks that it received for execution from any person, those covered 

orders in NMS stocks that it received for execution in a prior calendar month but which remained 

open.233 

b) Final Rule and Discussion 

The Commission is adopting as proposed an expansion to the scope of Rule 605 reporting 

to include NMLOs submitted outside of regular trading hours that become executable after the 

opening or reopening of trading during regular trading hours.234 The Commission is adopting the 

definition of “covered order” as it relates to orders submitted outside of regular trading hours 

largely as proposed, but with a modification to accept a commenter’s recommendation as 

discussed below. The Commission is similarly modifying the proposed definitions of 

“executable,” “marketable limit order,” and “beyond-the-midpoint limit order”235 to 

 

231  See letter from Annette L. Nazareth, Director, Division of Market Regulation to Theodore Karn, President, 

Market Systems, Inc., dated June 22, 2001 (“Market Systems Exemptive Letter”) at 2. The Commission 

proposed to rescind the Opening Exemption. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 

232  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). 

233  See id. at 3805. 

234  See final 17 CFR 242.600(b)(19) (defining “categorized by order type”). 

235  As discussed further below, the Commission is making additional modifications to this order type category 

and renaming the associated definition as “midpoint-or-better limit order.” See infra section III.B.2.b). 



71 

accommodate this modification. Further, the Commission is adopting as proposed the 

requirement for a market center, broker, or dealer to include in its monthly report those covered 

orders in NMS stocks that it received for execution in a prior calendar month but which remained 

open.236  

Generally, individual investors supported including certain orders submitted outside of 

regular trading hours within the scope of covered orders.237 One individual investor who 

supported the proposed change stated that after-market and pre-market trades play a greater role 

today than ever before, with many of the price changes occurring during these times rather than 

during market hours.238 

A broker-dealer supported the inclusion of pre-market orders in Rule 605 reports, stating 

these orders (along with other included order types) would provide investors with a more 

complete picture of order execution quality across the marketplace.239 Another commenter stated 

that NMLOs entered outside of “normal hours” should not be included because “these will likely 

skew the statistics.”240 Specifically, this commenter stated that frequently the first quote after 

opening is wide and not representative of the quote when the primary exchange opens, and many 

orders deemed NMLOs by this benchmark would likely fill as soon as the primary exchange 

 

236  See final 17 CFR 242.605(a)(1). 

237  See, e.g., Pritchard Letter; letter from Dan Liefwalker (Mar. 7, 2023); Macarthur Letter; Genco Letter; 

Varghese Letter; letter from Jeremy B. Beddo (Mar. 30, 2023) (“Beddo Letter”). 

238  See Joy Letter. However, an individual investor who opposed the proposal stated that including as covered 

orders certain orders submitted outside of regular trading hours (as well as certain orders submitted with 

stop prices) “could make it difficult for retail investors to place orders at the best possible price” and “[t]his 

could lead to retail investors being left with less favorable prices and missing out on potential gains in the 

dark markets.” Letter from Jacob Gillmore (Feb. 24, 2023) (“Gillmore Letter”). It is not clear—and the 

commenter does not explain—how including orders submitted outside of regular trading hours in Rule 605 

reports could make it difficult for retail investors to place orders at the best possible price. 

239  See Virtu Letter II at 3. 

240  Schwab Letter II at 32. 



72 

opens. Therefore, according to this commenter, “including these orders will skew the NMLO 

stats and lead to difficult comparisons between brokers.”241 

A national securities exchange supported inclusion of certain orders submitted outside of 

regular trading hours within the definition of “covered order.”242 An investor advocacy group 

recommended that Rule 605 run from primary market open to primary market close (e.g., 9:30 

a.m. to 4 p.m. eastern standard time).243 

An industry group stated that the proposed definition of “covered order,” in the context of 

NMLOs, does not address orders received during regular trading hours but prior to the primary 

listing market disseminating its first firm, uncrossed quotations in a security (referred to herein 

as the “interim opening period”).244 This commenter recommended that the demarcation point 

for whether an order should be treated as a pre-open (or post-close) order or an order received 

during regular trading hours should be the point at which the primary listing market disseminates 

its first firm, uncrossed quotations for the applicable security.245 To address orders received 

during the interim opening period, this commenter recommended that the Commission change 

each of the references to the “time when a national best bid and national best offer is being 

disseminated” in the proposed definitions of “marketable limit order” and “beyond-the-midpoint 

limit order” to reflect not only that a national best bid and national best offer has been 

 

241  Id. 

242  See Nasdaq Letter at 43, text accompanying n.121. 

243  See Healthy Markets Letter at 17. This commenter’s suggestion of when Rule 605 should be in effect is 

consistent with the definition of “regular trading hours.” See final 17 CFR 242.600(b)(88) (“Regular 

trading hours means the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other time as is set forth 

in the procedures established pursuant to § 242.605(a)(3).”) This commenter did not address whether to 

include certain orders submitted outside of regular trading hours but executed during regular trading hours 

within the scope of Rule 605’s reporting requirements as proposed. 

244  See FIF Letter at 8. 

245  See id. at 7. 



73 

disseminated but also that the primary market has disseminated its first firm, uncrossed 

quotations for the security.246  

After a review of the comments, for the reasons discussed in the Proposing Release and 

discussed below, the Commission is adopting the definition of “covered order,” along with other 

changes addressing the expansion of the scope of Rule 605 to include certain orders received 

outside of regular trading hours, largely as proposed.247 However, in response to comments, the 

Commission is making several modifications that address the treatment of orders received during 

the interim opening period. As discussed below, these changes help address the concerns of one 

of the commenters that the inclusion of NMLOs entered outside of normal hours in Rule 605 

reports would skew the reported execution quality statistics.248 

When proposing to incorporate the exemptive relief contained in the Opening 

Exemption249 into the definition of “covered order” with respect to market or limit orders 

received during regular trading hours at a time when an NBBO is being disseminated, the 

Commission recognized that quotations disseminated prior to a primary listing market 

disseminating its first quotations in a security often reflect spreads that vary significantly from 

the norm and intended that the proposed changes to the definition would prevent such quotations 

from skewing execution quality statistics.250 In proposing to expand the scope of Rule 605 

reporting requirements to include certain NMLOs submitted outside of regular trading hours if 

 

246  See id. at 8. 

247  As discussed below, the Commission also is rescinding a portion of the Market Systems Exemptive Letter 

and updating a related staff FAQ. See infra section VI. 

248  See supra note 240 and accompanying text. 

249  See supra note 230 and accompanying text. 

250  See Proposing Release, 88 FR 3786 at 3804-05 (Jan. 20, 2023). 



74 

they become executable during the opening or reopening of trading during regular trading hours, 

the Commission intended to provide increased visibility into the execution quality for individual 

investor orders.251 The Commission agrees with the commenter who recommended additional 

changes to the definition of “covered order” (along with related changes to the definitions of 

“marketable limit order” and “beyond-the-midpoint limit order”) and stated that treating orders 

received during the interim opening period in the same manner as orders received outside of 

regular trading hours will be consistent with the Commission’s stated objectives.252  

Accordingly, the Commission is adopting a definition of “covered order” that scopes in 

any NMLO (including an order submitted with a stop price) that is received by a market center, 

broker, or dealer at a time before the primary listing market has disseminated its first firm, 

uncrossed quotations in the security and that, if executed, is executed during regular trading 

hours.253 The “covered order” definition, as proposed and as the Commission is adopting, does 

not include within its scope those market orders and marketable order types received outside of 

regular trading hours. Keeping market and marketable limit orders received during the interim 

opening period outside the scope of covered orders is consistent with how these orders are 

treated when received outside of regular trading hours. The changes to the definition of “covered 

order,” together with the modifications to the definition of “executable” and “marketable limit 

order” discussed below, will help ensure that an order received or executed during the interim 

opening period will be treated in the same manner as any other order received or executed pre-

open or post-close. 

 

251  See id. at 3804. 

252  See FIF Letter at 7-8.  

253  See final 17 CFR 242.600(b)(27). 



75 

The Commission is also adopting a modified version of the proposed definition of 

“executable” that specifies that whether an NMLO is executable will be determined based on the 

order’s limit price during regular trading hours and after the primary listing market has 

disseminated its first firm, uncrossed quotations in the security.254 Under the definition of 

“executable” as proposed, an NMLO (including an order submitted with a stop price) received 

during the interim opening period would have had the possibility of becoming executable before 

the primary listing market has disseminated its first firm uncrossed quotations in the security. 

During this interim opening period, quotations and execution prices may be less representative of 

the value of the security than during the rest of regular trading hours because, as stated above, 

quotations disseminated prior to a primary listing market disseminating its first quotations in a 

security often reflect spreads that vary significantly from the norm during regular trading hours. 

Therefore, a scenario in which an NMLO becomes executable (as defined in the proposal) during 

the interim opening period led to two potential ways in which including these orders could skew 

execution quality statistics. First, if the NMLO executed during the interim period (including at 

the opening of the primary listing market), that order would have been included in reports 

required pursuant to proposed Rule 605(a)(1) as an NMLO that became executable and executed 

during regular trading hours. Second, the benchmark that would have been used for those 

statistics to measure from the time that an order becomes executable255 would have been a 

quotation price from the interim opening period. The modification to the proposed definition of 

“executable” that the Commission is adopting addresses both concerns. Pursuant to the adopted 

 

254  See final 17 CFR 242.600(b)(39). 

255  The Commission proposed to measure the time to execution for non-marketable orders from the time such 

orders become executable. See infra section III.B.3.  



76 

rule, an NMLO (including an order submitted with a stop price) received during regular trading 

hours will not have the possibility of being considered executable until after the primary listing 

market has disseminated its first firm, uncrossed quotations in the security.256 Further, the 

benchmark used for those statistics that are measured from the time that an order becomes 

executable will be measured from a point in time that is after the primary listing market has 

disseminated its first firm, uncrossed quotations in the security. These changes to the final rule 

will help to prevent the potential skewing of execution quality statistics caused by reliance on 

quotations from the interim opening period, and thereby increase the comparability of Rule 605 

reports. 

In addition, the Commission is revising the proposed definition of “marketable limit 

order” so that, with respect to an order received at a time when the NBBO is being disseminated 

but before the primary listing market has disseminated its first firm, uncrossed quotations in the 

security (i.e., during the interim opening period), whether the order is a marketable limit order 

will be determined from the time that the primary listing market disseminates its first firm, 

uncrossed quotations in the security.257 This change will move the determination of whether an 

order is a marketable limit order or a NMLO to a time when the NBBO is more representative of 

the security’s price than may be the case during the interim opening period. The Commission is 

 

256  An NMLO (including orders submitted with stop prices) that executes during the interim opening period 

(including an NMLO that executes at the opening of the primary listing market) will not have the 

opportunity to meet the definition of executable; therefore, such an order will not be included in a Rule 605 

report because the reports required by Rule 605(a)(1) include only NMLOs that are executable. See final 17 

CFR 242.600(b)(39). This treatment of an NMLO that executes during the interim opening period will be 

similar to the treatment of an NMLO that executes outside of regular trading hours and will similarly 

prevent order executions where quotations may vary significantly from the norm from skewing execution 

quality statistics. See section III.A.2.b) infra for additional discussion of orders submitted with stop prices 

and section III.B.2.a)(2) infra for additional discussion of the defined term “executable.” 

257  See final 17 CFR 242.600(b)(56). 



77 

also modifying the definition of “midpoint-or-better limit order” from the proposed definition258 

in a similar manner so that the price used to determine whether an order is a midpoint-or-better 

limit order will be more representative of the security’s price. The definition that the 

Commission is adopting specifies that, for orders received when an NBBO is being disseminated 

and the primary listing market has disseminated its first firm, uncrossed quotations in the 

security (i.e., after the interim opening period), whether the order is a midpoint or better limit 

order will be determined based on the time of order receipt.259 The adopted definition also 

specifies that, for orders received at a time when the NBBO is being disseminated but before the 

primary listing market has disseminated its first firm, uncrossed quotations in the security (i.e., 

during the interim opening period), whether the order is a midpoint-or-better limit order will be 

determined from the time that the primary listing market disseminates its first firm, uncrossed 

quotations in the security.260 These changes also will help to prevent skewing of execution 

quality statistics and thereby increase the comparability of Rule 605 reports. 

2. Stop Orders 

a) Proposed Approach 

Orders submitted with stop prices were not included in Rule 605 reports prior to these 

amendments because the definition of “covered order” excluded orders with special handling 

instructions, including orders submitted with stop prices.261 The Commission proposed to 

 

258  As discussed further below, the Commission is making additional modifications to this order type category 

and renaming the proposed term “beyond-the-midpoint limit order” to be “midpoint-or-better limit order.” 

See infra section III.B.2.b). 

259  See final 17 CFR 242.600(b)(57). 

260  See id. 

261  See prior 17 CFR 242.600(b)(22). Generally, an order submitted with a stop price may become either a 

market order or a limit order when the offer (bid) reaches the stop price for a buy (or sell) order or the 

security trades at or above (or below) the stop price for a buy (or sell) order. 



78 

remove this exclusion and measure the execution quality of orders submitted with stop prices 

from the time such orders become executable.262 As part of the proposed definition of 

“executable,” the Commission specified that executable means, for any buy order submitted with 

a stop price, that the stop price is equal to or greater than the national best bid during regular 

trading hours, and, for any sell order submitted with a stop price, that the stop price is equal to or 

less than the national best offer during regular trading hours.263 In addition, the Commission 

proposed to modify the definition of “categorized by order type” to add executable orders 

submitted with stop prices as a separate order type category.264 

b) Final Rule and Discussion 

The Commission is adopting the definition of “covered order” as proposed to include 

orders submitted with stop prices within the scope of Rule 605. However, the Commission is 

modifying the proposed definition of “executable” as it pertains to orders submitted with stop 

prices in response to recommendations from commenters. Additionally, the Commission is 

modifying the proposed definition of “categorized by order type” to include separate categories 

for executable market orders submitted with stop prices, executable marketable limit orders 

submitted with stop prices (“executable stop marketable limit orders”), and executable non-

marketable limit orders submitted with stop prices (“executable stop non-marketable limit 

orders” or “executable stop NMLOs”), in response to comments. As part of adding these separate 

stop order categories, the Commission is also adding new definitions of “executable stop 

marketable limit order” and “executable stop non-marketable limit order.” 

 

262  See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023); proposed Rule 600(b)(30). 

263  See Proposing Release, 88 FR 3786 at 3805, 3810, n.302 (Jan. 20, 2023); proposed Rule 600(b)(42). 

264  See Proposing Release, 88 FR 3786 at 3805, n.241 (Jan. 20, 2023); proposed Rule 600(b)(20). 



79 

Individual investors generally supported including certain orders submitted with stop 

prices within the definition of “covered order.”265 A national securities exchange supported 

inclusion of orders submitted with stop prices within the definition of “covered order.”266 One 

broker-dealer supported the inclusion of executable stop orders as an order type.267  

Another broker-dealer supported including stop orders, but stated that there are many 

different types of stop orders. This commenter stated that, “rather than attempting to define what 

constitutes a trigger and its corresponding reference market for purposes of determining whether 

and how a stop order is included within Rule 605, it would be preferable to simply require that 

all stop orders that are triggered be included in Rule 605 reports to the extent that the resulting 

market or limit order is a covered order.”268 Another commenter stated that the definition of 

executable stop order “runs counter to how stop orders actually become executable.”269 

According to this commenter, while FINRA Rule 5350 defines a stop order as “an order to buy 

(or sell) that becomes a market order to buy (or sell) when a transaction occurs at or above 

(below) the stop price,” broker-dealers may elect to trigger a stop order in a different fashion but 

are prevented from calling it a “stop order.”270  

An industry group suggested that the Commission and FINRA adopt consistent usage of 

the term “stop order” and other relevant terms because the proposed definition is inconsistent 

 

265  See Macarthur Letter; Cesar Letter; Genco Letter; Varghese Letter. See also supra note 238 (discussing 

Gillmore Letter, which relates to whether to include as covered orders certain orders submitted outside of 

regular trading hours and orders submitted with stop prices).  

266  See Nasdaq Letter at 44. 

267  See Virtu Letter II at 3. 

268  Rule 605 Citadel Letter at 12. 

269  Schwab Letter III at 5-6. 

270  Id. at 6. According to this commenter, the most common other trigger condition on a sell stop is the bid, but 

very rarely do equity sell stop orders trigger off the ask. See id. 



80 

with the terminology in FINRA Rule 5350 in a number of respects.271 The commenter stated that 

stop orders should be reported separately from other types of orders, but suggested that the 

Commission modify the criteria for when to include stop orders in Rule 605(a)(1) reports and 

expand the order type categories related to stop orders.272 This commenter recommended that 

stop orders become reportable if the order is “triggered” or “activated” and that an alternate term 

along these lines be used instead of “executable.”273 According to this commenter, requiring 

reporting pursuant to Rule 605 “with respect to any time period prior to the triggering of a stop 

order would provide no value to market participants and would provide misleading information 

to the market” because there is no action that a firm can take to execute a stop order prior to the 

point when the order is triggered.274  

After review of the comments, the Commission is adopting a modified definition of 

“executable” as it pertains to orders submitted with stop prices. As adopted, “executable,” with 

respect to orders submitted with stop prices, means that the stop price has been triggered during 

regular trading hours and after the primary listing market has disseminated its first firm, 

 

271  See FIF Letter at 9, 12. This commenter stated that it was using the term “stop order” in a manner 

consistent with the Commission’s usage of the term in the Proposing Release. See id. at 9. This commenter 

stated that it used “stop order” to include stop orders and stop limit orders, as those terms are defined in 

FINRA Rule 5350, but also included orders that are triggered upon the stop price matching (or passing) a 

quoted price, in addition to those orders triggered upon the stop price matching (or passing) a trade price, 

and trailing stop orders. See id.  

272  See id. at 9-11. 

273  See id. at 10, 11-12. This commenter stated that the terms “triggered” and “activated” are used 

interchangeably in FINRA Rule 5350, Supplementary Material .01 and .02 and that the commenter 

considers these terms to have the same meaning as applied to stop orders. See id. at 10 & n.25. This 

commenter also stated that its members do not believe that it would be necessary for the Commission to 

define “triggering” or “activation” because this concept for a stop order is well-understood by industry 

members and regulators. See id. at 11. See also FIF Letter II at 2. Further, this commenter stated that a 

material percentage of stop orders are triggered based on a change in the NBBO (in most cases, but not 

always, the opposite-side quote) and a material percentage of stop orders are triggered based on a change in 

the last sale price. See id. 

274  See FIF Letter at 10.81 

uncrossed quotations in the security.275 As stated by commenters, orders may be submitted with 

stop prices that trigger or activate based on different conditions, such as a last sale price or a 

change in the NBBO.276 The definition of “executable” that the Commission is adopting will 

more broadly encompass the different conditions that may convert an order with a stop price into 

an order that may execute.277 Additionally, this change addresses a commenter’s suggestion by 

preventing stop orders from being executable before they have been triggered.278 

A commenter suggested that Rule 605 reports should exclude stop orders to “avoid 

confusion” and allow firms to disclose the relevant details to their clients in a manner consistent 

with the clients’ trading experience.279 However, such disclosures would not be an adequate 

substitute because they would not be required, might not be provided in a uniform format, and 

might not be available to market participants that are not clients of a particular firm, all of which 

would impede market participants’ ability to compare statistics across firms. 

An industry group recommended that: (1) once a stop order without a limit price has been 

triggered, the order should be reported as a stop market order; and (2) once a stop limit order has 

been triggered, the order should be reported in one of several new order type categories based on 

 

275  See final 17 CFR 242.600(b)(39). The addition of the reference to the interim opening period is discussed 

in section III.A.1.b) supra. 

276  The Commission’s analysis of stop order volume demonstrates that most stop orders are triggered by the 

last sale price, but there is also nontrivial order flow associated with other trigger events, including changes 

to the quotation. See infra text accompanying note 1167; Table 3. 

277  Although the Commission is not adopting a commenter’s suggestion to use the term “triggered” or 

“activated” instead of “executable” when used in connection with stop orders (see supra note 273 and 

accompanying text), redefining “executable” to mean that an order’s stop price has been triggered during 

regular trading hours will have the same substantive effect. 

278  See supra note 274 and accompanying text. In addition, revising the definition of “executable” to focus on 

when a stop order has been triggered is consistent with the Commission’s goal of helping investors 

compare the performance of market centers and broker-dealers from a point in time when such orders could 

reasonably be expected to execute. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 

279  See Schwab Letter III at 5-6. This commenter raised, but did not recommend, an alternative approach. See 

infra note 282 and accompanying text. 



82 

the status of the order at the time the order is triggered.280 This commenter further suggested that, 

for purposes of representing all of these order type categories, the Commission should add a 

column to Rule 605(a)(1) reports to indicate whether the applicable row pertains to stop 

orders.281 A commenter that recommended excluding stop orders from Rule 605 reports stated 

that “stop orders can have at least three distinct behaviors after they are triggered—market order, 

marketable limit order, and nonmarketable limit order” and suggested that a “more transparent 

way to include these orders would be to create three separate categories of stop orders reflecting 

these triggers.”282 

In consideration of these comments, the Commission is modifying Rule 605’s treatment 

of stop orders from the proposal to split executable stop orders into three categories—executable 

market orders submitted with stop prices, executable stop marketable limit orders, and 

executable stop NMLOs—based on the stop orders’ status at the time that they are triggered. 

Separating executable stop orders into these three categories will group orders with similar 

execution profiles.283 To implement these changes to the treatment of stop orders, the 

Commission is: (1) modifying the proposed definition of “categorized by order type” to replace 

 

280  See FIF Letter at 10-11. Specifically, this commenter suggested the following new order type categories for 

limit orders with a stop price: (a) stop marketable limit order for an order that is a marketable limit order at 

the trigger time; (b) stop beyond-the-midpoint limit order for an order that is a beyond-the-midpoint limit 

order at the trigger time; and (c) stop executable NMLO for an order that is an NMLO at the trigger time. 

See id. This commenter also stated that a material percentage of stop orders have a limit price and a 

material percentage of stop orders do not have a limit price. See FIF Letter II at 2. 

281  See FIF Letter at 9; FIF Letter III at 4. 

282  Schwab Letter III at 6. This commenter did not recommend this approach because, according to the 

commenter, it would “create increased complexity with little benefit for the individual investor.” Id. The 

Commission disagrees. The Commission continues to believe that including stop orders within the scope of 

the Rule will benefit market participants by allowing them to analyze variations in execution quality. See 

Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). Moreover, stop orders make up a nontrivial 

percentage of orders from individual investors. See infra Table 3. 

283  See infra note 1387 and accompanying text. 



83 

the category for executable orders submitted with stop prices with categories for executable 

market orders submitted with stop prices, executable stop marketable limit orders, and 

executable stop non-marketable limit orders;284 (2) adding new defined terms of “executable stop 

marketable limit order” and “executable stop non-marketable limit order”;285 and (3) modifying 

the execution quality statistics required for stop orders to align the three categories of stop orders 

with the type of order they most resemble once triggered.286 

In response to comments received, the Commission conducted a supplemental analysis of 

the distribution of stop orders that fell into six existing order type categories once triggered using 

a sample of CAT data for 400 stocks for March 2023. The results are presented in Table 1 and 

show that the majority of orders submitted with a stop price that trigger are market orders when 

triggered (almost 86%). However, a significant percentage of orders submitted with a stop price 

that trigger are limit orders.287 

 

284  See final 17 CFR 242.600(b)(19). 

285  See final 17 CFR 242.600(b)(40) and (41). 

286  See final 17 CFR 242.605(a)(1)(i), (ii), and (iii). 

287  In addition, the Commission’s analysis of stop order volume shows that there is a significant volume of 

stop orders with and without limit prices. See infra Table 3 (showing that stop orders placed by institutional 

investors are 36.1% market orders and 63.9% limit orders, and stop orders placed by individual investors 

are 89.0% market orders and 11.0% limit orders). These results are consistent with the commenter who 

stated that a material percentage of stop orders have a limit price and a material percentage of stop orders 

do not have a limit price. See FIF Letter II at 2. 



84 

Table 1: Number of Triggered Stop Orders (Mar. 2023) 

Order Type Number of Stop Orders Percentage of Stop Orders 

Market 190,027 85.99% 

Marketable Limit 26,097 11.81% 

Beyond-the-Midpoint 1,770 0.80% 

At-the-Midpoint 686 0.31% 

Below-the-Midpoint 1,118 0.51% 

At-the-Quote 1,282 0.58% 

This table presents the distribution of stop orders across different order types (market, marketable limit, beyond-the-midpoint, at-

the-midpoint, below-the-midpoint, and at-the-quote), using a sample of CAT data for 400 stocks for Mar. 2023. See infra note 

1261 for a description of this dataset. The data includes all stop orders that were triggered during Mar. 2023 from orders that 

originated during Mar. 2023. Stop limit orders are identified as marketable, beyond-the-midpoint, at-the-midpoint, below-the-

midpoint, or at-the-quote based on the NBBO at the time the stop order triggered. NMLOs categories are defined as follows. 

“Beyond-the-midpoint” NMLOs consist of, for sell orders, NMLOs with limit prices lower than the midpoint but higher than the 

national best bid (“NBB”), and, for buy orders, NMLOs with limit prices higher than the midpoint but lower than the national 

best offer (“NBO”). “At-the-midpoint” NMLOs consist of NMLOs with limit prices equal to the NBBO midpoint. “Below-the-

midpoint” NMLOs consist of, for sell orders, NMLOs with limit prices higher than the midpoint but less than the NBO and, for 

buy orders, NMLOs with limit prices lower than the midpoint but higher than the NBB. “At-the-quote” NMLOs consist of, for 

sell orders, NMLOs with limit prices equal to the NBO and, for buy orders, NMLOs with limit prices equal to the NBB. “Near-

the-quote” NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by no more than $0.10 

and, for buy orders, NMLOs with limit prices worse (i.e., lower) than the NBB by no more than $0.10. “Away-from-the-quote” 

NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by more than $0.10 and, for buy 

orders, NMLOs with limit prices worse (i.e., lower) than the NBB by more than $0.10. 

The Commission is adopting definitions for “executable stop marketable limit order” and 

“executable stop non-marketable limit order” to provide that the determination of which of these 

two categories a limit order submitted with a stop price falls into is made using the point in time 

that the order submitted with a stop price is triggered.288 Utilizing this determination point in 

 

288  See final 17 CFR 242.600(b)(40) and (41). Measurement of the execution quality of an executable stop 

marketable limit order and an executable stop non-marketable limit order begins when the stop price is 

triggered because that is the point in time at which customers generally expect such orders to be eligible to 

execute. While the determination of whether a limit order is a marketable limit order is calculated 

differently, i.e., based on the time of order receipt, see final 17 CFR 242.600(b)(56), the time of order 

receipt will similarly allow customers to compare execution quality from a point in time when such orders 

could reasonably be expected to execute.  



85 

time will help align the sub-grouping of limit orders submitted with stop prices with the 

characteristics of these orders once the stop price is triggered. Under the adopted definitions, an 

“executable stop marketable limit order” will be an order whose limit price is equal to or greater 

than the best offer (for a buy order) or equal to or less than the national best bid (for a sell order) 

at the time the stop price is triggered, i.e., when the limit order submitted with a stop price 

becomes executable.289 Similarly, an “executable stop non-marketable limit order” will be an 

order whose limit price is less than the best offer (for a buy order) or greater than the national 

best bid (for a sell order) at the time the order becomes executable.290  

As proposed, Rule 605 would have required that the execution quality statistics provided 

for executable orders submitted with stop prices include those execution quality statistics 

required for non-marketable order types.291 However, executable market orders submitted with 

stop prices and executable stop marketable limit orders (together, “marketable stop order types”) 

will behave like market and marketable limit orders once triggered rather than NMLOs. 

Therefore, the Commission is modifying the proposed execution quality statistics for marketable 

stop order types to provide that the same statistics required of other marketable order types (e.g., 

price improvement statistics) be calculated for these types of stop orders.292 However, because 

executable stop NMLO orders will behave like other NMLOs once triggered, the Commission is 

requiring that the same statistics required of other non-marketable order types (e.g., relative fill 

rate) be calculated for these stop orders.293  

 

289  See final 17 CFR 242.600(b)(40). 

290  See final 17 CFR 242.600(b)(41). 

291  See Proposing Release, 88 FR 3786 at 3805, 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (iii). 

292  See final 17 CFR 242.605(a)(1)(ii). 

293  See final 17 CFR 242.605(a)(1)(iii). 



86 

The Commission is not adopting the commenter’s recommendation to add an additional 

column to the Rule 605(a)(1) detailed report to denote whether a particular row pertains to stop 

orders.294 The additional order type categories in amended Rule 605 for executable market orders 

submitted with a stop price, executable stop marketable limit orders, and executable stop 

NMLOs partially align Rule 605 with this recommendation substantively because they will 

require firms to provide execution quality statistics for these types of stop orders that are grouped 

according to the characteristics of the orders once triggered. However, the commenter’s 

recommendation would in effect have created a separate order type category for stop orders with 

characteristics of each of the other order types (e.g., executable midpoint-or-better limit order 

with a stop condition, executable marketable IOC with a stop condition). The Commission does 

not believe the execution profiles for an order type category or categories for executable 

midpoint-or-better order types with a stop condition would vary significantly enough from other 

executable stop NMLOs to warrant additional order type categories. A significant portion of 

midpoint-or-better limit orders may have the expectation of executing immediately, for example, 

against hidden or odd-lot liquidity inside of the spread.295 Because these orders are likely to have 

different execution profiles than other types of NMLOs,296 the Commission is requiring separate 

order type categories for midpoint-or-better limit orders.297 In contrast, an order submitter 

placing a stop limit order likely does not have an expectation of executing immediately and does 

not know ex ante what the market conditions will be when the stop price is triggered, i.e., how 

 

294  See supra note 281 and accompanying text. 

295  See infra section IX.D.1.b)(2)(a)(ii). 

296  See infra section IX.C.3.c)(3). 

297  See infra section III.B.2.b)(2). 



87 

aggressive the limit price will be when the order is converted into a limit order. Therefore, 

because executable midpoint-or-better order types with a stop condition are not likely to have 

significantly different execution profiles than other executable stop NMLOs, the Commission is 

not requiring the use of order type categories that would further sub-divide executable stop 

NMLOs. In addition, it is not likely that orders will have both an IOC instruction (which 

indicates an expectation of immediacy) and a stop condition (which indicates an intention to wait 

until market conditions change and trigger the stop condition). Even if such orders are utilized, 

they are not likely to have significantly different execution profiles than other stop orders that 

fall within the same order type categories. Thus, the Commission is not requiring the use of order 

type categories that would further sub-divide the categories for orders submitted with stop prices. 

3. Non-Exempt Short Sale Orders 

a) Proposed Approach 

Commission staff has taken the position that staff would view all short sale orders that 

are not marked “short exempt” (“non-exempt short sale orders”) as special handling orders and, 

in the staff’s view, these orders may be excluded from the definition of “covered order.”298 Non-

exempt short sale orders are subject to a price test under 17 CFR 242.201 (“Rule 201” of 

Regulation SHO (17 CFR 242.200 through 242.204)) that sets forth a short sale circuit breaker 

that is triggered in certain circumstances, after which time a price restriction will apply to short 

 

298  See prior 17 CFR 242.600(b)(22); “Responses to Frequently Asked Questions Concerning Rule 605 of 

Regulation NMS” (Feb. 22, 2013) (“2013 FAQs”). 



88 

sale orders in that security for that day and the following day.299 The Commission proposed that 

non-exempt short sale orders would not be considered special handling orders unless a price test 

restriction is in effect for the security. As proposed, non-exempt short sale orders would fall 

within the definition of “covered order” and thus be subject to Rule 605 reporting, unless another 

exclusion applies. Conversely, during a short sale price test, a short sale order not marked 

“exempt” would continue to be subject to special handling and would be excluded from the 

definition of “covered order” and thus from Rule 605 reporting.300 

b) Final Rule and Discussion 

The Commission is adopting as proposed its position that non-exempt short sales orders 

will not be considered special handling orders unless a price test restriction is in effect for the 

security. The Commission received several comments on this aspect of the proposal. One 

national securities exchange supported the proposed treatment of non-exempt short sale 

orders.301 Another national securities exchange suggested that the Commission provide more 

detailed instructions relating to any order types that would be excluded from the definition of 

“covered order,” e.g., order types that are considered “special handling,” “to ensure that such 

orders are treated uniformly by respondents in their data disclosures.”302 Two broker-dealers 

 

299  Rule 201 generally requires trading centers to establish, maintain, and enforce written policies and 

procedures that are reasonably designed to prevent the execution or display of a short sale at an 

impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 

10% in one day. Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply 

to short sale orders in that security for the remainder of the day and the following day, unless an exception 

applies. See 17 CFR 242.201(b)(1). One exception is for the execution or display of a short sale order 

marked “short exempt.” See 17 CFR 242.201(b)(1)(iii)(B); 17 CFR 242.201(c). 

300  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 

301  See Nasdaq Letter at 43-44. 

302  NYSE Letter at 8. 



89 

supported the proposal,303 as did an individual investor who stated that non-exempt short sale 

orders are “a core component of the current market.”304 An industry association also supported 

this aspect of the proposal, but asked how the Commission intends to document the change, 

which is not reflected in any change to the definition of “covered order.”305 

After consideration of the comments, the Commission is adopting the position that non-

exempt short sale orders will not be considered special handling orders unless a price test 

restriction is in effect for the security, as proposed. As discussed in the Proposing Release, when 

a non-exempt short sale order is subject to a price test restriction under Rule 201 of Regulation 

SHO, a trade may only take place at least one tick above the national bid or offer; however, non-

exempt securities are infrequently subject to such a price test restriction.306 The inclusion of non-

exempt short sale orders within the scope of Rule 605 when a short sale price test is not in effect 

will not skew execution quality statistics because non-exempt short sale orders are not tick-

sensitive during this period. However, when a price test restriction under Rule 201 of Regulation 

SHO is in effect, any non-exempt short sale order (i.e., an order that is tick-sensitive) will be an 

“order to be executed only on a particular type of tick or bid” which is one of the types of special 

handling orders specified as being excluded from the definition of “covered order.”307 Such 

orders will therefore be excluded from the definition of “covered order.” In addition, including 

non-exempt short sale orders for which a price test restriction is not in effect within the scope of 

 

303  See Virtu Letter II at 3; Robinhood Letter at 45-46. 

304  See Joy Letter. 

305  See FIF Letter at 12. 

306  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). See also infra note 1172 and accompanying 

text.  

307  See final 17 CFR 242.600(b)(27).  



90 

Rule 605 reports will lead to a more complete picture of reporting entities’ execution quality.308 

As discussed further below, the prior staff statements that conflict with the Commission’s 

adopted position will be rescinded.309 

B. Required Information 

1. Categorization by Order Size 

a) Proposed Approach 

Prior to the amendments, Rule 605 reports utilized order size categories based on the 

numbers of shares in the order (e.g., 100-499 shares and 500-1,999 shares). Historically, round 

lots generally have been viewed as groups of 100 shares, and Rule 605 prior to these 

amendments reflected this: it did not require reporting of orders smaller than 100 shares, 

including odd-lot orders or fractional share orders (i.e., orders for less than one share).310 

Additionally, preexisting Rule 605 reports did not include orders with a size of 10,000 shares or 

greater, pursuant to exemptive relief provided by the Commission in 2001.311 

The Commission proposed to amend the definition of “categorized by order size” to 

designate the following categories for order sizes: (i) less than 1 share; (ii) odd-lot; (iii) 1 round 

 

308  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 

309  See infra section VI. As stated earlier, when a short sale price test restriction is in place for the security, a 

short sale order not marked “exempt” generally would continue to be subject to special handling and 

generally would be excluded from the definition of covered order and thus from Rule 605 reporting. See 

supra note 300 and accompanying text. At this time, no further guidance concerning additional order types 

that require “special handling” is required because it is not possible for the Commission to provide an 

exhaustive list of the types of orders that may be considered “special handling” and no specific questions 

regarding whether particular order types should be considered “special handling” have been raised. 

310  There are a variety of circumstances in which an order for an NMS stock submitted to a broker-dealer 

results in a fractional share. Examples include customer orders to buy: (1) a fraction of a share (e.g., order 

to buy 0.5 shares); (2) shares with a fractional component (e.g., order to buy 10.5 shares); and (3) a dollar 

amount that leads to the purchase of a fractional share (e.g., order to buy $1,223 worth of XYZ stock at $50 

per share or 24.46 shares). 

311  See Large Order Exemptive Letter. 



91 

lot to less than 5 round lots; (iv) 5 round lots to less than 20 round lots; (v) 20 round lots to less 

than 50 round lots; (vi) 50 round lots to less than 100 round lots; and (vii) 100 round lots or 

greater.312 The proposed modifications to the order size categories would have utilized the new 

definition of round lot adopted in the Market Data Infrastructure rule (the “MDI Rules”),313 and 

included odd-lots, fractional shares (i.e., orders for less than one share), and larger order sizes.314 

b) Final Rule and Discussion 

In response to comments, the Commission is adopting a definition of “categorized by 

order size” that differs from the proposal’s focus on round lot increments. Instead, as adopted, 

each order size category reflects a notional dollar value range, along with an indication that the 

category reflects orders that were for an odd-lot, a round lot, or less than a share. As adopted, this 

amendment will increase transparency regarding distribution of order sizes that a reporting entity 

handles, particularly for higher-priced stocks. The Commission also is adopting an execution 

quality statistic for cumulative notional order size of covered orders. 

 

312  See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023); proposed Rule 600(b)(19). 

313  For NMS stocks priced $250.00 or less per share, a round lot will be 100 shares; for NMS stocks priced 

$250.01 to $1,000.00 per share, a round lot will be 40 shares; for NMS stocks priced $1,000.01 to 

$10,000.00 per share, a round lot will be 10 shares; and for NMS stocks priced $10,000.01 or more per 

share, a round lot will be 1 share. See prior 17 CFR 242.600(b)(82); MDI Adopting Release, 86 FR 18596 

at 18617 (Apr. 9, 2021). Separately, the Commission proposed to accelerate the implementation of the 

round lot definition. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80270 (Dec. 29, 

2022). The Commission established a phased transition plan for the implementation of the MDI Rules, 

which provided for the implementation of the round lot definition as part of the final phase of 

implementation. See MDI Adopting Release, 86 FR 18596 at 18698-701 (Apr. 9, 2021). At a minimum, 

round lot implementation will be two years after the Commission’s approval of the plan amendment(s) 

required by 17 CFR 242.614(e) (“Rule 614(e)”). Until the round lot definition adopted pursuant to the MDI 

Rules is implemented, round lots continue to be defined in exchange rules. See id. at 16738. For most NMS 

stocks, a round lot is defined as 100 shares. 

314  The Commission proposed to rescind the exemptive relief for orders of 10,000 or more shares and include 

these orders within the scope of Rule 605 reports. See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 

2023). 



92 

Individual investors generally supported the proposed order size categories.315 Some 

individual investors stated that these categories would help them achieve investor confidence or 

better executions.316 Another individual investor stated that reporting execution quality 

information across orders of different sizes would be “incredibly beneficial” to understanding the 

“degree of fairness in the market.”317 An investor advocacy group supported the proposed 

changes to the definition of categorized by order size.318 But one broker-dealer stated that 

“because the Commission has simultaneously submitted for proposal a new rule that would 

change tick sizes and round lot definitions” (i.e., the Minimum Pricing Increments Proposing 

Release319), the reporting requirements pertaining to categorization by order size “are subject to 

change which in turn could create customer confusion.”320 

Other commenters addressed specific elements of the proposed order size categories. An 

investor advocacy group supported basing the order size categories on round lots, stating that 

doing so not only would harmonize Rule 605 disclosure with the MDI Rules321 that established a 

price-based definition of “round lot” but also would better enable Rule 605 reports to group 

 

315  See, e.g., Welch Letter (supporting the inclusion of fractional, odd-lot, and large size orders); Abanes 

Letter; Macarthur Letter. 

316  See Joy Letter (stating that the “inclusion of fractional shares [and] odd-lots are also essential in the 

provided data as these are the most commonly used orders by retail” and that including these order size 

categories “provides retail more information confidence to invest more frequently with smaller order 

sizes”); letter from Art. R Medina (Dec. 26, 2022) (“Medina Letter”) (stating that the proposed new size 

categories would “help for better execution in the lit market exchanges” and “help these systems better 

execute customer orders for broker-dealers and ensure competition”). 

317  See letter from Creighton Bledsoe (Feb. 28, 2023) (“Bledsoe Letter”). 

318  See Healthy Markets Letter at 17. 

319  See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2022). 

320  Tastytrade Letter at 5.  

321  See supra text accompanying note 313 (defining MDI Rules). 



93 

orders in a way that provides useful order execution information.322 However, a number of 

commenters suggested using notional dollar value categories instead of or in addition to the 

share-based categories.323  

Similarly, several commenters, including a broker-dealer and financial services firms, 

suggested using notional size categories rather than round lot-based size categories.324 One of the 

financial services firms stated that “the process for assigning the number of shares per round lot 

per security is not dynamic enough to make this a meaningful delineation.”325 In addition, 

according to this commenter, “after the size of an order has achieved round lot status, there is no 

intrinsic difference in the size of the order until it reaches 10,000 shares or $200,000,” and 

therefore “bucketing by round lots has no application to the broader market structure.”326 

Another financial services firm stated that creating order size categories based on notional dollar 

amounts would provide investors with clearer views of the execution experiences associated with 

 

322  See Better Markets Letter at 6. 

323  See SIFMA Letter II at 32; Angel Letter at 2; Schwab Letter II at 33; Fidelity Letter at 9; Rule 605 Citadel 

Letter at 6. Further, an academic recommended using dollar rather than share amounts and stated that 

“[r]ound lots are obsolete.” Angel Letter at 2. 

324  See Schwab Letter II at 33, Fidelity Letter at 9, Rule 605 Citadel Letter at 6. When discussing a potential 

average notional order size metric for the summary report, one of these broker-dealers stated that notional 

size is measured by multiplying the number of shares by the midpoint at the time of order entry. See 

Schwab Letter III at 3. In addition, an industry group stated that notional value should be based on the 

midpoint at the time of order receipt. See FIF Letter II at 11. See also infra notes 792 and 793 and 

accompanying text. 

325  Schwab Letter II at 33. This commenter stated that the “price of a stock can vary dramatically in the three-

month period in which the round lot size is set,” so an intent to approximate the notional order size by the 

round lot category would “frequently fail.” Id. 

326  Id. 



94 

their orders.327 A broker-dealer stated that grouping orders by notional size would allow for a 

more accurate comparison of execution quality.328  

Two industry groups also recommended grouping orders based on their notional dollar 

values.329 One of these industry groups stated that in 2018 and 2019 it had recommended a set of 

notional size buckets for Rule 605 reporting.330 This commenter suggested that the Commission 

utilize CAT data to conduct an analysis similar to the one conducted by IHS Markit for Q1 2018 

“to determine whether [those] notional value categories would still be appropriate or whether 

these notional value categories should be adjusted.”331 This commenter also specifically 

suggested that one of the thresholds separating notional value categories be $200,000.332 The 

other industry group supported revising Rule 605 to utilize notional buckets for the order size 

categorizations instead of, or in addition to, using the number of round lots as proposed.333 This 

 

327  See Fidelity Letter at 9. This commenter stated that notional sizes would: (1) be more easily compared over 

time as lot sizes change or stocks splits occur; and (2) provide “a more representative view of the cost to 

implement different types of trades and [be] more consistent with increased market use of 

fractional/notional trading.” Id. 

328  See Rule 605 Citadel Letter at 6. 

329  See SIFMA Letter II at 32; FIF Letter at 14-15. 

330  See FIF Letter at 14-15. This commenter also stated that it was providing information on the percentage of 

orders that fell within each notional value category, as estimated by IHS Markit for Q1 2018. See id. at 15. 

Specifically, the notional size buckets and associated percentage of orders were as follows: (1) $1 to $999 

(33%); (2) $999 to $4,999 (29%); (3) $5,000 to $19,999 (24%); (4) $20,000 to $49,999 (8%); and (5) 

$50,000 to $500,000 (6%). See id. at 14-15. 

331  Id. at 15. As discussed below, consistent with this commenter’s recommendation, the Commission analyzed 

current CAT data to establish the notional size buckets it is adopting. 

332  See id. See also infra note 353 and accompanying text. 

333  See SIFMA Letter II at 32. 



95 

commenter recommended that the Commission “calculate appropriately informative notional 

size buckets.”334 

A national securities exchange suggested using the following notional value buckets 

rather than share size categories: less than $10,000; $10,000 to less than $50,000; $50,000 to less 

than $100,000; $100,000 to less than $200,000; and $200,000 to $400,000.335 This commenter 

stated that this alternative would avoid the drawbacks of the current order size categories based 

on number of shares while ensuring coverage of most retail trades.336  

To address the Commission’s concern that defining order size buckets according to 

notional dollar values would no longer produce a meaningful distinction between round lot and 

odd-lot orders, one industry group suggested adding a column to the Rule 605 report to signify 

whether the orders in the applicable row are round lot or odd-lot orders.337 This commenter also 

recommended that mixed lot orders be classified as round lot orders for purposes of Rule 605 

reporting.338 Another industry group and a broker-dealer recommended distinguishing round lot 

and odd-lot orders using a separate flag.339  

 

334  Id. This commenter suggested that, for example, the Commission could use the notional buckets 

recommended by the first industry group in 2019. See id. at 32, n.78 and accompanying text (citing a letter 

to Brett Redfearn, Director, Division of Trading & Markets, Commission, from Christopher Bok, Financial 

Information Forum (Jan. 30, 2019), available at https://www.sec.gov/comments/s7-02-10/s70210-5002077-

182848.pdf). 

335  See Nasdaq Letter at 46. 

336  See id. at 44. 

337  See FIF Letter at 15. 

338  See id.; FIF Letter II at 3. 

339  See SIFMA Letter II at 32; Rule 605 Citadel Letter at 6. A group of academics also recommended having a 

separate entry solely for round lot trades, which they said accounts of a large fraction of trade sizes and 

dollar values. See Professor Schwarz et al. Letter at 5. 



96 

Several individual investor commenters supported the proposed inclusion of odd-lot and 

fractional share orders in Rule 605 reports.340 A group of academics stated that odd-lots currently 

account for over 60% of trades341 and, under current disclosure requirements, retail traders are 

unable to evaluate market center execution quality for a majority of their trades.342 These 

commenters also stated that fractional share market orders receive widely different price 

improvement across broker-dealers and full share price improvement statistics are not 

informative for the execution quality of fractional trades.343 These commenters stated that these 

factors justify adding fractional and odd-lot trades to Rule 605 reports.344 A broker-dealer 

similarly supported the proposed new category for fractional share orders as well as a category 

for orders from one share to 99 shares.345 Another broker-dealer also supported including odd-lot 

orders in Rule 605 reports and stated this would particularly benefit retail investors seeking to 

accurately assess execution quality delivered by wholesale broker-dealers.346  

Explaining that when a round lot or odd-lot order has a fractional share component, the 

time to execution and execution price may be impacted, one industry group recommended that: 

(1) fractional share orders (i.e., orders for less than one share) be reported separately from round 

lot and odd-lot orders; and (2) round lot and odd-lot orders be broken-out further to differentiate 

 

340  See, e.g., Pritchard Letter; Welch Letter; Macarthur Letter; Genco Letter; Cesar Letter; Joy Letter. 

341  See Professor Schwarz et al. Letter at 3. 

342  See id. at 4. 

343  See id. 

344  See id. 

345  See Virtu Letter II at 3. 

346  See Rule 605 Citadel Letter at 11. 



97 

between those orders that have, and do not have, a fractional share component.347 However, 

another industry group suggested eliminating the requirement to include orders for fractional 

shares in Rule 605 reports, contending that “this information is of limited value to investors.”348 

This commenter stated that “[t]here is also no clear way to execute fractional shares in a purely 

agency capacity” and, “[a]s a result, to the extent fractional share orders are required to be 

included in Rule 605 reports, any broker-dealer, even a small broker-dealer, that wanted to 

facilitate a fractional share order for its customer would be considered a market center for 

purposes of Rule 605.”349 Additionally, this commenter stated that “much of today’s market 

infrastructure does not yet support fractional share trading” and the “costs to fully modify this 

infrastructure would be high compared to the minimal benefit of including fractional share 

reporting.”350  

With respect to the proposed inclusion of larger-sized orders, a commenter stated that a 

“natural breakpoint” between size categories exists at $200,000 and suggested establishing a size 

bucket of $200,000 and greater.351 Another commenter supported the proposed order size 

category for orders greater than 10,000 shares.352 An industry group recommended designating 

 

347  See FIF Letter at 15; FIF Letter II at 3. This commenter recommended that orders be broken out into the 

following categories within each notional value range because orders in each of these categories have 

distinct execution characteristics: round lot without fractional component; round lot with fractional 

component; odd-lot without fractional component; odd-lot with fractional component; and fractional (less 

than one share). See FIF Letter II at 3. According to the commenter, if these five categories are separately 

reported for each notional value range, reporting based on the number of shares would not provide any 

material value for market participants. See id. 

348  SIFMA Letter II at 31. 

349  Id. 

350  Id. This commenter stated as an example that “FINRA does not currently have a mechanism to report 

fractional share trades, because all of these trades are rounded up today.” Id. 

351  See Schwab Letter II at 33. 

352  See Virtu Letter II at 3. 



98 

one of the thresholds for separating notional value categories at $200,000 because in the Order 

Competition Rule Proposing Release the Commission proposed to utilize a $200,000 threshold 

for an exception from the obligation to submit a segmented order to a qualified auction.353 A 

national securities exchange stated that the Commission should “consider increasing the current 

cap of $200,000 [the notional block size], as this benchmark has not changed with the market or 

inflation over time.”354 This commenter stated that increasing the cap may provide “information 

that is helpful for institutional buyers.” 355 

Taking into consideration the comments received, the Commission is adopting a modified 

definition of “categorized by order size.” The Commission followed the suggestion that it use 

CAT data to examine which notional order size buckets would be appropriate.356 Based on this 

analysis (discussed below), the Commission is adopting order size categories that utilize the 

following notional dollar value ranges: (i) less than $250; (ii) $250 to less than $1,000; (iii) 

$1,000 to less than $5,000; (iv) $5,000 to less than $10,000; (v) $10,000 to less than $20,000; 

(vi) $20,000 to less than $50,000; (vii) $50,000 to less than $200,000; and (viii) $200,000 or 

more.357  

 

353  See FIF Letter at 14-15. 

354  Nasdaq Letter at 46. 

355  Id. 

356  See supra note 331 and accompanying text. See also supra note 334 and accompanying text (suggesting that 

the Commission calculate appropriate notional size buckets). 

357  See infra Figure 16 and Figure 17. In aggregate, order flow appears reasonably well-distributed across the 

various notional order size buckets that the Commission is adopting, with the exceptions of the smallest 

size bucket (orders for $250 or less) and the largest size bucket (orders for $200,000 or more), both of 

which have little order flow. See infra Section IX.D.1.b)(2)(a)(i). The Commission is adopting these 

notional order size buckets for the reasons described below. 



99 

Each adopted order size category reflects one of these notional dollar value ranges, along 

with an indication that the orders were for an odd-lot, a round lot, or less than a share.358 

Accordingly, as adopted, “categorized by order size” means dividing orders into separate 

categories for the following sizes:  

• Less than $250 and less than a share;  

• Less than $250 and odd-lot;  

• Less than $250 and at least a round lot;  

• $250 to less than $1,000 and less than a share;  

• $250 to less than $1,000 and odd-lot;  

• $250 to less than $1,000 and at least a round lot;  

• $1,000 to less than $5,000 and less than a share;  

• $1,000 to less than $5,000 and odd-lot;  

• $1,000 to less than $5,000 and at least a round lot;  

• $5,000 to less than $10,000 and less than a share;  

• $5,000 to less than $10,000 and odd-lot;  

• $5,000 to less than $10,000 and at least a round lot;  

• $10,000 to less than $20,000 and less than a share;  

• $10,000 to less than $20,000 and odd-lot;  

 

358 Some commenters suggested utilizing a column or a flag to designate whether orders in a particular row are 

odd-lots or round lots. See supra notes 337-339 and accompanying text. Instead, the Commission is 

incorporating into the defined order size categories whether an order is for a round lot, odd-lot, or less than 

a share for ease of application. The two approaches have the same substantive effect of having a single row 

representing each possible combination of round lot, odd-lot, and fractional share with each notional value 

size range. 



100 

• $10,000 to less than $20,000 and at least a round lot;  

• $20,000 to less than $50,000 and less than a share;  

• $20,000 to less than $50,000 and odd-lot;  

• $20,000 to less than $50,000 and at least a round lot;  

• $50,000 to less than $200,000 and less than a share;  

• $50,000 to less than $200,000 and odd-lot;  

• $50,000 to less than $200,000 and at least a round lot;  

• $200,000 or more and less than a share;  

• $200,000 or more and odd-lot; and  

• $200,000 or more and at least a round lot.359  

As discussed further below, the adopted categories will facilitate market participants’ 

ability to compare across orders of different sizes in higher-priced stocks, while controlling for 

potential differences in the treatment of larger-sized orders. Additionally, the adopted buckets 

better account for potential differences in the distribution of order sizes that reporting entities 

typically handle for a given stock when comparing execution quality metrics across reporting 

entities, facilitating apples-to-apples comparisons of execution quality across reporting entities.  

For purposes of the order size categories, a mixed lot order (i.e., an order for an amount 

of shares greater than a round lot that is not a multiple of such round lot) will be grouped in the 

“at least a round lot” category and an order for an odd-lot with a fractional share component or a 

 

359  See final 17 CFR 242.600(b)(18). The adopted categories address the concern expressed by a commenter 

that the proposed categories, which were based on round lots (and also included categories for orders for 

less than one share and for odd-lots), may cause confusion because the definition of round lot may change. 

See supra note 320 and accompanying text.101 

round lot with a fractional share component will be grouped with other odd-lots or round lots, 

respectively.360 Reporting entities generally should calculate a limit order’s notional value by 

multiplying the number of shares by the order’s limit price. In addition, reporting entities 

generally should calculate a market order to buy’s notional value by multiplying the number of 

shares by the national best offer at the time of order receipt and a market order to sell’s notional 

value by multiplying the number of shares by the national best bid at the time of order receipt.361 

Calculation of the notional value of a stop order generally should follow these principles based 

on whether the order once triggered is a limit order or a market order, except that the notional 

value of a stop market order should be based upon the national best bid or national best offer at 

the time the order is triggered rather than the time of order receipt.  

The Commission used CAT data to examine the distribution of orders across a granular 

set of notional order size buckets to determine which breakpoints form the most appropriate 

notional order size buckets. Figure 1 presents the distribution of orders across the notional order 

size buckets and shows that orders tend to be clustered around certain round notional values 

(e.g., $100, $1,000, $10,000, and $50,000). 

 

360  See final 17 CFR 242.600(b)(18). 

361  The Commission does not agree with the commenters’ suggestion that notional value of an order generally 

should be calculated based on the midpoint of the national best bid and national best offer at time of order 

receipt. See supra note 324. The order size categories reflect the order from the perspective of the order 

submitter. Likewise, calculating an order’s notional value for purposes of categorization by order size by 

referencing the limit price for a limit order or the far touch for a market order generally should better reflect 

the order submitter’s expectation of the order’s notional value.  



102 

Figure 1: Distribution of Orders Across Notional Order Size Buckets, Q1 2023 

 

 
This figure shows the distribution of orders (as a percent of total orders) across notional order size buckets. Percentages are 

calculated as the number of submitted orders within each order size bucket, summed across all stocks and days in the sample, 

divided by the total number of submitted shares summed across all stocks and days. This analysis uses data from CAT for a 

sample of 400 stocks for Q1 2023. See infra note 1261 for a description of this dataset. The 196 notional order size buckets were 

determined as follows: For orders between $0 and $1,000, notional order size buckets were set in increasing $50 increments (i.e., 

less than $50, from $50 to less than $100, from $100 to less than $150, etc.). For orders between $1,000 and $10,000, order size 

buckets were set in increasing $100 increments. For orders between $10,000 and $25,000, order size buckets were set in 

increasing $500 increments. For orders between $25,000 and $50,000, order size buckets were set in increasing $1,000 

increments. For orders between $50,000 and $200,000, order size buckets were set in increasing $5,000 increments.  

 When trying to determine the optimal cut-off points between notional order size buckets, 

the Commission considered how the order size buckets selected could meaningfully capture 

variations in order sizes across a variety of different factors, including stock prices, market 

centers, lot type and order share size categorization (i.e., round lot, odd-lot, and fractional share 

orders). Based on its analysis, the Commission makes the following observations about the types 

of variations in order characteristics that will be captured by the adopted order size buckets. 

First, Figure 2 below presents the cumulative order flow (as a percentage of total orders) across 

notional order size buckets. These results show that, for stocks priced less than $5, 87.6% of 



103 

orders are valued below $1,000 and 66.9% of orders are valued below $500. Given that nearly a 

quarter of stocks are priced below $5,362 including a set of smaller notional order size buckets 

(i.e., less than $250; and $250 to less than $1,000) will help ensure that orders are meaningfully 

distributed across order size categories and not clustered within a single category. Additionally, 

odd-lot orders tend to be valued less than $1,000, so the smaller notional order size buckets are 

useful for capturing the distribution of odd-lot orders specifically.363  

 

362  This number is based on an analysis of the volume-weighted average price (“VWAP”) calculated for each 

stock during normal trading hours for Q1 2023 using data from WRDS Intra-Day Indicators. 

363  Based on an analysis of the CAT data described in note 1261 infra, 17.4% of odd-lot orders are valued 

below $1,000, and for stocks priced less than $50 (which represent 85% of all stocks), this percentage 

increases to 68.9%. 



104 

Figure 2: Cumulative Order Flow across Notional Order Size Buckets, by Stock Price, Q1 

2023 

 

 
This figure shows the cumulative percentage of orders across notional order size buckets for stocks grouped according to average 

stock prices. Percentages are calculated as the cumulative number of submitted orders within each size bucket, summed across all 

stocks within a given price group and across all days in the sample, divided by the total number of submitted orders summed 

across all stocks within a given price group and across all days in the sample. This analysis uses data from CAT for a sample of 

400 stocks for Q1 2023. See infra note 1261 for a description of this dataset. Stocks were grouped according to their average 

share price over the sample period. The 196 notional order size buckets were determined as follows: For orders between $0 and 

$1,000, notional order size buckets were set in increasing $50 increments (i.e., less than $50, from $50 to less than $100, from 

$100 to less than $150, etc.). For orders between $1,000 and $10,000, notional order size buckets were set in increasing $100 

increments. For orders between $10,000 and $25,000, notional order size buckets were set in increasing $500 increments. For 

orders between $25,000 and $50,000, notional order size buckets were set in increasing $1,000 increments. For orders between 

$50,000 and $200,000, notional order size buckets were set in increasing $5,000 increments. 

 Second, orders valued below $250 contain a higher percentage of individual investor 

orders than higher-valued orders. To proxy for small individual investor orders, the Commission 

analyzed the distribution of non-IOC orders that are valued less than $1,000 and that originate 



105 

from Individual Customer364 accounts and are handled by wholesalers.365 The Commission found 

that 54.2% of these orders are valued less than $250. Furthermore, 99.7% of fractional orders for 

less than a share, the majority of which are originated from Individual Customer accounts, are 

valued less than $250. Figure 3 below shows the breakdown of orders originating from 

Individual and Institutional Customer account types and shows that nearly three-fourths of orders 

valued under $250 originate from Individual Customers. Therefore, a separate notional order size 

category for orders valued less than $250 will be particularly useful in allowing individual 

investors to compare the execution quality of their orders across reporting entities. 

 

364  See infra note 1144 for a description of an “Individual Customer” account. 

365  This proxy was employed for two reasons. First, it was utilized because a high percentage of individual 

investors’ orders are handled by wholesalers. See Proposing Release, 88 FR 3786 at 3839, n.614 (Jan. 20, 

2023) (describing a Commission analysis of Rule 606 reports that showed that, in Q1 2022, a sample of 46 

retail broker-dealers routed 87.3% of orders in S&P 500 stocks and 87.9% of orders in non-S&P 500 stocks 

to wholesalers, as compared to 9.1% and 8.5%, respectively, to national securities exchanges). Second, it 

was utilized because it is the Commission’s understanding that IOC orders handled by wholesalers are 

likely to be orders directed to wholesaler SDPs. See infra note 1110. Based on an analysis of the CAT data 

described in in note 1261 infra, non-IOC orders that are valued less than $1,000 and that originate from 

Individual Customer accounts make up around 10.2% of wholesalers’ total order flow.  



106 

Figure 3: Percentage of Individual and Institutional Customer Orders, by Notional Order 

Size Bucket, Q1 2023 

 

 

This figure shows the percentage breakdown of orders originating from either individual customer accounts or institutional 

customer accounts. Percentages are calculated as the number of submitted orders within each order size bucket that originated 

from a given account type, summed across all stocks and days in the sample, divided by the total number of submitted orders 

within each order size bucket, summed across all stocks and days. This analysis uses data from CAT for a sample of 400 stocks 

for Q1 2023. See infra note 1261 for a description of this dataset. See infra note 1144 for a description of account types in CAT.  

 Third, for stocks priced less than $50 (which, again, represent 85% of all stocks366), 

68.0% of orders are valued between $1,000 and $10,000. Two of the adopted notional order size 

buckets ($1,000 to less than $5,000; and $5,000 to less than $10,000) will capture some variation 

across the majority of orders for the majority of stocks. 

 Fourth, 69.6% of round lots have relatively higher notional order sizes of between 

$10,000 and $200,000. In addition, some market centers seem to specialize in larger orders. For 

 

366  See supra note 363. 



107 

example, 63.3% of order flow to ATSs is valued between $10,000 and $200,000. The remaining 

adopted notional order size buckets ($10,000 to less than $20,000; $20,000 to less than $50,000; 

and $50,000 to less than $200,000) capture the distributions of these larger notional value orders, 

and thus allow for measurement of execution quality at market centers that specialize in larger 

notional value order sizes. 

Lastly, the additional notional order size category for orders for valued $200,000 or more 

will be useful because these orders typically warrant different treatment than smaller orders.367 

Designating order size categories based on notional order size buckets represents a shift 

in approach from the proposed order size categories based on round lot size ranges. In the 

Proposing Release, the Commission stated that modifying the order size categories to reflect the 

number of round lots would better allow Rule 605 reports to group orders with similar 

characteristics and notional values, and thereby provide more useful execution quality 

information.368 The Commission also stated its belief that notional buckets and caps would not 

be necessary because the definition of round lot, as modified by the MDI Rules, incorporates the 

current market price of the security.369 However, the Commission requested and, as described 

above, received, comments supporting the use of order size categories based on notional value.370 

In the Proposing Release, the Commission recognized advantages to defining order size 

 

367  See, e.g., 17 CFR 242.606(a)(1) (requiring reports on the routing of customer orders) and prior 17 CFR 

242.600(b)(25) (defining “customer order” to exclude an order with a market value of $200,000 or more); 

17 CFR 242.604(b)(4) (providing an exception for orders of block size from required limit order display) 

and prior 17 CFR 242.600(b)(12) (defining “block size” as, in part, an order for a quantity of stock having a 

market value of at least $200,000). In addition, the adopted rule is consistent with the recommendations by 

two commenters to establish a $200,000 threshold and to increase the cap above $200,000. See supra notes 

353 and 354 and accompanying text. 

368  See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023). 

369  See id.  

370  See id. at 3809. 



108 

categories based on dollar value of the order, while also recognizing that this approach would no 

longer produce a meaningful distinction between round lot and odd-lot orders according to the 

new definitions under the MDI Rules and therefore it would not be possible to distinguish orders 

that may not be at the same price as quotes protected under 17 CFR 242.611 (“Rule 611”).371 

Many commenters favored utilizing order size categories based on notional dollar value.372 

Further, accepting commenters’ suggestion to combine notional dollar value ranges with an 

indication of whether a category represents round-lot orders and odd-lot orders,373 and also 

indicating whether a category represents orders of less than a share, will preserve the ability to 

distinguish between such orders.374 Designating order size categories according to notional value 

and whether the order represents a round lot, an odd-lot, or an order smaller than a single share 

preserves the comparability of order execution quality statistics within an order size category and 

is responsive to comments.375  

 

371  See id. at 3891-92 (describing reasonable alternative to define order sizes based on dollar volume 

categories rather than number of round lots). 

372  See supra notes 323-335 and accompanying text. 

373  See supra notes 337-339 and accompanying text. 

374  One commenter supported the proposed order sized definitions in part because they would harmonize Rule 

605 disclosures with the price-based definition of round lot from the MDI Rules. See supra note 322. 

Because the adopted order size categories combine notional value with an indication of whether the order 

was a round lot, odd-lot, or order less than a share, the order size categories will reflect the price-based 

definition of round lot when it is implemented.  

375  The Commission disagrees with a commenter’s statement that the reporting requirements relating to order 

size categories are subject to change and thus could create confusion because of the changes being 

proposed in the Minimum Pricing Increments Proposing Release. See supra notes 319-320 and 

accompanying text. The Minimum Pricing Increments Proposing Release includes a proposal to accelerate 

the implementation of the round lot definition adopted under the MDI Rules that will assign NMS stocks 

priced over $250 to round lot sizes smaller than 100 shares. See Minimum Pricing Increments Proposing 

 

 

 



109 

In addition, in response to commenters’ suggestions that the statistics in the summary 

report should be derivable from the detailed report,376 the Commission is adding a metric to the 

detailed report under Rule 605(a)(1) for the cumulative notional order size of all covered 

orders.377 Specifically, users of the detailed reports can use the cumulative notional order size 

metric to calculate average notional order size, which is a metric in the summary report, and thus 

either reconstruct a firm’s calculations in its summary report or calculate the metric for different 

combinations of orders.378 Users of the detailed report also can use the cumulative notional order 

size metric to calculate the average share price for covered orders received by combining the 

metric with shares submitted. Further, the cumulative notional order size metric provides 

information to users of the detailed report regarding whether the orders that the reporting entity 

received are more heavily weighted towards the higher or the lower end of a notional order size 

range. 

For the reasons discussed in the Proposing Release and as described below, the 

Commission continues to believe that fractional, odd-lot, and larger-sized orders of 10,000 or 

 

Release, 87 FR 80266 at 80270 (Dec. 29, 2022). Although the new round lot definition when implemented 

will be dynamic and lead to changes in the round lot for stocks priced over $250, market participants will 

have notice of these changes. Further, the use of notional value in the adopted order size categories will 

help users of Rule 605 reports understand the effect of a change in round lot size for a security because a 

notional value range will remain constant even if the size of a round lot changes. Moreover, it is not clear, 

and the commenter does not explain, how the proposals to modify tick sizes in the Minimum Pricing 

Increments Proposing Release would potentially affect Rule 605’s requirements concerning categorization 

by order size. 

376  See infra note 769 and accompanying text. One commenter specifically recommended “adding to the 

[605](a)(1) report the aggregate notional value of covered orders for each row.” See FIF Letter II at 11. 

377  See final 17 CFR 242.605(a)(1)(i)(B) (requiring the reporting of the cumulative notional value of covered 

orders for all order types). 

378  See final 17 CFR 242.605(a)(2)(ii). See also infra note 796 and accompanying text (discussing the average 

notional order size metric in the summary report).  



110 

more shares represent important order flow segments.379 By incorporating these orders into the 

new order size categories, Rule 605 reports will contain information about some orders that were 

previously missing from Rule 605 reports. The Commission disagrees with the commenter that 

stated that execution quality information for fractional share orders is of limited value to 

investors and suggested not including such orders in Rule 605 reports.380 Fractional share orders 

have become increasingly popular with individual investors and the Commission continues to 

believe that it is important to provide standardized execution quality metrics for this segment of 

order flow.381 Analysis of CAT data from August 2023 found that executed orders with a 

fractional share component originated from almost five and a half million unique accounts. 

Further, orders for less than a single share represented a significant portion of fractional order 

executions.382 While fractional share orders continue to represent a small percentage (around 

 

379  See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). The Commission is rescinding the portion of 

the Large Order Exemptive Letter that grants the Large Order Exemptive Relief because it is inconsistent 

with, and will be obsolete in light of, the new order size categories. See infra section VI for further 

discussion. 

380  See supra note 348 and accompanying text. 

381  See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). A broker-dealer that principally facilitates the 

trading of fractional shares must produce a separate Rule 605 report as a market center if it meets the 

definition of an “OTC market maker” and receives covered orders for execution in such capacity. See final 

17 CFR 242.600(b)(18) (defining “categorized by order size” to include categories for orders of less than a 

share); final 17 CFR 242.600(b)(55) (defining “market center”); final 17 CFR 242.600(b)(75) (defining 

“OTC market maker”); final 17 CFR 242.605(a)(1) (“Every market center . . . shall make available for each 

calendar month . . . a report on the covered orders in NMS stocks that it received for execution from any 

person or that it received for execution in a prior calendar month but which remained open.”). See also 

supra note 170 and accompanying text. As discussed below, the inclusion of orders less than one share will 

expand the number of market centers filing Rule 605 reports, and therefore this change will increase 

transparency about the execution quality achieved by those market centers. See infra notes 1436-1438 and 

accompanying text. 

382  Analysis of CAT data from Mar. 2022 found that almost 68% percent (31.67 million) of the 46.63 million 

executed orders with a fractional component were for less than a single share. See Proposing Release, 88 

FR 3786 at 3808, n.279 (Jan. 20, 2023). Updated analysis from Aug. 2023 found that both the number and 

percentage of orders for less than a share increased. In Aug. 2023, approximately 81% (54.7 million) of the 

67.4 million executed orders with a fractional component were for less than a single share. 



111 

4.1%) of originating orders that eventually execute, they represent a significant percentage 

(21.6%) of order executions originating from individual accounts.383  

With respect to the commenter’s statement that the cost of modifying market 

infrastructure to accommodate fractional share trading “would be high compared to the minimal 

benefit” of including fractional shares in Rule 605 reports,384 this commenter has not provided 

data to quantify the projected increased costs. Although this commenter provides as an example 

of potential infrastructure issues that FINRA “does not currently have a mechanism to report 

fractional share trades, because all of these trades are rounded up today,”385 these trades must 

still be reported to FINRA’s trade reporting facility.386 Further, CAT accepts reports involving 

fractional shares.387 Only market centers or larger broker-dealers that accept orders with 

fractional shares for execution will need to include fractional shares in their Rule 605 reports, 

and those firms have the necessary systems to handle fractional shares.388 Therefore, the 

Commission does not agree that the cost to implement any modifications to infrastructure needed 

 

383  This considers any order with a fractional component. However, orders for less than one share still account 

for over 16% of order executions originating from individual accounts. See infra note 1424. Generally, 

accounts classified as “individual” in CAT are attributed to natural persons. 

384  See supra note 350 and accompanying text. 

385  SIFMA Letter II at 31. 

386  See FINRA Trade Reporting FAQs, available at https://www.finra.org/filing-reporting/market-

transparency-reporting/trade-reporting-faq (“Q101.15: Must trades for less than one share be reported? 

A101.15: Yes…where a trade is executed for less than one share, e.g., 1/3 share, firms should round up and 

report a share quantity of 1.”)  

387  See CAT FAQ B.10 available at https://catnmsplan.com/faq.  

388  For example, a broker-dealer that accepts orders with fractional shares for execution will need to provide a 

trade confirmation to its customer that includes the execution price. In addition, such broker-dealer will 

need to have the ability to compare the execution price to the NBBO at the time of execution in order to 

help ensure compliance with the order protection rule. See 17 CFR 242.611.  



112 

to provide for the inclusion of fractional shares in Rule 605 reports would be so high as to exceed 

the benefits of providing standardized execution quality metrics for this segment of order flow.389 

In addition, the Commission is not adopting the commenter’s suggestion that Rule 605 

reports also include separate reporting categories for round lot orders with a fractional share 

component and odd-lot orders with a fractional share component.390 The majority of orders that 

have a fractional share component are orders for less than one share and these orders will appear 

separately in Rule 605 reports in the designated order size category. The value of including an 

additional category of orders of larger than one share with a fractional share component is 

unclear.391 Such orders will be grouped with orders of the same notional size and according to 

whether the order based on overall share size is an odd-lot or a round lot, which should provide 

sufficient comparability for such orders.  

2. Categorization by Order Type 

Rule 605 reports include data for orders as categorized by order type. Prior to the 

amendments, Rule 605 defined “categorized by order type” to mean dividing orders into separate 

categories for market orders, marketable limit orders, inside-the-quote limit orders, at-the-quote 

limit orders, and near-the-quote limit orders.392 The Commission proposed to modify this 

definition: (1) to remove the order type categories for inside-the-quote limit orders, at-the-quote-

limit orders, and near-the-quote limit orders; (2) to add order type categories for marketable 

immediate-or-cancel orders, beyond-the-midpoint limit orders, executable NMLOs (excluding 

 

389  See infra notes 1674-1676 and accompanying text (discussing costs and benefits). 

390  See supra note 347. 

391  As discussed below, the Commission did not find execution quality to systematically vary significantly 

between odd-lots and rounds lots with fractional components and their counterparts without fractional 

components. See infra at section IX.E.3.(a)(2). 

392  See prior 17 CFR 242.600(b)(14). 



113 

beyond-the-midpoint limit orders and orders submitted with stop prices), and executable orders 

submitted with stop prices; and (3) to specify that the category for marketable limit orders will 

exclude immediate or cancel orders.393 

The Commission received comments supporting the overall changes to order type 

categories being proposed.394 Additionally, and as discussed in relevant subsections below, many 

commenters discussed specific aspects of the proposed changes to the order type categories. The 

Commission is adopting the amendments to the order type categories, with a few adjustments 

from the proposal. First, in connection with the proposed order type categories for NMLOs, the 

Commission is making certain modifications to the proposed definition of executable, as 

discussed in section III.B.2.a) below. Second, the Commission is retaining a separate order type 

category for executable beyond-the-midpoint limit orders largely as proposed, with a small 

expansion in scope and corresponding change to the name of the relevant defined term to refer to 

them as “midpoint-or-better limit orders,” as discussed in section III.B.2.b) below. Finally, the 

Commission is adopting the proposed order type category for marketable IOCs, while also 

adding order type categories for two other types of IOCs, as discussed in section III.B.2.c) 

below.395 

 

393  See Proposing Release, 88 FR 3786 at 3809-12 (Jan. 20, 2023); proposed Rule 600(b)(20). 

394  See, e.g., Better Markets Letter at 6-7; Pritchard Letter; Abanes Letter. An individual investor stated that 

creation of new order type categories would help improve executions in the lit exchanges and ensure 

competition among broker-dealers. See Medina Letter. 

395  In addition, as discussed in section III.A.2 above, the Commission is subdividing the order type category 

for executable orders submitted with stop prices and modifying the definition of executable as it pertains to 

stop orders.  



114 

a) NMLOs 

(1) Proposed Approach 

The Commission proposed to eliminate the three separate order type categories pertaining 

to NMLOs (i.e., inside-the-quote limit orders, at-the-quote limit orders, and near-the-quote limit 

orders)396 and to replace them with new categories for NMLOs that become executable 

(excluding orders submitted with stop prices and beyond-the-midpoint limit orders) and beyond-

the-midpoint limit orders.397 The Commission recognized that more meaningful measures of 

execution quality for NMLOs, as well as orders submitted with stop prices, would assist 

investors in measuring execution quality, and stated that it was proposing to add the concept of 

“executable” to allow execution quality statistics to be measured from a point where an order 

could be executed.398 Specifically, the Commission proposed the following definition of 

“executable” for NMLOs (other than orders submitted with stop prices): for any non-marketable 

buy order (excluding orders submitted with stop prices), executable means that the limit price is 

equal to or greater than the national best bid during regular trading hours, and, for any non-

marketable sell order (excluding orders submitted with stop prices), that the limit price is equal 

to or less than the national best offer during regular trading hours.399 The Commission stated 

that, as is the case for orders submitted with stop prices, incorporation of the “executable” 

concept would have two effects—NMLOs would only be reported as part of a Rule 605 report if 

 

396  Inside-the-quote limit order, at-the-quote limit order, and near-the-quote limit order mean non-marketable 

buy orders with limit prices that are, respectively, higher than, equal to, and lower by $0.10 or less than the 

national best bid at the time of order receipt, and non-marketable sell orders with limit prices that are, 

respectively, lower than, equal to, and higher by $0.10 or less than the national best offer at the time of 

order receipt. See prior 17 CFR 242.600(b)(37). 

397  See Proposing Release, 88 FR 3786 at 3809 (Jan. 20, 2023); proposed Rule 600(b)(20).  

398  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). 

399  See id.; proposed Rule 600(b)(42). 



115 

they become executable during regular trading hours and the point that NMLOs first become 

executable would be used as an input for several execution quality metrics.400 

(2) Final Rule and Discussion 

An individual investor supported the proposed modifications to reporting requirements 

for NMLOs, stating they would capture more relevant execution quality information for these 

orders.401 A broker-dealer supported replacing the current NMLO order categories with NMLOs 

that become executable and beyond-the-midpoint limit orders, and stated that “[a]dding these 

new categories should capture many more orders compared to current Rule 605 reports.”402 A 

national securities exchange asked for clarification regarding whether market centers would be 

permitted to use their own view of the NBBO, data from the securities information processors 

(“SIPs”), or data from competing consolidators (in the future, pursuant to the MDI Rules) when 

determining order marketability.403 Another national securities exchange supported replacing the 

three current categories for NMLOs with NMLOs that become executable, beyond-the-midpoint 

limit orders, and executable orders submitted with stop prices and stated that these changes 

would enhance execution quality information within Rule 605 reports and better group 

comparable orders.404 According to a group of academics, some broker-dealers convert their 

 

400  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). 

401  See Genco Letter. 

402  Rule 605 Citadel Letter at 11. 

403  See NYSE Letter at 8. Until the implementation of the MDI Rules, a reporting entity generally should use 

data from the exclusive SIPs to calculate its Rule 605 statistics, including the determination of whether a 

limit order is marketable. The MDI Rules include a phased transition plan to implement the 

decentralization consolidation model, including a parallel operation period followed by the cessation of 

operations of the exclusive SIPs, which will only cease operations if the Commission approves an 

amendment to the effective national market system plan(s) to effectuate such a cessation. See MDI 

Adopting Release, 86 FR 18596 at 18700-01 (Apr. 9, 2021). The Commission will monitor the 

implementation of the decentralized consolidation model required under the MDI Rules. 

404  See Nasdaq Letter at 44. 



116 

customers’ order types and route most of them to the broker-dealer’s ATS.405 These commenters 

recommended, to provide transparency on order types selected by customers, that Rule 605 

statistics reflect the order type selected by customers rather than the routing broker-dealer.406
  

After reviewing the comments, the Commission is eliminating the definition of “inside-

the-quote limit order, at-the-quote limit order, and near-the-quote limit order,”407 as proposed 

and is adopting the order type category for executable NMLOs largely as proposed for the 

reasons stated in the Proposing Release.408 As a result, Rule 605 reports will capture more of 

those NMLOs that have an opportunity to execute, and execution quality statistics will be more 

useful for these types of NMLOs. However, as discussed above in section III.A.1.b), the 

Commission is modifying the definition of “executable” in response to a comment regarding the 

treatment of orders received during the interim opening period.409 

A national securities exchange stated that under the Limit-Up Limit-Down (“LULD”) 

Plan, certain NMLOs would not necessarily be “executable” and requested that the Commission 

 

405  See Professor Schwarz et al. Letter at 5. 

406  See id. Each firm or market center generally should classify orders based on the order type when received. 

This generates execution quality statistics that are comparable among different types of reporting entities 

because many of the Rule’s statistical measures are based on time of order receipt (or benchmarked to the 

NBBO when received, for marketable order types). In addition, some receiving market centers or broker-

dealers may not have information about the order type when the originating customer entered the order and 

thus would not have the information needed to classify orders based on the order type selected by the 

customer.  

407  These terms will no longer be used with the adopted changes to the order type categories, which focus on 

whether a NMLO becomes executable rather than on how a NMLO’s limit price compares to the quote, as 

discussed further below. The Commission received one comment supporting the elimination of this 

definition. See Nasdaq Letter at 44. 

408  See Proposing Release, 88 FR 3786 at 3809-10 (Jan. 20, 2023); final 17 CFR 242.600(b)(19). As discussed 

further below, the Commission is adopting a new order type category for executable NMLOs that are 

immediate-or-cancel and thus these orders will not be included within the scope of the order type category 

for executable NMLOs. See infra section III.B.2.c).  

409  See final 17 CFR 242.600(b)(39). See also supra notes 244-246 and accompanying text. 



117 

modify the definition of “executable” to conform to the provisions of the LULD Plan.410 The 

Commission agrees with the commenter that an order generally should not fall within the 

definition of “executable” when the underlying security is in a Straddle State. The market for a 

security in a Straddle State can substantially differ from the market for that security outside of a 

Straddle State, as reflected in the fact that the primary listing exchange may declare a trading 

pause for an NMS Stock in a Straddle State.411 Even if the primary listing exchange has not 

declared a trading pause for a security in a Straddle State, the decision to not consider an order 

executable based on a whether the national best bid or national best offer reaches a specific price 

at a time when the underlying security is in a Straddle State is consistent with the Commission’s 

decision to include within the scope of Rule 605 reports only those NMLOs that become 

executable during regular trading hours. The Commission stated that it was only including in 

Rule 605 reports those NMLOs that become executable during regular trading hours in order to 

provide a basis for more comparable execution quality measures because there are substantial 

differences in the nature of the market between regular trading hours and after-hours.412 

Accordingly, for purposes of determining when an order first became executable, an order 

 

410  See NYSE Letter at 8-9. This commenter stated that, under the LULD Plan, a security is in a “Straddle 

State” when the national best bid is below the LULD lower price band or the national best offer is above 

the LULD upper price band and an order is not executable when the underlying security is in a Straddle 

State. See id. at 9, n.12. 

411  See Section VII(A)(2) of 20th Amendment to the National Market System Plan to Address Extraordinary 

Market Volatility (“LULD Plan”). The LULD Plan defines a “Straddle State” as when the national best bid 

(offer) is below (above) the lower (upper) price band and the stock is not in a limit state, and “trading in 

that NMS Stock deviates from normal trading characteristics such that declaring a Trading Pause would 

support the [LULD] Plan’s goal to address extraordinary market volatility.” Id. The primary listing 

exchange for a stock must have policies and procedures to determine when to declare a trading pause. See 

id.  

412  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). The Commission is further advancing this goal 

through the adopted definition of “executable,” which additionally specifies that NMLOs will be 

executable only after the primary listing market has disseminated its first firm, uncrossed quotations in the 

security. See final 17 CFR 242.600(b)(39). 



118 

generally should not become executable during a time when the underlying security is in a 

Straddle State.413 

b) Midpoint-or-Better Limit Orders 

(1) Proposed Approach 

Inside-the-quote limit orders were a separate order type category under Rule 605 before 

the amendments,414 and Rule 605 did not require price improvement statistics to be calculated for 

these orders because they are not a marketable order type (i.e., they do not fully cross the 

spread).415 The Commission proposed to require execution quality statistics for limit orders 

priced more aggressively than the midpoint and to classify these types of orders as beyond-the-

midpoint limit orders.416 Specifically, the Commission proposed to define a “beyond-the-

midpoint limit order” as follows: with respect to an order received at a time when a NBBO is 

being disseminated, (i) any non-marketable buy order with a limit price that is higher than the 

midpoint of the national best bid and national best offer at the time of order receipt, or (ii) any 

non-marketable sell order with a limit price that is lower than the midpoint of the national best 

bid and national best offer at the time of order receipt; and, with respect to an order received at a 

time when a NBBO is not being disseminated, (i) any non-marketable buy order with a limit 

price that is higher than the midpoint of the national best bid and national best offer at the time 

that the national best bid and national best offer is first disseminated after the time of order 

 

413  This guidance is based upon the current definition of Straddle State in the LULD Plan, as described above. 

If this definition changes due to an LULD Plan amendment and the change impacts the guidance provided 

here, this guidance may no longer be valid.  

414  See prior 17 CFR 242.600(b)(14). 

415  Prior Rule 605(a)(1)(i) specified execution quality statistics to be provided for all order types, and prior 

Rule 605(a)(1)(ii) specified execution quality statistics to be provided for marketable order types. See prior 

17 CFR 242.605(a)(1)(i) and (ii). 

416  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023). 



119 

receipt, or (ii) any non-marketable sell order with a limit price that is lower than the midpoint of 

the national best bid and national best offer at the time that the national best bid and national best 

offer is first disseminated after the time of order receipt.417  

Additionally, the Commission proposed to require that the execution quality statistics for 

beyond-the-midpoint limit orders include the additional information required of both marketable 

and non-marketable order types.418 The Commission also proposed to modify the time-to-

execution statistics to state that, with respect to beyond-the-midpoint limit orders, these time-

based statistics would have been measured from the time such orders become executable rather 

than from the time of order receipt.419 

(2) Final Rule and Discussion 

A national securities exchange and a broker-dealer supported including beyond-the-

midpoint orders among the new order type categories.420 The broker-dealer stated that adding 

beyond-the-midpoint limit orders, along with NMLOs that become executable, should capture 

many more orders.421 On the other hand, an industry group questioned whether the proposed 

inclusion of beyond-the-midpoint limit orders would be worthwhile given their current sparse 

usage (2.9% of NMLOs), which the commenter predicts would decrease if the minimum pricing 

increments proposed in the pending Minimum Pricing Increments Proposing Release422 are 

 

417  See id.; proposed Rule 600(b)(16). 

418  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) through (iii). 

419  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(9) (definition of average 

effective order quoted spread), (10) (definition of average effective spread), (11) (definition of average 

percentage effective spread). 

420  See Nasdaq Letter at 44; Rule 605 Citadel Letter at 11. 

421  See Rule 605 Citadel Letter at 11. 

422  See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2023). 



120 

adopted.423 In addition, this commenter suggested clarifying that an order that is a beyond-the-

midpoint limit order would not also be a NMLO.424 

After consideration of the comments, the Commission is adopting an order type for limit 

orders priced aggressively as compared to the midpoint, but with several modifications from the 

beyond-the-midpoint limit order that was proposed. The specific changes being made from the 

proposal are: (1) revising the definition of “beyond-the-midpoint limit order” to include limit 

orders priced at the midpoint and renaming this term “midpoint-or-better limit order”; and (2) 

making a modification to this definition to account for the interim opening period, as suggested 

by a commenter.425 In addition, the Commission is adopting as proposed the requirements that 

for this order type: (1) the Rule 605 report will include the execution quality statistics specific to 

both marketable order types and non-marketable order types;426 and (2) time-based statistics will 

be measured from the time such orders become executable.427 

The Commission is expanding the scope, as compared to the proposal, of the “midpoint-

or-better” order types to include limit orders priced at the midpoint in response to a commenter’s 

concern that a category for orders that are priced more aggressively than the midpoint may not be 

worthwhile because these types of NMLOs are sparsely used.428 The Commission conducted 

 

423  See FIF Letter at 13. 

424  See id. at 12. 

425  See final 17 CFR 242.600(b)(57). See also supra section III.A.1.b) (discussing modifications to account for 

interim opening period). 

426  See final 17 CFR 242.605(a)(1)(i) through (iii). See also final 17 CFR 242.600(b)(19). 

427  See final 17 CFR 242.600(b)(8), (9), and (12). As discussed further below, the Commission is adopting a 

separate order type category for midpoint-or-better limit orders that are also IOCs. See infra section 

III.B.2.c). As such, the Commission is adopting separate order type categories for midpoint-or-better limit 

orders (excluding IOCs) and midpoint-or-better limit orders that are immediate-or-cancel. For purposes of 

this release, these two order types may be referred to collectively as “midpoint-or-better order types.” 

428  See supra note 423 and accompanying text. The Commission is still considering the proposed changes to 

minimum pricing increments discussed in the Minimum Pricing Increments Proposing Release.121 

additional analysis of NMLOs priced in between the national best bid and national best offer and 

continues to believe that market participants would benefit from receiving execution quality 

information specific to NMLOs priced better than the midpoint, along with NMLOs priced at the 

midpoint, because they may have different execution quality statistics than other types of 

NMLOs.429 The Commission understands that some NMLOs priced inside the quote are 

submitted by traders with the intention of executing immediately against hidden or odd-lot 

liquidity that may be available. Scoping in limit orders priced at the midpoint will increase the 

size of this order type category, while including additional orders that have certain execution 

quality statistics that are similar to limit orders priced more aggressively than the midpoint.430 

Midpoint-or-better limit orders may be treated more like marketable limit orders in certain 

contexts, and the Commission continues to believe that market participants will benefit from 

receiving price improvement statistics and effective spread statistics for these order types. 

In response to a commenter’s request for clarification that an order that falls within this 

order type would not also be a NMLO,431 the Commission confirms that midpoint-or-better limit 

orders will not fall within the order type category for NMLOs that become executable. Although 

midpoint-or-better limit orders are technically a subset of NMLOs, the definition of “categorized 

by order type” expressly excludes midpoint-or-better limit orders from the order type category 

 

429  For example, Commission analysis demonstrates that midpoint-or-better limit orders executed by 

wholesalers tend to have somewhat higher fill rates and on-exchange midpoint-or-better limit orders tend to 

have a higher percentage of orders that execute in less than 1 millisecond. See infra note 1213; Table 4. See 

also Proposing Release, 88 FR 3786 at 3810-11 (Jan. 20, 2023). 

430  See infra Section IX.C.3.c)(3). 

431  See supra note 424 and accompanying text. 



122 

for executable NMLOs.432 Accordingly, execution quality data for midpoint-or-better limit 

orders will be included within the statistics for only the order type categories for midpoint-or-

better limit orders (excluding IOCs) or midpoint-or-better limit orders with an immediate-or-

cancel instruction, and described in section III.B.2.c)(2) below. 

c) Marketable and Non-Marketable IOCs 

(1) Proposed Approach 

Prior to the amendments, Rule 605 reports grouped marketable IOCs together with other 

marketable orders. The Commission proposed to assign marketable IOCs their own separate 

order type category by adding a category for “marketable immediate-or-cancel orders” and 

indicating that the category for “marketable limit orders” excludes IOC orders.433 The 

Commission also proposed to require the same execution quality information for marketable 

IOCs as is required for other marketable order types.434 

(2) Final Rule and Discussion 

A national securities exchange supported establishing a new order type category for 

marketable IOC orders.435 An industry group stated that, for each order type, the execution 

profile differs based on whether the orders are IOC or time-in-force orders and therefore 

recommended requiring broker-dealers and market centers to break out reporting of all order 

 

432  The Commission is modifying this exclusion in the definition of “categorized by order type” from the 

proposal to refer to the midpoint-or-better order types instead of beyond-the-midpoint limit orders to 

conform with the modification to the defined term as discussed above. See final 17 CFR 242.600(b)(19). 

433  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(20). 

434  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (ii). 

435  See Nasdaq Letter at 44. 



123 

types (not just marketable order types, as proposed by the Commission) to distinguish between 

IOC and time-in-force orders.436  

A broker-dealer stated that it supported assigning IOCs to a separate order category so 

that they would no longer be commingled with retail orders.437 According to this commenter, 

many wholesale broker-dealers execute IOC orders for non-retail investors and currently “these 

IOC orders may be aggregated with retail orders for reporting purposes, even though the 

execution profile is very different and could negatively skew a wholesale broker-dealer’s 

execution quality metrics.”438 This commenter also stated that although the Commission 

proposed to assign marketable IOCs as a separate order type category, similar treatment was not 

proposed for non-marketable IOCs.439 Thus, this commenter suggested that the Commission 

“include a flag for IOC orders that equally applies across both marketable and non-marketable 

orders” because of the commenter’s view that including non-marketable IOCs within the same 

order type category as regular NMLOs would significantly skew reported data.440  

Following consideration of the comments, the Commission is adopting a separate order 

type category for marketable IOCs as proposed.441 Moreover, to address commenters’ 

suggestions that there also be separate order type categories for non-marketable IOCs,442 the 

Commission is adopting, in addition to the categories that were proposed, order type categories 

 

436  See FIF Letter at 13. This commenter stated that an additional column in the Rule 605(a)(1) report could be 

used to indicate whether a particular row pertains to IOC or time-in-force orders. See id. See also FIF 

Letter III at 4. 

437  See Rule 605 Citadel Letter at 7. 

438  Id. 

439  See id. at 10. 

440  See id. 

441  See final 17 CFR 242.600(b)(19). 

442  See supra notes 436, 440, and accompanying text. 



124 

for NMLOs that are immediate-or-cancel (“NMLO IOCs”) and midpoint-or-better limit orders 

that are immediate-or-cancel (“midpoint-or-better IOCs”). As is the case with other non-

marketable order types, NMLO IOCs will be included in Rule 605 reports if they become 

executable.443 Additional Commission analysis demonstrates that IOCs represent a significant 

component of order flow for both marketable orders and non-marketable orders.444 Moreover, the 

Commission agrees with the commenter that commingling NMLO IOCs with NMLOs that are 

not immediate-or-cancel or midpoint-or-better IOCs with midpoint-or-better limit orders that are 

not immediate-or-cancel could distort execution quality statistics445 because the Commission’s 

analysis demonstrates that IOCs tend to have shorter execution times and, with respect to orders 

received by wholesalers, lower fill rates.446  

However, the Commission is not fully adopting commenters’ suggestion that the 

Commission differentiate between IOCs and orders that are not immediate-or-cancel for every 

 

443  To implement this change from the proposed amendments, the Commission is modifying the proposed 

amendments to the definition of “categorized by order type” to add midpoint-or-better limit orders that are 

immediate-or-cancel and executable non-marketable limit orders that are immediate-or-cancel, as well as to 

exclude IOCs from the order types for midpoint-or-better limit orders and executable NMLOs. See final 17 

CFR 242.600(b)(19). Consistent with this change, the Commission is also modifying Rule 605 to refer to 

midpoint-or-better limit orders and midpoint-or-better IOCs in Rule 605(a)(1)(i) (setting forth execution 

quality statistics required of all order types), (ii) (setting forth execution quality statistics required of 

marketable order types), and (iii) (setting forth execution quality statistics required of non-marketable order 

types); and to refer to executable NMLOs and executable NMLO IOCs in Rule 605(a)(1)(i) and (iii).  

444  See infra Table 5. With respect to orders that would fall within the adopted NMLO IOC category, this 

analysis demonstrates that for orders received by exchanges and ATSs, IOCs represent 4.7% of orders 

priced below the midpoint and 13.3% of orders priced at the quote, and for orders received by wholesalers, 

IOCs represent 65.3% of orders priced below the midpoint and 67.0% of orders priced at the quote. And 

with respect to orders that would fall within the adopted midpoint-or-better IOC category, this analysis 

demonstrates that for orders received by exchanges and ATSs, IOCs represent 35.8% of orders priced 

above the midpoint and 37.9% of orders priced at the midpoint, and for orders received by wholesalers, 

IOCs represent 90.8% of orders priced above the midpoint and 84.2% of orders priced at the midpoint. See 

id. 

445  See supra notes 437-440 and accompanying text. 

446  See infra Table 5. 



125 

order type category used in Rule 605.447 While the adopted amendments will add order type 

categories for marketable IOCs, executable NMLO IOCs, and midpoint-or-better IOCs, the 

adopted amendments will not include separate order type categories for IOCs that have 

characteristics of the other order types (e.g., market order with an immediate or cancel 

instruction, executable stop marketable limit order with an immediate or cancel instruction). An 

order submitter placing a market order likely has an expectation of receiving an immediate 

execution because there is no limit price. IOC limit orders are also submitted with an expectation 

of executing immediately. Moreover, an order submitter placing a market order with an 

immediate or cancel instruction or a limit order with an immediate or cancel instruction can 

reasonably expect that, if the order receives an execution, it will be at the prevailing market price 

at the time of order receipt. Therefore, the Commission does not believe that the execution 

profile for market orders with an immediate or cancel instruction will vary significantly enough 

from other marketable IOCs to warrant an order type category for market orders with an 

immediate or cancel instruction that separates these orders from other marketable IOCs.448 In 

addition, as discussed above, the execution profiles for an order type category or categories for 

limit orders with a stop condition and an IOC instruction are not likely to have significantly 

different execution profiles than other stop orders that fall within the same order type categories 

 

447  See supra notes 436, 440, and accompanying text. 

448  See infra Table 5. 



126 

based upon marketability, and thus the Commission is not requiring order type categories that 

would further sub-divide the categories for orders submitted with stop prices.449 

3. Timestamp Conventions and Time-to-Execution Statistics 

a) Proposed Approach 

Prior to the amendments, Rule 605 required the reporting of information on the number 

of shares of covered orders executed within certain timeframes, as measured in seconds after the 

time of order receipt.450 Rule 605 also required the reporting of information on the average time 

to execution for marketable order types.451 In addition, the definitions “time of order execution” 

and “time of order receipt” in preexisting Rule 600 specified that time must be measured “to the 

second.”452  

The Commission proposed to update the timestamp conventions in the definitions of 

“time of order receipt” and “time of order execution” so that these definitions require that such 

times be measured in increments of a millisecond or finer.453 The Commission also proposed to 

 

449  See supra section III.A.2.b). It is unlikely that many market participants will submit a market order with 

both a stop condition and an IOC instruction. However, even if such orders are submitted, they will either: 

(1) trigger immediately and execute at market prices, or (2) not trigger and cancel immediately because of 

the IOC instruction. In the case of (1), such orders are not likely to have different execution profiles than 

other market orders submitted with a stop price. In the case of (2), such orders will be cancelled before they 

become executable and will therefore not be in reported as part of Rule 605 reports because orders 

submitted with stop prices must be triggered to become executable and be included in a Rule 605 report. 

450  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (requiring for all orders the reporting of the cumulative 

number of shares of covered orders executed within 5 specified time intervals after the time of order 

receipt). The preexisting time-to-execution bucket intervals were: (1) 0 to 9 seconds; (2) 10 to 29 seconds; 

(3) 30 to 59 seconds; (4) 60 to 299 seconds; and (5) 5 to 30 minutes. 

451  See prior 17 CFR 242.605(a)(1)(ii)(D), (F), and (I) (requiring for market and marketable limit orders the 

reporting of average time to execution for shares executed with price improvement, shares executed at the 

quote, and shares executed outside the quote, respectively). See infra section III.B.4.g) for additional 

information about Rule 605 statistics based on whether orders executed with price improvement, at the 

quote, or outside the quote.  

452  See prior 17 CFR 242.600(b)(91) and (92). 

453  See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 600(b)(108) and (109). 



127 

specify that the average time-to-execution statistics that Rule 605 required for marketable order 

types should be expressed in increments of a millisecond or finer.454 Further, the Commission 

proposed to require that the share-weighted average time to execution be provided for non-

marketable order types, as calculated from the time such orders become executable, and the 

proposed definition of “executable” provided that the time an order becomes executable shall be 

measured in increments of a millisecond or finer.455 Finally, the Commission proposed to 

eliminate the existing time-to-execution buckets and require the reporting of share-weighted 

median and 99th percentile time to execution for all order types.456 

b) Final Rule and Discussion 

As discussed below, after consideration of the comments, the Commission is adopting the 

use of timestamp conventions of a millisecond or finer for time-based execution quality statistics 

as proposed. The Commission is also requiring average time-to-execution statistics for all order 

types and specifying that for NMLOs these statistics will be measured from when the order 

becomes executable as proposed. However, the Commission is not adopting the proposed median 

and 99th percentile execution quality statistics for all order types. Instead, the Commission is 

 

454 See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(C), (G), and (L). 

Prior to the amendments, Rule 605 did not specify a level of granularity for the existing time-to-execution 

statistics. However, the Rule 605 NMS Plan requires these fields to be expressed in number of seconds and 

carried out to one decimal place. See Rule 605 NMS Plan section VI (a)(21), (23), and (26). 

455 See Proposing Release, 88 FR 3786 at 3812-13 (Jan. 20, 2023); proposed Rule 600(b)(42); proposed Rule 

605(a)(1)(iii)(C). 

456  See Proposing Release, 88 FR 3786 at 3812-13 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(D), (E), (H), 

(I), (M), and (N); proposed Rule 605(a)(1)(iii)(D) and (E). Specifically, the Commission stated that while 

the distribution of execution speeds in addition to the average would still be useful, the then-existing time-

to-execution buckets are of limited utility because the smallest time-to-execution bucket encompasses all 

orders executed between zero and nine seconds. See Proposing Release, 88 FR 3786 at 3813 (Jan. 20, 

2023). The Commission further stated that, rather than adding additional buckets to provide distribution 

information for execution speeds of less than one second, the Commission was proposing to require both 

share-weighted median and 99th percentile time-to-execution statistics to allow users of the data to assess 

how quickly a market center or broker-dealer is able to execute incoming orders and understand the extent 

to which the time to execution for a particular category is affected by outlier values. See id. 



128 

retaining the time-to-execution buckets from Rule 605 prior to these amendments, which apply 

to all order types, but is modifying the associated time ranges to account for the overall increase 

in trading speeds since Rule 605 was adopted and as supported by certain commenters. 

Several individual investors supported the proposal to require reporting of average time 

to execution, median time to execution, and 99th percentile time to execution in increments of a 

millisecond or finer.457 Another individual investor stated that measuring in milliseconds would 

be a “huge step forward” in understanding order execution.458 A national securities exchange 

supported eliminating time-to-execution categories in favor of average time to execution, median 

time to execution, and 99th percentile time to execution, each as measured in increments of a 

millisecond or finer and calculated on a share-weighted basis.459 This commenter stated that 

requiring average time to execution for all order types, as well as statistics regarding the 

distribution of execution times within each order type, “would offer more consequential 

information.”460 According to this commenter, “[t]hese statistics could be used to judge and 

compare the average time to execution for a particular order type and still provide information 

about the extent to which outlier values may skew the average.”461 

One industry group stated that the use of milliseconds is the best approach at this time.462 

This commenter suggested that the Commission should engage in discussions with market 

 

457  See, e.g., Pritchard Letter, Macarthur Letter, and Cesar Letter. 

458  See Bledsoe Letter. In addition, several commenters stated that “broker-dealers are able and should be 

required to measure order executions in seconds or milliseconds, rather than 2 days.” Letter Type C at 

https://www.sec.gov/comments/s7-29-22/s72922.htm.  

459  See Nasdaq Letter at 44. 

460  See id. at 45. 

461  Id. 

462  See FIF Letter at 17. 



129 

centers to consider whether a requirement for market centers to report with increased granularity 

for CAT, Rule 605, and other required reporting would be appropriate.463 An investor advocacy 

group stated that requiring timestamp information in millisecond increments would allow for 

meaningful points of comparison between market centers and/or broker-dealers for data that uses 

timestamp information and time-to-execution statistics.464 Another investor advocacy group 

recommended that the Commission modify the required time-to-execution buckets for all order 

types to time buckets that can be adjusted over time, starting with the following buckets: less 

than 500 microseconds; 500 microseconds to 1 millisecond; 1 to 10 milliseconds; 10 to 100 

milliseconds; 100 milliseconds to 1 second; 1 to 10 seconds; and greater than 10 seconds.465 This 

commenter stated that “[b]y creating buckets for timestamp, rather than average time to 

execution, the reports would provide much greater granularity while still allowing a user of the 

data to recreate average time to execution.”466 A broker-dealer supported the new statistics 

reporting times in increments of a millisecond or finer and stated that this will better reflect the 

speed at which orders are executed today.467  

The Commission is adopting the updates to the timestamp conventions to measure time-

based statistics in increments of a millisecond or finer as proposed for the reasons discussed in 

the Proposing Release.468 Requiring that Rule 605 reports include timestamp information in 

 

463  See id. 

464  See Better Markets Letter at 8. 

465  See Healthy Markets Letter at 17 (recommending that the Commission adopt these time buckets pursuant to 

an attachment to the Rule, rather than the Rule itself, to facilitate the easy updating of these buckets). 

466  Id. 

467  See Robinhood Letter at 46. 

468  See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023). 



130 

millisecond increments will allow for meaningful points of comparison among market centers or 

broker-dealers.469  

A broker-dealer stated that although it supports transitioning time-to-execution metrics to 

smaller increments of time, it is concerned that more granular timestamps may lead to greater 

variation across firms because firms may have different practices around when to mark the same 

event, quotation information may vary materially due to geographic latency, and SIP data are 

likely to vary from proprietary feeds.470 This commenter stated that the Commission should 

address these potential issues with timestamps to ensure that execution quality statistics for 

brokers are not misleading, biased, or inconsistent.471 However, evidence suggests that 

geographic latencies, which may account for the majority of latency differences experienced by 

the SIP, are currently below a millisecond.472 Therefore, any distortions related to latencies are 

likely to be smaller than the timestamp granularity. Further, it is likely that distortions may be 

reduced by using finer timestamp conventions that more closely align to existing market practice, 

as the NBBO that is matched to a particular order is likely to be closer to the NBBO at the time 

of order receipt.473 Reporting firms generally should record the time of order receipt at the time 

that the firm first receives the order and the time of order execution at the time of execution as 

included on the trade confirmation. 

 

469  See id. Reporting entities that choose to utilize a timestamp convention finer than a millisecond generally 

should utilize that same convention throughout their detailed report required by Rule 605(a)(1) for a 

particular month.  

470  See Robinhood Letter at 47-48. 

471  See id. at 48. 

472  See infra note 1461 and accompanying text. 

473  See id. 



131 

One individual investor, who expressed concern related to the proposal, stated that 

focusing on the speed of execution only benefits high-frequency traders who can take advantage 

of small price discrepancies to make quick profits.474 This commenter stated that he is more 

concerned with getting a fair price for his trades than the speed of execution.475 The Commission 

is retaining time-to-execution statistics in Rule 605 reports for the reasons discussed herein. 

Different investors benefit from faster execution times for different reasons. With respect to 

individual investors in particular, delays in execution can lead to worse prices for market orders 

in an increasing (for buy orders) or decreasing (for sell orders) market and lower probabilities of 

execution for IOCs.476 However, amended Rule 605 does not focus on speed to the exclusion of 

other important aspects of execution quality, including fill rates and price improvement. 

The Commission is adopting, as proposed, the requirement that average time-to-

execution statistics be calculated for all order types, including non-marketable order types.477 

The Commission is also adopting, as proposed, the requirement that average time to execution 

for non-marketable order types be measured from the point in time that orders become 

executable because this will provide a control for prevailing market conditions and benchmark 

orders from a point when such orders can reasonably be expected to execute.  

An industry group raised concerns with reporting time to execution when the size of the 

customer’s order exceeds the size of the opposite-side bid or offer and suggested that time-to-

execution statistics for marketable orders should only consider the time to execution for shares 

 

474  See Gillmore Letter. 

475  See id. 

476  See infra notes 1476-1477 and accompanying text. 

477  See final 17 CFR 242.605(a)(1)(ii)(G), (I), and (L); final 17 CFR 242.605(a)(1)(iii)(D). See also Proposing 

Release, 88 FR 3786 at 3813 (Jan. 20, 2023). 



132 

executed by a reporting firm during the time period prior to the order first becoming 

unmarketable.478 This commenter stated that firms that receive marketable orders that are larger 

relative to the opposite-side displayed NBBO quantity would show a longer time to execution as 

compared with firms that receive marketable orders that are smaller relative to the opposite-side 

displayed NBBO quantity, and in this way reported performance would be impacted by factors 

that do not reflect a true comparison of the execution performance across firms.479 In addition, a 

broker-dealer stated that execution time statistics should be required only for market orders 

because marketable limit orders (including NMLOs that become marketable) may be partially 

executed or may exceed the consolidated quote size and it would be difficult to interpret this data 

without more context and information.480 Another commenter stated that the execution speed 

metric for marketable limit orders should be limited to size available at the best protected quote 

at the far touch because this will ensure that orders larger than the quoted size that take out the 

best price and are posted for the balance do not skew the statistics.481 

The Commission is not adopting these commenters’ suggestions to limit the application 

of time-to-execution statistics to take into account concerns about marketable limit orders that 

exceed the available quantity at the opposite side bid or offer. The Commission disagrees with 

 

478  See FIF Letter II at 3-4. In an earlier comment letter, this commenter had suggested that the time-to-

execution period should only consider the portion of an order that is marketable at the time of order receipt 

or, alternatively, only count towards the time of execution the period during which the order is marketable. 

See FIF Letter at 18. See also FIF Letter II at 3 (amending its suggestion after further discussions). 

479  See FIF Letter at 17-18; FIF Letter II at 3. This commenter also requested confirmation that time to 

execution should not be reported for unfilled shares and that unfilled shares would be reflected through the 

reporting of the number of shares of covered orders and the number of shares cancelled prior to execution. 

See FIF Letter at 18. The Commission agrees that, as is currently the case, the time to execution for unfilled 

shares will not be required to be reported as part of the time-to-execution statistics because their inclusion 

could distort the statistics. See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring disclosure of “the 

cumulative number of shares of covered orders” executed in less than 100 microseconds) (emphasis added). 

480  See Rule 605 Citadel Letter at 10. 

481  See Schwab Letter II at 32. 



133 

restricting time-to-execution statistics so that they apply to market orders only because time-to-

execution statistics will provide meaningful information for all marketable and non-marketable 

order types and the time it takes to execute an initially marketable limit order that becomes non-

marketable is still relevant.482 The Commission also disagrees with the suggestion that it is 

necessary to limit time-to-execution statistics to the time it takes to execute the size available at 

the opposite side quote or the time it takes to first exhaust available liquidity to avoid skewed 

statistics. If a covered order receives a partial execution, the share-weighted time-to-execution 

statistics will consider the execution time of each subset of shares that received an execution and 

will not consider any subset of shares that does not receive an execution, and this will help 

mitigate against partial executions distorting time-to-execution statistics.483 Similarly, if some 

shares of a covered order execute more quickly than others due to the availability of liquidity, the 

share-weighted time-to-execution statistics will take into account the time to execution for each 

subset of shares. Other available information will allow users of Rule 605 reports to control for 

these types of factors and facilitate their ability to interpret time-to-execution statistics for 

marketable limit orders. In particular, Rule 605 statistics will be categorized by order type and 

size and this categorization will provide useful context to understand time-to-execution statistics. 

For example, larger-sized orders may be more likely to exceed the consolidated quote size and 

the time-to-execution statistics for covered orders that fall within different size ranges will 

appear in separate rows. 

 

482  See supra note 480 and accompanying text. 

483  Requiring that average time-to-execution statistics be calculated for non-marketable order types from the 

point in time that they become executable will realize the benefits of including those orders in the statistics 

while, at the same time, minimizing the distortions that could occur if time-to-execution statistics included 

the time during which such orders were non-marketable. 



134 

Individual investors and a national securities exchange supported the proposed addition 

of median and 99th percentile time-to-execution statistics for all order types.484 However, an 

industry group recommended an alternative to the reporting of the median and 99th percentile 

statistics because of its view that market participants and other firms analyzing Rule 605 data 

would not be able to aggregate these statistics across symbols and order types.485 The commenter 

stated that “it is important that users of the report have the ability to aggregate this data . . . 

across different sub-categories of orders.” 486 Specifically, this commenter recommended that 

firms report share-weighted average time to execution without adjusting for outliers and 

separately report share-weighted average time to execution with an adjustment for outliers.487 In 

addition, an investor advocacy group suggested that the Commission modify the required time-

to-execution buckets for all order types to time buckets that can be adjusted over time rather than 

requiring average time-to-execution statistics.488 

 The Commission agrees with the commenter that it would not be possible to aggregate 

median or 99th percentile time-to-execution statistics across symbols or order types.489 Although 

median or 99th percentile time-to-execution statistics may have provided useful information in 

each individual row (i.e., representing a particular symbol, order type, and order size), users of 

the reports would have been unable to aggregate these statistics across multiple rows without the 

 

484  See supra notes 457, 459-461, and accompanying text. 

485  See FIF Letter at 21-22; FIF Letter II at 7-9; FIF Letter III at 3. 

486  FIF Letter III at 3. 

487  See FIF Letter at 21-22. This commenter suggested that, for example, the share-weighted average time to 

execution that is adjusted for outliers could exclude the one percent of orders with the longest time to 

execution. See id. 

488  See supra notes 465-466 and accompanying text. 

489  See supra note 485 and accompanying text. 



135 

full underlying dataset because the median and 99th percentile values cannot be aggregated 

across different stocks or order types. The inability to aggregate these statistics would have made 

them less useful because the final rule amendments will result in more rows of information, and 

the median and 99th percentile time-to-execution statistics would only have provided 

information to compare more discrete subsets of Rule 605 data. Therefore, the Commission is 

not adopting its proposal to require the reporting of median and 99th percentile time-to-execution 

statistics for all order types. 

 The Commission is not adopting the commenter’s suggestion that, instead of requiring 

median and 99th percentile time-to-execution statistics, the Commission should require the 

separate reporting of average time to execution with outliers and without outliers.490 The 

Commission does not agree that these alternative metrics would solve the identified problem 

because the method of identifying outliers, such as the longest 1% of orders, would also prevent 

aggregation across multiple rows. As is the case with median and 99th percentile statistics, any 

cut-off selected as the means to identify outliers would not be constant across different stocks or 

order types and thus interfere with aggregation.  

 As another means of providing such distribution information, and consistent with the 

alternative that the Commission considered in the Proposing Release491 and a commenter’s 

suggestion,492 the Commission is retaining the time-to-execution buckets in place prior to the 

amendments and modifying these buckets to incorporate additional granularity. The Commission 

continues to believe that information about the distribution of order execution speeds is useful 

 

490  See supra note 487 and accompanying text. 

491  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

492  See supra notes 465-466 and accompanying text. 



136 

because orders may execute near instantaneously or over the course of several minutes and thus 

average time-to-execution statistics in some instances could be skewed by outlier values. The 

amended time-to-execution buckets that the Commission is adopting will provide information 

about the distribution of execution times at a more granular level. This information will allow 

market participants and other users of the data to assess how quickly a market center or broker-

dealer is able to execute incoming orders and better understand whether and to what extent the 

average time to execution within a particular category may be affected by outlier values. 

 The adopted time-to-execution buckets differ from the time-to-execution buckets that 

existed in Rule 605 prior to the amendments in two respects. First, the Commission is utilizing 

new time ranges for the time-to-execution buckets to make the buckets more granular in 

recognition of increased execution speeds and consistent with comment. As adopted, the time-to-

execution bucket ranges are: (1) less than 100 microseconds; (2) 100 microseconds to less than 1 

millisecond; (3) 1 millisecond to less than 10 milliseconds; (4) 10 milliseconds to less than 1 

second; (5) 1 second to less than 10 seconds; (6) 10 seconds to less than 30 seconds; (7) 30 

seconds to less than 5 minutes; and (8) 5 minutes or more.493 The Commission is selecting these 

amended time-to-execution bucket ranges based on its analysis of the distribution of shares 

across various time-to-execution buckets.494 The Commission’s analysis demonstrates that most 

market and marketable limit orders have execution times clustered in the faster buckets and most 

at-the-quote NMLOs have execution times in the slower buckets.495 The time-to-execution 

 

493  See final 17 CFR 242.605(a)(1)(i)(G) through (N). The Commission is not specifying time ranges for the 

time-to-execution bucket in a separate attachment as suggested by a commenter (see supra note 465) and is 

instead adopting set time buckets. 

494  See infra Figure 20 and Figure 21. 

495  See infra note 1466; Figure 21. 



137 

buckets that the Commission is adopting are designed to best capture variations in execution 

times across different order types.  

 Specifically, the Commission is including a time-to-execution bucket of less than 100 

microseconds in order to provide visibility into differences in execution times for IOCs. Most 

IOCs execute in less than 100 microseconds and the distribution of some IOCs across slower 

time-to-execution buckets will allow market participants to use Rule 605 reports to identify IOCs 

that are outliers with respect to execution time.496 The Commission is also adopting a time-to-

execution bucket of 100 microseconds to less-than-one millisecond that will capture an 

additional set of sub-millisecond orders. The inclusion of sub-millisecond orders in distinct time-

to-execution buckets is consistent with the commenter’s suggestion to utilize more granular time 

buckets for orders executed in less than 500 microseconds and for orders executed in between 

500 microseconds and 1 millisecond.497 The two adopted time-to-execution buckets for orders 

executed from 1 millisecond to less than 1 second are similar to the commenter’s 

recommendation for sub-second time buckets,498 but utilize two time-to-execution buckets 

instead of the suggested three based on the Commission’s analysis of order distribution.499 The 

time-to-execution buckets for orders executed from 1 second to less than 10 seconds and from 10 

seconds to less than 30 seconds are comparable to the two shortest time-to-execution buckets in 

the preexisting rule.500 The longest time-to-execution buckets being adopted are comparable to 

 

496  See infra note 1465; Figure 20. 

497  See supra notes 465-466 and accompanying text.  

498  See supra note 465 and accompanying text. 

499  See supra notes 494-495 and accompanying text. 

500  See prior 17 CFR 242.605(a)(1)(i)(F) (for covered orders executed from 0 to 9 seconds after the time of 

order receipt) and (G) (for covered orders executed from 10 to 29 seconds after the time of order receipt). 



138 

the longest time-to-execution buckets in the preexisting rule, but combine the second- and third-

longest buckets based on the Commission’s analysis of order distribution.501 

 Under the amended rule, the Commission is adopting time-to-execution buckets at the 

sub-millisecond level while also adopting a timestamp convention that will not require the use of 

reporting increments finer than a millisecond. These two aspects of Rule 605 are not inconsistent 

because the time-to-execution buckets will not require reporting entities to record time in 

microseconds. Instead, reporting entities that record time at the millisecond-level only generally 

should bucket orders based on the difference between the recorded time of order receipt (or 

executability in the case of NMLOs) and the recorded time of execution.502 Accordingly, a 

reporting entity that records time in milliseconds generally should report in milliseconds and will 

not be able to identify orders as being completed in less than 100 microseconds; therefore, this 

time-to-execution bucket will remain empty.503 

 Second, when calculating where an NMLO falls within a time-to-execution bucket, time 

to execution will be calculated from the time the order becomes executable.504 Prior to the 

amendments, Rule 605 reporting requirements included only those NMLOs that fell within 

limited order type categories (i.e., inside-the-quote limit orders, at-the-quote limit orders, and 

near-the-quote limit orders) and the preexisting time-to-execution buckets contemplated that, for 

all orders, the relevant time period to be measured was from the time of order receipt to the time 

 

501  See prior 17 CFR 242.605(a)(1)(i)(I) (for covered orders executed from 60 seconds to 299 seconds after the 

time of order receipt) and (J) (for covered orders executed from 5 minutes to 30 minutes after the time of 

order receipt). 

502  See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring reporting of “[t]he cumulative number of shares of 

covered orders executed less than 100 microseconds after the time of order receipt; or, for non-marketable 

limit orders, after the time the order becomes executable”). 

503  See note 496 and accompanying text (stating that most IOCs execute in less than 100 microseconds). 

504  See, e.g., final 17 CFR 242.605(a)(1)(i)(G). 



139 

of order execution.505 Calculating where NMLOs fall within the time-to-execution buckets 

utilizing the time the order becomes executable rather than the time of order receipt is consistent 

with how the Commission proposed, and is adopting, to measure other time-based execution 

quality statistics for NMLOs.506 

4. Execution Quality Statistics 

Preexisting Rule 605(a)(1) required market centers to include in their monthly reports 

columns of detailed execution quality information. For all order types, the required statistics 

included information on the number of orders; cumulative number of shares; cumulative number 

of shares cancelled prior to execution; cumulative number of shares executed at the receiving 

market center and at any other venue; and average realized spread.507 In addition, for market 

orders and marketable limit orders, the required statistics included information on the average 

effective spread; cumulative number of shares executed with price improvement, at the quote, 

and outside the quote; for shares executed with price improvement, the share-weighted average 

amount per share that prices were improved; and for shares executed outside the quote, the share-

weighted average amount per share that prices were outside the quote.508 

As described further herein, the Commission proposed to modify the execution quality 

statistics required for all order types and marketable order types, and to add execution quality 

statistics specific to non-marketable order types. As proposed, the required statistics for all order 

types would have included information on the number of orders; cumulative number of shares; 

 

505  See, e.g., prior 17 CFR 242.605(a)(1)(i)(F). 

506  See supra note 455 and accompanying text.  

507  See prior 17 CFR 242.605(a)(1)(i). 

508  See prior 17 CFR 242.605(a)(1)(ii). For a discussion of the time-to-execution statistics in the current rule, 

see supra section III.B.3. 



140 

cumulative number of shares cancelled prior to execution; cumulative number of shares executed 

at the receiving market center, broker, or dealer, and at any other venue; cumulative number of 

shares of the full displayed size of the protected bid or offer at the time of execution; average 

realized spread and average percentage realized spread at two time intervals; average effective 

spread; average percentage effective spread; and average effective over quoted spread.509 In 

addition, the required statistics for marketable order types and beyond-the-midpoint limit orders 

would have included the cumulative number of shares for shares executed with price 

improvement, at the quote, and outside the quote; share-weighted average amount per share that 

prices were improved; share-weighted average amount per share that prices were outside the 

quote; and price improvement statistics relative to the best available displayed price.510 Finally, 

for non-marketable order types the required statistics would have included the number of orders 

that received a complete or partial fill, and cumulative number of shares executed regular way at 

prices that could have filled the order while the order was in force.511 

Several individual investors generally supported the proposal to add new execution 

quality statistics.512 One of these individual investors stated that the proposed enhancements to 

the required statistical measures of execution quality will provide valuable insights for 

investors.513 Another individual investor stated that the proposed modification to reporting 

requirements for NMLOs would capture more relevant execution quality information for these 

 

509  See Proposing Release, 88 FR 3786 at 3903-04 (Jan. 20, 2023). 

510  See id. at 3904. 

511  See id. at 3904-05. For a discussion of the proposed modifications to time-to-execution statistics as 

discussed in the Proposing Release, see supra section III.B.3. 

512  See, e.g., Prichard Letter; Varghese Letter; Welch Letter. 

513  See Varghese Letter.141 

orders.514 However, an individual investor that expressed concerns about the proposal stated that 

the proposed amendments to execution quality statistics “do not address the fundamental of 

market fragmentation, where orders are routed to different venues depending on their likelihood 

of being executed quickly and cheaply.”515 

An industry group stated that the Commission does not appear to have considered the 

impact of variable tick sizes for securities, as contemplated by the proposed harmonization of 

quoting and trading increments discussed in the Minimum Price Increments Proposing Release, 

on market participants’ ability to compare execution quality over several months.516 This 

commenter suggested that there should be some mechanism by which investors are informed of 

how to interpret Rule 605 reports in situations where the tick size is recalibrated and it impacts 

reported execution quality.517 

A group of academics stated that although some of the new disclosure requirements may 

be helpful for a subset of trades, they suggest limiting changes to the Rule 605 statistics to the 

new order size categories, including new categories for fractional shares and odd-lots, and E/Q 

statistics.518 These commenters stated that these adjustments would reduce implementation costs 

and speed up adoption.519 However, although limiting the changes to order size categories and 

E/Q statistics could potentially reduce costs and speed implementation, the other adopted 

 

514  See Genco Letter. 

515  See Gillmore Letter. The proposed changes to Rule 605’s execution quality metrics are not intended to 

reduce market fragmentation. Instead, the Commission expects that these changes will ameliorate the 

potentially adverse effects of market fragmentation on efficiency, price transparency, best execution of 

investor orders, and order interaction. 

516  See SIFMA Letter II at 20. 

517  See id. at 21. The Commission is still considering the proposal to change tick sizes discussed in the 

Minimum Pricing Increments Proposing Release. 

518  See Professor Schwarz et al. Letter at 5. 

519  See id. 



142 

modifications to the execution quality statistics described herein are designed to enhance the 

disclosures required by prior Rule 605. Even if the Commission were to limit the amendments to 

order sizes and E/Q statistics, preexisting market centers would still need to adjust their systems 

and processes to capture new information and new reporting entities would need to develop their 

systems and processes to capture the required execution quality statistics.  

The Commission received many comments concerning specific execution quality 

statistics and discusses these comments below. Further, with respect to the proposed execution 

quality statistics in general, an academic suggested adding median data in addition to average 

data because, according to this commenter, “fat tails” can make average numbers “highly 

misleading.”520 This commenter also generally suggested that percentages should be included 

along with dollar amounts.521  

The Commission is adopting the proposed detailed execution quality statistics with 

several adjustments. In the subsections below, the Commission discusses the comments received 

and the execution quality statistics being adopted as they pertain to: (1) realized spread, (2) 

average effective spread, (3) percentage-based effective and realized spread, (4) effective over 

quoted spread, (5) size improvement, (6) riskless principal, (7) price improvement, and (8) 

relative fill rate.522 In response to the commenter’s suggestion to add median data and 

percentages, as described herein, the Commission is adopting additional statistics that will 

provide modified time-to-execution buckets, percentage-based statistics that will complement 

 

520  See Angel Letter at 4. 

521  See id. 

522  For a discussion of the time-to-execution statistics that the Commission is adopting and the changes made 

to those statistics as compared to what was proposed, see supra section III.B.3. For a discussion of the 

cumulative notional value of covered orders statistic that the Commission is adopting, see supra notes 376-

378 and accompanying text. 



143 

certain dollar-based statistics, and an average midpoint statistic that will make it possible to 

calculate percentages relevant to other statistics. 

a) Realized Spread 

(1) Proposed Approach 

Prior to these amendments, Rule 605 required calculation of average realized spread for 

executions of all covered orders and this metric was calculated by comparing the execution price 

of an order and the midpoint of the NBBO as it stands 5 minutes after the time of order 

execution.523 The Commission proposed to shorten this time horizon and require that average 

realized spread be calculated 15 seconds and 1 minute after the time of execution in recognition 

of the increased speed of the contemporary market environment.524 The Commission proposed to 

require realized spreads to be calculated at both intervals in order to provide relevant information 

for symbols with different liquidity characteristics.  

(2) Final Rule and Discussion 

The Commission is adopting the proposed realized spread time horizons of 15 seconds 

and 1 minute for the realized spread statistics required for all order types. After considering 

comments received, the Commission is also adding shorter time horizons of 50 milliseconds and 

1 second, and additionally retaining preexisting Rule 605’s requirement to calculate realized 

spread 5 minutes after the time of order execution. In total, there will be five realized spread time 

horizons: 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes.  

 

523  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). For buy orders, realized spread was calculated 

as double the amount of difference between the execution price and the midpoint of the NBBO 5 minutes 

after the time of order execution. For sell orders, realized spread was calculated as double the amount of 

difference between the midpoint of the NBBO 5 minutes after the time of order execution and the execution 

price. See id. 

524  See id. at 3815. 



144 

A national securities exchange, an investor advocacy group, and an individual investor 

supported the proposed changes to realized spread.525 However, an industry group and two 

broker-dealers opposed the continued inclusion of realized spread statistics and recommended 

that the Commission remove these statistics from Rule 605’s reporting requirements.526 The 

industry group stated that it was concerned that this data element is being misused as a proxy for 

certain firm profits.527 One of the broker-dealers stated that “the Commission’s assertion that 

realized spread can serve as a proxy for liquidity provider profitability has been thoroughly 

discredited, including by academic research.”528 The other broker-dealer stated that realized 

spread statistics are not a measure of profitability because they ignore inputs that impact 

profitability, including inventory holding costs, fixed costs, and transaction rebates and fees.529 

This commenter further stated that “there is a risk that such measurements are improperly used 

… as a proxy for liquidity providers’ profitability.”530  

The Commission observes that commenters to the original Rule 11Ac1-5 proposal also 

questioned the usefulness of a realized spread statistic and recommended that it be eliminated.531 

When adopting Rule 11Ac1-5, the Commission stated that average realized spread is an essential 

measure for evaluating a market center’s order execution practices.532 Average realized spread 

 

525  See Better Markets Letter at 8; Nasdaq Letter at 44; Pritchard Letter. See also Schwab Letter III at 3 

(supporting the inclusion of realized spread statistics in the summary report to provide “better transparency 

regarding the distinct characteristics of order flow among brokers”). 

526  See SIFMA Letter II at 31; Rule 605 Citadel Letter at 8; Virtu Letter II at 11. 

527  See SIFMA Letter II at 31. 

528  Rule 605 Citadel Letter at 8-9 (stating that realized spread does not consider the actual exit trade, does not 

account for fixed or variable costs, and cannot compare a large “parent” order with smaller “child” orders). 

529  See Virtu Letter II at 11-12. 

530  Id. at 12. 

531  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75424 (Dec. 1, 2000). 

532  See id. 



145 

remains an essential measure for evaluating execution quality because it measures the portion of 

the spread that liquidity providers earn in excess of adverse selection.533 Liquidity providers’ 

adverse selection risk represents the risk that market prices will move against them before they 

can unwind their accumulated positions. A lower average realized spread can indicate that prices 

have moved in a direction more adverse to the liquidity provider after the order was executed. 

Thus, a low average realized spread can indicate that a liquidity provider was providing liquidity 

at a time when prices were moving against it. In addition, average realized spread can provide 

useful information about the type of order flow a larger broker-dealer receives because smaller 

(or even negative) realized spreads reflect that liquidity providers are earning less of the spread 

from their liquidity provisions, which is usually a reflection of order flow with greater adverse 

selection risk. Therefore, the Commission is retaining the metric, and is adopting the 15 second 

and 1 minute time horizons as proposed along with additional time horizons as discussed below, 

to make the metric more useful in relation to current market speeds.  

The Commission stated in the Proposing Release that to the extent realized spreads 

capture adverse selection costs faced by liquidity providers, they provide a measure of the 

potential profitability of trading for liquidity providers.534 The Commission does not maintain 

that realized spread is a measure of a firm’s overall profitability.535 Instead, realized spread 

statistics allow market participants to identify those market centers willing to supply liquidity 

during stressed markets or when prices are moving quickly, and to evaluate larger broker-

dealers’ order execution or routing practices, as well as to understand the type of order flow a 

 

533  See infra note 1230 and accompanying text. 

534  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). 

535  See infra note 1232 and accompanying text. 



146 

particular broker-dealer may be handling. One commenter, in the context of summary reports, 

stated that realized spread can be used to calculate price impact (when combined with effective 

spread statistics), which “would provide better transparency regarding the distinct characteristics 

of order flow among brokers.”536 For both market centers and larger broker-dealers, realized 

spread can allow market participants to control for the extent to which orders submitted by 

persons with better information than is generally available in the market are routed to different 

market centers or received by different broker-dealers, as compared to orders submitted by 

persons without an information advantage. Orders submitted by persons with such an 

information advantage represent a substantial risk to liquidity providers that take the other side of 

the position.  

Several commenters discussed the proposed time horizons for measuring realized spread. 

An investor advocacy group stated the 15 second and 1 minute time horizons “better capture the 

reality of today’s fast-paced market transactions and align well with the available academic 

literature.”537 An industry group stated that the Commission has not provided a rational basis for 

its method of calibrating the realized spread timeframes and, in particular, has not appropriately 

analyzed inventory turnover, thereby making the proposed 15 second and 1 minute timeframes 

 

536  Schwab Letter III at 3. Similarly, an industry group advocated including realized spread statistics in the 

summary report in order to provide a means of assessing the impact of order flow that market participants 

may classify as more or less informed as well the size of an order relative to the average daily value of the 

stock. See FIF Letter at 31-32. Because realized spreads will be measured using the price at the time of 

order execution, and effective spreads will be measured using the price at the time of order receipt (or order 

executability, in the case of NMLOs and midpoint-or-better limit orders), the decomposition of realized 

spreads into effective spreads and price impact will not be exact. See infra note 1484 for further discussion. 

537  Better Markets Letter at 8.  



147 

arbitrary with respect to inventory turnover.538 A broker-dealer stated that “[r]ealized spread 

assumes that liquidity providers exit each position in a costless manner at the end of a fixed 

period and is highly dependent on the time horizon used to make the calculation” and questioned 

the Commission’s choice of 15 seconds and 1 minute.539 This commenter stated that “[w]hile 

mark-out metrics like realized spread might have limited use in comparing samples of otherwise 

substantially similar order flow, these metrics become largely useless when attempting to 

compare different types of order flow or market centers.”540 Another broker-dealer stated that it 

is unclear what the Commission’s basis is for “bluntly” measuring realized spreads at 15 seconds 

and 1 minute.541 Another investor advocacy group recommended that to best identify adverse 

selection, realized spread should be calculated on even shorter time horizons, including 50 

milliseconds and 100 milliseconds.542 

As discussed in the Proposing Release, requiring realized spread information at different 

time horizons will provide investors with relevant information for more liquid stocks and more 

thinly traded stocks.543 The Commission selected the 15 second and 1 minute time horizons for 

calculating realized spread based on its own analysis, which was supported by several 

 

538  See SIFMA Letter II at 31-32. This commenter further stated that it does not believe a one-size-fits-all 

metric can work because market participants have different views regarding the appropriate time periods 

for measuring realized spread and the appropriate period can vary based on the specific symbol or type of 

order flow involved. See id. at 32. 

539  See Rule 605 Citadel Letter at 8. 

540  Id. 

541  See Virtu Letter II at 12. 

542  See Healthy Markets Letter at 17. 

543  See Proposing Release, 88 FR 3786 at 3815-16 (Jan. 20, 2023). 



148 

commenters and aligned with existing academic literature.544 However, several commenters 

questioned the Commission’s basis for measuring realized spreads at 15 seconds and 1 minute.545 

In the Proposing Release, the Commission acknowledged that both shorter (50 millisecond, 100 

millisecond) and longer (3 minute, 5 minute) time horizons would provide useful information for 

certain groups of stocks, but stated that each additional time horizon adds computational burden 

and increases the size and complexity of reports.546 Further, in the Proposing Release, the 

Commission analyzed the decline in realized spreads of increasing time horizons in order to 

determine when a significant percentage of the decline in realized spread had been captured.  

The Commission replicated its realized spread analysis from the Proposing Release, using 

data from Q1 2023, and in both analyses the cumulative decline in realized spread captured at 

different time horizons varies by market capitalization.547 These results indicate that, consistent 

with the Commission’s statement in the Proposing Release,548 both shorter and longer time 

horizons than those proposed will provide useful information for certain subsets of stocks.  

 

544  See id. at 3814, n.367 (citing Jennifer S. Conrad & Sunil Wahal, The Term Structure of Liquidity 

Provision, 136(1) J. FIN. ECON. 239-259 (2020)) and at 3815. In response to the commenter’s statement that 

the Commission has not appropriately analyzed inventory turnover (see supra note 538 and accompanying 

text), the Commission observes that although an ideal measurement horizon would align with the amount 

of time that an average liquidity provider holds only inventory positions established from providing 

liquidity, these data are not easily observable. See infra note 1489 and accompanying text. Instead, the 

Commission’s analysis of realized spreads in the Proposing Release was based on the theoretically 

motivated and empirically observed decline in realized spreads over increasing time horizons, similar to the 

academic literature. See infra notes 1490-1491 and accompanying text. 

545  See supra notes 537-541 and accompanying text. 

546  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

547  See id.; infra Table 7. In the Proposing Release, the analysis showed that most of the difference in realized 

spread was captured for the largest stocks at 15 seconds, and more than half of the difference was captured 

for smaller cap stocks at one minute. See Proposing Release, 88 FR 3786 at 3815 (Table 1) (Jan. 20, 2023). 

Similarly, the analysis using Q1 2023 data shows approximately 90% of the cumulative decline in realized 

spread is captured by the 15-second horizon for the largest market capitalization group, compared to only 

about 50% for the smaller market capitalization groups. At the one-minute horizon, approximately 75% of 

the realized spread is captured for the smaller market capitalization groups. See infra Table 7. 

548  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



149 

After consideration of the comments and the Commission’s original and updated 

analysis, the Commission is adopting two shorter time horizons (50 milliseconds and 1 second) 

and one longer time horizon (5 minutes, consistent with prior Rule 605) in addition to the two 

time horizons that were proposed (15 seconds and 1 minute).549 The time horizons of 50 

milliseconds and 1 second are in line with the commenter’s suggestion that the Commission 

include shorter time horizons to better capture adverse selection.550 Further, as discussed below, 

the 50 millisecond time horizon is appropriate for large capitalization stocks. The 1 second time 

horizon offers another point of comparison along the range of time horizons and aligns with a 

realized spread measure that industry analysts often use.551 The Commission is also adopting the 

requirements to calculate realized spread at 15 seconds and 1 minute, which were the time 

horizons proposed. Finally, the Commission is retaining the requirement in place prior to the 

amendments to calculate realized spread at 5 minutes. The results of the Commission’s replicated 

realized spread analysis continue to show that a 5 minute time horizon is informative for illiquid 

 

549  See also infra notes 833-838 and accompanying text for discussion of the addition of average realized 

spread to the summary report. 

550  See supra note 542 and accompanying text (suggesting that realized spread should be calculated on even 

shorter time horizons, including 50 milliseconds and 100 milliseconds). The Commission considered 50 

and 100 millisecond time horizons as part of its updated analysis, consistent with the commenter’s 

suggestion to add 50 and 100 millisecond time horizons (see infra note 1492), but, based on this analysis, 

determined that one very fast time horizon, such as 50 milliseconds, among a wider range of time horizons 

will be beneficial, for the reasons described below. 

551  See, e.g., Bringing the Power of Signal V6 to D-Limit, IEX (Oct. 31, 2023), available at 

https://www.iex.io/article/bringing-the-power-of-signal-v6-to-d-limit; Mackintosh, Phil, What Markouts 

Are and Why They Don't Always Matter, Nasdaq (July 2020) available at 

https://www.nasdaq.com/articles/what-markouts-are-and-why-they-dont-always-matter-2020-07-23; and 

Mackintosh, Phil, All-in Economics to Trade Are What Matters Most, available at 

https://www.nasdaq.com/articles/all-in-economics-to-trade-are-what-matters-most. 



150 

stocks.552 Thus, requiring realized spread at five time horizons will better capture variation553 

among different capitalization stocks with different liquidity profiles than the two proposed 

thresholds alone. 

In response to commenters critical of the Commission’s basis for its selection of realized 

spread time horizons,554 the Commission performed additional empirical analyses of optimal 

realized spread time horizons for robustness. The Commission examined the amount of noise in 

price impact measures to analyze the time horizon that incorporates the lowest amount of noise 

into measurements of price impact.555 For the largest stocks, the signal-to-noise ratio begins to 

decline immediately, even at very fast time horizons.556 This latter result supports including a 

very fast time horizon, such as 50 milliseconds, consistent with a comment received.557 

However, the ratio starts to flatten out after the 1 minute horizon for smaller stocks and for 

medium to large stocks after 15 seconds.558 Further, for the two smaller stock groups, the results 

show a small but steady increase in the signal-to-noise ratio as the time horizon increases, 

implying that realized spread measures are becoming more informative as the noise in the price 

impact component decreases. This result supports including a longer time horizon, i.e., 5 

minutes, which maximizes the signal-to-noise ratio for these stocks.559 These additional 

 

552  See infra Table 7.  

553  Offering a range of realized spread time horizons is also consistent with industry practice, in which a range 

of time horizons is used to compare adverse selection with so-called “mark-out curves.” See, e.g., supra 

note 551. 

554  See supra notes 538 and 541.  

555  See infra Figure 22 and Figure 23 

556  See infra Figure 23.  

557  See supra note 542. 

558  See infra Figure 23.  

559  See id.  



151 

empirical analyses also support a range of realized spread time horizons, consistent with the 

amended time horizons.  

b) Average Effective Spread 

(1) Proposed Approach 

Prior to these amendments, Rule 605 required firms to calculate average effective spread 

for market and marketable limit order types only.560 Preexisting Rule 600(b)(8) defined “average 

effective spread” as the share-weighted average of effective spreads for order executions 

calculated, for buy orders, as double the amount of difference between the execution price and 

the midpoint of the national best bid and national best offer at the time of order receipt and, for 

sell orders, as double the amount of difference between the midpoint of the national best bid and 

national best offer at the time of order receipt and the execution price.561  

The Commission proposed to expand effective spread reporting requirements to require 

that firms report average effective spread statistics for all covered orders, and to modify the 

methodology for calculating this metric for executable NMLOs, beyond-the-midpoint limit 

orders, and executable stop orders.562 Specifically, the Commission proposed to revise the 

definition of “average effective spread” to provide that, for order executions of NMLOs563 and 

orders submitted with stop prices, average effective spread be calculated from the time the order 

becomes executable.564 

 

560  See prior 17 CFR 242.605(a)(1)(ii)(A). 

561  See prior 17 CFR 242.600(b)(8).  

562  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

563  See proposed Rule 600(b)(10). As proposed, beyond-the-midpoint limit orders would have been a type of 

NMLO. See Proposing Release, 88 FR 3786 at 3816, n.385 (Jan. 20, 2023). 

564  See proposed Rule 600(b)(10). See also Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



152 

(2) Final Rule and Discussion 

The Commission is adopting a requirement to report effective spread statistics for 

marketable order types (i.e., market orders, marketable limit orders, and marketable IOCs), 

marketable stop order types, and midpoint-or-better order types, but is not adopting the proposal 

to expand the effective spread reporting requirement to other non-marketable order types. For 

marketable stop order types and midpoint-or-better order types, average effective spread will be 

measured from the time that the order becomes executable.  

One broker-dealer suggested that the Commission should reconsider whether to require 

firms to report effective spread statistics for NMLOs because “effective spread is not widely 

accepted as a meaningful measure of execution quality for NMLOs.”565 This commenter stated 

that the proposed effective spread metric for NMLOs does not measure a dimension of execution 

quality that is likely to differ across market centers or be affected much by where an order is 

routed.566 This commenter further stated that “[f]or orders submitted outside the NBBO, 

[effective spread] essentially amounts to negative one times the quoted spread at the moment the 

order becomes executable” and “shows better execution when the quoted spread is wider.”567 

After consideration of the comments, the Commission is adopting a modified version of 

the proposed amendments. The Commission is adopting amendments that will expand effective 

spread reporting requirements to include marketable stop order types and midpoint-or-better 

order types, in addition to market and marketable limit order types as required by the preexisting 

 

565  Virtu Letter II at 12. See also infra notes 609-611 and accompanying text (describing a commenter’s 

suggestion that the Commission remove reporting of E/Q for all orders and not add price improvement 

statistics for non-marketable group orders). 

566  See Virtu Letter II at 12.  

567  Id.  



153 

rule. However, the Commission is not adopting the proposed requirement to require average 

effective spread statistics for all covered orders, and thus is not requiring reporting for other non-

marketable order types. The Commission is also revising the proposed definition of “average 

effective spread” to specify that, for order executions of marketable stop order and midpoint-or-

better limit orders, average effective spread is calculated from the time the order becomes 

executable. In effect, the adopted amendments require average effective spread for all marketable 

order types (i.e., market orders, marketable limit orders, and marketable IOCs), marketable stop 

orders, and midpoint-or-better order types.  

The Commission acknowledged in the Proposing Release that average effective spread 

for NMLOs and orders submitted with stop prices would measure something different than the 

average effective spread for marketable order types.568 Generally, because these orders are less 

aggressively priced, average effective spread would not measure the price paid for immediacy of 

execution as it would for marketable order types.569 Instead it would provide a measure of the 

amount a liquidity provider could expect to earn for providing liquidity.570 As the commenter 

states, this amount would generally vary based on the width of spread, which is outside the 

control of the reporting entities that are receiving orders for execution. Therefore, average 

effective spread for NMLOs and stop NMLO orders may not provide a useful measure to 

distinguish between market centers or larger broker-dealers and thus the Commission has 

determined not to adopt this proposed metric. The exception is with respect to midpoint-or-better 

 

568  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

569  See id. 

570  See id. 



154 

limit orders, which in some cases behave more like marketable orders.571 Similar to market and 

marketable limit orders, some inside-the-quote limit orders are submitted by traders with the 

intention of executing immediately, in this case against hidden or odd-lot inside-the-quote 

liquidity. Because midpoint-or-better order types are more aggressively priced, the average 

effective spread metric will also measure the price these orders could expect to pay for 

immediacy. Further, requiring average effective spread for midpoint-or-better order types is 

consistent with requiring the same statistics for this order type as are required for marketable 

order types (for example, price improvement statistics).  

Finally, because marketable stop orders will be either market orders or marketable limit 

orders at the time they are triggered (i.e., at the time they are executable), measuring effective 

spread from the point of executability will also measure the price these orders pay for immediacy 

once triggered. Therefore, as described in section III.A.2.b) above, the Commission is requiring 

the same statistics for marketable stop orders as for other marketable order types, including 

average effective spread.  

c) Percentage Spreads (Effective and Realized) 

(1) Proposed Approach 

Prior to these amendments, Rule 605 statistics included the average realized spread and 

average effective spread for executions of covered orders, and these statistics provide dollar-

based spread data.572 The Commission proposed to add a requirement that effective spread and 

realized spread also be reported as percentages.573 The proposed definitions for “average 

 

571 See infra note 1209 and accompanying text. 

572  See prior 17 CFR 242.605(a)(1)(i)(K) and (a)(1)(ii)(A). 

573  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



155 

percentage effective spread” and “average percentage realized spread” would have: (1) utilized 

the dollar-based effective and realized spread statistics for the numerator; (2) utilized the 

midpoint of the NBBO at either the time of order receipt (for marketable order types) or the time 

an order first becomes executable (for non-marketable order types) as the denominator; and 

(3)then the result would be averaged on a share-weighted basis for the month.574  

(2) Final Rule and Discussion 

The Commission is adopting the proposed requirement to disclose percentage-based 

spread statistics for average realized spread and average effective spread. However, the 

Commission is modifying the proposed definitions of “average percentage effective spread” and 

“average percentage realized spread” to use a new defined term (“average midpoint”) in the 

denominator. Doing so will eliminate any ambiguity about how to calculate these statistics, as 

described in more detail below. In addition, the Commission is making the percentage effective 

spread statistic applicable to marketable order types, marketable stop order types, and midpoint-

or-better limit order types only, rather than all order types as proposed. Further, the Commission 

is adding a requirement to include an average midpoint statistic, which serves as the denominator 

of percentage-based spread statistics, in the detailed reports required pursuant to Rule 605(a)(1). 

An investor advocacy group stated that a percentage-based spread measure would 

provide additional information where there is a significant price change in a security during the 

month.575 In addition, an industry group stated its agreement with the approach proposed by the 

Commission for calculating average percentage effective spread.576 Specifically, this commenter 

 

574  See id. at 3816-17. 

575  See Better Markets Letter at 8. 

576  See FIF Letter at 29. 



156 

described share-weighted average percentage spread as the sum of effective spread per share 

times shares executed divided by the sum of the midpoint times shares executed.577  

The Commission continues to believe including percentage-based statistics for effective 

spread and realized spread, in addition to the dollar-based statistics in the existing report, will 

account for differing underlying stock prices and better facilitate comparisons of spread statistics 

across different time periods and securities.578 In order to simplify the definitions and eliminate 

ambiguity about how to calculate percentage-based spread statistics, and because the 

Commission is requiring the separate disclosure of an average midpoint statistic as described 

below, the Commission is modifying the adopted definitions of “average percentage effective 

spread” and “average percentage realized spread” to use defined terms. As proposed, both 

percentage-based spread statistics would have been share-weighted and used as their 

denominator the midpoint of the national best bid and national best offer at the time of order 

receipt or, for non-marketable limit orders, beyond-the-midpoint limit orders, and orders 

submitted with stop prices, at the time such orders first become executable.579  

A commenter stated it interpreted the definition of share-weighted average percentage 

spread as the ratio of share-weighted effective spread divided by share-weighted midpoint.580 

However, based on the commenter’s interpretation, the Commission acknowledges that it is 

ambiguous whether the modifier “share-weighted” in the proposed amendment applied to: (1) the 

percentage calculation (i.e., calculating the percentage effective spread or percentage realized 

 

577  See id. 

578  See Proposing Release, 88 FR 3786 at 3816-17 (Jan. 20, 2023). 

579  See id. at 3817; proposed Rule 600(b)(11) (average percentage effective spread) and proposed Rule 

600(b)(12) (average percentage realized spread). 

580  See supra note 577. 



157 

spread for each transaction and then share-weighting such percentage);581 or (2) each of the 

denominator and the numerator (i.e., calculating the share-weighted average effective or realized 

spread and dividing that by the share-weighted midpoint).582 Therefore, in order to simplify these 

definitions and eliminate ambiguity as to how percentage-based spread statistics will be required 

to be calculated, and consistent with the commenter’s interpretation of how to calculate this 

statistic, the Commission is modifying the definitions of “average percentage effective spread” 

and “average percentage realized spread” from the definitions proposed.  

Specifically, “average percentage effective spread” will be defined as the average 

effective spread583 for order executions divided by the average midpoint for order executions.584 

“Average percentage realized spread” will be defined as the average realized spread585 for order 

executions divided by the average midpoint for order executions.586 As proposed, the definitions 

of “average percentage effective spread” and “average percentage realized spread” used as their 

numerators the share-weighted effective spread and the share-weighted realized spread, 

respectively.587 However, because “average effective spread” and “average realized spread” are 

defined as share-weighted averages, the Commission is instead using the defined terms “average 

effective spread” and “average realized spread” as the numerator in order to simplify the adopted 

 

581  See Proposing Release, 88 FR 3786 at 3817, n.392 (Jan. 20, 2023) and accompanying text (stating the 

percentage would be averaged on a share-weighted basis). 

582  See id. at 3816-17 (stating “this [referring to the denominator] would then be averaged on a share-weighted 

basis for the month”). 

583  See final 17 CFR 242.600(b)(8). 

584  See final 17 CFR 242.600(b)(10). See also 17 CFR 242.600(b)(9) (defining average midpoint). 

585  See final 17 CFR 242.600(b)(13).  

586  See final 17 CFR 242.600(b)(11). 

587  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023); proposed Rule 600(b)(11) (average percentage 

effective spread) and proposed Rule 600(b)(12) (average percentage realized spread). 



158 

definitions of “average percentage effective spread” and “average percentage realized spread.” 

Instead of repeating the same definition of average midpoint in each of the percentage-based 

spread definitions as proposed, the Commission is adopting the defined term “average midpoint” 

and will use this term in the denominator (i.e., average midpoint for order executions). “Average 

midpoint” will be defined as the share-weighted average of the midpoint of the national best bid 

and national best offer at either the time of order receipt or, for non-marketable limit orders, 

midpoint-or-better limit orders, and orders submitted with stop prices, at the time such orders 

first become executable.588 The term “average midpoint” as applied to order executions will be 

substantively the same as the proposed denominator for the percentage-based spread statistics.589 

Further, the Commission is adding an average midpoint statistic to the detailed report required by 

Rule 605(a)(1) so that certain statistics in the summary report—namely, average midpoint and 

the percentage-based statistics—will be derivable from the detailed report,590 as suggested by 

commenters.591 With the detailed report containing the information necessary to calculate the 

statistics in the summary report, market participants and other users of the reports will be able to 

recalculate the statistics in the summary report with different subsets of data.  

Finally, the Commission is requiring average percentage effective spread only for 

marketable order types, marketable stop order types, and midpoint-or-better order types for the 

 

588  See final 17 CFR 242.600(b)(9). The Commission is modifying the order types listed in the definition of 

average midpoint from the definition that was proposed to be included in both percentage-based spread 

statistics in order to conform to the order types adopted herein. See supra section III.B.2. 

589  The definition includes “share-weighted” to make clear that average midpoint is also a share-weighted 

statistic. See final 17 CFR 242.600(b)(9). 

590  See final 17 CFR 242.605(a)(1)(i)(Y); final 17 CFR 242.605(a)(2)(vi), (vii), (viii), (x), and (xi). 

591  See infra note 769 and accompanying text. 



159 

same reasons that the Commission is requiring average effective spread only for these order 

types.592 

d) Effective over Quoted Spread (E/Q) 

(1) Proposed Approach 

Effective over quoted spread (“E/Q”) can be derived from Rule 605 reports required prior 

to these amendments, but the prior Rule did not require the reporting of E/Q or quoted spread.593 

The Commission proposed to require, for executions of all covered orders, that reporting entities 

report the average E/Q, expressed as a percentage, for all marketable and non-marketable order 

types.594 The proposed definition “average effective over quoted spread” would have required 

the computation of a share-weighted average E/Q by dividing effective spread by quoted spread 

for each transaction and then averaging that over the month (weighted by number of shares).595 

The quoted spread would have been the difference between the national best bid and the national 

best offer at either the time of order receipt (for marketable order types) or the time an order first 

becomes executable (for non-marketable order types).596  

(2) Final Rule and Discussion 

The Commission is adopting a statistic for average E/Q, expressed as a percentage, but 

with a modified weighting methodology to utilize spread-based weighting rather than the 

proposed weighting methodology of share-weighting the E/Q for each transaction. In addition, 

 

592  See supra notes 568-571 and accompanying text. 

593  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

594  See id. E/Q is generally expressed as a percentage that represents how much price improvement an order 

received. An E/Q of 100% means a buy order was executed at the national best offer or a sell order was 

executed at the national best bid, and an E/Q of 0% means an order was executed at the midpoint of the 

NBBO. See id. 

595  See id. 

596  See id. 



160 

the Commission is making the average E/Q statistic applicable to marketable order types, 

marketable stop order types, and midpoint-or-limit order types only, instead of all order types. 

Further, the Commission is adding a requirement to include average quoted spread, which is the 

denominator of average E/Q, in the detailed reports required pursuant to Rule 605(a)(1). 

A financial services firm stated that E/Q is a “very common metric used within the 

industry to judge execution quality” and that it “does a good job of providing a normalized 

comparison of price improvement relative to the price improvement opportunity.”597 Another 

financial services firm stated that “E/Q directly quantifies how much of the spread the broker 

secures for its investor-client” and “[i]ncluding E/Q on Rule 605 reports will enable investors to 

make ‘apples to apples’ comparisons of execution quality.”598 In addition, an investor advocacy 

group stated that requiring a separate field in Rule 605 reports for E/Q allows market participants 

to compare price improvement statistics across securities and across market centers and broker-

dealers.599  

However, several commenters recommended that the Commission require spread-based 

weighting, rather than share-based weighting, for the calculation of average E/Q and indicated 

that the industry uses spread-based weighting when calculating E/Q.600 One industry group stated 

that spread-based weighting “results in the same amount of E/Q being reported for the same 

aggregate dollar amount of E/Q being provided.”601 This commenter further stated that the 

 

597  Schwab Letter II at 31. 

598  Vanguard Letter at 4. 

599  See Better Markets Letter at 8. 

600  See FIF Letter at 23; SIFMA Letter II at 27; Schwab Letter II at 31; Schwab Letter III at 4; Rule 605 

Citadel Letter at 5. 

601  FIF Letter at 23.161 

method of weighting can influence the reported E/Q metrics and, using share-based or notional-

based weighting, a firm that provides a lower aggregate dollar amount of price improvement 

relative to a second firm could result in the first firm reporting a lower E/Q than the second firm, 

even though this lower E/Q would not reflect that customers received better executions.602 

Another industry group stated that a share-weighting formula would tend to weigh sub-dollar 

stocks more heavily and could allow a firm to manipulate its average E/Q by adjusting the type 

of stocks for which it provides better price improvement.603 This commenter also stated that 

using a spread-weighting formula would preserve the relationship between price improvement in 

dollars and E/Q and therefore the firm’s E/Q would remain the same regardless of how the firm 

distributes its price improvement among different stocks.604  

Similarly, a financial services firm stated share-weighting detaches E/Q from the ability 

to understand it in the context of the opportunity for price improvement and this “opens the door 

for possible manipulation of results.”605 This commenter also stated that wholesalers’ 

discretionary price improvement dollars are fungible and that share-weighting of E/Q would 

result in an incentive to provide more price improvement on narrow spread securities and less 

price improvement on wide spread securities.606 A broker-dealer stated that a share-weighted 

methodology may incentivize market participants to allocate price improvement to lower priced 

securities with narrower quote spreads.607 This commenter recommended the use of a spread-

 

602  See id. at 23-24. 

603  See SIFMA Letter II at 27. 

604  See id. 

605  Schwab Letter III at 4. 

606  See Schwab Letter II at 31; Schwab Letter III at 4. 

607  See Rule 605 Citadel Letter at 5. 



162 

weighted average because a spread-weighted average would be tied to the total price 

improvement delivered in dollars and unaffected by how that price improvement is allocated 

among different symbols.608 

An industry group and a financial services firm suggested that Rule 605 reports not 

include E/Q and leave it to users of the report to calculate E/Q from other statistics that are 

currently included in the reports.609 The industry group further stated that the Commission was 

inconsistent when it proposed requiring the reporting of E/Q for non-marketable order types but 

not requiring the reporting of price improvement statistics for such order types.610 This 

commenter provided four alternative approaches to address this perceived inconsistency, but did 

not recommend two of the alternatives because they required the reporting of E/Q and did not 

recommend a third alternative because, according to the commenter, price improvement is only a 

relevant statistic for marketable orders.611 

After review of the comments, as stated above, the Commission is adopting a 

requirement that Rule 605 reports include a statistic for average E/Q, expressed as a percentage, 

 

608  See id. This commenter provided examples of how the same amount of price improvement in dollars can 

generate different share-weighted average E/Q statistics depending on the symbols to which it is allocated, 

whereas spread-weighting yields the same E/Q in each scenario. See id. at 5, 13.  

609  See FIF Letter at 20-21 (stating that for marketable order types, it is not necessary to include E/Q in the 

detailed reports required by Rule 605(a)(1) because E/Q can be derived from other data that is already 

included and this data, specifically, is found in the price improvement, price dis-improvement, and 

effective spread statistics); Schwab Letter II at 31 (suggesting that the reports include effective spread and 

quoted spread and then allow individuals to compute E/Q). 

610  See FIF Letter at 21. As described in supra section III.B.4.b)(2), the Commission is requiring effective 

spread statistics only for marketable order types, marketable stop order types, and midpoint-or-better order 

types, rather than all order types as proposed. As described in more detail below, the Commission is 

requiring E/Q only for these same order types. Further, the required statistics for each of these order types 

also include price improvement statistics. See final 17 CFR 605(a)(1)(ii)(E) through (L). Therefore, there 

are no order types for which Rule 605 will require the reporting of E/Q but not price improvement 

statistics.  

611  See FIF Letter at 21. 



163 

but is adjusting the weighting methodology from the proposal. The Commission is adopting a 

spread-weighted average E/Q statistic, consistent with commenters’ suggestions.612 In addition, 

the Commission is requiring average E/Q only for marketable order types, marketable stop order 

types, and midpoint-or-better order types, rather than all order types as proposed. Because 

spread-weighted average E/Q is the same as average effective spread divided by average quoted 

spread, in lieu of creating a separate definition for “average effective over quoted spread” as 

proposed, Rule 605 as adopted specifies that the required statistics for marketable order types, 

marketable stop order types, and midpoint-or-better order types include, for executions of 

covered orders, the average effective spread divided by the average quoted spread, expressed as a 

percentage.613 The Commission is also requiring that Rule 605 reports include a reported statistic 

for average quoted spread and is defining “average quoted spread” as the share-weighted average 

of the difference between the national best offer and the national best bid at the time of order 

receipt or, for order executions of non-marketable limit orders,614 the difference between the 

national best offer and the national best bid at the time such orders first become executable.615 

Thus, Rule 605 as adopted also will specify that the required statistics for marketable order 

types, marketable stop order types, and midpoint-or-better order types include, for executions of 

covered orders, average quoted spread.616 

 

612  See supra notes 600-608 and accompanying text.  

613  See final 17 CFR 242.605(a)(1)(ii)(D).  

614 Because the requirement to report average quoted spread applies only to market orders, marketable limit 

orders, marketable IOCs, marketable stop order types, and the midpoint-or-better order types, the only non-

marketable limit orders this will apply to are the midpoint-or-better order types and marketable stop order 

types (which are non-marketable until triggered). See final 17 CFR 242.605(a)(1)(ii)(A).  

615  See final 17 CFR 242.600(b)(12); final 17 CFR 242.605(a)(1)(ii)(A); final 17 CFR 242.605(a)(2)(viii). See 

also infra notes 817-827 and accompanying text for discussion of E/Q and quoted spread statistics in the 

summary report. 

616  See final 17 CFR 242.605(a)(1)(ii)(A).  



164 

The Commission agrees with commenters that the use of a spread-weighting 

methodology will provide a consistent measure of E/Q that will not vary based on the specific 

symbols to which price improvement is allocated.617 The adopted methodology will avoid a 

potential incentive to allocate price improvement in a manner that would maximize the reported 

E/Q statistic without changing the total dollar value of the price improvement provided. Thus, 

the use of a spread-weighted average E/Q is consistent with the Commission’s stated goal of 

facilitating the comparability price improvement statistics across symbols.618 In addition, the 

Commission acknowledges that the industry generally uses spread-weighting when calculating 

E/Q619 and thus, as stated by a commenter, will provide a “normalized comparison of price 

improvement relative to the price improvement opportunity”620 that is consistent with existing 

industry practice.  

The adopted definition of “average quoted spread” is the same as the description of “total 

quoted spread” that was embedded in the proposed definition of “average effective over quoted 

spread,” with two modifications from the embedded definition as proposed.621 First, the 

Commission is specifying that average quoted spread is a share-weighted average. Second, the 

Commission is limiting the list of order types for which the average quoted spread will be 

required to be measured at the time the order first becomes executable to conform to the order 

 

617  See supra notes 600-608 and accompanying text. 

618  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

619  See supra note 600 and accompanying text. 

620 See supra note 597. 

621  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). The substantive difference between the two is 

that “average quoted spread” as adopted will reflect the share-weighted average of quoted spreads of all 

transactions for the month within a reporting category, whereas “average effective over quoted spread” 

would have divided effective spread by quoted spread for each transaction and then used a share-weighted 

average of that number over the month. See id. 



165 

types being adopted herein. The inclusion of an average quoted spread statistic in Rule 605 

reports will provide an additional piece of information that market participants and other users of 

the reports can use to evaluate execution quality. Moreover, in response to the commenters who 

stated that E/Q could be calculated using the effective spread and quoted spread statistics and 

that the Commission should allow users to derive E/Q,622 as stated in the Proposing Release, E/Q 

is a relatively simple metric to capture contemporaneously with execution and requiring a 

separate field for E/Q will increase the ability of market participants to access and utilize E/Q to 

compare price improvement statistics across securities, and across market centers and broker-

dealers.623 

In addition, because effective spread is a necessary input into E/Q, the Commission is not 

adopting the application of E/Q to non-marketable order types other than midpoint-or-better 

order types (and marketable stop order types, which are generally non-marketable orders upon 

receipt).624 Accordingly, the Commission will include E/Q within the statistics required for 

marketable order types, marketable stop order types, and midpoint-or-better order types only.625 

e) Size Improvement 

(1) Proposed Approach 

Prior to the amendments, Rule 605 reports included price improvement metrics but did 

not include any statistics that directly measured whether orders received an execution of more 

 

622  See supra note 609.  

623  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). See also infra notes 1534-1537 (discussing that 

the concern in the Proposing Release that extrapolating an average E/Q using average effective spread and 

average quoted spread may lead to a noisier level of E/Q is no longer relevant with the use of a spread-

weighted average E/Q).  

624  See supra section III.B.4.b)(2).  

625  See final 17 CFR.605(a)(1)(ii)(D).  



166 

than the displayed size at the quote.626 The Commission proposed adding a benchmark metric 

that would, in combination with information about shares executed, indicate the level of “size 

improvement,” i.e., the extent to which orders received an execution at prices at or better than the 

quote for share quantities greater than the displayed size at the quote.627 Specifically, the 

Commission proposed requiring the reporting of the cumulative number of shares of the full 

displayed size of the protected bid at the time of execution, in the case of a market or limit order 

to sell; and of the full displayed size of the protected offer at the time of execution, in the case of 

a market or limit order to buy.628 As proposed, for each order, the share count would have been 

capped at the order size if the full displayed size of the national best bid or national best offer is 

larger than the order.629 The Commission explained that the proposed size improvement 

benchmark metric could be combined with information about the number of shares executed at 

or above the quote to measure a market center or broker-dealer’s ability to offer customers 

execution at the quote (or better), even when there is no depth available at that price.630 

(2) Final Rule and Discussion 

The Commission is adopting a modified version of the proposed size improvement 

benchmark metric that measures the displayed size at the time of order receipt (or the time the 

order becomes executable for midpoint-or-better order types) instead of measuring the displayed 

size at the time of order execution as proposed. The Commission is also modifying the proposed 

 

626  Although share-weighted effective spread metrics may provide information about size improvement 

because effective spread will be larger for orders that have to “walk the book” (i.e., consume available 

depth beyond the best-priced quotes), effective spread combines both price and size information. See 

Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

627  See id. at 3818. 

628  See id.; proposed Rule 605(a)(1)(i)(F). 

629  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023); proposed Rule 605(a)(1)(i)(F). 

630  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 



167 

size improvement benchmark metric by having it apply only to marketable order types, 

marketable stop order types, and midpoint-or-better order types rather than all order types, as 

proposed. Finally, based on comments received, the Commission is adopting an additional size 

improvement metric (as discussed below, “size improved outsized shares”) that was not part of 

the proposal and indicates the amount of size improvement in those instances in which an order 

could have received size improvement. 

Several commenters supported adding a requirement that Rule 605 reports include the 

proposed size improvement benchmark metric.631 A broker-dealer stated that the proposed size 

improvement metric would provide market participants with important information about an 

additional dimension of execution quality that is not captured by current Rule 605 statistics.632 

According to this commenter, this metric will be particularly beneficial for retail investors 

seeking to accurately assess execution quality delivered by wholesale broker-dealers.633 Another 

broker-dealer stated that size improvement is a “substantial benefit” offered by broker-dealers 

and market makers to retail orders and “its absence in Current Rule 605 reports means that 

execution quality is significantly undercounted.”634 This commenter requested an explanation of 

how fractional share orders should be addressed in certain statistics, for example size 

 

631  See Pritchard Letter; SIFMA Letter II at 25; SIFMA AMG Letter at 6; Rule 605 Citadel Letter at 11; 

CCMR Letter at 13. See also Nasdaq Letter at 44 (stating that size improvement opportunities are 

significant and relevant to best execution decisions). 

632  See Rule 605 Citadel Letter at 11. 

633  See id. (stating that, according to a recent study, factoring in size improvement more than doubled the 

dollar amount of price improvement reported by wholesale broker-dealers). 

634  Robinhood Letter at 46-47. This commenter opposed the proposed changes to Rule 605 but suggested 

expanding Rule 606 reports to add a column for size improvement, among other execution quality metrics. 

See id. at 42-43. 



168 

improvement statistics.635 Another commenter stated that it supported the addition of a size 

improvement metric because of its significant impact on transaction costs for retail investors.636  

An industry group stated that it agreed with the Commission on the value of including 

size improvement statistics, but opposed measuring size improvement based on the number of 

shares available at the time of execution.637 Instead, this commenter recommended measuring 

size improvement against the full displayed size at the opposite side of the NBBO as of the time 

of order receipt (for marketable group orders) or as of the time an order becomes executable (for 

non-marketable group orders).638 This commenter presented three scenarios to illustrate why it 

supports measuring size improvement against the full displayed size at the time of order receipt 

rather than at the time of execution.639 This commenter also stated that it assumes that where an 

order has multiple executions, the Commission would require adding the displayed size to the 

benchmark metric at the time of each execution, rather than counting the displayed size for only 

one execution.640  

 

635  See id. at 48 (asking how the displayed size and the time of execution of fractional share orders would be 

counted for purposes of the size improvement benchmark). 

636  See CCMR Letter at 13. 

637  See FIF Letter at 20. 

638  See id. This commenter stated that this method is how other statistics in the report, such as effective 

spreads, are measured. See id. 

639  See FIF Letter II at 4-7. In the first scenario, the customer’s order size is larger than the displayed size, and 

the commenter states its suggested approach would reflect this oversizing and provide for a more accurate 

comparison across brokers that receive customer orders that, on average, oversize the NBBO by different 

percentages. See id. at 4-5. In the second scenario, the customer’s order size is larger than the displayed 

size and results in price dis-improvement, and the commenter states that its suggested approach would 

require the broker-dealer to report price dis-improvement but would also include data to reflect that the 

broker-dealer received an order that oversized the opposite-side NBBO. See id. at 5-6. In the third scenario, 

a broker-dealer is delayed in executing the customer’s order due to a systems issue and the executed size is 

the same as the displayed size at the time of order receipt but larger than the displayed size at the time of 

order execution, and the commenter states that its suggested approach would correctly reflect that the 

broker-dealer did not provide size improvement. See id. at 6-7. 

640  See id. at 5, n.10, and 6, n.11. 



169 

Further, this commenter stated that a market could have protected bids and offers that are 

not represented in the NBBO but are at the same price as the NBBO, and these bids and offers 

are included in Level 1 market data.641 This commenter also stated that it understands that when 

the Commission refers to the cumulative number of shares of the full displayed size of the 

protected bid or offer, the Commission is including in this number shares of protected bids and 

offers that are not represented in the NBBO but are at the same price as the NBBO.642  

A broker-dealer stated that the proposal “falls well short of including the necessary 

statistics to reflect the benefits of size improvement.”643 This commenter stated that the proposed 

size improvement metric would be inadequate because it would include all orders in the 

calculation, even when there is no opportunity to provide size improvement, and thereby would 

dilute the amount and obfuscate the value of size improvement provided when the need for size 

improvement actually exists.644 This commenter suggested the following alternative metrics that, 

in its view, would more accurately reflect size improvement benefits obtained by each broker for 

its retail investor customers: (1) the number of orders for which the order size exceeded the 

available shares displayed on the relevant side of the NBBO (“outsized orders”); (2) the total 

number of shares executed as part of these outsized orders; and (3) the number (or percentage) of 

shares within the outsized orders that received size improvement (i.e., were executed at or better 

than the NBBO price, in excess of the amount of aggregate displayed liquidity at the NBBO).645  

 

641  See FIF Letter at 20. 

642  See id. 

643  Virtu Letter II at 5. 

644  See id. at 10. 

645  See id. According to this commenter, these metrics would be more informative because they would not 

include orders in which there was no need to provide size improvement. See id. 



170 

As discussed in the Proposing Release, this commenter also suggested in a petition for 

rulemaking to the Commission that Rule 605 should include an alternative metric, referred to as 

“real price improvement” (“RPI”), that combines price improvement with size improvement by 

using as its benchmark a price that reflects the equivalent size of shares—including depth of 

book quotes and odd-lot quotes.646 When the Commission described why it was not proposing to 

include an RPI benchmark or metric in the proposed rule, the Commission stated that although 

RPI may be a more informative measure of size improvement than a measure that can be 

calculated using the proposed size improvement benchmark metric, the RPI would require 

market centers and reporting broker-dealers to subscribe to all exchanges’ proprietary depth-of-

book data feeds and would entail a “significant cost” to reporting entities that did not already 

subscribe to these feeds.647 Therefore, the Commission preliminarily believed that the benefits to 

market participants of having an RPI metric were not justified by the potentially significant 

additional costs to reporting entities.648  

In commenting on this rulemaking, this commenter again suggested that the Commission 

add an RPI benchmark or metric to Rule 605 and responded to the Commission’s statement that 

such measure could be too costly for market participants who would need to subscribe to 

exchanges’ depth-of-book data feeds.649 According to this commenter, many brokers utilize 

 

646  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (citing Virtu Petition at 3). 

647  See id. 

648  See id. at 3818-19. 

649  See Virtu Letter II at 7 (“To truly and accurately measure execution quality, Rule 605 disclosures should be 

updated to compare fill prices for all orders to the average price in the market to fill the same number of 

shares considering all displayed quotes—including NBBO, depth of book, and odd lots.”), 10 (“To properly 

reflect the value of size improvement benefits that brokers obtain for retail investors, Rule 605 should 

measure an order’s execution price that is the volume-weighted average price (‘VWAP’) for an equivalent 

quantity of shares based on the shares available across exchanges.”). 



171 

vendors to produce Rule 605 reports and these vendors are capable of handling depth-of-book 

data.650 This commenter also stated that “if the Commission’s proposed tick size reductions are 

adopted, there would be less liquidity at the NBBO, and investors who currently use SIP data 

would have less visibility into market liquidity and would need to access the exchanges’ depth-

of-book data feeds anyway.”651 Another commenter suggested that the Commission undertake a 

more detailed analysis of the costs and benefits of requiring RPI statistics in Rule 605 reports and 

that the Commission should require the reporting of RPI information if this analysis “indicates 

that the benefits . . . outweigh the costs."652 According to this commenter, the Commission did 

not quantify either the costs of requiring reporting entities to have access to a full set of 

consolidated depth information or the benefits of providing this additional information about size 

improvement to market participants.653 Finally, one commenter stated that “[p]rice improvement 

should be measured relative to the displayed book, not the NBBO. Odd lots are ignored in the 

calculation of the NBBO.”654 

An investor advocacy group recommended eliminating the proposed size improvement 

metric until such a time when the public data feed contains more information regarding the depth 

 

650  See id. at 10. 

651  Id. The Commission is still considering the proposed changes discussed in the Minimum Pricing 

Increments Proposing Release, including changes to tick sizes. See Minimum Pricing Increments Proposing 

Release, 87 FR 80266 (Dec. 29, 2023). The Commission will consider comments regarding whether 

changes to tick sizes would lead to changes in the use of depth-of-book feeds in the context of that 

proposal. 

652  See CCMR Letter at 16. See also id. at 15 (stating that current Rule 605 disclosures fail to consider that 

there is a limited size available at the NBBO on exchanges, thus failing to account for size improvement, 

and price improvement should be measured with reference to the average price obtainable for the full order 

on the exchange, not just with reference to the NBBO). 

653  See id. at 16 (citing Proposing Release, 88 FR 3786 at 3894 (Jan. 20, 2023)). 

654  Angel Letter at 3. 



172 

of quotations.655 According to this commenter, accurately identifying size improvement would 

require proprietary depth of book feeds, and if the size improvement statistic relied solely on the 

SIP it would be misleading because it would not reflect the top of book across public quotes or 

hidden or mid-point priced orders.656 A group of academics stated that some of the proposed 

disclosure requirements, such as size improvement, may be helpful for a subset of trades, but 

recommended limiting changes to Rule 605 to a more limited set of statistics to reduce 

implementation costs and speed up adoption.657  

 The Commission considered the comments and, in response to commenter feedback, is 

modifying the proposed size improvement benchmark metric and adding an additional size 

improvement metric. Further, the Commission is requiring the disclosure of both size 

improvement metrics only for marketable order types, marketable stop order types, and 

midpoint-or-better order types, rather than for all order types as proposed. To implement these 

changes, the Commission is adopting a defined term for the size improvement benchmark 

metric—the “order size benchmark.” As adopted, “order size benchmark” means the number of 

shares of the full displayed size of all protected bids at the same price as the national best bid at 

the time of order receipt, in the case of a market or limit order to sell, or the full displayed size of 

all protected offers at the same price as the national best offer at the time of order receipt, in the 

case of a market or limit order to buy.658 For marketable stop order types and midpoint-or-better 

order types, the full displayed size is measured at the time the order becomes executable rather 

 

655 See Healthy Markets Letter at 18. 

656  See id. 

657  See Professor Schwarz et al. Letter at 5. 

658  See final 17 CFR 242.600(b)(72). 



173 

than the time of order receipt.659 For each order, the share count is capped at the order size.660 

The Commission is also modifying the proposed Rule 605(a)(1) metrics to require the reporting 

of, for executions of covered orders, the cumulative number of shares of the order size 

benchmark.661 The term “order size benchmark” is the same as the proposed size improvement 

benchmark metric, except in the following two respects. 

First, in response to the commenter who recommended the size improvement benchmark 

be captured at the time of order receipt,662 the Commission is modifying the time at which the 

order size benchmark measures the available displayed size on the opposite side of the NBBO. 

Instead of measuring the displayed size at the time of execution as proposed, the order size 

benchmark in the final rule measures displayed size at the time of order receipt, for market and 

marketable limit orders, and at the time an order becomes executable, for marketable stop order 

types and midpoint-or-better order types. Capturing the displayed size of the opposite side quote 

at the time of order receipt (or the time of executability for marketable stop order types and 

midpoint-or-better order types) provides a view of the available size at the time an order could 

first reasonably be expected to execute and therefore provides users of the Rule 605 data 

information relating to which market centers and broker-dealers are more likely to be able to fill 

orders in a size larger than what may be readily available. Using the time of order receipt (or 

time the order becomes executable) as in the final rule will simplify calculation of the order size 

benchmark because there will be one relevant time for each order, even if that order results in 

 

659  See id. 

660  See id. 

661  See final 17 CFR 242.605(a)(1)(ii)(R). 

662  See supra notes 637-639 and accompanying text. 



174 

multiple executions. In contrast, if the Commission required calculation of the order size 

benchmark at the time of execution as proposed, an order with multiple executions would have 

different times of execution for different portions of the order. The Commission also agrees with 

the commenter that measuring the displayed size at the time of execution could result in a less 

accurate picture of size improvement in some instances,663 particularly if some shares priced at 

the opposite side of the NBBO are displayed at the time of order receipt and then lifted before 

the time of execution.664  

Second, the Commission is adopting a modification to make clear that the order size 

benchmark measures the full displayed size of all shares at the same price as the protected bid or 

offer (as applicable).665 The Commission agrees with the commenter that the share count should 

be required to include not just those shares that are represented in the NBBO but also shares of 

protected bids and offers that are not represented in the NBBO but are at the same price as the 

NBBO.666 Reporting entities will be able to capture information about these shares without 

relying on proprietary depth-of-book feeds because the SIP includes all protected bids and offers. 

 

663  See supra note 637. This commenter also provided several scenarios presenting how the presentation of 

size improvement statistics would differ if size improvement is measured against the full displayed size at 

the time of order receipt (as suggested by the commenter) or the time of execution (as proposed). See supra 

note 639 and accompanying text. As described, final Rule 605 measures size improvement at the time of 

order execution. 

664  See supra note 639 In response to the commenter’s request for clarification about how to calculate size 

improvement for fractional shares (see supra note 635 and accompanying text), the order size benchmark is 

capped at the size of the order and therefore in the case of a fractional share order where the displayed size 

exceeds the order size, the order size benchmark will reflect the fractional size of the order. See final 17 

CFR 242.600(b)(72). The commenter’s question about how to calculate time of execution is moot because 

the adopted rule will measure the size improvement statistics at the time of order receipt rather than the 

time of execution. 

665  See final 17 CFR 242.600(b)(72). 

666  See supra notes 641-642 and accompanying text. 



175 

 The Commission considered commenter’s suggestions for alternative size improvement 

metrics.667 In response to the commenter’s recommendation to include the number of shares 

executed as part of outsized orders, the Commission observes that, using the Rule 605 statistics 

as adopted, it is possible to calculate the number of shares eligible for size improvement 

(“outsized share count”) for any row of Rule 605 data by taking the cumulative number of shares 

of covered orders received and subtracting the cumulative number of shares of the order size 

benchmark.668 Although the outsized share count that can be calculated using Rule 605 statistics 

as adopted differs slightly from the commenter’s recommended metric, it similarly addresses 

commenter’s criticism that the order size benchmark includes orders in which the reporting 

entity does not have the opportunity to provide size improvement because the order size is equal 

to or less than the available shares at the NBBO.669 The Commission is not adopting the 

commenter’s suggestion to include the number of outsized orders in the Rule 605 statistics 

because the number of outsized orders alone is less meaningful when this information is 

aggregated across orders.670 Instead, the outsized share count, which will be derivable from the 

Rule 605 statistics as adopted, will provide a metric that is more useful for comparison purposes 

when aggregated. 

The Commission agrees with the commenter that it would provide useful information to 

add a size improvement metric that will measure the level of size improvement in those instances 

 

667  See supra notes 645-653 and accompanying text. 

668  See final 17 CFR 242.605(a)(1)(i)(C); final 17 CFR 242.605(a)(1)(ii)(R).  

669  See Virtu Letter II at 10. 

670  For further discussion of the Commission’s consideration of alternative size improvement measures, see 

infra section IX.E.3.d)(3). 



176 

in which the order presents an opportunity for size improvement.671 Therefore, the Commission 

is adopting an additional Rule 605 statistic that will require reporting of the sum of, for each 

execution of a covered order, the greater of: the total number of shares executed with price 

improvement plus the total number of shares executed at the quote minus the order size 

benchmark; or zero (the “size improved outsized shares”).672 For each execution of a covered 

order, the total number of shares executed with price improvement plus the total number of 

shares executed at the quote represents the number of shares executed at or better than the 

opposite side of the NBBO at the time of order receipt (or executability). Subtracting the order 

size benchmark from that sum represents the extent to which the reporting entity provided such 

executions at a size greater than the displayed size at the quote. The resulting number can be 

negative if a reporting entity does not provide an execution at or better than the NBBO for the 

full number of displayed shares at the opposite side of the NBBO (i.e., there is “size dis-

improvement”). However, the size improved outsized shares metric is designed to capture the 

extent to which the reporting entity achieves size improvement when an order presents an 

opportunity for size improvement and as such will never be negative. Instead, for each execution 

of a covered order, the size improved outsized shares metric will be the greater of the described 

calculation and zero. As an example, assume the protected NBBO for a security is $5.00 - $5.05. 

If a market center receives a 400-share market order to sell and executes all 400 shares at $5.00, 

and there were 300 shares displayed at the national best bid at the time of order receipt, the order 

size benchmark will be 300 shares. To continue this example, the size improved outsized shares 

will be the greater of 100 shares (i.e., 400 shares minus 300 shares) and zero shares, and thus the 

 

671  See supra note 645 and accompanying text.  

672  See final 17 CFR 242.605(a)(1)(ii)(S). 



177 

size improved outsized shares will be 100 shares.673 As a second example, assume the protected 

NBBO for a security is $10.00 - $10.10. If a market center receives a 300-share market order to 

buy but only executes 100 shares at $10.10 and there were 200 shares displayed at the national 

best offer for $10.10 at the time of order receipt, the order size benchmark will be 200 shares. To 

continue this example, the size improved outsized shares will be the greater of – 100 shares (i.e., 

100 shares minus 200 shares) and zero shares, and thus the size improved outsized shares will be 

zero shares.  

 Where the size improved outsized shares will differ from information derivable from 

other execution quality statistics in final Rule 605 is in cases where there is size dis-

improvement, which may occur when some shares execute at prices worse than the quote or do 

not execute even though a sufficient number of shares are displayed at the quote. With respect to 

the information that can be derived from other Rule 605 statistics, as discussed in the Proposing 

Release, the order size benchmark can be compared to the number of shares executed at or better 

than the quote to calculate whether the reporting entity filled any portion of the customer order at 

the opposite side of the NBBO (or better), even when insufficient depth was available at that 

price (“net size improvement”).674 Unlike the size improved outsized shares, the net size 

improvement will take into account instances of size dis-improvement and, in such instances, 

 

673  The Commission is not adopting a metric that would reflect the percentage of shares within outsized orders 

that received size improvement because it will be possible to calculate this percentage using the outsized 

share count and the size improved outsized shares. 

674  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (discussing the “size improvement share 

count”). To better distinguish this term from size improved outsized shares, the Commission is using the 

term “net size improvement” herein instead of “size improvement share count.” 



178 

will take into account negative values.675 To continue the second example above, where the 

market center is able to fill 100 shares at $10.10 but the depth available at the protected offer is 

200 shares, the net size improvement will be – 100 shares (i.e., 100 shares minus 200 shares). 

The ability to compare size improved outsized shares and net size improvement will 

contain useful information for market participants as well. For example, market participants will 

be able to use this variable to tell the difference between a market center that has a net size 

improvement value of zero because it does not offer size improvement, or because it offers a mix 

of size improvement and size dis-improvement. This will be informative for market participants 

that are concerned about the risk of receiving size dis-improvement. Market participants and 

other users of Rule 605 reports will be able to divide the size improved outsized shares by the net 

size improvement to obtain a ratio that informs about the extent to which a reporting entity is 

executing orders with size dis-improvement. The higher the ratio (i.e., the higher it is above 1), 

the more size dis-improvement occurred. For example, assume a market participant compares 

two market centers for a particular order type, size, and security and calculates that Market 

Center 1 has net size improvement of 2,500 and size improved outsized shares of 4,000; and 

Market Center 2 has net size improvement of 5,000 and size improved outsized shares of 6,000. 

To continue this example, Market Center 1 would have a ratio of 8/5 (i.e., 4,000 / 2,500) and 

 

675  In cases where the best displayed quote equals or exceeds the order size (i.e., where there is no opportunity 

to provide size improvement), the size improved outsized shares will always be zero. In contrast, the net 

size improvement will not be negative in instances in which the depth at the best displayed quote exceeds 

the customer-requested order size because the share count used to calculate the order size benchmark will 

be capped at the order size. The Commission’s analysis of the correlation between the proposed measure of 

size improvement and this additional measure of size improvement indicates that including information 

about size improved outsized shares will likely provide information that is not available from the net size 

improvement. See infra note 1548 and accompanying text; Table 8. This analysis also indicates that these 

size improvement metrics convey different information about execution quality than the price improvement 

metrics contained in Rule 605 reports prior to these amendments, particularly for orders received by off-

exchange market centers. See infra note 1548 and accompanying text; Table 8. 



179 

Market Center 2 would have a ratio of 6/5 (i.e., 6,000 / 5,000), indicating that orders received 

size dis-improvement more frequently on Market Center 1 than on Market Center 2.676 In 

addition, market participants can standardize the size improved outsized shares by dividing this 

metric by the outsized share count.677 

 Finally, the Commission is limiting the application of the size improvement metrics to 

marketable order types, marketable stop order types, and midpoint-or-better order types, rather 

than to all order types as proposed. The order size benchmark is more useful in conjunction with 

information about the number of shares executed at, better than, or worse than the NBBO,678 and 

these statistics are available only for marketable order types, marketable stop order types, and 

midpoint-or-better order types in Rule 605 as amended. Further, the size improved outsized 

shares metric is more informative when it can be compared to net size improvement and 

providing information about size improved outsized shares without a view of net size 

improvement could be misleading. In addition, NMLOs generally do not have an expectation of 

execution at the price of the protected quote at the time of order receipt and therefore providing 

 

676  In this simplified example, it is possible to compare the overall size improvement percentage (calculated by 

dividing the net size improvement by the outsized share count) to the size improvement outsized shares 

percentage (calculated by dividing the size improved outsized shares by the outsized share count) to see the 

difference between these two metrics. To continue the above example, assume that Market Center 1 has an 

outsized share count of 10,000 and Market Center 2 has an outsized share count of 20,000. Market Center 1 

and Market Center 2 would each have 25% overall size improvement, indicating that Market Center 1 and 

Market Center 2 achieved similar amounts of overall size improvement. Market Center 1 would have 40% 

size improved outsized shares and Market Center 2 would have 30% size improved outsized shares. Market 

Center 1’s higher size improved outsized shares percentage, combined with the fact that it has the same 

overall size improvement percentage as Market Center 2, indicates that orders received size dis-

improvement more frequently on Market Center 1 than Market Center 2. 

677  See infra note 1547 and accompanying text. 

678  See final 17 CFR 242.605(a)(1)(ii)(E), (H), and (I). For example, the count of shares executed at or better 

than the NBBO is necessary to calculate net size improvement.  



180 

information about the size available at that price is less informative.679 Therefore, the 

Commission is not requiring the order size benchmark or the size improved outsized shares 

metric for non-marketable order types other than midpoint-or-better order types.  

The Commission is not adopting a metric based on RPI.680 As the Commission stated in 

the Proposing Release, RPI would require market centers and reporting broker-dealers to 

subscribe to all exchanges’ proprietary depth-of-book feeds and these subscriptions would entail 

a significant cost for those reporting entities that do not already subscribe to the feeds.681 

Although a commenter states that many broker-dealers use vendors to prepare Rule 605 reports 

that can handle depth-of-book data,682 Rule 605 does not require use of a vendor and the 

Commission does not assume that all reporting entities will choose to use a vendor. Moreover, if 

vendors need to subscribe to all exchanges’ proprietary depth-of-book feeds for purposes of 

preparing Rule 605 reports, these vendors may pass on these costs to the reporting entities. 

 In response to the commenter’s suggestion that the Commission should not adopt Rule 

605 metrics concerning size improvement, among others, because of concerns about 

implementation costs and adoption speed,683 reporting entities will have the underlying raw data 

necessary to calculate the order size benchmark and the new size improved outsized shares 

metric because they are already capturing this information for trade confirmations or internal 

purposes or will be easily able to obtain this information from publicly available data sources. 

 

679  Information about the size available at the protected quote may be more informative for midpoint-or-better 

order types because the Commission understands that some traders submit inside-the-quote limit orders 

with the intention of executing immediately. 

680  For further discussion of the RPI metric, see infra section IX.E.3.d)(1). 

681  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 

682  See supra note 650 and accompanying text. 

683  See supra note 657 and accompanying text.181 

Therefore, the inclusion of these metrics in Rule 605 reports will not make a significant 

difference in the costs or amount of time needed to implement the changes to Rule 605 being 

adopted.  

f) Riskless principal 

(1) Proposed Approach 

In effecting riskless principal transactions, a market center or broker-dealer submits a 

principal order to an away market center in order to fulfill a customer order. Upon execution at 

the away market center, the market center or broker-dealer that initially received the customer 

order (i.e., the receiving market center or broker-dealer) executes the customer transaction on the 

same terms as the principal execution. Prior to these amendments, a market center that executed 

the riskless principal leg of the trade (i.e., the receiving market center’s execution of the 

customer order on the same terms as the principal transaction) generally should have reported 

those orders in its Rule 605 statistics as part of the cumulative number of shares of covered 

orders that were executed at the receiving market center under Rule 605(a)(1)(i)(D), rather than 

as a part of the cumulative number of shares of covered orders executed at any other venue under 

Rule 605(a)(1)(i)(E).684 The Commission proposed to carve riskless principal orders out from 

Rule 605(a)(1)(i)(D) by providing that the number of shares of covered orders executed at the 

receiving market center, broker, or dealer excludes shares that the market center, broker, or 

dealer executes on a riskless principal basis.685 As a result, the market center that executes the 

 

684  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). In the Proposing Release, the Commission 

stated that Commission staff has taken the position that the market center executing an order as riskless 

principal should reflect the order on its monthly report as executed at such market center, and not at another 

venue, using the time that the order was executed at such market center. See id. (citing Staff Legal Bulletin 

No. 12R, “Frequently Asked Questions About Rule 11Ac1-5” (June 22, 2001)). 

685  See id.; proposed Rule 605(a)(1)(i)(D). 



182 

riskless principal order would have included these shares as part of the cumulative number of 

shares executed away from that venue under Rule 605(a)(1)(i)(E), and only the market center 

that executes the corresponding principal order would have included those shares as part of the 

cumulative number of shares executed at the receiving market center under proposed Rule 

605(a)(1)(i)(D). 

(2) Final Rule and Discussion 

The Commission is adopting the requirement that the calculation of the number of shares 

of covered orders executed at the receiving market center, broker, or dealer will exclude shares 

executed on a riskless principal basis as proposed, for the reasons described in the Proposing 

Release.686 Therefore, a receiving market center, broker, or dealer will reflect the execution of 

the principal order as executed at any other venue.687 For example, Market Center 1 receives a 

customer order for 100 shares that it executes on a riskless principal basis. Market Center 1 sends 

a corresponding principal order of 100 shares to Market Center 2, where it executes in full. Prior 

to these amendments, Market Center 1 generally would have counted 100 shares as executed at 

the market center (rather than away). Because Market Center 2 was the execution venue for the 

corresponding principal order, it also would have counted 100 shares executed at the market 

center (i.e., at Market Center 2). Under the amendments, Market Center 1 will instead count 100 

shares executed away and Market Center 2 will count 100 shares executed at the market center.  

A broker-dealer requested clarification regarding the Commission’s proposed changes to 

the treatment of riskless principal orders.688 This commenter stated that the “Proposal’s 

 

686  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(i)(E). 

687  Final 17 CFR 242.605(a)(1)(i)(F) (cumulative number of shares executed at any other venue). 

688  See Rule 605 Citadel Letter at 10. 



183 

suggestion” that the proposed change would make execution statistics more informative to 

market participants “is misleading.”689 According to this commenter, execution quality metrics 

reported under current Rule 605 “correctly take into account all orders routed to a wholesale 

broker-dealer (irrespective of where execution occurs) in order to provide a comprehensive view 

of the market center’s overall execution quality” and “[t]his would not change under the 

Proposal.”690 

The Commission agrees with the commenter that the execution quality statistics for these 

shares are already reported as part of Rule 605 reports (i.e., regardless of whether such shares are 

executed at a market center or away, market centers must include the statistics for such orders). 

However, modifying whether riskless principal orders are required to be classified as shares 

executed at a market center, broker, or dealer will make the Rule 605 statistics more informative. 

If both the market center that executes the riskless principal order and the away market center 

that executes the corresponding principal order count their legs of the transaction as part of their 

shares executed at the receiving market center, it could obscure information about how often a 

market center internalizes an order. As applied to wholesalers, it will be useful for investors to be 

able to observe what percentage of orders a wholesaler internalizes because internalized orders 

are not exposed to competition on an order-by-order basis, whereas the principal order associated 

with a riskless principal transaction may be exposed to trading interest from other market 

participants. In response to the commenter’s request for clarification, the Commission observes 

that it was referring to only proposed Rule 605(a)(1)(i)(D) and (E) (i.e., the statistics concerning 

the cumulative number of shares of covered orders executed at the receiving market center, 

 

689  See id. (citing Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023)). 

690  Id. 



184 

broker, or dealer and executed at any other venue) when it stated in the Proposing Release that 

Rule 605’s execution quality statistics would be more informative if riskless principal orders 

were reported as executed at another venue.691  

g) Price Improvement 

(1) Proposed Approach 

Preexisting Rule 605 required the reporting, for marketable order types, of: (1) the 

cumulative number of shares of covered orders (a) executed with price improvement, (b) 

executed at the quote, and (c) executed outside the quote; (2) for shares executed with price 

improvement, the share-weighted average amount per share that prices were improved; and (3) 

for shares executed outside the quote, the share-weighted average amount per share that prices 

were outside the quote.692 Under these preexisting requirements, an order executed at a price 

better than the NBBO would have been an order executed with price improvement. The MDI 

Rules expanded the data that will be made available for dissemination within the national market 

system (“NMS data”) and included certain odd-lot information in NMS data.693 While this odd-

 

691  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). 

692  See prior 17 CFR 242.605(a)(1)(ii)(B) through (I). “Executed with price improvement” means, for buy 

orders, execution at a price lower than the national best offer at the time of order receipt and, for sell orders, 

execution at a price higher than the national best bid at the time of order receipt. See final 17 CFR 

242.600(b)(45). “Executed at the quote” means, for buy orders, execution at a price equal to the national 

best offer at the time of order receipt and, for sell orders, execution at a price equal to the national best bid 

at the time of order receipt. See final 17 CFR 242.600(b)(42). “Executed outside the quote” means, for buy 

orders, execution at a price higher than the national best offer at the time of order receipt and, for sell 

orders, execution at a price equal to the national best bid at the time of order receipt. See final 17 CFR 

242.600(b)(44). 

693  See final 17 CFR 242.600(b)(69); MDI Adopting Release, 86 FR 18596 at 18613 (Apr. 9, 2021). 



185 

lot information will include pricing information for odd-lots priced inside the NBBO,694 using 

the Rule 605’s price improvement statistics prior to the amendments, there is no way for market 

participants to evaluate the performance of broker-dealers and market centers relative to such 

better-priced orders.  

The Commission proposed to add a definition for “best available displayed price,” which 

would include the best priced odd-lot if that price is inside the NBBO and to provide additional 

price improvement statistics related to the best available displayed price.695 Specifically, the 

Commission proposed to define “best available displayed price” as, with respect to an order to 

buy, the lower of (i) the national best offer at the time of order receipt or (ii) the price of the best 

odd-lot order to sell at the time of order receipt as disseminated pursuant to an effective 

transaction reporting plan or effective national market system plan; and, with respect to an order 

to sell, the higher of (i) the national best bid at the time of order receipt or (ii) the price of the 

best odd-lot order to buy at the time of order receipt as disseminated pursuant to an effective 

transaction reporting plan or effective national market system plan.696 The Commission also 

proposed to specify that, for beyond-the-midpoint limit orders, the best available displayed price 

 

694  “Odd-lot information” means (i) odd-lot transaction data disseminated pursuant to the effective national 

market system plan or plans required under 17 CFR 242.603(b) as of Apr. 9, 2021; and (ii) odd-lots at a 

price greater than or equal to the national best bid and less than or equal to the national best offer, 

aggregated at each price level at each national securities exchange and national securities association. See 

final 17 CFR 242.600(b)(69). Contemporaneously with the Proposing Release, the Commission separately 

proposed to, among other things, amend the definition of odd-lot information to include a new data element 

to identify the best odd-lot orders available in the market inside the NBBO, and accelerate the 

implementation of the round lot and the odd-lot information definitions. See Minimum Pricing Increments 

Proposing Release, 87 FR 80266 at 80293-302 (Dec. 29, 2022). 

695  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023).  

696  See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). Because the best 

odd-lot order to buy or sell would be inside the NBBO, the national best bid or national best offer would 

only be used if there is not a best odd-lot price on the same side of the market as the order. See id. at 3820, 

n.427. 



186 

shall be determined at the time such order becomes executable instead of the time of order 

receipt.697  

The Commission further proposed to add two defined terms—“executed outside the best 

available displayed price” and “executed with price improvement relative to the best available 

displayed price”—to classify order executions based on their execution price relative to the best 

available displayed price.698 Finally, the Commission proposed to require the reporting, for 

marketable order types, of (1) the cumulative number of shares of covered orders (a) executed 

with price improvement relative to the best available displayed price, (b) executed at the best 

available displayed price, and (c) executed outside the best available displayed price; (2) for 

shares executed with price improvement relative to the best available displayed price, the share-

weighted average amount per share that prices were improved as compared to the best available 

displayed price; and (3) for shares executed outside the best available displayed price, the share-

weighted average amount per share that prices were outside the best available displayed price.699 

(2) Final Rule and Discussion 

The Commission is adopting the definition of “best available displayed price” as 

proposed. Further, the Commission is requiring price improvement statistics relative to the best 

 

697  See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). 

698  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). The Commission proposed to define “executed 

outside the best available displayed price” as, for buy orders, execution at a price higher than the best 

available displayed price; and, for sell orders, execution at a price lower than the best available displayed 

price. See id.; proposed Rule 600(b)(44). Similarly, the Commission proposed to define “executed with 

price improvement relative to the best available displayed price” as, for buy orders, execution at a price 

lower than the best available displayed price; and, for sell orders, execution at a price higher than the best 

available displayed price. See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 

600(b)(47). 

699  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(O) through (S). 



187 

available displayed price, in addition to price improvement statistics relative to the NBBO, for 

marketable order types and midpoint-or-better order types as proposed. 

An investor advocacy group agreed with the Commission that additional price 

improvement statistics specifically related to the best available displayed price would allow 

market participants to evaluate how well market centers and broker-dealers perform in executing 

covered orders relative to the best available displayed price.700 In addition, an academic stated in 

support of the proposal that it “is ludicrous to measure price improvement while ignoring visible 

odd lot liquidity” and that price improvement should be measured relative to the effective best 

bid or offer for the dollar amount of the order.701 

However, several commenters disagreed with the proposed price improvement statistics 

based on the best available displayed price because, according to these commenters, these 

statistics could be “misleading.”702 An industry group stated that metrics that measure price 

improvement utilizing a comparison to the best odd-lot price would “yield misleading 

information because it ignores the size of the order as compared to the size available at the odd-

lot price.”703 A financial services firm suggested that the detailed report should exclude best 

available displayed price because this metric is only relevant in the commenter’s view in a small 

number of occasions and would add “misleading” information to the report.704 This commenter 

stated that while the Commission cited a recent academic working paper showing that odd-lots 

offer better prices than the NBBO 16-18% of the time, the percent of the time that the best 

 

700  See Better Markets Letter at 8. 

701  See Angel Letter at 3. 

702  See SIFMA Letter II at 32; Schwab Letter III at 6; Robinhood Letter at 47; Rule 605 Citadel Letter at 6. 

703  SIFMA Letter II at 32. 

704  See Schwab Letter III at 6. 



188 

available price differs from the NBBO will be smaller when the MDI Rule’s new round lot 

definitions take effect.705 According to this commenter, if the best available displayed price is 

relevant only for a small part of the time and absent context regarding how many shares are 

included in the price or how many shares the order was for, the best available displayed price 

metrics would “border on meaningless and add unnecessary complexity to the report.”706  

Another broker-dealer suggested that the Commission reconsider the use of execution 

quality statistics based on best available displayed price because the use of two sets of execution 

quality statistics with differing reference points would be “confusing to retail investors.”707 This 

commenter also stated that using the best displayed odd-lot price as a reference point presents a 

number of difficulties or opportunities to be misleading because, for example, these quotes could 

“be flickering quotes that are generally not accessible” or for a “size substantially smaller than 

the order size.”708 Another broker-dealer stated that measuring price improvement against odd-

lot prices would “yield unhelpful and misleading information” because the size associated with 

odd-lot prices “will vary greatly.”709 One commenter added that “[c]ompilation of protected 

quotes is complicated. An odd-lot NBBO creates ambiguity.”710 An industry group and a 

financial services firm stated that any data related to the best available displayed price should not 

 

705  See Schwab Letter II at 34; Schwab Letter III at 6. See also Proposing Release, 88 FR 3786 at 3821 (Jan. 

20, 2023) (citing Bartlett et al. (2022)). 

706  See Schwab Letter II at 34; Schwab Letter III at 6. 

707  See Robinhood Letter at 47. 

708  Id. This commenter also stated that the best displayed odd-lot price might be a reasonable reference point 

for very small sized orders, such as fractional shares orders, but is not reasonable for any order of a round 

lot or greater. See id. at 47, n.115. 

709  See Rule 605 Citadel Letter at 6. 

710  Data Boiler Letter at 28. 



189 

be included in the report format until the best odd-lot order to buy and best odd-lot order to sell 

have been included in the SIP.711 

After consideration of the comments, the Commission is adopting the definition of “best 

available displayed price” and the addition of price improvement statistics based on this price for 

marketable order types and midpoint-or-better order types as proposed. As discussed in the 

Proposing Release, requiring price improvement statistics relative to the best available displayed 

price in the market, whether that is the NBBO or the best odd-lot order to buy or sell, will 

enhance the ability of market participants to evaluate the performance of market centers and 

broker-dealers.712 The Commission continues to hold this view. Odd-lots often reflect pricing 

that is superior to the NBBO.713 A recent academic working paper shows that odd-lots offer 

better prices than the NBBO 18% of the time for bids and 16% of the time for offers.714 

Although the round lot definition in the MDI Rules will result in fewer odd-lot orders in stocks 

with prices greater than $250, most stocks will not be affected by the new round lot definition.715 

In addition, a substantial amount of odd-lot transaction volume in stocks greater than $250 will 

not be included in the MDI round lot definition.716 The changes in the MDI Rules may also result 

in a higher number of odd-lot trades, as the inclusion of odd-lot quotes that may be priced better 

 

711  See Schwab Letter III at 6; FIF Letter at 33. 

712  See Proposing Release, 88 FR 3786 (Jan. 20, 2023) at 3820-21 (Jan. 20, 2023). 

713  See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis that found, among 

other things, that in May 2020, “40% of [odd-lot] transactions (representing approximately 35% of all odd-

lot volume) occurred at a price better than the NBBO”).  

714  See Bartlett et al. (2022). The authors found that this percentage increases monotonically in the stock price, 

for example, for bid prices, increasing from 5% for the group of lowest-price stocks in their sample, to 42% 

for the group of highest-priced stocks. 

715  See MDI Adopting Release, 86 FR 18596 at 18753, n.1960 (Apr. 9, 2021) and accompanying text 

(estimating “approximately 98.5% of NMS stocks will have a round lot size of 100 shares”). 

716  See id. at 18753. 



190 

than the current NBBO in consolidated market data may attract more trading interest from 

market participants that did not have access to this information prior to the MDI Rules.717 

Therefore, even though implementation of MDI Rules may result in changes to the number of 

odd-lot orders, price improvement statistics relative to the best available displayed price will 

continue to enhance the ability of market participants to evaluate order performance after 

implementation of the MDI Rules’ round lot definition. 

Under the MDI Rules, odd-lot information will include pricing information about odd-

lots priced better than the NBBO and competing consolidators will be able to offer a product that 

contains information on the best priced odd-lot on each exchange.718 Once this odd-lot 

information is available, reporting entities will be able to calculate the best available displayed 

price by using the information to identify the best-priced odd-lot order to buy (order to sell) 

available in the market and comparing it to the national best bid (offer). The MDI Rules have 

been approved but have not yet been implemented. As discussed further in section VII below, 

Rule 605’s price improvement statistics that are relative to the best available displayed price will 

not be required to be reported until six months after odd-lot order information needed to 

calculate the best available displayed price is made available pursuant to an effective national 

market system plan.719  

 

717  See id. at 18754. See also infra notes 1032-1034 and accompanying text. 

718  See MDI Adopting Release, 86 FR 18596 at 18753 (Apr. 9, 2021). 

719  The Commission is still considering the proposed changes discussed in the Minimum Pricing Increments 

Proposing Release, which included proposals to accelerate the implementation of the round lot and odd-lot 

 

 

 



191 

The Commission disagrees with commenters’ concerns that price improvement statistics 

relative to the best available displayed price will be misleading or confusing.720 The price 

improvement statistics relative to the NBBO contained in preexisting Rule 605 will still be 

available to market participants and other users of Rule 605 reports and therefore the price 

improvement statistics relative to the best available displayed price will be a supplement to, 

rather than a replacement for, price improvement statistics relative to the NBBO. While an odd-

lot price that is better than the NBBO may not reflect sufficient quantity to execute certain 

orders, particularly larger-sized orders, the NBBO similarly may not reflect the best price at 

which certain orders can be filled using readily available liquidity. Statistics on price 

improvement relative to the best available displayed price will provide an additional data point 

for market participants to consider in the detailed Rule 605(a)(1) reports. Further, Rule 605’s 

price improvement statistics will be presented within order size categories, including order size 

categories for orders of less than one share and odd-lot orders. Thus, to the extent that price 

improvement relative to the best available displayed price may be more informative for smaller-

sized orders than larger-sized orders, the Rule 605 reports will present the price improvement 

statistics related to best available displayed price in a format that will make it possible to focus 

on those smaller-sized orders. 

 

information definitions contained in the MDI Release and amend the definition of odd-lot information to 

include a new data element for the best available odd-lot orders available in the market. See Minimum 

Pricing Increments Proposing Release, 87 FR 80266 at 80294-95 (Dec. 29, 2022). If, in the future, the 

Commission determined to adopt an amendment to the definition of odd-lot information to include a data 

element that identifies the best odd-lot orders available in the market, reporting entities would be required 

to use such information to determine the best available odd-lot price. However, when the MDI Rules are 

implemented, there will be sufficient odd-lot information for reporting entities to calculate the best 

available displayed price because odd-lot information will include better priced odd-lot orders. 

720  See supra notes 702-710 and accompanying text.  



192 

h) Relative Fill Rate 

(1) Proposed Approach 

Prior to these amendments Rule 605 did not contain any execution quality metrics 

specific to non-marketable order types. Recognizing the need for more meaningful measures of 

execution quality for NMLOs and orders submitted with stop prices, the Commission proposed 

requiring additional information for executable NMLOs, executable stop orders, and beyond-the-

midpoint limit orders. Specifically, the Commission proposed to require the reporting of the 

number of orders that received either a complete or partial fill.721 The Commission also proposed 

to require the reporting of the cumulative number of shares executed regular way at prices that 

could have filled the order while the order was in force, as reported pursuant to an effective 

transaction reporting plan or effective national market system plan.722 As proposed, the share 

count for each order would be capped at the order size.723  

(2) Final Rule and Discussion 

The Commission did not receive comment on the proposal to report the number of orders 

that received either a complete or partial fill. For the reasons discussed in the Proposing Release, 

the Commission is adopting Rule 605(a)(1)(iii)(A) as proposed, with one correction to the rule 

text.724 Specifically, the Commission is adding the word “covered” to keep the language of Rule 

 

721  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(A). 

722  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). Generally, 

“regular way” refers to bids, offers, and transactions that embody the standard terms and conditions of a 

market whereas a non-regular way transaction refers to one executed other than pursuant to standardized 

terms and conditions, such as a transaction that has extended settlement terms. See, e.g., Regulation NMS 

Adopting Release, 70 FR 37496 at 37537, n.326 (June 29, 2005).  

723  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). 

724  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023). 



193 

605(a)(1)(iii)(A) consistent with other parts of Rule 605725 as amended and avoid creating any 

ambiguity in the language of Rule 605.726 The Commission also is adopting the relative fill rate 

metric as proposed, and, in response to comments received, is adopting an additional relative fill 

rate metric that measures only on-exchange executions. 

With respect to the proposed metric based on the cumulative number of shares executed 

regular way at prices that could have filled the order while it was in force, an industry group 

stated that it would be fairer to measure a firm’s execution rate against on-exchange executions 

because exchanges are fair-access venues, while ATS and dealer trades may not represent 

liquidity accessible to all market participants.727 This commenter recommended that the 

Commission also require firms to report the cumulative number of shares executed “regular 

way” on any exchange at prices that could have filled the order while the order was in force.728 

Further, a broker-dealer stated that it may be useful to receive data on the number of shares that 

traded on all market centers for NMLOs as compared to an individual market center because 

being able to compare relative fill rates would potentially allow market participants to choose 

venues they perceive as being more likely to execute their NMLOs or assess if changes to the 

venues they route these orders to produce better fill rates.729 

 

725  For example, final 17 CFR 242.605(a)(1)(i)(A) requires disclosure of the number of “covered orders.”  

726  See final 17 CFR 242.605(a)(1)(iii)(A). Rule 605 as amended applies only to covered orders, so this does 

not represent a substantive change to Rule 605(a)(1)(iii)(A) as proposed. Final 17 CFR 242.605(a)(1) 

specifies that “[e]very market center, broker, or dealer shall make available . . .: a report on the covered 

orders in NMS stocks that it received for execution.” 

727  See FIF Letter at 22. See also 17 CFR 242.610(a) and (b) (addressing means of access to quotations);15 

U.S.C. 78f(b)(2) and 15 U.S.C. 78o(b)(3) (providing for fair access to membership in SROs). 

728  See FIF Letter at 22. 

729  See Virtu Letter II at 12. 



194 

After consideration of the comments, the Commission is adopting the requirement for 

reporting of the cumulative number of shares executed regular way at prices that could have 

filled the order while the order was in force as proposed, for the reasons discussed in the 

Proposing Release.730 In response to commenters’ concerns about being able to compare the 

relative fill rate for orders executed on venues accessible to all market participants, the 

Commission is adopting an additional requirement for the reporting of the cumulative number of 

shares executed regular way on any national securities exchange at prices that could have filled 

the order while the order was in force, as reported pursuant to an effective transaction reporting 

plan or effective national market system plan.731 Similar to the other relative fill rate metric that 

the Commission is adopting as proposed, for each order the share count will be capped at order 

size to prevent relatively small orders from skewing the metric.732 The Commission agrees with 

commenters that the general metric that will measure the cumulative number of shares executed 

regular way anywhere in the market may include liquidity that was not accessible to the 

reporting firm.733 Under the Exchange Act, national securities exchanges must provide fair 

access to displayed quotations.734 Therefore, the additional metric concerning the relative fill rate 

on national securities exchanges will provide a comparative metric based on displayed quotations 

that all firms will have had the ability to access. 

 

730  See Proposing Release, 88 FR 3786 at 3821-22 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(iii)(B).  

731  See final 17 CFR 242.605(a)(1)(iii)(C). 

732  See id. 

733  See supra note 727 and accompanying text.  

734  See 15 U.S.C. 78f(b)(2), (4), (5), and (8). See also 17 CFR 242.610. 



195 

IV. Summary Execution Quality Report 

Prior to the amendments, Rule 605 required market centers to produce detailed execution 

quality statistics and make this data available via large electronic data files, as required by the 

Rule 605 NMS Plan.735 This detailed report was in machine-readable, rather than human-

readable, format. The required format made the detailed report more suitable for further 

processing and analysis than for ready use by market participants and other interested parties. 

The Commission proposed in Rule 605(a)(2) that all market centers and larger broker-dealers 

required to produce the detailed report pursuant to Rule 605(a)(1) must also produce a summary 

execution quality report. After consideration of the comments, the Commission is adopting Rule 

605(a)(2), with modifications from the proposal, as described further below. 

A. Proposed Approach 

Proposed Rule 605(a)(2) would have required every market center, broker, or dealer736 to 

make publicly available for each calendar month a report providing summary statistics on all 

executions of covered orders that are market orders and marketable limit orders that it received 

for execution from any person.737 The proposed summary report included a section for NMS 

stocks that are included in the S&P 500 Index as of the first day of the month and a section for 

other NMS stocks, and within each section, each symbol would have been equally weighted 

based on share volume.738 The Commission proposed that each section of the report required by 

Rule 605(a)(2) contain the following summary statistics: (i) the average order size; (ii) the 

 

735  See prior 17 CFR 242.605(a)(1) and (2); Rule 605 NMS Plan, at sections V and VI. 

736  As described in section II.A supra, a broker or dealer that is not a market center is not subject to the 

reporting requirements of Rule 605(a)(1) or (2) unless that broker or dealer introduces or carries 100,000 or 

more customer accounts through which transactions are effected for the purchase or sale of NMS stocks. 

737  See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 

738  See id. 



196 

percentage of shares executed at the quote or better; (iii) the percentage of shares that received 

price improvement; (iv) the average percentage price improvement per order; (v) the average 

percentage effective spread; (vi) the average effective over quoted spread, expressed as a 

percentage; and (vii) the average execution speed, in milliseconds.739 

The Commission proposed that the summary report be made available using the most 

recent version of the XML schema and the associated PDF renderer published on the 

Commission’s website.740 The proposed schema would have been a set of custom XML tags and 

XML restrictions designed by the Commission to reflect the disclosures in proposed Rule 

605(a)(2).  

B. Final Rule and Discussion 

The Commission is adopting Rule 605(a)(2), with modifications from the proposal, to 

require that every market center, broker, or dealer produce a summary execution quality report in 

addition to the more detailed report required by Rule 605(a)(1).741 The summary report will 

enable market participants and other interested parties to have ready access to focused 

aggregated data that will allow them to compare some of the more significant aspects of the 

execution quality provided by specific market centers and larger broker-dealers. Moreover, by 

requiring market centers, brokers, and dealers to produce a summary report in addition to, rather 

than instead of, the more voluminous data called for by Rule 605(a)(1), those market participants 

or other observers that would like to perform more comprehensive or specific analyses of 

 

739  See id. at 3823-24. 

740  See id. at 3824; proposed Rule 605(a)(2). XML enables data to be defined, or “tagged,” using standard 

definitions. XML and PDF are “open standards,” which is a term that is generally applied to technological 

specifications that are widely available to the public, royalty-free, at no cost. 

741  See final 17 CFR 242.605(a)(2). 



197 

execution quality remain able to download the more granular underlying data files and perform 

such analyses.  

Several commenters supported the proposal to produce a summary report on the basis 

that investors would benefit from the greater access to execution quality data.742 A financial 

services firm stated that although some broker-dealers voluntarily publish summary-level 

execution quality reports on their websites, “these ad hoc disclosures are not universal, and, in 

any event, generally feature statistics brokers prefer to ‘showcase’ that may not reflect the most 

meaningful measures of execution quality.”743 According to this commenter, the proposal would 

address this “coverage gap” by requiring larger broker-dealers to make Rule 605 disclosures and 

giving customers of these larger broker-dealers “a direct line of sight into broker-dealer 

performance.”744 This commenter added that a “standardized summary report will provide retail 

investors with a comprehensible overview of the thousands of rows and dozens of columns that 

appear on Rule 605 reports today.”745 Another financial services firm stated that a summary 

report “will help investors more effectively evaluate competing broker offerings”746 and that 

compliance and technology costs associated with enhanced Rule 605 reporting “are outweighed 

by the significant benefits to retail investors,” including “greater competition among firms to 

provide customers with strong execution quality.”747 

 

742  See, e.g., Beddo Letter; Genco Letter; Pritchard Letter; Macarthur Letter; Varghese Letter; letter from Ian 

Marshall (Mar. 6, 2023).  

743  Vanguard Letter at 4. 

744  Id. 

745  Id. 

746  Fidelity Letter at 8. 

747  Id. 



198 

In contrast, other commenters, including broker-dealers, stated that a summary report 

could mislead investors, especially if the metrics required by Rule 605(a)(2) do not adequately 

account for differences in broker-dealer business models and customer bases.748 One broker-

dealer stated that using the summary report to compare execution quality across broker-dealers 

“without normalizing for different order activity ignores differences in the flow of orders 

handled by these brokers and other aspects of the services that brokers provide or offer, including 

fees, interest rates, commissions, ease of use, customer service, accessibility, tools, and 

educational resources, and therefore could be potentially misleading to individual investors.”749 

A financial services firm stated that the summary report “needs additional descriptive statistics 

showing order flow attributes that can affect the comparability of execution quality statistics to 

enable a more accurate and useful measure of execution quality.”750 This commenter also stated 

that “retail brokers have vastly different client bases reflected in vastly different order flow 

characteristics, which affects execution quality” and “[t]hese differences need to be reflected in 

the Summary Report so that the individual investor has sufficient data to make an educated 

assessment of execution quality performance between different brokers.”751 To address these 

concerns, this commenter suggested that the Commission add several metrics to the summary 

report “to enable investors to accurately compare execution quality between different brokers”—

 

748  See, e.g., SIFMA Letter II at 30; Virtu Letter II at 11; Rule 605 Citadel Letter at 5; Schwab Letter II at 30-

31; Schwab Letter III at 2; Data Boiler Letter at 17-18; letter from Kelvin To, Founder and President, Data 

Boiler Technologies, LLC (Apr. 12, 2023) (“Data Boiler Letter II”) at 1.  

749  Virtu Letter II at 11. Another broker-dealer stated more generally that the Commission should account for 

“retail client personas that vary considerably among broker-dealers,” and these “differences cause 

execution quality data to be difficult to compare on an apples-to-apples basis because, for example, trade 

and execution data generated from buy-and-hold investors’ orders differs vastly from the same data 

generated from active traders’ orders.” Letter from Steven M. Greenbaum, Senior Vice President and 

General Counsel, TradeStation Securities, Inc. (Mar. 30, 2023) (“TradeStation Letter”) at 7.  

750  Schwab Letter III at 2. 

751  Id. 



199 

specifically, average notional order size, percentage realized spread, and percentage quoted 

spread.752 

The Commission acknowledges that differences in execution quality can be driven by 

differences between reporting entities other than differences in their skills at handling and/or 

executing orders, such as differences in the characteristics of their order flow. Any particular 

market center or broker-dealer’s order flow may be made up of a different mixture of securities, 

order types, and order sizes, which may impact that market center or broker-dealer’s execution 

quality statistics753 The Commission recognizes that it is important to strike a balance between 

sufficient aggregation of orders to produce statistics that are meaningful and sufficient 

differentiation of orders to facilitate fair comparisons of execution quality across reporting 

entities. After reviewing the comments received, the Commission is modifying the calculation of 

several proposed metrics and is also adding several new metrics to the final summary report. For 

example, the Commission agrees with a commenter’s suggestion754 to add certain metrics—

average notional order size, percentage realized spread, and percentage quoted spread—to the 

final summary report.755  

Although a commenter suggested that the summary reports be “normalized across 

brokers” in order to reflect differences in order flow that may impact a broker’s execution 

quality, including “the difficulty of order flow the broker is handling,”756 the commenter did not 

explain how the summary reports should be normalized. The changes to the proposed summary 

 

752  See id. at 2-3.  

753  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023).  

754  See Schwab Letter III at 2-3. 

755  See infra section IV.B.1.b) for additional discussion of these specific metrics. 

756  Virtu Letter II at 4. 



200 

report will provide more information about a broker-dealer’s order flow characteristics than 

originally proposed757 and will therefore enable users of the summary reports to better compare 

the execution quality metrics of broker-dealer firms with similar order flow characteristics and 

identify when different order flow characteristics may be contributing to differences in execution 

quality. Further, while the Rule 605(a)(2) summary report presents only one particular set of 

metrics related to execution quality, customers and other interested parties may also take into 

consideration other aspects of broker-dealer service, including but not limited to, fees, 

commissions, and educational resources, when comparing broker-dealers. In section IV.B.1.b) 

below the Commission discusses the specific execution quality statistics in detail. 

Another broker-dealer stated that the detailed Rule 605 reports are often difficult for retail 

investors to analyze.758 However, this commenter stated that the proposed solution—creating a 

high-level summary report—“could lead to retail investor confusion if the summary report does 

not adequately capture or explain the differences in order flow that are present across different 

market centers and broker-dealers.”759 This commenter stated that it may make sense for the 

Commission to first implement the revisions to Rule 605(a)(1) and evaluate the detailed reports 

before working with FINRA, retail brokers, and retail investors to determine how best to produce 

a summary report that contains “digestible and accurate execution quality information.”760 The 

Commission does not agree with the commenter’s approach. The Commission described the 

proposed summary report in detail in the Proposing Release, has considered comments related to 

 

757  See infra note 833 and accompanying text. 

758  See Rule 605 Citadel Letter at 5. 

759  Id. 

760  See id.201 

the summary report, and is making changes in response to comments. The adopted summary 

report will improve the ability of investors and the public to view some of the more significant 

aspects of the execution quality provided by specific market centers and larger broker-dealers. 

Denying investors the opportunity to view a summary report until after the detailed reports are 

fully implemented would entail unnecessary delay of the benefits the summary report is designed 

to provide. 

Finally, according to an individual investor, the information contained in the proposed 

summary report is not useful to investors, and “[m]ost retail investors lack the knowledge and 

expertise to interpret these reports and use them to make informed trading decisions.”761 In 

contrast, an investor advocacy group states it “does not agree with those who would argue that 

the proposed changes to disclosure of order execution will not benefit retail investors, who are 

unlikely to read the Rule 605 reports.”762 This commenter stated that “even though a certain 

percentage of retail investors may not read the Rule 605 reports, they will still benefit indirectly 

as the enhanced disclosure will promote competition, improve regulatory oversight, and facilitate 

use by third-party researchers and academics, who in turn can extract information from the 

reports and use it to expose issues and problems with today’s order routing and execution 

practices.”763 The Commission agrees with the investor advocacy group commenter and 

continues to view the summary report as a useful means to provide individual investors and other 

market participants with an overview of execution quality data. The summary report will aid 

 

761  Gillmore Letter. 

762  Better Market Letter at 9. 

763  Id. at 9-10. 



202 

investors by providing information in a more easily digestible format than the detailed Rule 

605(a)(1) reports.  

Moreover, the changes that the Commission is making to the summary report in response 

to commenters, including breaking out the statistics into notional size categories and adding 

average percentage realized and quoted spreads, will provide more information about the type of 

order flow received by the reporting entity. The increased amount of data required by final Rule 

605(a)(2) will add some complexity to the adopted summary report as compared to the proposed 

summary report, however, based on such information, users of the report will be able to identify 

reporting entities with more comparable order flow and have greater context to understand the 

differences in execution quality statistics across market centers or broker-dealers with less 

comparable order flow.  

The summary report contains a selection of execution quality metrics for interested 

parties to assess, rather than imposing a single metric that might require a subjective judgment or 

obscure meaningful differences in execution quality among broker-dealers or market centers. 

Despite being an abbreviated overview of the more detailed Rule 605(a)(1) report, as with the 

detailed report, independent analysts, consultants, broker-dealers, the financial press, and market 

centers likely will respond to the needs of investors by analyzing the disclosures and producing 

even more digestible information using data from the summary report, so that the broader public, 

including those that may not read the summary report, will benefit.764 As with the Rule 605(a)(1) 

detailed report, if a market center or broker-dealer believes that the statistics do not fully reflect 

its order flow and execution practices, it is encouraged to make any additional information 

 

764  See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); Rule 11Ac1-5 Adopting Release, 65 FR 75414 

at 75419 (Dec. 1, 2000). 



203 

publicly available, outside of the summary report, that it believes will be helpful to investors and 

other market participants.765 

1. Required Information 

The Commission received comments discussing the calculation and utility of individual 

proposed statistics in the proposed summary report, along with comments recommending the 

addition of new statistics or requesting clarification or confirmation of how proposed statistics 

should be calculated, as described further below.766  

After review of the comments, the Commission is adopting the statistics in Rule 

605(a)(2) largely as proposed, with modifications to the computation of certain statistics. The 

Commission is also adding new execution quality statistics to the summary report.767 For the 

reasons described in section IV.B.1.a) below, the Commission is not requiring that the summary 

report be equally weighted by symbol based on share volume. Section IV.B.1.b) below discusses 

each of the execution quality statistics in the summary report, including, where appropriate, how 

these statistics will be weighted. As described in section IV.B.1.b), the summary report will 

divide each of market and marketable limit orders into separate categories based on eight 

notional order size buckets plus an aggregated category for all orders with a notional value of 

less than $200,000.  

 

765  Any such statements will be subject to applicable securities laws and regulations. 

766  See, e.g., Rule 605 Citadel Letter; FIF Letter; Schwab Letter II. 

767  The Commission is including in the summary report the following metrics that were not in the Proposing 

Release’s rule text: (i) average notional order size; (ii) for executions of covered orders, the average 

midpoint; (iii) for executions of covered order, the average percentage quoted spread; (iv) for executions of 

covered orders, the average percentage realized spread as calculated 15 seconds after the time of execution; 

and (v) for executions of covered orders, the average percentage realized spread as calculated 1 minute 

after the time of execution. These metrics are discussed in greater detail infra at section IV.B.1.b). 



204 

The Commission agrees with one industry group that stated it is “important to ensure that 

the summary report provides the necessary information to allow for a fair comparison across 

reporting firms.”768 The final summary report will provide statistics that are relevant to 

evaluating what type of pricing orders received, how quickly orders were executed, and what 

type of order flow the market center or broker-dealer received. As discussed further in section 

IV.B.1.b) below, the Commission is including several execution quality statistics beyond those 

included in the proposal to help ensure that the summary report provides sufficient information 

for a meaningful comparison across firms. 

Some commenters stated that any statistic included in the summary report or necessary to 

calculate a statistic in the summary report should also be included in the Rule 605(a)(1) report, 

so that the statistics in the summary report may be derived from the detailed Rule 605(a)(1) 

report.769 The Commission agrees and, as discussed further below, is making conforming 

changes so that the Rule 605(a)(1) detailed report will contain all information necessary to be 

able to reconstruct the Rule 605(a)(2) summary report. In addition, market participants will be 

able to use the data contained in the Rule 605(a)(1) reports to create their own summary-level 

report with any adjustments that they find useful for comparison with and evaluation of a 

reporting entity’s published summary report.  

A broker-dealer suggested that the summary report may be more informative if it 

differentiated between retail investors and professional customers because the nature of each 

order flow is different and segmentation would allow retail investors to obtain execution quality 

 

768  FIF Letter at 22. 

769  See id. at 29; FIF Letter II at 9; FIF Letter III at 3; Schwab Letter II at 32; Schwab Letter III at 4. 



205 

statistics for similar types of orders.770 A financial services firm stated that the Commission 

“should distinguish Rule 605 data by [s]egmented [o]rder and non-[s]egmented [o]rder flow and 

display this information separately in both the detailed Rule 605 reports and the proposed 

Summary Reports.”771 The Commission has decided not to revise the summary report to divide 

the report between retail investors and professionals or between segmented and non-segmented 

orders, as suggested by the commenters, for the same reasons that the Commission is not making 

corresponding changes to the reports required by Rule 605(a)(1).772  

Another commenter argued that the summary report should limit the orders in the report 

to those with a notional value of less than $200,000.773 This commenter argued that the 

Commission in its economic analysis of the Order Competition Rule Proposing Release774 and 

the Proposing Release775 had limited the scope of retail order flow to orders of less than 

$200,000, to “normalize order flow variables for analysis in order to meaningfully compare 

broker-dealers’ execution quality.”776 The commenter stated its belief that the summary report 

should likewise limit the report to orders of a notional value less than $200,000, “which is a 

natural breakpoint between size categories.”777 In response to this commenter’s suggestion, as 

described in more detail in section IV.B.1.b) below, while the Commission is not establishing 

 

770  See Rule 605 Citadel Letter at 8. 

771  Fidelity Letter at 9. 

772  See supra notes 172-174 and accompanying text; note 194 and accompanying text. 

773  See Schwab Letter III at 4. 

774  See Order Competition Rule Proposing Release, 88 FR 128 at 199 (Jan. 3, 2023) (Table 15—Regression 

Analysis Showing Relationship Between Execution Quality and PFOF in NMS Common Stocks and 

ETFs). 

775  See Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 2023) (Table 3—Average Wholesaler Execution 

Quality Received by Retail Broker Quintiles, January-March 2022). 

776  Schwab Letter III at 4. 

777  Id. 



206 

such a limit for the summary report as a whole, the Commission is adding execution quality 

information as divided by notional order size buckets, along with a row of execution quality 

information that aggregates all orders in a particular category, excluding orders with a notional 

value of $200,000 or more. This aggregated information will provide users of the summary 

report a means to compare among market centers’ or broker-dealers’ execution quality for orders 

less than $200,000. 

a) Weighting Method 

The Commission proposed that within each section of the summary report, each symbol 

would have been equally weighted based on share volume. The Commission stated in the 

Proposing Release that equal weighting of each symbol would facilitate the comparability of 

execution quality statistics among market centers or broker-dealers that receive for execution 

different mixes of stocks and prevent the nature of the stocks traded from making it more 

difficult to determine how the reporting entity performed with respect to execution quality for the 

particular mix of orders that it received for execution.778  

One industry group, however, stated that the summary report statistics should not be 

equally weighted by symbol based on share volume because this approach would result in 

misleading data being provided to customers.779 This commenter agreed with the Commission 

that the mix of symbols traded by a firm could impact its reported execution quality statistics, but 

was concerned that symbol-based weighting would create distortions that “would significantly 

 

778  See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 

779  See FIF Letter at 25-26, 28. This commenter stated that one interpretation of “equal weighting by symbol 

based on share volume” is to use share-based weighting within each symbol and then symbol-based 

weighting across symbols, but requested clarification. See id. at 25. The Commission confirms that this 

explanation is consistent with the weighting method as proposed. 



207 

outweigh any potential benefits.”780 The commenter recommended as an alternative that the 

Commission require each market center and broker-dealer producing a summary report to 

include its weighted average execution price as a separate reportable item on the summary 

report.781 The commenter stated that its recommended approach would avoid the “misleading 

data that would result from symbol-based weighting” and “customers can take a broker’s 

weighted average execution price into account when reviewing the summary report data.”782 This 

commenter further recommended that the same approach be used for weighting within and 

across symbols and, as described further below, that the Commission require the use of spread-

based weighting for E/Q and share-based weighting for certain other statistics.783  

After considering the comments, the Commission is not requiring that the summary 

report be equally weighted by symbol based on share volume as proposed.784 The Commission is 

persuaded that symbol-based weighting could cause distortions in cases where a reporting entity 

receives a significantly different volume of orders in one symbol as compared to another 

symbol,785 and these distortions potentially might not justify any potential benefit of utilizing this 

weighting method. As discussed further below, the Commission is not adding the share-weighted 

notional average execution price to the summary report as recommended by the commenter,786 

 

780  See id. at 27. 

781  See id. The commenter stated that weighted average execution price would be computed as follows: first, 

for each individual execution, multiply the number of shares executed by the execution price; next, sum the 

results; and last, divide the result by the total number of shares executed. See id. 

782  Id. 

783  See id. at 23, 27, 28-32. 

784  See supra section III.B.4.d for a more detailed discussion of comments with respect to weighting of 

statistics in the detailed reports required under Rule 605(a)(1).  

785  See FIF Letter at 25-26 (providing a comparison between two hypothetical firms of average effective over 

quoted spread with symbol-based weighting). 

786  See supra note 781 and accompanying text. 



208 

but the Commission is adding average midpoint for order executions. Similar to the commenter’s 

recommendation, this metric will provide information about whether a reporting entity’s order 

flow was more heavily weighted towards lower-priced stocks or higher-priced stocks. The 

summary report statistics will also utilize share-based weighting, instead of equally weighting by 

symbol based on share volume, except as discussed specifically below.  

b) Statistics Included 

The summary report required by final Rule 605(a)(2) includes sections for NMS stocks in 

the S&P 500 Index and for all other NMS stocks. Within each section, the final rule requires that 

the summary report divide market and marketable limit orders into categories based on eight 

notional order size buckets and an aggregated bucket for orders with a notional value less than 

$200,000 (as described below). The Commission is requiring that the summary report include the 

following statistics as proposed, as described below: (i) percentage of shares executed at the 

quote or better; (ii) percentage of shares that received price improvement; (iii) average 

percentage effective spread; and (iv) average execution speed, in milliseconds. The Commission 

is also requiring that the summary report include the following statistics with modifications from 

the proposal, as described below: (i) average order size in shares; (ii) share-weighted average 

percentage price improvement; and (iii) average effective spread divided by the average quoted 

spread, expressed as a percentage. Finally, the Commission is requiring that the summary report 

include the following additional statistics that were not part of the proposal, as described below: 

(i) average notional order size; (ii) average midpoint; (iii) average percentage quoted spread; (iv) 

average percentage realized spread as calculated 15 seconds after the time of execution; and (v) 

average percentage realized spread as calculated 1 minute after the time of execution. 



209 

Average order size. The Commission proposed to include in the summary report a metric 

for average order size.787 As described below, the Commission is adopting this metric largely as 

proposed and adding a break-out of execution quality metrics by notional size bucket and an 

additional order size metric in response to comments. 

One industry group recommended that “average order size in shares for the summary 

report be calculated (for the covered orders that must be reported in the summary report) by 

dividing the aggregate number of shares of covered orders by the number of orders.”788 This 

commenter further recommended adding “average order size in notional value” to the summary 

report, which “can be calculated by a reporting firm (for the covered orders that must be reported 

in the summary report) by dividing the aggregate notional value of covered orders by the number 

of orders.”789 A couple of financial services firms also recommended presenting order-size 

categories in the summary report by average notional order size instead of lot size.790 One of 

these commenters stated that order notional sizes provide investors a clearer view of the 

execution experience associated with their order, are more easily compared over time, are more 

representative of the cost to implement different types of trades, and are more consistent with 

increased market use of fractional/notional trading.791 Similarly, the other commenter stated its 

belief that including “average notional order size”792 in the summary report alongside average 

 

787  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(i). 

788  FIF Letter II at 11. 

789  Id. This commenter also stated that notional value should be obtained by multiplying the number of shares 

by the midpoint at the time of order receipt. See id. 

790  See Fidelity Letter at 9; Schwab Letter III at 3.  

791  See Fidelity Letter at 9. 

792  This commenter would calculate “average notional order size” by multiplying the number of shares by the 

midpoint at the time of order entry. See Schwab Letter III at 3.  



210 

order size in shares would allow a user of the summary report to calculate another metric, 

“average price per share,” by dividing “average notional order size” by “average share order 

size.”793 

After reviewing the comments, the Commission is retaining the “average order size” 

metric in the summary report largely as proposed with a modification to state that average order 

size will be reported in number of shares because the proposed rule was ambiguous about 

whether average order size would have been measured in number of shares or notional value.794 

The average order size in shares is relevant to understanding the relative size of the orders that 

the reporting market center, broker, or dealer received for execution.  

However, the Commission also agrees with commenters that the average order size in 

notional value is relevant to understanding relative order size. For example, one broker-dealer 

stated that certain orders may be harder to execute, “for example, when market liquidity is scarce 

or when the customers have difficult (e.g., large-sized) orders to execute.”795 The Commission 

agrees with commenters that differences in a firm’s execution quality metrics may correspond to 

differences in order flow. In particular, smaller orders may receive different execution quality 

than larger orders because, among other things, available liquidity in a particular security at a 

particular price is more likely to be sufficient to fill a smaller order. Therefore, the Commission 

 

793  See id. 

794  See final 17 CFR 242.605(a)(2)(i).  

795  Virtu Letter II at 11. 



211 

is modifying the proposed summary report to: (1) add a metric for average notional order size;796 

and (2) require categorization of the data by notional order size.797 Dividing execution quality 

statistics in the summary reports according to notional order size buckets provides investors with 

a more nuanced means to differentiate between firms and allows for comparison of execution 

quality statistics for more similar orders. Moreover, the average notional order size metric 

provides important context for where a firm’s orders tend to fall within the range of a particular 

notional order size bucket.  

With respect to the categorization of the data by notional order size, the statistical 

information in the summary reports for market orders and marketable limit orders is divided into 

eight notional order size ranges: less than $250; $250 to less than $1,000; $1,000 to less than 

$5,000; $5,000 to less than $10,000; $10,000 to less than $20,000; $20,000 to less than $50,000; 

$50,000 to less than $200,000; and $200,000 or more. These notional order size ranges 

correspond with the notional order size ranges that are used in the detailed reports required 

pursuant to Rule 605(a)(1).798 As discussed in section III.B.1.b) above, the Commission selected 

these notional order size ranges based on its analysis of CAT data and comments received. 

Moreover, using the same notional order size ranges for the detailed reports and summary reports 

 

796  See final 17 CFR 242.605(a)(2)(ii). An industry group recommended that average order size in notional 

value be calculated “by dividing the aggregate notional value of covered orders by the number of orders.” 

FIF Letter II at 11. Average order size in notional value will be calculated as the cumulative notional value 

of covered orders divided by the total number of orders, as recommended by the commenter. As discussed 

above, the Commission is adopting a requirement that the detailed reports required by Rule 605(a)(1) 

include a cumulative notional value of covered orders metric so that average order size in notional value 

can be calculated from the summary report. See supra notes 376-378 and accompanying text. 

797  See final 17 CFR 242.605(a)(2). 

798  See supra section III.B.1.b). The Commission is not adopting commenters’ suggestion that the notional 

value of an order should be based on the midpoint. See supra notes 789, 792. Instead, the notional value of 

a market or limit order will be calculated in the same manner for the summary report as it is for the detailed 

report. See supra note 361 and accompanying text. 



212 

allows the statistics in the summary reports to be derived from the detailed reports as suggested 

by commenters. 

As an additional measure of categorization by notional order size, the summary report 

also includes overall statistics for non-block size market and marketable limit orders—i.e., the 

statistics in this row are not divided by notional order size range but only include orders smaller 

than $200,000 in notional value. Capping these overall statistics at $200,000 will prevent 

extremely large, block size orders from skewing the averages. It will also provide an accessible 

snapshot of information for investors. Providing overall execution quality statistics will balance 

providing more detailed execution quality data to market participants with providing an overview 

of a market center’s or broker-dealer’s execution quality in a more readily digestible form for 

investors, other market participants, or interested parties.  

Finally, because average order size in both shares and notional value are the average 

order size received rather than executed, the Commission is modifying the first sentence of Rule 

605(a)(2) to remove the words “executions of” in the clause referring to summary report 

“providing summary statistics on all executions of covered orders that are market and marketable 

limit orders.”799 Instead, to avoid any ambiguity about how each of the statistics are calculated, 

the Commission is specifying where individual data elements apply to executions of covered 

orders, as described below.800 

Percentage of shares executed at the quote or better and percentage of shares that 

received price improvement. The Commission proposed to include in the summary report metrics 

for the percentage of shares executed at the quote or better and percentage of shares that received 

 

799  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2). 

800  See final 17 CFR 242.605(a)(2). 



213 

price improvement and is adopting these metrics as proposed.801 One industry group stated that 

there is no need to reference “equal weighting by share volume,” or any other weighting 

methodology with respect to the “percentage of shares executed at the quote or better” or 

“percentage of shares that received price improvement” metrics, because the weighting is clearly 

understood from the data element itself.802 The Commission agrees that these metrics are 

weighted based on the number of shares executed and that reporting entities will understand this 

based on the metric as proposed. The Commission is adopting these statistics as proposed, while 

clarifying in the rule text that the statistics apply to executions of covered orders. These statistics 

will provide useful information for evaluating what type of pricing orders received. 

Share-weighted average percentage price improvement. The Commission proposed to 

include a metric in the summary report for share-weighted average percentage price 

improvement per order.803 As described below, the Commission is adopting this metric largely as 

proposed and adding a related metric to the detailed report. One industry group stated that it will 

assume that the proposed metric “average percentage price improvement per order” is intended 

to report price improvement as a percentage of the midpoint (as of the time of order receipt) and 

further recommended that average price improvement be share-weighted.804 In addition, for 

clarity, this commenter recommended that the metric be labeled as “share-weighted average 

 

801  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(ii) and (iii); final 

17 CFR 242.605(a)(2)(iv) and (v). 

802  See FIF Letter at 31. This commenter stated that “percentage of shares executed at the quote or better” 

would be calculated by dividing the total shares executed at the quote or better by the total shares executed, 

and “percentage of shares that received price improvement” would be calculated by dividing the total 

number of shares executed with price improvement by the total number of shares executed. See id. 

803  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(iv). 

804  See FIF Letter at 28-29. See also FIF Letter III at 3 (“FIF members understand [‘share weighted average 

percentage price improvement’] to mean the share-weighted price improvement divided by the share-

weighted midpoint.”). 



214 

percentage price improvement” and the words “per order” be removed from the text of proposed 

Rule 605(a)(2)(iv).805 

Average percentage price improvement will be measured as a percentage of the midpoint 

of the national best bid and national best offer at the time of order receipt.806 In other words, 

average percentage price improvement is the share-weighted average price improvement for 

orders executed divided by the share-weighted average midpoint at the time of order receipt for 

those orders. The Commission agrees with the commenter that further clarity in this regard 

would be useful. Therefore the Commission is renaming this metric from the proposal to refer to 

the “share-weighted average percentage price improvement,” as suggested by the commenter, so 

that the use of share-based weighting is explicit, clarifying in the rule text that the share-

weighted average percentage price improvement applies to executions of covered orders, and 

specifying that this statistic is calculated as the cumulative amount that prices were improved 

less the cumulative amount that prices were executed outside the quote divided by sum of the 

average midpoint times the number of shares executed.807 In addition, as suggested by the 

 

805  See FIF Letter at 29. This commenter also recommended that the Commission add a column to the detailed 

Rule 605(a)(1) report that would provide the share-weighted average midpoint for each row, so that the 

market center or broker-dealer could derive the denominator for the share-weighted average percentage 

price improvement calculation. See id. See also FIF Letter II at 10; FIF Letter III at 3. 

806  See final 17 CFR 242.605(a)(2)(vi). 

807  See final 17 CFR 242.605(a)(2)(vi) and final 17 CFR 242.600(b)(9) (defining average midpoint). The 

cumulative amount that prices were improved is derivable from the Rule 605(a)(1) reports by multiplying, 

for each row, the cumulative number of shares of covered orders executed with price improvement 

(required by Rule 605(a)(1)(ii)(E)) by the share-weighted average amount per share that prices were 

improved (required by Rule 605(a)(1)(ii)(F)). Similarly, the cumulative amount that prices were executed 

outside the quote is derivable by multiplying, for each row, the cumulative number of shares of covered 

orders executed outside the quote (required by Rule 605(a)(1)(ii)(J)) by the share-weighted average amount 

per share that prices were outside the quote (required by Rule 605(a)(1)(ii)(K)). The numerator will be the 

total cumulative price improvement for every included row, less the total cumulative amount the prices 

were executed outside the quote for every included row. The denominator is derivable from the Rule 

605(a)(1) reports by multiplying, for each row, the total number of shares executed (i.e., the sum of the 

share counts required by Rule 605(a)(1)(i)(E) and (F)) by the average midpoint (required by Rule 

605(a)(1)(i)(Y)). The denominator will be the sum of the total for every included row.  



215 

commenter,808 the Commission is requiring that the Rule 605(a)(1) detailed report include an 

additional column setting forth the average midpoint for executions of covered orders.809 The 

new defined term for “average midpoint” refers to the share-weighted average of the midpoint of 

the NBB or NBO at the time of order receipt (or, for non-marketable limit orders, beyond-the 

midpoint limit orders, and orders submitted with stop prices, at the time such orders first become 

executable).810 The inclusion of average midpoint for executions of covered orders in the Rule 

605(a)(1) detailed report will enable users to derive the share-weighted average percentage price 

improvement.811 

Average percentage effective spread. The Commission proposed to include in the 

summary report a metric for the average percentage effective spread.812 The Commission is 

adopting the metric largely as proposed. One industry group stated in connection with the 

summary report that it agrees with the approach proposed by the Commission for calculating 

average percentage effective spread.813 As discussed above, the Commission is modifying the 

definition of “average percentage effective spread” from the definition of such term in the 

proposal to make use of other defined terms.814 Although the adopted metric in the summary 

 

808  See supra note 805.  

809  See supra note 591 and accompanying text. 

810  See final 17 CFR 242.600(b)(9). The average midpoint for order executions represents the same calculation 

as the denominator for the percentage-based spread statistics as proposed. See supra notes 588-591 and 

accompanying text.  

811  See final 17 CFR 242.605(a)(1)(i)(Y).  

812  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(v). 

813  See FIF Letter at 29. The commenter also recommended that for clarity the metric be retitled as “share-

weighted average percentage effective spread.” See id. The Commission disagrees with the commenter that 

this additional language is needed because the adopted definition of “average percentage effective spread” 

includes the use of share-weighting. See final 17 CFR 242.600(b)(10). 

814  See supra section III.B.4.b)(2). The “average percentage effective spread” is calculated as the average 

effective spread for order executions divided by the average midpoint for order executions. See final 17 

CFR 242.600(b)(10). 



216 

report utilizes the new definition of “average percentage effective spread,” the metric itself is 

unchanged and the Commission is clarifying in the rule text that the metric applies to executions 

of covered orders.815  

Average effective spread divided by average quoted spread (E/Q). The Commission 

proposed to include a metric in the summary report for average effective spread over average 

quoted spread, expressed as a percentage.816 As discussed below, the Commission is adopting 

this metric largely as proposed and adding a metric for average quoted spread. As discussed 

above, several commenters stated that the Commission should require firms to calculate average 

E/Q utilizing spread-based, rather than share-based, weighting.817 One industry group 

recommended that the summary report include the share-weighted average percentage quoted 

spread, in addition to the share-weighted average effective spread.818 This commenter stated that 

with these statistics any person could derive effective over quoted spread and so it would not be 

necessary to include E/Q in the summary report.819 A financial services firm also suggested that 

the summary report include “percentage quoted spread,” to be calculated by dividing the quoted 

spread by the midpoint of the NBB and NBO at the time of order entry.820 This commenter stated 

that “[i]n addition to providing transparency into the mix of each broker’s order flow, including 

this metric will allow users to confirm the E/Q calculation on the Summary Report by dividing 

 

815  See final 17 CFR 242.605(a)(2)(vii). As discussed above, the Commission is adding a statistic for average 

midpoint for order executions to the detailed report so that the percentage-based spread statistics in the 

summary report can be derived from the detailed report. See supra notes 588-591 and accompanying text. 

816  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(vi). 

817  See supra notes 600-608 and accompanying text. 

818  See FIF Letter at 29. 

819  See id. This commenter stated that if average percentage effective spread and quoted spread are reported 

then a person could derive the average percentage price improvement for the summary report. See id. 

820  See Schwab Letter III at 3. 



217 

Percentage Effective Spread by Percentage Quoted Spread.”821 This commenter also suggested 

that the summary report show effective spread and quoted spread and then allow individuals to 

compute their own E/Q from those two numbers.822  

After reviewing the comments, the Commission is: (1) adopting average E/Q as a metric 

on the summary report largely as proposed, while adjusting the weighting methodology from 

share-based weighting to spread-based weighting as suggested by commenters;823 and (2) adding 

average percentage quoted spread as a metric in the summary report, also as suggested by 

commenters.824 The Commission is also stating in the rule text for clarity that these metrics apply 

to executions of covered orders.825 As discussed above, requiring spread-based weighting for the 

E/Q statistics will provide a consistent measure of E/Q that will not vary based on the specific 

symbols to which price improvement is allocated and thereby will facilitate the comparability of 

price improvement statistics.826 Further, even though market participants and other interested 

parties could calculate E/Q on their own if the summary report includes average effective spread 

and average quoted spread, there is additional utility in having the average E/Q readily accessible 

 

821  Id. 

822  See Schwab Letter II at 31. 

823  To implement the change in weighting methodology, the Commission is modifying the description of the 

average E/Q metric to specify that it is average effective spread divided by average quoted spread. As is the 

case with the average E/Q statistics in the detailed report required by Rule 605(a)(1), this description of the 

average E/Q statistic for the summary report makes use of adopted defined terms for “average effective 

spread” and “average quoted spread.” See supra notes 613-615 and accompanying text. See also final 17 

CFR 242.605(a)(2)(ix); final 17 CFR 242.600(b)(8); final 17 CFR 242.600(b)(12). In contrast, the 

Commission proposed to utilize a defined term for “average effective over quoted spread,” which would 

have required the calculation of the E/Q for each transaction that would have then been averaged over a 

month, as weighted by number of shares. See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

824  See final 17 CFR 242.605(a)(2)(viii) (requiring that average percentage quoted spread be included as a 

metric in the summary report and providing that average percentage quoted spread means the average 

quoted spread for order executions divided by the average midpoint for order executions). 

825  See final 17 CFR 242.605(a)(2)(viii) and (ix). 

826  See supra notes 617-620 and accompanying text. 



218 

on the summary report, particularly because market participants often use E/Q as a measure of 

execution quality.827 The inclusion of average quoted spread on the summary report will provide 

another metric that users of the summary report may use to understand the nature of the reporting 

firm’s order flow. 

Average execution speed in milliseconds. The Commission proposed to include a metric 

in the summary report for average execution speed in milliseconds and is adopting this metric 

largely as proposed.828 An industry group stated its understanding that the calculation of 

“average execution speed in milliseconds” would proceed as follows: first, for each individual 

execution multiply the shares executed by the time to execution; second, sum the results; and 

finally, divide that sum by the total shares executed.829 The Commission confirms that reporting 

entities will calculate the metric as stated by the commenter and to add clarity to the rule text is 

specifying that this metric applies to executions of covered orders and is a share-weighted 

average.830 The proposed metric is relevant to evaluating how quickly orders were executed, and 

the Commission therefore has decided to adopt the metric as proposed.831 

Additional statistics in the summary report. In the Proposing Release, the Commission 

solicited comment on whether any additional execution quality statistics required under proposed 

 

827  See Proposing Release, 88 FR 3786 at 3970 (Jan. 20, 2023). 

828  See id. at 3823-24; proposed Rule 605(a)(2)(vii); final 17 CFR 242.605(a)(2)(xii). 

829  See FIF Letter at 31. 

830  The time-to-execution statistics in the detailed report required by Rule 605(a)(1) similarly utilize a share-

weighted average. See final 17 CFR 242.605(a)(1)(ii)(G), (I), (L); final 17 CFR 242.605(a)(1)(iii)(D). 

831  A broker-dealer suggested that the Commission should only require execution-time statistics for market 

orders because marketable limit orders may be partly executed or may exceed the consolidated quote size. 

See Rule 605 Citadel Letter at 10. The summary report will include average execution speed for market and 

marketable limit orders. The Commission is retaining average execution speed for marketable limit orders 

in the summary report for the same reasons that the Commission is retaining execution-time statistics for 

marketable limit orders in the detailed report required by Rule 605(a)(1). See supra section III.B.3.b.  



219 

Rule 605(a)(1) should be included as an aggregated statistic in the summary report.832 As 

described below, in consideration of these comments, the Commission is adding to the summary 

report metrics for average realized spread as calculated at 15 seconds and 1 minute from time of 

execution, and a metric for the average midpoint. 

An industry group stated that order flow characteristics such as the amount of “informed” 

order flow received by a broker-dealer and the size of an order relative to the average daily 

volume of a stock are factors outside of the control of order-handling parties but can impact the 

amount of price improvement received.833 This commenter further stated that the impact of these 

order flow characteristics could be measured in part through statistics such as realized spread and 

price impact and thus recommended that the Commission require firms to include in the 

summary report the weighted-average realized spread at 15 seconds and at 1 minute after the 

time of execution.834 A financial services firm also suggested that percentage realized spread be 

included in the summary report statistics and argued that this “simple addition would provide 

better transparency regarding the distinct characteristics of order flow among brokers which, in 

turn, affects the average execution quality metrics on the reports.”835 Both commenters stated 

that a person reviewing the summary report could calculate the price impact based on the 

realized spread and the effective spread.836  

The Commission agrees with the commenters that viewing the average realized spread in 

the summary report will be useful to investors. The average realized spread metrics for 15 

 

832  See Proposing Release, 88 FR 3786 at 3825.  (Jan. 20, 2023) 

833  See FIF Letter at 31. 

834  See id. at 32. 

835  Schwab Letter III at 3. 

836  See FIF Letter at 32; Schwab III Letter at 3. 



220 

seconds and 1 minute after the time of execution were proposed for inclusion in the detailed 

report required pursuant to Rule 605(a)(1) and will similarly allow users of the summary report 

to differentiate between various types of order flow.837 Moreover, because the final Rule 

605(a)(1) detailed report requires the calculation of average realized spread at multiple time 

horizons, including 15 seconds and 1 minute, adding these two time horizons for average 

realized spread to the summary report should impose a minimum burden on reporting entities. 

Therefore, the Commission is requiring that the summary report include, for executions of 

covered orders, both the average percentage realized spread as calculated 15 seconds after the 

time of execution and the average percentage realized spread as calculated 1 minute after the 

time of execution.838  

An industry group further suggested adding share-weighted average execution price as a 

metric to the summary report.839 Although the Commission agrees with the commenter that the 

share-weighted average execution price could provide useful information, average execution 

price is not a metric included in the detailed report required by Rule 605(a)(1) and therefore if 

this statistic were included in the summary report it would not be derivable from the detailed 

report, contrary to commenters’ suggestions that the metrics in the summary report should be 

derivable. Therefore, the Commission is adding to the summary report a metric for average 

midpoint for executions of covered orders because this metric will be included in the detailed 

report so that other summary report statistics will be derivable from the detailed report and, 

 

837  See supra section III.B.4.a)(2) for a discussion of the utility of the realized spread statistic. 

838  See final 17 CFR 242.605(a)(2)(x) and (xi). As discussed above, the Commission is adding a statistic for 

average midpoint for order executions to the detailed report so that the percentage-based spread statistics in 

the summary report can be derived from the detailed report. See supra notes 589-592 and accompanying 

text. 

839  See FIF Letter at 27.221 

similar to share-weighted average execution price, average midpoint provides information about 

the mix of stocks represented in the reported statistics.840 Thus, the inclusion of the average 

midpoint will provide those using the summary report for comparison purposes with a means to 

assess whether differences in the price mix of stocks could be a factor affecting other execution 

quality statistics of reporting entities.  

2. Required Format 

As discussed below, commenters supported the production of the summary report in a 

human-readable format. A financial services firm supported the proposal to require a 

standardized summary report in a “user-friendly format.”841 A national securities exchange stated 

that the proposed format would make the data in the summary reports accessible to a wider 

audience in a standard format to facilitate comparisons.842 However, one academic believed that 

while the proposed summary reports “are most important,” the Commission’s proposal “did not 

clearly display what the summary reports would look like.”843 Finally, one industry group 

recommended that CSV,844 or another format that could be copied into a spreadsheet software 

program, be used in place of XML for the summary report. According to the commenter, using 

CSV “would allow investors to compare summary data across firms more readily.”845 

 

840  See final 17 CFR 242.605(a)(2)(iii). Pursuant to the definition of “average midpoint,” average midpoint for 

order executions is a share-weighted average. See final 17 CFR 242.600(b)(9). 

841  See Vanguard Letter at 4. 

842  See Nasdaq Letter at 46. 

843  Angel Letter at 3. This commenter stated that additional efforts need to be made to make sure that the 

summary reports are “human-friendly” and provide useful data for comparing brokers. See id. 

844  A CSV (comma-separated values) file is a text file in which commas separate the values in each row. 

845  FIF Letter at 5, 32. 



222 

After review of the comments, the Commission is requiring the use of PDF format as 

proposed and modifying proposed Rule 605(a)(2) to require that market centers and broker-

dealers also produce the summary report in CSV format instead of XML format as suggested by 

the commenter.846 Making the summary report available in these file formats will allow market 

centers and broker-dealers to efficiently prepare the summary reports. In addition, investors and 

other members of the public will benefit from being able to access the summary report in 

multiple formats. Presently, it is challenging for individual investors to decipher and analyze the 

detailed Rule 605(a)(1) report. These individual investors will be more readily able to use a 

summary report to make a more informed choice about selection of a broker-dealer than they can 

now. Because the summary report is human-readable in PDF format, individual investors will be 

able to assess the data by reviewing and comparing summary reports without needing technical 

expertise or relying on an intermediary. Further, independent analysts, consultants, and the 

financial press may also analyze the summary reports to provide more information to individual 

investors, including those who do not themselves access the summary reports. 

The Commission further agrees with the industry group commenter that investors will 

benefit from the summary report being provided in CSV format and has modified proposed Rule 

605(a)(2) to require that the summary report required therein be provided in CSV format, instead 

of XML, and also provided using the associated PDF renderer. As would have been the case 

using XML, the requirement to use the Commission’s schema for CSV format will result in the 

 

846  See final 17 CFR 242.605(a)(2). Rule 605(a)(4) does not apply to the summary report required by Rule 

605(a)(2). This is because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV 

format and associated PDF renderer, and therefore the Rule 605 NMS Plan does not establish the formats 

and fields for the summary report. Further the summary report is not included in Rule 605(a)(4) because the 

procedures for preparation and posting of the summary report under Rule 605(a)(2) are contained in Rule 

605(a)(2), which sets forth the necessary format for the summary report, and Rule 605(a)(5), which 

requires internet posting. 



223 

summary report data being provided in a format that is structured and machine-readable, which 

allows users to more easily process and analyze the data, and provides consistency of format 

across reports. Requiring a CSV file format also provides market participants and other 

interested parties with a simple and versatile format that is viewable in many programs. Like 

XML (and PDF), CSV is “open standard,” which is a term that is generally applied to 

technological specifications that are widely available to the public, royalty-free, at no cost. 

However, the Commission agrees with the commenter that a CSV file format may allow 

investors and other members of the public to compare summary data across firms more readily 

than XML. Investors and other members of the public may find a CSV file format preferable to 

an XML file format because the data can be more readily viewed and analyzed in widely used 

spreadsheet applications. Because the Rule 605 summary report consists solely of a series of 

discrete numeric values in a fixed tabular layout, and does not contain elements in nested 

structures, the sophisticated validations that XML enables would not have provided significant 

benefits for the Rule 605 summary report.847 Instead, the CSV format, which yields much 

smaller file sizes and therefore more efficient processing and storage of data than the XML 

format, is equally capable of handling the Rule 605 summary report content. The increased 

usability of the CSV file format will be more relevant to investors and other members of the 

public viewing and analyzing the summary report than the broader technical coverage of XML. 

Therefore, the Commission is requiring the use of a schema for CSV format rather than an XML 

schema. Further, the requirement that the same data be provided through the use of a PDF 

 

847  See also infra sections IX.D.1.b)(3) and IX.E.4.b). 



224 

renderer helps ensure that the summary report is also available in a human-readable format and 

consistently presented across operating systems and applications. 

3. Investor Testing and Education  

An industry group and an association of securities regulators both strongly encouraged 

the Commission to provide investor education or testing to ensure that the summary report is 

useful.848 In addition, an academic stated that additional effort needs to be made to make sure the 

summary report is “human-friendly and provide[s] useful data for comparing brokers.”849 The 

industry group further stated that “the industry has expended significant effort and resources to 

ensure that retail investors have access to educational materials and support necessary to best 

inform their use of broker-dealer services” and stated that the Commission was in the best 

position to educate investors about the use of summary reports.850 This commenter suggested 

providing educational resources to retail investors that would help them understand the summary 

reports and how such information can be used to inform their investment decisions.851 This 

commenter also suggested that investors should understand how to interpret varying data in order 

to facilitate the most accurate cross-comparisons between broker-dealers’ execution quality.852 

The association of securities regulators suggested testing the summary report with investors prior 

to implementation, such as through focus groups, to confirm that the summary report provides 

useful information for retail investors.853 An individual supported investor testing and investor 

 

848  See SIFMA Letter II at 30; NASAA Letter at 6. 

849  See Angel Letter at 3. 

850  See SIFMA Letter II at 30. 

851  See id. In particular, one commenter suggested educating investors on price impact (as defined in the Order 

Competition Proposal). See Schwab Letter II at 31. 

852  See SIFMA Letter II at 31. 

853  See NASAA Letter at 6. 



225 

roundtables for all equity market system rules recently proposed by the Commission.854 Several 

individuals suggested that the Commission should provide clear guidance on how to read and 

interpret the amended Rule 605 reports.855 

The Commission does not agree that prescribed testing or investor focus groups or 

roundtables are needed at this time. Rule 605 has been in existence for over two decades. 

Although larger broker-dealers will be required to produce the detailed report under Rule 

605(a)(1) for the first time, and both market centers and larger broker-dealers will be required to 

create and post a summary report under Rule 605(a)(2) for the first time, investors should be 

broadly familiar with many of the execution quality metrics that the summary report is intended 

to highlight. Further, many commenters, including individuals, supported the proposed summary 

report as it provides greater access to execution quality data.856 Notwithstanding any potential 

insights into the Rule 605 reports that could be gained from testing or focus groups, delay in the 

adoption of final Rule 605 would delay the benefits of the amendments from accruing.  

Some commenters suggested that the Commission directly provide educational resources 

to individual investors related to the final Rule 605 amendments. However, many market 

participants, in addition to the Commission,857 have undertaken efforts to educate retail investors 

about securities trading and how to compare broker-dealer execution quality, and the 

 

854  See letter from Andrew (Mar. 31, 2023).  

855  See Letter Type G at https://www.sec.gov/comments/s7-29-22/s72922.htm (suggesting this guidance 

“especially for retail investors who may not have a deep understanding of the markets”). 

856  See supra note 742. 

857  See, e.g., https://www.sec.gov/education/investor-education, https://www.investor.gov/introduction-

investing/investing-basics/how-stock-markets-work/executing-order. The Commission’s Office of Investor 

Education and Advocacy regularly posts investor alerts and bulletins. In addition, Investor.gov is an online 

resource from the Commission’s Office of Investor Education and Advocacy to help individual investors 

“make sound investment decisions and avoid fraud.” See https://www.investor.gov/about-us.  



226 

Commission expects that these initiatives will continue to inform retail investors about means to 

evaluate their broker-dealers’ performance, including the utilization of summary report statistics. 

Individual broker-dealers may provide their own educational resources addressing Rule 605 

directly to their customers and other market participants and customers of broker-dealers may 

ask their broker-dealers questions about the Rule 605 reports. Likewise, broker-dealers can 

provide information about their firms and the nature of their order flow on their websites or 

through other communications to customers. Further, as stated above, third parties, including 

analysts, researchers, and the financial press, may also use the summary reports to analyze and 

compare execution quality across broker-dealers or market centers and provide such information 

to individual investors in different formats that provide individual investors with alternative ways 

to engage with Rule 605 data. The Commission therefore does not believe it is necessary to 

prescribe investor education at this time. However, the Commission will monitor the 

implementation of Rule 605, including with regard to whether additional information about 

investor use or analysis of the summary report would be helpful. 

V. Requirements for Making Rule 605 Reports Available to the Public  

A. Proposed Approach 

Prior to these amendments, the requirements for the dissemination of the market center 

report required by Rule 605 were set forth in paragraphs (a)(2) and (3) of Rule 605.858 

Preexisting Rule 605(a)(2) required every national securities exchange on which NMS stocks are 

traded and each national securities association to act jointly in establishing procedures for market 

centers to make the reports required by Rule 605(a)(1) available to the public in a uniform, 

 

858  See Proposing Release, 88 FR 3786 at 3824 (Jan. 20, 2023). 



227 

readily accessible, and usable electronic form.859 The Commission proposed to amend 

preexisting Rule 605(a)(2), which would be reorganized into amended Rule 605(a)(3), so that the 

proposed summary report would also be made available in accordance with the procedures 

established by the Rule 605 NMS Plan.860 Further, preexisting Rule 605(a)(2) provided that, in 

the event there is no effective national market system plan, market centers shall prepare their 

reports in a consistent, usable, and machine-readable electronic format and make such reports 

available for downloading from an internet website that is free and readily accessible to the 

public.861 The Commission proposed to reorganize this provision into amended Rule 605(a)(4) 

and modify amended paragraph (a)(4) to explicitly refer to the requirements in amended Rule 

605(a)(1).862 

Rule 605(a)(2), prior to these amendments, also specified that the detailed reports 

required by Rule 605(a)(1) must be posted on an internet website that is free and readily 

accessible to the public for a period of three years from the initial date of posting.863 As 

proposed, these same requirements would be reorganized into amended Rule 605(a)(5) and 

would be extended to the summary report required under proposed Rule 605(a)(2).864  

Finally, prior to these amendments, Rule 605(a)(3) specified that the detailed report 

required by Rule 605(a)(1) must be made available within one month after the end of the month 

 

859  See id.  

860  See id.  

861  See id. at 3824, n.475. 

862  See id. 

863  See id. at 3824. 

864  See id. at 3824, n.475.  



228 

addressed in the report.865 The Commission proposed to renumber this provision as amended 

Rule 605(a)(6) and to extend this requirement to the amended Rule 605(a)(2) report.866 

B. Final Rule and Discussion 

1. Accessibility of Rule 605 Reports 

The Commission is updating these provisions of preexisting Rule 605 by reorganizing 

paragraphs (a)(2) and (3) of preexisting Rule 605 into amended paragraph (a)(3) and new 

paragraphs (a)(4) through (6) as proposed.867 In the amended paragraphs, the Commission 

proposed to apply the website posting, timing, and retention requirements to the proposed Rule 

605(a)(2) summary report and to extend Rule 605’s procedural requirements to brokers and 

dealers subject to Rule 605. The Commission received no comments regarding the proposed 

renumbering and reorganization of preexisting Rule 605(a)(2) and (3), but did receive comments 

on the substance of proposed Rule 605(a)(3). The Commission is adopting paragraphs (a)(3) 

through (6) of Rule 605 as proposed. These rule provisions set forth the requirements for making 

the Rule 605 reports accessible to the public, and retaining these requirements from preexisting 

Rule 605 will continue to provide interested parties with the ability to access the reports easily 

and efficiently. 

Rule 605(a)(3) directs the SROs to act jointly in establishing procedures for market 

centers, brokers, and dealers to follow in making available to the public the detailed report under 

Rule 605(a)(1) and summary report under Rule 605(a)(2). The Rule 605 NMS Plan establishes 

 

865  See id. at 3825. 

866  See id. 

867  See final 17 CFR 242.605(a)(3) through (6); Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023). 

The Commission proposed to amend current Rule 605 by reorganizing paragraphs (a)(2) and (3) of current 

Rule 605 as paragraphs (a)(3) through (6) of proposed Rule 605.  



229 

procedures for market centers to make data available to the public in a uniform, readily 

accessible, and usable electronic form.868 The Rule 605 NMS Plan requires each market center to 

arrange with a single plan participant to act as the market center’s Designated Participant.869 The 

Rule 605 NMS Plan also requires market centers to post their monthly reports on an internet 

website that is free of charge and readily accessible to the public.870 Inclusion of Rule 605(a)(2)’s 

summary reports within the scope of the Rule 605 NMS Plan will promote consistent 

administration of Rule 605 and allow the Designated Participant for each reporting entity to play 

a role with respect to the reports required by Rule 605(a)(1) and (2). As is the case for market 

centers that are not Participants prior to these rule amendments, the Participants will be required 

to enforce compliance with the terms of the Rule 605 NMS Plan by their members and persons 

associated with their members.871 In addition, formatting for Rule 605 data is governed by the 

Rule 605 NMS Plan. Among other things, the Rule 605 NMS Plan sets forth the file type and 

structure of the reports and the order and format of fields, yielding reports that are structured and 

machine-readable.872 Because of the amendments to Rule 605, the Rule 605 NMS Plan will need 

to be updated in order to incorporate references to larger broker-dealers subject to Rule 605 and 

 

868  See final 17 CFR 242.605(a)(3) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 

19814 at 19815 (Apr. 17, 2001). For a discussion of the implementation of amendments to the Rule 605 

NMS Plan pursuant to 17 CFR 242.608 (“Rule 608”), see infra section VII. 

869  See Rule 605 NMS Plan at section VIII. As of January 2024, the parties to the Rule 605 NMS Plan are the 

16 registered national securities exchanges trading NMS stocks and one national securities association (the 

“Participants”). Although not all market centers are Participants, the Participants are required to enforce 

compliance with the terms of the Rule 605 NMS Plan by their members and persons associated with their 

members. See 17 CFR 242.608(c). Each market center must notify its Designated Participant of the website 

where its reports may be downloaded, and each Designated Participant must maintain a comprehensive list 

of links for all market centers for which it functions as a Designated Participant. See Rule 605 NMS Plan at 

sections IV, VIII(c). 

870  See Rule 605 NMS Plan at section VII. 

871  See 17 CFR 242.608(c). 

872  See Rule 605 NMS Plan at 2 (“Section V . . . provides that market center files must be in standard, pipe-

delimited ASCII format”). 



230 

to account for summary reports and the new data fields required to be reported. The compliance 

period for amending the Rule 605 NMS Plan, and other implementation details, are discussed in 

infra section VII. 

With respect to report formatting, an investor advocacy group stated that header data 

should be included in the Rule 605 reports, arguing that “it is impossible to understand the 

reports” without looking separately to published Commission guidance.873 This commenter also 

stated that Rule 605 reports should continue to be made available in a machine-readable 

format.874 The Commission agrees that having more ready access to the information needed to 

understand the content of the reports could be beneficial for market participants. Because the 

Rule 605 NMS Plan establishes the procedures for reporting entities to follow in making the 

report available in a uniform, readily accessible, and usable electronic form, the Participants are 

well-positioned to determine how to include header information in connection with the updates 

to the record layout for the detailed Rule 605(a)(1) reports.875 The Commission encourages the 

Participants to consider whether header information or a more accessible record layout or key 

should be part of the procedures for making the reports available to the public, especially as it 

pertains to the detailed Rule 605(a)(1) reports.876 

 

873  See Healthy Markets Letter at 16. See also Better Markets Letter at 9, n.26 (“We agree with Healthy 

Market Association that improved header data would go a long way to making Rule 605 Reports more 

readable, particularly for retail investors, and suggest the Commission make this technical enhancement to 

the Rule 605 NMS Plan.”). 

874  See Healthy Markets Letter at 16. 

875  If the Plan Participants determine to amend the Rule 605 NMS Plan to incorporate headers into the reports, 

an amendment must be filed with the Commission pursuant to Rule 608 of Regulation NMS. See 17 CFR 

242.608(a). Amendments to NMS plans are subject to notice and comment, and may be either effective 

upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before 

amendments may be effective, pursuant to 17 CFR 242.608(b)(2). 

876  Under Rule 608(a)(2) of Regulation NMS, the Commission may propose amendments to any effective 

national market system plan. See 17 CFR 242.608(a)(2). The Commission could in the future propose an 

amendment to the Rule 605 NMS Plan to address issues related to the Rule 605 reports. 



231 

In the event that an amendment to the Rule 605 NMS Plan establishing procedures for 

market centers, brokers, and dealers to comply with Rule 605 has not been approved by the 

Commission prior to the compliance date of the amendments to Rule 605, paragraph (a)(4) of 

Rule 605 provides that market centers, brokers, and dealers shall prepare their reports in a 

consistent, usable, and machine-readable electronic format, and make such reports available for 

downloading from an internet website that is free and readily accessible to the public.877 

Paragraph (a)(5) of Rule 605 requires market centers, brokers, and dealers to keep the reports 

required by Rule 605(a)(1) and (2) posted on an internet website that is free and readily 

accessible to the public for a period of three years from the initial date of posting. Finally, 

paragraph (a)(6) of Rule 605 requires market centers, brokers, and dealers to make their Rule 

605(a)(1) and (2) reports available within one month after the end of the month addressed in the 

reports. The Commission received no comments on its proposal to renumber and update 

paragraphs (a)(4) through (6) of Rule 605 and is adopting paragraphs (a)(4) through (6) of Rule 

605 as proposed, for the reasons stated in the Proposing Release.878 Final Rule 605 will extend 

these procedural requirements to the Rule 605(a)(2) summary report so that valuable information 

on order execution quality will be made available to the public without undue delay.879 Further, 

the ability to access Rule 605(a)(1) and (2) reports at the same time and the availability of these 

 

877  The requirements of Rule 605(a)(4) do not apply to the Rule 605(a)(2) summary report because Rule 

605(a)(2) specifies the necessary format for the reports, while Rule 605(a)(5) contains the requirement for 

internet posting. 

878  See Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023). 

879  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75425 (Dec. 1, 2000). If a market center or broker-

dealer believes that its particular circumstances warrant an exemption from the provisions of the Rule, it 

may request an unconditional or conditional exemption pursuant to paragraph (b) of Rule 605. Such an 

exemption will be granted if the Commission determines that it necessary or appropriate in the public 

interest, and is consistent with the protection of investors. See 17 CFR 242.605(b). 



232 

reports for the same period of time will aid users of the reports in their review and analysis of 

execution quality data.880  

2. Alternatives to Rule 605 Proposal  

a) Centralization of Rule 605 Data 

In the Proposing Release, the Commission solicited comment on whether to require 

centralized posting of Rule 605 reports and discussed as an alternative that instead of, or in 

addition to, having market centers and larger broker-dealers post Rule 605 reports to their 

websites, the Commission could require these reporting entities to submit their Rule 605 reports 

to a centralized electronic system, which would then make these reports available to market 

participants.881 The Commission stated that the creation of a centralized electronic system could 

promote greater transparency by better enabling market participants to access and evaluate the 

reports of multiple reporting entities because the reports would be available at a single 

location.882 However, the Commission recognized that the entity responsible for administering 

the centralized electronic system would incur compliance costs as a result of the creation and 

maintenance of such a system, and these costs could be passed on to reporting entities in the 

form of filing fees or to consumers of Rule 605 reports in the form of access fees.883 

Specifically, the Commission considered two options for how to implement a centralized 

electronic system. One option would have been for the Commission to require that the Plan 

Participants establish procedures pursuant to the Rule 605 NMS Plan to provide for the creation 

 

880  See Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023).  

881  See id. at 3825, 3894. 

882  See id. at 3894. The Commission also stated that a centralized system could enable programmatic checks 

that the Rule 605 reports are appropriately standardized, formatted, and complete before posting. See id. 

883  See id. 



233 

and maintenance of a centralized electronic system to serve as a repository for Rule 605 reports 

and make such reports available for viewing and downloading in a manner that is free and 

readily accessible to the public.884 The second option would have been for the Commission to 

require that reporting entities disclose Rule 605 information directly to the Commission through 

the Commission’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system, with 

the Commission subsequently making the information publicly available on EDGAR.885 

Several commenters supported the centralized posting of Rule 605 reports (summary and 

detailed).886 Some of these commenters stated that providing centralized access to Rule 605 

reports would “facilitate accessibility and comparability of the metrics to the benefit of retail 

customers and market participants”887 and that “market participants would be more likely to use 

the data to compare execution quality, leading to increased competition and improvements in 

execution quality.”888 Some of these commenters suggested various means of centralizing Rule 

605 reports—having FINRA maintain a public database for Rule 605 reports,889 creating a 

central repository for Rule 605 reports to be located on a single page on the Commission’s 

website,890 or working out the details of a central repository through the Rule 605 NMS Plan.891 

 

884  See id. at 3895. 

885  See id. at 3896. Under this alternative, entities would submit Rule 605 information to the Commission, but 

would not file Rule 605 information with the Commission. Under the Exchange Act, documents filed with 

the Commission are subject to heightened liability for misstatements contained therein as compared to 

documents otherwise provided to the Commission (e.g., documents furnished to the Commission). See 15 

U.S.C. 78ff. 

886  See BlackRock Letter at 4; Angel Letter at 3; Fidelity Letter at 8; Healthy Markets Letter at 16; Nasdaq 

Letter at 46; SIFMA Letter II at 25; J.T. Letter. 

887  Fidelity Letter at 8. 

888  Nasdaq Letter at 46. See also BlackRock Letter at 4. 

889  See Healthy Markets Letter at 16. 

890  See Fidelity Letter at 8. 

891  See Angel Letter at 3. 



234 

An individual investor suggested that the Commission should require the summary and detailed 

reports to be posted in a centralized electronic system implemented by the Commission that 

subjects reporting entities to liabilities and has no access fees.892 An industry group and an 

investor advocacy group both specifically discouraged the use of EDGAR as the centralization 

method,893 stating that the EDGAR system is “outdated technology”894 and “inadequate for the 

task.”895  

The Commission has considered the comments but is not adopting a requirement for 

centralized posting of Rule 605 reports for a number of reasons. While several commenters 

supported the goal of centralizing Rule 605 reports, commenters did not have a consensus view 

on how to accomplish centralization. Further, two commenters expressed specific concerns with 

the Commission using EDGAR as a centralized repository. The Commission acknowledges that 

centralization of Rule 605 data, by providing standardization to the reports, could help to make it 

easier for market participants to access and evaluate Rule 605 reports. However, developing a 

centralized repository and procedures for reporting entities to follow, whether done by the 

Commission or by Plan Participants, could potentially result in implementation time delays and 

require the expenditure of considerable technology and personnel resources. Further, although a 

 

892  See J.T. Letter. This commenter stated that it is “essential to ensure that these reports are appropriately 

standardized, formatted, and completed before acceptance through programmatic checks.” Id. 

893  See FIF Letter at 33; Healthy Markets Letter at 16. 

894  See FIF Letter at 33. 

895  See Healthy Markets Letter at 16. Another commenter objected to the standardization and centralization of 

Rule 605 reports and stated that “[g]iving away vast amounts of information to free riders (e.g., activists, 

MEME stock insurgents, and foreign adversaries) increases vulnerabilities” such as “MEME events and 

other irrational exuberance.” Data Boiler Letter at 27. The Commission does not agree that the 

standardization and centralization of Rule 605 reports would increase these so-called “vulnerabilities” 

simply by making the reports viewable at one central location in a consistent format because it is unclear 

how the execution quality information contained in Rule 605 reports would lead to these outcomes. 



235 

centralized repository could lower search cost for market participants, even without 

centralization, Rule 605 reports will be required to be readily available and accessible.896  

The changes to Rule 605 discussed herein will expand the scope of the reports and 

improve the usefulness of the execution quality statistics provided and made public. For 

example, the addition of a reporting requirement for larger-broker dealers will provide investors 

with information that they could use to compare the execution quality provided by different 

broker-dealers. The current disclosure requirements set forth in the amended rule and under the 

Plan will help ensure that implementation of final Rule 605 will proceed in a timely manner.897 

b) Generation of Order Execution Quality Reports Using CAT Data 

As an alternative to the proposed Rule 605 amendments, the Commission asked for 

comment on using CAT data to have either the Commission or the CAT NMS Plan Processor898 

provide execution quality information to the public at monthly (or more frequent) intervals. This 

alternative would have effectively eliminated the need for market centers and larger broker-

dealers to prepare Rule 605 reports.899  

 

896  See final 17 CFR 242.605(a)(5). 

897  In May 2023, FINRA requested comment on whether to require its members to provide Rule 605 reports to 

FINRA for centralized publication. See FINRA Regulatory Notice 23-10 (May 31, 2023) (“Regulatory 

Notice”). FINRA stated in the Regulatory Notice that the proposed requirement to provide Rule 605 reports 

to FINRA would supplement, not replace, firm’s current obligations under Rule 605. See Regulatory 

Notice at 3. Comments received on FINRA Regulatory Notice 23-10 are available at 

https://www.finra.org/rules-guidance/notices/23-10#comments. 

898  As set forth in the National Market System Plan for the Consolidated Audit Trail (“CAT NMS Plan”), the 

CAT NMS Plan Processor is required to develop and, with the prior approval of the Operating Committee, 

implement policies, procedures, and control structures related to the CAT System that are consistent with 

17 CFR 242.613(e)(4), and Appendix C and Appendix D of the CAT NMS Plan. See Securities Exchange 

Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 at 84704, n.136 (Nov. 23, 2016) (order approving 

the CAT NMS Plan). 

899  See Proposing Release, 88 FR 3786 at 3897 (Jan. 20, 2023). 



236 

A few commenters supported the use of CAT data to produce Rule 605 reports.900 An 

investment advisory firm stated that utilizing CAT data to create a report and making such 

reports easily accessible in one location “will likely result in a meaningful increase in 

transparency for investors.”901 An asset management firm stated that if every reporting firm 

generates its own reports, there would be “needless duplication of the costs and burdens 

associated with the implementation and ongoing maintenance of disclosures,” and that “a 

centralized processor for Rule 605 reports would also eliminate the inevitable inconsistencies or 

errors which arise when independent systems are responsible for creating reports.”902 Another 

broker-dealer specified that “for the sake of consistency and transparency, FINRA is best 

positioned to provide these reports” through the use of CAT data.903 Several commenters also 

stated that a central Rule 605 report processor would lower compliance burdens for broker-

dealers.904 An industry group stated that if FINRA/CAT is not used to produce all Rule 605 

reports, but FINRA prepares its own Rule 605 data for regulatory purposes, such FINRA 

data/report should be made available to the relevant firm.905  

The Commission recognizes the value in having one entity calculate the statistics 

required under Rule 605 and produce execution quality disclosures because it could result in 

more standardized data. This in turn could help facilitate one of the primary goals of the Rule 

 

900  See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; FIF Letter at 32; Healthy Markets Letter 

at 16; SIFMA Letter II at 27; State Street Letter at 2; Tastytrade Letter at 4; LPL Financial Letter at 4.  

901  LPL Financial Letter at 4. 

902  BlackRock Letter at 4. 

903  Tastytrade Letter at 4. 

904  See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; SIFMA Letter II at 27; State Street Letter 

at 2. 

905  See SIFMA Letter II at 27; see also Healthy Markets Letter at 16 (“we recommend that as part of its access 

to CAT data to create 605 reports as part of their regulatory oversight/surveillance, FINRA should make its 

report cards publicly available”). 



237 

605 amendments—to enhance order execution quality reporting to better enable investors to 

compare and evaluate execution quality among different market centers and larger-broker-

dealers. This approach could also allow for the publication of execution quality data for all 

broker-dealers instead of just those that meet the customer account threshold. However, there are 

potentially significant costs and time delays associated with implementation of this alternative. 

The obstacles associated with authorizing and enabling FINRA CAT to prepare execution quality 

disclosures could hinder the ability of investors and market participants more broadly to have 

ready access to enhanced execution quality information. Rule 605, as adopted, will require 

updated disclosure within a comparatively shorter timeframe.906 However, the Commission will 

continue to monitor this alternative in the context of the implementation of CAT and may in the 

future consider whether execution quality disclosure utilizing CAT data is practicable or 

advisable.  

If the Commission in the future determines that CAT data should be utilized to produce 

execution quality disclosures, the Commission could also consider whether to eliminate the 

requirement that market centers and broker-dealers themselves produce Rule 605 reports in that 

context. 

An industry group stated that “[t]o the extent FINRA/CAT are not utilized to produce 

Rule 605 reports, the Commission or FINRA should be required to provide a publicly available 

data template that specifies exactly how a market center or broker-dealer’s Rule 605 reports 

should be produced.”907 The commenter further stated that “[d]oing so would establish a 

standardized metric consistent with regulators’ expectations and reduce any regulatory risks 

 

906  See infra section VII.  

907  SIFMA Letter II at 26. 



238 

reporting entities may face from having to make independent interpretations of various reporting 

requirements.”908 Although the Commission will not publish an exact data template for the 

detailed reports, the NMS Plan required by Rule 605(a)(3) will establish procedures for making 

the detailed report available to the public in a “uniform, readily accessible, and usable electronic 

form.”909 Further, Rule 605(a)(2) requires the summary report to be made available using the 

schema for CSV published on the Commission’s website.910 In addition, the Commission is 

providing herein a detailed discussion of the final rule, including responses to issues and 

questions raised by commenters. Therefore, reporting entities will have the information needed 

to produce Rule 605 reports in a uniform manner.  

VI. Existing Commission Exemptive Relief and Staff Statements 

Upon the compliance date of the amendments to Rules 600 and 605, the Commission 

exemptive relief and staff statements listed below will be withdrawn. To the extent any staff 

statement is inconsistent with or conflicts with the requirements of Rule 600 or Rule 605, as 

amended, even if not specifically identified below, those statements are superseded. 

 

908  Id. at 26-27. 

909  Final 17 CFR 242.605(a)(3). 

910  See final 17 CFR 242.605(a)(2). 

Name Date Topic 

Market Systems Exemptive Letter, 

Opening Exemption only 

June 22, 2001 Orders received during regular 

trading hours at a time when an 

NBBO is being disseminated but 

prior to the dissemination of the 

primary listing market’s first 

firm, uncrossed quotations for a 

trading day. 

Large Order Exemptive Relief June 22, 2001  Any order with a size of 10,000 

shares or greater. 

2001 FAQ, Questions 19, 24, and 27 

only 

June 25, 2001 Orders received prior to 

dissemination of quotations by 



239 

As discussed in section III.A.1, the Commission is incorporating the Opening Exemption 

into the definition of covered order with respect to market or limit orders received during regular 

trading hours at a time when an NBBO is being disseminated.911 The Commission did not 

receive any comments opposing the proposed incorporation of the Opening Exemption into rule 

text or the rescission of the Opening Exemption in the 2001 Exemptive Letter. The Commission 

is rescinding the Opening Exemption as proposed, for the reasons discussed in the Proposing 

Release and in section III.A.1. The rescission of the Opening Exemption supersedes a staff 

FAQ.912 

In addition to the Opening Exemption, the Market Systems Exemptive Letter included a 

separate exemption from Rule 605 for orders received during a time when the consolidated best 

bid and offer (“BBO”) reflects a spread that exceeds $1 plus 5% of the midpoint of the 

consolidated BBO (“Spread Width Exemption”).913 As proposed, the Commission is not 

modifying or rescinding the Spread Width Exemption. Orders received during a time when the 

consolidated BBO reflects a spread that exceeds $1 plus 5% of the midpoint of the consolidated 

BBO “could be the result of potentially erroneous quotes or of abnormal trading conditions” and 

their inclusion “could significantly affect the comparability and reliability of the execution 

quality measures in market center monthly reports.”914 

 

911 See supra section III.A.1.b).  

912  See Staff Legal Bulletin No. 12R, “Frequently Asked Questions About Rule 11Ac1-5” (June 22, 2001) 

(“2001 FAQs”), Question 19. 

913  See Market Systems Exemptive Letter at 2.  

914  Id. 

primary listing SRO, riskless 

principal orders, and exemption 

for block orders. 

2013 FAQ, Question 2 only Feb. 25, 2013 Non-exempt short sale orders. 



240 

As discussed in section III.B.1, commenters supported the inclusion of larger-sized 

orders, which necessarily requires the recission of the Large Order Exemptive Relief.915 The 

Commission is rescinding the Large Order Exemptive Relief as proposed, for the reasons 

discussed in the Proposing Release and in section III.B.1. The rescission of the Large Order 

Exemptive Relief supersedes the relevant staff FAQ.916 

Finally, two additional staff FAQs are specifically superseded by Rule 605, as amended, 

and the guidance contained in this release.917 First, the final rule incorporates a provision that 

supersedes current staff statements regarding the treatment of riskless principal orders. 

Specifically, adopted Rule 605(a)(1)(i)(D) provides that the number of shares of covered orders 

executed at the receiving market center, broker, or dealer excludes shares that the market center, 

broker, or dealer executes on a riskless principal basis.918 Second, as proposed, the Commission 

is providing guidance that non-exempt short sale orders will not be special handling orders 

unless a price test restriction is in effect for the security.919 The FAQs will be updated 

accordingly consistent with these changes.  

VII. Transition Matters 

The Commission is providing a transition period between when the amendments to Rule 

605 are adopted and when the changes are fully implemented. As discussed above, the Rule 605 

NMS Plan establishes procedures for market centers to make data available to the public in a 

 

915 See supra notes 351-355 and accompanying text. 

916  See 2001 FAQs, Question 27. 

917  See 2013 FAQs, Question 2; and 2001 FAQs, Question 24. 

918  One commenter requested confirmation that execution quality metrics reported under Rule 605 include 

execution quality information for riskless principal orders. See supra note 688 and accompanying text. 

919  See supra section III.A.2.b).241 

uniform, readily accessible, and usable electronic form.920 In addition, formatting for Rule 605 

data is governed by the Rule 605 NMS Plan, which sets forth, among other things, the file type 

and structure of the reports and the order and format of fields.921 As described in section V.B.1 

above, the Commission is adopting paragraph (a)(3) of Rule 605 as proposed to direct the SROs 

to act jointly in establishing procedures for market centers, brokers, and dealers to follow in 

making Rule 605 reports available to the public. Because of the amendments to Rule 605 that the 

Commission is adopting, the Rule 605 NMS Plan will need to be updated to: (1) incorporate 

references to broker-dealers subject to Rule 605; (2) account for summary reports that will be 

required under Rule 605(a)(2); and (3) incorporate the new data fields that will be required under 

Rule 605(a)(1) for the detailed reports.922 In addition, larger broker-dealers and market centers 

will need time to test and implement programming and systems changes in order to comply with 

Rule 605 as amended.  

The Proposing Release did not include a proposed compliance date for final Rule 605, 

but several commenters recommended that the Commission provide a sufficient implementation 

period for the proposed Rule 605 amendments, including an industry group that recommended a 

minimum of one year and an industry group that recommended a minimum of one year from 

 

920  See prior 17 CFR 242.605(a)(2) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 

19814 at 19815 (Apr. 17, 2001).  

921  See Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001) (“Section V . . . provides that 

market center files must be in standard, pipe-delimited ASCII format”). 

922  The Rule 605 NMS Plan details procedures for market centers to follow and, among other things, specifies 

the order and format of fields in a manner that aligns with Rule 605(a)(1). See Rule 605 NMS Plan 

generally and section VI.(a) of the Rule 605 NMS Plan. As is currently the case for market centers that are 

not Participants, the Participants will be required to enforce compliance with the terms of the Rule 605 

NMS Plan by their members and persons associated with their members. See 17 CFR 242.608(c). 



242 

“approval of applicable Plan amendments.”923 One of these industry groups suggested that the 

Commission should not require the inclusion of any data relating to the best available displayed 

price “until the best odd-lot order to buy and the best odd-lot order to sell have been included in 

the SIP and firms have had a reasonable time period, subsequent to such inclusion, to incorporate 

this data into their Rule 605 reports.”924 This industry group also stated that the implementation 

timetable for final Rule 605 should “commence from the date that the Commission publishes 

guidance in response to interpretive questions from industry members” regarding the adopted 

reporting requirements.925 However, an investor advocacy group recommended implementation 

of the proposed changes to Rule 605 “without delay.”926 In addition, a national securities 

exchange stated that deferring “key implementation details” to the Participants “may introduce 

additional complications and further delay implementation of the Rule 605 Proposal since NMS 

 

923  See letter from Andrew M. Saperstein, Co-President, Morgan Stanley (Mar. 31, 2023) (“Morgan Stanley 

Letter”) at 7 (“The proposed amendments to Rule 605 involve a host of changes, including the introduction 

of new order types in scope, which will require broker-dealers and their vendors to adopt new processes 

and controls.”); SIFMA Letter II at 27 (recommending a minimum implementation period of one year and 

“ideally two years” following adoption of proposed Rule 605 “to allow for the industry, SROs, and the 

Commission to ensure that revised Rule 605 reports are produced in a consistent way”); FIF Letter at 5, 33 

(proposing that the implementation period should be a minimum of one year from the Commission’s 

approval of applicable Plan amendments). 

924  FIF Letter at 33.  

925  FIF Letter III at 5 (“If the Commission does not publish proposed specifications prior to adopting a final 

rule, FIF members recommend that any implementation timetable commence from the date that the 

Commission publishes guidance in response to interpretive questions from industry members relating to the 

reporting requirements that the Commission adopts.”). 

926  See Healthy Markets Letter at 16. An industry group and a broker-dealer recommended implementing 

changes to Rule 605 before any of the other changes to the U.S. equity market structure that the 

Commission has proposed in order to provide a baseline for measuring market quality. See FIF Letter at 1, 

33 (recommending implementation of proposed Rule 605 reporting changes at least one year prior to other 

changes); Morgan Stanley Letter at 2 (recommending a staggered approach to changes to U.S. equity 

market structure, starting with changes to Rule 605). See also supra note 79 and accompanying text 

(discussing other commenters’ views on Rule 605 sequencing). 



243 

Plan Participants would first need to reach agreement and then file amendments to the Rule 605 

NMS Plan with the Commission, which the Commission would need to approve.”927 

The amendments to Rule 605 discussed herein shall become effective 60 days after the 

date of publication in the Federal Register (“Effective Date”). The compliance date shall be 18 

months after the Effective Date (“Compliance Date”).928 This amount of time is consistent with 

the commenter’s request that the Commission provide a minimum implementation period of one 

year following adoption of amendments to Rule 605.929 The Commission also recognizes that 

preexisting market centers and vendors will need time to update their systems and processes to 

ensure that data responsive to the amended requirements are correctly collected and formatted, 

and that larger broker-dealers and market centers newly subject to Rule 605 will need time to 

create such systems and processes. Although two commenters referred to a potentially longer 

timeframe for implementation,930 the adopted timeframe will allow the benefits of the amended 

rule to be achieved sooner and therefore the Commission is adopting the implementation 

timeframe discussed in this section. After considering the comments, the Commission agrees that 

implementation of Rule 605 as amended should not be unnecessarily delayed because the 

 

927  NYSE Letter at 8. 

928  With respect to the compliance date, commenters requested that the Commission consider interactions 

between the proposed rule and other recent Commission rules. See supra note 79. In determining 

compliance dates, the Commission considers the benefits of the rules as well as the costs of delayed 

compliance dates and potential overlapping compliance dates. For the reasons discussed throughout the 

release, to the extent that there are costs from overlapping compliance dates, the benefits of the rule justify 

such costs. See infra sections IX.C.1.d) and IX.D.2.a)(5) for a discussion of the interactions of final Rule 

605 with certain other Commission rules. 

929  See SIFMA Letter II at 27. 

930  See id. (stating the Commission should provide for an implementation period of “ideally two years 

following adoption of the Rule 605 Proposal”) and FIF Letter at 33 (stating the Commission’s 

implementation period should be a “minimum of one year from the Commission’s approval of applicable 

Plan amendments”). Amendments to NMS plans are subject to notice and comment, and may be either 

effective upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before 

amendments may be effective, pursuant to 17 CFR 242.608(b)(2).  



244 

modifications to Rule 605 that the Commission is adopting will expand its scope and improve 

the usefulness of the execution quality statistics that reporting entities will make available 

pursuant to Rule 605.  

As part of the implementation process, and pursuant to the requirement in paragraph 

(a)(3) of Rule 605 as amended directing the SROs to act jointly in establishing procedures for 

market centers, brokers, and dealers to follow in making Rule 605 reports available to the public, 

the Rule 605 NMS Plan Participants (16 national securities exchanges and one national securities 

association) will need to file with the Commission a proposed Rule 605 NMS Plan amendment 

updating the Plan to reflect the amendments made herein to Rule 605, pursuant to Rule 608(a)(1) 

of Regulation NMS. The NMS Plan Participants are the appropriate parties to update the Rule 

605 NMS Plan provisions given their experience in administering the Rule 605 NMS Plan since 

its approval by the Commission in 2001. Many of the detailed issues relating both to the format 

of the reports under Rule 605 as amended, and to the means of access to the reports, are 

appropriately addressed in the context of approval of an amendment to the Rule 605 NMS 

Plan.931 However, while the Rule 605 NMS Plan Participants will need to determine how to 

address certain technical elements of Rule 605,932 the modifications that will need to be made by 

the Rule 605 NMS Plan generally will be dictated by Rule 605 as amended (e.g., updates to the 

list of fields included in the reports required by Rule 605(a)(1)).  

 

931  For example, in the Proposing Release, the Commission discussed potential alternatives to the website 

posting of Rule 605 reports, including, among other things, requiring Rule 605 NMS Plan Participants to 

amend the Rule 605 NMS Plan to create a centralized electronic system repository for Rule 605 reports. 

See Proposing Release, 88 FR 3786 at 3895-96 (Jan. 20, 2023).  

932  Because an amendment to the Rule 605 NMS Plan will address certain technical elements of Rule 605, the 

Commission does not agree that it is necessary to commence implementation after publication of any 

Commission guidance. See FIF Letter III at 5. As noted above, amendments to NMS plans are subject to 

notice and comment. See supra note 930. 



245 

In accordance with Rule 605 as amended, the Rule 605 NMS Plan amendment will need 

to establish procedures for market centers, brokers, and dealers to follow in making Rule 605 

reports publicly available.933 Notice of the proposed amendment to the Rule 605 NMS Plan and 

the opportunity for comment will be provided.934 

In addition, market centers, brokers, and dealers will need to make necessary preparations 

to be in a position to comply with Rule 605 as amended by the Compliance Date.935 The 

Compliance Date strikes an appropriate balance between: (1) affording brokers, dealers, and 

market centers sufficient time to program their systems and implement business process changes 

necessary to comply with the new rules; and (2) requiring that the execution quality statistics in 

their Rule 605 reports become available to investors in a timely manner.  

The Compliance Date is designed to allow time for both an amendment to the Rule 605 

NMS Plan and time for brokers, dealers, and market centers time to comply with Rule 605 as 

amended.936  

Notwithstanding the Compliance Date, reporting entities will not be able to calculate the 

price improvement statistics relative to best available displayed price that will be required to be 

included in the detailed reports required by Rule 605(a)(1) for marketable order types, 

marketable stop orders, and midpoint-or-better order types until odd-lot order information is 

 

933  Because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV and the associated PDF 

renderer, the Rule 605 NMS Plan will not establish the formats and fields for the summary reports. 

934  See 17 CFR 242.608(b).  

935  If the Rule 605 NMS Plan does not incorporate the necessary changes to Rule 605 in advance of the 

Compliance Date, final Rule 605(a)(4) will govern and the Compliance Date will still apply. As described 

further above in section V.B.1, final Rule 605(a)(4) will require that in the event that there is no effective 

national market system plan establishing required procedures, market centers, brokers, and dealers shall 

prepare their reports in a consistent, usable, and machine-readable electronic format, in accordance with the 

requirements in final Rule 605(a)(1), and make such reports available for downloading from a website that 

is free and readily accessible to the public. 

936  See supra note 923 and accompanying text. 



246 

made available pursuant to an effective transaction reporting plan or effective national market 

system plan.937 The MDI Rules included odd-lot information in the data that will be made 

available within the national market system. Although the Commission adopted the MDI Rules, 

the MDI Rules have not been implemented.938 Once odd-lot order information is made available 

pursuant to an effective national market system plan, market centers, brokers, and dealers will 

need time to make any program updates and changes to their business processes that are 

necessary to calculate the price improvement statistics relative to the best available displayed 

price. In order for odd-lot order information to be made available pursuant to an effective 

national market system plan, participants will need to file with the Commission a proposed NMS 

plan or a proposed amendment to an NMS plan pursuant to Rule 608(a)(1) of Regulation NMS. 

Any such filing will be subject to public comment and Commission approval by order before the 

effectiveness of such plan or plan amendments pursuant to Rule 608(b)(2) of Regulation NMS. 

A Commission order approving a proposed plan or plan amendment making odd-lot information 

available will provide market participants notice of when odd-lot order information will be 

required to be made available. Further, to the extent that odd-lot information is collected, 

consolidated, and disseminated by the effective national market system plan(s), market 

participants will be provided notice of the availability of such information through usual 

 

937  See final 17 CFR 242.605(a)(1)(ii)(M) through (Q). 

938  The Commission has outlined a phased transition plan for the implementation of the MDI Rules, including 

the implementation of odd-lot order information to be disseminated by competing consolidators. See 

Proposing Release, 88 FR 3786 at 3820, n.422 (Jan. 20, 2023). The Commission is still considering 

whether to adopt the proposed changes in the Minimum Pricing Increments Proposal to accelerate the 

implementation of the odd-lot information definition and have odd-lot order information disseminated by 

the exclusive SIPs. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80295-99 (Dec. 

29, 2022). If, in the future, the Commission accelerates implementation of this aspect of the MDI Rules, 

implementation of the modifications to the odd-lot definition and dissemination of odd-lot order 

information pursuant to an effective national market system plan would proceed on a revised timeframe as 

designated by the Commission at such time. 



247 

communication channels that may be established by the competing consolidator(s) or that are 

used by exclusive SIPs, to the extent exclusive SIPs collect, consolidate, and disseminate odd-lot 

information pursuant to an effective national market system plan. Market centers, brokers, and 

dealers will have six months after odd-lot order information sufficient to calculate the best 

available displayed price is made available pursuant to an effective national market system plan 

to start including price improvement statistics relative to the best available displayed price in 

their Rule 605 reports. 

VIII. Paperwork Reduction Act 

Certain provisions of the rule amendments contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).939 The 

Commission requested comment on the collection of information requirements in the Proposing 

Release and submitted relevant information to the Office of Management and Budget (“OMB”) 

for review in accordance with 44 U.S.C 3507(d) and 5 CFR 1320.11. The Commission is altering 

an existing collection of information and applying such collection of information to new 

categories of respondents. The title of such existing collection of information is: Rule 605 of 

Regulation NMS (f/k/a Rule 11Ac1-5).940 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. 

Views of commenters relevant to the Commission’s analysis of the reporting burdens 

imposed by the collection of information for Rule 605 as proposed are discussed below. In 

 

939  44 U.S.C. 3501 et seq. 

940  OMB Control Number 3235-0542. 



248 

addition, certain estimates have been modified, as necessary, to conform to the adopted 

amendments and to reflect the most recent data available to the Commission. 

A. Summary of Collection of Information 

The amendments create burdens under the PRA by: (1) adding new categories of 

respondents to the existing collection of information and (2) modifying the requirements of such 

existing collection of information. The amendments do not create any new collections of 

information.  

The categories of new respondents subject to Rule 605, as amended, are larger broker-

dealers and new market centers, consisting of SDPs and entities that act as market centers for 

orders that were previously not covered by Rule 605, e.g., orders smaller than 100 shares. 

The amendments modify both the scope of the standardized monthly reports required 

under Rule 605 and the required information. Rule 605, as amended: (1) expands the definition 

of “covered order” to include certain orders submitted outside of regular trading hours, certain 

orders submitted with stop prices, and non-exempt short sale orders; (2) modifies the existing 

order size categories to base them on notional value as well as whether an order is for less than a 

share, for an odd-lot, or for a round lot or greater rather than number of shares; (3) creates four 

new order type categories (marketable IOCs, executable market orders submitted with stop 

prices, executable marketable limit orders submitted with stop prices, and executable non-

marketable limit orders submitted with stop prices) and replaces three existing categories of non-

marketable order types with four new categories of order types (midpoint-or-better limit orders, 

midpoint-or-better IOCs, executable NMLOs, and NMLO IOCs); (4) modifies current time-to-

execution reporting buckets; (5) modifies realized spread statistics to require realized spread to 

be calculated after 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes; and (6) 



249 

requires new statistical measures of execution quality including average effective spread divided 

by quoted spread, percentage effective and realized spread statistics, a size improvement 

benchmark and statistic, and certain statistical measures that could be used to measure execution 

quality of NMLOs. The amendments require all reporting entities to make a summary report 

available that will be formatted using the most recent versions of the schema for CSV format and 

the associated PDF renderer as published on the Commission’s website. Finally, as a result of the 

amendments to Rule 605, Rule 605 NMS Plan Participants will need to amend the Rule 605 

NMS Plan to account for the new data fields. 

B. Proposed Use of Information 

The purpose of the information collection is to make information about order execution 

practices available to the public and allow investors, broker-dealers, and market centers (which 

include exchange markets, OTC market makers, and ATSs)941 to undertake a comparative 

analysis of these practices across markets. Broker-dealers may use the information to make more 

informed choices in deciding where to route orders for execution and to evaluate their internal 

order handling practices. Investors may use the information to evaluate the order handling 

practices of their broker-dealers. Market centers may use the information to compete on the basis 

of execution quality. 

C. Respondents 

The collection of information obligations of Rule 605 applies to larger broker-dealers and 

market centers that receive covered orders in national market system securities (collectively, 

“reporting entities”). The Commission estimates that there are approximately 228 reporting 

 

941  See final 17 CFR 242.600(b)(55). 



250 

entities (91 OTC market makers, plus 16 national securities exchanges, 1 national securities 

association, 87 exchange market makers, and 33 ATSs) under Rule 605 prior to these 

amendments.942 However, under the amendments, the Commission estimates there will be 343 

reporting entities (91 OTC market makers, 85 broker-dealers that introduce or carry 100,000 or 

more customer accounts,943 16 national securities exchanges, 1 national securities association, 87 

exchange market makers, 33 ATSs,944 plus 30 new market center respondents945) that will be 

subject to the collection of information obligations of Rule 605. Each of these respondents will 

be required to respond to the collection of information on a monthly basis. 

In addition, the amendments to Rule 605 will require the Rule 605 NMS Plan Participants 

(16 national securities exchanges and 1 national securities association) to prepare and file an 

amendment to the Rule 605 NMS Plan. 

 

942  The PRA for preexisting Rule 605 estimates 319 reporting entities (153 OTC market makers, plus 24 

national securities exchanges, 1 national securities association, 80 exchange market makers, and 61 ATSs). 

The Commission’s method of estimating the reporting entities for the Commission’s currently approved 

PRA for prior Rule 605 was over-inclusive. For example, it included national securities exchanges and 

ATSs that do not trade NMS stocks and broker-dealers that may trade NMS stocks but are not market 

makers. Based on updated estimates of the number of respondents, the Commission now estimates that 

there are only 228 current reporting entities. 

943  These 85 brokers-dealers include 39 broker-dealers that act as introducing brokers. The Commission 

initially estimated there would be 85 broker-dealers that introduce or carry 100,000 or more customer 

accounts, which included 37 broker-dealers and 48 carrying broker-dealers. See Proposing Release, 88 FR 

3786 at 3826 (Jan. 20, 2023). The Commission updated this estimate based on the FYE 2022 FOCUS 

Reports received by the Commission and data from CAT for calendar year 2022. See infra Table 13. 

944  As of Nov. 21, 2023, there are 33 NMS Stock ATSs that have filed an effective Form ATS-N with the 

Commission. 

945  These 30 new market center respondents consist of 20 market centers that will need to produce reports as a 

result of including fractional share orders within the scope of Rule 605 and 10 SDPs. The Commission 

initially estimated there would be 38 new market center respondents, which included 8 entities that would 

operate qualified auctions. See Proposing Release, 88 FR 3786 at 3826 (Jan. 20, 2023). Because final Rule 

605 does not include a requirement that entities operating qualified auctions report separately, the 

Commission is revising its estimate to include 30 new market center respondents. 



251 

D. Total PRA Burdens 

Rule 605, as amended, will require broker-dealers and market centers to make available 

to the public monthly order execution reports in electronic form. Broker-dealers and market 

centers retain most, if not all, of the underlying raw data necessary to generate these reports in 

electronic format or, if they do not, may obtain this information from publicly available data 

sources.946 Consequently, Rule 605 will not require new data collection or recordkeeping 

burdens. Respondents could either program their systems to generate the statistics and reports, or 

transfer the data to a service provider (such as an independent company in the business of 

preparing such reports or an SRO) that would generate the statistics and reports. 

The currently approved PRA for prior Rule 605 estimates that each respondent spends 6 

hours a month to collect the data necessary to generate the reports, or 72 hours per year.947 In the 

Proposing Release, the Commission estimated that each respondent would spend 8 hours a 

month, or 96 hours per year, on an ongoing basis, to comply with Rule 605 as proposed to be 

amended.948  

One commenter stated that the proposal did not include burdens related to business-line 

personnel or technical staff.949 Further, one commenter stated that the Commission’s compliance 

cost estimates were too low because the Commission neglected to take into account dedicated 

 

946  National securities exchanges, national securities associations, and registered brokers and dealers are 

subject to existing recordkeeping and retention requirements including 17 CFR 240.17a-1 (“Rule 17a-1”) 

(for SROs); 17 CFR 240.17a-3 (“Rule 17a-3”) and 240.17a-4 (“Rule 17a-4”) (for broker-dealers). See 

Rules 17a-1, 17a-3, and 17a-4. The Commission’s estimates include Rule 605’s requirement that reporting 

market centers and broker-dealers keep Rule 605 reports posted on an internet website that is free and 

readily accessible to the public for a period of three years from the initial date of posting on the internet 

website. See final 17 CFR 242.605(a)(5).  

947  See infra note 953. 

948  See Proposing Release, 88 FR 3786 at 3826-27 (Jan. 20, 2023). 

949  See Data Boiler Letter at 21. 



252 

staff time needed for data reconciliation and validation and other ongoing compliance costs.950 

The commenters provided no data and provided no alternative estimates of the cost of preparing 

the monthly reports. 

In response to the commenters, the Commission is adjusting its estimated annual burdens 

to account for work to be performed by technical staff, as described below. In addition, the 

Commission is adjusting the hourly rates used to monetize burden hours in order to account for 

recent inflation rates.  

The Commission estimates that the initial and ongoing burdens will be different for those 

respondents that are already required to prepare reports and for new respondents. The 

Commission estimates that Rule 605 amendments will result in an initial burden for current 

respondents of 50 hours per respondent951 for systems updates to ensure that data responsive to 

the amended requirements is correctly collected and formatted. The initial burden estimate 

represents the work that will need to be done by existing respondents to modify their systems to 

collect data required under the amendments to Rule 605 and generate the monthly reports. The 

estimate includes time required to program and test automated systems to collect the necessary 

data, as well as review and approval by compliance personnel. The Commission does not believe 

the information required to be aggregated and included in Rule 605 reports, as amended, will 

require preexisting respondents to acquire new hardware or systems to process the information 

 

950  See Robinhood Letter at 42 (stating that annual costs of up to $42,000 per year is “an underestimation of 

annual costs”). 

951  The Commission estimates the monetized initial burden for this requirement to be $4,577,100. The 

Commission derived this estimate based on per hour figures from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Sr. Programmer at $399 for 25 hours) + (Sr. Systems Analyst at $343 for 10 hours) + 

(Compliance Manager at $373 for 10 hours) + (Director of Compliance at $588 for 5 hours)] = $20,075 per 

respondent for a total initial monetized burden of $4,577,100 ($20,075 x 228 respondents).  



253 

required in the reports. The Commission further estimates that the Rule 605 amendments will 

result in an ongoing monthly burden of 11 hours per respondent to collect the necessary data and 

to prepare the required Rule 605 reports, for a total annual burden of 132 hours per 

respondent.952 This estimate represents an increase of 3 hours per respondent over the 

Commission’s initial estimate because it accounts for technical staff time that will be required to 

verify automated processes are functioning as intended and post and prepare the required reports, 

or transfer data to a service provider to generate the reports.953 This estimate has been revised 

from the Proposing Release in response to commenters who stated that the Commission did not 

adequately account for technical staff.954 With an estimated 228 respondents already subject to 

Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 

11,400 hours while the monthly reporting requirement is estimated to be 30,096 hours per year 

(228 x 132). The burdens for respondents currently reporting under Rule 605 are likely to be 

lower than those of new reporting entities because currently reporting entities already have 

systems in place to collect the data necessary to generate reports under the current rule. These 

 

952  The Commission estimates the monetized annual burden for this requirement to be $11,775,744. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + 

(Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) x 12 reports per year] = $51,648 

per respondent for a total annual monetized burden of $11,775,744 ($51,648 x 228 respondents). 

953  The Commission’s currently approved PRA for prior Rule 605 (OMB Control Number 3235-0542), last 

updated in Apr. 2022, estimates that current respondents each will spend 6 hours per month to collect the 

data necessary to generate the reports, or 72 hours per year. Although the amendments to Rule 605 will 

require additional data fields and the generation of summary reports, the data collection and report 

generation process will be an automated process that will not require substantial additional burden hours 

after initial set-up. 

954  See supra notes 949-950 and accompanying text. Specifically, although the commenters did not provide an 

estimate of the costs or time burdens that would be attributable to work performed by technical staff, the 

Commission is allocating 2 hours to a programmer and 1 hour to a systems analyst to account for technical 

assistance that may be necessary to ensure automated processes are functioning as intended. 



254 

estimates include the impact of preparing and making summary reports available using the most 

recent versions of the schema for CSV format and the associated PDF renderer as published on 

the Commission’s website. 

The Commission estimates that Rule 605 amendments will result in an initial burden for 

new respondents of 100 hours for each respondent955 for systems updates to ensure that data 

responsive to the amended requirements is correctly gathered and formatted. This burden is 

higher than the estimated burden for current respondents because new respondents do not 

currently have in place the systems to collect the information required for current Rule 605 

reports. These respondents will likely require additional time to collect the relevant information. 

In addition, this estimate includes additional time for programming and testing automated 

systems to collect the necessary data and additional hours for review and approval by compliance 

personnel. Once the relevant data are collected, respondents could either program their systems 

to generate the reports or transfer the data to a service provider that will generate the reports. 

Respondents will likely not be required to acquire new hardware or other technological resources 

to be able to collect the data required by the amended rule given that respondents already have 

computing systems in place to, for example, transmit and process order information, and such 

systems could be leveraged to collect the required data. Further, to the extent a respondent does 

not have the technological capabilities or resources to generate the reports in-house, such 

respondents will likely utilize a service provider, as discussed below. The Commission estimates 

 

955  The Commission estimates the monetized initial burden for this requirement to be $4,617,250. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Sr. Programmer at $399 for 50 hours) + (Sr. Systems Analyst at $343 for 20 hours) + 

(Compliance Manager at $373 for 20 hours) + (Director of Compliance at $588 for 10 hours)] = $40,150 

per respondent for a total initial monetized burden of $4,617,250 ($40,150 x 115 respondents). 



255 

that the Rule 605 amendments will result in an ongoing monthly burden of 11 hours to collect 

the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 132 

hours per respondent.956 With an estimated 115 new respondents subject to Rule 605, the total 

initial burden to comply with the Rule 605 amendments is estimated to be 11,500 hours while the 

monthly reporting requirement is estimated to be 15,180 hours per year (115 x 132). These 

estimates include the impact of preparing and making summary reports available using the most 

recent versions of the schema for CSV format and the associated PDF renderer as published on 

the Commission’s website. 

  

 

956  The Commission estimates the monetized annual burden for this requirement to be $5,939,520. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + 

(Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) x 12 reports per year] = $51,648 

per respondent for a total annual monetized burden of $5,939,520 ($51,648 x 115 respondents). 



256 

Table 2: Respondent Burdens for Producing Rule 605 Reports 

Respondent Type Number of 

Respondents 

Burden 

Type 

Burden per 

Respondent 

(Hours) 

Number 

of 

Responses 

per Year 

Total Burden 

Hours 

(Number of 

Respondents x 

Burden per 

Respondent)a 
OTC Market 

Makers 

91 Initial 50  4,550 

Annual 11 12 12,012 

Exchange Market 

Makers 

87 Initial 50  4,350 

Annual 11 12 11,484 

Exchanges 16 Initial 50  800 

Annual 11 12 2,112 

Associations 1 Initial 50  50 

Annual 11 12 132 

ATSs 33 Initial 50  1,650 

Annual 11 12 4,356 

Totals for Current 

Respondents 

228 Initial 50  11,400 

Annual 11 12 30,096 

Broker-Dealers with 

≥100,000 customer 

accounts 

85 Initial 100  8,500 

Annual 11 12 11,220 

Non-market center 

broker-dealers 

20 Initial 100  2,000 

Annual 11 12 2,640 

SDPs 10 Initial 100  1,000 

  Annual 11 12 1,320 

Total Burden for 

New Respondents 

115 Initial 100  11,500 

Annual 11 12 15,180 

a In the case of annual burdens, the Total Burden Hours is equal to the burden per respondent multiplied by the 

number of responses per year. 



257 

 The Commission estimates that in lieu of preparing both summary and detailed monthly 

reports in-house, an individual respondent could retain a service provider to prepare its monthly 

reports for between approximately $3,000 and $3,500 per month or approximately $36,000 to 

$42,000 per year.957 This per-respondent estimate is based on the rate that a reporting entity 

could expect to obtain if it negotiated on an individual basis. Based on the $3,000 to $3,500 

estimate, the monthly cost to the 343 respondents to retain service providers to prepare reports 

will be between approximately $1,029,000 and $1,200,500 ((343 x $3,000) and (343 x $3,500), 

respectively), or a total annual cost of between approximately $12,348,000 and $14,406,000 

(($1,029,000 x 12) and ($1,200,500 x 12), respectively). 

Finally, the 16 national securities exchanges and 1 national securities association will 

need to amend the Rule 605 NMS Plan to account for the new data fields required to be reported 

and to include references to larger broker-dealers in addition to market centers. The Commission 

is modifying the estimates for the initial burden and costs to the SROs to file the amendment to 

eliminate the per respondent burden for each SRO and instead estimate the burden for the SROs 

collectively because the respondents would file this amendment jointly, rather than individually, 

 

957  This estimate is the same as the Commission’s estimate in the Proposing Release. The Commission’s 

currently approved PRA for prior Rule 605 estimates that the retention of a service provider to prepare a 

monthly report would cost $2,978 per month, or approximately $35,736 per year. Although the individual 

line items required by Rule 605, as amended, are different than prior Rule 605 or proposed Rule 605, the 

Commission does not believe that the overall cost of creating the required reports will differ substantially 

from these estimates. The Commission received no comments regarding its estimate of the external cost to 

retain a service provider. As discussed above, a commenter stated that the Commission underestimated 

annual compliance costs in the Proposing Release because the Commission’s estimate of up to $42,000 per 

year in annual costs failed to account for staff time and other ongoing compliance costs. See supra note 

950. In response to comments, the Commission increased its annual burden estimate. See supra notes 952 

and 956. 



258 

in connection with their status as participants in the effective national market system plan.958 The 

Commission estimates that there will be a one-time (or initial) burden of 85 hours959 to amend 

the Rule 605 NMS Plan to account for the new reporting fields and reporting parties. The 

Commission does not estimate that there will be any ongoing annual burden associated with the 

Rule 605 NMS Plan amendment to account for the new reporting fields and reporting parties. 

The Commission has based its estimate of SRO burden hours to amend the Rule 605 NMS Plan 

on the burden hours for existing NMS plans, while also taking into account the limited nature of 

the updates to the Rule 605 NMS Plan that will be required under the amendments to Rule 605. 

The Commission estimates that there will be outsourcing of legal time to develop and 

draft the Rule 605 NMS Plan amendment in order to account for additional data fields and 

reporting parties. The Rule 605 NMS Plan amendment will be an update to the list of formats 

and fields to track the data elements set forth in the Rule and add references to broker-dealers 

subject to the Rule, and therefore the Commission estimates the hours necessary to develop and 

draft the amendment will be significantly lower than other recent NMS plan amendments. The 

Commission estimates that the plan participants will outsource 34 hours of legal time to prepare 

and file an amendment to the Rule 605 NMS Plan, at an average hourly rate of $575.960 The 

 

958  Although the Commission is now estimating the collective burden for the SROs to make the necessary 

amendments to the Rule 605 NMS Plan, the Commission’s estimate of total initial burden hours and 

external costs remains consistent with the estimate in the Proposing Release. The Commission did not 

receive any comment on these burden hour estimates and external cost estimates. 

959  The Commission estimates the monetized initial burden for this requirement to be $43,605. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Attorney at $501 for 68 hours) + (Assistant General Counsel at $561 for 17 hours)] = a total 

initial monetized burden of $43,605. 

960  The Commission’s estimates of the relevant wage rates for outside legal services take into account staff 

experience, a variety of sources including general information websites, and adjustments for inflation. 



259 

Commission estimates that the aggregate one-time reporting burden for preparing and filing an 

amendment to the Rule 605 NMS Plan will be approximately $19,550 in external costs from 

outsourced legal work [(at $575 for 34 hours = $19,550)].  

The Commission currently estimates a total initial burden of 23,019 hours for all 

respondents and a total annual burden of 45,276 hours for all respondents.961 

IX. Economic Analysis 

A. Introduction 

The Commission is mindful of the economic effects that may result from these 

amendments to Rule 605, including the benefits, costs, and the effects on efficiency, competition, 

and capital formation.962 The following economic analysis identifies and considers the costs and 

benefits—including the effects on efficiency, competition, and capital formation—that could 

result from these amendments to Rule 605.  

In 2000, when the Commission adopted Rule 11Ac1-5, which was later redesignated as 

Rule 605, it stated that the rule should facilitate comparisons across market centers and provoke 

more vigorous competition on execution quality and broker-dealer order routing performance.963 

However, under prior Rule 605 reporting requirements, market participants have not been able to 

 

961  (11,400 + 11,500 + 119) = 23,019 initial burden hours. (24,624 + 12,420) = 37,044 annual burden hours. 

The Commission estimates the monetized initial burden for all respondents to be $9,257,505 ($4,577,100 + 

$4,617,250 + $63,155) and the monetized annual burden for all respondents to be $17,715,266 

($11,775,744 + $5,939,520). 

962  Exchange Act section 3(f) requires the Commission, when it is engaged in rulemaking pursuant to the 

Exchange Act, and is required to consider or determine whether an action is necessary or appropriate in the 

public interest, to consider, in addition to the protection of investors, whether the action will promote 

efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). In addition, Exchange Act section 

23(a)(2) requires the Commission, when making rules pursuant to the Exchange Act, to consider, among 

other matters, the impact that any such rule will have on competition, and not to adopt any rule that would 

impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the 

Exchange Act. See 15 U.S.C. 78w(a)(2). 

963  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75417 (Dec. 1, 2000). 



260 

observe the variations across broker-dealers in terms of the execution quality achieved by their 

order routing services using standardized and publicly available execution quality reports. 

Furthermore, in the subsequent decades, substantial changes in equity markets, including 

increases in trading speeds and fragmentation, have made it so that Rule 605 reports have 

become less informative than they were when Rule 605 was adopted. These amendments to Rule 

605, including expanding the scope of reporting entities, modernizing the content of Rule 605 

reports, and broadening the reports’ accessibility, will increase the relevance and use of the 

information contained in the reports, and promote competition among market centers and broker-

dealers. This increase in competition is expected to ultimately lead to improved execution quality 

for investors.  

The Commission recognizes that these amendments to Rule 605 will entail additional 

costs to market centers and broker-dealers of disclosing the required execution quality 

information. Market centers will face initial compliance costs when updating their methods for 

preparing Rule 605 reports, and broker-dealers that were not required to publish Rule 605 reports 

prior to these amendments will face initial compliance costs, including, but not limited to, 

developing the systems and processes and organizing the resources necessary to generate the 

reports pursuant to Rule 605, and ongoing compliance costs to publish Rule 605 reports each 

month.  

The Commission has considered and is describing the economic effects of these 

amendments to Rule 605 and wherever possible has quantified the likely economic effects of 

these amendments. The Commission has incorporated data and other information, such as 

academic literature, to assist in the analysis of the economic effects of these amendments. 

However, because the Commission does not have, and in certain cases does not believe that it261 

reasonably can obtain, data that may inform on certain economic effects, the Commission is 

unable to quantify those economic effects. Further, even in cases where the Commission has 

some data, the number and type of assumptions necessary to quantify certain economic effects 

would render any such quantification unreliable. Our inability to quantify certain costs, benefits, 

and effects does not imply that such costs, benefits, or effects are less significant. 

B. Market Failure 

The information disclosed under Rule 605 has provided significant insight into execution 

quality at different market centers.964 However, the utility of some of the metrics in Rule 605 

reports has eroded because such metrics have not kept up with the substantial changes in equity 

markets since the initial adoption of Rule 605’s predecessor in 2000. 965 As a result, Rule 605 is 

less able to address the market failures identified in the Rule 11Ac1-5 Adopting Release, 

including market centers’ limited incentives to produce publicly available, standardized 

execution quality reports.966 While some metrics remain robust, particular metrics required to be 

reported by Rule 605 prior to these amendments have become less useful for comparing 

execution quality across market centers than they were when the predecessor of Rule 605 was 

initially adopted. Further, some metrics that will be useful in today’s market were not required to 

be reported prior to these amendments. These market changes have limited the degree to which 

the metrics reported under prior Rule 605 promoted competition among market centers and 

 

964  See supra note 17. 

965  In 2018, while amending Rule 606, the Commission also modified Rule 605 to require that the public order 

execution quality report be kept publicly available for a period of three years but did not change the content 

of the reports. See supra note 45 and corresponding text.  

966  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75414-15 (Dec. 1, 2000).  



262 

improved execution quality.967 To enhance the value of Rule 605 reports, the Commission is 

updating the disclosure of order execution information and expanding the scope of reporting 

entities under Rule 605, which will result in a variety of improvements to market participants’ 

access to information about execution quality.  

The Commission does not believe that improvements to the preexisting Rule 605 metrics 

are likely to be achieved through a market-based solution.968 Even if all market centers were 

incentivized to voluntarily produce updated statistics for competitive or reputational reasons 

(e.g., they may lose business if their competitors provide reports and they do not), under current 

rules, there is little incentive for all market centers to agree on a standardized set of updated 

statistics. For example, market centers may be incentivized to design ad hoc reports to highlight 

areas where they believe they compare well to their competitors. Without a standardized set of 

statistics, it would be difficult for market participants to easily compare execution quality across 

market centers.  

 

967  Several commenters stated that there are limitations to preexisting Rule 605 in light of significant market 

changes since 2000. See, e.g., Vanguard Letter at 3 (stating that “though [Rule 605] provides a helpful 

baseline level of disclosure, it predates Regulation NMS and has not kept pace with advancements in 

technology and changes in market behavior”); Healthy Markets Letter at 16 (stating that “[t]he metrics [in 

Rule 605] – which are decades-old – are wildly outdated”); Better Markets Letter at 1 (stating that “[Rule 

605] has fallen well behind the dramatic changes in the structure of the markets and the advances in 

technology”); McHenry et al. Letter at 3 (stating that “our equity markets have changed dramatically since 

Rule 605 was adopted in 2000…the data reported under Rule 605 no longer provides an accurate measure 

of execution quality, particularly price improvement, for retail investors”). In addition, one commenter 

stated that Rule 605 reports are “incomplete” and stated that they “present an inaccurate picture of 

execution quality.” Virtu Letter II at 1-2. One commenter believes that “the current execution quality 

reports deliver sufficient comparative information on execution quality.” TradeStation Letter at 6. For the 

reasons discussed throughout this release, in this section and in section IX.D.1, the Commission believes 

that there are currently limits to the usefulness of Rule 605 for market participants, and that market 

participants will benefit from these updates to Rule 605. 

968  In the Rule 11Ac1-5 Adopting Release, the Commission stated that, while some market centers may have 

voluntarily made order execution information privately available to independent companies or broker-

dealers, the information in these reports generally had not been publicly disseminated. To the extent such 

information had been made available, not all of it was useful or in a form that would allow for cross-market 

comparisons. See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75431 (Dec. 1, 2000).  



263 

Furthermore, it may be difficult for certain market participants to compute accurate and 

relevant execution quality metrics from data sources other than Rule 605 reports, due to the lack 

of granularity and significant time delay of many other publicly available datasets, which can 

lead to imprecise or stale measures. This limits certain market participants’ ability to conduct 

analyses that examine and compare execution quality across market centers to inform investors. 

Moreover, even if execution quality information were voluntarily reported by market centers, 

there may also be limits to market participants’ incentives to access it. For example, even if a 

subset of market centers is able to coordinate on and produce a standardized set of voluntary 

execution quality metrics, the ability of market participants to use this measure to make 

comparisons across reporting entities would depend on the subset of reporting entities that 

choose to report it. If this subset is not of a significant enough size, there may be few incentives 

for market participants to access the information.969 Therefore, this rulemaking to modernize the 

information required to be reported by all Rule 605 reporting entities will prove beneficial.970 

In addition to modernizing the content of Rule 605, expanding the scope of entities that 

will be required to prepare Rule 605 reports to include larger broker-dealers will result in 

 

969  For example, in 2015, a working group associated with the Financial Information Forum developed a 

standardized template that firms may use when publicly disclosing summary information about execution 

quality for retail investor orders in exchange-listed stocks (“FIF Template”). See Retail Execution Quality 

Statistics, FIN. INFO. F., available at https://fif.com/tools/retail-execution-quality-statistics. While the FIF 

Template represents a standardized set of execution quality statistics, only one wholesaler currently 

produces reports using the FIF Template. See also infra notes 1084-1085 and accompanying text 

(discussing the limited number of firms that have produced reports utilizing the FIF Template at various 

points in time). While it is unclear whether the lack of widespread uptake of the FIF Template was due to a 

lack of incentives for reporting entities to report or due to a lack of consumption by market participants, in 

either case these market failures are addressed by the current amendments to Rule 605, which require 

updates to the information reported under Rule 605 by all reporting entities. The amendments additionally 

increase the usefulness and accessibility of Rule 605 reports by expanding the scope of reporting entities to 

include larger broker-dealers, and by requiring summary execution quality reports.  

970  See supra section III describing the amendments modifying the scope of orders covered and information 

required to be disclosed pursuant to Rule 605.  



264 

benefits that are unlikely to be achieved absent the amendments.971 Broker-dealers and their 

customers are subject to a classic principal-agent relationship in which the customer (the 

principal) submits an order to a broker-dealer (the agent) to handle its execution on the 

customer’s behalf; however, information asymmetries prevent the customer from being able to 

directly observe the broker-dealer’s handling of the customer’s order.972 This limits the extent to 

which broker-dealers need to compete for customers or order flows on the basis of execution 

quality, which may result in lower execution quality for their customers. 

As with market centers, most broker-dealers also do not necessarily have incentives to 

produce public and standardized execution quality reports and, therefore, are subject to the same 

market failures identified in the Rule 11Ac1-5 Adopting Release and described above. 

Furthermore, as discussed above in the context of market centers, even if broker-dealers are 

incentivized to produce execution quality reports, for example for marketing purposes or to 

protect against reputation loss, there are few incentives for broker-dealers to provide execution 

quality information that is standardized.973 As a result, individual investors and, to some extent, 

 

971  A “larger broker-dealer” is a broker-dealer that meets or exceeds the “customer account threshold,” as 

defined in final 17 CFR 242.605(a)(7). See supra note 61; see also supra section II.A (describing the 

amendments expanding the scope of Rule 605 reporting entities to include larger broker-dealers). 

972  Similar information asymmetries were recognized in the Rule 11Ac1-5 Adopting Release, which stated that 

“the decision about where to route a customer order is frequently made by the broker-dealer, and broker-

dealers may make that decision, at least in part, on the basis of factors that are unknown to their 

customers.” Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75433 (Dec. 1, 2000). 

973  See, e.g., supra note 969 for a discussion of the FIF Template. There are also some broker-dealers that 

disclose their own execution quality metrics on their respective websites, but the disclosures tend to differ 

in ways that make them difficult to compare, e.g., reporting different metrics, using different 

methodologies, or different samples of stocks. See also Order Execution Quality, TD AMERITRADE, 

available at https://www.tdameritrade.com/tools-and-platforms/order-execution.html (last updated 2024); 

Execution Quality, E*TRADE, available at https://us.etrade.com/trade/execution-quality (last updated 

2024); Our Execution Quality, ROBINHOOD, available at https://robinhood.com/us/en/about-us/our-

execution-quality/ (last updated 2024). Several commenters stated that the execution quality metrics 

produced by broker-dealers are “not universal” (see Vanguard Letter at 4) and “haphazard and generally 

not comparable across brokers” (see Professor Schwarz et al. Letter at 3). 



265 

institutional investors,974 have limited access to standardized information that could be used to 

compare how execution quality varies across broker-dealers.975 Without standardized reporting 

requirements, broker-dealers may provide their customers with different metrics, such that 

customers would not be able to make comparisons among broker-dealers on the basis of 

execution quality. Additionally, even if broker-dealers provide their customers with the same 

metrics, they may use different methodologies to calculate these metrics, such that they would 

not be easily comparable. Both of these factors would limit customers’ abilities to compare 

execution quality across broker-dealers.  

One commenter stated that vendors could provide a market-based solution for producing 

comprehensive metrics and could compete for business.976 The Commission disagrees that a 

vendor-based market solution would achieve the same benefits as these amendments to Rule 605. 

Vendors would not have access to information that is granular enough to produce execution 

quality metrics similar to the ones required by Rule 605 reporting requirements without getting 

data from market centers and broker-dealers. As discussed above, market centers and broker-

dealers do not necessarily have incentives to provide public and standardized execution quality 

information, and those who choose not to contribute data may do so because they believe it is in 

 

974  While some institutional investors are likely to have access to alternative sources of execution quality 

information, such as Rule 606(b)(3) reports and transaction cost analysis, the information on execution 

quality that is individually collected by institutional investors is typically nonpublic and highly 

individualized, and therefore limited to the execution quality obtained from broker-dealers with which the 

institutional investors currently do business. Since Rule 605 reports are public, institutional investors can 

use these reports to assess the execution quality of the broker-dealers and market centers with which they 

do not currently do business. See infra section IX.C.2.c) for further discussion. 

975  Institutional and individual investor customers of broker-dealers may differ in their abilities to request 

execution quality information from their broker-dealers. See infra sections IX.C.2.b) and IX.C.2.c) for 

further discussion. 

976  See Data Boiler Letter at 5 and 18.  



266 

their interest to keep their data out of public view.977 This makes it unlikely that a commercial 

data vendor will be able to produce an execution quality data product that is comprehensive and 

free from selection biases.978 Absent a requirement for reporting entities to publish standardized 

execution quality reports, competing vendors would likely have incomplete data or produce non-

standardized metrics while market centers and broker-dealers might select the vendors that make 

them look the best. As a result, this market-based solution would be less valuable for comparing 

execution quality across market centers and broker-dealers. Furthermore, while competing 

vendors would likely be able to offer a data product summarizing the information contained in 

Rule 605 reports, it is not necessarily the case that these summary reports would be “free and 

readily accessible to the public,” as required by the amended rule. 979  

 

977  Even if there are reputational reasons for a reporting entity to provide its execution quality data to a vendor, 

for example, because a decision not to report would serve as a signal of poor execution quality, the 

relevance of this as an incentive to report depends on whether market participants are incentivized to access 

the information in the first place. The benefits to market participants from accessing execution quality 

information, and therefore their incentives to do so, are limited if the execution quality information only 

contains a limited subset of reporting entities. See, e.g., the discussion of the limited uptake of the FIF 

Template in note 969, supra, and corresponding text. In theory, this could result in multiple equilibria, in 

which either all market participants are incentivized to access execution quality data and all reporting 

entities are incentivized to report, or no market participants are incentivized to access execution quality 

data and no reporting entities are incentivized to report. Since the benefits from execution quality 

transparency are diffused across many market participants, while the costs of reporting are concentrated 

among a smaller subset of entities, it is likely that the cost effect will dominate, such that the latter 

equilibrium is more likely. The latter equilibrium is also similar to what was observed with the limited 

uptake of the FIF Template. See supra note 969. 

978  Market participants that voluntarily contribute data to commercial datasets “self-select” the data that they 

would like to be included in the dataset. It is widely acknowledged in the empirical economics literature 

that the practice of having entities under study self-select into the dataset very likely leads to biased data. 

See, e.g., James J. Heckman, Selection Bias and Self-Selection, in ECONOMETRICS 201–224 (John Eatwell, 

et al., eds., Palgrave Macmillan 1990). 

979  For example, while it is likely that data vendors would make summary reports available for a fee, final 17 

CFR 242.605(a)(5) requires that reporting entities keep the required summary execution quality reports 

“posted on an internet website that is free and readily accessible to the public for a period of three years 

from the initial date of posting on the internet website.” 



267 

C. Baseline 

The baseline is the status quo against which the costs, benefits, and the effects on 

efficiency, competition, and capital formation of these amendments are measured. This baseline 

consists, first, of the regulatory baseline, which frames both investors’ access to execution 

quality information under Rule 606 and preexisting Rule 605 and market participants’ access to 

market data, both currently and as expected under the unimplemented MDI Rules.980 The 

regulatory baseline also consists of other recently adopted rules. In addition, the baseline consists 

of the usage of preexisting Rule 605 execution quality information by market participants. Next, 

the baseline discusses issues with market participants’ ability to use preexisting Rule 605 

information to evaluate and compare execution quality across reporting entities prior to these 

amendments. Lastly, this baseline describes the state of the markets for brokerage and trading 

services and the extent to which Rule 605’s ability to promote competition on the basis of 

execution quality, both among broker-dealers and among market centers, may have been limited 

prior to these amendments. The economic analysis considers existing regulatory requirements, 

including recently adopted rules, as part of its economic baseline against which the costs and 

benefits of the amended rule are measured.981 

 

980  See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 

981  See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. Cir. 2022). This approach also follows Commission 

staff guidance on economic analysis for rulemaking. See Memorandum from SEC Div. of Risk, Strategy 

Fin. Innovation & Off. Of Gen. Couns. To Staff of the Rulewriting Divisions and Offices (Mar. 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (“The 

economic consequences of proposed rules (potential costs and benefits including effects on efficiency, 

competition, and capital formation) should be measured against a baseline, which is the best assessment of 

how the world would look in the absence of the proposed action.”); id. at 7 (“The baseline includes both the 

economic attributes of the relevant market and the existing regulatory structure.”). The best assessment of 

how the world would look in the absence of the proposed or final action typically does not include recently 

proposed actions, because doing so would improperly assume the adoption of those proposed actions. 



268 

1. Regulatory Baseline 

a) Disclosure Requirements under Preexisting Rule 605 

Rule 605 requires reporting entities to make available, on a monthly basis, standardized 

information concerning execution quality for covered orders in NMS stocks; prior to these 

amendments, these reporting entities included only market centers.982 Aggregated execution 

quality information on covered orders is reported for each individual security, with the 

information for each security broken out into multiple order type and size categories.983 This 

format allows market participants to partially control for differences in market centers’ order 

flow characteristics when assessing execution quality information, facilitating more apples-to-

apples comparisons of execution quality across market centers. This is important because a 

particular market center’s order flow may be made up of a different mixture of securities, order 

types, and order sizes, which may impact or constrain that market center’s overall execution 

quality.984 In addition, some of the information required to be reported by Rule 605, such as the 

realized spread, does not measure execution quality directly but serves the purpose of providing 

 

982  See prior 17 CFR 242.605. 

983  See prior 17 CFR 242.605(a)(1). These size categories were: 100 to 499 shares; 500 to 1,999 shares; 2000 

to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13). 

984  For example, larger order sizes are typically more difficult to “work” than smaller order sizes, so the 

execution quality information of a market center that tends to handle larger order sizes would likely be 

more constrained than that of a market center that tends to handle smaller order sizes. Several commenters 

discussed the importance of being able to make apples-to-apples comparisons of execution quality to help 

ensure that differences in execution quality are not driven by factors such as stock characteristics and 

different clientele. See, e.g., TradeStation Letter at 7, stating that “differences [in retail client personas] 

cause execution quality data to be difficult to compare on an apples-to-apples basis because, for example, 

trade and execution data generated from buy-and-hold investors’ orders differs vastly from the same data 

generate[d] from active traders’ orders;” and Virtu Letter II at 13, stating that “[f]actors like the mix of 

stocks a broker handles and the trading strategies of its customers can make one broker’s order flow more 

costly to fulfill and/or challenging to execute than another’s and therefore explain potential differences in 

execution quality between brokers.” 



269 

context to execution quality metrics and ascertaining how entities handle orders during different 

market conditions.985  

In addition, the execution quality information required by Rule 605 pertains to several 

different aspects of execution quality, namely, execution prices, execution speeds, and fill rates. 

Prior to these amendments, this information on execution prices included, for market orders and 

marketable limit orders, the average effective spread,986 number of shares executed at prices 

better than the quote, at the quote, or outside the quote,987 as well as average dollar amount per 

share that orders were executed at prices better than the quote or outside the quote.988 

Information on execution speeds included, for all order types, the cumulative number of shares 

executed within different time-to-execution buckets989 and, for market and marketable limit 

orders, the share-weighted average time to execution of orders executed better than the quote, at 

the quote, or outside the quote.990 Information that could be used to calculate fill rates included, 

for all order types, the cumulative number of shares of covered orders, the cumulative number of 

shares of covered orders executed at the receiving market center, and the cumulative number of 

shares of covered orders executed at any other venue.991  

 

985  See infra note 1229 and accompanying text for a discussion of realized spread as a measure of market 

makers’ ability to provide liquidity during adverse market conditions. 

986  See prior 17 CFR 242.605(a)(1)(ii)(A). 

987  See prior 17 CFR 242.605(a)(1)(ii)(B), (C), and (G), respectively. 

988  See prior 17 CFR 242.605(a)(1)(ii)(C) and (H), respectively. 

989  Prior to amendment, the time-to-execution categories defined in Rule 605 were shares executed from 0 to 9 

seconds, shares executed from 10 to 29 seconds, shares executed from 30 to 59 seconds, shares executed 

from 60 to 299 seconds, and shares executed from 5 to 30 minutes. See prior 17 CFR 242.605(a)(1)(i)(F) 

through (J).  

990  See prior 17 CFR 242.605(a)(1)(ii)(D), (F), and (I), respectively. 

991  See prior 17 CFR 242.605(a)(1)(i)(B), (D), and (E). The fill rate can be calculated as Fill Rate = 

(Cumulative Number of Shares Executed at Receiving Market Center + Cumulative Number of Shares 

Executed at Other Venues) / (Cumulative Number of Covered Shares). 



270 

The Rule 605 NMS Plan establishes procedures for market centers to make data available 

to the public in a uniform, readily accessible, and usable electronic form.992 The Plan also 

requires market centers to post their monthly reports on an internet website that is free of charge 

and readily accessible to the public.993 Generally, reports are posted on market centers’ own 

websites; however, they may be posted on a third-party vendor site if a market center uses a 

vendor to prepare its reports.994 Among other things, the Plan sets forth the file type and structure 

of the reports and the order and format of fields, yielding reports that are structured and machine-

readable.995 

b) Disclosure Requirements under Rule 606 

Under Rule 606, broker-dealers are required to identify the venues, including market 

centers, to which they route customer orders for execution.996 Specifically, with respect to held 

orders, Rule 606(a)(1) requires broker-dealers to produce quarterly public reports containing 

information about the venues to which the broker-dealer regularly routed non-directed orders for 

execution, including any payment relationship between the broker-dealer and the venue, such as 

any PFOF arrangements.997 In addition, Rule 606(b)(1) requires broker-dealers to provide to their 

customers, upon request, reports that include high-level customer-specific order routing 

 

992  See Rule 605 NMS Plan Release, 66 FR 19814 (Apr. 17, 2001). 

993  See supra note 869 for further discussion. 

994  See Rule 605 NMS Plan at section VII & n.3. 

995  See Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001) (“Section V . . . provides that 

market center files must be in standard, pipe-delimited ASCII format”). 

996  See 17 CFR 242.606(a)(1).  

997  See id. These reports must provide information, for each venue identified, on 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 per share, for each of the 

following non-directed order types: (A) market orders; (B) marketable limit orders; (C) non-marketable 

limit orders; and (D) other others. See 17 CFR 242.606(a)(1)(iii). 



271 

information, such as the identity of the venues to which the customer orders were routed for 

execution in the prior six months and the time of the transactions, if any, that resulted from such 

orders.998 For orders submitted on a held basis, the reports required by Rule 606 do not contain 

any execution quality information.  

When the Commission adopted the predecessor to Rule 606, it was intended to supply 

investors with information on where their orders are routed, which could be used along with 

information from Rule 605 about the quality of execution from the market centers to which their 

orders are routed.999 In theory, investors should be able to use Rule 606 reports to identify the 

market centers to which their broker-dealers are routing orders, and then use Rule 605 to 

estimate the execution quality offered by those market centers.1000 These market centers’ 

aggregated execution quality metrics could then be used as a proxy for the execution quality that 

broker-dealers achieved for their customers’ orders.  

Following amendments to Rule 606 in 2018,1001 broker-dealers are subject to 

requirements to provide information about the execution quality that they achieved for not held 

 

998  See 17 CFR 242.606(b)(1).  

999  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75435 (Dec. 1, 2000), stating that “[s]upplied with 

information on where their orders are routed, as well as information about the quality of execution from the 

market centers to which their orders are routed, investors will be able to make better informed decisions 

with respect to their orders.” 

1000  See infra section IX.C.3.a)(1) for a discussion of current issues with using information from Rule 606 

reports to infer the execution quality of broker-dealers.  

1001  See generally 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018). 



272 

orders, which are typically used by institutional investors.1002 Specifically, Rule 606(b)(3) 

requires broker-dealers to produce reports pertaining to order handling upon the request of a 

customer that places, directly or indirectly, one or more orders in NMS stocks that are submitted 

on a not held basis, subject to a de minimis exception.1003 These reports include aggregated 

execution quality metrics such as fill rate, percentage of shares executed at the midpoint, and 

percentages of total shares executed that were priced on the side of the spread more favorable to 

the order and on the side of the spread less favorable to the order.1004  

c) Rules Addressing Consolidated Market Data 

In 2020, the Commission adopted a new rule and amended existing rules to establish a 

new infrastructure for consolidated market data,1005 and the regulatory baseline includes these 

changes to the current arrangements for consolidated market data. However, as discussed in 

more detail below, the MDI Rules have not been implemented, and so they have not yet affected 

market practices. As a result, the data used to measure the baseline below reflects the regulatory 

structure in place for consolidated market data prior to the implementation of the MDI Rules.  

 

1002  An analysis included in the 2018 Rule 606 Amendments Release looked at orders submitted from customer 

accounts of 120 randomly selected NMS stocks listed on NYSE during the sample period of Dec. 5, 2016, 

to Dec. 9, 2016, consisting of 40 large-cap stocks, 40 mid-cap stocks, and 40 small-cap stocks. The analysis 

found that among the orders received from the institutional accounts, about 69% of total shares and close to 

39% of total number of orders in the sample are not held orders, whereas among the orders received from 

the individual accounts, about 19% of total shares and about 12% of total number of orders in the sample 

are not held orders. See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58393 (Nov. 19, 2018); see 

also id. at 58345 (stating that by using the not held order distinction, Rule 606(b)(3) as adopted will likely 

result in more Rule 606(b)(3) disclosures for order flow that is typically characteristic of institutional 

customers—not retail customers—and will likely cover all or nearly all of the institutional order flow). In 

contrast, held orders are typically used by individual investors. See, e.g., id. at 58372 (stating that retail 

investors’ orders are typically submitted on a held basis and are typically smaller in size). 

1003  See 17 CFR 242.606(b)(3). In addition, Rule 606(b)(5)’s customer-level de minimis exception exempts 

broker-dealers from providing upon request execution quality reports for customers that traded on average 

each month, for the prior six months, less than $1,000,000 of notional value of not held orders in NMS 

stocks through the broker-dealer. See 17 CFR 242.606(b)(5). 

1004  See 17 CFR 242.606(b)(3)(ii). 

1005  See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 



273 

The Commission received comments regarding uncertainty over the market effect of the 

MDI Rules, once implemented, and how this will affect the baseline assumptions of Rule 605, as 

amended.1006 Accordingly, this section will first briefly summarize the regulatory structure for 

consolidated market data prior to the implementation of the MDI Rules. It then will discuss the 

current status of the implementation of the MDI Rules and provide an assessment of the potential 

effects that the implementation of the MDI Rules can have on the baseline estimations. 

(1) Regulatory Structure for Consolidated Market Data Prior to 

the MDI Rules 

Consolidated market data are made widely available to investors through the national 

market system, a system set forth by Congress in section 11A of the Exchange Act1007 and 

facilitated by the Commission in Regulation NMS.1008 Market data are collected by exclusive 

SIPs,1009 which consolidate that information and disseminate an NBBO and last sale information. 

For quotation information, only the 16 national securities exchanges that currently trade NMS 

stocks provide quotation information to the SIPs for dissemination in consolidated market 

 

1006  See Schwab Letter at 2; Tastytrade Letter at 2 & n.1; DOJ Letter at 6-7.  

1007  See 15 U.S.C. 78k-1(a)(1)(C).  

1008  17 CFR 242.600 through 242.614. 

1009  See MDI Adopting Release, 86 FR 18596 at 18598-99 (Apr. 9, 2021) (describing that the exclusive SIPs, 

among other things, disseminate core data, which currently consist of: (1) the price, size, and exchange of 

the last sale; (2) each exchange’s current highest bid and lowest offer and the shares available at those 

prices; and (3) the NBBO). A securities information processor (“SIP”) is defined in section 3(a)(22)(A) of 

the Exchange Act. See 15 U.S.C. 78c(a)(22)(A). Further, an “exclusive processor” (also known as an 

exclusive SIP) is defined in section 3(a)(22)(B) of the Exchange Act. See 15 U.S.C. 78c(a)(22)(B). 



274 

data.1010 FINRA has the only SRO display-only facility (the Alternative Display Facility, or 

ADF). No broker-dealer, however, currently uses it to display quotations in NMS stocks in 

consolidated market data.1011 Disseminated quotation information includes each exchange's 

current highest bid and lowest offer and the shares available at those prices, as well as the 

NBBO. For transaction information, currently all national securities exchanges that trade NMS 

stocks, as well as FINRA, provide real-time transaction information to the SIPs for dissemination 

in consolidated market data. Such information includes the symbol, price, size, and exchange of 

the transaction, and it includes odd-lot transactions. 

 

1010  Currently, these national securities exchanges are: Cboe BYX Exchange, Inc. (“Cboe BYX”); Cboe BZX 

Exchange, Inc. (“Cboe BZX”); Cboe EDGA Exchange, Inc. (“Cboe EDGA”); Cboe EDGX Exchange, Inc. 

(“Cboe EDGX”); Investors Exchange LLC (“IEX”); Long-Term Stock Exchange, Inc. (“LTSE”); MEMX 

LLC (“MEMX”); MIAX Pearl, LLC (“MIAX PEARL”); Nasdaq BX, Inc. (“Nasdaq BX”); Nasdaq PHLX 

LLC (“Nasdaq Phlx”); The Nasdaq Stock Market LLC (“Nasdaq”); NYSE; NYSE American LLC (“NYSE 

American”); NYSE Arca, Inc. (“NYSE Arca”); NYSE Chicago, Inc. (“NYSE CHX”); and NYSE National, 

Inc. (“NYSE National”). The Commission approved rules proposed by BOX Exchange LLC (“BOX”) for 

the listing and trading of certain equity securities that would be NMS stocks on a facility of BOX known as 

BSTX LLC (“BSTX”), but BSTX is not yet operational. See Securities Exchange Act Release No. 94092 

(Jan. 27, 2022), 87 FR 5881 (Feb. 2, 2022) (SR-BOX-2021-06) (approving the trading of equity securities 

on the exchange through a facility of the exchange known as BSTX); Securities Exchange Act Release No. 

94278 (Feb. 17, 2022), 87 FR 10401 (Feb. 24, 2022) (SR-BOX-2021-14) (approving the establishment of 

BSTX as a facility of BOX). BSTX cannot commence operations as a facility of BOX until, among other 

things, the BSTX Third Amended and Restated Limited Liability Company Agreement approved by the 

Commission as rules of BOX is adopted. See id. at 10407. 

1011  On Dec. 16, 2022, FINRA filed with the Commission a proposed rule change to add IntelligentCross ATS 

as a new entrant to the ADF. On Aug. 24, 2023, the Division of Trading and Markets approved FINRA’s 

proposed rule change pursuant to delegated authority. On Aug. 25, 2023, the Deputy Secretary of the 

Commission notified FINRA that, pursuant to Commission Rule of Practice 431, the Commission would 

review the Division of Trading and Markets’ action pursuant to delegated authority and that the Division of 

Trading and Markets’ action pursuant to delegated authority was stayed until the Commission orders 

otherwise. See Securities Exchange Act Release No. 96550 (Dec. 20, 2022), 87 FR 79401 (Dec. 27, 2022) 

(FINRA proposed rule change to add IntelligentCross ATS as a new entrant to the ADF); Securities 

Exchange Act Release No. 98212 (Aug. 24, 2023), 88 FR 59958 (Aug. 30, 2023) (release approving 

FINRA’s proposal by the Division of Trading and Markets pursuant to delegated authority). Securities 

Exchange Act Release No. 98642 (Sept. 29, 2023) (Commission order staying the Division of Trading and 

Markets’ approval pursuant to delegated authority until the Commission orders otherwise). 



275 

(2) Unimplemented Market Data Infrastructure Rules 

Among other things, the unimplemented MDI Rules update and expand the content of 

consolidated market data to include: (1) certain odd-lot information;1012 (2) information about 

certain orders that are outside of an exchange’s best bid and best offer (i.e., certain depth of book 

data);1013 and (3) information about orders that are participating in opening, closing, and other 

auctions.1014 The MDI Rules also introduce a four-tiered definition of round lot that is tied to a 

stock’s average closing price during the previous month.1015 For stocks with prices greater than 

$250, a round lot is defined as consisting of between 1 and 40 shares, depending on the tier.1016 

The MDI Rules also introduce a decentralized consolidation model under which competing 

consolidators, rather than the existing exclusive SIPs, will collect, consolidate, and disseminate 

certain NMS information.1017 These competing consolidators are not required to offer a product 

containing all elements of consolidated market data, but are able to develop the consolidated 

market data products that their subscribers demand.1018 

In the MDI Adopting Release, the Commission established a transition period for the 

implementation of the MDI Rules.1019 The Commission’s approval of such amendments will be 

 

1012  See final 17 CFR 242.600(b)(69); MDI Adopting Release, 86 FR 18596 at 18613 (Apr. 9, 2021).  

1013  See MDI Adopting Release, 86 FR 18596 at 18625 (Apr. 9, 2021). 

1014  See id. at 18630. 

1015 See id. at 18617. 

1016  See id. The Commission adopted a four-tiered definition of round lot: 100 shares for stocks priced $250.00 

or less per share, 40 shares for stocks priced $250.01 to $1,000.00 per share, 10 shares for stocks priced 

$1,000.01 to $10,000.00 per share, and 1 share for stocks priced $10,000.01 or more per share. 

1017  See id. at 18637. 

1018  See id. at 18608, 18671-72. 

1019  See id. at 18698-18701. 



276 

the starting point for the rest of the MDI implementation schedule.1020 After approval of the MDI 

Plan Amendments, the next step will be a 180-day development period, during which competing 

consolidators can register with the Commission.1021 Based on the times provided in the transition 

plan for implementation of the MDI Rules, the Commission estimated that the full 

implementation of the MDI Rules will be at least two years after the Commission’s approval of 

the plan amendment(s) required by Rule 614(e).1022  

The Operating Committees of the CTA/CQ Plan and UTP Plan filed the MDI Plan 

Amendments on November 5, 2021.1023 The Commission disapproved the proposed amendments 

on September 21, 2022.1024 As a result, the participants to the effective national market system 

plan(s) will need to develop and file new proposed amendments as required by Rule 614(e), 

before the implementation period prescribed by the phased transition plan can commence. 

Because the implementation of the MDI Rules has been delayed, the end date of the 

implementation period cannot be estimated with greater certainty. 

Given that the MDI Rules have not yet been implemented, they have not affected market 

practice and therefore data that would be required for a quantitative analysis of a baseline that 

 

1020  See id. at 18698. 

1021  See id. at 18699-18700. 

1022  See id. at 18700-18701; Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80295 (Dec. 29, 

2022). The transition time frame includes the implementation of the round lot definition, which is 

scheduled to occur at the end of the transition plan. The Commission has proposed to accelerate the 

implementation of the odd-lot information and round lot definition. See id. at 80295-99. As this proposal 

has not been adopted, it is not part of the baseline of the Rule 605 amendments. See supra note 981. 

1023  The Operating Committees of CTA Plan and UTP Plan filed proposed amendments on Nov. 5, 2021, which 

were published for comment in the Federal Register. See Securities Exchange Act Release Nos. 93615 

(Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021); 93625 (Nov. 19, 2021), 86 FR 67517 (Nov. 26, 2021); 

93620 (Nov. 19, 2021), 86 FR 67541 (Nov. 26, 2021); 93618 (Nov. 19, 2021), 86 FR 67562 (Nov. 26, 

2021). 

1024  See Securities Exchange Act Release Nos. 95848 (Sept. 21, 2022), 87 FR 58544 (Sept. 27, 2022); 95849 

(Sept. 21, 2022), 87 FR 58592 (Sept. 27, 2022); 95850 (Sept. 21, 2022), 87 FR 58560 (Sept. 27, 2022); 

95851 (Sept. 21, 2022), 87 FR 58613 (Sept. 27, 2022). 



277 

includes the effects of the MDI Rules is not available. It is possible that the baseline (and 

therefore the economic effects relative to the baseline) could be different once the MDI Rules are 

implemented. The following discussion reflects the Commission’s assessment of the anticipated 

economic effects of the MDI Rules described in the MDI Adopting Release as they relate to the 

baseline for the adoption of these amendments.1025  

The Commission anticipated that the new round lot definition will result in narrower 

NBBO spreads for most stocks with prices greater than $250 because, for these stocks, fewer 

odd-lot shares will need to be aggregated together (possibly across multiple price levels1026) to 

form a round lot and qualify for the NBBO.1027 The reduction in spreads will be greater in 

higher-priced stocks because the definition of a round lot for these stocks will include fewer 

shares, such that even fewer odd-lot shares will need to be aggregated together.1028 This could 

cause statistics that are measured against the NBBO to change because they will be measured 

against the new, narrower NBBO. For example, execution quality statistics on price 

improvement for higher-priced stocks may show a reduction in the number of shares of 

marketable orders that received price improvement because price improvement will be measured 

 

1025  See MDI Adopting Release, 86 FR 18596 at 18741-18799 (Apr. 9, 2021). 

1026  The calculation of the NBBO includes odd-lots that, when aggregated, are equal to or greater than a round 

lot. Under final 17 CFR 242.600(b)(26)(ii), “such aggregation shall occur across multiple prices and shall 

be disseminated at the least aggressive price of all such aggregated odd-lots.” For example, if there is one 

50-share bid at $25.10, one 50-share bid at $25.09, and two 50-share bids at $25.08, the odd-lot aggregation 

method would show a protected 100-share bid at $25.09. 

1027  For example, if there is one 20-share bid at $250.10, one 20-share bid at $250.09, and two 50-share bids at 

$250.08, prior to MDI the NBB would be $250.08, as even aggregated together the odd-lot volume would 

not add up to at least a round lot. After MDI, the NBB would be $25.09, as the odd-lot aggregation method 

would show a protected 40-share round lot bid at $25.09. 

1028  See supra note 1026. An analysis in the MDI Adopting Release showed that the new round lot definition 

caused a quote to be displayed that improved on the current round lot quote 26.6% of the time for stocks 

with prices between $250.01 and $1,000, and 47.7% of the time for stocks with prices between $1,000.01 

and $10,000. See MDI Adopting Release, 86 FR 18596 at 18743 (Apr. 9, 2021). 



278 

against a narrower NBBO. In addition, the Commission anticipated that the NBBO midpoint in 

stocks priced higher than $250 could be different under the MDI Rules than it otherwise would 

be, resulting in changes in the estimates for statistics calculated using the NBBO midpoint, such 

as effective spreads. In particular, at times when bid odd-lot quotations exist within the current 

NBBO but no odd-lot offer quotations exist (and vice versa), the midpoint of the NBBO resulting 

from the rule will be higher than the current NBBO midpoint.1029 More broadly, the Commission 

anticipated that the adopted rules will have these effects whenever the new round lot bids do not 

exactly balance the new round lot offers. However, the Commission stated that it does not know 

to what extent or in which direction such odd-lot imbalances in higher priced stocks currently 

exist, so it is uncertain of the extent or direction of the change.1030 

The Commission also anticipated that the MDI Rules could result in a smaller number of 

shares at the NBBO for most stocks in higher-priced round lot tiers.1031 To the extent that this 

occurs, there could be an increase in the frequency with which marketable orders must walk the 

book to execute. This would affect statistics that are calculated using consolidated depth 

information, such as measures meant to capture information about whether orders received an 

execution of more than the displayed size at the quote, i.e., “size improvement.” 

The new round lot definition will result in fewer odd-lot orders in stocks with prices 

greater than $250, as some orders that were defined as odd-lots prior to the MDI Rules are now 

defined as round lots. At the same time, the MDI Rules may also result in a higher number of 

 

1029  For example, if the NBB is $260 and the NBO is $260.10, the NBBO midpoint is $260.05. Under the 

adopted rules a 40-share buy quotation at $260.02 will increase the NBBO midpoint to $260.06. Using this 

new midpoint, calculations of effective spread will be lower for buy orders but higher for sell orders. 

1030  See MDI Adopting Release, 86 FR 18596 at 18750 (Apr. 9, 2021). 

1031  However, this effect will depend on how market participants adjust their order submissions. See id. at 

18746 for further discussion. 



279 

odd-lot trades, as the inclusion of odd-lot quotes that may be priced better than the current 

NBBO in consolidated market data may attract more trading interest from market participants 

that did not have access to this information prior to the MDI Rules.1032 However, the magnitude 

of this effect depends on the extent to which market participants who rely solely on SIP data and 

lack information on odd-lot quotes choose to receive the odd-lot information and trade on it. The 

Commission states in the MDI Adopting Release that it believes it is not possible to observe this 

willingness to trade with existing market data.1033 

The MDI Rules may have implications for broker-dealers’ order routing practices. For 

those market participants that rely solely on SIP data for their routing decisions and that choose 

to receive the expanded set of consolidated market data, the Commission anticipated that the 

additional information contained in consolidated market data will allow them to make more 

informed order routing decisions. This in turn would help facilitate best execution, which would 

reduce transaction costs and increase execution quality.1034 Broker-dealers may choose to receive 

market data from competing consolidators, who may offer different consolidated market data 

products at different prices or at different latencies or with different amounts of data content.1035 

Competing consolidators will be required to disclose information about their consolidated market 

data products, including the services they will offer, the prices for such services as well as 

performance metrics, which will assist a broker-dealer in selecting an appropriate competing 

consolidator.1036 The Commission states in the MDI Adopting Release that it believes that 

 

1032  See id. at 18754. 

1033  See id. 

1034  See id. at 18725. 

1035  See id. at 18606. 

1036  See id. 



280 

competition among consolidators will support high quality consolidated market data.1037 

Furthermore, while competing consolidators are not required to offer a product containing all 

elements of consolidated market data, the Commission states that it believes that one or more 

competing consolidators will be incentivized to offer a consolidated market product containing 

all of the data elements.1038  

The MDI Rules may also result in differences in the baseline competitive standing among 

different trading venues, for several reasons. First, for stocks with prices greater than $250, the 

Commission anticipated that the new definition of round lots may affect order flows as market 

participants who rely on consolidated data will be aware of quotes at better prices that are 

currently in odd-lot sizes, and these may not be on the same trading venues as the one that has 

the best 100 share quote.1039 Similarly, it anticipated that adding information on odd-lot quotes 

priced at or better than the NBBO to expanded core data may cause changes to order flow as 

market participants take advantage of newly visible quotes.1040 However, the Commission stated 

that it was uncertain about the magnitude of both of these effects.1041 To the extent that it occurs, 

a change in the flow of orders across trading venues may result in differences in the competitive 

baseline in the market for trading services.  

Second, national securities exchanges and ATSs have a number of order types that are 

based on the NBBO, and so the Commission anticipated that the changes in the NBBO caused by 

the new round lot definitions may affect how these order types perform and could also affect 

 

1037  See id. at 18661. 

1038  See id. at 18752. 

1039  See id. at 18744. 

1040  See id. at 18596, 18754. 

1041  See id. at 18745, 18754.281 

other orders with which they interact.1042 The Commission stated that these interactions may 

affect relative order execution quality among different trading platforms, which may in turn 

affect the competitive standing among different trading venues, with trading venues that 

experience an improvement/decline in execution quality attracting/losing order flow.1043 

However, the Commission stated that it was uncertain of the magnitude of these effects.1044 

Third, the Commission anticipated that, as the NBBO narrows for securities in the 

smaller round lot tiers, it may become more difficult for the retail execution business of 

wholesalers to provide price improvement and other execution quality metrics at levels similar to 

those provided under a 100 share round lot definition.1045 To the extent that wholesalers are held 

to the same price improvement standards by retail brokers in a narrower spread environment, the 

wholesalers’ profits from executing individual investor orders might decline,1046 and to make up 

for lower revenue per order filled in a narrower spread environment, wholesalers may respond by 

changing how they conduct their business in a way that may affect retail brokers. However, the 

Commission stated that it was uncertain as to how wholesalers may respond to the change in the 

round lot definition, and, in turn, how retail brokers may respond to those changes, and so was 

uncertain as to the extent of these effects.1047 If wholesalers do change how they conduct 

 

1042  See id. at 18748. 

1043  See id. 

1044  See id. 

1045  See id. at 18747. 

1046  Individual investor orders typically feature lower adverse selection than other types of orders, such as 

institutional orders. All else equal, it is generally more profitable for any liquidity provider, including 

wholesalers, to execute against orders with lower adverse selection risk, due to the reduced risk that prices 

will move against the liquidity provider. See, e.g., David Easley, Nicholas M. Kiefer & Maureen O’Hara, 

Cream-Skimming or Profit-Sharing? The Curious Role of Purchased Order Flow, 51 J. FIN. 811 (1996).  

1047  See MDI Adopting Release, 86 FR 18596 at 18748 (Apr. 9, 2021). 



282 

business, it may impact wholesalers’ competitive standing in terms of the execution quality 

offered, particularly to individual investor orders.  

Where implementation of the above-described MDI Rules may affect certain numbers in 

the baseline, the description of the baseline below notes those effects. 

d) Other Recently Adopted/Proposed Rules 

Several commenters requested that the Commission consider interactions between the 

economic effects of the proposal to amend Rule 605 and other recent Commission proposals.1048 

In addition to interaction between this rulemaking and the MDI Adopting Release, discussed 

supra, commenters stated that there could be interactions between this rulemaking and another 

proposal1049 that has since been adopted, the Settlement Cycle Adopting Release,1050 which 

affects the same market participants as the amendments to Rule 605. Commenters stated that 

implementing the rules together would impact industry resources, or that the rules had uncertain 

interacting effects.1051 This rule was not included as part of the baseline in the Proposing Release 

 

1048  See, e.g., Nasdaq Letter at 6 (“the Commission must be careful to consider both the individual and 

combined effects of its Proposals”); SIFMA AMG Letter at 4 (“the cumulative effects of multiple, major 

changes to the market structure necessarily compound, making the need for careful analysis of their 

intersections indispensable”).  

1049  Securities Exchange Act Release No. 94196 (Feb. 9, 2022), 87 FR 10436 (Feb. 24, 2022) (Shortening the 

Securities Transaction Settlement Cycle).  

1050  Securities Exchange Act Release No. 96930 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 2023) (Shortening the 

Securities Transaction Settlement Cycle) (“Settlement Cycle Adopting Release”). The Settlement Cycle 

Adopting Release shortens the standard settlement cycle for most broker-dealer transactions from two 

business days after the trade date to one business day after the trade date (“T+1”). To facilitate orderly 

transition to a shorter settlement cycle, the rule requires same-day confirmations, allocations, and 

affirmations for processing transactions subject to the rule, and requires records of each confirmation 

received, and of any allocation and each affirmation sent or received, with a date and time stamp for each 

indicating when it was sent or received. With certain exceptions, the rule has a compliance date of May 28, 

2024. See Settlement Cycle Adopting Release, 88 FR 13872 at 13918, section VII (Mar. 6, 2023). 

1051  See SIFMA AMG Letter at 3; Chamber of Commerce Letter at 3; Fidelity Letter at 4, n.4; BlackRock 

Letter at 17; Rebekah Goshorn Jurata, General Counsel, American Investment Council, at 9, n.30 (Aug. 8, 

2023), available at https://www.sec.gov/comments/s7-29-22/s72922-245802-509962.pdf (“American 

Investment Council”). 



283 

because it was not adopted at the time of the Proposing Release. In response to commenters, this 

economic analysis considers potential economic effects arising from any overlap between the 

compliance period for the final amendments and that of the Settlement Cycle Adopting 

Release.1052  

In addition, commenters stated that there were overlapping compliance costs between the 

final amendments and the proposals that have not been adopted: in particular, the Order 

Competition Rule Proposing Release, the Regulation Best Execution Proposing Release, and the 

Minimum Pricing Increments Proposing Release.1053 Numerous commenters accordingly 

recommended an incremental or sequential approach to the Commission’s market structure 

proposals.1054 To the extent the Commission takes final action on any or all of those proposals, 

the baseline in each of those subsequent rulemakings will reflect the existing regulatory 

requirements at that time.  

 

1052  Since proposing this rule, the Commission adopted Securities Exchange Act Release No. 99477 (Feb. 6, 

2024) (Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government 

Securities Dealer) (“Dealer Definition Amending Release”). Commenters identified the proposed rule as 

having interacting effects with Rule 605. See Chamber of Commerce Letter at 3; Fidelity Letter at 4, n.4; 

BlackRock Letter at 2 & n.6, 17 (citing Securities Exchange Act Release No. 94524 (Mar. 28, 2022), 87 FR 

23054 (Apr. 18, 2022)). The Dealer Definition Amending Release adopts new rules to further define the 

phrase “as a part of a regular business” as used in the statutory definitions of “dealer” and “government 

securities dealer.” The Commission believes there are no potential significant effects from overlapping 

requirements to comply with the amendments to Rule 605. Under Rule 605(a)(7), as adopted, a broker-

dealer which is not a market center is subject to the final rule only if it “introduces or carries 100,000 or 

more customer accounts through which transactions are effected for the purchase or sale of NMS stocks.” 

By contrast, under the Dealer Definition Amending Release, the affected parties are liquidity providers that 

introduce or carry no customer accounts, that will be required to register as dealers. As a result, the 

Commission does not anticipate the compliance costs associated with these amendments to Rule 605 to be 

incurred directly by those who are impacted by the Dealer Definition Amending Release. 

1053  See, e.g., SIFMA Letter II, at 2-3, 8-9, 11-13, 16-21 & app. E. In addition to the three other market 

structure proposals, commenters also stated interacting effects with another proposal that has not yet been 

adopted, Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) 

(Amendments Regarding the Definition of “Exchange” and Alternative Trading Systems (ATSs) That 

Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities). 

See, e.g., Chamber of Commerce Letter at 3; Fidelity Letter at 4 nn.4, 10. 

1054  See, e.g., SIFMA AMG Letter at 2, 18; STA Letter at 9-10. 



284 

In a related comment, one commenter stated that the other market structure proposals 

should be delayed for a period sufficient to analyze the metrics under the amended Rule 605 

reporting requirements, to establish an updated baseline for the other rules’ benefits and costs 

and—if the other rules are adopted—to accurately measure their impact.1055 This comment 

pertains to the timing of adoption and baseline assumptions of the other market structure 

proposals and will be considered in connection with those proposals. 

2. Use of Reports under Rule 605 Prior to Rule Amendments  

a) Relevance of Execution Quality Information 

When a customer places an order in an NMS stock with a broker-dealer, the broker-

dealer acts as an agent on behalf of that customer, to whom the broker-dealer owes a duty of best 

execution.1056 These broker-dealers can generally decide how to route that order for execution to 

an exchange, a wholesaler, or an ATS, where the trade may be executed or potentially routed 

further. These market centers, among other things, match traders with counterparties, provide a 

framework for price negotiation and provide liquidity to those seeking to trade. In this way, 

individual and institutional investors are subject to a principal-agent relationship in which an 

order submitter (the principal) submits an order to an agent to handle on its behalf, in this case 

the broker-dealer. Since information asymmetries prevent the principal from being able to 

directly observe the agent’s handling of the order, this creates possible conflicts of interest in 

 

1055  See Rule 605 Citadel Letter at 1-2, 4; see also Equity Market Structure Citadel Letter at 15, 21; Equity 

Market Structure Citadel Letter II at 1-3. 

1056  Some investors may not value order-level execution quality in all cases. For example, it is the 

Commission’s understanding that when an institutional customer submits a large order to be executed on 

behalf of one account (e.g., a single mutual fund or pension fund), it expects the broker-dealer that handles 

and executes such large order to do so in a manner that ensures best execution is provided to the “parent” 

order. See infra section IX.C.4.a)(1)(b) for further discussion.  



285 

which the agent’s incentives may not align with the interests of the principal.1057 Since the 

broker-dealers typically do not directly observe market centers’ executions of their routed 

orders,1058 similar information asymmetries exist between broker-dealers and the market centers 

to which they route customer orders. 

Standardized execution quality information, such as the information available from Rule 

605 reports, alleviates these information asymmetries.1059 First, it provides broker-dealers access 

to information about the execution quality of market centers, which they can use to inform their 

routing decisions.1060 Secondly, in conjunction with broker-dealer routing information from Rule 

606 reports,1061 preexisting Rule 605 allowed investors access to information about the execution 

quality achieved by the market centers to which their broker-dealers typically route.1062  

 

1057  If there were no information asymmetries and the principal could perfectly observe the agent’s handling of 

its order, and if there is competition among agents, then the principal-agent relationship would not 

necessarily result in a situation where the agent’s incentives may not align with the principal’s, as the 

principal would be able to directly observe the agent’s actions and switch to another agent. 

1058  See supra note 972, noting that a similar principal-agent problem was recognized in the Rule 11Ac1-5 

Adopting Release, 65 FR 75414 (Dec. 1, 2000). 

1059  Several commenters stated that execution quality information from Rule 605 reports is generally useful, 

including as a “valuable source of information which the investing public reviews to compare and evaluate 

executions” (see BlackRock Letter at 3); as a “valuable feature of the equities markets and provides 

investors the ability to make informed decisions about where to send their orders” (see SIFMA Letter II at 

25); and as “the primary tool for measuring the quality of order execution in our equity markets” (see 

McHenry et al. Letter at 3). 

1060  This was supported by comment. See, e.g., Healthy Markets Letter at 15 (“Timely, reliable, and useful 

statistics about order execution information from trading venues is essential to empowering investors and 

their brokers with the information they need to make sound order routing decisions”). 

1061  See infra section IX.C.3.a)(1), which discusses issues with the usage of Rule 606 broker-dealer routing 

information and Rule 605 execution quality information to infer the execution quality achieved by broker-

dealers. 

1062  Some market participants may have access to sources of execution quality information that reduce these 

information asymmetries and may serve as an alternative to Rule 605 data. See infra sections IX.C.2.b) 

through IX.C.2.d) for a detailed discussion. Any source of ex post execution quality information is unlikely 

to eliminate this information asymmetry entirely, as it is likely infeasible for any principal to perfectly 

observe ex ante or even in real time how an agent will perform in executing its order.  



286 

Information on the execution quality obtained by broker-dealers is particularly important 

for investors. As broker-dealers that route customer orders have many choices about how and 

where to route orders for execution,1063 their routing decisions affect the execution quality that 

their customers’ orders receive, leading to significant variations in execution quality across 

broker-dealers. For example, a broker-dealer may route a marketable IOC order to a market 

center that is not posting any liquidity at the NBBO (in which case the order would be 

cancelled), or a broker-dealer may route a NMLO to a market center that is not attracting any 

trading interest (in which case the NMLO would likely be cancelled at the end of day, if not 

earlier). The authors of one recent academic working paper ran an experiment in which they 

placed identical simultaneous market orders across various broker-dealers; they found that the 

execution quality of these orders differed significantly in terms of average price improvement 

and effective spreads.1064 The authors argue that these differences in execution quality across 

 

1063  See infra section IX.C.4.b)(1) for a discussion of fragmentation in the market for trading services. 

1064  See Christopher Schwarz et al., The ‘Actual Retail Price’ of Equity Trades (working paper Sept. 14, 2022), 

available at https://ssrn.com/abstract=4189239 (retrieved from SSRN Elsevier database) (“Schwarz et al. 

(2023)”). The authors find that this dispersion is due to off-exchange wholesalers systematically giving 

different execution prices for the same trades to different brokers. See also Bradford (Lynch) Levy, Price 

Improvement and Payment for Order Flow: Evidence from A Randomized Controlled Trial (working paper 

June 27, 2022), available at https://ssrn.com/abstract=4189658 (retrieved from SSRN Elsevier database) 

(“Levy (2022)”). Levy (2022) also conducts a randomized controlled trial that involves trading random 

stocks at random times across random brokers and comparing execution quality across direct market access 

and PFOF-based brokers. The author found variation in the extent of price improvement provided by 

PFOF-based brokers, with the broker deriving high PFOF revenues providing less price improvement to 

customer orders compared to the broker deriving low PFOF revenue. Levy (2022) also stated that one 

limitation of Schwarz et al. (2023) is that they limited their study to $100 orders, so it is unclear whether 

execution statistics of $100 orders generalize to those of the average retail trader. However, Schwarz et al. 

(2023) also observe differences in the price improvement offered by broker-dealers in a more limited 

sample of $1,000 orders they place. Both these studies include only trades that were initiated by the authors 

and do not include other trades that were handled by the brokers in their samples, preventing them from 

 

 

 



287 

broker-dealers are economically significant, as they estimate that every basis point difference in 

execution quality is equivalent to an annual cost to investors of $2.8 billion.1065 The evidence 

that there are significant differences in execution quality across broker-dealers suggests that 

without access to standardized information about broker-dealer execution quality, it is difficult 

for investors to compare these differences when choosing a broker-dealer.  

Some information asymmetries are not fully addressed through the use of aggregated 

execution quality information, such as that available through Rule 605 (both prior to and after 

these amendments), because the principal is not able to use these data to observe the execution 

quality that the agent achieved for the principal’s individual orders. However, the principal is 

able to receive a signal of the execution quality that the agent has achieved for comparable orders 

over a certain time period. This signal can be a useful proxy that investors and their broker-

dealers can use to assess and compare the execution quality that they can expect to receive across 

market centers. Despite being aggregated, Rule 605 reports have indeed been useful. One 

academic study examining the introduction of Rule 605 found that the routing of marketable 

order flow by broker-dealers became more sensitive to changes in execution quality across 

market centers after Rule 605 reports became available.1066 The authors attribute this effect to 

 

examining the attributes of a typical retail order handled by each broker. As such, these studies would not 

observe the variation in price improvements that reflect differences in the adverse selection risk associated 

with the order flow of different brokers. At the same time, an analysis by the Commission found that 

wholesalers provide different execution quality to different retail brokers depending on the adverse 

selection risk of their orders; see Table 3 of the Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 2023). 

Additionally, analysis submitted by two commenters also showed that for a given broker-dealer, execution 

quality can also vary across different wholesalers. See Huang et al. Letter at 27 and Professor Spatt et al. 

Letter at 30-32. 

1065  See id. at 27.  

1066  See Boehmer et al., supra note 16. 



288 

broker-dealers factoring in information about the execution quality of market centers from Rule 

605 reports when making their order routing decisions.  

Market participants have access to some public information about the execution quality 

of market centers from sources other than Rule 605. For example, some wholesalers and ATSs 

produce order flow and execution quality statistics other than those required under Rule 605 and 

make them available either on their websites or as part of their ATS-N filings.1067 However, 

these sources are either not standardized1068 or are not available across all market centers1069 such 

that Rule 605 remains an important source of standardized information about market center 

execution quality. At the same time, while Rule 605 data have been used by some market 

participants, such as broker-dealers and investment advisers as part of their review of execution 

quality, and by academics, analysts and the financial press, the use of these data by both 

individual and institutional investors to directly evaluate and compare execution quality across 

market centers has been limited. The following sections will discuss the use of data under 

preexisting Rule 605 by individual investors, institutional investors, and other market 

participants. 

 

1067  If an ATS provides one or more of its subscribers with aggregate platform-wide order flow and execution 

statistics that are not otherwise required disclosures under Rule 605, that ATS is required either to attach 

that information to its Form ATS-N, or to certify that the information is available on its website. See Item 

26 of Form ATS-N, available at https://www.sec.gov//files/formats-n.pdf.  

1068  For example, reports contain different execution quality metrics or, if they contain the same execution 

quality metrics, these metrics are calculated using different methodologies, different samples of stocks, 

and/or different time horizons, making it difficult to compare across reporting entities. For example, some 

ATSs produce execution quality information on a monthly basis (see, e.g., Unlocking Global Liquidity, 

UBS, available at https://www.ubs.com/global/en/investment-bank/electronic-trading/equities/unique-

liquidity.html) (last visited Jan. 25, 2024, 4:26 p.m.), while at least one ATS operator produces reports on a 

quarterly basis (see, e.g., JPM-X & JPB-X U.S. Quarterly Summary, J.P. MORGAN, available at 

https://www.jpmorgan.com/solutions/cib/markets/jpm-x-jpb-x-us-quarterly-summary) (last visited Jan. 25, 

2024, 5:05 p.m.). 

1069  While the FIF Template provides a standardized template for summary information about execution quality 

for retail investor orders in exchange-listed stocks, the Commission understands that currently only one 

retail broker voluntarily provides reports using the FIF Template. See supra note 973. 



289 

b) Usage of Rule 605 Reports by Individual Investors 

The extent to which individual investors directly access Rule 605 reports has likely been 

limited. Several commenters to the Proposing Release stated that individual investors have 

limited or no usage of Rule 605 data.1070 This limited usage is likely for two reasons. 

First, since Rule 605 reporting requirements did not extend to broker-dealers that were 

not market centers prior to these amendments,1071 investors’ ability to use preexisting Rule 605 

to assess and compare the execution quality that they receive from their broker-dealers has been 

limited. Information about the execution quality received by market centers is only or mostly 

relevant for investors to the extent that investors can combine this information with information 

about broker-dealer routing practices from Rule 606 reports to infer the execution quality of their 

broker-dealers. As will be discussed in detail later in this analysis, if broker-dealers receive 

different execution quality from a given market center, combining Rule 606 and preexisting Rule 

605 data is not necessarily informative about an individual broker-dealer’s average execution 

quality at that market center, since a market center’s Rule 605 report is aggregated across all of 

its broker-dealer customers.1072 This has likely limited the incentive for broker-dealer customers, 

including individual investors, to access Rule 605 reports. Second, to the extent that information 

in Rule 605 reports has been relevant to individual investors such that they are incentivized to 

access them, Rule 605 reports are designed to be machine readable, rather than human readable. 

 

1070  See, e.g., Direct Edge Letter at 10, stating that “Rule 605 is not a meaningful factor in how retail investors 

decide which brokers to use and how to place and route orders;” see also comments discussed in the 

Proposing Release, 88 FR 3786 at 3833, n.541-542 (Jan. 20, 2023). 

1071  Prior to these amendments, a broker-dealer may have been subject to Rule 605 reporting requirements to 

the extent that the broker-dealer was acting as or operates a market center. However, such reports were 

required to cover the orders that the broker-dealer handled within its capacity as a market center. See 

Proposing Release, 88 FR 3786 at 3798, n.179-180 (Jan. 20, 2023) and corresponding text, for further 

discussion. 

1072  See infra section IX.C.3.a)(1) for a detailed discussion. 



290 

While machine-readable data are useful for facilitating further processing and analysis,1073 they 

are not easily consumable by market participants who do not have the access to necessary 

software or programming skills. This may limit the accessibility of Rule 605 reports, particularly 

for those individual investors who lack access to these resources.1074 Such individual investors 

may instead prefer to consume human-readable reports or summary statistics. In the Rule 11Ac1-

5 Adopting Release, the Commission anticipated that, rather than individual investors obtaining 

and digesting Rule 605 reports themselves, independent analysts, consultants, broker-dealers, the 

financial press, and market centers would analyze the information and produce summaries that 

respond to the needs of investors.1075 Although the Commission is unable to observe the full 

extent to which this has occurred, third parties have produced information based on Rule 605 

reports that is meant for public consumption. For example, data obtained from Rule 605 reports 

have been used by academics to study a variety of topics related to execution quality, including 

liquidity measurement, exchange competition, zero-commission trading, and broker-dealer 

execution quality.1076 Rule 605 data have also been used in the financial press.1077  

 

1073  See discussion in supra section IX.C.2.c). 

1074  Several commenters described a similar assessment of usability of Rule 605 reports for individual 

investors. See, e.g., Robinhood Letter at 41, stating that “[Rule 605 data] has proven not to be a particularly 

useful format for individual investors;” and TastyTrade Letter at 4, stating that “neither [Rule 606 nor Rule 

605] report is easily digestible nor often, if ever, used by retail customers.” 

1075  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000).  

1076  See, e.g., Ruslan Y. Goyenko et al., Do Liquidity Measures Measure Liquidity?, 92 J. FIN. ECON. 153 

(2009); Edward D. Watson & Donovan Woods, Exchange Introduction and Market Competition: The 

Entrance of MEMX and MIAX, 54 GLO. FIN. J. (2022) 100756; Pankaj K. Jain et al., Trading Volume 

Shares and Market Quality: Pre-and Post-Zero Commissions (working paper Feb. 15, 2023), available at 

https://ssrn.com/abstract=3741470 SSRN 3741470 (retrieved from SSRN Elsevier database); Schwarz et al. 

(2023), supra note 1064; Anne Haubo Dyhrberg et al., The Retail Execution Quality Landscape (working 

paper Dec. 10, 2022), available at https://ssrn.com/abstract=4313095 SSRN 4313095 (retrieved from SSRN 

Elsevier database). 

1077  See, e.g., Bill Alpert, Who Makes Money on Your Stock Trades, BARRON’S (Feb. 28, 2015) (retrieved from 

Factiva database) (stating that “we ran each market maker’s Rule 605 execution reports through statistical-

analysis scripts that we wrote in the widely used open-source math software known as ‘R.’”). 



291 

Unlike institutional investors,1078 individual investors typically have limited access to 

alternative sources of standardized execution quality information that could be used to compare 

across broker-dealers other than information obtained (directly or indirectly) from reports under 

prior Rule 605.1079 The requirement in Rule 606(b)(3) for broker-dealers to provide 

individualized reports of execution quality to their customers upon request does not extend to 

held orders, which are those most used by individual investors,1080 and contains a customer-level 

de minimis exception that likely excludes most individual investors.1081 In addition, many 

individual investors likely do not have access to the data processing tools and/or sufficiently 

granular datasets that are required to calculate their own execution quality statistics, which 

makes it difficult for them to compare how execution quality varies across broker-dealers.1082 

One exception is the recent effort by a few broker-dealers and wholesalers to make available 

voluntary summary disclosures of execution quality in exchange-listed stocks for individual 

investors using the FIF Template.1083 Although the reports produced using the FIF Template may 

be useful, this disclosure is voluntary, and only a few firms are making or have made such 

disclosures. The Commission understands that only three retail brokers began producing reports 

using the FIF Template in 2015 on a quarterly basis. One of these broker-dealers was acquired 

 

1078  See discussion in infra section IX.C.2.c). 

1079  There are also some broker-dealers that disclose their own execution quality metrics on their respective 

websites, but the disclosures are not standardized and tend to differ in ways that make them difficult to 

compare, such as reporting different metrics, using different methodologies, or using different samples of 

stocks. See supra note 973. 

1080  See supra note 1002 describing an analysis showing that not held orders made up only 19% of total shares 

and about 12% of total number of orders among the sample of orders received from the individual 

accounts.  

1081  See supra note 1003 describing the customer-level de minimis exception of Rule 606(b)(5). 

1082  See infra section IX.C.3.a)(1) discussing several analyses that find significant differences in execution 

quality across retail brokers. 

1083  See supra note 973 and accompanying text for further discussion of the FIF Template. 



292 

and stopped producing these reports in 2017, and another stopped producing these reports in 

2018. Only one retail broker currently produces reports using the FIF Template.1084 Likewise, the 

Commission understands that there is currently only one wholesaler producing reports using the 

FIF Template.1085 

c) Usage of Rule 605 Reports by Institutional Investors 

The Commission understands that, while the usage of Rule 605 reports by institutional 

investors has been limited by several factors, Rule 605 reports nevertheless contain information 

about execution quality that has been useful for institutional investors.  

First, the ability of institutional investors to use preexisting Rule 605 to assess and 

compare the execution quality that they receive from their broker-dealers has been limited, for 

several reasons. First, Rule 605 reports only contain information about the execution quality of 

investors’ held orders. Not held orders, which are excluded from the definition of “covered 

order,”1086 are excluded from Rule 605 metrics.1087 As many institutional orders tend to be not 

 

1084  See Retail Execution Quality Statistics, FIN. INFO. F., available at https://fif.com/tools/retail-execution-

quality-statistics (last visited Jan. 18, 2024); Retail Execution Quality Statistics Q2 – 2022, FIDELITY, 

available at https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/FIF-FBS-retail-

execution-quality-stats.pdf (last visited Jan. 26, 2024).  

1085 See Retail Execution Quality Statistics, supra note 1084; Retail Execution Quality Statistics – Wholesale 

Market Maker Perspective, TWO SIGMA, available at 

https://www.twosigma.com/businesses/securities/execution-statistics/ (2024). The Commission is aware of 

at least two wholesalers that formerly produced reports using the FIF Template, but both stopped in Q3 

2019. 

1086 See prior 17 CFR 242.600(b)(22). Currently, there are no requirements for aggregated information about 

the execution quality of not held orders to be made public. The potential ability for customers and broker-

dealers to use aggregated order handling information for not held orders to better understand broker-

dealers’ routing behavior or compare broker-dealers’ order routing performance is limited because of the 

disparate behavior of customers when using not held orders. See, e.g., 2018 Rule 606 Amendments 

Release, 83 FR 58338 at 58369-70 (Nov. 19, 2018), in which the Commission stated that, in contrast to 

held orders, not held order flow is diverse and customers may provide specific order handling instructions 

to their broker-dealers, limit the order handling discretion of their broker-dealers, or have specific needs 

that impact the broker-dealers’ handling of these orders. 

1087  See supra note 1003 and accompanying text discussing broker-dealer requirements under Rule 606(b)(3) to 

provide individualized reports of execution quality upon request for not held orders. 



293 

held,1088 this may limit the extent to which Rule 605 reports contain relevant information for 

institutional investors. Second, to the extent that institutional investors make use of held 

orders,1089 the ability of institutional investors to use Rule 605 reports in combination with Rule 

606 reports to assess the execution quality of broker-dealers has been limited for the same 

reasons described above.1090 This has likely limited the incentives for some institutional investors 

to access Rule 605 reports.  

Second, even if institutional investors are incentivized to access execution quality 

information such as that in Rule 605 reports, institutional investors typically have access to 

alternative sources of execution quality information. Many institutional investors regularly 

conduct, directly or through a third-party vendor, transaction cost analysis (“TCA”) of their 

orders to assess execution quality against various benchmarks. Institutional investors that 

perform their own in-house analyses of execution quality or obtain analyses of execution quality 

from third-party vendors may have been less likely to rely on information from Rule 605 reports. 

Furthermore, Rule 606(b)(3) requires broker-dealers to provide some of their customers with 

individualized reports of execution quality of not held orders upon request.1091 Since not held 

orders, which are not covered by Rule 605 reporting requirements,1092 are most likely to be 

 

1088  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders. 

1089  For example, large institutional “parent” orders are often split into multiple smaller “child” orders, which 

may be handled as held orders and reflected in Rule 605 reports. Institutional investors may incorporate 

information from Rule 605 reports into their TCA when evaluating the performance of their broker-dealers’ 

Smart Order Router (“SOR”) algorithms. See infra section IX.C.4.a)(1)(b) discussing the use of SORs by 

broker-dealers to split a large institutional “parent” order into multiple “child” orders in a way that achieves 

the best execution for the parent order. 

1090  See supra note 1072 and infra section IX.C.3.a)(1). 

1091  See supra section IX.C.1.b) discussing broker-dealer reporting requirements under Rule 606; see also supra 

note 1003 describing the customer-level de minimis exception of Rule 606(b)(5). 

1092  The exclusion of held orders from Rule 605 reporting requirements is not affected by these amendments. 



294 

utilized by institutional investors,1093 Rule 606(b)(3) provides institutional investors with another 

alternative source of information about the execution quality of their orders. Given the large size 

of most institutional investors and their businesses, institutional investors may also have 

sufficient bargaining power such that broker-dealers have strong incentives to provide them with 

execution quality information of their held orders when asked. However, any ad hoc reports that 

institutional investors may receive from their broker-dealers containing information about their 

held orders may not be sufficiently standardized to allow for easy comparisons across broker-

dealers or market centers. 

At the same time, the information on execution quality that is collected by institutional 

investors from these alternative sources may only cover the institutions’ own orders, and as such 

could be highly individualized and nonpublic.1094 Therefore, institutional investors may not be 

able to use these individualized reports to compare their broker-dealers’ execution quality to that 

of broker-dealers with which they do not currently have a relationship, or to examine the 

execution quality of a market center to which their broker-dealers do not currently route 

orders.1095 In contrast, because Rule 605 reports are public, institutional investors can use these 

reports to assess the execution quality of the broker-dealers and market centers with which they 

do not currently do business.  

 

1093  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders.  

1094  In 2018, the Commission proposed but ultimately did not adopt a requirement that broker-dealers that 

handle orders subject to the customer-specific disclosures required by Rule 606(b)(3) issue a quarterly 

public aggregated disclosure on order handling. See 2018 Rule 606 Amendments Release, 83 FR 58338 at 

58369 (Nov. 19, 2018).  

1095  Some broker-dealers may make aggregate execution quality information from their customer’s orders 

available to other institutional investors. However, for the reasons described in supra section IX.B, this 

information may not be standardized.  



295 

To the extent that institutional investors do utilize Rule 605 reports, the Commission 

believes that, due to their typically greater resources, institutional investors may be more likely 

than individual investors to access Rule 605 reports directly. Rule 605 reports are machine-

readable, which makes them useful for facilitating further processing and analysis by market 

participants that have access to the resources necessary for handling large amounts of raw data, 

such as many institutional investors. However, the Commission understands some institutional 

investors may use aggregated statistics or summaries of Rule 605 reports prepared by third 

parties, who make these reports available, possibly for a fee. 

d) Other Users of Rule 605 Reports 

While the direct usage of Rule 605 reports by individual and institutional investors may 

have been limited, Rule 605 reports have been used by other market participants, including 

analysts and researchers,1096 as well as financial service providers, such as investment advisers 

and broker-dealers, that are subject to best execution obligations. 

The Commission understands that investment advisers and broker-dealers typically use 

Rule 605 reports as part of their internal review of execution quality. As fiduciaries, investment 

advisers owe their clients a duty of care and a duty of loyalty.1097 The duty of care includes, 

among other things, the duty to seek best execution of a client's transactions where the 

 

1096  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press.  

1097  See Investment Advisers Act Release No. 5248 (June 5, 2019), 84 FR 33669 (July 12, 2019) (Commission 

Interpretation Regarding Standard of Conduct for Investment Advisers) (“IA Fiduciary Interpretation”). 



296 

investment adviser has the responsibility to select broker-dealers to execute client trades.1098 

Broker-dealers also have an obligation to seek best execution of customer orders.1099 The 

Commission understands that these financial service providers often have Best Execution 

Committees that periodically review order execution quality, and typically use Rule 605 reports 

as part of their review.1100  

3. Disclosure Requirements under Preexisting Rule 605 

The information disclosed under preexisting Rule 605 has provided significant insight 

into execution quality at different market centers. However, market participants’ access to 

information about execution quality under Rule 605 has been limited in several areas. 

Specifically, broker-dealers that are not market centers have not been required to report under 

Rule 605, which has limited market participants’ ability to assess and compare the execution 

quality that broker-dealers obtain for their customers. Furthermore, changes in equity market 

conditions and technological advancements since Rule 11Ac1-5 was adopted in 2000, such as an 

increase in the number of high-priced stocks,1101 the corresponding greater use of odd-lots, and 

 

1098  See, e.g., Investment Advisers Act Rule 206(3)-2(c). The Commission previously has described the 

contours of an investment adviser’s duty to seek best execution. See IA Fiduciary Interpretation, 84 FR 

33669 at 33674-75 (July 12, 2019). In addition, the Commission has brought a variety of enforcement 

actions against registered investment advisers in connection with their alleged failure to satisfy their duty to 

seek best execution. See, e.g., In the Matter of Aventura Capital Management, LLC, Investment Advisers 

Act Release No. 6103 (Sept. 6, 2022) (settled action); In the Matter of Madison Avenue Securities, LLC, 

Investment Advisers Act Release No. 6036 (May 31, 2022) (settled action). 

1099  See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537 (June 29, 2005); Newton v. Merrill, 

Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir. 1998), cert. denied, 525 U.S. 811 

(1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900, 53 SEC 

1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 

SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). 

1100  See, e.g., Citigroup Letter II at 7 (stating that, “under the current market structure, broker-dealers closely 

review and analyze Rule 605 statistics as part of their regular and rigorous review for best execution”). 

1101  See, e.g., infra note 1133. 



297 

the greater speed of trading in some stocks, have led to a situation in which certain aspects of 

Rule 605 reports are no longer as well-tailored to current market conditions.  

a) Scope of Reporting Entities under Preexisting Rule 605 Reporting 

Requirements 

The scope of entities that were required to report under Rule 605 prior to these 

amendments did not include broker-dealers that only route customer orders externally, rather 

than executing customer orders internally, because they did not meet the definition of a market 

center. As a result, it has been difficult for market participants to use available execution quality 

statistics to compare execution quality across these broker-dealers. Furthermore, to the extent 

that firms operating two separate market centers commingled execution quality information 

about multiple market centers in Rule 605 reports, this has made it difficult for market 

participants to assess the execution quality of each market center individually. 

(1) Broker-Dealers 

Prior to these amendments, broker-dealers that were not market centers were not required 

to prepare Rule 605 reports,1102 which has limited market participants’ ability to assess and 

compare the execution quality that broker-dealers obtain for their customers.  

Rules 605 and 606 operate together to allow investors to evaluate what happens to their 

orders after investors submit their orders to a broker-dealer for execution.1103 If a market center’s 

Rule 605 reports are representative of the aggregate execution quality that any given broker-

dealer receives from that market center, then a customer of a broker-dealer can use that broker-

 

1102  Prior to these amendments, a broker-dealer may have been subject to Rule 605 reporting requirements to 

the extent that the broker-dealer was acting as or operates a market center. See supra note 1071 for further 

discussion.  

1103  See supra note 999 and accompanying text. 



298 

dealer’s Rule 606 reports to identify the venues to which the broker-dealer regularly routes 

orders for execution and use Rule 605 reports to get information on aggregate order execution 

quality at those market centers.1104 However, if the aggregate execution quality from a given 

market center varies across broker-dealers, combining Rule 606 and Rule 605 data will not be 

informative about the execution quality of individual broker-dealers’ average execution 

quality.1105 Specifically, combining this data will not be informative because a market center’s 

Rule 605 report is aggregated across all of its broker-dealer customers, meaning that it is not 

possible to determine how execution quality varies across individual broker-dealers at a 

particular market center.1106 This is an important consideration given evidence that execution 

quality can differ significantly across broker-dealers, and that this dispersion is at least partially 

due to off-exchange wholesalers systematically giving different execution prices for the same 

trades to different brokers.1107 

 

1104  See supra section IX.C.1.b) for a discussion of broker-dealers’ current reporting requirements under Rule 

606. 

1105  Several commenters stated that market participants’ ability to use Rule 606 and Rule 605 reports to assess 

and compare broker-dealers’ execution quality is currently limited. See, e.g., Vanguard Letter at 3-4; 

Nasdaq Letter at 43; Virtu Letter II at 11; see also supra note 1070, describing a commenter who stated that 

Rule 605 reports are generally not a meaningful factor in how retail investors decide which brokers to use 

and how to place and route orders. 

1106  For example, consider two broker-dealers, Broker-Dealer 1 and Broker-Dealer 2, which both route orders 

to a market center (“Market Center A”) according to these broker-dealers’ Rule 606 reports. Assume that 

the orders routed by Broker-Dealer 1 receive consistently below-average execution quality from the 

wholesaler, while the orders routed by Broker Dealer 2 receive consistently above-average execution 

quality. If a customer of Broker-Dealer 1 were to examine Market Center A’s Rule 605 report to get a sense 

of the average execution quality that its broker-dealer achieves for its orders, the customer would see only 

the execution quality statistics aggregated across Broker-Dealers 1 and 2, which would likely reveal that 

Market Center A offers about average levels of execution quality. However, this would not reveal the 

worse execution quality that Broker-Dealer 1, and therefore the customer of Broker-Dealer 1, is receiving 

from the market center. 

1107  See supra note 1076 for a discussion of Schwarz et al. (2023), an academic paper finding that OTC market 

maker execution quality of identical orders differed significantly across different broker dealers, and that 

this dispersion was due to off-exchange wholesalers systematically giving different execution prices for the 

same trades to different brokers. See also Table 3 of the Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 

2023), showing that wholesalers provide different execution quality to different retail brokers depending on 

the adverse selection risk of their orders. 



299 

(2) Reporting Entities that Operate SDPs 

Prior to these amendments, the commingling of SDP activity in Rule 605 reports with 

other market center activity, by market centers that also operate SDPs, may have obscured or 

distorted information about the market centers’ execution quality, making it more difficult for 

market participants to observe the execution quality of each separate trading venue. For example, 

an SDP that accepts IOC orders will offer different order execution quality than other market 

centers.1108 These types of SDPs are sometimes called “ping pools,”1109 reflecting that 

institutional investors use these venues to “ping” (i.e., submit a small order in search of hidden 

liquidity on) SDPs, often using IOC orders.1110 IOC orders typically have different execution 

profiles than other types of orders, including lower fill rates.1111 Combining information on 

orders submitted to a market center’s SDP “ping pool” along with its other orders will therefore 

effect a downward skew on the market center’s fill rates, and analogously an upward skew on the 

SDP’s fill rates.1112 This may particularly be the case for wholesalers who combine the orders 

submitted to their SDPs with orders that are internalized or executed on a riskless principal 

 

1108  See supra section II.C.2 for additional discussions on different types of SDPs. 

1109  See, e.g., Annie Massa, Trader VIP Clubs, ‘Ping Pools’ Take Dark Trades to New Level, MIAMI DAILY 

BUS. J. (Jan. 17, 2018) (retrieved from Factiva database).  

1110  See, e.g., Rule 605 Citadel Letter at 7, stating that “[m]any wholesale broker-dealers execute immediate-or-

cancel (‘IOC’) orders for non-retail investors (including pension plans, insurance companies, and other 

asset managers), particularly through the use of a single-dealer platform (‘SDP’).” 

1111  See infra section IX.C.3.c)(9) for discussion of differences between marketable IOC order executions and 

the executions of other marketable order types. 

1112  See, e.g., Rule 605 Citadel Letter at 7, stating that “[a]t the moment, depending on the structure of the 

broker-dealer, these IOC orders [executed on SDPs] may be aggregated with retail orders for reporting 

purposes, even though the execution profile is very different and could negatively skew a wholesale broker-

dealer’s execution quality metrics.” 



300 

basis,1113 since SDP activity represents a significant portion of their trading volume.1114 Also, 

since information on executions in SDPs largely reflects institutional orders, combining 

information on SDP orders along with other orders will tend to obscure information that is 

particularly relevant for institutional investors or broker-dealers handling institutional investors’ 

orders in assessing differences across these market centers. To the extent that institutional 

investors have been less able to observe and compare differences in execution quality across 

market centers as a result, this may have reduced incentives for these market centers to compete 

for institutional investor orders on the basis of execution quality.  

b) Coverage of Orders under Preexisting Rule 605 Reporting 

Requirements  

Prior to these amendments, Rule 605 reporting requirements excluded execution quality 

information about some order sizes and types that are relevant to market participants.  

To estimate the percentage of shares that have been excluded from Rule 605 reporting 

requirements and the driving factor behind their exclusion (i.e., whether they are excluded based 

on their submission time, type, or size), the Commission analyzed data from the Tick Size Pilot 

B.I Market Quality dataset,1115 which had much broader reporting requirements than Rule 605 

 

1113  See infra section IX.C.3.c)(10) for a discussion of how the treatment of wholesalers’ riskless principal 

trades in Rule 605 reports may also obscure information on execution quality. 

1114  See infra note 1312 and accompanying text, describing that the combined trading volume of the affiliated 

SDPs of the two most active wholesalers accounted for over 4% of total U.S. consolidated trading volume 

in Q1 2023. 

1115  See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840 (June 30, 2014) (Order 

Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a Tick Size Pilot Plan) 

(“Tick Size Pilot Plan”). The Tick Size Pilot B.I Market Quality dataset contains information for 

approximately 2,400 small cap stocks for a period from Apr. 2016 to Mar. 2019. As the Tick Size Pilot data 

only collected data for small cap stocks, results using this dataset are not necessarily representative of all 

stocks.301 

prior to these amendments,1116 for a period from April 2016 to March 2019. As a first step, 

approximately 25% of orders were estimated to have been excluded from Rule 605 requirements 

as they were flagged as having special handling requests.1117 A breakdown of the remaining 

submitted share volume (i.e., after excluded special handling orders) is presented in Figure 4,1118 

and shows that around 2.2% of shares were excluded from preexisting Rule 605 reporting 

requirements due to having effective times outside of regular trading hours. A further 51.6% of 

shares were excluded from Rule 605 reports because they were of an order type that was 

excluded from reporting requirements prior to these amendments.1119 An additional 11.3% of the 

remaining order volume was excluded from Rule 605 reports because of the exclusion of orders 

less than 100 shares and larger-sized orders from reporting requirements prior to these 

 

1116  See FINRA, APPENDIX B AND C REQUIREMENTS AND TECHNICAL SPECIFICATIONS, available at 

https://www.finra.org/sites/default/files/Appendix_B_C_Reporting_Requirements_version2.pdf. Order 

types that are included in the Tick Size Pilot dataset that are not covered by Rule 605 include Resting 

Intermarket Sweep orders, Retail Liquidity Providing orders, Midpoint Passive Liquidity orders, Not Held 

orders, Clean Cross orders, Auction orders, and orders that became effective when an invalid NBBO was in 

effect. Order sizes included in the Tick Size Pilot dataset that are not covered by Rule 605 include orders 

for between 1-99 shares and orders for 10,000+ shares. See also FINRA, TICK SIZE PILOT PROGRAM, 

APPENDIX B AND C STATISTICS FREQUENTLY ASKED QUESTIONS, available at 

https://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf (“Tick Size Pilot 

FAQs”), answer to Question 2.1. Furthermore, the Tick Size Pilot dataset includes separate statistics for 

orders submitted outside of regular trading hours (trading sessions E and BE). See Tick Size Pilot FAQs, 

answer to Question 4.11.  

1117  These orders will continue to be excluded following the amendments to Rule 605, as the amended 

definition of covered orders will continue to exclude orders subject to special handling. See final 17 CFR 

242.600(b)(27).  

1118  The same figure can be found in the Proposing Release; see Proposing Release, 88 FR 3786 at 3840 (Figure 

2) (Jan. 20, 2023). 

1119  Of the shares excluded on the basis of order type, the largest percentage (73.6%) are excluded because they 

are not-held orders.  



302 

amendments. This leaves only around a third of share volume that was eligible to be included in 

Rule 605 reports prior to these amendments.1120  

 

1120  An additional percentage of this order flow is also excluded from coverage due to the exclusion of stop-loss 

orders and non-exempt short sales, but these are not one of the listed order types in the Tick Size Pilot 

dataset and therefore it is not possible to exclude them. See Appendix B and C Requirements and Technical 

Specifications, supra note 1116. In addition, an analysis in the Proposing Release examined changes over 

time in one market center’s Rule 605 coverage (as compared to its execution volume in TAQ), and found 

that Rule 605 coverage was on a slightly downward trend between mid-2012 and Feb. 2021, when an 

estimated 50% of shares executed during regular market hours were included in Rule 605 reports. See 

Figure 3 of the Proposing Release, 88 FR 3786 at 3841 (Jan. 20, 2023). An analysis of more recent data 

found that this number rose somewhat in 2023, to around 64% as of Aug. 2023.  



303 

Figure 4: Rule 605 Coverage, by Submission Time, Order Type, and Order Size, Apr. 2016 

to Mar. 2019 

 

This figure shows the additional percentage of share volume that is excluded from Rule 605 reporting requirements after the 

sequential addition of various exclusions, using data from the Tick Size Pilot B.I Market Quality dataset, for all pilot and control 

stocks and for the entire pilot period from Apr. 2016 to Mar. 2019. Percentages are calculated as the number of shares within a 

given category summed across all stocks and days in the sample, divided by the total number of shares summed across all stocks 

and days. See supra note 1116 for dataset description. 

The following sections will discuss the various facets of preexisting Rule 605 reporting 

requirements that led to the exclusion of orders from Rule 605 reports prior to these 

amendments, as well as the extent to which these orders are relevant for assessing execution 

quality. This includes orders that were excluded on the basis of size, as well as other orders that 

were excluded such as stop orders, non-exempt short sale orders, and orders submitted outside of 

regular trading hours.  



304 

(1) Orders Less Than 100 Shares and Larger-Sized Orders 

Prior to these amendments, orders of certain sizes were excluded from Rule 605 reporting 

requirements, including orders for less than 100 shares and larger-sized orders.1121 Taken 

together, data on the usage of orders of these sizes imply that a large percentage of orders and 

trades was excluded from preexisting Rule 605 reporting requirements on the basis of order size, 

thus limiting the ability of reporting entities to compete for customers on the basis of execution 

quality. 

(a) Orders Less Than 100 Shares 

Due to preexisting Rule 605’s exclusion of orders sized smaller than 100 shares, which 

excluded all odd-lot orders and, in some cases, round lot orders where a round lot was less than 

100 shares, information about an important segment of order flow has been missing from Rule 

605 reports.1122 

 

1121  See prior 17 CFR 242.605(a)(1). The size categories in preexisting Rule 605 included: 100 to 499 shares; 

500 to 1,999 shares; 2,000 to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13); 

see also supra note 9 discussing the Large Order Exemptive Relief, which grants exemptive relief to any 

order with a size of 10,000 shares or greater. 

1122  The idea that Rule 605 reports have been missing an important segment of order flow because of the 

preexisting exclusion of orders less than 100 shares was supported by comment. See, e.g., Rule 605 Citadel 

Letter at 11; Better Markets Letter at 3; and Virtu Letter II at 9. In addition, citing an earlier comment letter 

examining how the inclusion of odd-lots would impact execution quality metrics, one commenter stated 

that the lack of information about odd-lots in preexisting Rule 605 “has created perverse reporting issues.” 

Healthy Markets Letter at 17, citing Healthy Markets 2019 Letter (Mar. 5, 2019), available at 

https://www.sec.gov/comments/4-729/4729-5020185-182987.pdf. 



305 

The rise in the use of odd-lot orders is a phenomenon that has been well-documented in 

modern markets.1123 An analysis of data from the SEC’s MIDAS analytics tool1124 confirms that 

the use of odd-lots has increased substantially as a percentage of total on-exchange trades within 

the past decade. Figure 51125 plots monthly averages of odd-lot share volumes across stock price 

deciles, showing that executed odd-lot shares as a percentage of total executed shares have 

increased sharply between 2012 and 2023, for high-priced stocks in particular.1126 Specifically, 

the figure shows that odd-lot share volume increased from around 0.6% to 1.25% for the lowest-

price stocks (Decile 1), and from 10.6% to 37.5% for the highest-priced stocks (Decile 10).1127 

 

1123  See, e.g., Proposing Release, 88 FR 3786 at 3808, n.273 (Jan. 20, 2023). Until the round lot definition 

adopted pursuant to the MDI Rules is implemented, round lots continue to be defined in exchange rules. 

For most NMS stocks, a round lot is defined as 100 shares. Following the implementation of the MDI 

Rules, for stocks with prices greater than $250, a round lot will be defined as consisting of between 1 and 

40 shares, depending on the tier. See supra note 1016 for a definition of these tiers. 

1124  See Summary Metrics by Decile and Quartile, SEC (2023), available at 

https://www.sec.gov/marketstructure/downloads.html. This analysis uses data between Jan. 2012 and Mar. 

2023.  

1125  The data used in this analysis have been updated since the Proposing Release to include a more recent time 

period. See Proposing Release, 88 FR 3786 at 3842 (Figure 4) (Jan. 20, 2023), which presents the same 

analysis for the period of Jan. 2012 to Mar. 2022. Between Mar. 2022 and Mar. 2023, we observe small 

overall declines in odd-lot share volumes. However, these differences due to updates to the dataset did not 

affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely that odd 

lots represent a significant percentage of executed share volume. 

1126  The number of executed odd-lot shares may be higher following the implementation of the MDI Rules due 

to the availability of odd-lot quotes in consolidated market data, which may result in numbers that are 

different from those reported here. For stocks priced above $250, the change in the definition of round lots 

may in result in fewer executed odd-lot shares, as more odd-lot trades will be incorporated into the 

definition of round lots. See supra section IX.C.1.c)(2) for further discussion.  

1127  See, e.g., Virtu Letter II at 7 (quoting Phil Mackintosh, Odd Facts About Odd Lots, NASDAQ (Apr. 22, 

2021, 10:23 a.m. EDT), available at https://www.nasdaq.com/articles/odd-facts-about-odd-lots-2021-04-

22), that “over the past nine years the proportion of odd-lot trades has roughly tripled, and in high-priced 

stocks, odd-lots have increased to 70% of all trades.” Another commenter stated that, based on data from 

TAQ, “two-thirds of all trades represent odd-lots.” Professor Schwarz et al. Letter at 4. 



306 

Figure 5: Odd-Lot Share Volumes by Stock Price Deciles, Jan. 2012 to Mar. 2023 

  

This figure plots odd-lot shares executed on national securities exchanges as a percentage of total on-exchange executed shares, 

across stock price deciles for the period from Jan. 2012 to Mar. 2023. For brevity the plot contains data for the smallest (Decile 

1), median (Decile 5) and largest (Decile 10) stock price deciles. See supra note 1124 for dataset description. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. See supra note 1123 and section IX.C.1.c)(2). 

There is evidence that these high percentages are not only the case for odd-lot trades, but 

for odd-lot orders as well. Using data from January to March 2021, a recent academic working 

paper found that the rate of orders sized between 1 and 100 shares ranges from 5.6% of all 

submitted orders for less than 500 shares in the lowest-priced stocks, to 46.9% of all such orders 

in the highest-priced stocks.1128 This is supported by an analysis of the distribution of order sizes 

 

1128  See Bartlett, et al (2022), supra note 33. The authors divide their sample of stocks into five price-based 

buckets, with stocks in the lowest-priced group defined as those priced at $20.00 or less, and stocks in the 

highest-priced group priced at $250.00 or more. 



307 

using order submission data from MIDAS for a sample of 80 stocks1129 during the month of Mar. 

2023.1130 Confirming results from Figure 5 examining the time series of odd-lot order rates, 

 

1129  This sample of 80 stocks was constructed from the sample of 400 stocks described in infra note 1181, in 

which a random sample of 5 stocks was selected from each of the 16 combinations of market capitalization 

group and price quartile. 

1130  This dataset consists of NMLO order submission data collected from MIDAS and includes the posted 

orders and quotes on 11 national securities exchanges, for a sample of 80 stocks, across all trading days in 

Mar. 2023. For more details on this dataset, see https://www.sec.gov/marketstructure/midas-system. See 

supra note 1129 for information about the sample selection. The MIDAS dataset has some limitations. 

First, MIDAS data include only on-exchange, non-marketable limit orders that do not execute immediately, 

and thus do not include some orders that are included in Rule 605 data both prior to and after these 

amendments, such as market and marketable limit orders, inside-the-quote NMLOs that execute 

immediately, IOC orders, and off-exchange orders. Furthermore, MIDAS data include some order types 

that were excluded from Rule 605 prior to these amendments but that are not possible to distinguish in 

MIDAS data, such as short sale orders, as well as some order types that are excluded from Rule 605 data 

both prior to and after these amendments, such as orders with special handling requests. Second, in order to 

identify the NBBO at the time of order receipt, this dataset uses timestamps assigned to orders by MIDAS, 

which may differ from the order submission times at the exchange. The magnitude of this difference is 

typically a few hundred microseconds, and thus in this context the effects of this difference are expected to 

be minor. Lastly, there are some orders in MIDAS for which no corresponding execution or cancellation 

message can be identified; these orders are discarded from the dataset. Relative to the Proposing Release, 

this dataset has been updated to account for a more recent time period, and also reflects several corrections; 

see Proposing Release, 88 FR 3786 at 3842, n.634 (Jan. 20, 2023). First, the data has been corrected to 

include orders associated with more than one order cancellation message, which were inadvertently 

excluded from the data in the Proposing Release and may have undercounted orders. Second, the dataset 

excludes several groups of orders that were included in the Proposing Release. Orders received during the 

first five minutes of the trading day (2.4% of orders) are excluded to avoid including orders received before 

there is a valid non-crossed quote following the opening at the primary market center, which are not 

defined as covered orders under amended Rule 605; see amended Rule 600(b)(27). Orders received when 

the NBBO is locked or crossed (1.6% of orders) are also discarded to simplify the analysis. See 2001 

FAQs, Question 7, for staff statements regarding covered orders received when the NBBO is locked or 

crossed. The exclusion of orders received during the first five minutes of the trading day and orders 

received when the NBBO is locked or crossed is similar to what is done in academic literature; see, e.g. 

Hagströmer, infra note 1244. Lastly, we exclude orders associated with more than one order submission 

message (1.6% of orders). These represent orders that are modified after their submission. Identifying and 

assigning an outcome to each iteration of a modified order would be complex using MIDAS, so we drop 

these orders to simplify the analysis. See 2001 FAQs, Question 23, for staff statements regarding modified 

orders. As will be discussed in more detail in reference to each analysis using this MIDAS dataset below, 

these changes to the MIDAS dataset did not affect the Commission’s conclusions from the analyses using 

MIDAS data relative to the Proposing Release.  



308 

Figure 61131 shows that odd-lot orders make up a significant percentage of orders (13.81%), 

although these orders are only a small percentage of total submitted share volume (0.68%).1132 

 

1131  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3843 (Figure 5) (Jan. 20, 

2023), where Figure 5 presents the same analysis using data from Mar. 2022 (see Proposing Release, 88 FR 

3786 at 3842, n.634 (Jan. 20, 2023), for data description). The analysis in the Proposing Release similarly 

found that odd-lot orders made up a significant percentage of orders (18.2%), though only a small 

percentage of total submitted share volume (2.8%). Therefore, changes to the MIDAS dataset did not affect 

the Commission’s conclusions from this analysis relative to the Proposing Release, namely that odd-lot 

orders made up a significant percentage of orders, though only a small percentage of total submitted share 

volume. 

1132  These data include information only about NMLOs, and therefore information about the sizes of market 

orders and marketable limit orders is not available.  



309 

Figure 6: Distribution of NMLOs across Order Size Buckets, Mar. 2023 

  

This figure plots the percentage of NMLOs that can be categorized into the preexisting Rule 605 order size categories, using 

order submission data from MIDAS. Percentages are calculated as the number of orders (resp. shares) within a given order size 

category summed across all stocks and days in the sample, divided by the total number of orders (resp. shares) summed across all 

stocks and days. See supra note 1130 for dataset description. 

Market commentators have attributed this rise in odd-lot trading to a variety of factors. 

For example, an increase in the number of high-priced stocks caused order sizes to decrease in 

these stocks, where trading in larger order sizes is more expensive.1133 In this vein, one 

commenter to the Proposing Release stated that “the fact that many issuers have moved away 

from stock splits and allowed their stock prices generally to increase” has contributed to the 

increase in odd-lot orders.1134 

 

1133  See, e.g., Odd Facts About Odd Lots, supra note 1127. 

1134  See Virtu Letter II at 4. 



310 

Another factor is a rise in algorithmic trading, which chops orders into many smaller 

orders. Broker-dealers that handle institutional orders often make use of odd-lot orders because 

of trading algorithms that split larger parent orders into smaller child orders to reduce the market 

impact of their trades.1135 High frequency traders also use inside the spread odd-lot orders as a 

means of probing for hidden liquidity or detecting forthcoming order flow. Academic papers 

have found evidence that high frequency traders and other institutional investors make up a 

substantial fraction of odd-lot trades.1136 Another potential reason for the increase in odd-lot 

trading is the increasing presence of trading by individual investors, who tend to use smaller 

order sizes.1137 All-in-all, by not capturing information related to these orders, preexisting Rule 

605 reports have been missing information about potentially important segments of order flow 

from both individual and institutional investors. 

(b) Orders Less Than a Share 

Due to the exclusion of fractional orders that are smaller than one share from Rule 605 

prior to these amendments,1138 information about an increasingly important segment of 

individual investor order flow has been missing from Rule 605 reports. Similar to the increase in 

odd-lots, one reason for the increase in the use of fractional shares is the increasing presence of 

 

1135  See infra section IX.C.4.a)(1)(b), discussing the practice of broker-dealers handling institutional parent 

orders as not held orders and splitting them up into child orders. 

1136  See, e.g., Hardy Johnson et al., Are All Odd-lots the Same? Odd-lot Transactions By Order Submission and 

Trader Type, 79 J. BANKING & FIN. 1 (2017); Maureen O’Hara et al., What’s Not There: Odd lots and 

Market Data, 69 J. FIN. 2199 (2014). 

1137  See, e.g., Bartlett et al. (2022), supra note 33; Matthew Healey, An In-Depth View Into Odd Lots, Chi. Bd. 

Options Exch. (Oct. 2021), available at https://www.cboe.com/insights/posts/an-in-depth-view-into-odd-

lots/. Similarly, one commenter stated that “advances in technology that have dramatically expanded the 

number of participants in the market” is one reason for the increase in odd-lot orders. See Virtu Letter II at 

7. 

1138  Orders greater than one share can also be fractional. If the fractional order is for more than just a single 

share (e.g., 2.5 shares), the broker-dealer may internalize the fractional component (0.5 shares) and reroute 

the whole component (2 shares) to a market center for execution. 



311 

trading by individual investors, who tend to use smaller order sizes.1139 The past few years have 

seen increasing attention paid to fractional shares, as more and more retail brokers are offering 

this functionality.1140 The Commission understands that there are at least two different ways that 

retail brokers handle fractional trades: first, they rely on their clearing firm, which will often 

“round up” the fractional part of the order and deposit the residual in an internal “fractional 

inventory account”; and second, they execute fractional trades against their own inventory.1141 

An estimation of the percentage of orders that were excluded from preexisting Rule 605 

reporting requirements because they are smaller than one share is difficult, as these orders are 

executed off-exchange and therefore not included in public datasets. However, an analysis using 

data from CAT1142 confirms that levels of fractional trading are mostly the result of individual 

 

1139  See, e.g., Kevin L. Matthews, What Are Fractional Shares and How Do They Work?, BUS. INSIDER (Sept. 

21, 2022), available at https://www.businessinsider.com/personal-finance/fractional-shares. 

1140  See, e.g., Rick Steves, Fractional Shares: Experts Weight in Amid Exploding Retail Trading Volumes, FIN. 

FEEDS (June 7, 2021, 8:25 a.m. UTC), available at https://financefeeds.com/fractional-shares-experts-

weigh-in-amid-exploding-retail-trading-volumes/, which shows that trading volume increased substantially 

(in one case, reported as more than 1,400%, year over year) for brokers after they introduced the use of 

fractional shares. 

1141  See, e.g., Robert P. Bartlett et al., A Fractional Solution to a Stock Market Mystery (working paper Nov. 

17, 2023), available at https://ssrn.com/abstract=4167890 (retrieved from SSRN Elsevier database). As 

fractional shares fell below the smallest order size category in Rule 605 prior to these amendments, a 

broker-dealer that currently exclusively executes fractional shares would be a market center, but was not 

required to file Rule 605 reports. 

1142  This dataset contains CAT records capturing introducing and trading activity in Aug. 2023, including 

fractional NMS orders that were eventually executed on- and off-exchange. As individual fractional orders 

are often aggregated into a single representative order before routing and execution, the Commission 

looked at the information specific to the originating customer orders (designated as MENO orders events in 

CAT) that were eventually executed, and, separately, examined the information specific to the executions 

of the orders (designated as MEOT for off-exchange or EX and EOT for on-exchange events in CAT) that 

could be linked to the fractional MENOs either directly or via a representative order. 



312 

investor trading:1143 in August 2023, there were 54.7 million orders for less than one share that 

eventually received an execution, the majority (65.3%) of which were submitted by accounts 

attributed to “Individual Customers.”1144 While these fractional orders represented only a small 

part (around 3.3%) of total executed orders, they represented a much higher percentage (16.4%) 

of executions received by individual account holders.1145 Therefore, by not capturing information 

related to these orders, Rule 605 reports have been missing information about an important 

segment of individual investor trades.1146 The Commission estimates that there are 20 market 

 

1143  The CAT data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Proposing Release, 88 FR 3786 at 3844 (Jan. 20, 2023). The analysis in the Proposing Release 

found that, as of Mar. 2022, orders from individual customers accounted for 92% of all fractional orders 

(both orders less than a share and orders with fractional components). This number was 70% in Aug. 2023 

(65% for fractional orders less than one share). Further analysis reveals that this difference can mostly be 

attributed to an increase in fractional shares from institutional investor accounts, rather than a decrease in 

fractional shares from individual investor accounts. This highlights that fractional trading may be an 

increasingly important segment of institutional order flow as well. However, these differences due to 

updates to the data did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that fractional orders for less than one share are an important segment of order flow. 

1144  CAT account type definitions are available in Appendix G to the CAT Reporting Technical Specifications 

for Industry Members, under the field name “accountHolderType.” See CAT REPORTING TECH. 

SPECIFICATIONS FOR INDUS. MEMBERS VERSION 4.0.0 R20 app. G (CAT NMS PLAN PARTICIPANTS 2023) 

(July 31, 2023), available at https://catnmsplan.com/sites/default/files/2023-

09/09.01.2023_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r20_CLEAN.pdf. 

Account types represent the beneficial owner of the account for which an order was received or originated, 

or to which the shares or contracts are allocated. Possible types are: Institutional Customer, Employee 

Account, Foreign, Individual Customer, Market Making, Firm Agency Average Price Account, Other 

Proprietary, and Error Account. An Institutional Customer account is defined by FINRA Rule 4512(c) as a 

bank, savings and loan association, insurance company, registered investment company, investment 

adviser, or any other person with total assets of at least $50 million. An Individual Customer account means 

an account that does not meet the definition of an “institution” and is also not a proprietary account. 

Therefore, the CAT account type “Individual Customer” may not be limited to individual investors because 

it includes natural persons as well as corporate entities that do not meet the definitions for other account 

types.  

1145  In terms of notional volume, executed fractional orders, including orders for less than one share and orders 

greater than one share with a fractional component, make up around 0.003% of total executed dollar 

volume and 1.2% of executed dollar volume attributed to individual account holders. Furthermore, 

executed fractional orders for less than one share made up about 7.06 million shares, which is only about 

0.001% of total executed share volume.  

1146  One commenter used a sample of TAQ data to show that “25% of reported trades are for one share, which 

includes fractional trades for less than one share,” and stated that “[t]hus, under current disclosure 

requirements, retail traders are unable to evaluate market center execution quality for a majority of their 

trades.” Professor Schwarz et al. Letter at 4. 



313 

centers1147 that exclusively execute fractional orders less than one share and were not required to 

file Rule 605 reports prior to these amendments due to these orders falling below the smallest 

order size category in preexisting Rule 605. 

(c) Larger-Sized Orders 

Due to the exclusion of orders sized larger than 10,000 shares from preexisting Rule 

605,1148 information about another important segment of order flow has been missing from Rule 

605 reporting requirements.1149 The Commission understands that practices have evolved such 

that most broker-dealers that service institutional investors use SORs to break up these 

customers’ large parent orders into smaller-sized child orders.1150 As shown in Figure 7,1151 

which plots the number of shares associated with trades that are for 10,000 or more shares as a 

percent of total executed shares,1152 the rate of larger-sized trades declined from more than 25% 

in late 2003 to 12.8% as of March 2023. This decline is likely at least partly due to the increased 

 

1147  See infra note 1659 for further discussion of this estimate. 

1148  See supra note 9 and corresponding discussion describing the exemptive relief provided by the Commission 

in 2001 for orders with a size of 10,000 shares or greater. 

1149  This was supported by a commenter. See Virtu Letter II at 9. 

1150  See infra section IX.C.4.a)(1)(b) further discussing the practice of broker-dealers handling institutional 

parent orders as not held orders and splitting them up into child orders. 

1151  The TAQ data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Proposing Release, 88 FR 3786 at 3844 (Figure 6) (Jan. 20, 2023), which presents the same 

analysis for the time period Sept. 2003 to Mar. 2022. Between Mar. 2022 and Mar. 2023, there is a small 

overall increase in the rate of large-sized trades. Therefore, updates to the TAQ dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that larger-sized 

orders of 10,000 have been increasing since August 2011. 

1152  This analysis uses data from intraday TAQ Consolidated Trade files for the period from Sept. 2003 to Mar. 

2023 for the entire universe of TAQ securities. Plotted is the monthly number of shares associated with 

trades that are for 10,000 shares or more, divided by the total number of executed shares. The data are 

limited to trades with sales conditions indicating regular trades, including regular trades with no associated 

conditions, automatic executions, intermarket sweep orders, and odd-lot trades. See NYSE, DAILY TAQ 

CLIENT SPECIFICATIONS (May 20, 2020), available at 

https://www.nyse.com/publicdocs/nyse/data/Daily_TAQ_Client_Spec_v3.3.pdf. 



314 

use of SORs,1153 though other market changes such as the overall increase in stock prices may 

also play a part. However, the rate of larger-sized trades has been increasing since August 2011, 

when the rate of larger-sized trades was around 6.7%. 

 

1153  See, e.g., M. O’Hara, High Frequency Market Microstructure, 116 J. FIN. ECON. 257 (2015).  



315 

Figure 7: Larger-Sized Trades as a Percent of Total Executed Shares, Sep. 2003 to Mar. 

2023 

  

This figure plots the monthly number of executed shares associated with trades that are for 10,000 shares or more, summed 

across all stocks and days in the sample, divided by the total number of executed shares across all stocks and days, using data 

from TAQ. See supra note 1152 for dataset description. 

 Furthermore, larger-sized orders make up a non-negligible percent of order flow. Figure 

6,1154 which plots the distribution of NMLO sizes in order submission data from MIDAS for the 

month of Mar. 2023, shows that while NMLOs of 10,000 or more shares made up only 0.27% of 

order flow in terms of number of orders, they made up around 8.5% of order flow in terms of 

 

1154  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons discussed in supra note 1131. See Figure 5 in the Proposing Release, 88 FR 3843 (Jan. 20, 2023). 

The analysis in the Proposing Release similarly found that larger-sized orders of 10,000 or more shares 

make up a small percent of order flow in terms of orders (2.5%), but a non-negligible percent of order flow 

in terms of share volume (7.75%). Therefore, changes to the MIDAS dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that larger-sized 

orders of 10,000 or more shares make up a small percent of order flow in terms of number of orders, but a 

non-negligible percent of order flow in terms of share volume.  



316 

share volume.1155 However, some, or possibly most, of these larger-sized orders may be not held 

to the market, and so would not be required to be included in Rule 605 reports even without the 

exemptive relief.1156  

(2) Orders Submitted with Stop Prices 

The exclusion of orders with stop prices from the definition of “covered order” prior to 

these amendments has resulted in the exclusion of orders that are likely relevant for investors 

from preexisting Rule 605 reports. A stop order, also referred to as a stop-loss order, is an order 

to buy or sell a stock once the price of the stock reaches the specified price, known as the stop 

price. When the stop price is reached, a stop order becomes a market order, or a limit order in the 

case of so-called stop limit orders.1157 The treatment of stop orders varies across broker-dealers 

and market centers.1158 At the same time, the execution prices of stop orders are highly sensitive 

to handling and execution practices, as these orders are more likely to execute when the stock 

 

1155  This result supports the statement of one commenter, that “while orders greater than 9,999 shares may 

comprise a relatively small number of total orders, when viewed through the lens of total shares, they 

comprise a meaningful amount of the total share volume.” Virtu Letter II at 9.  

1156  See supra note 1003 and accompanying text discussing broker-dealers’ requirements under Rule 606(b)(3) 

to provide individualized reports of execution quality upon request for not held orders. 

1157  See, e.g., SEC, Types of Orders, INVESTOR.GOV, available at https://www.investor.gov/introduction-

investing/investing-basics/how-stock-markets-work/types-orders and the definitions of stop order and stop 

limit order in FINRA Rule 5350(a), available at https://www.finra.org/rules-guidance/rulebooks/finra-

rules/5350. The stop price can be the last sale price, or a quotation in the case of stop on quote or stop limit 

on quote orders. The stop price may also be permitted to increase or decrease by a predetermined amount or 

formula in the case of trailing stop and trailing stop limit orders. 

1158  For example, one broker-dealer stated that some of the market centers to which it routes orders may impose 

price limits to prevent stop orders from being triggered by potentially erroneous trades, and that these price 

limits vary by market center. See Trading FAQs: Order Types, FIDELITY, available at 

https://www.fidelity.com/trading/faqs-order-types. Another brokerage firm states that, depending on the 

market center to which a stop limit order is presented, a stop limit order can be activated as a limit order 

using either a transaction or quotation as the triggering event. See Best Execution of Equity Securities, 

UBS (Jan. 2023), available at https://www.ubs.com/content/dam/static/wmamericas/bestexecution.pdf.  



317 

price is in decline and any delay in execution will result in a larger loss (or smaller gain) for the 

investor.1159 

The Commission understands that stop orders resting on national securities exchanges 

have been uncommon, and the vast majority of stop orders are handled by broker-dealers.1160 

Some national securities exchanges have eliminated this order type from their rule book.1161 

Furthermore, the use of stop orders has typically been associated with individual investors,1162 

who may be less likely to have the resources to actively monitor their orders, and thus use stop 

orders to try to protect a gain or to limit potential losses of a currently held position.1163 Table 

 

1159  See, e.g., Stop Orders: Factors to Consider During Volatile Markets, FINRA: INVESTOR INSIGHTS (June 28, 

2016), available at https://www.finra.org/investors/insights/stop-orders-factors-consider-during-volatile-

markets; see also FIF Letter at 9, stating that “[a] stop order is often triggered under market conditions that 

reflect a market moving adverse to the order. For example, the triggering of a buy stop limit order would 

reflect a rising market, which could be detrimental to the execution quality for that order.” 

1160  See, e.g., Memorandum from SEC, Div. of Trading and Mkts. to Equity Market Structure Advisory 

Committee (Jan. 26, 2016), available at https://www.sec.gov/spotlight/equity-market-structure/issues-

affecting-customers-emsac-012616.pdf (citing NYSE Order Type Usage Chart illustrating that stop orders, 

along with good-til-canceled, agency cross and manual orders, accounted for only 0.19% of total matched 

volume for Q3 2015 and Q4 2015) (“SEC Division of Trading and Markets Memorandum”); see also How 

to Survive the Markets Without Stop-Loss Orders, NASDAQ (Dec. 2, 2015, 10:58 a.m. EST), available at 

https://www.nasdaq.com/articles/how-survive-markets-without-stop-loss-orders-2015-12-02, stating that 

stop orders represent around 2% of all orders placed on national securities exchanges. 

1161  See, e.g., Securities Exchange Act Release No. 76649 (Dec. 15, 2015), 80 FR 79365 (Dec. 21, 2015) (SR-

NYSE-2015-60) (“NYSE Notice”); Securities Exchange Act Release No. 76655 (Dec. 15, 2015), 80 FR 

79382 (Dec. 21, 2015) (SR-NYSEMKT-2015-103).  

1162  See, e.g., Annie Massa & Sam Mamudi, BlackRock Calls for Halting Stock Market to Avoid Volatility, 

BLOOMBERG BUS. (Oct. 7, 2015), available at http://www.bloomberg.com/news/articles/2015-10-

07/blackrock-calls-for-halting-the-stock-market-to-avoid-volatility (citing industry concerns with “the 

widespread use of stop orders by retail investors”). 

1163  See, e.g., SEC Division of Trading and Markets Memorandum, supra note 1160. Meanwhile, professional 

or institutional investors are more likely to have the resources to be able to actively monitor their orders, 

and are therefore less likely to use stop orders. See, e.g., How to Survive the Markets Without Stop-Loss 

Orders, supra note 1160.  



318 

31164 breaks down a sample of stop loss order volume by account type and stop loss order type 

using CAT data for Mar. 2023.1165 The data confirm that the use of stop orders by institutional 

investors is very rare (only 0.25% of market and 0.0011% of limit orders are submitted with stop 

prices), while their use is relatively more common for individual investors, particularly for 

market orders, around 4.91% of which are submitted with stop prices.1166 The data also confirm 

that, while most stop orders are triggered by the last sale price (“Stop/Stop Limit”), there is also 

nontrivial order flow associated with other trigger events as well, such as the quotation (“Stop on 

Quote/Stop Limit on Quote”).1167 

 

1164  The CAT data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Table 4 of the Proposing Release, 88 FR 3786 at 3845 (Jan. 20, 2023). The results of the 

analysis in the Proposing Release are similar to those presented here, except that the analysis in the 

Proposing Release found that 49.4% of institutional stop/stop limit orders were market orders and 37.8% 

were limit orders in Mar. 2022; the results in Table 3 for Mar. 2023 show a reverse pattern, in which the 

majority of institutional stop/stop limit orders are limit (63.4%) and relatively fewer are market orders. A 

closer inspection of the data revealed that this reversal is driven by the order volume of several market 

participants. The analysis in the Proposing Release similarly found that a significant percentage of 

institutional stop orders are limit orders. Therefore, the updates to the dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that a significant 

percentage of institutional stop orders have limit prices, as discussed in note 1166 infra. 

1165  This analysis uses data from CAT for all NMS stocks for the period of Mar. 2023 that originated either 

from Institutional Customer or from Individual Customer accounts. Stop orders are identified using the 

reporting requirements for stop orders in the CAT Reporting Technical Specifications for Industry 

Members. See CAT REPORTING TECH. SPECIFICATIONS FOR INDUS. MEMBERS VERSION 4.0.0 r18 (Dec. 16, 

2022), available at https://www.catnmsplan.com/sites/default/files/2022-

12/12.16.2022_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r18_CLEAN.pdf.  

1166  One commenter stated that “a material percentage of stop orders have a limit price and a material 

percentage of stop orders do not have a limit price.” FIF Letter II at 2. Table 4 in the Proposing Release 

showed that, as of Mar. 2022, 0.0003% of institutional and 0.03% of individual limit orders consisted of 

orders with stop prices. At the same time, stop orders with limit prices made up 38.7% of institutional stop 

orders, and 12.4% of individual stop orders. See Proposing Release, 88 FR 3786 at 3845 (Jan. 20, 2023). 

Table 3 shows similar numbers for Mar. 2023, with 0.0011% of institutional and 0.02% of individual limit 

orders consisting of orders with stop prices, and 63.9% of institutional and 11.0% of individual stop orders 

consisting of stop orders with limit prices. These numbers show that, while stop orders with limit prices are 

generally a small percentage of total orders, they constitute a significant percentage of orders with stop 

prices, particularly for institutional investors.  

1167  See, e.g., FIF Letter II at 2, confirming “that a material percentage of stop orders are triggered based on a 

change in the NBBO (in most cases, but not always, the opposite-side quote) and a material percentage of 

stop orders are triggered based on a change in the last sale price.” 



319 

Table 3: Stop Order Volume by Account and Order Types, Mar. 2023 

 Types of Stop Orders (% of Total Stop Orders) 

Investor and 

Order Type 

Orders with 

Stop Prices 

(% of Total 

Orders) 

Stop / Stop 

Limit 

Stop on 

Quote / Stop 

Limit on 

Quote 

Trailing Stop 

/ Trailing 

Stop Limit 

Total 

Institutional      

Market 0.25% 31.4% 0.2% 4.5% 36.1% 

Limit 0.0011% 63.4% 0.2% 0.2% 63.9% 

Individual      

Market  4.91% 70.0% 8.7% 10.3% 89.0% 

Limit 0.02% 9.1% 1.5% 0.4% 11.0% 

This table shows the percentage of orders that are submitted with stop prices (as a percentage of total orders) using a sample 

of CAT data for all NMS stocks from Mar. 2023. Percentages are calculated as the number of orders submitted with stop 

prices summed across all stocks and days in the sample, divided by the total number of submitted orders summed across all 

stocks and days. These percentages are broken down into whether these orders were submitted by institutional or individual 

customer accounts, and whether the orders are market or limit orders submitted with stop prices. Also shown is a breakdown 

of stop order submission volume according to six common types of stop orders. See supra note 1165 for information on the 

dataset and identification of stop orders. 

(3) Non-Exempt Short Sale Orders 

Prior to these amendments, Commission staff had taken the position that staff would view 

all non-exempt short sale orders as special handling orders.1168 As a result, these orders have not 

been included in prior Rule 605 statistics, which has resulted in the exclusion of a large portion 

of orders that are likely relevant for market participants. 

Non-exempt short sale orders are orders that are subject to price restrictions under Rule 

201 of Regulation SHO,1169 which contains a short sale circuit breaker that, when triggered by a 

price decline of 10% or more from a covered security’s prior closing price, imposes a restriction 

on the price at which the covered security may be sold short (i.e., must be above the current 

national best bid). Once triggered, the price restriction will apply to short sale orders in that 

security for the remainder of the day and the following day, unless the short sale order is “short 

 

1168  See 2013 FAQs. 

1169  See supra note 299 for more information about Rule 201 of Regulation SHO. 



320 

exempt.”1170 Since a non-exempt short sale that is subject to a price restriction is only allowed to 

take place at least one tick above the NBB, these could be “orders to be executed on a particular 

type of tick or bid,” which would exclude them from the definition of “covered order.”1171 The 

exclusion of tick-sensitive orders from preexisting Rule 605 reporting requirements was 

designed so that these orders did not skew execution quality statistics, as the prevention of these 

orders from executing at the best bid would likely lead to lower execution quality statistics (e.g., 

negative price improvement and higher effective spreads) as compared to other orders.  

In the years since Rule 201’s adoption, it has become clear that Rule 201 price test 

restrictions are not often triggered. Between April 2015 and November 2023, a Rule 201 trigger 

event only occurred on 1.8% of trading days for an average stock.1172 Around 15.4% of Rule 201 

triggers occur the day after a previous trigger event, and around 45.4% occur within a week after 

a previous trigger event. These statistics imply that Rule 201 triggers tend to be relatively rare, 

and clustered around a few isolated events. This has resulted in a significant portion of non-

exempt short sale orders being excluded from prior Rule 605 statistics when Rule 201 was not 

triggered, at which point a price test restriction was not in effect and their exclusion would not 

have skewed execution quality statistics.  

 

1170  “Short exempt” orders include certain short sale orders from market makers and short sales priced above 

the current national best bid at the time of submission. See 17 CFR 242.201(c) and (d). 

1171  See prior 17 CFR 242.600(b)(22). 

1172  This analysis looked at the percentage of trading days that experienced a Rule 201 trigger event for the 

period Apr. 2015 and Nov. 2023 for all listed stocks on NYSE or NASDAQ exchanges and then averaged 

across stocks. The Commission restricted its sample to common stocks identified in CRSP (share code 10 

or 11), from CRSP 1925 US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2022). The 

Commission also excluded financial stocks (SIC code 6000-6999), as financial stocks may have different 

properties than other types of stocks, including characteristics related to short selling (e.g., Markus K. 

Brunnermeier & Martin Oehmke, Predatory Short Selling, 18 REV. FIN. 2153 (2014)). Rule 201 circuit 

breaker data retrieved from ftp://ftp.nyxdata.com/NYSEGroupSSRCircuitBreakers/ and 

ftp://ftp.nasdaqtrader.com/SymbolDirectory/shorthalts/. A similar analysis was included in the Proposing 

Release and found substantially similar results. See Proposing Release, 88 FR 3786 at 3846 (Jan. 20, 2023).321 

(4) Orders Submitted Pre-Opening/Post-Closing 

When Rule 605 was first adopted, the Commission explained the decision to exclude 

orders submitted outside of regular trading hours by stating that there are substantial differences 

in the nature of the market between regular trading hours and after-hours, and therefore orders 

executed at these times should not be blended together.1173 However, the preexisting exclusion of 

all orders submitted outside of regular market hours from the definition of “covered order,”1174 in 

addition to excluding orders that execute outside of regular hours, also extended to orders that, 

while submitted outside of regular market hours, are only eligible to execute during regular 

market hours. While these orders represent only a small portion of order flow, they represent a 

relatively high concentration of orders from individual investors. Therefore, the exclusion of all 

orders submitted outside of regular trading hours from Rule 605 prior to these amendments may 

have led to the exclusion of an important segment of individual investor orders. 

When Rule 605 was first adopted, after-hours markets were still mostly the purview of 

institutional investors, but a growing number of broker-dealers had recently begun providing 

their retail customers with the ability to have their orders directed to electronic communication 

networks (ECNs) after the major markets close for the day. The growth in the availability of 

after-hours trading for individual investors raised concerns over, and heightened awareness of, 

the differences in execution quality for after-hours trades, which tend to be much riskier due to 

lower liquidity levels and higher volatility in after-hours markets.1175 

 

1173  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000). 

1174  See prior 17 CFR 242.600(b)(22), (77). 

1175  See, e.g., SEC, Div. of Mkt. Regul., Special Study: Electronic Communication Networks and After-Hours 

Trading (June 2000), available at https://www.sec.gov/news/studies/ecnafter.htm.  



322 

Along with an increase in access to after-hours trading, the late 1990s and early 2000s 

saw an increase in the prevalence of online brokerages, in which individual investors in 

particular were given newfound access to order entry systems. Early research into the rise of 

online brokerages describes a shift from a system in which retail brokers “communicate buy/sell 

recommendations to clients over the telephone” (presumably during regular working hours), to a 

system in which individual investors have “round-the-clock access to trading systems and 

account information.”1176 Logically, as investors make use of the “round-the-clock” access 

offered by online brokerages, the number of orders submitted outside of regular market hours has 

likely increased over the preceding decades. However, not all orders submitted after hours are 

eligible to trade in after-hours markets, which continues to be the case even in today’s market. 

For example, some broker-dealers’ platforms allow customers to submit orders at any time, but 

unless the customer requests to trade during extended hours and the security is eligible to trade as 

such, the order will only be executed during regular market hours.1177 Since these orders are not 

intended, and in many cases are not eligible, to execute outside of regular trading hours, these 

orders may not be subject to the same concerns that drove the Commission to exclude orders 

submitted outside of trading hours from Rule 605 reporting requirements in the Rule 11Ac1-5 

Adopting Release. 

 

1176  Jennifer Wu et al., Online Trading: An Internet Revolution, 4 Sloan Sch. of Mgmt. Mass. Inst. of Tech. 

Rsch. Notes (1999). 

1177  See, e.g., Extended Hours Overview, CHARLES SCHWAB, available at 

https://www.schwab.com/public/schwab/nn/qq/about_extended_hours_trading.html (2023); Extended-

Hours Trading, ROBINHOOD, available at https://robinhood.com/us/en/support/articles/extendedhours-

trading/ (last visited Jan. 29, 2024, 1:21 p.m.).  



323 

To estimate the amount of orders that are submitted outside of regular trading hours, data 

from the Tick Size Pilot B.I Market Quality dataset1178 were analyzed to break order volume 

down into different trading sessions according to when the order was eligible to trade.1179 The 

Commission considered only those orders that have an effective time during regular market 

hours to be eligible for Rule 605 reporting, and excluded orders that were otherwise excluded 

from preexisting Rule 605 reporting requirements, i.e., because they are an excluded order type 

or size. The Commission found that a small fraction of orders are effective outside of regular 

market hours (1.3%), while the vast majority of orders (98.7%) are effective during regular 

market hours.  

At least some of these orders, while submitted outside of regular market hours, execute 

during regular trading hours, e.g., because they are NMLOs that are only executable during 

regular trading hours.1180 In order to estimate the extent to which this occurs, a sample of 400 

 

1178  See supra note 1115 for dataset description. This analysis was included in the Proposing Release; see 

Proposing Release, 88 FR 3786 at 3846 (Jan. 20, 2023). 

1179  These trading sessions include (1) regular hours only; (2) extended hours only; (3) both regular and 

extended hours with an effective time during regular market hours; and (4) both regular and extended hours 

with an order effective time during extended hours. See Tick Size Pilot FAQs, Q4.11, supra note 1116. 

1180  Most retail brokers do not permit market orders during extended hours trading. See, e.g., Extended Hours 

Overview and Extended-Hours Trading, supra note 1177. 



324 

stocks1181 using CAT data from Q1 20231182 was analyzed to examine how the submission 

volume of executable NMLOs submitted outside of regular trading hours1183 compares to the full 

 

1181  This sample of stocks was constructed using data as of market close on Dec. 30, 2022, using the same 

methodology as in the Proposing Release. Market capitalization and price information were collected from 

the Center for Research in Security Prices (CRSP), and stocks with volume less than 1,000 shares, stocks 

with a closing price of less than $2, and dual-class shares were excluded. For each of the four market 

capitalization groups (less than or equal to $100 million, greater than $100 million and less than or equal to 

$1 billion, greater than $1 billion and less than or equal to $10 billion, greater than $10 billion), stocks were 

sorted by price and assigned to four equally-sized buckets. Within each sorted price bucket, 25 stocks were 

chosen at evenly spaced intervals, yielding 100 stocks per group for a total of 400 stocks. As a hypothetical 

example, from a price-sorted bucket with 50 stocks every second stock would be chosen to get 25 total 

stocks. From this initial sample of 400 stocks, four stocks were replaced due to being delisted during the 

Q1 2023 analysis period, and one stock was replaced due to abnormally high volume. 

1182  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1181 for information 

about how the 400-stock sample was selected. The CAT data consist of all orders eligible to trade during 

regular hours during Q1 2023 that were received for the 400 stocks at four types of reporting entities: 1) 

Exchanges, 2) Wholesalers, 3) Alternative Trading Systems (ATSs) and (4) Broker-Dealers. We excluded 

multi-day orders, orders received when the NBBO was locked or crossed, and all orders with handling 

instructions, with the exception of intermarket sweep orders (ISOs) for on-exchange orders, and with the 

exception of orders with handling codes CASH, DIR, DISQ, DNR, DNRT, RSV, and STP, for broker-

dealer and off-exchange orders. Certain on-exchange TIF codes are also excluded, including Fill or Kill, 

Good For Seconds, At the Close, At the Open, Auction or Kill, and Auction Only Order. For more 

information on order handling codes in CAT, see CAT REPORTING TECH. SPECIFICATIONS FOR INDUS. 

MEMBERS VERSION 4.0.0 r18 (Dec. 16, 2022), available at 

https://www.catnmsplan.com/sites/default/files/2022-

12/12.16.2022_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r18_CLEAN.pdf. 

We also exclude a small percentage of orders that had more shares traded than the original order size in its 

CAT lifecycle. We also excluded orders that had order modifications (3.4% of orders). For ATSs, we 

additionally excluded ATS-specific order types that were determined to not be eligible for Rule 605 

reporting. For Broker-Dealer order originations, we excluded orders received from the following account 

holder types: Employee Account, Market Making, Other Proprietary, and Error Account of the Firm. For 

both of the Broker-Dealer and Wholesaler route acceptances, we kept order acceptances if the CAT 

Reporter ID associated with the CRD is not an ATS. Execution times and effective spreads are measured 

relative to the time of order receipt by the market entity. Orders received in off trading hours were 

benchmarked to the first non-locked and crossed quote in the stocks’ listing market on the next trading day. 

For simplicity and without loss of generality, the analysis considers only NMLOs that are priced at the 

quote or better, i.e., NMLOs that are immediately executable upon order receipt. Limit orders are classified 

as marketable, at-the-quote, below-the-midpoint, at-the-midpoint, or beyond-the-midpoint, based on the 

distance of their limit price from the NBBO or NBBO midpoint at the time of order receipt. 

1183  The definition of marketability for the purposes of this analysis for pre-open orders is determined using the 

NBBO at the time that primary listing market has disseminated its first firm, uncrossed quotations in the 

security, such that orders to be executed prior to this time opening price are excluded. See supra section 

III.A.1.b) for more information about defining the marketability of orders submitted outside of regular 

market hours. 



325 

sample of executable NMLO submission volume.1184 This analysis confirms that pre-open orders 

make up a small percentage of order volume, representing around 1.3% of total submitted shares 

(0.4% of total submitted orders). However, further analysis reveals that these orders contain a 

higher concentration of orders associated with Individual Customer accounts. Specifically, for 

those pre-open orders that could be identified as originating from either individual or 

institutional customer accounts,1185 81.8% of these pre-open orders (82.6% of pre-open shares) 

originated from individual customer accounts. In comparison, individual customer accounts were 

responsible for just 1.5% of orders (1.7% of shares) of total individual and institutional customer 

account originations.  

This is consistent with the idea that at least some of this order flow represents orders that 

are submitted by individual investors outside of market hours, i.e., via online brokerage accounts, 

but not necessarily with the intention to engage in after-hours trading.  

c) Required Information 

In addition to decreasing the coverage of Rule 605, subsequent market changes since the 

initial adoption of Rule 605 may have also decreased the relevance of some of the metrics 

required to be reported by preexisting Rule 605 reporting entities. This section will discuss how 

 

1184  The CAT data used in this analysis have been updated since the Proposing Release for a more recent time 

period and to include the full sample of executable NMLOs described in note 1182 supra. A similar 

analysis in the Proposing Release used CAT data for a sample of 390 stocks from Mar. 2021 to compare 

NMLOs submitted outside of regular trading hours that were designated as only eligible to trade during 

regular trading hours to the volumes and characteristics of NMLOs submitted during a sample time window 

from 9:40 a.m. to 10:40 a.m. See Proposing Release, 88 FR 3786 at 3847 (Jan. 20, 2023). These updates to 

the data and methodology did not affect the Commission’s conclusions from this analysis relative to the 

Proposing Release, namely that pre-open orders represent a small percentage of order flow, contain a high 

concentration of individual investor orders, and likely have some differences in execution profiles as 

compared to orders submitted during regular market hours. 

1185  As the account type (i.e., individual or institutional) data field is only available upon order origination and 

is not transferred to the executing market center, the Commission was not able to differentiate individual 

investors in the CAT data for exchanges. 



326 

market changes may have affected, or will likely affect in the near future, aspects of several such 

metrics, including the definition of round lots for order size categories, the granularity of metrics 

related to time-to-execution, and the use of a five-minute time horizon for realized spreads. 

(1) Order Size Categories 

Preexisting Rule 605 defined order size categories in terms of numbers of shares. Given 

that share prices and thus the notional value of orders can differ dramatically, defining a size 

category in terms of number of shares has disadvantages.1186 Figure 1 shows that the vast 

majority of orders are for a notional value of less than $100,000, and Figure 2 shows that this is 

the case for stocks across all different price levels. This implies that, for a $500 stock in which a 

$100,000 order is equivalent to an order of only 200 shares, nearly all covered orders were 

clustered within preexisting Rule 605’s smallest order size category of 100 to 499 shares.1187 

Clustering all covered orders into a single category would have limited market participants’ 

ability to use these categories to compare across orders of different sizes in such higher-priced 

stocks. Furthermore, combined with the exclusion of orders for less than 100 shares, defining 

order sizes in terms of number of shares led to the exclusion of many orders in higher-priced 

stocks. For example, a 99-share odd-lot in a $500 stock already has a notional value of $49,500, 

which is greater than the notional value of around 93% all orders according to Figure 1. 

 

1186  See Virtu Letter II at 5, stating that “Rule 605’s approach to bucketing orders solely by share quantity 

yields skewed comparisons because it fails to take into account the notional value of orders.”  

1187  See prior 17 CFR 242.605(a)(1); see also supra note 1121 and corresponding text for a definition of the 

order size categories included in Rule 605 reporting requirements prior to these amendments. Consider also 

that a 400-share order in a $500 stock would already be considered a large “block” order according to some 

Regulation NMS rules. See, e.g., Rule 606(a)(1) of Regulation NMS (requiring reports on the routing of 

customer orders) and prior Rule 600(b)(25) of Regulation NMS (defining “customer order” to exclude an 

order with a market value of $200,000 or more); 17 CFR 242.604(b)(6) (providing an exception for orders 

of block size from required limit order display) and prior Rule 600(b)(12) of Regulation NMS (defining 

“block size” as, in part, an order for a quantity of stock having a market value of at least $200,000). 

Therefore, in reports under preexisting Rule 605, all non-block covered orders in such a stock were 

grouped in the smallest order size category. 



327 

Similarly, one industry analyst stated that the definition of order size categories in terms of 

number of shares, together with the exclusion of orders of less than 100 shares under preexisting 

Rule 605,1188 has led to the exclusion of more orders with low dollar values as the average stock 

price increases.1189  

Lastly, the Commission’s 2020 adoption of the MDI Rules included a new definition of 

“round lot” that would have caused some round lots to be excluded from reporting requirements, 

absent an update to Rule 605’s order size categories.1190 Specifically, the order size categories as 

defined under preexisting Rule 605, which excluded orders with fewer than 100 shares, would 

have excluded a portion of round lots for stocks with prices greater than $250.1191  

(2) Non-Marketable Limit Order Categories 

As a result of the categorization of NMLOs under preexisting Rule 605, execution quality 

statistics for some NMLOs may have included orders whose executions are more likely to 

 

1188  See supra section IX.C.3.b)(1)(a) for a discussion of the exclusion of orders that are less than 100 shares 

from preexisting Rule 605 reporting requirements. 

1189  See Phil Mackintosh, Modern Retail Needs Modern Rules, NASDAQ (May 27, 2021, 11:54 a.m. EDT), 

available at https://www.nasdaq.com/articles/modern-retail-needs-modern-rules-2021-05-27/. 

1190  See supra note 1016 for a definition of these tiers. 

1191  In addition, even prior to the implementation of the MDI Rules, a small number of NMS stocks have a 

round lot size smaller than 100. Until the round lot definition adopted pursuant to the MDI Rules is 

implemented, round lots continue to be defined in exchange rules. See MDI Adopting Release, 85 FR 

16726 at 16738 (Mar. 24, 2020). For most NMS stocks, a round lot is defined as 100 shares. According to 

TAQ Data, as of Mar. 2023, 11 stocks had a round lot size other than 100. Nine stocks had a round lot of 10 

and two stocks had a round lot of one. 



328 

depend on their limit prices and price movements in the market, and excluded orders whose 

executions are more likely to depend on their handling by the market center.1192 

Given that the aim of Rule 605 is to enable investors to compare and evaluate execution 

quality among different market centers,1193 Rule 605 reports are designed to include only orders 

that provide a basis for meaningful comparisons across measures of execution quality.1194 

Depending on their characteristics, execution quality statistics for some NMLOs may be less 

meaningful because their executions depend more on the order’s limit price and price movement 

in the market than on handling by the market center. In preexisting Rule 605, the exclusion of 

NMLOs with limit prices more than $0.10 outside the NBBO (“away-from-the-quote” NMLOs) 

from reporting requirements1195 was intended to eliminate NMLOs with less meaningful 

execution quality statistic.1196 The “near-the-quote” limit order category, consisting of NMLOs 

that were outside the NBBO by no more than 10 cents, was meant to include limit orders that are 

 

1192  The execution quality of NMLOs is relevant for both individual and institutional investors. Studies have 

shown that both institutional and individual investors likely make use of NMLOs. One academic study, 

using data on retail orders between 2003 and 2007 from two OTC market centers, estimated that NMLOs 

made up around 39% of individual investor order flow. See Eric K. Kelley & Paul C. Tetlock, How Wise 

are Crowds? Insights from Retail Orders and Stock Returns, 68 J. FIN. 1229 (2013). Other academic papers 

suggest that NMLO usage by institutional investors may also be high. See, e.g., Amber Anand et al., 

Empirical Evidence on the Evolution of Liquidity: Choice of Market Versus Limit Orders by Informed and 

Uninformed Traders, 8 J. FIN. MKT. 288 (2005); Ron Kaniel & Hong Liu, So What Orders Do Informed 

Traders Use?, 79 J. BUS. 1867 (2006). 

1193  See supra note 13. 

1194  See, e.g., Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000), stating that Rule 11Ac1-5 

“contains several conditions and exclusions that are intended to limit its scope to those orders that provide a 

basis for meaningful and comparable statistical measures of execution quality.” 

1195  See prior 17 CFR 242.600(b)(14), (37); prior 17 CFR 242.605(a)(1).  

1196  See, e.g., Disclosure of Order Routing and Execution Practices (Proposing Release), 65 FR 48406 at 48414 

(Aug. 8, 2000), stating that “Commission preliminarily believes that the rule's statistical measures (e.g., fill 

rates and speed of execution) for [limit orders with limit prices that are more than $0.10 outside the 

consolidated BBO at the time of order receipt] may be less meaningful because they would be more 

dependent on the extent to which the orders’ limit prices were outside the consolidated BBO (and 

movements in market prices) than on their handling by a market center.” 



329 

submitted away from the NBBO, but that still have a relative likelihood of being executed (hence 

the maximum distance requirement from the NBBO).1197  

However, the likelihood of execution of a NMLO greatly depends on the movement of 

the NBBO, such that even an order submitted within 10 cents of the NBBO may never receive an 

opportunity to be executed if that order never touches the NBBO (e.g., if prices were to move 

away from that order immediately after submission), and an order that is submitted further than 

10 cents may indeed eventually execute if prices move towards the order. Figure 81198 presents 

data on the fill rates of NMLO orders,1199 broken down by NMLO type, including away-from-

the-quote, near-the-quote, and at-the-quote NMLOs, along with several categories of inside-the-

quote NMLOs depending on their distance from the midpoint (below-the-midpoint, at-the-

 

1197  In preexisting Rule 605, the categorization of a NMLO as a “near-the-quote” NMLO was based on the 

NBBO as of the time of order receipt. See prior 17 CFR 242.600(b)(37). 

1198  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3849 (fig. 8) (Jan. 20, 2023). 

The fill rates in the analysis in the Proposing Release are somewhat higher – beyond-the-midpoint (5.07%), 

at-the-midpoint (4.96%), below-the-midpoint (2.66%), at-the-quote (2.89%), near-the-quote (0.61%), and 

away-from-the-quote (0.18%) – compared to those in the updated analysis in Figure 8. However, it remains 

the case that near-the-quote and away-from-the-quote NMLOs have similarly low fill rates compared to 

other types of NMLOs. Therefore, changes to the MIDAS dataset did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that the exclusion of away-from-

the-quote NMLOs and the inclusion of near-the-quote NMLOs under preexisting Rule 605 was based on a 

threshold that does not optimally differentiate between orders that do and do not have a meaningful chance 

to execute. 

1199  Due to the exclusion of orders with more than one submission message from the MIDAS dataset as 

described in supra note 1130, an analysis using this data may overestimate fill rates. This is because many 

of the orders associated with more than one submission message are so-called “cancel/replace” orders, in 

which an existing order is cancelled and replaced with a modified order, such as an order with a different 

price. The exclusion of these orders will thus tend to exclude more cancellations than executions, leading to 

higher fill rates. An alternate analysis, rather than dropping order ids (“oids”) with multiple submission 

messages, summed submission volume by stock-day-exchange-oid and assigned to this volume the price at 

the time of first submission. The fill rates resulting from this alternative analysis differ from those in Figure 

8 by less than 0.01 percentage points; thus, the Commission’s conclusions from this analysis are not 

affected by the exclusion of orders with multiple submission messages. 



330 

midpoint, and beyond-the-midpoint),1200 using a sample of MIDAS NMLO submission data.1201 

The figure shows that near-the-quote and away-from-the-quote NMLOs appear very similar in 

terms of fill rates (0.27% and 0.02%, respectively), particularly compared to other types of 

NMLOs (e.g., inside-the-quote NMLOs have an average fill rate of around 0.36% to 3.57%). The 

fact that near-the-quote and away-from-the-quote NMLOs have similar fill rates is consistent 

with the possibility that the exclusion of NMLOs priced more than 10 cents away from the 

NBBO under preexisting Rule 605 was based on a threshold that does not optimally differentiate 

between orders that have a meaningful chance to execute. Meanwhile, orders that never have a 

meaningful opportunity to execute (e.g., because they never touch the NBBO) may have been 

included in Rule 605 statistics prior to these amendments.  

 

1200  These categories of NMLOs are defined as follows. “Beyond-the-midpoint” NMLOs consist of, for sell 

orders, NMLOs with limit prices lower than the midpoint but higher than the NBB, and, for buy orders, 

NMLOs with limit prices higher than the midpoint but lower than the NBO. “At-the-midpoint” NMLOs 

consist of NMLOs with limit prices equal to the NBBO midpoint. “Below-the-midpoint” NMLOs consist 

of, for sell orders, NMLOs with limit prices higher than the midpoint but less than the NBO and, for buy 

orders, NMLOs with limit prices lower than the midpoint but higher than the NBB. “At-the-quote” NMLOs 

consist of, for sell orders, NMLOs with limit prices equal to the NBO and, for buy orders, NMLOs with 

limit prices equal to the NBB. “Near-the-quote” NMLOs consist of, for sell orders, NMLOs with limit 

prices worse (i.e., higher) than the NBO by no more than $0.10 and, for buy orders, NMLOs with limit 

prices worse (i.e., lower) than the NBB by no more than $0.10. “Away-from-the-quote” NMLOs consist of, 

for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by more than $0.10 and, for buy 

orders, NMLOs with limit prices worse (i.e., lower) than the NBB by more than $0.10. 

1201  The distribution of orders into various NMLO categories may change following the implementation of the 

MDI Rules. Specifically, the NBBO is anticipated to narrow for stocks priced above $250 as a result of the 

new definition of round lots, which will likely decrease the number of inside-the-quote NMLOs and 

increase the number of quotes at or outside of the quotes for these stocks. See supra section IX.C.1.c)(2). 

However, it is not clear how a change in the distribution of orders into various NMLO categories will affect 

the average fill rates of these NMLO categories.  



331 

Figure 8: Fill Rates of NMLOs, Mar. 2023 

 

This figure plots the fill rates of order flow that can be categorized into various NMLO categories, using order submission data 

from MIDAS. Fill rates are calculated as the number of shares executed of a given NMLO type, summed across all stocks and 

days in the sample, divided by the number of shares submitted of a given NMLO type, summed across all stocks and days. See 

supra note 1130 for a description of the dataset and supra note 1200 for definitions of the NMLO categories. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. See supra note 1201 and section IX.C.1.c)(2). 

To get an idea of the extent to which these orders were included in Rule 605 statistics 

prior to these amendments, Figure 91202 breaks down the sample of MIDAS NMLO submission 

data1203 into NMLO types.1204 According to Figure 8, more than 99% of near-the-quote NMLOs 

do not execute, which, according to Figure 9 represents around 29.3% of total submission 

 

1202  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3848 (fig. 7) (Jan. 20, 2023). 

The share volumes in the Proposing Release are similar for beyond-the-midpoint (2.9%), at-the-midpoint 

(1.2%), below-the-midpoint (2.9%), at-the-quote (33.3%), near-the-quote (35.8%), and away-from-the-

quote (23.8%) NMLOS. Therefore, changes to the MIDAS dataset did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that near-the-quote NMLOs 

represent around a third of total submission volume. 

1203  See supra note 1130 for a description of the dataset. 

1204  Results may be different following the implementation of the MDI Rules. See supra note 1201 and section 

VII.C.1.d)(2) for further discussion.  



332 

volume.1205 While it is possible that some of these orders did not execute because of their 

handling by the market center, it is unlikely that this is the case for all of them, and likely that 

some of the lack of fills was the result of other factors, such as price movements or cancellations 

by the submitter.1206 

 

1205  These numbers are the same as those in the Proposing Release. See Proposing Release, 88 FR 3786 at 3848 

(Jan. 20, 2023). 

1206  See infra section IX.E.2.b) for a discussion of how NMLO orders that are cancelled quickly after 

submission may impact fill rates. 



333 

Figure 9: Order Submission Share Volume by NMLO Type, Mar. 2023 

 

This figure plots the percentage of share volume that can be categorized into various NMLO categories, using order submission 

data from MIDAS. See supra note 1130 for a description of the dataset and supra note 1200 for definitions of the NMLO 

categories. Percentages are calculated as the number of submitted shares within a given NMLO category summed across all 

stocks and days in the sample, divided by the total number of submitted shares summed across all stocks and days. This analysis 

uses data from prior to the implementation of the MDI Rules and results may be different following the implementation of the 

MDI Rules. See supra note 1201 and section IX.C.1.c)(2). 

Furthermore, the fact that the threshold for inclusion in preexisting Rule 605 reports was 

based on nominal terms (i.e., 10 cents) means that NMLO coverage varied depending on the 

stock price: high-price stocks with smaller relative tick sizes would have had less NMLO 

coverage, since 10 cents represents a relatively tighter band around the NBBO when considered 



334 

as a percentage of stock price.1207 This is shown in Figure 10,1208 which breaks down the NMLO 

submission volumes in Figure 9 by both order type and average share prices. The figure shows 

that away-from-the-quote NMLOs represent 35.5% of total NMLO share volume for the group 

of stocks with the highest share prices, but only 15.0% for the group of stocks with the lowest 

share prices. Given the positive fill rates for away-from-the-quote NMLOs from Figure 8, this 

implies that a higher portion of executed away-from-the-quote NMLOs have been excluded from 

preexisting Rule 605 reports for high-priced stocks. Excluding large portions of relevant NMLOs 

results in less reliable market quality measures; this may especially be the case for high-priced 

stocks, thus making comparisons between market centers less reliable for these stocks.  

 

1207  Results may be different following the implementation of the MDI Rules. Specifically, NMLO coverage 

for stocks priced above $250 may decrease even further, as the narrowing of the NBBO for these stocks 

will result in even tighter price bands. See supra section IX.C.1.c)(2) for further discussion. 

1208  The MIDAS data used in analysis has been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3850 (fig. 9) (Jan. 20, 2023). 

The Proposing Release similarly found that away-from-the-quote NMLOs represent a higher percentage 

(24.4%) of total NMLO share volumes for the group of stocks with the highest share prices as compared to 

the group of stocks with the lowest share prices (8.4%). Therefore, changes to the MIDAS dataset did not 

affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely that a 

higher portion of executed away-from-the-quote NMLOs in high-priced stocks were excluded from 

preexisting Rule 605 reports. 



335 

Figure 10: Order Submission Share Volume by NMLO Type and Stock Price Quartiles, 

Mar. 2023 

 

This figure plots the percent of submitted shares that can be categorized into various NMLO categories, using order submission 

data from MIDAS. Stocks are split into quartiles based on average stock prices. Percentages are calculated as the number of 

submitted shares within a given order type category, summed across all stocks within a given market capitalization group and all 

days in the sample, divided by the total number of submitted shares summed across all stocks within a given market 

capitalization group and all days in the sample. See supra note 1130 for a description of the dataset and supra note 1200 for 

definitions of the NMLO categories. This analysis uses data from prior to the implementation of the MDI Rules and results may 

be different following the implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). 

Preexisting Rule 605 also required execution quality information for NMLOs to be 

measured relative to the time of order receipt. As will be shown in Figure 12 below, NMLOs that 

are submitted further away from the NBBO tend to take longer from the time of order receipt to 

execute than those submitted closer to the NBBO, as the NBBO has a further distance to move 

before it reaches the order’s limit price. This requirement thus may have made it difficult to 

compare the execution times of market centers that handle NMLOs with varying distances from 

the NBBO. 



336 

(3) Midpoint-or-Better NMLOs 

Prior to these amendments, Rule 605 reports required the separate reporting of execution 

quality information for inside-the-quote NMLOs. However, the Commission understands that 

some inside-the-quote limit orders may have different execution quality characteristics than other 

types of NMLOs, including other inside-the-quote NMLOs, and that this may vary across market 

centers. In particular, similarly to market and marketable limit orders, some at-the-midpoint and 

beyond-the-midpoint limit orders (collectively, “midpoint-or-better” orders) are submitted by 

traders with the intention of executing immediately, in this case against hidden or odd-lot inside-

the-quote liquidity. However, because they are not a marketable order type (i.e., they do not fully 

cross the spread), preexisting Rule 605 did not require certain statistics that are appropriate for 

marketable orders, such as effective spreads, to be reported for inside-the-quote NMLOs.1209 

Furthermore, some market centers, such as some wholesalers, treat “beyond-the-midpoint” limit 

orders (i.e., NMLOs that are priced more aggressively than the midpoint) like marketable limit 

orders and will offer price improvement to these orders.  

Confirming that there are differences between certain types of inside-the-quote NMLOs, 

Table 41210 presents results from an analysis of the execution quality of different order types, 

 

1209  For market and marketable limit orders, the effective spread captures how much more than the stock’s 

estimated value a trader has to pay for the immediate execution of its order. See infra section IX.C.3.c)(6). 

1210  The CAT data used in this analysis have been updated since the Proposing Release for a more recent time 

period, as well as to include a larger sample of reporting entities (both wholesalers and exchanges/ATSs). 

Consistent with requiring time-to-execution buckets in Rule 605 reports rather than time-to-execution 

statistics (see supra section III.B.3), the methodology has also been updated to capture execution speeds as 

the percent of executed shares that are executed in under one millisecond, rather than mean and median 

execution times. See Proposing Release, 88 FR 3786 at 3850 (tbl. 5) (Jan. 20, 2023). The results in the 

Proposing Release similarly show that beyond-the-midpoint NMLOs executed by wholesalers tend to have 

faster time-executions and higher fill rates than other types of inside-the-quote NMLOs. Therefore, these 

updates did not affect the Commission’s conclusions from this analysis relative to the Proposing Release, 

namely that beyond-the-midpoint orders have different execution characteristics than other types of inside-

the-quote NMLOs. See infra note 1213 for further discussion comparing the results from the Proposing 

Release to those in Table 4. 



337 

including market, marketable limit, and various types of inside-the-quote NMLOs, along with at-

the-quote NMLOs. The analysis uses a sample of orders from CAT data for the period of Q1 

2023.1211 First, the high percentage of beyond-the-midpoint and at-the-midpoint NMLO share 

volume that is submitted with IOC designations as compared to below-the-midpoint and at-the-

quote NMLOs confirms that these orders are often submitted with the intention of executing 

immediately.1212 Furthermore, the results show that there are differences between the execution 

characteristics of midpoint-or-better NMLOs as compared to NMLOs that are below the 

midpoint or at the quote. For example, for wholesalers, there is a notable difference in the fill 

rates of midpoint-or-better NMLOs (9.8% to 10%%) as compared to NMLOs below the 

midpoint (3.7% to 4.4%). Similarly, while around 70-77% of on-exchange midpoint-or-better 

NMLOs execute in less than a millisecond, this number drops to around 28.6% for below-the-

midpoint NMLOs, and 9.3% for at-the-quote NMLOs.1213 This analysis suggests that midpoint or 

better orders have a sufficiently different execution profile from other NMLOs to warrant 

different reporting requirements. 

 

1211  This analysis uses CAT data for a sample of 400 stocks. See supra note 1182 for a description of the 

dataset. In order to focus on NMLOs that will be included in Rule 605 reports as amended, the analysis 

includes only NMLOs that are immediately executable upon entry, i.e., NMLOs that are submitted at or 

better than the quote. 

1212  This dataset is from prior to the implementation of the MDI Rules and the distribution of orders into 

various NMLO categories, including at-and-beyond-the-midpoint orders, may change following the 

implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). However, it is not clear 

how a change in the distribution of orders into various NMLO categories will affect the average fill rates 

and time-to-execution of these NMLO categories.  

1213 The analysis in the Proposing Release additionally looked at the percentage of price-improved orders 

across different order types executed by wholesalers and found that beyond-the-midpoint orders are offered 

price improvement by wholesalers more often than other inside-the-quote NMLOs. See Table 5 in the 

Proposing Release, 88 FR 3786 at 3850 (Jan. 20, 2023). However, as stated by a commenter, at least some 

of a NMLO’s price improvement will be driven by its limit price, which is outside the control of the market 

center. See Schwab Letter at 32. The Commission agrees with the commenter and therefore focuses this 

analysis on time-to-execution and fill rates.  



338 

Table 4: Execution Quality Characteristics Across Different Order Types,  

Q1 2023 

Exchanges & ATSs 

IOC Volume (% Of 

Share Volume) 
Fill Rate (%) 

Executions Under 1 

Millisecond (%) 

Market 22.3% 84.2% 48.9% 

Marketable Limit 92.6% 14.1% 97.1% 

Beyond-the-Midpoint 35.8% 0.3% 76.9% 

At-the-Midpoint 37.9% 2.2% 70.4% 

Below-the-Midpoint 4.7% 0.1% 28.6% 

At-the-Quote 13.3% 0.9% 9.3% 

Wholesalers 

IOC Volume (% Of 

Share Volume) 
Fill Rate (%) 

Executions Under 1 

Millisecond (%) 

Market 0.2% 94.8% 11.1% 

Marketable Limit 62.9% 39.1% 20.2% 

Beyond-the-Midpoint 90.8% 10.0% 18.9% 

At-the-Midpoint 84.2% 9.8% 12.6% 

Below-the-Midpoint 65.3% 3.7% 5.8% 

At-the-Quote 67.0% 4.4% 11.7% 

This table shows execution quality metrics for different order types using CAT data during the period of Q1 2023, along with the percentage 

of shares that are submitted with IOC designations (calculated as the number of shares submitted with an IOC designation summed across all 

stocks and days in the sample, as a percentage of the total number of submitted shares summed across all stocks and days). Also presented are 

fill rates (calculated as the number of shares executed, summed across all stocks and days in the sample, divided by the number of shares 

submitted, summed across all stocks and days in the sample.), and percentage of executed orders that execute in less than one millisecond 
(calculated as the number of shares executed in less than one millisecond summed across all stocks and days, as a percentage of the total 

number of executed orders summed across all stocks and days). Results are presented separately for Wholesalers and for Exchanges and 

ATSs. Large block orders (i.e., orders greater than $200,000) are excluded from this analysis. See supra note 1211 for dataset description and 
supra note 1200 for definitions of the NMLO categories. As discussed in supra note 1182, this analysis excludes some orders, including orders 

with certain handling codes and ATS-specific order types that were determined to not be eligible for Rule 605 reporting. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI Rules. See 

supra note 1212 and section IX.C.1.c)(2).  

(4) Time-to-Execution 

Prior to these amendments, Rule 605 required the reporting of time-to-execution 

information in two ways. First, for market and marketable limit orders, reporting entities were 

required to report the share-weighted average time-to-execution for orders executed with price 

improvement, at the quote, and with price dis-improvement, calculated based on timestamps 



339 

recorded in seconds. Second, for all orders, reporting entities were required to report the number 

of shares executed within certain predefined time-to-execution categories or buckets.1214  

First, calculating average time-to-execution statistics using timestamps recorded in terms 

of seconds does not reflect changes in market speeds. Figure 111215 uses data from the SEC’s 

MIDAS analytics tool1216 to plot the percentage of on-exchange NMLOs that, conditional on 

being executed,1217 are fully executed within one second or less from the time of submission 

between Q4 2012 and Q1 2023. The figure shows that this percentage has increased over time 

across different market capitalization groups, and that in Q1 2023 nearly half (48.0%) of 

executed NMLOs are executed in less than one second in large market cap stocks. Therefore, 

while timestamps expressed in seconds may have been appropriate for the markets when Rule 

605 was first adopted, they are likely to miss variation in time-to-execution across market centers 

in today’s markets.1218 

 

1214  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (detailing time-to-execution buckets of 0 to 9 seconds, 10 

to 29 seconds, 30 to 59 seconds, 60 to 299 seconds, and 5 to 30 minutes after the time of order receipt). 

1215  The data used in this analysis have been updated since the Proposing Release to include a more recent time 

period. See Proposing Release, 88 FR 3786 at 3851 (fig. 10) (Jan. 20, 2023), which presents the same 

analysis for Q4 2012 through Q1 2022. The percentage of NMLOs executed within one second has 

decreased slightly since Q1 2022. However, these differences due to updates to the dataset did not affect 

the Commission’s conclusions from this analysis relative to the Proposing Release, namely that the 

percentage of NMLOs executed within one second has generally increased over time. 

1216  See Conditional Cancel and Trade Distributions (Dec. 2023), SEC, available at 

https://www.sec.gov/marketstructure/downloads.html). If the order is not fully executed, it is treated as 

canceled at the close. See Quote Life Report Methodology, SEC, available at 

https://www.sec.gov/marketstructure/quote-life-report-methodology (last visited Jan. 30, 2024, 3 p.m.). 

1217  I.e., Figure 8 plots the number of fully executed NMLOs executed within one second relative to the total 

number of fully executed on-exchange NMLOs. In contrast, Figure 6 plots the number of executed NMLO 

shares divided by the total number of submitted NMLO shares. 

1218  See, e.g., Better Markets Letter at 3, stating that “there have been significant developments in trading since 

Rule 605 was adopted. It is now done electronically with automated systems and the speeds have increased 

exponentially, measured in milli or microseconds, not mere seconds;” and FIF Letter at 17, stating that 

“market centers, in particular, typically record trading events with greater precision than milliseconds.” 



340 

Figure 11: Percentage of NMLOs Executed Within One Second, Q4 2012 to Q1 2023 

 

This figure plots the percentage of NMLOs that, conditional on being executed on a national securities exchange, are executed 

within one second or less from the time of submission between Q4 2012 and Q1 2023 using data from the SEC’s MIDAS 

analytics tool. See supra note 1216 for dataset description. 

Second, given that many orders are executed on a sub-second basis, the time-to-execution 

buckets prescribed by preexisting Rule 605 are not able to fully capture variations in execution 

times across order types.1219 To illustrate this, Figure 121220 groups on-exchange NMLO 

 

1219  See supra note 1214 for a definition of these time-to-execution categories. 

1220  The MIDAS data used in this analysis has been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3852 (fig. 11) (Jan. 20, 2023). 

The distributions of orders across time-to-execution buckets for different NMLO categories are similar in 

the Proposing Release: for inside-the-quote NMLOs, 84.2% to 85.7% of orders were grouped in the 

shortest time-to-execution bucket (from 0 to less than 10 seconds), depending on the distance to the 

midpoint, while the category corresponding to the longest time-to-execution bucket (5 to 30 minutes) has 

only 1.1% to 1.3% of executions. Therefore, changes to the MIDAS dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that the time-to-

execution categories in preexisting Rule 605 likely did not fully capture variations in the execution times of 

orders across reporting entities.341 

executions collected from MIDAS for the period of Mar. 20231221 into time-to-execution buckets 

that correspond to those defined in preexisting Rule 605. The figure shows that, while away-

from-the-quote and near-the-quote NMLOs are relatively evenly distributed across the time-to-

execution categories, these categories do not capture much differentiation for other NMLO types, 

particularly for those that take place inside the quote. For inside-the-quote NMLOs, 66.6% to 

86.9% of orders are grouped in the shortest time-to-execution bucket (from 0 to less than 10 

seconds), depending on the distance to the midpoint, while the category corresponding to the 

longest time-to-execution bucket defined by preexisting Rule 605 (5 to 30 minutes) has 0.4% to 

0.6% of inside-the-quote NMLO executions. Therefore, these time-to-execution categories likely 

did not fully capture variations in the execution times of these orders across reporting entities. 

 

1221  See supra note 1130 for data description. This dataset includes only NMLOs submitted to exchanges that 

do not immediately execute and are subsequently posted to the limit order book. The results of this analysis 

may not reflect the execution quality of inside-the-quote NMLOs that execute immediately, e.g., against 

hidden liquidity on the limit order book. Time-to-execution is calculated as the time for order receipt to the 

first time that one or more of the order’s shares are executed. Furthermore, this dataset is from prior to the 

implementation of the MDI Rules and the distribution of orders into various NMLO categories may change 

following the implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). However, it 

is not clear how a change in the distribution of orders into various NMLO categories will affect the average 

time-to-execution of these NMLO categories. 



342 

Figure 12: Distribution of NMLO Execution Times, Mar. 2023 

 

This figure plots the distribution of executed shares across different time-to-execution categories, for different categories of 

NMLOs, using data from MIDAS. Percentages are calculated as the number of shares in a given order type category that 

executed within a given time category, summed across all stocks and days in the sample, divided by the total number of executed 

shares within a given order type category, summed across all stocks and days in the sample. Execution times are calculated as the 

time of order receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the time of executability) to the first time that 

one or more of the order’s shares are executed. See supra note 1130 for dataset description and supra note 1200 for definitions of 

the NMLO categories. This analysis uses data from prior to the implementation of the MDI Rules and results may be different 

following the implementation of the MDI Rules. See supra note 1221 and section IX.C.1.c)(2). 

MIDAS data include only orders and quotes that are posted on national securities 

exchanges’ limit order books and trades that are executed against those orders,1222 and as such it 

is not possible to view the submission times (and thus calculate the time-to-execution of) market 

and marketable limit orders using MIDAS data. As a result, the above analysis is only able to 

consider the time-to-execution of on-exchange NMLOs. In order to estimate the time-to-

execution of both on- and off-exchange orders, including market and marketable limit orders, the 

Commission used the Tick Size Pilot B.I Market Quality data from April 2016 until March 

 

1222  See supra note 1130. MIDAS data include information about off-exchange trade executions, but not 

information about any off-exchange order submissions, so it is also not possible to use MIDAS data to 

calculate the time-to-execution of off-exchange orders. 



343 

2019.1223 Figure 131224 shows the distribution of time-to-execution statistics for market and 

marketable limit orders, along with the three categories of non-marketable limit orders required 

in Rule 605 reports prior to these amendments (i.e., inside-the-quote, at-the-quote, and near-the-

quote). Note that the time-to-execution categories defined in the Tick Size Pilot dataset are more 

granular than those in preexisting Rule 605.  

 

1223  See supra note 1115 for data description. As the Tick Size Pilot only collected data for small cap stocks, 

these execution times are not necessarily representative of all stocks. For example, larger market cap stocks 

are typically more liquid and likely execute faster. Also, as this is an older dataset (Apr. 2016 until Mar. 

2019), it may be that market speeds have changed since this time. However, as it is likely that market 

speeds have only gotten faster since this time period, it could represent a lower bound on execution times 

and therefore still give an idea of how relevant the preexisting Rule 605 time-to-execution buckets are for 

market and marketable limit orders. Lastly, this dataset also includes off-exchange orders, while the 

MIDAS data include only on-exchange orders, which could result in different execution times between the 

two datasets. Furthermore, this dataset is from prior to the implementation of the MDI Rules and the 

distribution of orders into various NMLO categories may change following the implementation of the MDI 

Rules. See supra note 1207 and section IX.C.1.c)(2). However, it is not clear how a change in the 

distribution of orders into various NMLO categories will affect the average time-to-execution of these 

NMLO categories. 

1224  The same figure can be found in the proposing release. See Proposing Release, 88 FR 3786 at 3853 (Figure 

12) (Jan. 20, 2023). 



344 

Figure 13: Distribution of Order Execution Times, Apr. 2016 to Mar. 2019 

 

This figure plots the distribution of execution times across different time-to-execution categories, for market orders, marketable 

limit orders, and different categories of NMLOs. Percentages are calculated as the number of shares in a given order type category that 

executed within a given time category, summed across all stocks and days in the sample, divided by the total number of executed shares within a 

given order type category, summed across all stocks and days in the sample. See supra note 1124 for dataset description and supra note 1197 for 

definitions of the NMLO categories. See supra note 1115 for dataset description and supra note 1200 for definitions of the NMLO categories. 

This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1223 and section IX.C.1.c)(2). 

Echoing the results using MIDAS data in Figure 12, Figure 13 shows that, for at-the-

quote and near-the-quote limit orders, executions are reasonably well distributed across the 

different time-to-execution buckets and there is positive volume in the longer time-to-execution 

buckets that are included in both preexisting Rule 605 and the Tick Size Pilot categorizations (30 

to 59 seconds, 60 to 299 seconds, and 5 to 30 minutes). However, similar to the results for 

inside-the-quote NMLOs, for market and marketable limit orders, execution times are mostly 

bunched up at the faster end of their time buckets; in fact, the vast majority of these orders are 

executed in under one second, falling within the shortest preexisting Rule 605 category of shares 

executed from 0 to 9 seconds. Likewise, the longer time-to-execution buckets that are included in 

both preexisting Rule 605 and the Tick Size Pilot categorizations are virtually empty. Therefore, 

as with inside-the-quote NMLOs, preexisting Rule 605 time-to-execution categories were 



345 

missing information about potential differences across reporting entities in terms of the execution 

times of the market and marketable limit orders that they handle, which has limited the 

usefulness of time-to-execution information for investors.1225 

(5) Realized Spreads 

Because of the increase in the speed at which markets operate,1226 as well as the diversity 

of size and liquidity characteristics across stocks, the requirement in preexisting Rule 605 to use 

a single five-minute benchmark to calculate realized spreads1227 may have limited the ability of 

market participants to use this measure to control for adverse selection risk when evaluating 

execution quality metrics, such as realized spreads.  

Realized spreads are calculated by comparing an order’s transaction price to the NBBO 

midpoint (i.e., an estimate of the average expected trade price) at some later time interval. 

Realized spreads can be decomposed into the difference between the effective spread, which 

captures how much a trader has to pay for (and thus how much a liquidity provider earns from) 

the immediate execution of an order, and the movement in market prices some time interval after 

 

1225  Academic literature suggests that time-to-execution information would be especially useful for institutional 

investors with short-lived private information, who profit from trading against other, slower institutions. 

See, e.g., Ohad Kadan et al., Trading in the Presence of Short-Lived Private Information: Evidence from 

Analyst Recommendation Changes, 53 J. FIN. QUANTITATIVE ANALYSIS 1509 (2018). Time-to-execution 

information would also benefit institutions that engage in market making, as one study shows these 

institutions are likely to rely on speed to reduce their exposure to adverse selection and to relax their 

inventory constraints. See Jonathan Brogaard et al., Trading Fast and Slow: Colocation and Liquidity, 28 

REV. FIN. STUD. 3407 (2015). 

1226  See supra section IX.C.3.c)(4) for a discussion of evidence of increased market trading speeds.  

1227  See prior 17 CFR 242.600(b)(9). Prior to these amendments, for buy orders, realized spread was double the 

amount of difference between the execution price and the midpoint of the NBBO five minutes after the 

time of order execution. For sell orders, realized spread was double the amount of difference between the 

midpoint of the NBBO five minutes after the time of order execution and the execution price.  



346 

a trade (i.e., price impact).1228 Liquidity providers face adverse selection risk when they 

accumulate inventory, for example, by providing liquidity to more informed traders, because of 

the risk of market prices moving away from market makers before they can unwind their 

positions.1229 Thus, price impact can be thought of as a measure of adverse selection. Liquidity 

providers will generally set effective spreads to compensate for this adverse selection risk. 

Realized spreads, as the residual between the effective spread and price impact, can thus be 

thought of as the portion of the spread that liquidity providers earn in excess of adverse 

selection.1230 Because of their inverse relationship with price impact, smaller (or even negative) 

realized spreads reflect that liquidity providers are earning less of the spread from their liquidity 

 

1228  Denoting by pt the price of a trade, dt the direction of the trade, mt the midpoint at the time of trade, and 

mt+1 at the midpoint at time t+1 following a trade, the realized spread can be calculated as (effective spread 

– price impact) = 2*dt*(pt – mt) – 2* dt *(mt+1 – mt) =  2* dt *( pt – mt+1). In preexisting Rule 605, realized 

spreads were required to be measured using the price at the time of order execution, and effective spreads 

were required to be measured using the midpoint price at the time of order receipt. To the extent that there 

were significant differences in the time of order receipt and the time of order execution, the decomposition 

of realized spreads in preexisting Rule 605 reports into effective spreads and price impact was not exact. 

The decomposition of realized spreads into effective spreads and price impact will continue to not be exact 

in the amended rule; see infra note 1484 for further discussion.  

1229  For example, if a liquidity provider provides liquidity to an informed trader, who is selling its shares 

because it knows that the share price is about to drop, the market maker will accumulate a long position in 

the stock. If the market maker were to immediately try to unwind this position in the market, the share price 

may have already dropped as a result of the realization of the informed trader’s information, and the market 

maker will have to sell at a lower price than what it paid for the shares. 

1230  See, e.g., Conrad and Wahal, supra note 544, at 240, stating that the realized spread “can be thought of as 

the residual profit to liquidity providers.” Realized spreads do not measure the actual trading profits that 

liquidity providers earn from supplying liquidity. In order to estimate the trading profits that liquidity 

providers earn, we would need to know at what times and prices the liquidity provider executed the 

offsetting position for a trade in which it supplied liquidity (e.g., the price at which the liquidity provider 

later sold shares that it bought when it was supplying liquidity). If liquidity providers offset their positions 

at a price and time that is different from the NBBO midpoint at the time lag used to compute the realized 

spread measure, then the realized spread measure is an imprecise proxy for the profits liquidity providers 

earn supplying liquidity. Differences in inventory holding periods of different liquidity providers could also 

create differences in the trading profits that liquidity providers earn that would not be captured in the 

realized spread measure if it is estimated over the same time horizon for all liquidity providers. See 

Lingyan Yang & Ariel Lohr, The Profitability of Liquidity Provision (working paper Feb. 18, 2022), 

available at https://ssrn.com/abstract=4033802 (retrieved from SSRN Elsevier database). Additionally, 

realized spread metrics do not take into account any transaction rebates or fees, including PFOF, that a 

liquidity provider might earn or pay, which would also affect the profits they earn when supplying 

liquidity.  



347 

provision, which is usually a reflection of order flow with greater adverse selection risk. 

Therefore, all else being equal, if a market center reports favorable execution quality measures 

but a low or negative realized spread, this would reflect that the market center is still providing 

liquidity even during less favorable conditions.  

Several commenters stated that realized spread is an imperfect proxy for revenue from 

liquidity provision.1231 The Commission does not claim that the realized spread is a measure of a 

firm’s overall profitability.1232 The Commission stated in the Proposing Release and reiterates 

here that, to the extent realized spreads capture adverse selection costs faced by liquidity 

providers, they provide a measure of the potential profitability of trading for liquidity 

providers.1233 In addition, the usefulness of realized spreads as a control variable for adverse 

selection does not depend on their being a measure of profitability.1234  

Realized spreads vary significantly with the chosen time horizon. An academic study 

shows that realized spreads will generally decrease as the time horizon over which they are 

calculated is lengthened, highlighting that realized spreads are highly dependent on the time 

horizon over which they are calculated.1235 The same study also finds that different time horizons 

 

1231  See, e.g., Rule 605 Citadel Letter at 8-9, stating that “the Commission’s assertion that realized spread can 

serve as a proxy for liquidity provider profitability has been thoroughly discredited, including by academic 

research” and Virtu Letter II at 12, stating that “there is a risk that such measurements are improperly used 

… as a proxy for liquidity providers’ profitability.” See also Conrad and Wahal, supra note 544, at 247. 

1232  For example, realized spreads do not account for other costs that liquidity providers may incur, such as 

fixed costs for setting up their trading infrastructure and costs for connecting to trading venues and 

receiving market data. See supra section III.B.4.a)(2) for further discussion. See also supra note 1230. 

1233  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). 

1234  See, e.g., infra note 1506, discussing commenter support for the usefulness of realized spreads as a measure 

of order flow characteristics. 

1235  See Conrad and Wahal, supra note 544.  



348 

may be appropriate for different stocks, depending on the stock’s market capitalization.1236 One 

way to interpret the decline in realized spreads as the time horizon increases is to consider that 

information is incorporated into market prices incrementally; a longer time horizon thus means 

that more of the price impact has been realized. The profitability of a market making strategy 

increases with the speed at which market makers are able to turn over their inventory before 

adverse movements in prices.  

In order to examine how realized spreads vary with the chosen time horizon, the 

Commission analyzed realized spreads calculated over time horizons ranging from 10 

milliseconds to five minutes,1237 as well as how they differ based on market capitalization size, 

using TAQ data from Q1 2023 for a sample of 400 stocks from four different market 

capitalization groups (less than $100 million, $100 million to $1 billion, $1 billion to $10 billion, 

and over $10 billion).1238 Following the academic literature, results are presented separately for 

different market capitalization groups as a proxy for different liquidity variables, with high 

market capitalization correlating highly with higher liquidity.1239 The results are presented in 

 

1236  See id. Specifically, the authors recommend a horizon of no more than 15 seconds for large stocks and 60 

seconds for small stocks. 

1237  While the analysis of realized spreads in the Proposing Release considered only six time horizons (1 

second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 minutes), this analysis considers an additional 

four time horizons (10 milliseconds, 50 milliseconds, 100 milliseconds, and 500 milliseconds) in response 

to a commenter who recommended that realized spreads be calculated using shorter time frames 

(specifically, 50 milliseconds and 100 milliseconds). See Healthy Markets Letter at 17; see also Figure 13 

in the Proposing Release, 88 FR 3786 at 3854 (Jan. 20, 2023). 

1238  This analysis uses data from intraday TAQ Consolidated Trade files for the period of Q1 2023 for a sample 

of 400 stocks. See supra note 1129 for a description of how the sample of stocks was selected. 

1239 See, e.g., Conrad and Wahal, supra note 544, at 242: “We display many of our results separately for small- 

and large-capitalization stocks because size is so strongly correlated with liquidity variables.” 



349 

Figure 141240 and show that realized spreads tend to decrease as the time horizon increases. One 

exception is the five-minute time horizon for the largest market capitalization group, for which 

realized spread begins to increase. This may be driven by the addition of noise at this longer time 

horizon for large-cap stocks.1241  

Figure 14 also shows that, except for the largest market capitalization group, realized 

spreads tend to decline as market capitalization size increases.1242 Echoing results from the 

academic literature, the persistence of these systematic differences in realized spreads across 

market capitalization sizes implies that a time horizon that may be ideal for large cap stocks may 

not be appropriate for small cap stocks.1243  

 

1240  The TAQ data used in this analysis have been updated since the Proposing Release to account for a more 

recent time period. In addition, the methodology has been updated to include additional time horizons. See 

Proposing Release, 88 FR 3786 at 3815 (fig. 1) (Jan. 20, 2023), which presents a similar analysis that uses 

data from Feb. 2021 (see Proposing Release, 88 FR 3786 at 3854, n.706 (Jan. 20, 2023), for data 

description), and includes six time horizons (1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 

minutes); see supra note 1237. As the sample was from a different time period, the magnitudes of realized 

spreads are slightly different from those in the sample from Q1 2023. However, the updates to the dataset 

did not affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely 

that realized spreads tend to decrease, for each market capitalization group, as the time horizon increases.  

1241  Conrad and Wahal also find a slight increase in realized spreads at longer time intervals. See Conrad and 

Wahal, supra note 544, figs. 1, 2. 

1242  Using data from Feb. 2021, an analysis in the Proposing Release further found that this pattern of declining 

realized spreads across increasing time horizon also held across different market centers. See Proposing 

Release, 88 FR 3786 at 3854 (fig. 13) (Jan. 20, 2023). An analysis using the updated sample of data 

described in note 1238 supra confirms that this pattern across market centers holds in Q1 2023 as well. 

1243  See, e.g., results from Conrad and Wahal, discussed in note 1236. The Commission’s analysis uses data 

from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. Specifically, the NBBO midpoint in stocks priced higher than $250 may 

be different under the MDI Rules than it was during out sample period, resulting in changes in the estimates 

for statistics calculated using the NBBO midpoint, such as realized spreads. While specific numbers might 

change, the Commission does not expect the relative variation in realized spreads across different time 

horizons to change as a result of the implementation of MDI. See supra section IX.C.1.c)(2) for further 

discussion. 



350 

Figure 14: Average Realized Spreads by Market Capitalization and Time Horizon, Q1 2023 

 

This figure plots the share-weighted average realized spread using different time horizons, across four different market 

capitalization groups (less than $100 million, $100 million to $1 billion, $1 billion to $10 billion, and over $10 billion), using 

data from TAQ. See supra note 1238 for dataset description. Measures are winsorized at the 5% and 95% level. Measures 

grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. 

This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1243 and section IX.C.1.c)(2). 

(6) Effective Spreads 

Prior to these amendments, reporting entities were not required to include information 

about the effective spreads of NMLOs in Rule 605 reports, including the effective spreads of 

midpoint-or-better NMLOs. The effective spread is calculated by comparing the trade execution 

price to the midpoint of the prevailing NBBO at the time of order receipt, which is used as an 

estimate of the stock’s value.1244 For market and marketable limit orders, the effective spread 

 

1244  See, e.g., Bjorn Hagströmer, Bias in the Effective Bid-Ask Spread, 142 J. FIN. ECON. 314 (2021); see infra 

section IX.E.3.c)(3) discussing potential issues with using the midpoint to calculate effective spreads. 



351 

captures how much more than the stock’s estimated value a trader has to pay for the immediate 

execution of its order. Like market and marketable limit orders, some at-the-midpoint and 

beyond-the-midpoint limit orders are submitted by traders with the intention of executing 

immediately, in this case against hidden or odd-lot inside-the-quote liquidity.1245 Therefore, for 

midpoint-or-better orders, effective spreads contain information that may also otherwise be 

useful to investors. 

(7) Notional Spreads (Effective and Realized) 

The fact that reports under preexisting Rule 605 contained information on average 

realized and average effective spreads only in terms of dollar amounts, and not in terms of 

percentages, made it difficult for market participants to account for differences in share prices 

when comparing across market centers.1246 While spreads in notional terms can be useful for 

participants because they can reflect a cost of (or benefit to) trading in terms that are easy to 

interpret, it is also the case that, since the effective spread is a per-share cost, the real costs to 

investors captured by the effective spread can be very different, depending on the stock price.1247 

All else being equal, spread measures tend to be higher in dollar terms for higher-priced stocks. 

 

1245  See supra section IX.C.3.c)(5) for further discussion. 

1246  In theory, market participants could also control for differences in share prices by matching up stock-level 

information from Rule 605 reports to, e.g., information on the stock’s average stock price from that month. 

However, this would require market participants who wish to control for differently priced stocks to go 

through the extra step of gathering and matching stock price information to Rule 605 data, which may be an 

unreasonable expectation, particularly for individual investors with limited resources. Furthermore, while a 

monthly average might well capture the prevailing stock price for any given execution for a stock with low 

price volatility, it might not be a good representation of the prevailing stock price for executions in stocks 

with high price volatility. 

1247  To illustrate, consider an investor that wants to acquire a $10,000 position in a $250 stock with an effective 

spread of $0.01; the investor will have to pay about $0.40 to purchase 40 shares of the stock. Now consider 

an investor who wants to acquire a $10,000 position in a $2.50 stock with an effective spread of $0.01; the 

investor would have to pay around $4.00 to acquire 400 shares. In other words, even though the dollar 

effective spread was the same, it was 10 times more expensive for the investor to accumulate a position 

worth the same dollar amount in the lower-priced stock.  



352 

As different reporting entities handle and/or transact in different mixes of stocks, this may have 

made it difficult for market participants who may want to compare reporting entities’ overall 

price performance or their performance for baskets of stocks to aggregate across effective 

spreads.1248  

Also, measuring spreads in absolute terms may lead to comparisons across reporting 

entities that do not account for potential differences in the timing of order flow, particularly for 

stocks whose prices vary significantly over the course of the monthly reporting period. For 

example, say that a stock’s price increased dramatically over the course of a month from $2.50 to 

$250 and that, by chance, Market Center A executed more order flow for that stock at the 

beginning of the month, while Market Center B executed more order flow for that stock at the 

end of the month. In its Rule 605 report for that month, Market Center A showed an average 

effective spread of $0.01, while Market Center B showed an average effective spread of $0.10. 

Measured in dollar terms, Market Center B would seem to have offered worse execution prices 

than Market Center A, since it is associated with higher effective spreads. However, relative to 

the stock price, Market Center B would actually have offered the better prices (a percentage 

effective spread of 0.04%) compared to Market Center A (a percentage effective spread of 

 

1248  While the main purpose of Rule 605 is to facilitate comparisons across reporting entities on the basis of 

execution quality within a particular security, the Commission understands that access to aggregated 

information is useful for market participants. The amendment that requires reporting entities to prepare 

summary reports that aggregate execution quality information for S&P 500 stocks, along with all NMS 

stocks, will give market participants access to aggregate effective spreads for one commonly used basket of 

stocks. Meanwhile, per-stock percentage spread information will enhance market participants’ ability to 

aggregate effective spread information across baskets of stocks other than the S&P 500. 



353 

0.4%).1249 This illustrates that a market center’s spread measures may be higher in dollar terms, 

but not necessarily because it offered worse execution performance; instead, these differences in 

spread measures may simply reflect changes in the stock’s dollar price and the timing of market 

center’s order flow. 

(8) Price and Size Improvement  

The measure of price improvement required by preexisting Rule 605 may not have 

always succeeded in capturing price improvement relative to the best available prices. Prior to 

these amendments, market centers were required to report price improvement only as the 

difference between the trade price and the NBBO. However, in cases where odd-lot volume is 

available at prices better than the NBBO, price improvement measured relative to the NBBO will 

not reflect the best available displayed prices.1250 This may have limited market participants’ 

ability to compare these measures of price improvement across market centers. For example, if a 

market center internalizes an order with $0.05 of price improvement relative to the NBBO, but 

meaningful odd-lot liquidity is available on another market center at prices that are $0.10 better 

than the NBBO, the market center would have posted a price improvement measure of $0.05, 

even though the investor could have received a better price if the market center had routed the 

order to execute against the available odd-lot liquidity available elsewhere instead of 

 

1249  To illustrate how the percentage effective spread can reflect different costs in real terms, consider if one 

customer acquired a $10,000 stake in the stock at the beginning of the month (i.e., $10,000/$2.50 = 4,000 

shares); a per-share effective spread of $0.01 means that the customer’s cost of acquiring the position 

would have been $40. Meanwhile, another customer acquired a $10,000 stake at the end of the month (i.e., 

$10,000/$250 = 40 shares); a per-share effective spread of $0.10 means that the customer’s cost would 

have been only $4. 

1250  See, e.g., Bartlett et al. (2022), supra note 33, who found that odd-lots offer better prices than the NBBO 

18% of the time for bids and 16% of the time for offers. The authors found that this percentage increases 

monotonically in the stock price, for example, for bid prices, increasing from 5% for the group of lowest-

price stocks in their sample, to 42% for the group of highest-priced stocks.  



354 

internalizing the order. As a result, in some cases, measures of price improvement in preexisting 

Rule 605 may not have accurately reflected the amount of price improvement offered by some 

market centers.1251 

Information about price improvement is different from information about whether orders 

received an execution of more than the displayed size at the quote, i.e., “size improvement.” The 

price improvement metrics required by preexisting Rule 605 do not necessarily capture a market 

center’s ability to fill orders beyond the liquidity available at the NBBO.1252 For example, 

consider a situation in which the market is $10.05 x $10.10 with 100 consolidated shares 

available at the NBO of $10.10 and 100 consolidated shares available at the next best ask price 

of $10.15. Say that a trader submits a marketable buy order for 200 shares to a market center, 

which fills the entire order at the best ask price of $10.10. The market center’s Rule 605 statistics 

would reveal a price improvement metric of $0 for this order, despite the fact that the trader 

saved money by avoiding having to walk the book, which would have resulted in a total price of 

(100 * $10.10) + (100 * $10.15) = $2,025. As a result of the market center’s ability to offer this 

“size improvement,” the trader saved an average of $10.125 - $10.10 = $0.025 per share. This 

information about execution quality would not be reflected in the market center’s price 

 

1251  One commenter stated that measures of price improvement in preexisting Rule 605 were incomplete 

because they did not include liquidity from odd-lot quotes at prices better than the NBBO. See Virtu Letter 

II at 7. 

1252  One commenter similarly stated that “price improvement figures reported under current Rule 605 

substantially understate the benefits to retail investors provided by the current market structure.” Virtu 

Letter II at 10; see also Robinhood Letter at 47, stating that the “absence [of size improvement information] 

in Current Rule 605 reports means that execution quality is significantly undercounted.” An analysis of 

data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset reveals that nearly 7% of 

orders had sizes greater than the liquidity available at the NBBO between Apr. 2016 and Mar. 2019; see 

infra note 1545 for data description. This analysis uses data from prior to the implementation of the MDI 

Rules and results may be different following the implementation of the MDI Rules. Specifically, the MDI 

Rules could result in a smaller number of shares at the NBBO for stocks in higher-priced round lot tiers, 

increasing the number of orders with sizes greater than the NBBO; see supra section IX.C.1.c)(2) for 

further discussion. 



355 

improvement statistics. The handling of orders that exceed available NBBO depth may not be a 

rare occurrence: One academic study found that, in a proprietary database consisting of orders 

handled by wholesalers, over 52% of the total shares executed in their data were from orders 

seeking to trade more shares than are available at the NBBO and that, of these trades, 83.61% 

received size improvement from wholesalers.1253  

As the Commission stated in the Rule 11Ac1-5 Adopting Release, the average effective 

spread captures some information about size improvement.1254 The effective spread is calculated 

by comparing the trade execution price with the midpoint of the NBBO, rather than with the 

NBBO itself. In this way, it captures the full range of available liquidity at a market center and 

not merely the displayed orders that determine the NBBO. The effective spread will be larger for 

orders that are larger than liquidity available at the NBBO and are required to walk the book. 

Therefore, generally speaking, a market center that offers greater size improvement will tend to 

have a lower average effective spread (i.e., these measures will be negatively correlated).1255 

 

1253  See Robert H. Battalio & Robert H. Jennings, Wholesaler Execution Quality (working paper Dec. 18, 

2023), available at https://ssrn.com/abstract=4304124 (retrieved from SSRN Elsevier database) (“Battalio 

& Jennings”). As a result, the authors estimate that incorporating information about size improvement into 

Rule 605 price improvement statistics would more than double estimates of price improvement for 

internalized orders. See Battalio & Jennings at 4. A previous version of this study was referenced by 

several commenters in support of the inclusion of size improvement information in Rule 605 reports (see, 

e.g., Citadel Letter at 11); as well as in general support of updates to Rule 605 (see, e.g., McHenry et al. 

Letter at 2; SIFMA Letter II at 20); see also Virtu Petition at 3, stating that approximately 45% of shares 

(and 54% of the value traded) filled by Virtu in 2020 were from orders that outsized the NBBO, and that 

industry-wide retail investors received approximately $7 billion in size improvement in 2020. 

1254  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75425 (Dec. 1, 2000). 

1255  For example, assume that a trader submits a marketable buy order for 100 shares to a $10.05 x $10.10 

market with 100 consolidated shares available at the NBO of $10.10 and 100 consolidated shares available 

at the next best ask price of $10.15. In this case, the effective spread would be 2 * ($10.10 – $10.075) = 

 

 

 



356 

However, as this measure contains information about both size and price, it may be difficult to 

disentangle information about size improvement from information about price improvement 

when interpreting average effective spreads.1256 Therefore, investors that particularly value the 

ability of market centers to offer size improvement, such as investors trading in larger order 

sizes, would not have been able to use the metrics contained in reports under preexisting Rule 

605 to easily discern which market center would have better handled their order according to this 

dimension of execution quality.1257 

(9) IOCs 

Under preexisting Rule 605 requirements, grouping IOCs together with other orders may 

have skewed the execution quality metrics of reporting entities that handle a large number of 

 

$0.05, reflecting that the trader had to pay an average of $0.05 more per share than the NBBO midpoint. 

Now consider the situation in which the trader instead submits a marketable buy order for 200 shares to a 

market center (“Market Center A”) that walks the order up the book. In this case the effective spread will 

be twice as high, 2 * ($10.125 – $10.075) = $0.10. This higher effective spread reflects the need for Market 

Center A to use volume beyond the best quote to fill the order. If, on the other hand, instead of walking the 

200-share order up the book, a market center (“Market Center B”) fills the entire buy order at the current 

NBO of $10.10; the effective spread would only be $0.05. The ability of Market Center B to execute an 

order for more than the displayed size at the quote is therefore reflected in an effective spread that is lower 

than that of Market Center A. 

1256  To illustrate, consider the example in supra note 1255, but, instead of 200 shares, the trader’s order was for 

100 shares and Market Center A executed the order with an average price dis-improvement of $0.025; the 

effective spread for Market Center A would similarly be $0.10. Furthermore, consider a situation in which 

the market is wider at $10.12 x $10.02 and Market Center B executes the 100-share order with an average 

price improvement of $0.025 per share, while Market Center A executes it without any price improvement. 

Both of these cases would lead to the same effective spreads (an effective spread of $0.10 for Market 

Center A, and an effective spread of $0.05 for Market Center B) as the above-described scenario in which 

Market Center B offered size improvement and Market Center A did not, but for situations in which the 

order size is less than or equal to the displayed size at the quote. 

1257  Compare the example of Market Center B offering size improvement to a 200-share order in note 1255, 

supra, to the example of Market Center B offering price improvement to a 100-share order in note 1256, 

supra. A trader that tends to submit 200-share orders would want to know a market center’s ability to offer 

the first scenario, while a trader that tends to submit 100-share orders would want to know the market 

center’s ability to offer the second scenario. However, in both examples the Rule 605 report would show an 

effective spread statistic of $0.05 for orders in the order size category of 100-499 shares, which means that 

these traders would not be able to use this statistic to discern a market center’s execution quality according 

to the dimension of execution quality that they find most valuable.  



357 

IOCs,1258 which may have hindered market participants’ ability to accurately compare execution 

quality across reporting entities. 

In an analysis in the Proposing Release, the Commission found that including IOCs along 

with other types of market and marketable limit orders may skew the execution quality of these 

other order types, particularly since IOCs make up more than 90% of market and marketable 

share volume.1259 In addition, several commenters stated that grouping non-marketable IOCs 

together with other non-marketable limit orders could skew execution quality statistics for these 

orders, since non-marketable IOCs also have different execution profiles.1260 To test the concern 

raised by these commenters, the Commission uses a sample of CAT data for 400 stocks for the 

period of Q3 2023 to refine its analysis of IOC orders to include non-marketable order types in 

addition to marketable order types.1261 The results are presented in Table 5,1262 and show that 

IOCs are a significant percentage of order flow across multiple different order types, including a 

large percentage of marketable limit order shares (92.6% for exchanges and ATSs, and 62.9% 

for wholesalers), as well as beyond-the-midpoint and at-the-midpoint shares (for exchanges and 

 

1258  See, e.g., Rule 605 Citadel Letter at 7, stating that “[a]t the moment, depending on the structure of the 

broker-dealer, these IOC orders [executed on SDPs] may be aggregated with retail orders for reporting 

purposes, even though the execution profile is very different and could negatively skew a wholesale broker-

dealer’s execution quality metrics.” 

1259  See Proposing Release, 88 FR 3786 at 3857 (tbl. 6) (Jan. 20, 2023). The analysis in the Proposing Release 

was based on the Tick Size Pilot B.II Market and Marketable Limit Order dataset. This dataset includes 

information only about market and marketable limit orders, and furthermore collected data only for small 

cap stocks.  

1260  See, e.g., FIF Letter at 13. 

1261  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1181 for information 

about how the 400-stock sample was selected and supra note 1182 for more information about the CAT 

data.  

1262  This analysis uses data from prior to the implementation of the MDI Rules and results may be different 

following the implementation of the MDI Rules. However, it is not clear how a change in the distribution 

of orders into various NMLO categories will affect the average fill rates of these NMLO categories. See 

supra section IX.C.1.c)(2). 



358 

ATSs, 35.8% and 37.9%, and, for wholesalers, 90.8% and 84.2%, respectively). This reflects that 

IOC orders are a significant component of order flow across both marketable and non-

marketable order types. In addition, IOCs indeed may have different execution quality, as, with 

the exception of market orders on exchanges and ATSs, a higher percentage of IOC orders 

execute in under one millisecond as compared to non-IOC orders. Furthermore, at wholesalers, 

IOC orders tend to have higher effective spreads and lower fill rates than non-IOC orders. This 

result supports the Commission’s understanding that IOC orders received by wholesalers are 

typically institutional orders that are pinged in the wholesalers’ SDPs to see if any contra-side 

volume is available,1263 and that commingling SDP activity with other market center activity 

under preexisting Rule 605 requirements may have obscured differences in execution quality or 

distorted the general execution quality metrics for the market center.1264 Similarly, grouping 

together IOC orders along with other types of market and marketable orders could have imposed 

a significant skew on execution quality metrics, particularly since IOCs make up a significant 

percentage of order flow. This may have impacted market centers’ incentives to achieve better 

execution quality for these orders prior to these amendments.1265 

 

 

1263  See, e.g., Rule 605 Citadel Letter at 7, stating that “[m]any wholesale broker-dealers execute immediate-or-

cancel (‘IOC’) orders for non-retail investors (including pension plans, insurance companies, and other 

asset managers), particularly through the use of a single-dealer platform (‘SDP’).” 

1264  See supra section IX.C.3.a)(2) for further discussion of commingling SDP activity with other market center 

activity. 

1265  For example, if, prior to these amendments, a market center’s Rule 605 reports revealed low fill rates for 

market orders simply because it handled a large amount of marketable IOCs, it may not have been 

incentivized to improve its fill rates for other types of market orders since the higher fill rates of these 

orders would be obscured by the low fill rates of marketable IOCs. 



359 

Table 5: Immediate-Or-Cancel (IOC) Share Volume and Execution Quality,  

Q1 2023 

Exchanges 
and ATSs 

Volume 
(% Of 
Total 
Share 

Volume
) 

IOC 
Volume 

(% Of 
Share 

Volume
) 

Fill 
Rate 
(%) 

(IOC
) 

Fill 
Rate 
(%) 

(non
-IOC) 

Execution
s Under 1 

ms (%) 
(IOC) 

Execution
s Under 1 

ms (%) 
(non-IOC) 

Effectiv
e 

Spread 
($) 

(IOC) 

Effectiv
e 

Spread 
($) 

(non-
IOC) 

Market <0.01% 22.3% 47.1% 94.9% 22.5% 52.6% $0.0483 $0.0641 

Marketable 
Limit 

10.3% 92.6% 14.3% 11.6% 98.1% 80.5% $0.0487 $0.0362 

Beyond-the-
Midpoint 

2.2% 35.8% 0.6% 0.1% 78.2% 73.5% $0.0165 $0.0581 

At-the-
Midpoint 

2.0% 37.9% 2.9% 1.8% 98.1% 43.5% -$0.0014 -$0.0004 

Below-the-
Midpoint 

49.6% 4.7% 0.4% 0.1% 95.0% 16.5% -$0.0954 -$0.1277 

At-the-Quote 35.9% 13.3% 0.2% 1.0% 89.1% 6.5% -$0.0291 -$0.0513 

Wholesaler
s 

Volume 
(% Of 
Total 
Share 

Volume
) 

IOC 
Volume 

(% Of 
Share 

Volume
) 

Fill 
Rate 
(%) 

(IOC
) 

Fill 
Rate 
(%) 

(non
-IOC) 

Execution
s Under 1 

ms (%) 
(IOC) 

Execution
s Under 1 

ms (%)  
(non-IOC) 

Effectiv
e 

Spread 
($) 

(IOC) 

Effectiv
e 

Spread 
($) 

(non-
IOC) 

Market 28.1% 0.2% 31.7% 94.9% 85.4% 11.0% $0.0438 $0.0344 

Marketable 
Limit 

26.9% 62.9% 18.3% 74.3% 49.3% 8.1% $0.0420 $0.0319 

Beyond-the-
Midpoint 

3.2% 90.8% 4.2% 66.8% 29.0% 12.6% $0.1066 $0.0682 

At-the-
Midpoint 

2.3% 84.2% 2.3% 50.2% 35.5% 7.0% -$0.0010 -$0.0005 

Below-the-
Midpoint 

6.9% 65.3% 1.5% 7.7% 12.6% 3.3% -$0.1867 -$0.1175 

At-the-Quote 32.6% 67.0% 0.9% 11.4% 73.4% 1.6% -$0.0213 -$0.0354 

This table shows the breakdown of the percentage of share volume across market, marketable limit, and three categories of 

non-marketable limit (beyond-the-midpoint, at-the-midpoint, below-the-midpoint, and at-the-quote) orders as percentages of 

order flow in terms of share volume, as well as the percentage of share volume of these order types that are submitted with 

IOC instructions. Also presented are fill rates (calculated as the number of shares executed, summed across all stocks and days 

in the sample, divided by the number of shares submitted, summed across all stocks and days in the sample), the percentage of 

executed orders that execute in less than one millisecond (calculated as the number of shares executed in less than one 

millisecond summed across all stocks and days, as a percentage of the total number of executed orders summed across all 

stocks and days), and share-weighted effective spreads (calculated as two times the signed difference between the midpoint 

and the execution price). Share weights are calculated as the number of executed shares in an order divided by the total 

number of executed shares summed across stocks and all days in the sample. These metrics are calculated and presented 

separately for IOC and non-IOC orders, and for Wholesalers and for Exchanges/ATSs. The results are obtained using a 

sample of CAT data for 400 stocks for Q1 2023. See supra note 1261 for data description and supra note 1200 for definitions 

of the NMLO categories. As discussed in supra note 1182, this analysis excludes some orders, including orders with certain 

handling codes and ATS-specific order types that were determined to not be eligible for Rule 605 reporting. This analysis uses 

data from prior to the implementation of the MDI Rules and specific numbers reported may be different following the 

implementation of the MDI Rules. See supra note 1262 and section IX.C.1.c)(2). 



360 

(10) Riskless Principal Orders 

The preexisting Rule 605 reporting requirements for riskless principal transactions1266 has 

led to the duplicative reporting of these orders and has created uncertainty about how many 

orders are internalized by off-exchange market centers, particularly wholesalers.  

In a riskless principal transaction, a market center routes a principal order to a second 

market center, typically an exchange or ATS, in order to fulfill a customer order; upon execution 

at the second market center, the first market center executes the customer transaction on the same 

terms as it received from the principal execution at the second market center. Both prior to and 

after these amendments, the second (executing) market center in this example will be required to 

report this transaction as having been executed at the market center under Rule 605(a)(1)(i)(D). 

However, prior to these amendments, the first (routing) market center will also report the riskless 

principal transaction under prior Rule 605(a)(1)(i)(D), rather under Rule 605(a)(1)(i)(E) 

(cumulative number of shares of covered orders executed at any other venue)1267  

Particularly in the case of riskless principal transactions that are handled by wholesalers, 

grouping transactions that are handled on a riskless principal basis together with other orders 

 

1266  In effecting riskless principal transactions, a market center submits a principal order to another market 

center in order to fulfill a customer order. Upon execution at the away market center, the receiving market 

center executes the customer transaction on the same terms as the principal execution. See Securities 

Exchange Act Release No. 47364 (Feb. 13, 2003), 68 FR 8686 at 8690, n.33 (Feb. 24, 2003) (generally 

describing riskless principal transactions “as trades in which, after receiving an order to buy (or sell) from a 

customer, the broker-dealer purchases (or sells) the security from (or to) another person in a 

contemporaneous offsetting transaction”). 

1267  See supra note 684 and accompanying text. In contrast, for the purposes of SIP reporting, the away market 

center is required to report the principal transaction to the tape, while the receiving market center would 

post a non-tape (regulatory or clearing-only) report to reflect the offsetting riskless customer transaction. 

When the initial leg of the transaction takes place on and is reported through an exchange, members are 

instructed not to report the customer transaction for public dissemination purposes, as that would result in 

double (tape) reporting of the same transaction. See Trade Reporting Frequently Asked Questions, answers 

to Questions 302.2 and 302.4, FINRA, available at https://www.finra.org/filing-reporting/market-

transparency-reporting/trade-reporting-faq (last updated 2024).361 

executed at the market center under prior Rule 605(a)(1)(i)(D) has obscured information about 

the extent to which wholesalers internalize orders. Wholesalers primarily choose between two 

options to execute the individual investor orders that they handle: they either internalize orders 

by executing orders against their own inventory, or they execute orders on a riskless principal 

basis.1268 While wholesalers’ internalized orders are not exposed to competition from other 

interested parties quoting on external market centers, their riskless principal executions expose 

individual investor orders to trading interest from market participants other than the wholesaler, 

which has potential implications for differences in execution quality between these two order 

types. Prior to these amendments to Rule 605, both types of orders would be categorized together 

as orders executed at the market center under prior Rule 605(a)(1)(i)(D), so market participants 

would not be able to tell from Rule 605 reports whether a wholesaler internalizes the majority of 

its individual investor order flow, or executes the majority as riskless principal. Thus, key 

information that would be useful for investors (particularly individual investors, whose orders 

are overwhelmingly handled by wholesalers1269) when interpreting and comparing information 

about wholesalers’ execution quality has not been available from Rule 605 reports. 

d) Accessibility of Rule 605 Reports 

Rule 605 requires market centers to post their monthly reports on an internet website that 

is free of charge and readily accessible to the public.1270 In order to collect a complete or mostly 

 

1268  See infra section IX.C.4.b) for further discussion of the market for trading services, which includes 

wholesalers. 

1269  See, e.g., Proposing Release, 88 FR 3786 at 3839, n.614 (Jan. 20, 2023), describing a Commission analysis 

of Rule 606 reports that showed that, in Q1 2022, a sample of 46 retail broker-dealers routed 87.3% of 

orders in S&P 500 stocks and 87.9% of orders in non-S&P 500 stocks to wholesalers, as compared to 9.1% 

and 8.5%, respectively, to national securities exchanges. 

1270  See prior 17 CFR 242.605(a)(2) (requiring market centers to make their Rule 605 reports “available for 

downloading from an Internet Web site that is free and readily accessible to the public….”). 



362 

complete set of Rule 605 reports to, for example, select the reporting entity offering the best 

execution quality in a given stock, a market participant may incur search costs.1271 The process 

of collecting Rule 605 reports may be simplified by the NMS Plan’s requirement that each 

market center must designate a single Participant to act as the market center’s Designated 

Participant, who is tasked with maintaining a comprehensive list of the hyperlinks provided by 

its market centers.1272 Furthermore, certain reporting entities’ use of third-party vendors to 

prepare and/or collect Rule 605 reports may also simplify the process of collecting Rule 605 

reports, as these vendors typically maintain a centralized repository of the reports that they 

handle.1273 There is no system or requirement, and the Commission is not adopting such a 

requirement, for the centralized posting of Rule 605 reports.1274 

Rule 605 reports are designed to be machine readable, rather than human readable. While 

machine-readable data are useful for facilitating further processing and analysis, they are not 

easily consumable by market participants who do not have the access to necessary software or 

programming skills. Prior to these amendments, this may have limited the accessibility of Rule 

 

1271  One commenter stated that the current system for accessing Rule 605 reports is difficult. See BlackRock 

Letter at 4, stating that “[c]urrently, accessing Rule 605 reports can be an onerous and time-consuming 

process for investors because it is widely dispersed across numerous market center websites where reports 

can be difficult to locate and retrieve.” 

1272  See Section VIII of the Rule 605 NMS Plan. For a description of “Designated Participant” as defined in the 

Plan, see supra note 869. 

1273  See, e.g., Disclosure of SEC – Required Order Execution Information, S&P GLOBAL, available at 

https://vrs.vista-one-solutions.com/sec605rule.aspx (last visited Jan. 30, 2024, 4:22 p.m.).  

1274  In May 2023, FINRA requested comment on whether to require its members to provide Rule 605 reports to 

FINRA for centralized publication. See FINRA Regulatory Notice 23-10 (May 31, 2023) (“Regulatory 

Notice”). FINRA stated in the Regulatory Notice that the proposed requirement to provide Rule 605 reports 

to FINRA would supplement, not replace, firm’s current obligations under Rule 605. See Regulatory 

Notice at 3. Comments received on FINRA Regulatory Notice 23-10 are available at 

https://www.finra.org/rules-guidance/notices/23-10#comments.  



363 

605 reports, particularly for those individual investors who may be less likely to have access to 

these resources.1275  

4. Markets for Brokerage and Trading Services for NMS Stocks under 

Preexisting Rule 605 Disclosure Requirements 

a) Brokerage Services for NMS Stocks 

(1) Current Structure of the Market for Brokerage Services 

Based on information from broker-dealers’ FOCUS Report Form X-17A-5 Schedule II, 

there were 3,494 registered broker-dealers as of Q2 2023.1276 A portion of these broker-dealers 

focus their business on individual and/or institutional investors in the market for NMS stocks.1277 

These include both carrying broker-dealers, who maintain custody of customer funds and 

securities, and introducing broker-dealers, who accept customer orders and introduce their 

customers to a carrying broker-dealer that will hold the customers’ securities and cash.1278 The 

Commission estimates that there are approximately 153 broker-dealers that carry at least one 

 

1275  See supra section IX.C.2 for further discussion. 

1276  The Proposing Release, which used information from broker-dealers’ FOCUS Report Form X-17A-5 

Schedule II as of Q2 2022, found that there were 3,498 registered broker-dealers. See Proposing Release, 

88 FR 3786 at 3858 (Jan. 20, 2023).  

1277  Some broker-dealers service only the accounts of other brokers, which are excluded from the definition of 

customers. See supra note 89 for a definition of “customer.”  

1278  See supra note 98 for a description of introducing and carrying broker-dealers. Some firms operate a hybrid 

introducing/carrying broker-dealer by introducing on a fully disclosed basis to a carrying broker-dealer 

those customers that trade securities for which the broker-dealer is not prepared to provide a full range of 

services. See, e.g., Securities Exchange Act Release No. 70073 (Aug. 21, 2013), 78 FR 51910 at 51911, 

51949, and 51968 (Aug. 21, 2013). 



364 

customer trading in NMS stocks,1279 and 1,092 broker-dealers that introduce at least one 

customer trading in NMS stocks.1280 

The high level of fragmentation of NMS stock trading1281 means that broker-dealers have 

a variety of choices for order routing and execution, and the venue that a broker-dealer chooses 

may have a tangible effect on the execution quality of an order. A broker-dealer has a legal duty 

to seek best execution of customer orders. The duty of best execution predates the Federal 

securities laws and is derived from an implied representation that a broker-dealer makes to its 

customers.1282 The duty is established from “common law agency obligations of undivided 

loyalty and reasonable care that an agent owes to [its] principal.”1283 This obligation requires that 

a “broker-dealer seek to obtain for its customer orders the most favorable terms reasonably 

available under the circumstances.”1284 

The Commission understands that the structure of the market for brokerage services can 

broadly be separated into two distinct markets – brokerage services for individual investors on 

 

1279  This number is based on the number of broker-dealers that report carrying at least one customer on their 

2022 FOCUS Schedule I reports. The Proposing Release found the same number using 2021 FOCUS 

Schedule I reports. See Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1280  This number is based on estimates using broker-dealers FDIDs identified in CAT data for NMS stocks 

during the 2022 calendar year. See infra note 1743 for a discussion of the data and methodology for 

identifying introducing broker-dealers. The Proposing Release, using CAT data for the 2021 calendar year, 

found that 1,110 broker-dealers introduced at least one customer trading in NMS stocks and options. See 

Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1281  See infra section IX.C.4.b)(1) for a breakdown of trading in NMS stocks across various types of trading 

venues. 

1282  See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir.), cert. denied, 

525 U.S. 811 (1998). 

1283  See id. 

1284  See id.; see also Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12, 

1996) (“Order Execution Obligations Adopting Release”). A Report of the Special Study of Securities 

Markets stated that “[t]he integrity of the industry can be maintained only if the fundamental principle that 

a customer should at all times get the best available price which can reasonably be obtained for him is 

followed.” SEC Report of the Special Study of Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess. 

Pt. II, 624 (1963) (“Special Study”).  



365 

the one hand, and brokerage services for institutional investors on the other – that differ 

somewhat in terms of their market structure. 

(a) Brokerage Services for Individual Investors 

As of the end of 2022, there were approximately 1,006 registered broker-dealers that 

originated orders on behalf of individual investors in the market for NMS stocks.1285 Unlike 

institutional investors, individual investors generally use a single broker to handle their orders. 

Retail brokers can broadly be divided into “discount” brokers and “full-service” brokers.1286 

Competition among discount brokers for the business of individual investors in particular has 

recently resulted in many new entrants and a decline in commissions to zero or near zero.1287 

Instead of commissions on certain transactions, these discount brokers earn revenue through 

other means, including, among other products and services, interest on margin accounts and from 

lending securities, as well as broker-wholesaler arrangements involving PFOF paid by the 

wholesaler to the retail broker. Discount broker-dealers can distinguish themselves by the 

 

1285  This number is estimated using the CAT data described infra in note 1743. Individual investor accounts are 

identified in CAT as accounts belonging to the “Individual Customer” account type, defined as accounts 

that do not meet the definition of “institution” in FINRA Rule 4512(c) and are also not proprietary 

accounts. See supra note 1144 for more information about account types in CAT. A similar analysis in the 

Proposing Release found that there were 1,037 registered broker-dealers that originated individual customer 

account orders in the market for NMS stocks at the end of 2021. See Proposing Release, 88 FR 3786 at 

3859 (Jan. 20, 2023). 

1286  There is not necessarily a precise delineation between full-service and discount brokers. Discount brokers 

generally provide execution-only services, typically at a reduced or zero commission rate. Full-service 

brokers (as they are commonly called) typically charge commissions in exchange for a package of services, 

including execution, incidental investment advice, and custody. See, e.g., Interpretive Rule Under the 

Advisers Act Affecting Broker-Dealers, Advisers Act Release No. 2652 (Sept. 24, 2007), 72 FR 55126 at 

55127, n.2, 55129, n.20 (Sept. 28, 2007). 

1287  See, e.g., Samuel Adams & Connor Kasten, Retail Order Execution Quality Under Zero Commissions 

(working paper Jan. 7, 2021), available at https://ssrn.com/abstract=3779474 (retrieved from SSRN 

Elsevier database), describing how “on October 1st, 2019, Charles Schwab announced that they would cut 

commissions from $4.95 per trade to zero on all retail trades starting on October 7th. Within hours, TD 

Ameritrade followed by announcing they would cut commissions to zero from $6.95 beginning on October 

3rd. By January 3rd, Vanguard, Fidelity, and E*TRADE had joined the trend in offering free equity trades 

for retail investors.” 



366 

accessibility and functionality of their trading platform, which can be geared towards less 

experienced or more sophisticated investors, and by providing more extensive customer service 

as well as tools for research and education on financial markets.  

Investors may incur switching costs when changing broker-dealers, such as the cost of 

withdrawing or transferring funds and potential administrative fees. Switching broker-dealers 

could also involve time delays resulting in lost investment opportunities or revenues and other 

opportunity costs.1288 Furthermore, some customers that rely on broker-dealers’ non-execution-

related services, such as providing recommendations, holding customers’ funds and securities 

and/or providing analyst research, may find it more costly to switch broker-dealers, as these 

services would be more difficult to transfer across broker-dealers. However, the Commission 

understands that some broker-dealers, including some that cater to individual investors, will 

compensate new customers for transfer fees that their outgoing broker-dealer may charge them, 

which will result in lower (or even zero) switching costs.1289  

(b) Brokerage Services for Institutional Investors 

As of the end of 2022, there were approximately 837 registered broker-dealers that 

originated institutional orders in the market for NMS stocks.1290 One feature that distinguishes 

 

1288  See, e.g., Understanding the Brokerage Account Transfer Process, FINRA, available at 

https://www.finra.org/investors/learn-to-invest/brokerage-accounts/understanding-brokerage-account-

transfer-process (last visited Jan. 30, 2024, 4:30 p.m.).  

1289  See, e.g., Chad Morris, ACAT Fee: Account Transfer Fee in 2024, BROKERAGE-REVIEW.COM, available at 

https://www.brokerage-review.com/discountbroker/acat-account-transfer-fees.aspx (last updated Nov. 16, 

2023) (providing a list of fees for different brokers). 

1290  This number is estimated using the CAT data described in infra note 1743. Institutional investor accounts 

are identified in CAT as accounts belonging to the “Institutional Customer” account type, defined as 

accounts that meet the definition in FINRA Rule 4512(c). See supra note 1144 for more information about 

account types in CAT. A similar analysis in the Proposing Release found that there were 909 registered 

broker-dealers that originated institutional customer account orders in the market for NMS stocks at the end 

of 2021. See Proposing Release, 88 FR 3786 at 3859 (Jan. 20, 2023). 



367 

the market for institutional brokerage services is that a significant portion of institutional investor 

orders are generally “not held” orders.1291 A broker-dealer has time and price discretion in 

executing a not held order, and institutional investors in particular rely on such discretion for 

various reasons including minimizing price impact.1292 Due to the large size of institutional 

trading interests, broker-dealers will often split orders when handling their orders, often through 

the use of SORs. Specifically, a broker-dealer or its SOR will split up a “parent” order into 

multiple “child” orders, with the goal of executing the child orders in a way that achieves the 

best execution for the parent order.1293 For example, a broker-dealer might not execute a child 

order at the best price, if doing so could result in a larger price impact and increases the overall 

cost of working a parent order. For this reason, most institutional parent orders are handled by 

broker-dealers on a not held basis, which would exclude these orders from Rule 605 execution 

quality disclosure requirements.1294 However, since 2018, broker-dealers are required by Rule 

606(b)(3) to provide individualized reports of execution quality of not held orders upon 

request.1295 

 

1291  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders. 

1292  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58343 (Nov. 19, 2018). Meanwhile, a broker-

dealer must attempt to execute a held order immediately, which typically better suits individual investors 

who seek immediate executions and rely less on broker-dealer order handling discretion. 

1293  See Tyler Beason & Sunil Wahal, The Anatomy of Trading Algorithms (working paper Jan. 21, 

2021), available at https://ssrn.com/abstract=3497001 (retrieved from SSRN Elsevier database) (“Beason & 

Wahal”). 

1294 Some child orders may be held orders and thus will be required to be included in Rule 605 reports. See 

supra note 4 (discussing held and not held orders).  

1295  See supra note 1003 and accompanying text discussing broker-dealer requirements under Rule 606(b)(3) to 

provide individualized reports of execution quality upon request for not held orders. 



368 

The Commission understands that some investors, particularly some institutional 

investors, are likely to use multiple broker-dealers,1296 which could lead to lower switching costs. 

For example, a customer that is unhappy with one broker-dealer could use one of its other 

broker-dealers to handle those orders, providing that this does not raise other costs.  

(2) Competition among Broker-Dealers on the Basis of 

Execution Quality 

Broker-dealers compete with one another along a variety of dimensions,1297 including the 

execution quality that they offer, and make their execution quality known in a variety of ways. 

For example, at least one broker-dealer published execution quality reports using the FIF 

template,1298 and furthermore some broker-dealers disclose their own execution quality metrics 

on their websites.1299 Broker-dealers may seek to improve their competitive position on the basis 

of execution quality by, for example, investing in the speed and quality of their routing 

technology. Broker-dealers may also compete on the basis of execution quality by reevaluating 

their routing strategies to increase the extent to which they route orders to the market centers 

offering better execution quality. 

When making routing decisions, some broker-dealers may face conflicts of interest that 

arise when their interests are not aligned with their customers’ interest in receiving better 

 

1296  For example, one academic paper finds that institutional investors tend to break up larger orders and spread 

them out across multiple broker-dealers, as a strategy to avoid information leakage. See, e.g., Munhee Han 

& Sanghyun (Hugh) Kim, Splitting and Shuffling: Institutional Trading Motives and Order Submissions 

Across Brokers (working paper Sept. 30, 2020), available at https://ssrn.com/abstract=3429452 (retrieved 

from SSRN Elsevier database). 

1297  For example, broker-dealers may compete by charging lower commissions for trading, or by offering a 

wider range of services or functionalities, such as trading in additional asset classes such as options. 

1298  See supra note 973. 

1299  See id. for examples. 



369 

execution quality.1300 These conflicts of interest could result, for example, from broker-dealer 

affiliations with market centers. Some broker-dealers operate or are otherwise affiliated with 

ATSs, which may present a possible conflict of interest relative to their customers’ interests if 

these broker-dealers give preference to routing orders to their own ATSs, where they typically 

pay lower transaction fees, even if their customer would have received better execution quality if 

the order were routed to another trading venue. One academic study found that certain broker-

dealers that route more orders to their affiliated ATSs are associated with lower execution 

quality.1301 Similarly, the presence of liquidity fees and rebates at some market centers may 

incentivize broker-dealers to make routing decisions based on where they can receive the highest 

rebate (or pay the lowest fee), rather than where they can receive better execution quality on 

behalf of their customer.1302 For example, a recent research paper analyzed the relationship 

between maker-taker fee schedules and order routing, and found a negative relation between take 

fees and limit order execution quality.1303 Another potential conflict of interest, particularly with 

regard to individual investor order flow, includes the receipt of PFOF, which may result in 

 

1300  See supra section IX.C.3.a)(1). 

1301  See Amber Anand et al., Institutional Order Handling and Broker-Affiliated Trading Venues, 34 REV. FIN. 

STUDIES 3364 (2021). 

1302  See, e.g., Robert H. Battalio et al., Can Brokers Have It All? On the Relation Between Make-Take Fees and 

Limit Order Execution Quality, 71 J. FIN. 2193 (2016). 

1303  See id. The authors “document a strong negative relation between take fees and several measures of limit 

order execution quality. Based on this evidence, [they] conclude that the decision of some national 

brokerages to route all nonmarketable limit orders to a single exchange paying the highest rebate is not 

consistent with the broker’s responsibility to obtain best execution for customers.” 



370 

broker-dealers routing orders to wholesalers as a result of the terms of the PFOF 

arrangements.1304 

If information asymmetries, such as those resulting from insufficient public information 

about broker-dealer execution quality,1305 prevent investors from observing differences in 

execution quality across broker-dealers, this limits the extent to which broker-dealers need to 

compete on the basis of execution quality.  

b) Trading Services for NMS Stocks 

(1) Current Structure of the Market for Trading Services 

Trading services for NMS stocks are highly fragmented among different types of market 

centers.1306 Table 61307 shows that in Q1 of 2023, NMS stocks were traded on 16 national 

securities exchanges and off-exchange at 33 NMS Stock ATSs and at 228 other FINRA 

members, including 6 wholesalers that internalize the majority of individual investor marketable 

 

1304  The study by Schwarz et al. (2023), supra note 1064, does not find a relationship between the amount of 

PFOF a retail broker receives and the amount of price improvement its customers’ orders receive. 

However, the authors stated that the variation in the magnitude of price improvement they saw across retail 

brokers was significantly greater than the amount of PFOF the retail broker received, which could indicate 

their sample was not large enough to observe a statistically significant effect. Lynch (2022) reports a broker 

deriving high PFOF revenues provides small price improvements to customer orders, while a broker 

deriving low PFOF revenue offers large price improvement. See supra note 1064. 

1305  See supra section IX.C.3.a)(1) discussing broker-dealers’ execution quality reporting requirements prior to 

these amendments to Rule 605. 

1306  Some academic studies attribute the highly fragmented nature of this market to implementation of 

Regulation NMS. See, e.g., Maureen O’Hara & Mao Ye, Is Market Fragmentation Harming Market 

Quality?, 100 J. FIN. ECON. 459 (2011); Amy Kwan et al., Trading Rules, Competition for Order Flow and 

Market Fragmentation, 115 J. FIN. ECON. 330 (2015). 

1307  The data used in this analysis have been updated from the Proposing Release for a more recent time period. 

See Proposing Release, 88 FR 3786 at 3861 (tbl. 7) (Jan. 20, 2023), which presents the same statistics for 

Q1 2022. They are comparable to those for Q1 2023. Therefore, changes to the MIDAS dataset did not 

affect the Commission’s conclusions from this analysis. 



371 

orders.1308 During Q1 of 2023, an average of over 11.7 billion shares ($522 billion notional) were 

traded daily in NMS stocks.1309 National securities exchanges executed approximately 56% of 

total share volume in NMS stocks (59% of total notional volume), while off-exchange market 

centers executed approximately 44% of total share volume (41% of total notional volume).1310 

The majority of off-exchange volume is executed by wholesalers, who execute over one quarter 

of total share volume (26.9%) and about 61% of off-exchange volume. Some OTC market 

makers, such as wholesalers, operate SDPs through which they execute institutional orders in 

NMS stocks against their own inventory.1311 SDPs accounted for approximately 4% of total 

trading volume in Q1 2023.1312 As of June 2023, the Commission estimates that there are 

currently 228 market centers to which Rule 605 applies.1313 

 

1308  See Concept Release on Equity Market Structure, 75 FR 3594 at 3598-3600 (Jan. 21, 2010) (for a 

discussion of the types of trading centers); see also Form ATS-N Filings and Information (Modified Jan. 

18, 2024), available at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm. These wholesalers 

were determined based on marketable order routing information from retail broker Rule 606(a)(1) reports. 

1309  Average daily share and notional trading volume in NMS stocks are based on CBOE Market Volume Data 

on monthly share volume executed on each exchange available at: 

https://cboe.com/us/equities/market_statistics/historical_market_volume/. 

1310  This analysis uses data from prior to the implementation of the MDI Rules. The implementation of the MDI 

Rules may result in a change in the flow of orders across trading venues, which may result in numbers that 

are different from those reported here. However, the Commission is uncertain of the magnitude of these 

effects. See supra section IX.C.1.c)(2) for further discussion.  

1311  See Rosenblatt Securities, US Equity Trading Venue Guide (2023). Wholesalers and OTC market makers 

can execute orders themselves or route orders to be executed on other venues. An SDP always acts as the 

counterparty to any trade that occurs on the SDP. See, e.g., Where Do Stocks Trade?, FINRA (Dec. 3, 

2021), available at https://www.finra.org/investors/insights/where-do-stocks-trade. 

1312  See Rosenblatt Securities, US Equity Trading Venue Guide (2023). 

1313  See supra section VIII.C for a discussion of this estimate. Some market centers may not be required to 

prepare Rule 605 reports, for example, if they do not handle any covered orders.  



372 

Table 6: NMS Stock Traded Share Volume Percentage by Market Center Type 

Market Center Type Venue Count 

Share Volume 

(% of Total 

Volume) 

Off-Exchange 

Share Volume 

(% of Total 

Off-Exchange) 

NMS Stock ATSs 33 10.7% 24.2% 

National Securities Exchanges 16 55.9%  - 

Wholesalers 6 26.9% 60.9% 

Other FINRA Members 222 6.6% 15.0% 

This table reports the percentage of all NMS stock executed share volume and the percentage of NMS stock share 

volume executed off-exchange for different types of market centers for Q1 2023, including the number of venues in each 

market center category. Exchange share volume and total market volume are based on CBOE Market Volume Data on 

monthly share volume executed on each exchange available at: 

https://cboe.com/us/equities/market_statistics/historical_market_volume/. NMS Stock ATS, wholesaler and FINRA 

member share volume are based on monthly data from FINRA OTC (Non-ATS) Transparency Data Monthly Statistics, 

available at: https://otctransparency.finra.org/otctransparency/OtcData; and FINRA ATS Transparency Data Monthly 

Statistics, available at: https://otctransparency.finra.org/otctransparency/AtsBlocksDownload. This analysis uses data 

from prior to the implementation of the MDI Rules and specific numbers reported may be different following the 

implementation of the MDI Rules. See supra note 1310 and section IX.C.1.c)(2). 

Market centers’ primary customers are the broker-dealers that route their own orders or 

their customers’ orders for execution at the trading venue, and market centers compete with each 

other for their members’ customers’ flow on a number of dimensions, including execution 

quality. Broker-dealers may face switching costs from changing the primary trading venues to 

which they route orders. For example, the extent to which broker-dealers may have arrangements 

to route orders to specific market centers could hamper their ability to switch trading venues.1314 

Incentives related to the common practice across national securities exchanges of setting fee and 

 

1314  In addition, one commenter stated that switching costs for broker-dealers “could be for the time and cost of 

monitoring, limits imposed on maximum or minimum market share, technology limitations, and so forth.” 

Huang et al. Letter at 7.  



373 

rebate schedules where specific tiers are determined by execution volume1315 may also make it 

difficult for broker-dealers to transfer order flow between market centers,1316 particularly intra-

month as exchange volume-based transaction pricing is assessed on a monthly basis. Volume-

based tiering gives broker-dealers an incentive to concentrate orders on a given exchange, not 

because that exchange may offer the best execution quality but because doing so can allow a 

broker-dealer to execute sufficient volume on the exchange to qualify for a better tier and receive 

a lower fee or higher rebate. In addition, for national securities exchanges, upfront connectivity 

fees associated with establishing a connection to a new exchange could also discourage 

switching.  

While national securities exchanges cater to a broader spectrum of investors, ATSs and 

OTC market makers, including wholesalers, tend to focus more on providing trading services 

either for institutional or for individual investor order flow. For example, an analysis of retail 

brokers’ routing practices showed that a group of six wholesalers handled more than 87% of the 

customer orders of retail brokers in Q1 2022.1317 Meanwhile, SDPs are mainly used for the 

 

1315  Some national securities exchanges typically currently use volume calculated on a monthly basis to 

determine the applicable threshold or tier rate. See, e.g., fee schedules of NASDAQ PSX (Adopted Feb. 3, 

2020), available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Equity%207 (as of July 

2022) (calculating fees based on “average daily volume during the month”); and Cboe EDGA, EDGA 

Equities Fee Schedules (Effective Jan. 2, 2024), available at 

https://www.cboe.com/us/equities/membership/fee_schedule/edga/ (as of Apr. 1, 2022) (calculating fees 

based on “average daily volume” and “daily volume” on a monthly basis). 

1316  The Commission recently proposed to prohibit national securities exchanges from offering volume-based 

transaction pricing in connection with the execution of agency-related orders in certain stocks. See 

Securities Exchange Act Release No. 98766, 88 FR 76282 (Nov. 6, 2023) (Volume-Based Exchange 

Transaction Pricing for NMS Stocks). 

1317  See Proposing Release, 88 FR 3786 at 3861, n.772 (Jan. 20, 2023) and accompanying text. 



374 

execution of institutional orders, to potentially reduce the order’s price impact and avoid 

triggering significant reactions by other market participants.1318  

(2) Competition between Trading Venues on the Basis of 

Execution Quality 

Trading venues compete with one another on the basis of the execution quality that they 

offer, as well as on the basis of other potential factors.1319 As discussed above, Rule 605 reports 

have been a useful proxy that investors and their broker-dealers can use to assess and compare 

the execution quality that they can expect to receive across market centers,1320 and there is 

evidence that broker-dealers factor in information about the execution quality of market centers 

from Rule 605 reports when making their order routing decisions. One academic study attributes 

a significant decline in effective and quoted spreads following the implementation of Rule 605 to 

an increase in competition among market centers, which improved the execution quality that they 

offered in order to attract more order flow.1321 Market centers may seek to improve their 

competitive position on the basis of execution quality by, for example, investing in the speed and 

quality of their execution technology. 

 

1318  See, e.g., Yashar H. Barardehi, et al., Internalized Retail Order Imbalances and Institutional Liquidity 

Demand (working paper revised Jan. 2, 2023), available at https://ssrn.com/abstract=3966059 (retrieved 

from SSRN Elsevier database). 

1319  For example, national securities exchanges may adjust fees and rebates to incentivize broker-dealers to 

route more order flow to them. The use of liquidity rebates has also allowed national securities exchanges 

to compete with each other and with off-exchange market centers for order flow. Specifically, to the extent 

that the liquidity rebates facilitate more competitive quotes by liquidity providers (which may or may not 

occur for stocks that are neither tick-constrained nor thinly traded, but rather are priced at a level where a 

rebate of approximately $0.0030 could influence a displayed quote), these rebates can make it more 

expensive to offer price improvement over the displayed NBBO. See Transaction Fee Pilot for NMS 

Stocks, 84 FR 5202 at 5255 (Feb. 20, 2019).  

1320  See supra section IX.C.2. 

1321  See Zhao & Chung, supra note 16. 



375 

As discussed above, if information asymmetries, such as those resulting from insufficient 

public information about broker-dealer execution quality, prevent investors from observing 

differences in execution quality across broker-dealers, this limits the extent to which broker-

dealers need to compete on the basis of execution quality.1322 Market centers have less of an 

incentive to compete and innovate on execution quality to the extent that broker-dealers route 

orders for reasons other than execution quality. Market centers also have less of an incentive to 

compete on the basis of execution quality to the extent that broker-dealers and other market 

participants are less able to use Rule 605 reports to compare execution quality across market 

centers, for example, as a result of erosions to the information content of Rule 605 statistics due 

to changes in market conditions,1323 or to the extent that Rule 605 does not include some relevant 

order sizes or types.1324 

D. Economic Effects 

The amendments expanding and modifying the reporting requirements under Rule 605 

will result in numerous beneficial economic effects. These economic effects will mainly derive 

from improvements in the transparency of execution quality of broker-dealers and market 

centers, which will promote competition among these reporting entities on the basis of execution 

quality. These amendments to Rule 605 will also result in initial and ongoing compliance costs to 

reporting entities.  

 

1322  See supra section IX.C.2.a). 

1323  For example, market centers may be less incentivized to compete on the basis of execution speed to the 

extent that, as a result of rapid increases in the speed of trading, market participants are less able to use 

time-to-execution measures from Rule 605 reports to compare across market centers. See supra section 

IX.C.3.c)(4) for further discussion. 

1324  For example, market centers may be less likely to compete on the basis of execution quality for orders of 

less than 100 shares, since these orders were previously not required to be included in Rule 605 reports. See 

supra section IX.C.3.b)(1)(a) for further discussion. 



376 

This section measures the economic effects of these amendments to Rule 605 relative to a 

regulatory baseline that includes the implementation of the MDI Rules1325 and reflects the 

Commission’s assessment of the anticipated economic effects, including potentially 

countervailing or confounding economic effects from the MDI Rules.1326 However, given that 

the MDI Rules have not yet been implemented, they have not affected market practice and 

therefore data required for a quantitative analysis of the economic effects that includes the effects 

of the MDI Rules is not available. It is possible that the economic effects relative to the baseline 

can be different once the MDI Rules are implemented. Where implementation of the above-

described MDI Rules may affect certain numbers, the description of the economic effects below 

notes those effects.  

1. Benefits 

These amendments to Rule 605 will promote increased transparency of order execution 

quality, particularly for larger broker-dealers who were not required to disclose execution quality 

information under preexisting Rule 605, but also for all reporting entities, whose execution 

quality information will be more relevant and easier to access because of improvements to 

existing Rule 605 disclosure requirements. 

This increased transparency, together with increased competition resulting from this 

transparency, will result in improvements in execution quality, for several reasons. First, 

investors and their broker-dealers will be able to make better informed decisions about where to 

route their orders to achieve better quality execution. Second, these amendments are expected to 

 

1325  See supra section IX.C.1.c)(2). 

1326  See supra section IX.C.1.c)(2) for a discussion of the Commission’s anticipated economic effects of the 

MDI Rules as stated in the MDI Adopting Release. 



377 

increase the extent to which broker-dealers compete on the basis of execution quality in order to 

attract and retain customers, as well as the extent to which market centers must compete on the 

basis of execution quality to attract and retain order flow.1327 The Commission expects that this 

increase in competition will lead to improvements in execution quality as a result of 

improvements to broker-dealer routing practices and improvements to market centers’ execution 

practices. These economic mechanisms will lead to improvements to overall levels of execution 

quality, as well as improvements to particular components of execution quality, such as 

execution prices, execution speeds, size improvement, and fill rates.1328  

The following sections will discuss the expected benefits of these amendments for 

transparency, competition, and execution quality, including those expected from expanding the 

scope of reporting entities, modernizing the required information, and improving accessibility. 

The Commission acknowledges that there may be limitations to these benefits and discusses 

these below, though none will significantly reduce the benefits of the amended rule.  

 

1327  Several commenters stated that enhancing Rule 605 reporting requirements would generally lead to 

increased competition on the basis of execution quality. See, e.g., Better Markets Letter at 1-2; NASAA 

Letter at 5; Fidelity Letter at 7; Healthy Markets Letter at 5; see also infra note 1330 and corresponding text 

for additional statements from commenters on the impact of the expansion of Rule 605 reporting 

requirements to include larger broker-dealers on competition among broker-dealers. 

1328  As discussed in the Proposing Release, the magnitude of improvements in order execution quality that 

individual and institutional investors experience under the amended rule may be lower after the MDI Rules 

are implemented, relative to the pre-implementation baseline. The availability of faster consolidated market 

data with more data on odd-lot information and depth of book information from competing consolidators 

could result in improved execution quality for customers’ orders, if their broker-dealers currently utilize 

SIP data and switch to consuming the expanded consolidated market data. However, there is uncertainty 

with respect to how the benefits of the amended rule will be changed. Specifically, there is uncertainty 

regarding the magnitude of price improvement that wholesalers will provide to retail investors when the 

MDI Rules are implemented, as well as uncertainty regarding how the NBBO midpoint will change for 

stocks with prices above $250 when the MDI Rules are implemented. These amendments to Rule 605 will 

still lead to improvements in individual and institutional investor order execution quality, as well as 

improvements in price discovery, relative to a baseline in which the MDI Rules are implemented. See 

Proposing Release, 88 FR 3786 at 3872 (Jan. 20, 2023). 



378 

a) Expanding the Scope of Reporting Entities  

(1) Expanding Requirements for Larger Broker-Dealers 

As a primary effect, the adopted amendment expanding the scope of Rule 605 reporting 

entities to include larger broker-dealers1329 will increase transparency into the differences in 

execution quality achieved by these broker-dealers when they route customer orders to execution 

venues.1330 This increase in transparency will increase the extent to which both broker-dealers 

and market centers compete on the basis of execution quality, which will result in improvements 

in execution quality. 

First, as a result of the adopted amendment, customers of larger broker dealers, along 

with other market participants, will no longer need to make inferences about their broker-dealers’ 

execution quality based on routing information from Rule 606 data combined with market 

centers’ execution quality information from Rule 605 data, but will instead have access to direct 

information about the aggregate execution quality achieved by their broker-dealers.1331 

Customers will then be able to use this information to compare across broker-dealers and select 

 

1329  See supra section II.A for further discussion of the amendments related to the expansion of Rule 605 

reporting entities to include larger broker-dealers.  

1330  These effects will principally accrue to larger broker-dealers, who will be required to prepare Rule 605 

reports, but may spill over to effect smaller broker-dealers as well. See discussion in infra section 

IX.D.1.d)(1). Several commenters stated that expanding the scope of Rule 605 reporting requirements to 

include larger broker-dealers will benefit transparency. See, e.g., Nasdaq Letter at 43. One commenter, 

while generally agreeing that expanding the scope to broker-dealers will improve transparency, described 

the importance of “enabl[ing] retail brokers to provide background information contextualizing how their 

obligations are different from those of wholesalers or other market centers that currently report under Rule 

605.” Virtu Letter II at 3-4. As stated in the Proposing Release and repeated infra this section, while 

differences in certain statistics for broker-dealers as compared to market centers may be more reflective of 

differences in business models rather than effectiveness in achieving execution quality, the Commission 

understands that these differences are well-known and are taken into account by market participants when 

evaluating execution quality statistics. See Proposing Release, 88 FR 3786 at 3800 (Jan. 20, 2023). 

1331  This effect will be enhanced by the requirement that broker-dealers publish Rule 605 reports for their 

broker-dealer activities separately from activities related to the market center(s) that they may operate, 

which will allow investors to access execution quality information that is exclusively related to the firm’s 

broker-dealer operations. See supra section II.A.2.b) for further discussion. 



379 

those broker-dealers offering better execution quality. Furthermore, combined with information 

about broker-dealers’ payment relationships with execution venues in quarterly reports prepared 

pursuant to Rule 606(a)(1), information about the aggregate execution quality obtained by larger 

broker-dealers that are in the business of routing customer orders will give market participants 

and other interested parties access to key information that will facilitate their ability to evaluate 

how these payment relationships may affect execution quality. The flow of customers to the 

broker-dealers that provide better execution quality will improve the execution quality of 

customers that route their orders to those broker-dealers. 

This increase in market participants’ ability to compare execution quality across broker-

dealers will increase the extent to which broker-dealers compete on the basis of execution quality 

when making their order routing decisions.1332 Broker-dealers will increase their competitive 

position with respect to execution quality by investing in or otherwise adjusting their routing 

practices to increase the extent to which they route orders to the market centers offering better 

execution quality and limit the extent to which they route orders for other potential reasons.1333 

For example, broker-dealers that face conflicts of interest that arise when their interests are not 

aligned with their customers’ interests may be better incentivized to manage these conflicts as a 

result of an increase in their need to compete on the basis of execution quality.1334 Specifically, 

to the extent that broker-dealers lose customer order flow as a result of their offering lower 

 

1332  Several commenters stated that expanding the scope of Rule 605 reporting requirements to include larger 

broker-dealers would increase competition among broker-dealers. See, e.g., Fidelity Letter at 7-8; Rule 605 

Citadel Letter at 4; CCMR Letter at 14-15; NASAA Letter at 6. 

1333  The magnitude of the improvements in order routing practices under the final rule may be lower when the 

MDI Rules are implemented. See supra note 1328. 

1334  See supra section IX.C.3.a)(1) for a discussion of potential conflicts of interest in broker-dealer routing 

decisions. 



380 

execution quality, these broker-dealers are expected to base more of their routing decisions on 

the execution quality of market centers, rather than on which market centers are more likely to 

benefit them (e.g., because of higher PFOF or lower access fees). This is expected to promote the 

flow of orders to market centers that provide better execution quality. The flow of orders to those 

market centers offering better execution quality may also result in further improvements in 

execution quality for those customers, as liquidity externalities and the consolidation of orders 

onto high-quality market centers will increase the liquidity of these venues.1335  

These amendments will require larger broker-dealers to report the same execution quality 

information as market centers, including information about execution prices, execution speeds, 

and fill rates,1336 as well as, under these amendments, information about size improvement.1337 

By requiring larger brokers-dealers to report stock-by-stock order execution information in a 

uniform manner, these amendments will make it possible for market participants and other 

interested parties to make their own determinations about how to group stocks or orders when 

comparing execution quality across broker-dealers. By allowing market participants and other 

interested parties to conduct their own analysis based on alternative categorizations of the 

underlying data, requiring larger broker-dealers to produce more detailed execution quality data 

will also help ameliorate potential concerns about overly general statistics as well as the specific 

categorization of orders and selection of metrics in the newly required summary reports.  

 

1335  However, liquidity externalities may have adverse effects on the competition among market centers if they 

result in the exit of some market centers. See infra section IX.D.1.d)(4) for a discussion. 

1336  See supra section IX.C.1.a) for a discussion of the economic significance of the execution quality 

information currently required by Rule 605 to be disclosed by market centers.  

1337  See final 17 CFR 242.605(a)(1)(ii)(R) and (S) and discussion in supra section III.B.4.e).381 

The Commission is mindful that Rule 605’s execution quality reports contain a large 

volume of statistical data, and, as a result, it may be difficult for individual investors to review 

and digest the reports. Should certain market participants not have the means to directly analyze 

the detailed statistics,1338 independent analysts, consultants, broker-dealers, the financial press, 

and market centers likely will continue to respond to the needs of investors by analyzing the 

disclosures and producing more digestible information using the data.1339 Furthermore, requiring 

larger broker-dealers, along with market centers, to prepare summary reports with aggregated 

execution quality information,1340 in addition to the more detailed Rule 605 reports, will furnish 

more direct access to useful data for some market participants.  

The adopted amendment requiring larger broker-dealers to report both the number of 

shares executed at the receiving broker-dealer and the number of shares executed at any other 

venue1341 will help ensure that Rule 605 reports capture the execution quality of all orders that 

larger broker-dealers receive for execution as part of their customer-facing broker-dealer 

function. The majority of executions resulting from a firm’s broker-dealer operations will likely 

be categorized as away-executed shares in the Rule 605 reports associated with its broker-dealer 

 

1338  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000) (stating that most individual 

investors likely would not obtain and digest the reports themselves); see also discussion infra section 

IX.D.1.b)(3). 

1339  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press. One commenter stated that 

“even though a certain percentage of retail investors may not read the Rule 605 reports, they will still 

benefit indirectly as the enhanced disclosure will . . . facilitate use by third-party researchers and 

academics, who in turn can extract information from the reports and use it to expose issues and problems 

with today’s order routing and execution practices.” Better Markets Letter at 9-10.  

1340  See final 17 CFR 242.605(a)(2).  

1341  See final 17 CFR 242.605(a)(1)(i)(E) and (F). As discussed herein, the Commission is amending the rule to 

also cover the number of shares executed at the receiving broker or dealer.  



382 

operations.1342 While these shares will not be categorized as being directly executed by the 

broker-dealer, it is likely that market participants understand that execution quality can depend 

significantly on the broker-dealers’ order handling and routing practices.  

Several commenters did not support expanding the scope of Rule 605 reporting entities to 

include larger broker-dealers.1343 One commenter disagreed that the expansion of scope would 

increase competition among broker-dealers, because “[d]ifferences in execution quality could be 

the result of a myriad of factors, including the customers the two different brokers serve and the 

equities the customers trade.”1344 This commenter stated that “if differences in reported 

execution quality statistics are reflective of different business models rather than actual 

differences in execution quality… producing Rule 605 statistics (particularly in the summary 

reports most likely to be used by retail investors) without accounting for different broker-dealer 

business models could lead investors to make incorrect decisions regarding broker-dealer 

selection.”1345  

 

1342  To the extent that a broker-dealer also acts as a market center, any executions that it handles will be 

required to be published in the Rule 605 report(s) that it files in its capacity as a market center. See supra 

section II.A.2.b) for further discussion. 

1343  See, e.g., Schwab Letter II at 34-35; Schwab Letter III at 2; and SIFMA Letter II at 30. One commenter did 

not support expanding the scope of Rule 605 to include larger broker-dealers because it instead supported 

expanding the reporting requirements under Rule 606 to included broker-dealer execution quality 

information. See Robinhood Letter at 39; see infra section IX.E.5.b) for a discussion of this as a reasonable 

alternative.  

1344  See SIFMA Letter II at 30. 

1345  See SIFMA Letter II at 30; see also Schwab Letter II at 35, stating that “[i]f differences in E/Q are a result 

of different business models employed across firms rather than actual differences in E/Q among 

comparable business models, providing this information in a way that appears to be—but is not—an 

apples-to-apples comparison would create investor confusion rather than provide useful information on 

which to base decisions,” and Cambridge Letter at 7, stating that requiring larger retail broker-dealers to 

produce execution quality reports “is likely to lead to misaligned, misleading comparisons between totally 

different entities.”  



383 

First, the Commission agrees that, as a result of different business models, a particular 

broker-dealer’s order flow may be made up of a different mixture of securities, order types, and 

order sizes, which may impact or constrain that broker-dealer’s overall execution quality 

level.1346 For example, Figure 15, which uses a sample of CAT data from Q1 20231347 to break 

down broker-dealer order flow into different order types, shows that broker-dealers indeed 

handle a variety of order types, including both marketable and non-marketable orders, for both 

their individual and institutional investor customers.1348 

 

1346  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023); see also supra note 984 for an example of how 

differences in order flow characteristics may impact inferences about execution quality.  

1347  See supra note 1182 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and results may be different following the implementation of the MDI Rules. See supra section 

IX.C.1.c)(2). 

1348  This CAT data used in this analysis have been updated from the Proposing Release for a longer and more 

recent time period, as well as to include a larger sample of broker-dealers. The methodology has also been 

updated to include only those NMLOs that are immediately executable upon receipt (i.e., NMLOs priced at 

the quote or better). The analysis in the Proposing Release used a week of CAT data from Jan. 2022 to 

break down orders from 58 retail broker-dealers into different order types and similarly showed that broker-

dealers indeed handle a variety of order types, including both marketable and non-marketable orders, for 

both their individual and institutional investor customers. See Proposing Release, 88 FR 3786 at 3863 (fig. 

14) (Jan. 20, 2023). The distribution of order flows across order types is somewhat different in the analysis 

in the Proposing Release, including a much lower rate of market orders, particularly for individual 

customer accounts. This is likely because of the difference in order flow characteristics between the 58 

retail broker-dealers in the Proposing Release sample, and the larger sample of 85 broker-dealers with 

100,000 or more customer in the present analysis. These changes did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that broker-dealers indeed handle 

a variety of order types, including both marketable and non-marketable orders, for both their individual and 

institutional investor customers. 



384 

Figure 15: Broker-Dealer Order Volume by Order Type, Q1 2023 

 

 

This figure shows the distribution of customer order flow, in terms of the percentage of the total number of submitted orders, across different 

order types for both individual and institutional customer accounts, using a sample of CAT data for 400 stocks for Q1 2023. Percentages are 
calculated as the number of orders originated by given account type and within a given order type category handled by broker-dealers, summed 

across all stocks and days in the sample, divided by the total number of orders originated by a given account type handled by broker dealers, 

summed across all stocks and days See supra note 1182 for dataset description and supra note 1200 for definitions of the NMLO categories. This 
analysis uses data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 
Rules. See supra section IX.C.1.c)(2). 

However, under these amendments, larger broker-dealers will be required to categorize 

the execution quality information required by Rule 605 by individual security, different types of 

orders, and different order sizes. Larger broker-dealers will also be required to report realized 

spread, which is a measure of adverse selection.1349 Giving market participants access to this 

information in Rule 605 reports will help ensure that they are able to control for these differences 

in order flow characteristics and make apples-to-apples comparisons when assessing and 

 

1349  See supra note 1229 and corresponding text for a discussion of realized spreads as a measure of adverse 

selection risk. 



385 

comparing execution quality information across broker-dealers.1350 Furthermore, customers that 

primarily rely on broker-dealers’ summary reports will also be able to use information from the 

summary reports to control for differences in broker-dealer order flow in terms of order sizes, 

average stock price and realized spreads.1351 Second, to the extent that customers value and 

emphasize execution quality when deciding among broker-dealers, a decision to switch broker-

dealers based on execution quality information as contained in Rule 605 reports will not be an 

“incorrect” one as stated by a commenter.1352 Customers will continue to be able to evaluate their 

broker-dealers across a range of services, including those other than execution quality, such as 

commissions or user-friendliness,1353 though they will be better able to factor execution quality 

into their decisions.1354  

One commenter stated that “it is not apparent that [requiring larger brokers to report on 

order execution quality] would improve retail execution quality, as the retail broker market is 

highly competitive.”1355 The commenter went on to state that “to the extent that there are 

unexploited opportunities to improve execution quality for retail investors, as the Commission 

has claimed in its release, empowering investors to compare execution quality across retail 

 

1350  That some of the information contained in the summary execution quality report will be useful for 

controlling for differences across differences in order flow characteristics of broker-dealer was supported 

by comment. See, e.g., comments in support of including average notional order size and average realized 

spreads in the summary reports, discussed in notes 1592-1593 infra. 

1351  See supra section IV.B.1.b) for a discussion of the statistics that will be required to be reported in Rule 605 

summary execution quality reports.  

1352  See SIFMA Letter II at 30. 

1353  See supra section IX.C.4.a)(1) for further discussion of the additional services offered by broker-dealers. 

1354  At the same time, the Commission acknowledges that the expected benefits from the amendments to Rule 

605, such as increased competition among broker-dealers, may be lessened to the extent that there are 

dimensions of execution quality not captured by Rule 605 reports which drive order handling decisions. 

See infra section IX.D.1.d)(5) for a discussion.  

1355  See Virtu Letter II at 57.  



386 

brokers (and consequently to switch brokers based on this information) could be the most 

efficient and effective way to address concerns about execution quality.” Routing decisions 

affect the execution quality that broker-dealer customers’ orders receive, leading to significant 

variations in execution quality across broker-dealers, and studies have documented a large 

variation in retail broker-dealer execution quality, even for identical orders.1356 Another 

commenter stated that recent academic findings “emphasize the need for further price execution 

disclosure at the broker level.”1357 

One commenter stated that, absent investor education on how to interpret Rule 605 

summary reports, “investors may misinterpret the data and make suboptimal decisions as a 

result.”1358 The amended rule does not preclude larger broker-dealers from disclosing additional 

information concerning their order execution practices that they believe would provide useful 

context concerning the quality of their services on their websites or through other means of 

communication.1359 For example, individual broker-dealers can provide their own educational 

resources directly to their customers and other market participants. The commenter also 

referenced a statement from the Commission in the Proposing Release that “differences in 

certain statistics for broker-dealers as compared to market centers may be more reflective of 

differences in business models rather than effectiveness in achieving execution quality for 

covered orders because of differences in order handling practices,” and disagreed with the 

Commission that “differences are well-known and are taken into account by market participants 

 

1356  See supra note 1064 and corresponding text for a discussion. 

1357  See Huang et al. Letter at 1 (attaching Xing Huang, Philippe Jorion, Jeongmin Lee & Christopher Schwarz, 

Who Is Minding the Store? Order Routing and Competition in Retail Trade Execution (Nov. 19, 2023)). 

1358  See SIFMA Letter II at 30. 

1359  See supra note 137 and corresponding text for further discussion. 



387 

when evaluating execution quality statistics.”1360 These statements from the Commission in the 

Proposing Release were made in specific reference to market participants’ use of Rule 605 

reports to make a hypothetical comparison between a market center and a broker-dealer, and not 

to their ability to compare broker-dealers with one another. Notwithstanding the commenter’s 

interpretation of the Commission’s statements in the Proposing Release, the Commission agrees 

with the commenter that differences between broker-dealer business models may not be ex ante 

well-known to market participants. However, for the reasons described above, market 

participants will be able to use the information in Rule 605 reports and the Rule 605 summary 

reports to account for differences in broker-dealer order flow, and broker-dealers are not 

precluded from separately providing their customers with information that can be used to 

contextualize the information in the Rule 605 reports. 

Meanwhile, it is unlikely that market participants will use information in Rule 605 reports 

to compare broker-dealers to market centers. Information about the execution quality of these 

two types of reporting entities is useful to different market participants for fundamentally 

different purposes. In terms of the principal-agent relationship described in the Market Failure 

section,1361 information about execution quality for broker-dealers will be used to address 

different information asymmetries than information about execution quality for market centers. 

Broker-dealers’ Rule 605 reports will be most likely used by broker-dealers’ customers to 

 

1360  See SIFMA Letter II at 29-30, citing the Proposing Release, 88 FR 3786 at 3800 (Jan. 20, 2023); see also 

Schwab Letter at 34, referencing the same statement in the Proposing Release to support its statement that, 

“[i]f differences in E/Q are a result of different business models employed across firms rather than actual 

differences in E/Q among comparable business models, providing this information in a way that appears to 

be—but is not—an apples-to-apples comparison would create investor confusion rather than provide useful 

information on which to base decisions.” 

1361  See supra section IX.B. 



388 

compare execution quality across broker-dealers to address information asymmetries that exists 

between broker-dealers and their customers. In contrast, market centers’ Rule 605 reports will 

continue to be more useful for broker-dealers to compare execution quality across market centers 

to address the information asymmetries that exist between broker-dealers and the market centers 

to which they route their customers’ orders. 

(2) Specifying and Expanding Requirements for Market 

Centers 

In addition to expanding the scope of Rule 605 reporting entities to include larger broker-

dealers, these amendments promote greater transparency by specifying that broker-dealers post 

separate Rule 605 reports for their ATSs1362 and requiring that market centers operating SDPs 

post separate reports for each market center.1363 By requiring firms that operate multiple market 

centers to report separately for each market center, the final rule will prohibit the commingling of 

multiple reporting entities’ information, which, to the extent that it occurred prior to the final 

rule, may have added noise to or skewed Rule 605 reports. For example, requiring market centers 

that operate SDPs to report statistics separately for each line of business will increase the 

transparency of the operating market centers’ fill rates, by eliminating downward skew 

associated with the inclusion of “pinging” orders submitted to the SDP.1364 Reducing the skew of 

Rule 605 statistics will allow market participants to better assess differences in execution quality 

 

1362  See final 17 CFR 242.605(a)(1).  

1363  See id.; see also supra section II.C. 

1364  See supra section IX.C.3.a)(2) for a discussion of why the commingling of wholesaler and SDP orders for 

the purposes of Rule 605 reporting prior to these amendments would have effected a downward skew on 

the fill rates derived from the wholesalers’ Rule 605 reports. 



389 

across different types of market centers, helping to enhance market centers’ incentive to compete 

on the basis of execution quality to attract orders. 

One commenter stated that “certain Rule 605 metrics,” such as fill rates, “may be unduly 

impacted by differences in SDP business models,” such as whether they send out indications of 

interest or solely receive IOCs.1365 First, as amended, Rule 605 reports will add an IOC order 

type category,1366 which will allow market participants to differentiate between SDPs that 

receive more or fewer IOCs, which should address the commenter’s specific concern. More 

generally, and as stated by another commenter, users of SDPs tend to be sophisticated 

entities.1367 As a result, it is likely that users of SDPs are knowledgeable about the differences in 

various SDP business models and the relationship of those differences to variations in execution 

quality statistics across SDPs. Lastly, the commenter’s statement that there may be systematic 

differences between some SDP business models also applies to systematic differences between 

SDPs and market centers with other business models, and the relationship between these 

business models and execution quality is obscured to the extent that the execution quality 

information from these different execution venues is commingled. Requiring separate reporting 

for SDPs will provide market participants with transparency regarding the relationship between 

SDP business models and execution quality. 

Another commenter stated that, because “users of SDPs are all sophisticated entities 

capable of carrying out their own execution quality measurements and, in fact, do carry out these 

measurements on their own,” requiring separate reporting “imposes an additional cost on SDPs 

 

1365  See Rule 605 Citadel Letter at 7. 

1366  See supra section III.B.2.c)(2). 

1367  See Virtu Letter II at 12. 



390 

without any clear benefit.”1368 As stated in the Market Failure section, even for those market 

participants that have access to alternative sources of information about the execution quality of 

their orders, this information is typically highly individualized and nonpublic, and thus cannot be 

used to evaluate the execution quality of market centers with which the market participants do 

not do business.1369 Furthermore, as stated in the Proposing Release, in addition to allowing users 

of SDPs to separately view the execution quality of SDPs, requiring wholesalers to report their 

SDP executions separate from their other executions will benefit the non-SDP user customers, 

the majority of which are individual investors.1370  

b) Modifications to Rule 605 Disclosure Requirements 

As a result of the amendments expanding and modernizing Rule 605 disclosure 

requirements, the metrics used for the required Rule 605 disclosures will be more informative 

about execution quality, which will increase transparency into the differences in execution 

quality achieved by reporting entities. This increase in informativeness and transparency will 

enhance the benefits of expanding the scope of reporting entities, including the expansion to 

larger broker-dealers.1371 In addition, as a result of the increase in transparency with respect to 

market center execution quality, broker-dealers will have the opportunity to be better informed 

when making their routing decisions. The flow of orders to those market centers that provide 

better execution quality will improve the execution quality of those broker-dealers (and their 

customers) that route their orders to these higher-quality market centers, and is expected to also 

 

1368  See Virtu Letter II at 12-13. 

1369  See supra note 1094 and corresponding text.  

1370  See Proposing Release, 88 FR 3786 at 3864 (Jan. 20, 2023). 

1371  See supra section IX.D.1.a) for a discussion of the benefits of expanding the scope of reporting entities 

under these amendments. 



391 

increase the extent to which market centers must improve their execution practices in order to 

better compete with other market centers to attract customer order flow.1372 Execution quality is 

expected to improve as a result. 

These benefits will stem from modifications aimed at clarifying and expanding the scope 

of Rule 605 reporting entities, modernizing the information required to be reported under Rule 

605 and improving the accessibility of the information contained in Rule 605 reports. 

(1) Expanding the Definition of Covered Orders 

The amendments expanding the definition of “covered order” to include additional order 

types will increase transparency about the execution quality that reporting entities achieve for 

these additional order types, including orders submitted with stop prices, non-exempt short sale 

orders, and orders submitted outside of regular trading hours.  

(a) Orders Submitted Pre-Opening/Post-Closing 

First, the adopted amendment expanding the definition of “covered order” to include 

NMLOs submitted outside of regular trading hours that become executable during regular 

trading hours1373 will lead to a more complete picture of reporting entities’ execution 

characteristics. While an analysis using CAT data shows that pre-open/post-close orders that are 

executable during regular hours are likely only a small portion of total order flow, these orders 

represent a relatively higher percentage of order flow associated with individual customer 

 

1372  The magnitude of the improvements in execution practices may be lower when the MDI Rules are 

implemented, because the availability of faster consolidated market data with more data on odd-lot 

information and depth of book information from competing consolidators could result in more informed 

customer order routing by broker-dealers that switch to consuming the expanded consolidated market data, 

which could separately increase the flow of orders to trading venues offering better execution quality. See 

supra section IX.C.1.c)(2) for further discussion. However, these amendments are expected to lead to 

improvements in execution practices over and above the improvements that might result from the 

implementation of the MDI Rules. 

1373  See final 17 CFR 242.600(b)(27); see also supra section III.A.1.b). 



392 

accounts.1374 Individual investors will be able to make more informed decisions when choosing a 

broker-dealer, if these orders are included in broker-dealers’ execution quality disclosures. 

Likewise, broker-dealers will be able to make more informed decisions about where to route 

NMLOs submitted outside of regular trading hours, knowing that these orders are being factored 

into a market center’s overall statistics.  

While several commenters supported the inclusion of NMLOs submitted outside of 

regular trading hours into Rule 605 reports,1375 one commenter stated that the inclusion of these 

orders would “likely skew the statistics”1376 and “lead to difficult comparisons between brokers” 

because “the first quote after opening is wide and not representative of the quote when the 

primary exchange opens.”1377 The commenter’s specific concern will be addressed by the 

adopted amendment specifying that orders that are received during regular market hours but 

execute before the primary listing market has disseminated its first firm, uncrossed quotations 

will be treated in the same manner as any other order received pre-open or post-close.1378 More 

generally, while some NMLOs submitted outside of market hours likely have characteristics that 

differ from those submitted during regular hours,1379 these NMLOs make up only a very small 

 

1374  See analysis described in supra section IX.C.3.b)(4). 

1375  See, e.g., Nasdaq Letter at 43-44; Virtu Letter II at 5. 

1376  See Schwab Letter at 32.  

1377  See Schwab Letter II at 7. 

1378  See discussion in supra section III.A.1.b). Specifically, any order that executes during this intervening time 

period will be excluded from Rule 605 reports; any NMLO (including an order submitted with a stop price) 

will not be considered executable until after the first firm, uncrossed quotations in the security are 

disseminated by the primary listing market; and any determination of whether a limit order received prior 

to or during that period is a marketable limit order, a beyond-the-midpoint limit order, or an NMLO will 

not occur until after the first firm, uncrossed quotations in the security are disseminated by the primary 

listing market. 

1379 For example, an analysis of the sample of CAT data described in note 1182 supra showed that pre-open 

executable NMLOs have somewhat lower fill rates than the full sample of executable NMLOs (0.18% vs. 

0.42%). 



393 

percentage of order volume, representing only around 1.3% of total submitted share volume.1380 

Therefore, it is unlikely that the inclusion of these orders along with other order types will 

significantly skew execution quality statistics. 

(b) Orders Submitted with Stop Prices 

Second, the adopted amendment removing the exclusion of orders with stop prices from 

the definition of “covered order”1381 will increase transparency about the execution quality of 

this type of order.1382 This will be particularly beneficial, as the handling of stop orders can vary 

significantly across broker-dealers and across the market centers to which they route, and the 

execution prices of stop orders are highly sensitive to handling and execution practices.1383 As 

broker-dealers will be incentivized to improve their handling of stop orders, they will be able to 

use information about the execution quality of stop orders achieved by market centers to route 

stop orders to those market centers with the practices and abilities that allow them to achieve 

higher execution quality for these orders.1384 

The amendment to include stop orders within separate order type categories rather than 

grouping them together with other order types1385 also will prohibit them from skewing the 

execution quality of other orders downwards, since stop orders are more likely to execute in 

 

1380  See supra note 1182 and corresponding text for more information about this analysis. 

1381  See final 17 CFR 242.600(b)(27) (eliminating the express carve out of orders submitted with stop prices 

from the definition of “covered order”); see also supra section III.A.2.b). 

1382  Several commenters generally agreed that the inclusion of information about stop orders in Rule 605 

reports will make the data more useful and complete. See, e.g., Nasdaq Letter at 44; Virtu Letter II at 5; and 

SIFMA AMG Letter at 6. 

1383  See supra note 1158 and accompanying text for a discussion of differential treatment of stop orders.  

1384  As discussed in supra section IX.C.3.b)(2), the Commission understands that the handling of stop orders 

can vary significantly across market centers. 

1385  See final 17 CFR 242.600(b)(19) (defining “categorized by order type” to include a category for 

“executable orders submitted with stop prices”) (emphasis added); see also discussion in supra section 

III.A.2.b). 



394 

adverse market conditions.1386 In addition, including separate categories for executable market 

orders submitted with stop prices, executable stop marketable limit orders, and executable stop 

NMLOs will help market participants distinguish between orders with different execution 

profiles. For example, the risk of large losses is particularly acute for stop orders that use market 

orders, which represent the majority of stop orders submitted by individual investors according 

to Table 3, as the execution price an investor receives for this market order can deviate 

significantly from the stop price in a fast-moving market where prices change rapidly.1387 As a 

result, the execution quality of these orders is highly sensitive to handling and execution 

practices, such that market participants will benefit from transparency regarding reporting 

entities’ handling of these orders. 

One commenter stated that the inclusion of stop orders “will create increased complexity 

with little benefit for the individual investor,” and that therefore “the Commission should 

consider excluding stop orders from the report entirely.”1388 The Commission disagrees that there 

will be little benefit for individual investors from the inclusion of stop orders in Rule 605 reports. 

As shown in Table 3, individual account holders are more likely than institutional account 

holders to submit stop orders (i.e., 4.91% of individual account holders’ market orders are 

submitted with stop prices vs. 0.25% of those of institutional account holders). Therefore, 

information about the execution quality of stop orders will be particularly useful for individual 

 

1386  See supra note 1159 and corresponding text for further discussion. 

1387  See, e.g., SEC Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders (July 13, 2017), available at 

https://www.sec.gov/oiea/investor-alerts-bulletins/ib_stoporders.html. This risk can be attenuated with the 

use of stop limit orders, which sets a minimum price at which the stop order can be executed. However, the 

limit price may prevent the stop limit order from executing if the stock price falls below the limit price 

before the stop limit order can execute. 

1388  See Schwab Letter II at 5. 



395 

investors, who can use this information to identify and direct stop orders to those broker-dealers 

with the practices and abilities that allow them to achieve higher execution quality for these 

orders. Such information is especially useful given that stop orders are more likely to execute in 

adverse market conditions. 

(c) Non-Exempt Short Sale Orders 

The Commission is adopting its position that non-exempt short sales orders will not be 

considered special handling orders unless a price test restriction is in effect for the security.1389 

This will lead to a more complete picture of reporting entities’ execution characteristics, as short 

sales make up a large portion of trades and by implication are likely also a significant component 

of order flow.1390 An analysis of short volume data found that, between Aug. 2009 and Mar. 

2023, short selling was an average of 39.6% of trading volume for non-financial common 

stocks.1391 To the extent that the proportion of short selling trade volume is comparable to the 

 

1389  See supra section III.A.3.b). 

1390  Several commenters supported including short sales in Rule 605 reports. See, e.g., Nasdaq Letter at 43; 

Virtu Letter II at 5.  

1391  Short volume data are collected from CBOE Group (CBOE BYX Exchange, CBOE BZX Exchange, CBOE 

EDGA Exchange, CBOE EDGX Exchange), FINRA (FNYX, FNSQ, FNQC), NASDAQ Group (Nasdaq 

BX, Nasdaq PSX and Nasdaq Stock Market), and NYSE Group (New York Stock Exchange, NYSE Arca, 

NYSE American, NYSE Chicago, and NYSE National). See 

https://www.cboe.com/us/equities/market_statistics/short_sale/ (last visited Apr. 2023) (CBOE data, which 

became available for purchase at https://datashop.cboe.com/us-equity-short-volume-and-trades on June 1, 

2023); https://www.finra.org/finra-data/browse-catalog/short-sale-volume-data (FINRA data); 

https://nasdaqtrader.com/Trader.aspx?id=shortsale (NASDAQ data); ftp://ftp.nyxdata.com/ (NYSE data). 

Common stocks include those with a CRSP share code of 10 or 11. Financial stocks (SIC code 6000-6999) 

and stocks that do not have an active trading status in CRSP (trade status = A) are excluded. CRSP share 

codes, SIC codes, trading statuses, and daily trading volumes are derived based on data from CRSP 1925 

US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2023). The daily level of short selling 

is calculated for each stock as the daily number of shares sold short divided by the daily trading volume, 

 

 

 



396 

proportion of short selling order volume, these data points show that short selling is prevalent in 

equity markets. Therefore, the inclusion of non-exempt short sale orders will result in reporting 

entities’ execution quality statistics reflecting more relevant orders for individual and 

institutional investors, who both engage in short selling. While the costs to maintain margin 

accounts and borrow stocks may prevent some individual investors from participating in the 

short sale market, one academic working paper found that, between January 2010 and December 

2016, 6.36% of all off-exchange short selling1392 could be attributed to retail traders, and 10.92% 

of retail trading was made up of short sales.1393 Meanwhile, evidence suggests that short selling 

by institutional investors is largely the purview of hedge funds,1394 which are estimated to make 

 

averaged across stocks, and finally averaged across all days in the sample (Aug. 3, 2009 to Mar. 31, 2023). 

This number matches that of other studies. For example, Figure F.1 in the Congressional Study on Short 

Sale Reporting shows that the level of short selling as a percentage of trading volume grew from 2007 to 

close to 50% by 2013. See Short Sale Position and Transaction Reporting (June 5, 2014), available at 

https://www.sec.gov/files/short-sale-position-and-transaction-reporting%2C0.pdf. The Proposing Release 

stated that short selling was an average of 47.3% of trading volume for non-financial common stocks 

between Aug. 2009 and Feb. 2021. See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). This is 

higher than the estimate above partially because, while the analysis in the Proposing Release included in 

the denominator only trading volume of those trading venues from which the Commission collected short 

volume data, the analysis above includes in the denominator all trading volume from CRSP in order to 

provide a more conservative estimate of short selling volume. Regardless of the methodology, both 

numbers reflect that short sales are a significant percentage of total trading volume. 

1392  One academic paper found that short selling by individual investors made up a much smaller percentage of 

overall shorting volume on NYSE (1% to 2%). The authors attribute the low number of on-exchange retail 

shorting to brokerage routing decisions. See Ekkehart Boehmer et al., Which Shorts are Informed?, 63 J. 

FIN. 491 (2008). 

1393  See Ekkehart Boehmer & Wanshan Song, Smart Retail Traders, Short Sellers, and Stock Returns (working 

paper Oct. 23, 2020) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723096 (retrieved 

from SSRN Elsevier database).  

1394  See Peter Molk & Frank Partnoy, Institutional Investors as Short Sellers?, 99 B.U. L. REV. 837, 839 (2019). 

Molk and Partnoy’s paper “identif[ies] the regulatory and other barriers that keep key categories of 

institutions[, specifically, mutual funds, insurance companies, banks, sovereign wealth funds, endowments, 

and foundations,] from acquiring significant short positions.” Id. at 843. In addition, a Division of 

Economic and Risk Analysis White Paper survey of all mutual fund Form N-SAR filings in 2014 found 

that “[w]hile 64% of all funds were allowed to engage in short selling, only 5% of all funds actually did 

so.” Daniel Deli et al., Use Of Derivatives By Registered Investment Companies, SEC (2015), available at 

https://www.sec.gov/files/derivatives12-2015.pdf.  



397 

up around 85% of the short selling market.1395 One academic paper finds that short sellers’ 

choice of trading venue is highly dependent on its market design and that short sellers prefer 

trading venues that offer high execution speeds over those that offer low trading costs.1396 

Another academic study shows that wholesalers frequently offer price improvement to short 

sales and that including short sales in estimates of price improvement increases the total dollar 

value of net price improvement provided by more than 6%.1397 Therefore, including information 

about the execution quality that reporting entities achieve for non-exempt short sale orders into 

Rule 605 disclosures will be relevant for a variety of investors who engage in short selling.  

(2) Modernizing the Required Information 

(a) Categorization by Order Size and Type 

By enabling investors to make better apples-to-apples comparisons across reporting 

entities with potentially different order flow,1398 the amendments expanding and modernizing 

order size and order type categories are expected to enhance competition among reporting 

entities on the basis of execution quality, resulting in improvements in execution quality for 

investors.1399 Furthermore, for a specific order size or type, as order flow accumulates to the 

 

1395  See Yawen Jiao et al., Short Selling Meets Hedge Fund 13F: An Anatomy of Informed Demand, 122 J. FIN. 

ECON. 544 (2016) (citing a 2009 report from Goldman Sachs). 

1396  See Adam V. Reed et al., Shorting in Broad Daylight: Short Sales and Venue Choice, 55 J. FIN. 

QUANTITATIVE ANALYSIS 2246 (Nov. 2020). 

1397  See Battalio & Jennings, supra note 1253. 

1398  See supra note 984 for an example of how differences in order flow characteristics may impact inferences 

about execution quality. 

1399  The importance of being able to make apples-to-apples comparisons of execution quality in Rule 605 

reports was referenced by some commenters. See, e.g., SIFMA Letter II at 30, stating that “Rule 605 data 

can present differently among firms with different customer bases and correspondingly different types of 

order flow,” and Schwab Letter at 35, stating that “providing [E/Q] information in a way that appears to 

be—but is not—an apples-to-apples comparison would create investor confusion rather than provide useful 

information on which to base decisions.” 



398 

reporting entities offering the highest execution quality for these sizes and types of orders, this 

will in turn translate into improved execution quality for investors who have orders of these sizes 

and use these types of orders. For example, as a result of the adopted amendment expanding the 

order size categories to include information about odd-lots, market participants will have 

improved access to information about a market center’s offering of price improvement and 

timely execution of odd-lots. The expected improvement in both the price and speed at which 

odd-lot orders are executed will benefit for both institutional and individual investors.1400  

(i) Order Size Categories 

The amendments modernizing the order size categories are expected to make Rule 605 

reports more relevant by showing more meaningful differentiation in execution quality across 

different order sizes. This will allow consumers of Rule 605 reports to control for potential 

differences in order sizes across different reporting entities, while also increasing the extent to 

which reporting entities compete on the basis of execution quality across order sizes. 

First, the amendments defining order size categories in terms of notional values1401 will 

increase transparency regarding distribution of order sizes that a reporting entity handles, 

particularly for higher-priced stocks.1402 Continuing the example from section IX.C.3.b)(1)(a), 

for a $500 stock, all orders for $100,000 (i.e., 200 shares) or less will no longer be grouped into a 

 

1400  See supra section IX.C.3.b)(1)(a) for a discussion of the use of odd-lots by both individual and institutional 

investors. 

1401  See final 17 CFR 242.600(b)(18).  

1402  Several commenters agreed that a change from order size buckets defined in terms of share counts to 

notional order size buckets would be beneficial. See, e.g., Fidelity Letter at 9; Rule 605 Citadel Letter at 6; 

Schwab Letter at 33; Nasdaq Letter at 45-46; and Angel Letter at 2. Many of these commenters compared 

the benefits of notional order size buckets to those of order size buckets defined in terms of number of 

round lots, as was proposed. See infra section IX.E.3.a)(1) for a discussion of these comments in the 

context of the Commission’s consideration of a reasonable alternative that would define order size buckets 

in terms of number of round lots. 



399 

single order size category (100 to 499 shares1403) or, if they are for less than 100 shares, excluded 

altogether from reporting requirements.1404 Instead, these orders will be distributed across a 

number of order size buckets.1405 To include larger-sized orders into Rule 605 reporting 

requirements while remaining consistent with Regulation NMS rules that exclude orders or 

trades that are sized above $200,000,1406 these orders will be grouped into a separate category. 

This will facilitate market participants’ ability to use these categories to compare across orders of 

different sizes in higher-priced stocks, while controlling for potential differences in the treatment 

of larger-sized orders. As a result, market participants will be better able to take into account 

potential differences in the distribution of order sizes that reporting entities typically handle for a 

given stock when comparing execution quality metrics across reporting entities, making these 

metrics more informative for making apples-to-apples comparisons of execution quality across 

reporting entities.  

Figure 16 shows the distribution of orders across the adopted notional size buckets for 

stocks with different price levels, using a sample of CAT data for 400 stocks for Q1 2023.1407 

The results show that while, as expected, orders for lower-priced stocks tend to cluster in the 

 

1403  See prior 17 CFR 242.605(a)(1); see also supra note 1121 and corresponding text for a definition of the 

order size categories included in prior Rule 605 reporting requirements. 

1404  In addition, even prior to the implementation of the MDI Rules, a small number of NMS stocks have a 

round lot size smaller than 100. See supra note 1191. 

1405  These order size categories include (i) less than $250; (ii) $250 to less than $1,000; (iii) $1,000 to less than 

$5,000; (iv) $5,000 to less than $10,000; (v) $10,000 to less than $20,000; (vi) $20,000 to less than 

$50,000; and (vii) $50,000 to less than $200,000. An additional order size category includes orders for 

(viii) $200,000 or more. The order size categories provide additional differentiation for orders of less than a 

share, odd-lot orders, and orders of at least a round lot.  

1406  See, e.g., the examples discussed in supra note 1187. 

1407  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This analysis uses data from prior to the implementation of the MDI Rules and results may be 

different following the implementation of the MDI Rules. See supra section IX.C.1.c)(2).  



400 

smaller size buckets and orders for higher-priced stocks tend to cluster in the larger size buckets, 

in aggregate order flow appears reasonably well-distributed across the various order size buckets. 

Two exceptions are the smallest size bucket (orders for less than $250) and the largest size 

bucket (orders for $200,000 or more), both of which have little order flow. However, while there 

is relatively little order flow associated with the smallest notional size bucket (orders for less 

than $250), a further look at the data shows that a large portion of these orders are likely 

associated with individual investors.  

Figure 17 shows the distribution across the notional order size buckets of orders 

associated with individual customer accounts as compared to those from institutional customer 

accounts,1408 and shows that nearly 14.9% of orders from individual customer accounts are for 

less than $250. Therefore, including a separate order size category for these small-sized orders 

will be particularly beneficial for individual investors. Meanwhile, for the largest order size 

bucket, grouping these orders together and separately from other orders is consistent with 

Regulation NMS rules that exclude block orders or trades, which may result in different 

execution profiles for these orders.1409 Furthermore, while these orders make up a small 

percentage of orders, they make up a significant percentage of share volume.1410  

 

1408  See supra note 1144 for a definition of account types in CAT. 

1409  See supra note 1187 for examples. 

1410  Specifically, an analysis of the CAT data in supra note 1211 finds that orders priced $200,000 or higher 

make up 18.0% of order flow in terms of share volume.401 

Figure 16: Distribution of Orders Across Notional Order Size Buckets for Different Stock 

Price Groups, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for different stock price groups. Percentages are 

calculated as the number of orders in a given order size bucket across all stocks within a given stock price group, summed across 

all days in the sample, divided by the total number of orders within a stock price group, summed across all days in the sample. 

The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description. This analysis uses data from 

prior to the implementation of the MDI Rules and specific numbers reported may be different following the implementation of 

the MDI Rules. See supra note 1407 and section IX.C.1.c)(2). 

 



402 

Figure 17: Distribution of Orders Across Notional Order Size Buckets for Different 

Customer Account Types, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for different stock price groups. Percentages are 

calculated as the number of orders in a given order size bucket that originated from a given account type, summed across all 

stocks and days in the sample, divided by the total number of orders originating from a given account type, summed across all 

days in the sample. The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description. This 

analysis uses data from prior to the implementation of the MDI Rules and specific numbers reported may be different following 

the implementation of the MDI Rules. See supra note 1407 and section IX.C.1.c)(2). 

Second, as a result of the new order size categories, amended Rule 605 reports will 

contain information about some orders that were missing from preexisting Rule 605 reports, 

including orders less than a share, orders less than 100 shares, and larger-sized orders of 10,000 

or more shares.1411 The new order size categories will also help ensure that round lots for stocks 

with prices greater than $250 are not excluded from Rule 605 reports following the 

 

1411  Because final Rule 605 reports will not define order size buckets in terms of share numbers, these orders 

will be distributed across the notional order size buckets described in note 1405 supra, according to their 

respective notional values. 



403 

implementation of the MDI Rules.1412 Analyses showed that the inclusion of odd-lot orders into 

Rule 605 reporting requirements will include up to an additional 16.9% of NMLOs (0.99% of 

NMLO share volume),1413 and the inclusion of fractional shares will include up to an additional 

16.4% of executions received by individual investors into Rule 605 reports.1414 In addition, 

expanding Rule 605 coverage to include larger-sized orders1415 will include up to an additional 

30% of NMLO share volume,1416 which will likely mostly be relevant for institutional investors, 

to the extent that some of these orders may not be split into smaller child orders.1417 Including 

these order sizes within the scope of Rule 605 will help ensure that market participants are able 

to compare the execution quality of these orders across reporting entities,1418 which will 

encourage reporting entities to compete for these orders on the basis of execution quality.  

Commenters generally supported the inclusion of odd-lots,1419 fractional shares,1420 and 

larger-sized orders1421 into Rule 605 reporting requirements. However, one commenter did not 

 

1412  See supra note 1190-1191 and corresponding text for further discussion. 

1413  See Figure 6, in supra section IX.C.3.b)(1)(a). As discussed in this section, odd-lots are submitted by both 

individual and institutional investors.  

1414  See analysis in supra section IX.C.3.b)(1)(b). 

1415  See final 17 CFR 242.600(b)(18). Furthermore, see supra section III.B.1.b) for a discussion of the 

Commission’s decision to rescind the exemptive relief for orders of 10,000 or more shares and include 

these orders within the scope of Rule 605 reports. 

1416  See analysis in supra section IX.C.3.b)(1)(c). 

1417  The benefits of including larger-sized orders may be limited if most large institutional orders are not held 

orders and will thus be excluded from Rule 605 reporting requirements, and/or are broken up into smaller 

child orders that are likely to be smaller and have already been included in Rule 605 reporting requirements 

prior to these amendments. See supra sections IX.C.1.b) and IX.C.4.a)(1)(b). 

1418  For example, one academic study found that odd-lot orders often receive price improvement from 

wholesalers, and that incorporating information about price improvement received by odd-lots would 

increase dollar estimates of price improvement by 9.6%, even after adjusting the NBBO to incorporate the 

best displayed price. See Battalio & Jennings, supra note 1253, at 17.  

1419  See, e.g., SIFMA Letter at 25; SIFMA AMG Letter at 6; and Nasdaq Letter at 44.  

1420  See, e.g., Professor Schwarz et al. Letter at 4. 

1421  See, e.g., Virtu Letter II at 9. 



404 

support the inclusion of fractional shares, stating that, “[g]iven the de minimis quantity of shares 

. . . this information is of limited value to investors.”1422 While the Commission agrees that, as a 

percentage of shares, fractional shares represent a small part of order flow,1423 it disagrees that 

this means that information about these orders is of limited value to investors. Fractional orders 

less than a share represent a relatively high percentage (16.4%) of executions received by 

individual account holders in terms of number of trades.1424 Furthermore, the execution quality 

received by fractional orders less than a share may be very different from that of full-share 

orders, which increases the relevance of execution quality metrics for these types of orders.1425 

Another commenter suggested that notional order size buckets be “capped at block size” so as to 

“ensur[e] that statistics cover most retail trades.”1426 As discussed in the Baseline, while 

institutional investors likely have alternative sources of information about the execution quality 

of their orders, Rule 605 reports are likely still useful for institutional investors, for example, to 

assess the execution quality of the broker-dealers with which they do not currently do business, 

or to assess the execution quality of market centers to which their broker-dealers do not currently 

route orders.1427 Therefore, information about larger-sized orders will be useful for consumers of 

Rule 605 reports.  

 

1422  See SIFMA Letter at 31. 

1423  See supra note 1145, showing that executed fractional orders for less than one share made up about 0.001% 

of total executed share volume.  

1424  See supra note 1145 and corresponding text. 

1425  See, e.g., infra note 1434 and corresponding text for evidence of differences in execution quality for 

fractional orders less than a share. 

1426  See Nasdaq Letter at 44. This commenter also suggested increasing the block size threshold to $400,000. 

1427  See supra section IX.C.2.c) for a discussion of the current usage of Rule 605 reports by institutional 

investors. 



405 

Third, to further facilitate the comparison of execution quality across similar orders, these 

amendments will require information within each notional order size category to be separated 

according to whether the orders were odd-lots, round-lots, or fractional orders less than one 

share. Requiring information to be reported separately for round-lot orders and odd-lot orders 

within each notional order size category addresses a potential issue with notional order size 

buckets, namely, that while such categories remain in the spirit of distinguishing between 

“small” and “large” orders, they no longer produce a meaningful distinction between orders that 

may or may not be at quotes protected under Rule 611.1428 Figure 18 shows the distribution of 

round lots and odd-lots across the notional order size buckets using the sample of CAT data 

described above.1429 As expected, odd-lots tend to be clustered in the smaller notional size 

buckets, while round lots are clustered in the larger size buckets. However, the results show that 

most notional buckets will contain a mix of both round-lot and odd-lot orders, which supports the 

benefit of including separate information for each lot type within each notional size bucket.1430  

 

1428  This issue was discussed as one of the potential disadvantages of using notional order size buckets in the 

Proposing Release. See Proposing Release, 88 FR 3786 at 3891 (Jan. 20, 2023). 

1429  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This analysis uses data from prior to the implementation of the MDI Rules and results may be 

different following the implementation of the MDI Rules. See supra section IX.C.1.c)(2) and infra note 

1430.  

1430  Within a given notional order size bucket, the distribution of orders across round-lot and odd-lot categories 

may change following the implementation of the MDI Rules, particularly for those stocks whose round-lot 

size will be reduced. See supra section IX.C.1.c)(2). However, the distribution of orders across notional 

order size buckets will not be directly affected, as the notional size of an order is irrespective of its 

categorization as a round-lot or odd-lot. See also supra note 375 for further discussion of the interaction 

between the round lot definition under MDI and the order size categories under these amendments.  



406 

Figure 18: Distribution of Odd-Lot and Round Lot Orders Across Notional Order Size 

Buckets, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for odd-lots and round lots. Percentages are 

calculated as the number of orders in a given order size bucket for a given lot type, summed across all stocks and days in the 

sample, divided by the total number of orders for a given lot type, summed across all stocks and days. The analysis uses a sample 

of CAT data for 400 stocks. See supra note 1211 for dataset description. This analysis uses data from prior to the implementation 

of the MDI Rules and specific numbers reported may be different following the implementation of the MDI Rules. See supra note 

1407 and section IX.C.1.c)(2). 

Including separate execution quality information for fractional orders less than one share 

will provide greater insight into an important segment of individual investor order flow.1431 This 

is particularly important given that the execution quality of orders for less than one share may 

vary across broker-dealers, who have different ways to handle these orders, such as internalizing 

such orders or aggregating them together for the purpose of rerouting to market centers.1432 It is 

 

1431  Fractional orders less than a share represent a relatively high percentage (16.4%) of executions received by 

individual account holders in terms of number of trades. See supra note 1145 and corresponding text. 

1432  See supra section IX.C.3.b)(1)(b) for further discussion. 



407 

likely that the vast majority of fractional orders for less than one share will be captured within 

the smallest order size bucket; however, to the extent that there is fractional volume in other 

order size buckets, market participants will benefit from being able to differentiate fractional 

volume within these buckets. An analysis of CAT data1433 found that, while 99.7% of fractional 

orders for less than one share are for $250 or less, four out of the eight notional size buckets 

contained at least one fractional order for less than a share.  

One commenter stated that, based on their trading experience, “fractional market orders 

also receive widely different price improvement across brokers,” and that “full share price 

improvement statistics are not informative for the execution quality of our fractional trades.”1434 

This implies that information about how well a reporting entity executes full-share orders is not 

necessarily useful for inferring how well that reporting entity will perform when executing a 

fractional order. The Commission agrees with the commenter that “these results justify the need 

for fractional trades to have their own category in the Rule 605 disclosures,”1435 because these 

orders are especially likely to benefit from an increase in competition among reporting entities 

on the basis of execution quality. 

Lastly, requiring order size categories under Rule 605 to include information about 

fractional orders less than one share1436 will expand the number of reporting entities to include an 

 

1433  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. 

1434  See Professor Schwarz et al. Letter at 4. Specifically, the commenter found that E/Q ranged from 0.127 to 

0.915 for fractional trades and ranged from 0.056 and 0.624 for full-share trades. See Professor Schwarz et 

al. Letter, Table 2. The commenter does not state whether these statistics include only fractional trades less 

than one share, or all trades that have fractional components. 

1435  See Professor Schwarz et al. Letter at 4. 

1436  See final 17 CFR 242.600(b)(18).  



408 

estimated 20 market centers1437 that exclusively execute fractional orders less than one share. 

Prior to these amendments, these market centers were not required to file Rule 605 reports due to 

their orders falling below the smallest order size category in preexisting Rule 605. This will 

increase transparency about the execution quality achieved by these market centers.1438 

(ii) Order Type Categories 

The amendments to Rule 605 modifying the order type categories required by Rule 605,  

including modifications to the coverage of NMLOs, and separate order type categories for 

marketable, midpoint-or-better, and other non-marketable IOCs, will improve the relevance of 

the information in Rule 605 reports regarding execution quality across different order types. This 

will facilitate comparisons and competition among reporting centers on the basis of execution 

quality for these orders. 

The amendment modifying Rule 605’s coverage of NMLOs so that reporting entities are 

required to disclose execution quality information only for those NMLOs that become 

executable1439 (i.e., eventually touch the NBBO) will facilitate comparisons between reporting 

entities, by ensuring that the execution quality statistics for NMLOs more meaningfully capture a 

market center’s performance in handling NMLOs, rather than reflecting market conditions 

potentially outside of the market center’s control, such as movements of the NBBO. This will be 

 

1437  See infra note 1659 for further discussion of this estimate. 

1438  One commenter stated that, because much of today’s market infrastructure does not yet support fractional 

share trading (including that “FINRA does not currently have a mechanism to report fractional share 

trades”), “the costs to fully modify [the reporting] infrastructure would be high compared to the minimal 

benefit of including fractional share reporting.” SIFMA Letter at 31; see infra note 1673 and corresponding 

text for a discussion of and the Commission’s response to this commenter.  

1439  See final 17 CFR 242.600(b)(39) (defining “executable”) and final 17 CFR 242.600(b)(19) (defining 

“categorized by order type” to include categories for “executable orders submitted with stop prices” and 

“executable non-marketable limit orders”) (emphasis added); see also supra sections III.A.2.b) and 

III.B.2.a)(2).  



409 

achieved because Rule 605 reports will more accurately exclude NMLOs that do not receive a 

meaningful opportunity to execute, for example, because the price moved away from the order 

and/or the order was cancelled before its limit price was reached, while including those NMLOs 

that investors could expect to have a reasonable chance of executing.1440  

This is evident from an analysis comparing the fill rates of all near-the-quote and away-

from-the-quote NMLOs to the fill rates of executable NMLOs, calculated using the sample of 

MIDAS data.1441 Results are presented in Figure 19.1442 While the fill rates of all near-the-quote 

and away-from-the-quote NMLOs are very low (0.27% and 0.02%, respectively), the fill rates of 

 

1440  Several commenters generally supported a new requirement to report information about executable 

NMLOs. See, e.g., Rule 605 Citadel Letter at 11; Nasdaq Letter at 44; SIFMA AMG Letter at 6; and 

SIFMA Letter at 25. 

1441  See supra note 1130 for a description of the dataset. The Commission found that only a small percentage of 

NMLOs eventually touch the NBBO: only 13.7% of near-the-quote NMLOs and 0.92% of away-from-the-

quote NMLOs were executable during their lifespan. This analysis uses data from prior to the 

implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. However, it is not clear how a change in the distribution of orders into various NMLO categories 

will affect the average fill rates of these NMLO categories. See supra section IX.C.1.c)(2). Also, by 

definition, all at-the-quote and inside-the-quote NMLOs are executable because they have a limit price 

equal to or better than the NBBO, and so the fill rates of executable at-the-quote and inside-the-quote 

NMLOs would be identical to those for at-the-quote and inside-the-quote NMLOs presented in Figure 9 

supra. 

1442  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3867 (Figure 15), 3842, n.634 

(Jan. 20, 2023) (for data description). Results from Figure 19 are similar to those in Figure 15 in the 

Proposing Release after taking into account these updates and corrections. As discussed in supra note 1199, 

the analysis may overestimate fill rates due to the exclusion of orders with multiple submission messages. 

However, even in the alternative analysis without this exclusion described in supra note 1199, fill rates for 

executable away from-the-quote NMLOs are still comparatively high, at 10.5%. While this alternative 

analysis, by assigning to the total submitted volume the price at the time of submission, tended to 

overestimate the number of executable NMLOs, it is unclear that this would systematically overestimate fill 

rates for executable NMLOs, as fill rates are calculated as the sum of executed shares divided by the sum of 

submitted shares and are thus indifferent to the distribution of shares across multiple submissions. For 

example, consider that a NMLO that consists of four separate submissions of 100 shares each, 100 shares 

of which execute, will have the same fill rate as an order for 400 shares, 100 shares of which executes 

(25%). Therefore, the Commission considers 10.5% to be an approximate lower bound for the fill rate of 

executable away-from-the-quote NMLOs. The results from both analyses show that many executable away-

from-the-quote NMLOs have a meaningful opportunity to execute and many do. Therefore, changes to the 

MIDAS dataset did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that removing near-the-quote NMLOs that are not executable results in a set of NMLOs 

with a more meaningful opportunity to execute, and that there are benefits to including executable away-

from-the-quote NMLOs and to excluding near-the-quote NMLOs that are never executable. 



410 

executable near-the-quote and away-from-the-quote NMLOs are much higher, and also very 

different from one another. In fact, at 32.5%, the average fill rate of executable away-from-the-

quote NMLOs is relatively high, and actually higher than the average fill rate of executable near-

the-quote orders (2.71%).1443 This reflects that even away-from-the-quote orders are likely to 

execute if prices move in a direction such that they have a meaningful opportunity to execute. 

Therefore, the execution quality statistics resulting from the amendments to Rule 605 better 

reflect a market center’s performance in handling NMLOs, by including NMLOs with a 

meaningful opportunity to execute and excluding NMLOs without a meaningful opportunity to 

execute. 

 

1443  This is likely because executable near-the-quote NMLOs are more likely than away-from-the-quote 

NMLOs to be cancelled after their limit prices are reached but before they execute. This could be the case, 

for example, because near-the-quote orders are more likely to be submitted by market participants such as 

market makers, who are more likely to actively monitor their limit orders and may cancel them to adjust 

them for changes in the market. Examining the distribution of cancellations of these orders reveals that a 

higher percentage of executable near-the-quote NMLOs are cancelled within a short period of time, as 

compared to executable away-from-the-quote NMLOs. Specifically, 14.2% of executable near-the-quote 

NMLO shares are cancelled within 100 milliseconds, vs. 7.7% of executable away-from-the-quote 

NMLOs, and that 36.7% of executable near-the-quote NMLO shares are cancelled within 1 second, vs. 

13.9% of executable away-from-the-quote NMLOs. A similar analysis in the Proposing Release looked at 

the distribution of the cancellations of all (i.e., both executable and non-executable) away-from-the-quote 

and near-the-quote NMLOs, and similarly found that a larger percentage of near-the-quote NMLOs have 

execution times below 100 milliseconds. See Proposing Release, 88 FR 3786 at 3867, n.841 (Jan. 20, 

2023). To the extent that near-the-quote NMLOs are submitted by traders that are more likely to cancel 

these orders before they are executed, this could explain why executable near-the-quote NMLOs have 

lower fill rates than executable away-from-the-quote NMLOs. 



411 

Figure 19: Fill Rates of Executable Away-from-the-Quote and Near-the-Quote NMLOs, 

Mar. 2023 

 

This figure plots the fill rates of away-from-the-quote and near-the-quote NMLOs, using order submission data from MIDAS. 

See supra note 1130 for a description of the dataset. Fill rates are calculated as the number of shares executed of a given order 

type, summed across all stocks and days in the sample, as a percentage of the number of shares submitted of a given order type, 

summed across all stocks and days. Plotted are the fill rates for all away-from-the-quote and near-the-quote NMLOs, along with 

only those away-from-the-quote and near-the-quote NMLOs that eventually touch the NBBO (i.e., become executable). See 

supra note 1200 for definitions of these NMLO categories. This analysis uses data from prior to the implementation of the MDI 

Rules and results may be different following the implementation of the MDI Rules. See supra note 1442 and section IX.C.1.c)(2). 

The adopted amendment to include a separate order type category for midpoint-or-better 

orders1444 will increase transparency on how reporting entities handle these types of orders (e.g., 

whether or not they offer these orders price improvement) and reduce the extent to which 

including information about these orders along with other types of NMLOs may skew the 

execution quality statistics of other types of NMLOs. Several commenters stated that the 

 

1444  See final 17 CFR 242.600(b)(19) (defining “categorized by order type” to include a category for midpoint-

or-better limit orders); see also supra section III.B.2.b)(2). 



412 

proposed amendment should not create a separate category for beyond-the-midpoint limit orders, 

since it is not a large category of orders.1445 One commenter additionally stated that the order 

category “will become de minimis with the Market Data Infrastructure (“MDI”) round lot 

definitions.”1446 The Commission confirms that, while the adopted amendment to include both 

at-the-midpoint and beyond-the-midpoint orders into the new category will increase the size of 

the category, this category will still remain a relatively small percent of total orders.1447 The 

Commission also acknowledges that the NBBO is anticipated to narrow for stocks priced above 

$250 as a result of the new definition of round lots, which would likely decrease the number of 

inside-the-quote NMLOs and increase the number of quotes at or outside of the quotes for these 

stocks.1448 However, since some market centers treat these NMLOs more like marketable limit 

orders in certain contexts, it will be beneficial for market participants who use these orders as 

part of their trading strategies to have separate information about the execution quality of these 

orders,1449 and thus the Commission has included them in the amended rule.  

First, the high percentage of midpoint-or-better NMLOs submitted with IOC designations 

shown in Table 4 implies that a significant portion of these orders have the expectation of 

 

1445  See, e.g., FIF Letter at 13; Schwab Letter II at 6; and Schwab Letter at 32. 

1446  See Schwab Letter II at 6. 

1447  As shown in Table 5, increasing the scope of this category to include at-the-midpoint NMLOs in addition 

to beyond-the-midpoint NMLOs will increase its size from 2.1% to 3.9% of shares submitted to exchanges 

at ATSs, and from 3.2% to 5.5% to shares submitted to wholesalers. 

1448  See supra section VII.C.1.d)(2) for further discussion. An analysis of the CAT data sample described in 

note 1182 supra shows that, in the quartile of stocks with the lowest quoted spreads (an average quoted 

spread of around $0.026), midpoint-or-better orders still compromise a non-negligible percent of order 

flow, representing 5.15% of submitted orders (4.32% of submitted shares). This is compared to the quartile 

with the highest quoted spreads (an average quoted spread of $20.28), where midpoint-or-better orders are 

9.66% of submitted orders (8.62% of submitted shares). Therefore, it is likely that midpoint-or-better 

orders will be a non-negligible percent of order flow, even if spreads narrow after the implementation of 

MDI. 

1449  See also supra section III.B.4.a)(2) for further discussion. 



413 

executing immediately, for example, against hidden or odd-lot liquidity inside of the spread. 

Therefore, these orders are likely to have different execution profiles than other types of 

NMLOs, such as faster time-to-execution. Furthermore, the Commission understands that 

different reporting entities treat beyond-the-midpoint NMLOs differently from other types of 

NMLOs, and that as a result beyond-the-midpoint NMLOs have systematically different 

execution quality characteristics than other types of NMLOs. For example, beyond-the-midpoint 

limit orders may be offered price improvement at some market centers, such as wholesalers, so 

the execution quality of these orders will be highly dependent on which type of market center to 

which the broker-dealer routes such orders.1450 Requiring reporting entities to report execution 

quality statistics separately for midpoint-or-better orders will reveal differences in reporting 

entities’ handling of these types of order. 

Lastly, the adopted amendment assigns marketable, midpoint-or-better, and other non-

marketable IOCs to separate order type categories so that they no longer will be commingled 

with other order types.1451 This will increase transparency about the execution quality that 

reporting entities achieve both for IOCs and for other order types.1452 Supporting the idea that 

IOCs tend to have different execution quality profiles than other orders, an analysis showed that 

IOCs on average have faster execution times and higher effective spreads than other orders, and 

 

1450  See Table 4, showing both beyond-the-midpoint and at-the-midpoint orders tend to have higher fill rates 

and faster execution time relative to other types of NMLOs. 

1451  To implement this change, the Commission is modifying the definition of “categorized by order type” to 

add midpoint-or-better limit orders that are immediate-or-cancel and executable non-marketable limit 

orders that are immediate-or-cancel, as well as to exclude IOCs from the order types for midpoint-or-better 

limit orders and executable NMLOs. See final 17 CFR 242.600(b)(19). 

1452  Commenters agreed that the separate reporting of IOC orders would make Rule 605 data more useful. See, 

e.g., SIFMA AMG Letter at 6; SIFMA Letter at 25. 



414 

that fill rates vary across market centers and according to order characteristics such as size.1453 

Information about the execution quality of IOCs will allow broker-dealers handling these types 

of orders to be able to better assess which market center on average offers better execution 

quality to these types of orders. These broker-dealers can thus make more informed decisions 

about where to route these orders. Furthermore, due to their different execution profiles, 

removing IOCs from other order categories will cause the execution quality metrics for other 

types of orders to more accurately reflect reporting entities’ handling of other types of orders. 1454 

The effect on the execution quality metrics of other types of orders will likely be significant, as 

an analysis of IOCs found that they make up more than 90% of marketable limit and midpoint-

or-better share volume.1455  

(b) Timestamp Conventions and Time-to-Execution 

Several of these amendments will increase the relevance of time-to-execution information 

in Rule 605 reports, which in turn will improve market participants’ ability to compare time-to-

execution across reporting entities. For those investors that value fast executions, this is expected 

to lead to improved execution times, as investors will be better able to identify and route orders 

to reporting entities offering faster execution speeds. 

First, the adopted amendment increasing the granularity of the timestamp conventions 

used for the time of order receipt and time of order execution from seconds to milliseconds, as 

 

1453  For example, exchanges and ATSs tend to have higher fill rates for IOC marketable limit orders (14.3%) 

than non-IOC marketable limit orders (11.6%), the opposite is true for wholesalers (18.3% compared to 

74.3%). See Table 5 in supra section IX.C.3.c)(9).  

1454  See supra note 1265 and accompanying text for an example of how commingling IOCs with other order 

types can lower marker centers’ incentives to improve execution quality for other marketable orders. 

1455  See Table 5 in supra section IX.C.3.c)(9) and corresponding discussion. 



415 

well as requiring millisecond granularity for the time of executability,1456 will make the time-to-

execution statistics in Rule 605 more informative about the execution speeds achieved by a 

reporting entity.1457 These statistics include the average share-weighted time-to-execution of 

shares executed with positive price improvement, without price improvement and with negative 

price improvement. Given that execution speeds measured in seconds are likely to miss much of 

the variation in execution times across reporting entities in today’s markets, particularly for 

market and marketable orders,1458 adding granularity to the timestamps used to calculate the 

time-to-execution speed measures included in Rule 605 reports will benefit market participants 

in their efforts to compare execution times across reporting entities.1459  

One commenter, while generally recognizing benefits of smaller increments for time to 

execution statistics, stated that “the more granular a timestamp needs to be, the more subject it is 

to variances across reporting entities,” and that this has “the potential to distort statistics.”1460 

The commenter stated that such distortions derive from different practices around when to mark 

order receipt and from different geographic latencies in the receipt of market data, such as SIP 

data and exchange proprietary data feeds, used to assign quotation information to an event 

according to its timestamp. However, evidence suggests that geographic latencies, which may 

account for the majority of latency differences associated with the SIP data, are currently below a 

 

1456  See final 17 CFR 242.600(b)(39), (102), and (103). 

1457  One commenter stated that more granular time-to-execution statistics would allow for more meaningful 

points of comparison. See Better Markets Letter at 8.  

1458  See supra section IX.C.3.c)(4) for a discussion of how the granularity of the time-to-execution categories 

previously defined in Rule 605 has lost relevance over time. 

1459  One commenter stated that the minimum granularity of milliseconds is “the best approach at this time,” 

stating that it is “consistent with the Consolidated Audit Trail, which requires firms to report all order 

events with a minimum granularity of milliseconds.” FIF Letter at 17. 

1460  See Robinhood Letter at 47. 



416 

millisecond.1461 Therefore, the distortions related to latencies are likely to be smaller than the 

timestamp granularity. Furthermore, it is likely that distortions may actually be reduced under 

these amendments. Under preexisting Rule 605, though many market centers timestamp to the 

millisecond or lower, market centers only had to look at timestamps at the second level, and 

match each order with the NBBO within that second. Matching to the second when there are 

multiple quotes per second can create distortions. Under preexisting Rule 605, when there are 

multiple quotes within a second, the market center would have needed to use a neutral method to 

assign the NBBO to an order. Of course, prior to these amendments, some market centers could 

have chosen to match to the millisecond as its neutral method. Under the final rule, reporting 

entities will be required to match to the millisecond. With latencies of under a millisecond and 

even with multiple quotes per millisecond, the distortions should be lower when matching to a 

millisecond than when matching to a second. In particular, the NBBO that is matched to a 

particular order is more likely to be closer to the actual time of order receipt. 

Second, the amendments increasing the granularity of time-to-execution buckets1462 will 

increase the relevance of the time-to-execution information in Rule 605, as the categories prior to 

 

1461  See, e.g., Letter from Patrick Sexton, EVP, General Counsel Corporate Secretary, Cboe Global Markets, 

Inc. on the MDI Proposal, (May 26, 2020) (stating that “geographic latency accounts for the vast majority 

of the latency experienced by the SIPs today,” and referencing geographic latency of around 416 

microseconds between Carteret, NJ and Secaucus, NJ); see also Letter to Brent J. Fields, Secretary, 

Commission, from Michael Blaugrund, Head of Transactions, New York Stock Exchange (Oct. 24, 2018) 

(stating that, as “processing time approaches zero, it is clear that the time required for trade and quote data 

to travel from Participant datacenter -> SIP datacenter -> Recipient datacenter, or `geographic latency,’ is a 

larger portion of the total latency.”). In addition, see MDI Adopting Release, 86 FR 18596 at 18732 (Apr. 

9, 2021), stating that “[t]he record in this rulemaking suggests that the geographic latency of SIP data may 

be up to a millisecond.” 

1462  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (detailing time-to-execution buckets of 0 to 9 seconds, 10 

to 29 seconds, 30 to 59 seconds, 60 to 299 seconds and 5 to 30 minutes after the time of order receipt). 

These will be replaced by the following buckets: less than 100 microseconds; 100 microseconds to less 

than 1 millisecond; 1 millisecond to less than 10 milliseconds; 10 milliseconds to less than1 second; 1 

second to less than 10 seconds; 10 seconds to less than 30 seconds; 30 seconds to less than 5 minutes; and 5 

minutes or more. See supra section III.B.3.b) and final 17 CFR 242.605(a)(1)(i)(G) through (N). 



417 

these amendments have not been granular enough with respect to variations in execution times 

across reporting entities. One commenter stated that the inclusion of updated time-to-execution 

buckets in amended Rule 605 reports would provide greater granularity.1463 

Figure 20 plots the distribution of share volume across the adopted time-to-execution 

buckets, using a sample of CAT data for 400 stocks for the period of Q1 2023.1464 Since whether 

an order is submitted with an IOC designation can have a significant effect on its execution,1465 

results are presented separately for IOC and non-IOC orders. The results show that non-IOC 

shares are reasonably well distributed across the various buckets. While the majority of IOC 

orders (91.1%) are clustered in the shortest time bucket, some IOC volume is also distributed 

across longer time buckets. This shows that these time-to-execution buckets will also allow 

market participants to separate out IOC orders that are outliers in terms of time-to-execution. 

 

1463  See Healthy Markets Letter at 17. Specifically, the commenter stated that, “[b]y creating buckets for 

timestamp, rather than average time to execution [as proposed], the reports would provide much greater 

granularity while still allowing a user of the data to recreate average time to execution.”  See the Proposing 

Release, 88 FR 3786 at 3812-3813 (Jan. 20, 2023), for a discussion of the proposed amendment to replace 

time-to-execution buckets with time-to-execution statistics; see also infra section IX.E.3.b)(1) for further 

discussion of adopting time-to-execution statistics as proposed as a reasonable alternative. 

1464  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. 

1465  See, e.g., the results in Table 5. 



418 

Figure 20: Distribution of Shares Across Time-to-Execution Buckets by IOC Type, Q1 

2023 

 

This figure shows the distribution of executed shares across time-to-execution buckets for IOC vs. non-IOC orders. Percentages 

are calculated as the number of shares that executed within a particular time horizon for a given IOC type, summed across all 

stocks and days in the sample, divided by the total number of executed shares for a given IOC type, summed across all stocks and 

days. Execution times are calculated as the time of order receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the 

time of executability) to the first time that one or more of the order’s shares are executed. The analysis uses a sample of CAT 

data for 400 stocks. See supra note 1211 for dataset description.  

 Figure 21 also plots the distribution of share volume across the adopted time-to-execution 

buckets, this time breaking the result down by order type.1466 The results show that the time-to-

execution buckets are also able to capture variation in execution times across different order 

 

1466  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This dataset is from prior to the implementation of the MDI Rules and the distribution of 

orders into various NMLO categories may change following the implementation of the MDI Rules. See 

supra note 1204 and section IX.C.1.c)(2). However, it is not clear how a change in the distribution of orders 

into various NMLO categories will affect the average time-to-execution of these NMLO categories. 



419 

types, with most market and marketable limit orders clustered at the faster time buckets, and 

most at-the-quote NMLOs clustered in the longer time buckets.  

Figure 21: Distribution of Shares Across Time-to-Execution Buckets by Order Type, Q1 

2023 

 

This figure shows the distribution of executed shares across time-to-execution buckets for different order types. Percentages are 

calculated as the number of shares that executed within a particular time horizon for a given order type, summed across all stocks 

and days in the sample, divided by the total number of executed shares for a given order type, summed across all stocks and days. 

The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description and supra note 1200 for 

definitions of the NMLO categories. Execution times are calculated as the time of order receipt (which, for at- and inside-the-

quote NMLOs, is equivalent to the time of executability) to the first time that one or more of the order’s shares are executed. This 

analysis uses data from prior to the implementation of the MDI Rules and results may be different following the implementation 

of the MDI Rules. See supra note 1466 and section IX.C.1.c)(2). 

The amendments requiring time-to-execution information to be reported for all order 

types will help ensure that all order types benefit from increased transparency.1467 However, 

 

1467  One commenter supported the inclusion of time-to-execution information for all order types. See Nasdaq 

Letter at 45: “We concur with the SEC that requiring average time-to-execution for all order types . . . 

would offer more consequential information.” 



420 

commenters stated that, because marketable limit orders that exceed the consolidated quote size 

may be only partially executed or take longer to execute, time-to-execution information for this 

order type “would be difficult to interpret”1468 and “would be impacted by factors that do not 

reflect a true comparison of the execution performance across firms.”1469 The Commission 

recognizes that execution times will be longer for marketable limit orders that do not fully 

execute and are partially posted to the limit order book, and that this may in some cases be the 

result of factors that are not directly within a reporting entity’s control, such as the size of the 

order. However, other information contained in Rule 605 reports, such as information about 

order size, will allow consumers of Rule 605 data to control for such factors, which will facilitate 

consumers’ ability to interpret time-to-execution information for marketable limit orders and to 

make apples-to-apples comparisons across reporting entities.1470  

Finally, these amendments will require NMLO execution times to be measured from the 

time that the order becomes executable rather than from the time of order receipt.1471 This will 

help ensure that this metric is more likely to capture the portions of execution speed that are 

within a reporting entity’s control, rather than dependent on market conditions.1472  

 

1468  See Rule 605 Citadel Letter at 10. 

1469  See FIF Letter II at 3. Specifically, the commenter stated “that firms that receive marketable orders that are 

larger relative to the opposite-side displayed NBBO quantity would show a longer time to execution as 

compared with firms that receive marketable orders that are smaller relative to the opposite-side displayed 

NBBO quantity.” FIF Letter II at 3. Similarly, another commenter stated that “the execution speed metric 

for marketable limit orders should be limited to the size available at the best protected quote at the far 

touch. This will ensure that orders larger than the quoted size that take out the best price and then are 

reflected for the balance don't skew statistics.” Schwab Letter II at 32. 

1470  See supra section III.B.3.b) for further discussion. 

1471  See final 17 CFR 242.605(a)(1)(i)(G) through (N).  

1472  For example, even if a limit order is placed $0.05 away from the quote, if the market moves away and only 

25 minutes later returns to a price level where the limit order executes, the time to execution for that order 

from the time of order receipt is less reflective of execution quality than of prevailing market conditions.421 

For those investors that value fast executions, these amendments are expected to lead to 

improved execution times, as the increased transparency around reporting entities’ execution 

times will increase these investors’ ability to identify and route orders to reporting entities 

offering faster execution speeds.1473 The Commission expects these benefits to mainly accrue to 

investors that value faster executions, as these investors (and their broker-dealers) will benefit 

from an improved ability to compare execution speeds across trading venues and route their 

orders accordingly. However, to the extent that changes in order flow will result in an increase in 

market centers’ incentives to offer faster executions, e.g., by investing in faster trading 

technology, this may result in a market-wide increase in trading speeds for all investors. 

One individual investor stated that focusing on the speed of execution only benefits high-

frequency traders, and that the commenter is more concerned as a retail investor with getting a 

fair price for their trades than with the speed of execution.1474 The Commission recognizes that 

different investors benefit from faster execution times for different reasons, and that some 

investors will not always benefit from faster execution under all circumstances.1475 However, 

individual investors will benefit from faster executions in circumstances where the faster 

execution of their orders results in better prices. For example, time-to-execution is an important 

metric for market orders submitted with stop prices, which an analysis finds constitute 4.91% of 

market orders submitted by individual investors.1476 Since these orders tend to be triggered 

during volatile markets, any delay in execution can result in worse price if prices are increasing 

 

1473  See supra section IX.C.3.c)(4) for a discussion of current executions speeds. 

1474  See Gillmore Letter. 

1475  See, e.g., Ekkehart Boehmer, Dimensions of Execution Quality: Recent Evidence for US Equity Markets, 

78 J. FIN. ECON. 553 (2005) (“Boehmer (2005)”), which documents a negative relationship between 

execution speed and price.  

1476  See Table 3 in supra section IX.C.3.b)(2). 



422 

(for buy orders) or decreasing (for sell orders). For IOCs, a faster routing time reduces the 

chance of another order stepping in and removing liquidity before the order gets a chance to 

execute, thus increasing the order’s probability of execution.1477 

For institutional investors, the benefits of fast execution may be different.1478 Institutional 

investors, who often need to trade large positions, may care more about reducing the price 

impact of their order rather than executing the order quickly.1479 However, the academic 

literature suggests that institutional investors with short-lived private information may benefit 

from faster execution times, as they are able to profit from trading against other, slower 

institutions.1480 On the same note, faster execution times benefit slower institutional investors by 

reducing their exposure to adverse selection as much as possible.1481 Institutional investors may 

also care about the execution speed of their child orders.1482 

 

1477  See, e.g., Matteo Aquilina et al., Quantifying the High-Frequency Trading “Arms Race,” 137 Q. J. ECON. 

493 (2021) (“Aquilina et al.”), who find that traders with failed attempts to trade or cancel orders, such as 

submitters of IOC orders that fail to execute, lose about half a tick as a result of the failure. While the per-

trade cost is small, the cost of these failures adds up to around $5 billion annually in global equity markets.  

1478  While institutional investors are likely to have access to alternative sources of more granular information 

about execution speeds, such as reports obtained through TCA, the information on execution quality that is 

individually collected by institutional investors is typically nonpublic and highly individualized, and 

therefore limited to the execution quality obtained from broker-dealers with which the institutional 

investors currently do business. Since Rule 605 reports are public, institutional investors can use these 

reports to assess the execution quality of the broker-dealers and market centers with which they do not 

currently do business. See supra section IX.C.2.c) for further discussion. 

1479  See supra section IX.C.4.a)(1)(b) for a discussion of the handling of institutional orders by broker-dealers 

as not held orders. 

1480  See, e.g., Kadan et al., supra note 1225. 

1481  See, e.g., Brogaard et al., supra note 1225.  

1482  See, e.g., Beason and Wahal at 17, who examine the time-to-fill of algorithmic child orders, and find that 

the time-to-execution and time-to-cancellation of these orders “indicate a clear price-time tradeoff in the 

data.”  



423 

(c) Execution Quality Metrics 

The amendments to Rule 605 will improve the relevance of the information contained in 

Rule 605 reports by increasing the granularity of time-to-execution buckets; modifying the 

calculations of average realized spreads; expanding existing requirements to report average 

effective spreads to midpoint-or-better orders; adding additional metrics such as percentage 

realized and effective spreads, effective over quoted spreads, and size improvement; and 

modifying the categorization of riskless principal trades. 

(i) Realized Spread 

The adopted amendment modifying the time horizon used to calculate the realized spread 

from a single horizon of five minutes to a range of horizons between 50 milliseconds and 5 

minutes1483 will increase the relevance and usability of this measure. One of the uses of realized 

spread is to derive a measure of price impact of the order flow,1484 which, depending on the 

horizon of the liquidity provider, can measure the adverse selection risk that the liquidity 

 

1483  See final 17 CFR 242.605(a)(1)(i)(O) through (X); see also supra section III.B.4.a)(2). 

1484  See supra note 1228, describing how realized spreads can be decomposed into the difference between the 

effective spread and price impact. As discussed in note 1228, supra, differences between the times at which 

realized spreads and effective spreads are measured can cause this decomposition to be inexact. After the 

implementation of these amendments, the realized spread will continue to be measured using the price at 

the time of order execution, while effective spreads will be measured using the midpoint price at the time of 

order receipt (or order executability, in the case of midpoint-or-better orders). To the extent that there are 

significant differences in the time of order receipt (or executability) and the time of order execution, the 

decomposition of realized spreads in the amended Rule 605 reports into effective spreads and price impact 

will continue to not be exact. This effect is likely to vary depending on the order type. For example, Figure 

21 shows that 37.5% of marketable limit orders are executed within 10 milliseconds after order receipt, 

while only 7.2% of at-the-quote NMLOs are executed within 10 milliseconds after order executability 

(which, for these orders, is the same as the time of order receipt). Therefore, for example, this effect is 

expected to be greater for at-the-quote NMLOs than for marketable limit orders. 



424 

provider faces.1485 Adverse selection risk of order flow can vary over time and across stocks and 

entities. Therefore, realized spreads provide context for other measures of execution quality. The 

preexisting requirement to use a single five-minute time horizon to calculate realized spreads for 

the purposes of Rule 605 disclosures has likely limited market participants’ ability to use realized 

spreads to control for adverse selection, particularly for larger and more liquid stocks.1486 

Selecting an appropriate time horizon to calculate the realized spread must strike a 

balance between too short, which could fail to incorporate the realization of the price impact, and 

too long, which could include additional noise1487 or the cumulative impact of subsequent market 

changes which are unrelated to the order’s execution quality. 

Referencing the Commission’s analysis of realized spread time horizons in the Proposing 

Release, one commenter stated that “the Commission has not appropriately analyzed inventory 

turnover, which is necessary to convey relevant meaning to the analysis.”1488 The Commission 

 

1485  See supra note 1229 and accompanying text for a discussion of price impact as a measure of the adverse 

selection risk faced by liquidity providers. In some cases, market participants will be able to use the data in 

amended Rule 605 reports to estimate price impact using effective and realized spreads. These estimates of 

price impact measures may be subject to the time asynchronies, and, as described in supra note 1484, the 

extent to which these asynchronies lead to inexact measures of price impact is likely to vary along with the 

order type. In addition, because the effective spread is required to be reported only for market and 

marketable order types as well as midpoint-or-better orders, the ability of market participants to estimate 

price impact will only be possible for these order types. See supra section III.B.4.b)(2) for further 

discussion. However, for those order types for which effective spreads are not available, or for which the 

time asynchronies are expected to lead to inexact measures of price impact, market participants will still be 

able to use the fact that amended Rule 605 reports will contain a broad range of realized spread time 

horizons to gain insights into adverse selection risk. Specifically, since price impact will increase as the 

time horizon increases (see supra note 1235 for further discussion), while the effective spread remains 

constant, examining how realized spreads change as the time horizon increases will give market 

participants insight into the rate at which the price impact, and therefore adverse selection risk, increases as 

the time horizon increases. Market participants could use this information to determine, for example, 

whether adverse selection risk increases at a rapid pace as the time horizon increase, which could signal 

more adverse market conditions. 

1486  A number of academic studies argue that the five-minute horizon is too long for a high-frequency 

environment. See, e.g., O’Hara 2015; O’Hara et al.; Conrad and Wahal, supra note 544. 

1487 The term “noise” is used throughout in the statistical sense and refers to unexplained or unrelated 

variability in observations that degrades the efficiency of computed statistics or estimators. 

1488  See SIFMA Letter at 32. 



425 

acknowledges that an ideal measurement horizon would be one that aligns with the amount of 

time an average liquidity provider holds onto the inventory positions established from providing 

liquidity. As discussed in the Proposing Release, the amount of time an average liquidity 

provider holds onto the inventory positions established from providing liquidity is not easily 

observable.1489 Instead, the Commission’s analysis of realized spreads in the Proposing 

Release1490 was based on the theoretically motivated and empirically observed decline in realized 

spreads over increasing time horizons, similar to the academic literature.1491 

Table 71492 replicates this analysis using an updated sample of TAQ data for 400 stocks 

for the period of Q1 2023,1493 and shows that the cumulative decline in realized spread captured 

at different time horizons varies by market capitalization. Approximately 90% of the cumulative 

 

1489  See Proposing Release, 88 FR 3786 at 3854 (Jan. 20, 2023). For example, while it would be theoretically 

possible to use CAT data to estimate market maker turnover, it would not be possible to estimate inventory 

levels, as starting inventory levels accumulated prior to the availability of CAT data are not observable.  

1490  See Table 1 of the Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023). 

1491  See Conrad and Wahal, supra note 544. As described in supra note 1235, one way to interpret the decline in 

realized spread is as a function of the realization of price impact. An optimal time horizon would be one 

that is long enough to capture most of the realization of price impact, but not long enough to incorporate 

noise.  

1492  The TAQ data used in this analysis have been updated since the Proposing Release to account for a more 

recent time period. In addition, the methodology has been updated to include additional time horizons. See 

Proposing Release, 88 FR 3786 at 3815 (fig. 1) (Jan. 20, 2023), which presents a similar analysis that uses 

data from Feb. 2021 (see Proposing Release, 88 FR 3786 at 3854, n.706 (Jan. 20, 2023), for data 

description), and includes six time horizons (1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 

minutes); see supra note 1237. Also, while Table 1 of the Proposing Release similarly presented the 

additional (i.e., non-cumulative) variation at each time interval, for clarity, the analysis in Table 7 presents 

the cumulative decline in average realized spreads at each time horizon. However, despite these updates, 

this analysis continues to show that time horizons of 15 seconds and one minute capture most of the 

realized spread information for larger stocks, for the two smaller-stock groups, a sizeable proportion of the 

overall decline does not occur until the 5-minute horizon. 

1493  See supra note 1238 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and the specific numbers may be different following the implementation of the MDI Rules. In 

particular, for certain stocks, the NBBO midpoint may change, though the Commission is uncertain of the 

direction of this effect. This may impact statistics that are based on these values, including realized spreads. 

See supra section IX.C.1.c)(2)IX.C.1.c)(2). While specific numbers might change, the Commission does 

not expect the relative variation in realized spreads across different time horizons to change as a result of 

the implementation of the MDI Rules. 



426 

decline in realized spread is captured by the 15-second horizon for the largest market 

capitalization group, compared to only about 50% for the smaller market capitalization groups. 

At the one-minute horizon, approximately 75% of the realized spread is captured for the smaller 

market capitalization groups. This echoes the results from the Proposing Release,1494 and also 

supports results from the academic literature, as one paper similarly recommends a shorter time 

horizon for large stocks and a longer time horizon for small stocks.1495  

Table 7: Cumulative Decline in Average Realized Spread, by Time Horizon 

  

  

Horizon 

Market Capitalization 

Group 

10ms-

5min($) 

50ms 1sec 15sec 1min 5min 

<$100 million 0.015 10.8% 15.7% 51.2% 77.4% 100.0% 

$100 million - $1 billion 0.014 8.1% 22.5% 51.7% 74.4% 100.0% 

$1 billion - $10 billion 0.018 8.3% 32.7% 67.6% 89.2% 100.0% 

>$10 billion 0.020 11.5% 45.3% 89.5% 105.8% 100.0% 

In order to examine the rate at which realized spreads decline across increasing time horizons, this table presents the difference between dollar 

realized spreads calculated using a 10-millisecond time horizon and realized spreads calculated using a five-minute time horizon, along with the 
cumulative percentage of this difference that realized at various intermediate time horizons (50 milliseconds, 1 second, 15 seconds, 1 minute, and 

5 minutes), using data from TAQ. Results are presented for stocks across different market capitalization groups. Measures grouped by size 

quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. See supra note 1238 for dataset 
description. This analysis uses data from prior to the implementation of the MDI Rules and numbers may be different following the 

implementation of the MDI Rules. See supra note 1493 and supra section IX.C.1.c)(2). 

Echoing the Commission’s statements in the Proposing Release, Table 7 also shows that, 

for smaller stocks, a sizeable proportion of the overall decline in realized spreads (around 23-

26%) does not occur until the five-minute horizon. Therefore, retaining the five-minute horizon 

 

1494  See Table 1 of the Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023).  

1495  See Conrad and Wahal, supra note 544. 



427 

will be useful in capturing additional information about realized spreads, particularly for the 

smallest stocks.1496  

Other commenters similarly stated that the Commission did not provide a basis for its 

selection of realized spread time horizons.1497 In response to commenters and to add robustness 

to its analysis, the Commission has expanded its analysis of optimal realized spread time 

horizons in this Adopting Release to include two additional empirical approaches. 

First, as described in section IX.C.3.c)(5), realized spreads can be decomposed into 

effective spreads and price impact. Price impact is designed to measure the change in a stock’s 

fundamental value following a trade; if a market maker is trading against a more informed trader, 

price impact will capture the adverse price movement for the market maker resulting from the 

incorporation of the informed trader’s private information into prices.1498 If the time horizon is 

too short, this change in the fundamental value will not yet be fully realized, and thus the 

measure of price impact (and thus the measure of realized spreads) will be deficient. On the other 

hand, if the time horizon is too long, measures of price impact and realized spread will 

incorporate too much noise. Therefore, an ideal time horizon for calculating the realized spread 

would be one that incorporates the lowest amount of noise into the measurement of the price 

 

1496  In the Proposing Release, the Commission stated that “requiring an additional specification of realized 

spreads would entail adding another data item, which would also increase the complexity of Rule 605 

reports.” Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). For this reason, the Commission is 

requiring only two of the five realized spread horizons to be included in the Summary Reports (see supra 

section IV.B.1.b). However, for the full Rule 605 reports, the Commission agrees with a commenter that 

the detailed Rule 605 reports are “intended to be machine-readable, not human-readable,” and that 

“[a]dding rows and columns to the Rule 605 report, within reason, would not materially increase the costs 

of processing these reports and storing the relevant data.” FIF Letter at 16.  

1497  See, e.g., Virtu Letter II at 14, stating that “it is unclear what the basis is for bluntly measuring realized 

spreads at 15 seconds and one minute;” and SIFMA Letter at 32, stating that “The Commission also has not 

provided a rational basis for its method of calibrating the realized spread time frames (i.e., 15 seconds and 

one minute).” 

1498  See supra note 1229 for an example. 



428 

impact component of realized spreads. To examine how the noise evolves over different time 

horizons, the Commission used the sample of TAQ data described above to examine the 

noisiness of measurements of price impact at different time intervals for different market 

capitalization groups,1499 measuring noise using the coefficient of variation (ratio of the standard 

deviation to the mean). The results are presented in Figure 22, which shows that the coefficient 

of variation of price impact decreases as the time horizon increases for smaller stocks, but 

increases as the time horizon increases for larger stocks. In other words, the time horizon that 

minimizes noise and best captures the inventory risk of liquidity providers varies depending on 

the market capitalization and liquidity of the stock. As a result, including multiple time horizons 

for realized spreads will make this measure more relevant across a wider range of stocks. 

 

1499  Following the academic literature, results are presented separately for different market capitalization groups 

as a proxy for different liquidity variables, with high market capitalization correlating closely with higher 

liquidity. See supra note 1239 and corresponding text. 



429 

Figure 22: Coefficient of Variation of Price Impact Measures Across Time Horizons and 

Market Capitalization, Q1 2023 

 

This figure plots coefficient of variation of price impact estimates across various time horizons, measuring the coefficient of variation as the ratio 

of the standard deviation of price impact measures within a time horizon to the mean measure of price impact. Price impact is measured as twice 
the signed different between the midpoint five minutes after an order’s execution minus the midpoint at an order’s time of execution. The 

measures are calculated using TAQ data for a sample of 400 stocks. Results are presented for stocks across different market capitalization groups. 

Measures grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. See 
supra note 1493 for dataset description. This analysis uses data from prior to the implementation of the MDI Rules and results may be different 
following the implementation of the MDI Rules. See supra note 1493 and section IX.C.1.c)(2). 

Second, as an additional method for measuring the time horizon that minimizes the noise 

embedded in the price impact component of realized spread measures, the Commission used the 

sample TAQ data described above1500 to estimate the signal-to-noise ratio in price impact 

 

1500  See supra note 1238 for dataset description. 



430 

estimates using an Ordinary Least Squares (OLS) regression.1501 The regression is estimated 

separately for each time interval considered.1502 Subsequently, for each time interval, the signal-

to-noise ratio is measured as the ratio of the variation in price impact that is explained by the 

explanatory variables of the regression (the “signal”) to the standard deviation of the residual 

from the regression, i.e., the variation in price impact that is uncorrelated with the explanatory 

variables (the “noise”).1503 A higher signal-to-noise ratio corresponds to a more informative 

measure of price impact, and therefore a more informative measure of realized spread.1504  

Figure 23 presents these ratios over all the time intervals for four market capitalization 

groups and shows clear differences between smaller and larger stocks. First, it is clear from the 

figure that larger, more liquid stocks have more informative measures of price impact than 

smaller, less liquid stocks. Second, for the two smaller stock groups, the results show a small but 

steady increase in the signal-to-noise ratio as the time horizon increases, implying that realized 

spread measures are becoming more informative as the noise in the price impact component 

decreases. This result supports including a longer time horizon, i.e., 5 minutes, which maximizes 

 

1501  We regress price impact on explanatory variables identified as key drivers of price impact. Specifically, we 

include the (inverse of) trade price, logarithms of market capitalization and total trade volume, intra-day 

volatility and order imbalance, as well as the (logarithm of) share volume of retail trades and order 

imbalance of retail trades. These variables are similar to those in, e.g., A. Anand, P. Irvine et al., 

Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Costs, 25 REV. FIN. 

STUDS. 557 (2012) and G.W. Eaton et al., Measuring Institutional Trading Costs and the Implications for 

Finance Research: The Case of Tick Size Reductions, 139 J. FIN. ECON. 832 (2021). The regression is 

estimated using daily estimates at the stock level. 

1502  These time intervals are constructed using the following time horizons: 10 milliseconds, 50 milliseconds, 

100 milliseconds, 500 milliseconds, 1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 minutes.  

1503  The underlying assumption is that the systematic variation in price impact is fully explained by the 

explanatory variables described in note 1501, supra. It is possible that there are variables, not included in 

the regression and not sufficiently correlated with the included variables, that are systematically driving the 

variation in price impact. These variables would be captured in the regression residual, which would inflate 

the estimate of the noise. However, to the extent that the effects of these omitted variables are relatively 

constant across time horizons, this should not drive the patterns in the signal-to-noise ratios across time 

horizons observed in Figure 19 infra. 

1504  See, e.g., G.P. Swann, Is Precise Econometrics An Illusion?, 50 J. ECON. EDUC. 343-355 (2019). 



431 

the signal-to-noise ratio for these stocks.1505 Meanwhile, the largest stock group shows a 

different pattern: for these stocks, the signal-to-noise ratio is largely decreasing in the time 

horizon, meaning that realized spreads are less informative at longer intervals. This result 

supports including a shorter time horizon, i.e., 10 or 50 milliseconds. The fact that the analysis 

for the smallest market capitalization stocks supports the inclusion of the longest time horizon 

examined, while the analysis for the largest market capitalization group points to the inclusion of 

the shortest time horizon examined, supports the inclusion of multiple time horizons across a 

broad range. 

 

1505  Figure 23 also shows a slight and temporary increase in the signal-to-noise ratio between 1 to 10 seconds 

for the largest market capitalization group, which could imply that a 1-second horizon is as informative as a 

10 or 50 millisecond horizon. However, Figure 18 shows a monotonic increase in noise as the time horizon 

increases for the largest market capitalization group, implying that a shorter time horizon is always less 

noisy than a longer time horizon for these stocks. For this reason, there is additional value in including a 

time horizon that is shorter than one second.  



432 

Figure 23: Signal-to-Noise Ratios in Price Impact Measures by Market Capitalization and 

Time Horizon, Q1 2023 

 
This figure plots the estimated signal-to-noise ratios for different market capitalization groups over different time intervals. The signals and 
noises are estimated using the predicted values and residuals form regression analyses where price impacts are regressed on security and 

transaction characteristics. Signals are measured with the variation in the predicted values of price impacts while noises are measured using 

the variation in residuals. The analysis used data from TAQ, see supra note 1023 for dataset description. Measures are winsorized at the 5% 
and 95% level. Measures grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each 

size quartile. This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1025 and section IX.C.1.d)(2). 

 



433 

While some commenters supported the usefulness of realized spreads as a measure of 

order flow characteristics,1506 several commenters opposed the inclusion of realized spread 

statistics in amended Rule 605 reports.1507 One commenter stated that they “[do] not believe a 

one-size-fits-all metric can work” because “market participants all have different views as to 

what time period(s) is appropriate to measure realized spread, and this can also vary based on the 

specific symbol and type of order flow involved.”1508 The Commission agrees, and this is why 

the Commission is adopting a range of realized spread metrics, each with a different time 

horizon, such that consumers of Rule 605 reports will be able to use different realized spread 

according to their potentially different needs or preferences. Another commenter stated realized 

spreads “become largely useless when attempting to compare different types of order flow or 

market centers,” such as between on-exchange and off-exchange trading.1509 While the 

commenter did not clarify why realized spreads are not able to be used to compare different 

types of order flow, offering market participants a range of time horizons will help market 

participants control for differences in order flow and market conditions, as they will be able to 

choose the time horizons that best suit their needs and the reporting entities’ mix of stocks in 

 

1506  These commenters discussed the usefulness of realized spreads within the context of advocating for their 

inclusion in Rule 605 summary reports. In particular, one commenter stated that, when combined with 

effective spread statistics to calculate price impact, realized spreads “provide better transparency regarding 

the distinct characteristics of order flow among brokers.” Schwab Letter II at 3. Another commenter stated 

that “the impact of…order flow characteristics [such as whether orders are classified by market participants 

as more or less informed or the size of orders relative to a stock’s average daily value] can be measured, at 

least in part, through statistics such as realized spread and price impact.” FIF Letter at 31-32. 

1507  See, e.g., SIFMA Letter at 32; Virtu Letter at 12; Rule 605 Citadel Letter at 8. In addition, one commenter 

stated that they “do not believe realized spread is a key execution quality metric for retail investors.” 

Robinhood at 46. The Commission agrees that realized spread is not a measure of execution quality. As 

stated in the Proposing Release and elsewhere in this release, realized spreads are useful for allowing 

market participants to control for differences in adverse selection risk across different market centers. See, 

e.g., Proposing Release, 88 FR 3786 at 3853, n.701 (Jan. 20, 2023) and corresponding text.  

1508  See SIFMA Letter at 32. 

1509  See Citadel Letter at 8. 



434 

terms of size and liquidity. Offering a range of realized spread time horizons is also consistent 

with industry practice among market participants, who often use “mark-out curves” to compare 

across a range of time horizons, including at time horizons less than one second.1510 In addition, 

the Commission understands that the one-second time horizon is often used in industry,1511 and 

so including the one-second horizon in Rule 605 reports will help bring reported realized spreads 

in line with industry practice. 

(ii) Effective Spread 

The adopted amendment to require reporting entities to include information about 

average effective spreads for midpoint-or-better NMLOs,1512 in addition to market and 

marketable limit order types, will increase transparency about the availability of favorable 

executions for these types of orders.  

 

1510  See, e.g., Bringing the Power of Signal V6 to D-Limit, IEX (Oct. 31, 2023), available at 

https://www.iex.io/article/bringing-the-power-of-signal-v6-to-d-limit (looking at mark-outs ranging from 1 

millisecond to 1 minute); What Markouts Are and Why They Don’t Always Matter, supra note 551 

(looking at mark-outs ranging from 0 milliseconds to 1 minute); Securities Exchange Act Release No. 

98625 (Sept. 28, 2023), 88 FR 68711 at 68713 (Oct. 4, 2023) (SR-IEX-2023-10) (looking at mark-outs 

ranging from 1 millisecond to 1 second); The Midpoint Extended Life Order (M-ELO): M-ELO Holding 

Period, NASDAQ (Feb. 13, 2020, 3:57 P.M. EST), available at https://www.nasdaq.com/articles/the-

midpoint-extended-life-order-m-elo%3A-m-elo-holding-period-2020-02-13 (looking at mark-outs ranging 

from 0 milliseconds to 1 minute); MatchIt ATS Monthly Execution Metrics, VIRTU, available at 

https://www.virtu.com/about/transparency/ (last visited Feb. 1, 2024, 1:34 P.M.) (looking at mark-outs 

ranging from 500 milliseconds to 1 minute); and How Periodic Auctions Enhance Trading in Europe and 

the U.S., CBOE (Sept. 13, 2023), available at https://www.cboe.com/insights/posts/how-periodic-auctions-

enhance-trading-in-europe-and-the-u-s/ (looking at mark-outs ranging from 0 milliseconds to 1 second). 

1511  See, e.g., All-in Economics to Trade Are What Matters Most, supra note 551; PROOF’S PUBLIC-FACING 

TCA: LATEST RESULTS OVER ONE YEAR OF DATA, PROOFTRADING (Mar. 23, 2023), available at 

https://prooftrading.com/docs/tca-202303.pdf; and Securities Exchange Act Release No. 81484 (Sept. 28, 

2023), 88 FR 68711 at 68713 (Oct. 4, 2023) (SR-IEX-2023-10); Sean Spector & Tori Dewey, Minimum 

Quantities Part I: Adverse Selection, IEX (Nov. 11, 2020), available at 

https://www.iex.io/article/minimum-quantities-part-i-adverse-selection; and Diana Kafkes et al., Applying 

Artificial Intelligence & Reinforcement Learning Methods Towards Improving Execution Outcomes 

(working paper Oct. 10, 2022), available at https://ssrn.com/abstract=4243985 (retrieved from SSRN 

Elsevier database). 

1512  See final 17 CFR 242.605(a)(1)(ii)(B); see also supra section III.B.4.b)(2). 



435 

For midpoint-or-better NMLOs, the high percentage of these orders submitted with IOC 

designations shown in Table 4 implies that a significant portion of these orders have the 

expectation of executing immediately, for example, against hidden or odd-lot liquidity inside of 

the spread. By definition, midpoint-or-better NMLOs will have an effective spread that is either 

zero (if at-the-midpoint) or positive (if beyond-the-midpoint), reflecting that the more aggressive 

of these orders are paying a higher percentage of the spread for this immediacy.1513 If a market 

center is offering lower effective spreads for midpoint-or-better NMLOs on average, that means 

that the market center is able to execute these orders closer to the midpoint, e.g., because the 

market center has liquidity available within the spread, or, in the case of wholesalers, the market 

center is willing to offer price improvement to beyond-the-midpoint orders and execute them at 

the midpoint. Therefore, information about effective spreads for midpoint-or-better NMLOs will 

allow traders that use these orders as part of their trading strategies (and their broker-dealers) to 

make comparisons across market centers based on the profitability of these strategies.  

One commenter disagreed that price improvement information for beyond-the-midpoint 

orders will be useful for comparing across market centers because some of the price 

improvement of these orders is driven by the order’s limit price, which is controlled by the 

 

1513  By contrast, NMLOs that are priced worse than the midpoint will tend to have negative effective spreads 

(i.e., a gain). The Commission proposed including effective spreads for all NMLOs, and stated that 

effective spreads for NMLOs can be negative. Further, the Commission characterized the effective spread 

for NMLOs as a measure of “how much customers can expect to be compensated for providing liquidity.” 

Proposing Release, 88 FR 3786 at 3869 (Jan. 20, 2023). One commenter stated that “[t]he effective spread 

is not widely accepted as a meaningful measure of execution quality for NMLOs,” and that “[f]or orders 

submitted outside of the NBBO, the metric essentially amounts to negative one times the quoted spread at 

the moment the order becomes executable.” Virtu Letter at 14. The Commission agrees that this is the case. 

Furthermore, this will also be the case for orders submitted at the NBBO as well. Thus, for these orders, 

effective spread is a less meaningful measure of execution quality than for midpoint-or-better NMLOs, and 

thus is not adopting a requirement for effective spreads to be reported for NMLOs submitted at or below 

the NBBO.  



436 

investor, and not the market center.1514 The Commission agrees with the commenter that some of 

the price improvement for midpoint-or-better NMLOs, including the average effective spread, 

will be driven by the average limit prices of these orders received by a market center.1515 This 

may make it so that a reporting entity that consistently handles more aggressively priced 

midpoint-or-better NMLOs reflects higher effective spreads on average. However, the 

Commission disagrees that this will make it so that these measures will not be comparable across 

reporting entities. To the extent that a market center is able to improve upon a midpoint-or-better 

order’s limit price by, e.g., offering better-priced liquidity within the spread and/or by offering 

the order price improvement, this will be reflected in and result in a better effective spread 

measure for that market center.  

One commenter stated that “the effective spread is not widely accepted as a meaningful 

measure of execution quality for NMLOs,” and “does not measure a dimension of execution 

quality that is likely to differ across market centers” because “the NBBO midpoint at the moment 

the NBBO first touches the limit price…mechanically must be the same on every market 

center.”1516 The commenter also states that “[f]or orders submitted outside of the NBBO, the 

metric essentially amounts to negative one times the quoted spread at the moment the order 

becomes executable.”1517 The Commission agrees that the distance between a NMLO’s limit 

price and the NBBO will be the same across any market center, and also agrees that effective 

 

1514  See Schwab Letter at 32. 

1515  This is true of all inside-the-quote NMLOs that are posted to the limit order book. For these orders, since 

the effective spread is measured using the midpoint as of the time of order executability (see final 17 CFR 

242.600(b)(8)), the effective spread will simply be equal to the signed difference between the limit price 

and the midpoint at the time of executability, which, for inside-the-quote NMLOs, will be equivalent to the 

time of order submission.  

1516  See Virtu Letter II at 14.  

1517  See Virtu Letter II at 14. 



437 

spreads may not be a meaningful measure of execution quality for NMLOs submitted outside of 

the NBBO for the reason referenced by the commenter. However, since midpoint-or-better 

NMLOs are able to transact at prices better than their limit prices (e.g., if there is liquidity 

available inside the quote), effective spreads for midpoint-or-better NMLOs will differ according 

to a market centers’ ability to offer inside-the-quote liquidity or to execute beyond-the-midpoint 

orders at the midpoint. Therefore, while the Commission agrees with the commenter that 

effective spreads may not be a meaningful measure of execution quality NMLOs submitted at or 

outside of the NBBO, there are benefits to including information about effective spreads 

narrowly for midpoint-or-better NMLOs. 

(iii) Percentage Spreads (Effective and Realized) 

The adopted amendment requiring reporting entities to report average effective spreads 

and average realized spreads in percentage terms,1518 in addition to the preexisting requirement to 

report them in dollar terms,1519 will allow market participants to evaluate and compare the actual 

per-share dollar premium paid (or amount earned) captured by the spread, and use average 

percentage measures to compare aggregate spreads across broker-dealers that handle different 

mixes of stocks and/or stocks with significant price volatility.1520 Since average spread measures 

represent a per-share cost, the real costs to (or premiums earned by) investors captured by 

average spread measures can be very different, depending on the stock price.1521 Percentage 

 

1518  See final 17 CFR 242.605(a)(1)(i)(P), (R), (T), (V), and (X).  

1519  See prior 17 CFR 242.605(a)(1)(i)(K) and (a)(1)(ii)(A). 

1520  This was supported by a commenter, who stated that “percentage-based spread measures would provide 

additional information at the individual stock level where there is a significant price change during a 

month.” Better Markets Letter at 9. 

1521  See supra note 1247 and accompanying text for an example showing that the total cost of accumulating the 

same position in terms of dollar value in two stocks with the same per-share dollar effective spread can 

differ significantly in terms of total transaction costs if one stock is priced much lower than the other. 



438 

average spread measures, on the other hand, will better account for these differences in stock 

prices.1522 As different reporting entities handle and/or transact in different mixes of stocks with 

varying prices, including information about average percentage spreads will make it possible for 

market participants who want to compare reporting entities’ overall spread measures or their 

spread measures for baskets of stocks to aggregate average spreads for a variety of stocks with 

varying prices.1523 This will facilitate a more apples-to-apples comparison of both average 

effective and average realized spreads across reporting entities. Requiring information on the 

average percentage effective spread in addition to the average effective spread will facilitate 

more apples-to-apples comparisons of execution prices across reporting entities, permitting 

greater competition and resulting in lower effective spreads, i.e., better execution prices. 

(iv) Effective Over Quoted Spread (E/Q) 

The adopted amendment requiring reporting entities to include information on effective 

over quoted spreads1524 will increase market participants’ access to information about price 

improvement. The Commission understands that the effective over quoted spread (E/Q) is a 

 

1522  See example in supra note 1247. While the $250 stock and the $2.50 stock would have the same average 

effective spread, the average percentage effective spreads of these stocks would be 0.004% and 0.4%, 

respectively, which indicates that investors would face higher costs from accumulating a position in the 

$2.50 stock than they would from accumulating an equal-value position in the $250 stock. 

1523 While the main purpose of Rule 605 is to facilitate comparisons across reporting entities on the basis of 

execution quality within a particular security, the Commission understands that access to aggregated 

information is useful for market participants. The adopted amendment to require reporting entities to 

prepare summary reports that aggregate execution quality information for S&P 500 stocks, along with all 

NMS stocks, will give market participants access to aggregate effective spreads for one commonly used 

basket of stocks. Meanwhile, per-stock percentage spread information will enhance market participant’s 

ability to aggregate effective spread information across baskets of stocks other than the S&P 500. 

1524  See final 17 CFR 242.605(a)(1)(ii)(D); see also supra section III.B.4.d)(2). 



439 

measure often used in industry practice.1525 Therefore, including this measure will improve upon 

the accessibility of price improvement information contained in Rule 605 reports by making 

more readily available a measure that is already used and well understood by industry 

participants.1526 This is expected to result in increased competition on the basis of execution 

prices, which is expected to result in improved execution prices. 

Consistent with commenters’ suggestions,1527 the Commission is adopting a spread-

weighted average E/Q statistic, which is equivalent to the average effective spread divided by the 

average quoted spread, expressed as a percentage.1528 As stated by commenters, a key benefit of 

spread-weighted average E/Q statistics is that this method of weighting avoids the possibility that 

a market center could improve its E/Q statistics simply by reallocating its price improvement 

away from wide-spread stocks and to stocks with narrower spreads.1529 To see this, consider a 

market center that executes 100-share trades in two stocks with very different spreads: Stock A 

with a quoted spread of $0.02, and Stock B with a quoted spread of $1.00. The market center 

offers both trades $0.01 of price improvement per share. Using a weighting scheme other than 

 

1525  See, e.g., About Us: Brokerage Built for You, VANGUARD, available at 

https://investor.vanguard.com/about-us/brokerage-order-execution-quality (last visited Feb. 1, 2024, 1:41 

P.M.). This was also confirmed by one commenter; see Schwab Letter at 3, stating that E/Q is a “very 

common metric used within the industry to judge execution quality.”  

1526  Several commenters supported the idea that E/Q is a useful measure of price improvement. See, e.g., Better 

Markets Letter at 9; Vanguard Letter at 4; Schwab Letter at 31.  

1527  See, e.g., FIF Letter at 23-24; Rule 605 Citadel Letter at 5; Schwab Letter at 31; and Schwab Letter II at 4. 

1528  To see this, consider that the formula for calculating the spread-weighted average E/Q in the case of two 

trades of size s1 and s2 with per-share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2, 

would be [s1Q1/(s1Q1 + s2Q2) × (s1E1/s1Q1)] + [s2Q2/(s1Q1 + s2Q2) × (s2E2/s2Q2)]. This simplifies to (s1E1 + 

s2E2)/(s1Q1 + s2Q2), which is equivalent to the average effective spread divided by the average quoted 

spread. This result holds irrespective of the number of trades. 

1529  See, e.g., FIF Letter at 23-24; Rule 605 Citadel Letter at 5; Schwab Letter at 31; and Schwab Letter II at 4.  



440 

spread-weighting, such as share-weighting,1530 the market center’s average E/Q would be 0.5 * 

($0.00/$0.02) + 0.5 * ($0.98/$1.00) = 49%. The market center could lower its average E/Q by 

simply reallocating the $0.01 of price improvement it offered to Stock B to Stock A; in this case, 

its average E/Q would be 0.5 * (-$0.02/$0.02) + 0.5 * ($1.00/$1.00) = 0%.1531 This illustrates 

that share-weighting would allow a market center to improve its E/Q substantially by 

reallocating price improvement from wide-spread stocks to narrow-spread stocks, even though 

the dollar amount of price improvement that it offered to market participants did not change. 

With spread-weighting, however, the market center’s E/Q after offering $0.01 to each stock 

would be 94.2%; after the reallocation of price improvement from Stock B to Stock A, the 

spread-weighted average E/Q would also be 94.2%.1532 In other words, the market center will not 

be able to improve its E/Q simply by reallocating its dollar price improvement among stocks 

with different spreads. This will lead to a more accurate measure of execution quality that is 

better able to facilitate comparisons of E/Q across market centers.  

Several commenters suggested that Rule 605 reports not include E/Q and leave it to users 

of the report to calculate E/Q from other statistics.1533 In the Proposing Release, the Commission 

stated that, while E/Q can already be calculated from data that are already required by 

 

1530  The formula for calculating the share-weighted average E/Q in the case of two trades of sizes s1 and s2, with 

per-share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2, would be [s1/(s1 + s2) × 

(E1/Q1)] + [s2/(s1 + s2) × (E2/Q2)]. 

1531  A lower E/Q corresponds to a better execution quality, as the trader whose order is being executed is 

paying a smaller percentage of the spread. 

1532  See supra note 1528 for the formula for calculating spread-weighted E/Q in the case of two trades. 

1533  See FIF Letter at 20-21 (stating that for marketable order types, it is not necessary to include E/Q in the 

detailed reports required by Rule 605(a)(1) because E/Q can be derived from other data that are already 

included and these data, specifically, are found in the price improvement, price dis-improvement, and 

effective spread statistics); Schwab Letter at 31 (suggesting that the reports include effective and quoted 

spread and then allow individuals to compute E/Q).441 

preexisting Rule 605,1534 calculating a share-weighted monthly average E/Q as the ratio of 

average effective spread to average quoted spread produces a noisier E/Q measure than one 

calculated on a per transaction basis.1535 The Commission made this statement in reference to the 

use of this ratio as an approximation of a share-weighted measure of E/Q, as was proposed. For 

spread-weighted measures of E/Q, the formula for aggregating per-transaction measures of E/Q 

simplifies to precisely the ratio of average effective spreads to average quoted spreads.1536 

Therefore, this issue of the usage of existing Rule 605 data producing a “noisy” approximation of 

E/Q is not relevant to the adopted amendment. Nevertheless, requiring a separate field for E/Q 

will increase the ability of market participants to access and utilize E/Q.1537 Furthermore, the 

Commission agrees with a commenter that adding rows and columns to the Rule 605 report will 

not substantially increase the costs to data users of processing these reports and storing the 

relevant data.1538 The added rows and columns will be part of the same machine-readable file 

using the same pipe-delimited ASCII format as the existing rows and columns, so data users will 

not incur any costs associated with converting between formats in order to store and use the 

newly reported information. Therefore, the marginal cost to data users of including E/Q as an 

 

1534  See Proposing Release, 88 FR 3786 at 3817, n.399 (Jan. 20, 2023): “[Share-weighted] average quoted 

spread can be derived on a per symbol basis by adding average effective spread and double the amount of 

total average per share price improvement or dis-improvement (i.e., amount of price improvement times 

price improved share count, less amount of price dis-improvement times price dis-improved share count, 

divided by total number of executed shares).” 

1535  To see this, consider a market center that, in a given month, executes two orders of sizes s1 and s2, with per-

share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2. The formula for the share-

weighted average E/Q is given in supra note 1530. Approximating the share-weighted average E/Q from 

share-weighted average effective and quoted spreads would yield [s1/(s1 Q1 + s2 Q2) × E1] + [s2/(s1 Q1 + s2 

Q2) × E2]. 

1536  See supra note 1528 for the formula for calculating spread-weighted E/Q in the case of two trades. 

1537  See supra section III.B.4.d)(2) for further discussion. 

1538  See supra note 1496 and corresponding text for further discussion.  



442 

additional column should be minimal. Because of the amended rule requiring the reporting of 

average quoted spread,1539 market participants will also be able to compare the spread-weighted 

average E/Q column directly to the columns containing average quoted spreads and average 

effective spreads.1540  

(v) Size Improvement 

The adopted amendment expanding Rule 605 reporting requirements to include measures 

of size improvement will provide market participants with more information about an additional 

dimension of execution quality that has not been not fully captured by preexisting Rule 605 

statistics.1541 We expect this to be beneficial for evaluating execution of larger-sized orders, as 

these orders are the most likely to exceed the liquidity available at the best quotes and are 

therefore in a position to benefit the most from size improvement.  

The adopted amendment will require reporting entities to report, for executions of 

covered shares, a benchmark metric calculated as the consolidated reference quote size, capped 

at the size of the order at the time of order receipt (or order executability in the case of 

 

1539  See final 17 CFR 242.605(a)(1)(ii)(A). 

1540  See, e.g., Professor Spatt et al. Letter, stating that “quoted spreads, for example, are critical for 

understanding and weighting both effective spreads and EFQ ratios.” 

1541  This was also supported by one commenter, who stated that “[i]ncluding size improvement metrics will 

provide market participants with important information about an additional dimension of execution quality 

that is not currently captured by current Rule 605 statistics.” Rule 605 Citadel Letter at 11. Another 

commenter stated that, along with other enhancements, the inclusion of the size improvement metric would 

“improve order execution information available for market participants to make trading and order routing 

decisions…” SIFMA Letter II at 25.  



443 

marketable stop orders and midpoint-or-better orders) (“order size benchmark”).1542 Subtracting 

the order size benchmark from number of submitted shares yields “outsized share count” – a 

measure of the opportunity to provide size improvement.1543 In response to a commenter, Rule 

605 reports as amended will also include a size improvement metric that will measure the level 

of size improvement in those instances in which the order presents an opportunity for size 

improvement (the “size improved outsized shares”).1544 Dividing size-improved outsized shares 

by outsized share count yields the number of shares that receive size improvement (on orders in 

 

1542  See final 17 CFR 242.605(a)(1)(ii)(R). As discussed in supra section III.B.4.e)(2), this metric is designed to 

capture whether the depth available at the best market prices is sufficient to fully execute against a given 

order, or whether the order would need to walk the book to fully execute. Since size improvement is 

measured using NBBO depth at the time of order receipt, a marketable limit order that partially executes, is 

posted to the limit order book, and then fully executes later, will be reflected in size improvement statistics. 

For example, assume that a market center receives a 500-share marketable limit order when there are 300 

shares available at the NBBO. The market center executes 300 of the 500 shares against the available depth 

and posts the remaining 200 shares to the limit order book, which becomes the new NBBO. A market order 

subsequently executes against those 200 shares. Since size improvement is based on order receipt time, the 

market center would record an order size benchmark of 300, 500 shares executed at the NBBO or better, 

and thus a size-improved outsized share count of 200 shares. 

1543  Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. Continuing the example 

from supra note 1557, while both Market Centers A and B would show a size improvement share count of 

0, Market Center A will show an outsized share count of 500–500=0, while Market Center B will show an 

outsized share count of 500–300=200.  

1544  See final 17 CFR 242.605(a)(1)(ii)(S), requiring the reporting of “the sum of, for each execution of a 

covered order, the greater of: the total number of shares executed with price improvement plus the total 

number of shares executed at the quote minus the order size benchmark, or zero.” The “total number of 

shares executed with price improvement plus the total number of shares executed at the quote minus the 

order size benchmark” (“net size improvement”) will only be a strictly positive number for those orders 

that are both eligible to receive size improve and receive size improvement, and thus is equivalent to a 

measure of shares that are eligible to and that received size improvement. To see this, consider that an order 

(“Order A”) whose size is less than the available NBBO depth will have a net size improvement of 0, an 

order (“Order B”) that is not executed despite available depth (or is executed as prices worse than the 

NBBO) will have a negative net size improvement, and an order (“Order C”) whose size exceeds the 

available NBBO depth by 300 shares and receives price improvement on those 300 shares will have a net 

size improvement of 300 shares. Capping the net size improvement for these three orders at zero and then 

summing then would only capture the net size improvement for that order that was eligible to receive size 

improvement and that received size improvement, i.e. 0 + 0 + 300 shares. A substantively similar measure 

(“the number (or percentage) of shares within the outsized orders that received size improvement (i.e., were 

executed at or better than the NBBO price, in excess of the amount of aggregate displayed liquidity at the 

NBBO)”) was suggested by a commenter. See Virtu Letter at 10. To the extent that the metric suggested by 

the commenter could capture size dis-improvement (i.e., negative values of net size improvement), this 

metric may not be equivalent to the size improved outsized share count. 



444 

which size improvement is possible) as a fraction of the number of shares for which there is an 

opportunity to provide size improvement.  

If information about size improvement were already captured by preexisting Rule 605 

statistics, the addition of the order size benchmark and information about size improved outsized 

shares would not increase transparency. To examine the extent to which size improvement 

measures calculated using these metrics will contain information that is different from measures 

required by preexisting Rule 605, data from the Tick Size Pilot B.II Market and Marketable 

Limit Order dataset1545 were analyzed to calculate the average correlation1546 between price 

improvement, effective spreads, and the size improved outsized shares divided by the outsized 

 

1545  See Tick Size Pilot Plan, supra note 1115. This dataset contains information for approximately 2,400 small 

cap stocks for a period from Apr. 2016 to Mar. 2019. Orders with special handling codes are discarded, as 

are orders marked as short sales (“SS”). As the Tick Size Pilot collected data only for small cap stocks, 

these execution times are not necessarily representative of all stocks. The Commission limited this analysis 

to a randomly selected sample of 100 stocks and for the time period of Mar. 2019. This dataset was then 

merged with MIDAS data to obtain the consolidated depth available at the NBBO at the time of the market 

and marketable limit order submissions, along with data on odd-lots and consolidated volume at prices 

outside of the NBBO. This analysis uses data from prior to the implementation of the MDI Rules and the 

specific numbers may be different following the implementation of the MDI Rules. In particular, for certain 

stocks, the NBBO quoted spread is expected to narrow, the liquidity available at the NBBO may decrease, 

and the NBBO midpoint may change, though the Commission is uncertain of the direction of this effect. 

This may impact statistics that are based on these values, including measures of price and size improvement 

and effective spreads. See supra section IX.C.1.c)(2). However, it is unclear whether or how these effects 

would impact the correlations between these measures documented in this analysis. 

1546  Correlation is calculated using the Pearson correlation coefficient, which measures the linear correlation 

between two sets of data, ranging from -1 to 1, with -1 representing perfect negative correlation and 1 

representing perfect positive correlation. To construct a measure of average correlation, the Pearson 

correlation coefficient is first calculated for each pair of execution quality metrics, for each market center-

stock combination. Then value-weighted average correlation coefficient across all stocks for each market 

center is constructed, using dollar volume as weights. The resulting correlation coefficients are then 

averaged across market centers using an equal-weighted average. 



445 

share count (“outsized size improvement rate”).1547 As national securities exchanges and off-

exchange market centers differ in the extent to which they can offer size and price improvement, 

the Commission performed this analysis separately for these two different types of market 

centers. 

Results are presented in Table 81548 and show that, for both national securities exchanges 

and off-exchange market centers, effective spreads are modestly (negatively) correlated with 

price improvement, confirming that effective spreads contain some of the same information as 

price improvement measures. However, this correlation is nearly zero for the outsized size 

improvement rate, implying that effective spreads are a poor measure of size improvement.  

 

1547  See final 17 CFR 242.605(a)(1)(ii)(S), requiring the reporting of the greater of the net size improvement 

rate and zero. See also supra note 1544. The size improved outsized shares are divided by the outsized 

share count to control for differences in size improvement opportunities at different market centers. For 

example, if Market Centers A and B both have 200,000 size improved outsized share counts, but Market 

Center A has an outsized share count of 800,000, and Market Center B has an outsized share count of 

1,800,000, Market Center A will be offering a higher rate of size improvement since it had fewer 

opportunities to provide size improvement. To capture this, the size improved outsized share count is 

divided by the outsized share count, such that Market Center A will have an outsized size improvement rate 

of 200,000/800,000 = 25% and Exchange B will have an outsized size improvement rate of 

200,000/1,800,000 = 11%. This difference recognizes that Exchange A and Exchange B provided size 

improvement to the same number of shares, but Exchange A gave size improvement to a larger percentage 

of its orders for which there was an opportunity to provide size improvement.  

1548  This analysis has been updated from the Proposing Release; see Proposing Release, 88 FR 3786 at 3871 

(Jan. 20, 2023). In the Proposing Release, the measure of size improvement used in the analysis was 

constructed as the net size improvement divided by the order size benchmark. In response to commenters, 

the measure of size improvement used in the analysis in Table 8 has been updated in two ways. First, the 

size improvement measure has been updated to include outsized share count in the denominator, rather than 

the order size benchmark. As pointed out by commenters, since the order size benchmark contains 

information about the volumes of orders that do not have an opportunity to receive size improvement, 

dividing size improvement metrics by this number will dilute measures of size improvement. See supra 

note 1555 and corresponding text for further discussion. Second, the size improvement measure has been 

updated to use the size improved outsized share count in the numerator, rather than net size improvement. 

This is because net size improvement contains information about size dis-improvement, which can be 

negative even for orders that do not have an opportunity to receive size improvement. See supra note 1544 

for further discussion. Using the size improved outsized share count focuses the analysis on those orders 

that are eligible to receive size improvement and receive size improvement. The Commission is amending 

Rule 605 to include the size improved outsized share count in response to a commenter, who suggested a 

similar measure. See Virtu Letter at 10; see also supra note 1544. However, both size improvement 

measures lead to similar average correlations, and thus these changes did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that price improvement and size 

improvement each convey different information about execution quality. 



446 

Table 8: Average Correlation between Measures of Price and Size Improvement 

Variables National 

Securities 

Exchanges 

Off-Exchange 

Market Centers 

Price Improvement and Effective Spreads -0.257 -0.205 

Outsized Size Improvement Rate and Effective Spreads -0.001 0.026 

Price Improvement and Outsized Size Improvement 

Rate 
0.024 0.022 

This table presents correlations between three measures of price improvement and size improvement: price improvement, 

calculated as the signed difference between the execution price and the NBBO; the effective spread, calculated as twice the 

signed difference between the execution price and the NBBO midpoint; and the outsized size improvement rate, calculated as 

size improved outsized shares divided by the outsized share count (see supra note 1547 and accompanying text for a detailed 

description of the latter two measures). This analysis uses data from the Tick Size Pilot B.II Market and Marketable Limit 

Order dataset. See supra note 1545 for dataset description and supra note 1546 for methodology. To construct a measure of 

average correlation, the Pearson correlation coefficient is first calculated for each pair of execution quality metrics, for each 

market center-stock combination. Then value-weighted average correlation coefficient across all stocks for each market center 

is constructed, using dollar volume as weights. The resulting correlation coefficients are then averaged across market centers 

using an equal-weighted average. This analysis uses data from prior to the implementation of the MDI Rules and results may 

be different following the implementation of the MDI Rules. See supra note 1545 and section IX.C.1.c)(2). 

The correlation between price improvement and the outsized size improvement rate is 

comparatively low. The fact that price improvement and size improvement metrics are not 

strongly correlated implies that each of these measures to some degree conveys different 

information about execution quality. Therefore, including the order size benchmark and size 

improved outsized shares into Rule 605 reporting requirements will provide market participants 

with more information about an additional dimension of execution quality that was not fully 

captured by Rule 605 statistics prior to these amendments. 

The Commission expects that these amendments will improve execution quality in terms 

of size improvement by increasing the extent to which market centers and broker-dealers 

compete with one another on the basis of their ability to offer size improvement. In order to 

attract broker-dealer order flow, market centers will be incentivized to compete on the basis of 

size improvement, for example by executing orders against their own inventory at or better than 

the NBBO, or offering additional incentives to attract hidden liquidity priced at or better than the 

NBBO. Investors that particularly value the ability of reporting entities to offer size 

improvement, such as investors trading in larger order sizes, will be able to use this metric to 



447 

discern which reporting entity might offer better size improvement to their orders, which will 

allow them to make better routing decisions and obtain increased size improvement as a 

result.1549 As a result, competition on the basis of size improvement among reporting entities is 

expected to increase in order to attract these customers and their orders. 

One commenter stated that “[to] accurately identify size improvement not only would 

proprietary depth of book feeds be required, the statistic would be misleading as it would not 

reflect…top of book across public quotes, nor would it reflect hidden or mid-point priced orders 

which are extremely prevalent in today’s market if sole reliance was on the SIP.”1550 The 

Commission acknowledges that the adopted measures of size improvement in some cases will 

not be as informative as a measure that incorporates full depth-of-book information.1551 The 

Commission also acknowledges that it might not reflect top of book across public quotes,1552 or 

reflect hidden liquidity. However, the adopted measures will not be misleading as stated by the 

commenter,1553 but will be useful for investors for the reasons given above. For example, size 

improvement statistics for exchanges will account for hidden liquidity, and therefore, by 

 

1549  See supra note 1257 for an example of how a size improvement measure might be useful for a trader when 

deciding between different market centers.  

1550  See Healthy Markets Letter at 18. 

1551  See infra sections IX.E.3.d)(1) and IX.E.3.d)(2) for a discussion of two reasonable alternatives related to 

including dollar size improvement relative to full depth-of-book in amended Rule 605 reports. 

1552  For example, if Exchange A's top-of-book is quoting $10.00-$10.01 and sets the NBBO, and Exchange B’s 

top-of-book is quoting $9.99-$10.02, the adopted size improvement measures will only include volume 

quoting at $10.00-$10.01. Depth quoted at $9.99-$10.02, while protected, will not be incorporated into the 

adopted size improvement metrics. See 17 CFR 242.600(b)(70) for the definition of a protected bid and 

protected offer. 

1553  See Healthy Markets Letter at 18. 



448 

comparing size improvement across exchange and off-exchange market centers, investors could 

account for the effects of hidden liquidity.1554 

One commenter stated that the proposed size improvement benchmark metric “is not a 

useful measure of the actual size improvement,” because the benchmark measure will “include 

all orders in the calculation, even when there is no opportunity to provide size improvement,” 

which “dilutes the amount and obfuscates the value of size improvement provided when the need 

for size improvement actually exists.”1555 The commenter suggested that the Commission 

consider requiring the reporting of several additional metrics that are “not affected by orders in 

which there was no need to provide size improvement.”1556 

The Commission agrees that whether there was an opportunity to provide size 

improvement is an important aspect of an analysis of size improvement.1557 The Commission is 

adopting a metric (the size-improved outsized shares) that is substantively similar to the 

commenter’s suggested metric, namely the number of shares within outsized orders that receive 

 

1554  Since information about hidden liquidity is not publicly available, even a size improvement measure that 

incorporate full depth-of-book information would not incorporate information about hidden liquidity. The 

Commission acknowledges that, to the extent that including measures of size improvement in Rule 605 

reports incentivizes hidden liquidity at the cost of displayed orders, this represents a potential cost of the 

amendments, though the Commission does not believe that this scenario is likely. See infra section 

IX.D.2.b)(3) for a full discussion. 

1555  See Virtu Letter at 10.  

1556  See Virtu Letter at 10.  

1557  To see this, consider two market centers, A and B, that both receive a market sell order for 500 shares. 

When Market Center A receives the order, there are 600 shares available at the NBB, and Market Center A 

executes the entire 500-share order at the NBB. Meanwhile, while Market Center B receives the order, 

there are 300 shares available at the NBB. Market Center B executes 300 of the 500 shares at the NBB, and 

the remaining 200 shares walk the book. Both market centers would similarly show a size improvement 

share count of 0. However, this would not capture the fact that Market Center A never had the opportunity 

to provide size improvement (because the NBB depth was sufficient to fill the order), and Market Center B 

did not provide size improvement, though it had the opportunity to do so.  



449 

size improvement.1558 The Commission observes further that the opportunity to provide size 

improvement can be calculated using a combination of two metrics that will be available in the 

amended reports: number of submitted shares and benchmark order size. Subtracting the order 

size benchmark from number of submitted shares yields “outsized share count” – a measure of 

the opportunity to provide size improvement.1559 Because the benchmark order size is capped at 

the order size, and thus will be equal to zero for orders sized below available NBBO depth, the 

outsized share count will be the same number regardless of whether it includes all orders or only 

all outsized orders. Dividing size-improved outsized shares by outsized share count yields the 

number of shares that receive size improvement (on orders in which size improvement is 

possible) as a fraction of the number of shares for which there is an opportunity to provide size 

improvement. It is thus a measure of size improvement diluted by orders for which there were no 

opportunities to provide size improvement. 

Another commenter was critical of the benefits of the proposed size improvement 

measure because “it would indicate only whether and the number of shares for which size 

improvement was achieved,” and “it would not indicate whether and to what extent such size 

improvement increased the amount of price improvement.”1560 The Commission acknowledges 

that the measures of size improvement included in the amended rule will measure size 

improvement in terms of numbers of shares, and not in terms of a dollar value of price 

 

1558  See Virtu Letter at 10, stating “the number (or percentage) of shares within the outsized orders that 

received size improvement (i.e., were executed at or better than the NBBO price, in excess of the amount of 

aggregate displayed liquidity at the NBBO).” This measure is substantively similar to the measure of size 

improved outsized shares included in the amended rule. See final 17 CFR 242.605(a)(1)(ii)(S). 

1559  Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. Continuing the example 

from supra note 1557, while both Market Centers A and B will show a size improvement share count of 0, 

Market Center A will show an outsized share count of 500–500=0, while Market Center B will show an 

outsized share count of 500–300=200.  

1560  See CCMR Letter at 12.  



450 

improvement resulting from size improvement. The Commission considered but is not adopting 

several alternatives that would measure size improvement in terms of a dollar amount of price 

improvement.1561 Market participants will be able to assess some information about price 

improvement from the price improvement statistics included in the amended reports, though 

these measures of price improvement will not consider prices and depth beyond those at or inside 

of the NBBO.1562 

(vi) Riskless Principal Trades 

The adopted amendment requiring that market centers include riskless principal trades in 

the category of trades executed away from the market center1563 will increase transparency about 

internalization by wholesalers, as information on the extent to which wholesalers internalize 

order flow has been obscured by the preexisting Rule 605 requirement to include riskless 

principal trades into the category of trades executed at, rather than away from, the market 

center.1564 Market participants will be more informed about potential differences in execution 

quality between wholesalers that largely internalize order flow as compared to those whose 

orders are subject to competition from other interested parties quoting on external market 

centers.  

One commenter stated that the statement in the Proposing Release that “execution quality 

statistics would be more informative to market participants”1565 as a result of the re-classification 

 

1561  See infra sections IX.E.3.d)(1) and IX.E.3.d)(2). 

1562  This includes, for example, price improvement relative to the NBBO, price improvement relative to the 

best displayed price, and the effective spread. See final 17 CFR 242.605(a)(ii)(B), (F), and (M).  

1563  See final 17 CFR 242.605(a)(1)(i)(F).  

1564  See supra section IX.C.3.c)(10) for a discussion of how classifying riskless principal trades in the category 

of executions taking place at the market center may have obscured the extent to which wholesalers 

internalize order flow prior to these amendments. 

1565  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). 



451 

of riskless principal trades was “misleading,” because “[t]he execution quality metrics reported 

under Rule 605 correctly take into account all orders routed to a wholesale broker-dealer 

(irrespective of where execution occurs)” and “[t]his would not change under the Proposal.”1566 

The Commission agrees that the calculation of execution quality metrics takes into account both 

executions at and away from the reporting center, and that this will not change after the re-

classification of riskless principal trades. However, as the Commission stated in the Proposing 

Release, requiring the separate reporting of riskless principal transactions from executions at the 

market center will be useful “when interpreting and comparing information about wholesalers’ 

execution quality.”1567 For example, if market participants observe a persistent difference in 

execution quality between wholesalers that largely internalize order flow and wholesalers that 

execute most on a riskless principal basis, they may surmise that this difference in execution 

quality is driven at least in part by the levels of internalization. In this way, execution quality 

statistics will be more informative. 

(vii) Price Improvement  

The amendment to Rule 605 requiring, for marketable order types (i.e., market, 

marketable limit, and marketable IOC orders), as well as for midpoint-or-better limit orders, 

reporting entities to disclose price improvement statistics using the best available displayed price 

as the benchmark1568 will give market participants access to price improvement information 

relative to a benchmark price that more accurately reflects liquidity available in the market. For 

example, if a market center internalizes an order with $0.05 of price improvement relative to the 

 

1566  See Rule 605 Citadel Letter at 10. 

1567  See Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1568  See final 17 CFR 242.600(b)(14) (defining the “best available displayed price”) and 242.605(a)(1)(ii)(M) 

through (Q); see also supra section III.B.4.g)(2) for further discussion of these amendments. 



452 

NBBO, but odd-lots are available on another market center at prices that are $0.10 better than the 

NBBO, this measure will reflect a price dis-improvement of $0.05. This will indicate that the 

investor could have received a better price if the market center had routed the order to execute 

against the available odd-lot liquidity. Thus, market participants (including broker-dealers) will 

be able to identify those market centers that execute orders at prices better than the best available 

displayed price, taking into account all available displayed liquidity.1569 This will promote 

incentives for reporting entities to seek out or offer price improvement relative to the best 

displayed price, taking into account all available displayed liquidity (including odd-lots). 

Continuing the previous example, a market center internalizing an order will not be able to post a 

positive price improvement metric when a better-priced odd-lot was available at another market 

center.1570 Instead, the market center may be incentivized to increase its offering of price 

improvement from $0.05 above the NBBO to $0.15 above the NBBO (i.e., $0.05 above the best 

displayed price), in order to maintain the same level of price improvement in its Rule 605 report.  

Multiple commenters supported including a measure of price improvement relative to the 

best displayed price.1571 However, several commenters stated that the measure would be 

“misleading,” particularly because it does not account for the size available at the best displayed 

price.1572 The Commission recognizes that an odd-lot price that is better than the NBBO may not 

 

1569  If only the NBBO is used as the benchmark for the adopted price improvement statistic relative to the best 

available displayed price, because, for example, odd-lots inside the NBBO are not available or because 

information about the best odd-lot orders available in the market inside the NBBO is not or is not yet 

available in consolidated market data, then these additional price improvement statistics will be the same as 

the price improvement statistics currently included in Rule 605 and will not have significant economic 

effects. See supra note 719. 

1570  One academic study found that incorporating information about the best odd-lot price into the NBBO for 

the purposes of calculating price improvement decreased estimates of price improvement by 2.44 

percentage points. See Battalio & Jennings, supra note 1253, at 17. 

1571  See, e.g., Better Markets Letter at 9; Angel Letter at 3. 

1572  See, e.g., SIFMA Letter at 32; Schwab Letter II at 6; Rule 605 Citadel Letter at 6; Robinhood Letter at 47.  



453 

reflect sufficient quantity to execute certain orders, particularly larger-sized orders, and, as a 

result, price improvement relative to the best displayed price will be more relevant in some cases 

and for some orders than for others.1573 However, the Commission disagrees that this will result 

in the measure being misleading. First, since orders will be grouped in notional order size 

buckets and broken out separately into fractional, odd-lot, and round lot orders, Rule 605 reports 

will present the price improvement statistics related to best available displayed price in a format 

that will make it possible to focus in on those smaller-sized orders for which the measure is most 

informative.1574 Second, in cases where the depth available at the best displayed price is 

insufficient to fill all or most orders, such that executions relative to the best displayed price 

reflect price dis-improvement, this will be similarly true for all reporting entities. If the reporting 

entity does execute against the depth that is available, and/or otherwise achieves price 

improvement for its handled orders, the reporting entity may still reflect a negative value for 

price improvement relative to the best displayed price, but less negative than that of a reporting 

entity that did not offer any price improvement. Thus, to the extent that Rule 605 reports will 

primarily be used by market participants to compare execution quality across market centers and 

across broker-dealers, a measure of price improvement relative to the best displayed price will 

not be misleading and will still allow market participants to identify reporting entities offering 

 

1573  For example, price improvement relative to the best displayed price will typically always be relevant for 

fractional orders less than one share, and may often be relevant for odd-lots, since it is more likely that odd-

lot volume would equal or exceed depth at the best displayed price. Price improvement relative to the best 

displayed price may also be relevant for round lots if aggregated odd-lot volume across market centers is 

sufficient to fill the order, if there is hidden liquidity available at the best displayed price, or if market 

centers such as wholesalers take the best displayed price into account when actively offering price 

improvement when executing orders against its own inventory. 

1574  See supra section III.B.4.g)(2) for further discussion. 



454 

better execution quality, in terms of which reporting entity has offered a lower amount of price 

dis-improvement relative to the best displayed price (i.e., a less negative number).1575 

Other commenters stated that including two sets of price improvement metrics using two 

different reference points would be confusing for retail investors,1576 and that including price 

improvement relative to the best displayed price would “add unnecessary complexity to the 

report.”1577 The Commission is mindful that an increase in the complexity of Rule 605 reports 

may make it difficult for individual investors to review and digest the detailed reports. However, 

it is also important that market participants have access to a variety of detailed execution quality 

information to meet their various purposes. Statistics on price improvement relative to the best 

available displayed price will provide a useful data point for market participants to consider, in 

addition to statistics on price improvement relative to the NBBO.1578 Furthermore, it is likely that 

many individual investors will not face this issue as the Commission expects that many will 

exclusively make use of Rule 605 summary reports, which will only include one measure of 

price improvement, i.e., price improvement relative to the NBBO.1579 

 

1575  For example, consider an extreme case in which the volume available at the best displayed price is only one 

share. Unless it is a fractional order, in all likelihood a market center will not be able to execute sufficient 

volume at the best displayed price, and thus would always reflect dis-improvement relative to the best 

displayed price (unless it was able to achieve price improvement via other means). For example, assuming 

that the best displayed price is $0.01 better than the NBBO, for a market center that was able to execute a 

100-share order against that 1 share, its share-weighted average price dis-improvement relative to the best 

displayed price would be -$0.009, compared to -$0.01 for a market center that executed an entire 100-share 

order at the NBBO.  

1576  See Robinhood Letter at 47. Similarly, another commenter stated that “an odd-lot NBBO creates 

ambiguity.” Data Boiler Letter at 28. 

1577  See Schwab Letter II at 6. 

1578  See supra section III.B.4.g)(2) for further discussion.  

1579  See supra section III.B.4.g)(2) for further discussion.  



455 

Commenters were also critical of the inclusion of price improvement information for 

non-marketable limit orders, because “price improvement is only a relevant statistic for 

marketable group orders”1580 and because, for beyond-the-midpoint orders, “the fact that the 

limit order’s price between the midpoint and far touch (exclusive) is a variable controlled by the 

individual investor—and is responsible for some of its ‘price improvement.’”1581 The 

Commission agrees that some of the price improvement associated with non-marketable limit 

orders will be driven by the order’s limit price, which is outside of a reporting entities’ control. 

In Rule 605 as amended, price improvement will be required to be reported only for one 

particular type of non-marketable limit order, i.e., midpoint-or-better NMLOs. These NMLOs in 

particular can execute at prices better than their limit price, particularly if they have a significant 

likelihood to immediately execute against hidden or odd-lot liquidity inside the spread.1582 

Therefore, it is not always the case that price improvement statistics for non-marketable limit 

order will be a function of the order’s limit price alone, but will also reflect a reporting entities’ 

ability to offer inside-the-quote liquidity that is priced better than the order’s limit price. This 

will particularly be the case for midpoint-or-better NMLOs. Therefore, price improvement 

statistics for this order type will benefit consumers of Rule 605 reports. 

(viii) Relative Fill Rates 

The adopted amendment requiring reporting entities to report the number of shares that 

executed regular way at prices that could have filled an executable NMLO while the order was in 

 

1580  See FIF Letter at 21. 

1581  See Schwab Letter II at 7. Though the commenter only mentioned the importance of an order’s limit price 

in the context of price improvement for beyond-the-midpoint orders, the Commission recognizes that the 

same could be said for other types of non-marketable limit orders. 

1582  See, e.g., results from Table 4, showing that a larger percentage of these orders are submitted with IOC 

designations. 



456 

force will promote transparency regarding differences in the execution probabilities of NMLOs 

between reporting entities. This will increase the ability of investors and their broker-dealers to 

route orders to those reporting entities with higher fill rates of executable NMLOs (including 

limit orders submitted with stop prices and at-and-beyond-the-midpoint NMLOs). Market 

participants will have access to information about the extent to which a NMLO did not execute 

or executed after a large number of shares executed elsewhere in the market, despite the fact that 

the NMLO was executable. In order to attract this order flow, reporting entities will need to 

improve their ability to achieve executions for executable NMLOs. Market centers can achieve 

higher fill rates for NMLOs, for example, by reducing access fees to encourage more marketable 

orders to execute against resting NMLOs, or by discouraging excessive submissions and 

cancellations of NMLOs, for example by instituting or raising excessive messaging fees.1583 

Broker-dealers can achieve higher fill rates for NMLOs by improving their order routing 

methods and by routing orders to market centers that achieve higher fill rates for NMLOs. 

Reporting entities will be required to report the cumulative number of shares both across all 

market centers, as well as only across national securities exchanges. The Commission agrees 

with a commenter that information about the cumulative number of shares executed regular way 

on national securities exchanges will be useful for market participants because it will exclude 

liquidity that potentially was not accessible to a reporting entity.1584 

 

1583  See, e.g., Price List – Trading Connectivity, NASDAQ, available at 

https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2 (last visited Feb. 1, 2024, 3:52 P.M.), which 

describes how one market center charges its members a penalty for exceeding a certain “Weighted Order-

to-Trade Ratio.” 

1584  See FIF Letter at 22. For example, there are difference in fair access rules between national securities 

exchanges and other trading venues, such as ATSs. 



457 

Furthermore, the adopted amendment requiring the reporting of the number of orders that 

received either a complete or partial fill will provide important additional information about the 

nature of a market center or broker-dealer’s NMLO and stop order executions—e.g., whether a 

high executed cumulative count represents, on average, larger execution sizes or a higher count 

of orders receiving executions.1585 

(3) Improvements to Accessibility 

Execution quality will also increase as a result of the adopted amendment requiring 

reporting entities to prepare human-readable summary reports,1586 as market participants will be 

better able to use information from Rule 605 reports to compare execution quality across 

reporting entities and competition among reporting entities on the basis of execution quality will 

increase as a result. The data generated under Rule 605 are complex, and the raw data may be 

difficult for some market participants to interpret and aggregate. Specifically individual 

investors, who may be less likely to have access to the resources to retrieve and process the raw 

data in Rule 605 reports, will be better able to access information from Rule 605 reports to 

compare execution quality across larger broker-dealers, which will increase the extent to which 

these broker-dealers will need to compete on the basis of execution quality to attract and retain 

these customers.  

 

1585  For example, say that a reporting entity discloses in its Rule 605 reports that it received 100 orders sized 

100 round lots or greater in a stock with a 100-share round lot, and that these orders had a cumulative 

number of shares of 1,000,000, and furthermore that it executed 990,000 of those shares. Information on 

the number of complete or partial fills would help to clarify whether the reporting entity, e.g., executed 99 

orders of 10,000 shares each, or a single order of 990,000 shares. 

1586  See final 17 CFR 242.605(a)(2).  



458 

The usefulness of summary reports particularly for individual investors was supported by 

several commenters.1587 However, other commenters stated that summary reports could be 

misleading if they do not allow investors to control for potential differences in reporting entities’ 

order flow characteristics when assessing execution quality.1588 The Commission agrees that 

differences in execution quality can be driven by differences between reporting entities other 

than differences in their skills at handling and/or executing orders, such as differences in the 

characteristics of their order flow,1589 and thus recognizes that it is important to strike a balance 

between sufficient aggregation of orders to produce statistics that are meaningful and sufficient 

differentiation of orders to facilitate fair comparisons of execution quality across reporting 

entities.1590 The statistics required in the summary reports will strike this balance. First, market 

participants will be able to control for the average order sizes handled by a particular market 

center in several ways. For example, the summary reports will allow market participants to 

examine execution quality statistics separately for different notional order size buckets,1591 as 

well as to control for the average notional order size within each order size bucket.1592 Second, 

information about realized spreads will allow market participants to control for differences in 

 

1587  See, e.g., Vanguard Letter at 4; Nasdaq Letter at 46; Fidelity Letter at 1; NASAA Letter at 6.  

1588  See, e.g., Virtu Letter at 6; Rule 605 Citadel Letter at 4. Another commenter, while agreeing with the 

Commission’s intent of “enhanced disclosure,” was critical of the summary report as proposed, stating that 

it “fails to allow for an apples-to-apples comparison, which directly subverts the Commission’s stated 

goals.” Schwab Letter at 31.  

1589  See supra note 984 for an example of how differences in order flow characteristics can impact inferences 

about execution quality. 

1590  See, e.g., Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000). 

1591  See final 17 CFR 242.605(a)(2).  

1592  See final 17 CFR 242.605(a)(2)(ii). The inclusion of average notional order size in the summary reports 

was suggested by a commenter, who stated that, “since a broker’s average order size can impact its average 

execution quality metrics, providing this transparency to users of the Summary Report will mitigate the 

potential for misinterpretation of the data and better inform individual investors when they compare 

brokers.” Schwab Letter II at 3. 



459 

reporting entities’ order handling practices during times of market stress or high adverse 

selection.1593  

In a change from the proposal, the amended rules require the use of CSV and PDF 

formats for the summary report, rather than XML and PDF formats as proposed.1594 One 

commenter recommended the use of CSV rather than XML for the summary reports, stating that 

CSV “would allow investors to compare summary data across firms more readily.”1595 Like 

XML and PDF, CSV is an “open standard,” a term that is generally applied to technological 

specifications that are widely available to the public, royalty-free, at no cost. Many investors and 

other members of the public may find a CSV file format preferable to an XML file format 

because the data can be more readily viewed and analyzed in widely used spreadsheet 

applications. Replacing the proposed XML format requirement with a CSV format requirement 

will likely facilitate use of the summary reports, thereby heightening the transparency benefits 

that the summary reports will create.1596 

Unlike the CSV format, the PDF format is generally meant for a human reader rather than 

for a machine reader. Requiring market centers and broker-dealers to post a PDF version of the 

summary report will allow an individual human reader to open and read a summary report 

without having to download the data into a spreadsheet or other analytical program. This will 

 

1593  As suggested by commenters, information about average realized spreads may also allow market 

participants to control for potential differences in order flow characteristics. See, e.g., FIF Letter at 32; 

Schwab Letter II at 3. One commenter specifically mentioned the extent to which market participants 

classify order flow as informed and the size of an order relative to the ADV of a stock as examples of such 

order characteristics. See FIF Letter at 32. 

1594  See final 17 CFR 242.605(a)(2). 

1595  See FIF letter at 5, 32. 

1596  The efficiency of processing and analyzing summary reports may further increase if a third-party 

determined to provide a centralized location from which market participants can retrieve all summary 

reports. See, e.g., Regulatory Notice. 



460 

make the information in the summary reports accessible to a broader range of individual users. In 

addition, because PDF documents are presented consistently across websites, operating systems, 

and applications, the PDF requirement will provide individual human readers with more 

comparable summary reports and facilitate their understanding of the reported summary 

execution statistics.  

Requiring market centers to post summary reports in two formats (PDF and CSV) will 

permit market participants to use the summary reports for a variety of different purposes. For 

example, a retail investor could use the PDF version of a market center’s latest summary report 

to easily identify the percentage of shares executed at the quote or better at that market center. 

By contrast, a broker-dealer assessing its own order routing practices could download the CSV 

versions of 10 different market centers’ summary reports in each of the preceding 12 months, 

and identify which of those market centers had consistent month-to-month increases in 

percentage of shares executed at the quote over that period. 

c) Other Benefits from Increased Competition 

To the extent that these amendments to Rule 605 increase incentives for reporting entities 

to compete in areas other than improved execution quality, customers may benefit from 

improvements that are not directly related to execution quality, such as lower fees, higher 

rebates, new products or functionalities, or better customer service. Improvements in areas other 

than execution quality because of the increase in competition among reporting entities may be 

either complementary to or a substitute for improvements in execution quality. Investors are 

more likely to see an overall benefit from these amendments to the extent that these 

improvements are complementary. Furthermore, to the extent that these amendments increase 

competition in related markets, market participants may benefit from lower costs and/or461 

improved quality in these markets. For example, the quality of TCA reports may improve if their 

publishers need to offer better products to compete with the publicly available data under Rule 

605. 

d) Potential Limitations to Benefits 

There are certain factors, however, that could limit the benefits of these amendments for 

transparency and competition, which could limit the effectiveness of these amendments in 

improving execution quality. 

(1) Effect on Smaller Broker-Dealers 

The expanded scope of Rule 605 includes only larger broker-dealers. Hence, investors, as 

they gain transparency into the execution at these larger broker-dealers, may route more 

transactions to these broker-dealers at the expense of smaller broker-dealers who are not 

included in the scope of Rule 605. That said, smaller broker-dealers may gain a competitive 

advantage relative to larger broker-dealers, as they will not incur the compliance costs of 

preparing Rule 605 reports. Also, increased levels of competition among larger broker-dealers 

may spill over to affect smaller broker-dealers, as their customers may expect more transparency, 

and smaller broker-dealers will continue to be able to publish ad hoc execution quality reports 

that focus on execution quality metrics in which they perform well.1597 Altogether, the 

cumulative effects on smaller broker-dealers, who handle only a fraction of all customer 

accounts and a minority of orders,1598 and whose customers may be more likely to be 

 

1597  These information asymmetries are described in more detail in supra section IX.C.1.a). 

1598  See infra section IX.E.1.a) for a discussion of an analysis showing that broker-dealers with 100,000 

customers or greater handled 59.5% of customer orders and 98.3% of customer accounts identified in the 

data sample. If these smaller broker-dealers attract enough customers such that they represent a more 

significant fraction of orders, it is likely they will also subsequently fall above the customer account 

threshold and be required to begin publishing Rule 605 reports.  



462 

institutional investors (who have alternative sources of information about their broker-dealers’ 

execution quality)1599 are likely to be small, and limiting the scope of Rule 605 to larger broker-

dealers is designed to achieve the competitive effects discussed in prior sections.1600  

One commenter stated that smaller broker-dealers could be disadvantaged by not being 

required to prepare Rule 605 reports, which could lead to the “further concentration and 

funneling of customer order flow among a small portion of broker-dealers.” The commenter 

stated that “[p]roviding execution quality reports constitute a significant advantage…and could 

be a tipping point in their decision to part away with their current broker-dealer.”1601 As 

discussed above, it is also possible that smaller broker-dealers may gain a competitive advantage 

in the form of lower costs because of not having to prepare Rule 605 reports. To the extent the 

smaller broker-dealers are disadvantaged by not making Rule 605 reports available, there is 

nothing that precludes them from preparing and publishing reports that comply with Rule 605 

requirements.1602 However, the Commission acknowledges that it is possible that, because of 

these amendments, smaller broker-dealers that are unable,1603 or choose not, to offer the same 

levels of transparency as larger broker-dealers may lose customers to larger broker-dealers for 

which better execution quality information is available, which may cause some smaller broker-

 

1599  See discussion infra section IX.E.1.a). 

1600  See supra section IX.D.1.a)(1) for a discussion of the effects of the amendments expanding the scope of 

reporting entities to include larger broker-dealers on competition among broker-dealers on the basis of 

execution quality. 

1601  See Letter from JT at 1-2. 

1602  The costs for smaller broker-dealers to prepare execution quality reports may not be the same as the costs 

for larger broker-dealers. See infra section IX.D.2.b)(2) for further discussion. 

1603  For example, if investors make use of third-party summaries of Rule 605 reports, these summaries may not 

incorporate execution quality information outside of “official” Rule 605 reports. In that way, smaller 

broker-dealers may be unable to offer the same level of transparency even if they prepare an execution 

quality report containing all of the information and according to the exact specifications of Rule 605.  



463 

dealers to exit the market.1604 The Commission is unable to quantify the likelihood that a 

brokerage firm will cease operating because of an inability to compete with the transparency 

offered by larger broker-dealers, and commenters did not provide data that would support such 

an analysis. Even if some smaller broker-dealers were to exit, the Commission does not believe 

this will significantly impact competition in the market for brokerage services because the 

market is served by a large number of broker-dealers.1605 The Commission recognizes that 

smaller broker-dealers may have unique business models that are not currently offered by 

competitors, but other broker-dealers, including new entrants, could create similar business 

models if demand is adequate. 

One commenter stated that excluding smaller broker-dealers from reporting requirements 

means that “only 6.7% of broker-dealers” would be subject to reporting requirements, and 

“[c]ustomers who use smaller broker-dealers are just as entitled to information about how their 

orders are or may be handled as customers who use larger broker-dealers.”1606 The Commission 

agrees that lowering the threshold would be beneficial if more broker-dealer customers are able 

to benefit from the adopted modifications to reporting entities; however, an analysis shows that a 

customer account threshold of 100,000 customer accounts includes more than 98% customer 

accounts, and that those customers whose accounts are not included are more likely to be 

institutional investors, who have alternative sources of information about their broker-dealers’ 

execution quality.1607  

 

1604  This was also acknowledged in the Proposing Release. See Proposing Release, 88 FR 3786 at 3876 (Jan. 

20, 2023). 

1605  See supra section IX.C.4.a)(1) for a discussion of the current structure of the market for brokerage services. 

1606  See Robinhood Letter at 45. 

1607  See discussion infra section IX.E.1.a). 



464 

The same commenter also stated that limiting the Rule 605 reporting requirements to 

larger broker-dealers would “create an information gap about new entrants to the retail broker-

dealer space where there may be a greater need to see data about execution quality.”1608 As stated 

above, it is possible that an increase in competition among larger broker-dealers on the basis of 

execution quality may spill over to affect smaller broker-dealers, as their customers may expect 

more transparency;1609 this could be true of new entrants to the market for brokerage services as 

well. If this occurs, then customers of new entrants may also benefit from increased 

transparency. However, absent the standardized reporting standards under Rule 605, new 

entrants may be able to publish ad hoc execution quality reports that focus on execution quality 

metrics in which they perform well, and thus it is possible that these customers may continue to 

face some information asymmetries.1610 As described above, this is expected to be a minority of 

customers.1611 

(2) Switching Costs 

The effects of these amendments to Rule 605 on competition among reporting entities 

may be limited if investors incur high costs to switch between broker-dealers, and/or if broker-

dealers incur costs to switch between market centers in response to information about execution 

quality. To the extent that competition among reporting entities on the basis of execution quality 

 

1608  See Robinhood Letter at 45. 

1609  See also Proposing Release, 88 FR 3786 at 3876 (Jan. 20, 2023).  

1610  These information asymmetries are described in more detail in supra section IX.C.1.a). 

1611  See supra note 1599 and corresponding text. 



465 

is limited, this could limit the extent to which execution quality will improve as a result of these 

amendments. 1612 

First, if the costs for customers to switch broker-dealers are significant,1613 this will limit 

the extent to which Rule 605 promotes competition among broker-dealers on the basis of 

execution quality. However, switching costs for both individual and institutional investors may 

be limited. For example, institutional investors are likely to have multiple broker-dealers, which 

facilitates the transfer of business to better-performing broker-dealers, and, for individual 

investors, transferring between retail brokers may be less costly, for example, because some 

retail brokers will compensate new customers for transfer fees that their outgoing broker-dealer 

may charge them.1614  

Second, the presence of switching costs that broker-dealers incur from changing the 

primary trading venues to which they route orders1615 may limit the effects of these amendments 

on competition among market centers. However, the Commission expects this to be less of an 

issue for the larger broker-dealers that will be required to produce Rule 605 reports,1616 as these 

 

1612  The effect of switching costs on competition may also depend on the variability of reporting entities’ 

execution quality over time. For example, if the execution quality of any given reporting entity varies 

significantly over time, customers of those reporting entities may find it optimal to switch between 

reporting entities with some frequency, which would increase their overall switching costs. On the other 

hand, if the execution quality of reporting entities is relatively constant over time, the number of times that 

a customer will optimally want to switch between reporting entities will likely be more limited, and in this 

case switching costs may be a relatively small and/or short-term friction. 

1613  See supra section IX.C.4.a)(1) for a discussion of costs related to switching broker-dealers. 

1614  See supra note 1289 for an example. 

1615  See supra section IX.C.4.b)(2) for discussions of costs broker-dealers may face when switching trading 

venues. 

1616  The competitive effects of these amendments will principally accrue to larger broker-dealers, who will be 

required to prepare Rule 605 reports, and thus will be the most likely to be incentivized to switch market-

centers as a result of additional information about market center execution quality. However, these effects 

may spill over to smaller broker-dealers as well per the discussion in supra section IX.D.2.b)(2). For these 

smaller broker-dealers, switching costs may be more binding. 



466 

broker-dealers will likely face lower switching costs. For example, larger broker-dealers are 

likely already connected to multiple national securities exchanges. They are experienced with 

routing order flow across a larger variety of market centers and/or have sufficient bargaining 

power to renegotiate any agreements that they might have with individual market centers. 

(3) Limited Usage and Search Costs 

The benefits of these amendments to Rule 605 for transparency, competition, and 

execution quality may be limited if market participants are not likely to make use of the 

additional information available under these amendments, e.g., because this information is 

difficult to access or is not useful to market participants due to the availability of other sources of 

information about execution quality.  

For example, investors currently have access to information about the execution quality 

achieved by their broker-dealers for their not held orders,1617 which in certain circumstances may 

be more relevant for institutional investors than aggregate information about the execution 

quality of broker-dealers’ held orders1618 and may lead to a low usage rate by institutional 

investors of larger broker-dealers’ Rule 605 reports. This could limit the benefits of these 

amendments for competition in the market for institutional brokerage services. However, to the 

extent that institutional investors’ alternative sources of execution quality information do not 

contain information about all of their relevant orders, and/or cannot be easily used to compare 

across broker-dealers with which an investor does not do business,1619 these amendments will 

likely impact competition for institutional brokerage services as well.  

 

1617 See supra note 1003 and accompanying text discussing broker-dealers’ requirements under Rule 606(b)(3) 

to provide individualized reports of execution quality upon request for not held orders. 

1618  See supra section IX.C.4.a)(1)(b) for a discussion of institutional investors’ usage of not held orders. 

1619  See discussion in supra section IX.C.2.c).  



467 

Furthermore, the volume and complexity of data produced by Rule 605 reports (i.e., both 

the number of rows and columns of Rule 605 reports) will increase as a result of the amendments 

modifying the coverage of orders and expanding the information required by Rule 605.1620 As 

stated by some commenters,1621 both of these factors may make the evaluation of the raw data in 

Rule 605 reports costlier. One commenter stated that “[f]urther transparency that generates costs, 

but if not used by customers, is a waste of resources and ultimately would create costs without 

any real benefits.”1622 The Commission disagrees that the amended rule will result in costs 

without any benefits. The amended rule will result in numerous benefits described above. 

Furthermore, the increase in complexity of Rule 605 reports is not likely to significantly reduce 

the benefits of the amended rule. The Commission agrees with a commenter’s statement that, 

since they are designed to be machine-readable, increasing the number of rows in Rule 605 

reports is not likely to significantly increase market participants’ cost to process and interpret 

these reports.1623 Market participants that currently have the resources to process and analyze the 

raw data contained in Rule 605 reports are likely to have the resources to process and analyze the 

additional data elements. To the extent that some investors may not have access to the resources 

 

1620  For example, dividing each notional order size bucket up into further categories to capture lot type will 

increase the complexity of Rule 605 reports by increasing the number of rows. 

1621  See, e.g., Robinhood Letter at 41-42, stating that “the volume and complexity of Rule 605 reports would 

only increase if Proposed Rule 605 were adopted because more market participants, more orders, and more 

statistics would be included in the reporting, making them even harder to read;” Data Boiler Letter, stating 

that the proposed statistics were “overly complicated for the average investors to digest;” Tastytrade Letter 

at 4, stating that “under the new proposal by the Commission, 605 reports would expand to thirty-seven 

columns wide and forty-two rows deep. That will result in 1,554 data points per ticker on a universe of 

approximately 10,000 NMS traded products.”  

1622  See Tastytrade Letter at 5. 

1623  See, e.g., FIF Letter at 16, stating that “[a]dding rows and columns to the Rule 605 report, within reason, 

would not materially increase the costs of processing these reports and storing the relevant data,” and that 

“[the Rule 605 report] is intended to be machine-readable, not human-readable.” 



468 

to directly analyze the raw Rule 605 data as a result of its increase in complexity,1624 the 

Commission expects that independent analysts, consultants, broker-dealers, the financial press, 

academics, and market centers will continue to respond to the needs of investors by analyzing the 

disclosures and producing more digestible information using the data.1625 This was supported by 

one commenter, who stated that “even though a certain percentage of retail investors may not 

read the Rule 605 reports, they will still benefit indirectly as the enhanced disclosure will 

promote competition, improve regulatory oversight, and facilitate use by third-party researchers 

and academics.”1626  

The benefits of these amendments to Rule 605 for transparency, competition, and 

execution quality may also be limited by the presence of search costs. These amendments are 

expected to increase the number of Rule 605 reporting entities from 228 to 343.1627 Market 

participants that demand a complete or mostly complete set of Rule 605 reports will need to 

search through and download reports from a greater number of websites, which will increase 

their search costs.1628 If, in order to avoid this increase in search costs, market participants do not 

incorporate execution quality information from the additional reporting entities into their search 

or analysis of Rule 605 reports, this will limit the benefits of the expansion of Rule 605 reporting 

entities.  

 

1624  See supra section IX.C.2.b) for a discussion of the difficulties that individual investors may face when 

accessing Rule 605 reports. 

1625  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press. 

1626  See Better Markets Letter at 9-10. 

1627  See supra section VIII.C for a description of these estimates. 

1628  See supra section IX.C.3.d) for a discussion of the search costs associated with collecting information from 

Rule 605 reports. 



469 

(4) Liquidity Externalities 

The effects of these amendments to Rule 605 on competition among market centers may 

be limited by the development of liquidity externalities, or the consolidation of liquidity on a few 

dominant market centers.1629 Under such circumstances, while the consolidation of liquidity on 

market centers offering superior execution quality may benefit market participants in the short 

run,1630 it may also lead to barriers to entry in the market for trading services, as new entrants 

may have a harder time attracting sufficient liquidity away from established liquidity centers. 

This could also lead to consolidation or exit by smaller market centers. This could have the effect 

of reducing competition in the market for trading services. The Commission is unable to quantify 

the likelihood that some smaller market centers will cease operating, and commenters did not 

provide data to support such an analysis.  

(5) Dimensions of Execution Quality Not Captured by Rule 

605 Reports 

The expected benefits from these amendments to Rule 605 may be lessened to the extent 

that there are dimensions of execution quality not captured by Rule 605 reports which drive 

order handling decisions. For example, the ability of customers and/or traders to remain 

 

1629  For theoretical discussions of liquidity externalities, see Marco Pagano, Trading Volume and Asset 

Liquidity, 104 Q. J. ECON. 255 (1989); Ananth Madhavan, Consolidation, Fragmentation, and the 

Disclosure of Trading Information, 8 REV. FIN. STUD. 579 (1995). 

1630  There is a large body of academic literature that examines the benefits to traders from the consolidation of 

liquidity. See, e.g., H. Mendelson, Consolidation, Fragmentation, and Market Performance, 22 J. FIN. AND 

QUANTITATIVE ANALYSIS 189 (1987), in which the author finds that “fragmentation reduces the expected 

quantity traded, increases the price variance faced by individual traders, and reduces the expected gains 

from trade.” See also Pagano, supra note 1629, in which the author finds that the concentration of liquidity 

is generally more efficient than fragmentation, and Madhavan, supra note 1629, in which the author finds 

that “fragmentation results in higher price volatility and violations of price efficiency.” At the same time, 

there is also a large body of literature examining the competitive benefits of fragmentation; see, e.g., T. 

Hendershott & H. Mendelson, Crossing Networks and Dealer Markets: Competition and Performance, 55 J. 

FIN. 2071 (2000); B. Boehmer & E. Boehmer, Trading Your Neighbor’s ETFs: Competition or 

Fragmentation?, 27 J. BANKING & FIN. 1667 (2003). 



470 

anonymous or limit information leakage may not be a dimension that is easily discernible from 

looking at Rule 605 data, though it is a feature of execution quality that may be valued by some 

investors.1631  

Furthermore, the extent to which the reported statistics are perceived as an insufficiently 

timely proxy for a reporting entities’ ability to secure favorable executions may dampen the 

benefits of these amendments for execution quality. This may happen if, for example, future 

market developments render the monthly reporting requirement too infrequent to be useful. 

In this vein, one commenter stated that policymakers should not “prescribe or endorse 

certain statistical benchmarks,” because “other shopping comparisons emphasize different 

aspects, such as customer service,”1632 and that “one group may prefer one set of benchmarks 

that make their brands look better.”1633 This commenter instead stated that, “[i]f any constituent 

including the regulators want to have comprehensive metrics produced, let’s have the vendors 

compete for their business.”1634 The Commission agrees with the commenter that different 

market participants may have preferences for different aspects of execution quality, and 

 

1631  See, e.g., Carole Comerton-Forde & Kar Mei Tang, Anonymity, Liquidity and Fragmentation, 12 J. FIN. 

MKT. 337 (2009), who found evidence of a migration in order flow from the non-anonymous New Zealand 

Exchange (NZX) to the Australian Stock Exchange after the latter increased anonymity by removing broker 

identifiers from the central limit order book. 

1632  See Data Boiler Letter II at 1. Another commenter similarly stated that the use of the summary reports to 

compare across broker-dealers could be misleading if they do not account for “other aspects of the services 

that brokers provide or offer, including fees, interest rates, commissions, ease of use, customer service, 

accessibility, tools, and educational resources.” Virtu Letter at 11. 

1633  See Data Boiler Letter II at 1. This commenter also stated that they did not support the prescription or 

endorsement of statistical benchmarks because “[s]ome benchmarks use the average rather than the median 

(tail risk).” The Commission agrees that statistics calculated using the median rather than the mean is often 

preferred when dealing with data that contain extreme outliers, such as some of the data being collected 

under Rule 605 (such as time-to-execution). However, as stated by another commenter, medians are 

problematic in that they cannot be aggregated across rows. See FIF Letter at 21-22; see also infra section 

IX.E.3.b)(1) for further discussion. 

1634  See Data Boiler Letter II at 1. 



471 

acknowledges that not all of these aspects may be included in Rule 605 reports as amended. The 

Commission also acknowledges that, to the extent that this causes market participants to focus on 

some dimensions of execution quality to the detriment of others, these amendments may reduce 

execution quality along certain dimensions that may be relevant to some investors.1635 The 

Commission also recognizes that the different reporting entities may also have a preference for 

those benchmarks that make them look the most favorable.1636 However, rather than being 

exacerbated by the “prescription” of standardized metrics, having a standardized set of execution 

quality metrics will alleviate this concern by requiring the disclosure of metrics that market 

participants are able to compare across reporting entities using the same set of metrics. It is 

unlikely that a set of standardized metrics will result from a competitive environment, for the 

reasons described in the Market Failures section.1637  

e) Interacting Benefits of the Final Rule and the MDI Rules  

The Commission received a comment stating that the MDI Rules, once implemented, 

could have positive interacting effects with the final Rule 605 amendments.1638 The Commission 

anticipates that the additional information contained in consolidated market data once the MDI 

Rules are implemented will allow more informed order routing decisions. This in turn will help 

facilitate best execution, which will reduce transaction costs and increase execution quality.1639 

 

1635  See infra section IX.D.2.b)(3) for further discussion. 

1636  See supra section IX.B for further discussion. 

1637  See supra note 976 and corresponding text. 

1638  See Robinhood Letter at 39 (“The SEC contemplates that amending Rule 605 could improve execution 

quality, including by improving execution prices, execution speeds, size improvement, and fill rates. . . 

These potential benefits are likely enhanced when combined with the anticipated effects of the pending 

MDI Rules and our recommended changes regarding the Tick Size Proposal. . . the MDI Rules, by 

adjusting round lot sizes and enhancing the information displayed on the consolidated market data feeds, 

are expected to increase competition and encourage price improvement”); id. at 40. 

1639  See section IX.C.1.c)(2), infra, discussing benefits and costs based on implementation assumptions. 



472 

However, given that the MDI Rules have not yet been implemented, data that will be required for 

a quantitative analysis of a baseline that includes the effects of the MDI Rules, and of the 

benefits of the final Rule 605 amendments with new baseline assumptions, are not available. 

Instead, the Commission has included assumptions about the effect of the MDI Rules in its 

baseline and has analyzed the benefits and costs relative to this baseline.1640  

2. Costs 

As discussed in detail below, the Commission recognizes that these amendments to Rule 

605 will result in initial and ongoing compliance costs to reporting entities. The Commission 

quantifies the costs where possible and provides qualitative discussion when quantifying costs is 

not feasible. Most of the compliance costs related to these amendments to Rule 605 involve a 

collection of information, and these costs are discussed above in relation to the expected burdens 

under the Paperwork Reduction Act, with those estimates being used in the economic analysis 

below.1641 

a) Compliance Costs 

The majority of costs related to these amendments to Rule 605 will be in the form of 

compliance costs, including both initial and ongoing. Table 9 provides a summary of the 

estimated change in compliances costs1642 resulting from these amendments. The majority of 

both initial and ongoing compliance costs will be related to expanding the scope of reporting 

entities. However, a significant portion of initial compliance costs will also result from the 

 

1640  See id. 

1641  See supra section VIII for a discussion of how these amendments will create burdens under the PRA. 

1642  The discussion in section VIII.D considers the total expected ongoing compliance costs for all reporting 

entities, both new respondents and prior respondents. To focus on the costs that will directly follow from 

these amendments, this section focuses on the expected change in ongoing costs, which excludes the 

portions of ongoing costs that prior respondents incurred prior to these amendments. 



473 

amendments modifying the coverage of orders and information required by Rule 605, as market 

centers that were required to prepare Rule 605 reports (“prior reporters”) will need to update 

their systems, and additionally some new market centers trading in fractional shares will be 

required to report. Lastly, compliance costs resulting from the amendment requiring reporting 

entities to prepare summary execution quality reports will mostly be ongoing. 

Table 9: Estimated Aggregate Compliance Costs, by Cost Category 

Cost Category 
Initial Aggregate 

Compliance Costs 

Ongoing Aggregate 

Compliance Costs 

Expanding the Scope of Reporting 

Entities 
$3.8 million $4.9 million 

Modifications to Information Required $3.6 million $5.3 million 

Proposed Summary Execution Quality 

Reports 
$1.8 million $1.1 million 

Total $9.3 million $11.3 million 

This table presents estimates of the compliance costs related the to three broad categories of the amendments to Rule 605 

(expanding the scope of reporting entities, modifications to the coverage of orders and information required, and requiring the 

preparation of summary reports). Numbers are based on the estimated number of respondents and PRA costs in sections 

VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision. Further breakdowns of 

these estimates are presented in Tables 10, 11, and 12. 

Table 9 further breaks aggregate compliance costs down into three separate categories – 

costs related to the expansion of reporting entities, costs related to modifications to information 

required, and costs related to the preparation of summary execution quality reports.  

Estimates for the costs in each of these categories depend on a number of factors, including 

wages, inflation, and firm size, and the Commission acknowledges that the aggregate costs 

presented may be underestimated to the extent that wages and/or inflation are higher than those 

used in the estimation. Meanwhile, costs in each of these categories may also be overestimated if 

reporting entities are able to more cost-effectively contract with third-party vendors to prepare 



474 

their reports.1643 Due to their ability to leverage their technical expertise and potential economies 

of scale, third-party vendors may be able to prepare Rule 605 reports for a lower cost than if each 

individual reporting entity prepares its own report, and could pass these lower costs on to their 

customers, resulting in lower compliance costs. However, the Commission is unable to know the 

percentage of entities that made use of third-party vendors to prepare their Rule 605 reports prior 

to these amendments, nor the percentage of entities that will make use of third-party vendors 

following these amendments. Therefore, the Commission is basing its compliance cost estimates 

on the highest of its estimated costs to prepare of Rule 605 reports in order to be conservative, 

which is equivalent to the cost of in-house preparation of Rule 605 reports ($51,648 per 

respondent per year).1644  

(1) Compliance Costs Related to Expanding the Scope of Rule 

605 Reporting Entities 

As a result of the amendments expanding the scope of Rule 605 reporting entities, market 

centers and broker-dealers that were not required to publish Rule 605 reports prior to these 

amendments will incur initial costs to prepare and post Rule 605 reports for the first time, which 

may include developing any policies and procedures that may be needed to do so, and ongoing 

costs to continue to prepare them each month. Larger broker-dealers will incur initial and 

ongoing compliance costs as a result of the amendment expanding the scope of Rule 605 

reporting entities to include larger broker-dealers. Similarly, the amendments requiring reporting 

 

1643  The Commission estimates that, while preparing in-house reports will result in an annualized ongoing cost 

of $51,648 per respondent, contracting with a third party to prepare Rule 605 of their behalf will result in 

an annualized ongoing cost of between $36,000 and $42,000 per respondent. See supra note 957 and 

corresponding text. The Commission uses the higher estimate of in-house reporting in the present analysis 

to obtain a more conservative estimate of potential costs. 

1644  See supra note 1643. 



475 

entities to prepare separate reports for their SDPs will result in market centers that, prior to these 

amendments, were not required to prepare Rule 605 reports facing initial and ongoing 

compliance costs. The Commission estimates that 85 broker-dealers, along with 10 SDPs 

operated by broker-dealers,1645 will be required to start publishing Rule 605 reports as a result of 

the amendment expanding the scope of Rule 605 reporting entities.1646 Table 10 breaks down the 

initial and ongoing compliance costs associated with these two types of reporting entities. 

Table 10: Estimated Aggregate Compliance Costs Related to Proposed Expansion of Rule 

605 Reporting Entities 

 Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing 

Aggregate 

Compliance Costs 

Broker-Dealers 85a $3.4 million b $4.4 million c 

SDPs 10d $0.4 million d $0.5 million c 

Total 95 $3.8 million $4.9 million 

This table presents estimates of the compliance costs related to the amendments to Rule 605 expanding the scope of reporting 

entities. Numbers are based on the estimated number of respondents and PRA costs in sections VIII.C and VIII.D supra and 

have been rounded to the nearest tenth of million to avoid false precision.  
a The number of new broker-dealer respondents is estimated using data from 2022 FOCUS Report Form X-17A-5 Schedule I 

filings and CAT, according to the procedure described in detail in infra note 1743.  
b The estimate of initial compliance costs to new reporters is based on the monetized initial burden in supra note 955 for new 

respondents, assuming that these respondents will incur 100 initial burden hours at an average hourly cost of ($40,150/100 

hours) = $401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to new reporters is based on the monetized annual burden in supra note 952 for 

new respondents, assuming that these respondents will incur 11 ongoing burden hours per month at an average hourly cost of 

($51,648/(11 hours * 12 months)) = $391.00 per respondent per hour. 
d The Commission does not have knowledge of the number of SDPs in operation and therefore has chosen a conservative 

estimate of 10 SDPs operated by broker-dealers.  

New reporters will face one-time, initial compliance costs to prepare Rule 605 reports for 

the first time, which may include costs to develop and implement procedures. It is likely that the 

 

1645  See infra section IX.E.1.a) for a discussion of the estimated number of larger broker-dealers (i.e., broker-

dealers that introduce or carry customers above a threshold number of customer accounts), that will be 

required to prepare execution quality reports pursuant to final Rule 605, defining the customer account 

threshold as 100,000 customer accounts. 

1646  In addition, the Commission estimates that 20 market centers that trade exclusively in fractional shares will 

be required to prepare Rule 605 reports for the first time. See infra section IX.D.2.a)(2) for a discussion of 

the expected compliance costs for these reporting entities.  



476 

majority of these costs will relate to the development of systems to obtain, store and process the 

data required for Rule 605 reports. 

Larger broker-dealers that generally or exclusively route orders away will need to obtain 

information, such as the time of order execution and execution price, from trade confirmations 

provided by the execution venue. In addition, both broker-dealers and market centers will need to 

match their order information to historical price and depth information available via the 

exclusive SIPs or, following the implementation of the MDI Rules, competing consolidators,1647 

to determine the NBBO (and/or best displayed) quote and size at the time of order receipt (or 

executability) and at the time of order execution, and use this data to calculate the required 

statistics.1648 These new reporters likely retained most, if not all, of the underlying raw data 

necessary to generate these reports in electronic format prior to these amendments, or obtained 

this information from publicly available data sources, and calculated similar measures to those 

that will be required under Rule 605 for their own internal purposes prior to these 

amendments.1649 However, as a result of the amendments, new reporters may have to acquire or 

develop data specialists and/or programmers to the extent that the information required by Rule 

605 is different or more complex than the information that the new reporters typically process, 

and/or acquire legal specialists to help ensure compliance with Rule 605. 

 

1647  See supra section IX.C.1.c)(2) for a discussion of the unimplemented MDI Rules. 

1648  For example, a broker-dealer that routes an order away for execution will receive time of order execution 

and execution price as part of the trade confirmation provided by the execution venue. The broker-dealer 

can then use historical price information available via the exclusive SIPs to determine the NBBO at the 

time of order receipt and at the time of order execution, the number of shares displayed at the NBBO, and 

the best available displayed price, if such price is being disseminated, and use this data to calculate the 

required execution quality statistics. With respect to NMLOs, the broker-dealer can also use this historical 

price information available via the exclusive SIPs to determine when the order became executable, based 

on when the NBBO first reached the order’s limit price. 

1649  For example, broker-dealers may calculate similar measures as part of their Best Execution Committees’ 

periodic review. See supra note 1100 and accompanying text. 



477 

One commenter stated that requiring larger broker-dealers to newly prepare Rule 605 

reports will be costly because “[t]his is not a type of report that broker-dealers that are not also 

market centers generally prepare.”1650 Another commenter stated that the broad scope of the 

proposed inclusion of larger retail broker-dealers will impose significant costs.1651 The 

Commission acknowledges that many larger broker-dealers will not have previous experience 

with preparing Rule 605 reports, and for that reason has allocated estimates of initial compliance 

costs to first-time reporters, including broker-dealers, that are higher than those allocated to prior 

reporters.1652  

These compliance costs related to expanding the scope of Rule 605 reporting entities may 

be under- or overestimated to the extent that larger broker-dealers, which are assumed to have 

the same ongoing compliance costs as market centers and the same initial and ongoing 

compliance costs as SDPs operated by broker-dealers, may experience higher or lower initial 

and/or ongoing costs than other types of reporting entities. For example, larger broker-dealers 

may incur higher initial costs to the extent that they did not obtain transaction information, such 

as the time of order execution and execution price, from trade confirmations provided by 

execution venues prior to these amendments, and therefore will need to develop the procedures 

for doing so. Broker-dealers may also face higher ongoing costs as compared to market centers 

that mostly execute the shares that they receive, if collecting information for trades executed at 

 

1650  See Robinhood Letter at 42. The commenter suggested that, rather than Rule 605 reports, broker-dealers 

should be required to submit expanded Rule 606 reports that contain information about execution quality. 

See infra section IX.E.5.b) for a discussion and the Commission’s response to this alternative.  

1651  See Cambridge Letter at 7. 

1652  Specifically, while the analysis in Table 9 assigns first-time respondents, such as larger broker-dealers, a 

per-respondent initial compliance cost of $40,150, the analysis in Table 10 assigns preexisting reporting 

entities, who have experience with preparing Rule 605 reports, a much lower initial per-respondent cost of 

$20,075.  



478 

away market centers is costlier than analyzing in-house trade information, e.g., because it results 

in delays in processing the trade information. On the other hand, larger broker-dealers may incur 

lower initial costs if they are more likely than market centers to have calculated similar measures 

as part of their Best Execution Committees’ periodic review prior to these amendments.1653 In 

addition, the Commission does not believe that there will be significant additional costs to 

collecting information for trades executed at away market centers, as given the monthly reporting 

frequency of Rule 605 reports, broker-dealers should have sufficient time to collect and process 

the information. Since it is not possible to determine whether larger broker-dealers will face 

higher or lower compliance costs than market centers, the Commission is conservatively 

estimating that broker-dealers will incur the same compliance costs as other types of reporting 

entities. 

Furthermore, many of the larger broker-dealers that will be newly included in the scope 

of reporting requirements have experience with filing Rule 605 reports prior to these 

amendments; e.g., because they operate an ATS, engage in market making, or are otherwise 

affiliated with market centers that filed Rule 605 reports prior to these amendments.1654 

Likewise, broker-dealers that operate SDPs could also have lower initial costs to the extent that 

these SDPs qualified as market centers that were required to publish Rule 605 reports prior to 

 

1653  See supra section IX.C.2.d); see, e.g., Virtu Letter at 11, stating that “many retail brokers already monitor 

execution quality on these and other order types excluded under current Rule 605 when measuring the 

execution quality provided by market centers.” 

1654  For example, based on larger broker-dealers’ answers in their Q4 2022 FOCUS Report Form X-17A-5 

Schedules I and II, the Commission estimates that 28 out of the 85 broker-dealers identified as introducing 

or carrying at least 100,000 customer accounts also engage in OTC or specialist market making activities. 

Specifically, 16 of these larger broker-dealers answered “Yes” to item 8075 of Schedule I, asking whether a 

respondent is registered as a specialist on a national securities exchange in equity securities, 19 of them 

reported non-missing gains or losses from OTC market making in exchange listed equity securities in item 

3943 of Schedule II, while 7 of them reported both OTC and specialist equity market maker activities. An 

analysis in the Proposing Release of Q4 2021 FOCUS Report Form X-17A-5 Schedules I and II found 

similar results. See Proposing Release, 88 FR 3786 at 3880, n.968 (Jan. 20, 2023). 



479 

these amendments. In both cases, these reporting entities can leverage this experience to prepare 

the reports for these additional lines of businesses more cost effectively. 

One commenter stated that “many broker-dealers outsource reporting,” and that “bringing 

that reporting in-house would be a substantial cost.”1655 The amended rule does not preclude 

larger broker-dealers from outsourcing the preparation of its Rule 605 reports by contracting 

with third parties. Broker-dealers that are scoped into Rule 605 reporting requirements will be 

able to continue to use third parties to prepare their execution quality metrics, to the same extent 

that they found it optimal to do so prior to these amendments. 

(2) Compliance Costs Related to Modifications to the 

Coverage of Orders and Information Required by Rule 605 

Reports 

As a result of the amendments modernizing and expanding the coverage of orders and 

information required by Rule 605 reports, reporting entities will incur initial compliance costs 

and additional ongoing compliance costs.1656 First, the estimated 228 prior reporters1657 will incur 

initial costs to update their systems to collect and store new information and to calculate 

modernized and additional metrics, as well as a potential increase in ongoing costs as a result of 

additional data that will need to be collected and stored.1658 Second, the adopted amendment 

 

1655  See TastyTrade Letter at 5. 

1656  This analysis compares the costs that will accrue to new reporting entities, including larger broker-dealers 

and SDPs, to a baseline world in which these entities do not have to publish Rule 605 reports. As such, this 

section does not consider the cost of the amendments modifying the coverage and information required by 

Rule 605 to apply to first-time reporting entities, as these entities instead will face the costs of initially 

developing systems to prepare Rule 695 reports (rather than, e.g., modifying existing systems). 

1657  See supra note 942 and accompanying text for a discussion of this estimate. 

1658  One commenter stated that “[a]dding rows and columns to the Rule 605 report, within reason, would not 

materially increase the costs of processing these reports and storing the relevant data.” FIF Letter at 16. If 

so, then this could be a mitigating factor to the Commission’s estimates of the increase in current reporting 

entities’ compliance costs.  



480 

expanding the coverage of order sizes included in Rule 605 to include orders for less than one 

share will result in an additional estimated 20 market centers that trade exclusively in fractional 

shares to be required to begin filing Rule 605 reports.1659 Third, the 16 national securities 

exchanges and 1 national securities association will be required to amend the Rule 605 NMS 

Plan to account for the new data fields required to be reported. Table 11 breaks down the 

associated initial and ongoing compliance costs. 

 

1659  Using a sample of CAT from Mar. 2022, the Commission identified 19 firm MPIDs that executed 

fractional shares during the sample time period that did not have a corresponding Rule 605 report; this was 

rounded up to 20 to be conservative. A similar analysis using a more recent sample of CAT data found 19 

firms that exclusively executed fractional shares for at least one month during calendar year 2023; 

however, an estimate of 20 firms has been maintained to be conservative. Based on FOCUS data from 

calendar year 2022, these firms are relatively large, with an average net capital of $1.75 billion, which is 

similar to the average net capital of all larger broker-dealers that meet the customer account threshold of at 

least 100,000 customer accounts ($1.6 billion). In fact, the Commission estimates that 15 of these market 

centers that exclusively execute fractional shares are also larger broker-dealers that meet the customer 

account threshold. This implies that there may be 5 broker-dealers that will be newly required to produce 

Rule 605 reports related to their activity as market centers as a result of trading in fractional shares, that 

will not be larger broker-dealers and thus will not need to produce Rule 605 reports related to their broker-

dealer activities. See supra section II.A.2.b) for a discussion of the requirement that larger broker-dealers 

that are also market centers produce separate reports pertaining to each function. However, the Commission 

believes this to be an upper bound, as several of these identified broker-dealers either engage in trading of 

non-fractional orders in some months (likely odd lots), or have greater than 100,000 customers in some 

months. Similar numbers were found using 2021 FOCUS data in the Proposing Release; Proposing 

Release, 88 FR 3786 at 3880, n.971 (Jan. 20, 2023). To the extent that a market center that exclusively 

executes fractional shares is also a broker-dealer that meets or exceeds the customer account threshold, then 

this reporting entity will be required to file separate Rule 605 reports pertaining to each function. See supra 

section II.A.2.b).481 

Table 11: Estimated Aggregate Compliance Costs Related to Amendments Modifying the 

Information Required by Rule 605 

  

Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing 

Aggregate 

Compliance 

Costs 

Costs to Prior Reporters 228 a $2.7 million b $4.3 million c 

Costs to Market Centers Trading 

Fractional Shares 
20 d $0.8 million e $1.0 million f 

Cost to NMS Plan Participants to 

Update Data Fields 
17 g $0.06 million h $0 i 

Total 265 $3.6 million $5.3 million 

This table presents estimates of the compliance costs related to the amendments to Rule 605 modifying the coverage of orders 

and information required by Rule 605 reports. Numbers are based on the estimated number of respondents and PRA costs in 

sections VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision.  
a The number of prior respondents includes 16 national securities exchanges, 1 securities association, 33 ATSs (based on the 

number of effective Form ATS-N filings), and an estimated 91 OTC market makers and 87 exchange market makers (based 

on firms’ responses on their 2022 FOCUS Report Form X-17A-5 Schedules I and II).  
b The estimate of initial compliance costs to prior reporters is based on the monetized initial burden in supra note 951 for prior 

respondents, assuming that these respondents will incur 30 initial burden hours as a result of the amendments at an average 

hourly cost of ($20,075/50 hours) =$401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to prior reporters is based on the monetized annual burden in supra note 952. It is 

assumed that the cost increase associated with the amendments for preexisting respondents is equivalent to four additional 

ongoing burden hours per month (24 per year) at an average hourly cost of ($51,648/(11 hours *12 months))=$391.00 per 

respondent per hour. 
d The Commission estimates that 20 firms will newly be required to file Rule 605 reports as a result of the inclusion of 

fractional orders less than one share. See supra note 1659. 
e The estimate of initial compliance costs to new respondents (in this case, market centers that will newly be required to 

prepare Rule 605 reports as a result of trading fractional shares) is based on the monetized initial burden in supra note 955 for 

new respondents, assuming that these respondents will incur 100 initial burden hours at an average hourly cost of 

($40,150/100 hours) =$401.50 per respondent per hour. 
f The estimate of ongoing compliance costs to market centers that will newly be required to prepare Rule 605 reports as a 

result of trading fractional shares is based on is based on the monetized annual burden in supra note 952 for new respondents, 

assuming that these respondents will incur 11 ongoing burden hours per month at an average hourly cost of ($51,648/(11 

hours * 12 months)) = $391.00 per respondent per hour. 
g The number of NMS plan participants includes 16 national securities exchanges and 1 securities association. 
h The estimate that the monetized initial burden for preparing and filing an amendment to the NMS Plan will include 

approximately $43,605 in aggregate internal costs per participants as well as an aggregate external cost of $19,550 resulting 

from outsourced legal work. See supra section VIII.D. 
i The Commission estimates that the costs related to updating data fields will be a one-time cost, and thus will not incur any 

additional ongoing compliance costs. 

As a result of these amendments, prior reporters will incur initial compliance costs to 

update their systems to collect and store new information.1660 For example, prior reporters will 

need to expand their data collection systems to include additional order types, such as stop 



482 

orders, short sale orders, and orders submitted outside of regular trading hours, and will need to 

update their systems to reclassify certain orders, such as IOCs, riskless principal orders, and 

midpoint-or-better NMLOs, into new or different order type categories. Similarly, prior reporters 

will need to expand their data collection systems to incorporate additional order sizes, including 

odd-lots, fractional orders, and larger-sized orders.  

Prior reporters will also incur initial compliance costs to update their data processing 

software to generate modernized and additional metrics. For example, prior reporters will need to 

update their methodologies for calculating realized spread to include additional measures, and 

will need to develop programs (i.e., code) to calculate newly required metrics, such as E/Q. 

Some of the metrics will involve matching trade information to data elements that were not 

required by Rule 605 prior to these amendments but that can be obtained from public data 

sources, such as the best displayed price for calculating price improvement relative to the best 

displayed price,1661 and the number of shares displayed at the NBBO for calculating the 

benchmark measure related to size improvement.1662 As stated by a commenter, the Consolidated 

Audit Trail currently requires firms to report order events with at least a millisecond 

 

1660  The Commission assumes that the majority of reporting entities’ initial burden hours under the PRA will be 

spent updating current systems as a result of the many changes to Rule 605, and thus estimates that 30 of 

the 50 initial burden hours estimated for prior reporters and described in supra note 951 will be allocated to 

compliance with the amendments modifying the information contained in Rule 605.  

1661  See supra section III.B.4.g)(2) for a discussion of the data required to calculate this measure. Under MDI 

Rules, competing consolidators are not required to offer products that include all core data items, and 

therefore some competing consolidators may offer products that do not contain all information that will be 

required for calculating Rule 605 statistics, such as odd-lot information for the purposes of calculating the 

best displayed price. However, as discussed in section IX.C.1.c)(2) supra, the Commission believes that for 

competitive reasons at least one competing consolidator will offer a data product that contains all core 

market data items. To the extent that a reporting entity would have subscribed to a cheaper data product if 

not for these amendments to Rule 605, the need to subscribe to a more expensive data product represents an 

additional cost of complying with Rule 605 as amended. 

1662  See supra section III.B.4.e)(2) for a discussion of the data required to calculate this measure. 



483 

granularity.1663 Thus, it is likely that the cost to prior reporters of updating their systems to record 

timestamps in terms of milliseconds rather than seconds will be minimal.1664  

After prior reporters update their systems to reflect the amendments, it is likely that 

changes to their ongoing costs will be limited, as the process for generating and publishing Rule 

605 reports will largely be unchanged.1665 This is because most reporting entities retained most, 

if not all, of the underlying raw data necessary to generate the additional data elements prior to 

these amendments, or are easily able to obtain this information from publicly available data 

sources. Furthermore, once reporting entities have developed the necessary programs to calculate 

the required metrics, there is limited additional effort that needs to be made beyond what prior 

reporters are already doing, such as monitoring and debugging these statistical programs.  

One commenter stated that some of the amendments will impose additional costs on 

reporting entities as a result of an increase in the complexity of the calculations.1666 Another 

commenter stated that they believe that the estimated annual costs associated with the Proposed 

Rule 605 were underestimated, because they “neglect[ed] to take into account dedicated staff 

time needed for data reconciliation and validation and other ongoing compliance costs.” These 

commenters did not provide the Commission with data regarding what an appropriate estimate of 

the annual compliance burden would be. However, the Commission recognizes that there may be 

 

1663  See FIF Letter at 17. 

1664  The commenter also stated that many market centers typically already record events with even greater 

precision. See FIF Letter at 17, stating that “[m]arket centers, in particular, typically record trading events 

with greater precision than milliseconds.” 

1665  One exception is the adopted amendment requiring reporting entities to prepare summary reports 

summarizing key information from their Rule 605 reports. The Commission assumes that current reporters 

will face additional ongoing costs as a result of this amendment, and discuss these costs in infra section 

IX.D.2.a)(3). 

1666  See, e.g., BlackRock Letter at 4. 



484 

some additional ongoing costs to the extent that some metrics introduced under these 

amendments may require more data storage or more complex calculations, such that the cost of 

preparing monthly Rule 605 reports may increase. Therefore, in response to these commenters, 

the Commission has increased its allocation of additional ongoing costs to account for additional 

costs of maintaining programmers and systems analysts for the ongoing technical support of 

Rule 605 reports.1667 

 As a result of the adopted amendment expanding the scope of Rule 605 to include 

information about orders for less than one share, the Commission estimates that some broker-

dealers that exclusively execute fractional shares, and therefore, prior to these amendments, were 

not required to file Rule 605 reports in their capacity as a market center due to fractional shares 

falling below the smallest order size category in Rule 605 prior to these amendments, will be 

required to begin publishing Rule 605 reports. The Commission is assuming that these broker-

dealers will incur similar initial and ongoing costs as those discussed above for larger broker-

dealers and SDPs. These compliance costs may be over- or underestimated if broker-dealers that 

exclusively execute fractional shares have different characteristics (e.g., fewer customers) than 

the larger broker-dealers that will be included because of the expanded scope of reporting 

entities. However, these firms are relatively large, with an average net capital similar to that of 

all larger broker-dealers that meet the customer account threshold of at least 100,000 customer 

 

1667  Specifically, three additional ongoing monthly burden hours per respondent have been allocated to prior 

reporters to account for the need to maintain a technical staff, such as programmer(s) and systems 

analyst(s), in addition to the one additional hour in the Proposing Release. See footnote to Table 10; see 

also Proposing Release, 88 FR 3786 at 3881, n.976 (Jan. 20, 2023); see also supra note 954 and 

corresponding text for further discussion of the Commission’s adjustment of its burden estimates in 

response to commenters. This additional allocation of three ongoing monthly burden hours is similar to the 

technology-related burdens in other rules; see, e.g., Securities Exchange Act Release No. 98738 (Oct. 13, 

2023), 88 FR 75100 (PRA Table 1) (Nov. 1, 2023) (allocating an additional 2 hours of work by a 

programmer for the purposes of preparing reports using a structured XML-based data language). 



485 

accounts, and an estimated 15 of these market centers are also larger broker-dealers that meet the 

customer account threshold.1668 

One commenter stated that the requirement for market centers that exclusively engage in 

fractional trading to comply with Rule 605 “would harm smaller broker-dealers by creating a 

barrier to entry to support fractional share programs.”1669 The Commission acknowledges that, to 

the extent that a smaller broker-dealer intends to begin executing fractional shares internally, it 

will need to incur the initial and ongoing costs associated with complying with Rule 605. 

However, these compliance costs are not large enough such that this is likely, as compliance 

costs are estimated to be a small fraction of broker-dealer revenues, even for broker-dealers with 

fewer than 100,000 customers.1670 Furthermore, as previously discussed, an analysis of firm 

MPIDs that exclusively execute fractional shares found that these firms tend to be relatively 

large, and that the majority of them will also meet the customer account threshold.1671 Thus, 

there are likely barriers to entry for smaller broker-dealers to offer fractional programs that exist 

apart from these amendments.1672 Therefore, the Commission does not believe that the 

 

1668  See supra note 1659. 

1669  See SIFMA Letter at 31. 

1670  For example, data on broker-dealers’ median monthly revenues from FOCUS Report Form X-17A-5 

Schedule II from Q4 2022 show that the estimated monthly compliance cost will represent 0.02% of the 

monthly revenues of broker-dealers with 100,000 customers or less, and 0.002% of the monthly revenues 

of broker-dealers with 100,000 customers or more. An analysis in the Proposing Release of FOCUS Report 

Form X-17A-5 Schedule II from Q4 2021 found similar results. See Proposing Release, 88 FR 3786 at 

3882, n.981 (Jan. 20, 2023).  

1671  See supra note 1659 for further discussion of this analysis. 

1672  Smaller introducing broker-dealers (with under 100,000 customers) could still offer their customers 

fractional share trading without having to prepare Rule 605 reports if their clearing broker executes the 

fractional share trades. If an introducing broker’s fractional share orders are executed by their clearing 

broker, then the clearing broker will have to prepare a Rule 605 report as a market center if it meets the 

definition of an “OTC market maker” and receives “covered orders” for execution in such capacity. See 

supra note 170 and accompanying text for further discussion on the preparation of Rule 605 reports with 

respect to fractional share orders. 



486 

requirement for market centers that exclusively engage in fractional trading to comply with Rule 

605 will significantly increase barriers to entry for fractional share programs. 

In addition, according to this commenter, because “much of today’s market infrastructure 

does not yet support fractional share trading,” (including that “FINRA does not currently have a 

mechanism to report fractional share trades”), “the costs to fully modify this infrastructure would 

be high compared to the minimal benefit of including fractional share reporting.”1673 The 

Commission acknowledges that prior reporters will incur a cost associated with expanding their 

data collection systems to incorporate additional order sizes, including odd-lots, fractional 

orders, and larger-sized orders, and has accounted for this in its estimates of compliance 

costs.1674 The Commission disagrees with the commenter that the benefits of including fractional 

share reporting will be minimal, particularly considering that fractional shares are a significant 

percentage of orders associated with individual accounts,1675 and because there is a significant 

amount of variation in the execution quality received by these orders.1676 

Lastly, the Commission estimates that the 16 national securities exchanges and 1 national 

securities association will incur a one-time initial cost to amend the NMS Plan to account for the 

new data fields required to be reported. The Commission estimates that this will mostly consist 

of legal time to develop and draft the amendments to the NMS Plan. 

 

1673  See SIFMA Letter at 31. 

1674  This was also acknowledged in the Proposing Release. See, e.g., Proposing Release 88 FR 3786 at 3881 

(Jan. 20, 2023), stating that “current reporters would need to expand their data collection systems to 

incorporate additional order sizes, including odd-lots, fractional orders, and larger-sized orders.” 

1675  Fractional orders less than a share represent a relatively high fraction (16.4%) of executions received by 

individual account holders in terms of number of trades. See supra note 1145 and corresponding text. 

1676  See, e.g., Professor Schwarz et al. Letter at 4, describing an analysis showing that E/Q received by 

fractional trades ranged between 0.127 to 0.915, as compared to 0.056 and 0.624 for full-share trades. See 

Professor Schwarz et al. Letter, Table 2. The commenter does not state whether these statistics include only 

fractional trades less than one share, or all trades that have a fractional components. 



487 

(3) Compliance Costs Related to Summary Execution Quality 

Reports 

The estimated 228 prior reporters1677 will face additional initial and ongoing compliance 

cost as a result of the adopted amendment requiring reporting entities to prepare summary reports 

summarizing key information from their Rule 605 reports.1678 Table 12 breaks down the initial 

and ongoing compliance costs associated with this amendment. 

Table 12: Estimated Aggregate Compliance Costs Related to Amendment Requiring 

Summary Execution Quality Reports 

  Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing Aggregate 

Compliance Costs 

Costs to Prepare 

Summary 

Execution Quality 

Reports 

228 a $1.8 million b $1.1 million c 

This table presents estimates of the compliance costs related to the amendment to Rule 605 requiring Rule 605 reporting 

entities to prepare summary execution quality reports. Numbers are based on the estimated number of respondents and PRA 

costs in sections VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision. 
a The number of preexisting respondents includes 16 national securities exchanges, 1 securities association, 33 ATSs (based on 

the number of effective Form ATS-N filings), and an estimated 91 OTC market makers and 87 exchange market makers 

(based on firms’ responses on their 2022 FOCUS Report Form X-17A-5 Schedules I and II). 
b The estimate of initial compliance costs to preexisting respondents is based on the monetized initial burden in supra note 951 

for preexisting respondents, assuming that these respondents will incur 20 initial burden hours as a result of the amendments 

at an average hourly cost of ($20,075/50 hours)=$401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to new reporters is based on the monetized annual burden in supra note 952 for 

new respondents, assuming that these respondents will incur 1 additional ongoing burden hours per month (12 per year) at an 

average hourly cost of ($51,648/(1 hours * 12 months)) = $391.00 per respondent per hour. 

The Commission estimates that these costs will not comprise the majority of overall costs 

to comply with Rule 605 reporting requirements, because Rule 605 summary reports contain 

only a small subset of the information published in the fuller Rule 605 reports. However, there 

 

1677  This section does not consider the cost of these amendments to those reporting entities that will begin 

publishing Rule 605 reports as a result of the amendments expanding the scope of Rule 605 reporting 

entities. See explanation in supra note 1656. 

1678  The Commission estimates that a significant portion of reporting entities’ initial burden hours under the 

PRA will be allocated to updating current systems to prepare summary reports, which will entail both a 

new format and a new level of information aggregation as compared to prior Rule 605, and thus estimates 

that 20 of the 50 initial burden hours estimated for prior reporters and described in supra note 951 will be 

allocated to compliance with the amendments modifying the information contained in Rule 605. 



488 

may be incremental costs in structuring these summary reports using a custom CSV schema and 

providing these reports in a human-readable format using a PDF renderer.1679 Many broker-

dealers already have experience structuring their data using machine-readable schemas and 

rendering them using a PDF renderer. For example, the Commission requires broker-dealers to 

submit quarterly and customer-specific order handling reports required under Rule 606 using an 

XML schema and associated PDF renderer.1680  

(4) Implications of Compliance Costs for Competition 

While the primary competitive effect of these amendments to Rule 605 will be to increase 

competition among reporting entities on the basis of execution quality,1681 it is possible that these 

amendments will have a negative impact on competition if the associated compliance costs 

described above prevent the entry of new reporting entities or cause some entities to leave the 

market.1682  

 

1679  For example, a single letter “a” results in a PDF file of 7,706 bytes vs. a TXT file of 1 byte. See, e.g., File 

Size, U.S. Pat. & Trademark Off., available at https://www.uspto.gov/patents/apply/applying-online/file-

size. However, the lower information content of the summary file PDFs and CSVs likely results in lower 

file sizes despite the larger per-pixel storage requirements. 

1680  17 CFR 242.606(a)(1) and (b)(3). The Commission does not expect that the process of using a CSV schema 

for preparing Rule 605 summary reports will vary significantly from that of using an XML schema for 

preparing Rule 606 reports because, in each instance, the reporting entity must encode the required 

disclosures in machine-readable format (whether the simpler CSV format or the more complex XML 

format) according to a fixed set of rules and relationships (i.e., a schema) created and maintained by the 

Commission, and post the resulting machine-readable document alongside a rendered PDF version on the 

entity’s public website. 

1681  See supra section IX.D.1 for a discussion of the effects of these amendments on competition among 

reporting entities on the basis of execution quality. 

1682  For example, one commenter stated that the compliance costs associated with the reporting of fractional 

shares would represent a significant barrier to entry to the creation of fractional share programs by smaller 

broker-dealers. See SIFMA Letter at 31. However, based on the Commission’s analysis, fractional share 

programs are more likely to be offered by larger broker-dealers who would fall within the customer account 

threshold, so the Commission does not expect this to represent an additional significant barrier to entry 

beyond those that already exist. See supra note 1659 and corresponding text for further discussion and 

response to this commenter. 



489 

The Commission is unable to quantify the likelihood that either a trading venue or a 

brokerage firm will cease operating as a result of the compliance costs associated with these 

amendments. While the Commission does not believe that these compliance costs are large 

enough such that this will be likely,1683 the Commission recognizes this possibility depends in 

part on whether the compliance costs associated with Rule 605 are likely to be fixed or variable. 

If Rule 605 compliance costs represent a fixed cost, these costs could represent a significant 

portion of a smaller reporting entity’s revenue, such that the reporting entity may become 

unprofitable if subjected to these costs.1684 This may impact competition among reporting 

entities, for example, by causing some reporting entities to leave the market, or preventing the 

entry of new ones. It may also result in broker-dealers avoiding taking on more than 100,000 

customers, to avoid crossing the customer account threshold such that they need to begin 

complying with Rule 605 reporting requirements. 

On the other hand, if Rule 605 compliance costs are variable, then the scalability of 

compliance costs means that smaller reporting entities will incur lower compliance costs related 

to execution quality reports, which will mitigate some of these concerns. Rule 605 compliance 

costs may be variable, e.g., because smaller reporting entities handle lower order volumes and 

therefore will require less data storage and less complexity when calculating the metrics required 

by these amendments.  

 

1683  For example, data on broker-dealers’ median monthly revenues from FOCUS Report Form X-17A-5 

Schedule II from Q4 2022 show that the estimated monthly compliance cost will represent 0.03% of the 

monthly revenues of broker-dealers with 100,000 customers or less, and 0.003% of the monthly revenues 

of broker-dealers with 100,000 customers or more. 

1684 The Commission does not believe that these compliance costs are large enough such that this is likely. See 

supra note 1683, describing how the compliance costs are likely to be a small percentage of broker-dealers’ 

monthly revenue. 



490 

Furthermore, even if compliance costs are fixed from the perspective of reporting entities 

(which will be the case, e.g., if variable costs such as data storage are dominated by fixed costs 

such as costs for compliance and data personnel), they may be lower if reporting entities make 

use of third-party vendors, who can leverage economies of scale to spread fixed costs across the 

potentially many reporting entities that they service, to prepare Rule 605 reports on their behalf. 

Therefore, to the extent that reporting entities make use of third-party vendors to prepare their 

Rule 605 reports, and these vendors charge reporting entities variable report preparation fees 

(e.g., based on the amount of data), this could lead to data vendors charging lower prices to 

prepare the Rule 605 reports of smaller reporting entities. This could also reduce the burdens of 

compliance costs for smaller reporting entities. 

However, even if some smaller reporting entities were to exit, the Commission does not 

believe this would significantly impact competition in either the market for brokerage services or 

the market for trading services, because both markets are served by a large number of 

competitors.1685 The Commission recognizes that smaller reporting entities may have unique 

business models that are not currently offered by competitors, but a competitor could create 

similar business models if demand were adequate. 

(5) Implementation Costs from Overlapping Compliance 

Periods 

Some commenters stated that proposed Rule 605 and another recently adopted rule, the 

Settlement Cycle Adopting Release, would have interacting effects. Commenters stated that 

implementing the rules together would impact industry resources, or that the rules had uncertain 

 

1685  See supra section IX.C.4.a)(1) for a discussion of the structure of the market for brokerage services, and 

supra section IX.C.4.b)(1) for a discussion of the structure of the market for trading services. 



491 

interacting effects.1686 The Commission acknowledges that the effects of any final rule may be 

impacted by recently adopted rules that precede it. Accordingly, each economic analysis in each 

adopting release considers an updated economic baseline that incorporates any new regulatory 

requirements, including compliance costs, at the time of each adoption, and considers the 

incremental new benefits and incremental new costs over those already resulting from the 

preceding rules. In some cases, resource limitations can lead to higher compliance costs when the 

compliance period of the rule being considered overlaps with the compliance period of other 

rules. In determining compliance periods, the Commission considers the benefits of the rules as 

well as the costs of delayed compliance periods and potential overlapping compliance periods.  

The Commission acknowledges that there are compliance dates for certain requirements 

of the Settlement Cycle Adopting Release that overlap in time with the amended rule, which may 

impose costs on resource-constrained entities affected by multiple rules.1687 The broker-dealers 

with compliance obligations under the Settlement Cycle Adopting Release will incur one-time 

costs in connection with a May 2024 compliance date for the Settlement Cycle Adopting 

 

1686  See supra note 1051 (citing comments). 

1687  See section VII (compliance dates for the Rule 605 amendments); supra note 1050 (compliance dates for 

the Settlement Cycle Adopting Release).  



492 

Release,1688 while the compliance period for the Rule 605 amendments for these broker-dealers 

culminates in the fall of 2025.1689  

While the Commission received comments on the interaction of the MDI Rules and the 

final amendments to Rule 605, the commenters did not specifically address costs associated with 

overlapping compliance periods.1690 The Commission outlined a phased transition plan for the 

implementation of the MDI Rules.1691 Based on the times provided in the transition plan for 

implementation of the MDI Rules, the Commission estimated that the full implementation of the 

MDI Rules will be at least two years after the Commission’s approval of the plan amendment(s) 

required by Rule 614(e).1692  

The Operating Committees of the CTA/CQ Plan and UTP Plan filed the MDI Plan 

Amendments on November 5, 2021.1693 The Commission disapproved the proposed amendments 

on September 21, 2022.1694 As a result, the participants to the effective national market system 

plan(s) will need to develop and file new proposed amendments as required by Rule 614(e), 

 

1688  See Settlement Cycle Adopting Release, 88 FR 13872 at 13918, section VII (compliance date) (Mar. 6, 

2023). The Commission estimated that broker-dealers serving institutional investors will incur initial 

compliance costs under Rule 15c6-1 to configure their trading systems, update reference data, and update 

trade confirmation/affirmation systems, documentation, cashiering and asset servicing functions, as 

applicable; but will have minimal ongoing direct compliance costs after the initial transition to a T+1 

standard settlement cycle; and those also serving retail investors will face additional one-time compliance 

costs after the initial transition for client education and customer service. See id. at 13937-38, section 

VIII.C.5. Broker-dealers which adopt policies and procedures related to allocation, confirmation, and 

affirmation of transactions, instead of entering into or modify existing written agreements with relevant 

parties, will additionally incur initial costs to create policies and procedures, and ongoing costs related to 

monitoring, compliance, and documentation obligations under Rule 15c6-2. See id. at 13938-39. 

1689  The final rule has an effective date 60 days after its date of publication in the Federal Register and a 

compliance date 18 months after the effective date. See section VII, supra. 

1690  See supra notes 1006, 1638; infra note 1725 (citing comments).  

1691  See MDI Adopting Release, 86 FR 18596 at 18699-18701 (Apr. 9, 2021).  

1692  See supra note 1022. 

1693  See supra note 1023. 

1694  See supra note 1024. 



493 

before the implementation period prescribed by the phased transition plan can commence. The 

Commission therefore believes that the length of time affected market participants will have to 

come into compliance with both the MDI Rules and these amendments, and the likelihood of 

limited overlap in compliance periods, will mitigate compliance costs.  

b) Other Potential Costs 

Some market participants may incur costs other than compliance costs as a result of these 

amendments to Rule 605. Many of these costs are difficult to quantify, especially as the practices 

of market participants are expected to evolve and may change due to the information on 

execution quality that is required to be reported under these amendments to Rules 605. 

Therefore, much of the following discussion is qualitative in nature. 

(1) Costs to Reporting Entities of Improvements to Execution 

Quality 

In addition to compliance costs, these amendments could result in costs to some reporting 

entities based on how market participants adjust their behavior in response to increased 

transparency and competition on the basis of execution quality.1695 

First, increased transparency and competition on the basis of execution quality, and 

subsequent scrutiny by customers and other market participants, might make broker-dealers less 

likely to route orders based on payment relationships and/or fees and rebates. While this will 

likely benefit customers in the form of better execution quality, if broker-dealers were to reduce 

the order flow sent to wholesalers who pay for it, the broker-dealers will receive less payment for 

such order flow and might make up for the lost payments by, for example, by raising brokerage 

 

1695  The costs to reporting entities associated with increased transparency and competition on the basis of 

execution quality will likely represent a transfer from these reporting entities to other market participants. 



494 

commissions or other fees on customers. The same outcome might occur if broker-dealers were 

to route orders to trading centers with lower rebates and higher fees. Broker-dealers may make 

up for lost payments or revenues at the expense of customers in other ways as well, for example, 

by reducing the quality of some bundled services or paying a lower interest rate on deposit 

accounts. 

Second, increased competition on the basis of execution quality may result in costs to 

reporting entities to the extent that they need to update or improve their routing or execution 

systems in order to remain competitive. If the reporting entity is executing an order, an 

improvement in execution systems will correspond to a direct improvement in execution quality 

for its customers (that is, the cost is a transfer from the reporting entity to its customers). If the 

reporting entity is routing the order, then the cost of improved routing will also benefit the 

customer in terms of superior execution (the cost is, in part, a transfer). The reporting entity may 

pass some of the costs of improved routing on to its customers, reducing the benefit from 

improved execution quality relative to what it might otherwise have been. If the cost to the 

reporting entity from improvements to routing is sufficiently high, and if this cost cannot be 

passed on to customers, then on net, there may be costs from improved execution practices.  

It is possible that the capital expenditure associated with upgrading their order routing 

and execution systems may be such that some reporting entities will no longer remain 

profitable.1696 The Commission is unable to estimate the number of reporting entities that may 

leave the market as a result of no longer being able to compete with other reporting entities on 

the basis of execution quality because the Commission does not know how market participants 

 

1696  See, e.g., ModernIR Letter at 3, stating that expanding Rule 605 disclosures “will drive yet more broker-

dealers from the market.” 



495 

will adjust their order flow based on the updated information in the amended 605 reports. The 

Commission acknowledges that if some reporting entities offering lower execution quality exit 

the market then their customers may incur costs to switch to other reporting entities.1697 

However, these customers’ order execution quality may improve if they switch to reporting 

entities that offer better execution quality. 

If reporting entities offering worse execution quality exit the market, the Commission 

does not believe that it will have an adverse effect on competition, either in the market for 

brokerage services or in the market for trading services. Both markets are served by a large 

number of competitors and if a reporting entity were to exit for this reason, these markets will be 

served by more efficient firms that are better able to offer execution quality to customers in line 

with their industry peers. 

(2) Costs for Smaller Broker-Dealers 

These amendments to Rule 605 may entail additional costs if smaller broker-dealers that 

are not subject to Rule 605 reporting requirements under the final rule face competitive pressure 

to provide customers with more information and execution quality, and incur initial and ongoing 

costs to voluntarily provide customers with execution quality reports.1698 The costs for smaller 

broker-dealers to prepare execution quality reports may not be the same as the costs for larger 

broker-dealers. Smaller-broker dealers may lack the technical expertise and compliance 

 

1697  These costs will vary based on the reporting entity that exited the market and the services the individual 

customers received from the reporting entity and other entities. For example if a customer used multiple 

reporting entities that offered similar services, then the costs to the customer of one of these reporting 

exiting the market may be smaller than for a customer that used only one reporting entity that exited the 

market. The Commission is unable to quantify these costs because it is unable to estimate the entities that 

will exit the market. 

1698  See infra section IX.D.1.d)(1) for a discussion of the impact of these amendments on smaller broker-

dealers. 



496 

experience of larger broker-dealers, which will tend to lead to higher costs; however, smaller 

broker-dealers may also have lower costs if their lower order volume and customer account 

numbers lead to less complexity when calculating the metrics required in the reports. 

(3) Costs due to Incentives from Reporting of Execution 

Quality 

The Commission acknowledges that, to the extent that these amendments to Rule 605 fail 

to capture relevant dimensions of execution quality or cause market participants to focus on 

some dimensions of execution quality to the detriment of others, these amendments may reduce 

execution quality along certain dimensions that are relevant to some investors. The nature of 

execution quality as a multi-faceted concept has been a focus of academic papers, which have 

stated that execution quality is composed of multiple aspects or dimensions, including price and 

speed, among others.1699 As stated by the Commission in the Rule 11Ac1-5 Adopting Release, 

different investors may have different concerns and priorities related to execution of their 

orders.1700 If these amendments tend to favor certain dimensions of execution quality while 

excluding or neglecting others, there is a possibility that certain investor groups may be 

advantaged by these amendments to the disadvantage of other investor groups. 

For example, if size improvement becomes a major driver of order flow, national 

securities exchanges may try to incentivize hidden liquidity and broker-dealers may route orders 

to venues with higher expected hidden orders, as size improvement measures mechanically 

 

1699  See, e.g., Robert Battalio et al., All Else Equal?: A Multidimensional Analysis of Retail, Market Order 

Execution Quality, 6 J. FIN. MKT. 143 (2003); Boehmer (2005); Emiliano S. Pagnotta & Thomas Philippon, 

Competing on Speed, 86 ECONOMETRICA 1067 (2018). 

1700  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75432 (Dec. 1, 2000).  



497 

benefit from a greater degree of hidden volume.1701 It is possible that incentivizing hidden 

liquidity at the cost of displayed orders may negatively impact market quality by obscuring 

trading interest, making order books look thinner than they actually are. This scenario is unlikely 

for two reasons. First, exchanges are unlikely to incentivize hidden liquidity because they have 

economic incentives to promote displayed liquidity over hidden liquidity.1702 Second, market 

centers may not specifically focus on promoting hidden liquidity to improve size improvement 

metrics because Rule 605 reports also require information, such as time-to-execution, that show 

other dimensions of execution quality that could be negatively affected by increases in hidden 

liquidity. 

One commenter stated that, because of the expansion of Rule 605 reporting requirements 

to include larger broker-dealers, “brokers could become less willing to accept difficult orders, or 

orders under challenging market conditions, in an attempt to maintain favorable summary 

statistics.”1703 To the extent that this occurs and results in delayed executions or a lack of fill, this 

could lower some market participants’ execution quality. However, broker-dealers will continue 

to have competitive reasons to accept these orders, as customers whose orders are consistently 

rejected by a broker-dealer may find it advantageous to switch to another broker-dealer. 

Furthermore, broker-dealers’ incentives to engage in this behavior will be limited by the fact that 

consumers of Rule 605 reports will be able to control for differences in several characteristics of 

 

1701  For example, if two exchanges have 200 shares available at the NBO but one exchange is hiding a portion 

of this interest, a market order to purchase 200 shares would record size improvement on the venue with 

hidden liquidity but would not on the other venue. 

1702  For example, exchanges earn market data revenue from the SIPs based on their trading activity and the 

proportion of time their displayed quotes are at the NBBO. The SIP market data revenue allocation formula 

is summarized at, e.g., UTP PLAN PARTICIPANTS, SUMMARY OF MARKET DATA REVENUE ALLOCATION 

FORMULA, available at http://www.utpplan.com/DOC/Revenue_Allocation_Formula.pdf (last accessed Jan. 

11, 2024). 

1703  See Virtu Letter at 13. 



498 

broker-dealers’ order flow, including stock mix, order size, and realized spreads. Therefore, 

market participants will be able to observe whether a broker-dealer’s reported execution quality 

statistics are less favorable because they tend to handle more difficult orders, such as larger 

orders, those in less liquid stocks, or those with higher adverse selection.1704  

Several commenters stated that execution quality could worsen for some market 

participants if the amendments result in changes in order flow as more difficult-to-handle order 

flow shifts to broker-dealers that previously had easier-to-handle orders.1705 It is possible that the 

information contained in the amended Rule 605 reports could cause more difficult-to-handle 

order flow to shift to broker-dealers that have easier-to-handle orders, but it is uncertain what 

effects this would have on the execution quality of the easier-to-handle orders of the existing 

customers of these broker dealers. To the extent that such shifts in order flow occur, there is 

sufficient detail in Rule 605 reports to allow for customers to account for changes in order flow 

characteristics brought about by the amendments to Rule 605 when assessing execution quality. 

 

1704  See supra note 1485 for how information about adverse selection can be inferred from measures of realized 

spreads in amended Rule 605 reports.  

1705  See SIFMA Letter II at 30, stating that “the Commission does not account for any potential negative effects 

on execution quality caused by the shifting of order flow itself.” The commenter gives an example of 

customers that shift their order flow from one broker-dealer (“Firm A”) to another (“Firm B”) because of 

“perceived better execution quality at Firm B.” In this case, the commenter states that “the customers of 

Firm B are unlikely to receive better execution quality, and may receive worse execution quality,” because 

“Firm B would now receive all of the order flow from Firm A that received less favorable execution 

quality.” Instead, the customers of Firm B “may lose some of that execution quality in relative terms if the 

flow from Firm A improves its execution quality.” The commenter also stated that “the flow from Firm A 

may not receive any improvement as the reason for their lower execution quality could be that some 

broker-dealers simply have more adverse order selection.” Another commenter similarly stated that “[t]he 

Proposed Rule may lead to changes in the equilibrium mix of customer types at each broker, in ways that 

can result in positive or negative externalities for other investors at each broker,” offering as an example 

that, “[i]f the Proposed Rule induces retail investors with more costly to service orders to move to brokers 

that previously had less costly to service orders, it could cause execution quality to worsen at the broker 

with previously less costly to service orders.” Virtu Letter at 9. See also Virtu Letter at 37, stating that the 

proposed amendments to Rule 605 “may change the equilibrium mix of the brokers used by their 

customers, in ways that can result in positive or negative externalities for other investors…If the rule 

induces informed traders to move to brokers that previously had uninformed traders, it could cause 

execution quality to worsen at that broker.” 



499 

For example, assume that the customers of Firm A disproportionately submit larger orders, 

which are typically harder to execute than smaller orders,1706 and then view from Rule 605 

reports that Firm B offers better execution quality for larger orders than Firm A, and then switch 

to using Firm B. It could be the case that, in aggregate, Firm B’s execution quality statistics 

decline, because that broker-dealer is now handling more orders that are difficult to execute. 

However, because both the detailed Rule 605 reports and the summary reports contain 

disaggregated information by notional order size, market participants will be able to account for 

this order flow characteristic when assessing that broker-dealer’s execution quality from its 

summary report.1707 Furthermore, it is not necessarily the case that, just because a broker-dealer 

is handling more of a particular type of order flow that may be harder to execute, the broker-

dealer will offer these orders worse execution quality. In fact, to the extent that broker-dealers 

may benefit from liquidity externalities or economics of scale because of handling more of this 

order flow, the opposite may happen instead.1708  

One commenter stated that, to the extent that “perceived differences in execution quality” 

result in the consolidation of order flow among a smaller number of firms, this could result in a 

reduction in competition and harm overall execution quality.1709 The Commission is unable to 

quantify the likelihood that a trading venue or a brokerage firm will cease operating because of 

 

1706  See supra note 984 for a discussion of why larger orders are typically more difficult to execute. This 

example also could apply to other differences in order flow characteristics that make execution more 

difficult, such as higher adverse selection as measured by the realized spread. 

1707  To the extent that order flow shifts such that the aggregate order flow characteristics are similar across 

broker-dealers, the execution quality information contained in the final Rule 605 reports will still 

incentivize broker-dealers to compete to on the basis of execution quality. 

1708  See supra section IX.D.1.d)(4) for a discussion of how liquidity externalities can improve execution quality 

under certain circumstances but may not always be beneficial. 

1709  See SIFMA Letter at 30. 



500 

the consolidation of order flow and the subsequent effect that this will have on competition and 

execution quality. However, based on the academic literature, it may be the case that the 

consolidation of order flow actually improves execution quality as a result of liquidity 

externalities.1710 

(4) Costs to Update Best Execution Methodologies 

As a result of these amendments to Rule 605, financial service providers that are subject 

to best execution obligations1711 will likely reevaluate their best execution methodologies to take 

into account the availability of new statistics and other information that may be relevant to their 

decision making.1712 This may impose a cost only to the extent that broker-dealers and/or 

investment advisers choose to build the required statistics into their best execution 

methodologies. These amendments do not, however, address and therefore do not change the 

existing legal standards that govern financial service providers’ best execution obligations.1713 

(5) Other Costs 

One commenter stated that the enhanced reporting requirements under Rule 605 would 

result in “giving away vast amounts of information to free riders,” which would result in 

vulnerabilities.1714 The same commenter expressed a similar concern that the more detailed order 

execution information would “enhance certain constituents’ ability to model the market,” who 

then “could use sophisticated algorithms to craft out order flow.”1715 The commenter did not 

 

1710  See supra section IX.D.1.d)(4) for a discussion of how liquidity externalities can improve execution quality 

under certain circumstances but may not always be beneficial. 

1711  See supra note 1099 and accompanying text. 

1712  This statement was supported by one commenter. See Decimus Letter at 2. 

1713  See supra note 1099. 

1714  See Data Boiler Letter at 5. 

1715  See Data Boiler Letter II at 1.501 

further specify how the increase in information would increase vulnerabilities or how the more 

detailed information could be utilized for algorithmic trading. Given the low frequency of Rule 

605 reports (i.e., once per month), and high level of aggregation of these reports (i.e., not order-

by-order, but aggregated across order sizes and types), the risk of market participants using Rule 

605 reports to, e.g., infer information about other participants’ trading strategies is likely to be 

low, particularly because only larger broker-dealers, who introduce or carry a large number of 

customer accounts and thus whose order flow is less traceable to any one customer account, will 

be required to report under amended Rule 605 requirements.1716 

The amendment expanding the set of Rule 605 reporting entities to include larger broker-

dealers could impose a cost on broker-dealer customers if those broker-dealers that voluntarily 

provided their customers with execution quality reports prior to these amendments stop 

providing these reports, which potentially contain more or different information than what these 

amendments require.1717 This scenario is not very likely because customers could still request 

additional information or customized reports from their broker-dealers and broker-dealers may 

be incentivized to satisfy such requests, to the extent they did so prior to these amendments, to 

retain their customers.1718 

 

1716  See infra section IX.E.1.a) for a discussion of information leakage as an indirect cost of a reasonable 

alternative requiring these smaller broker-dealers to publish Rule 605 reports. 

1717  These reports could include, for example, public reports prepared according to the FIF Template (see supra 

note 973), or private ad hoc reports the broker-dealers prepare for their customers (see discussion in section 

IX.C.2.c), supra).  

1718  See, e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 at 58403 (Nov. 19, 2018), which discusses a 

similar potential cost and further states that the willingness of broker-dealers to provide such customized 

reports to customers and the level of detail in such a report might depend on the business relationship 

between the broker-dealer and the customer, such as whether the customer does a large amount of business 

with the broker-dealer.  



502 

As another potential cost, the amendments to Rule 605 may render the preexisting Rule 

605 data less useful and reduce the ability of researchers to perform statistical analyses. Some 

Rule 605 metrics will lose comparability before and after the new reporting requirements are 

implemented, so that in some cases there will be two shorter data sets rather than one longer one, 

leading to reduced statistical power.1719 This cost will apply for studies done over a limited 

period, as over time the new data will accumulate. The changes will also impact market 

participants’ ability to compare certain categories in the reports before and after the 

amendment.1720 The ability to examine the effect of changes in order execution quality close in 

time to the implementation of the adopted amendments to Rule 605 will be limited because the 

Rule 605 data available to analyze the change will differ before and after the implementation of 

the amendments.1721 The ability to aggregate across different order categories (e.g., notional 

buckets) mitigates this cost in that aggregated metrics can be compared across preexisting and 

 

1719  For example, time-to-execution metrics for some NMLOs will not be comparable, because preexisting Rule 

605 required time-to-execution for NMLOs to be measured based on the time of order receipt, while Rule 

605 as amended will require time-to-execution metrics for NMLOs to be measured based on the time the 

order becomes executable. For NMLOs submitted at or inside the NBBO, the time of order receipt is 

equivalent to the time of order executability. However, for NMLOs submitted outside the quote, there may 

be a difference between the time of order receipt and the time of order executability. Therefore, this change 

may impair the ability to compare the time-to-execution metrics of near-the-quote limits orders in prior 

Rule 605 reports to that of non-marketable limit orders in the amended Rule 605 reports. 

1720  For example, the amendments changing the order size categories from share-based to notional-based will 

affect market participants’ ability to compare these categories before and after the amendments. 

Furthermore, while IOC orders were not broken out separately and thus were distributed across various 

order type categories in preexisting Rule 605, IOC orders will be categorized separately into marketable 

and non-marketable IOC categories under amended Rule 605. This will likely affect the comparability of 

order type categories that had a high percentage of IOC orders prior to these amendments. The amended 

Rule 605 reports will also include non-exempt short sales and some orders submitted pre-opening/post-

closing, which were not included in preexisting Rule 605.  

1721  This pertains to changes in execution quality resulting from, for example, regulatory changes. See, e.g., 

Letter from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, 

Citadel Securities (Mar. 31, 2023) at 29 re Minimum Pricing Increments Proposing Release, available at 

https://www.sec.gov/comments/s7-30-22/s73022-20164212-334052.pdf. 



503 

amended Rule 605.1722 At the same time, there are some differences in the scope of Rule 605, 

even taking the ability to aggregate into account.1723 Finally, this cost may also be mitigated by 

the existence of other data that provides relevant information on execution quality.1724 

The Commission received comments stating that the round lot definition in the MDI 

Rules, once implemented, could reduce the benefits of the amendments to Rule 605; or that the 

amendments to Rule 605 could add to the cost of consolidated market data, an effect that could 

be compounded by the implemented MDI rules.1725 The baseline against which the benefits and 

costs are measured incorporates the potential effects of the MDI Rules, however, given that the 

MDI Rules have not yet been implemented, data that will be required for a quantitative analysis 

of a baseline that includes the effects of the MDI Rules, and of the cost of the final Rule 605 

 

1722  For example, the effective spread for market and marketable limit orders reported for individual stocks may 

be comparable after aggregating across different order size categories. More specifically, the effective 

spread can be computed for the combination of market and marketable limit orders in an individual stock in 

preexisting Rule 605 data by aggregated across all pre-existing order size categories for market and 

marketable limit orders. This will be compared with the effective spread for aggregated market, marketable 

limit, and marketable IOC orders in amended Rule 605 data, which will be computed by aggregating across 

all order size categories that remain for these order types after excluding order notional size categories with 

fractional and odd-lot components and notional size categories for which the notional value of the order 

will be equivalent to an order share size of 10,000 shares or greater.  

1723  For example, the amendments to Rule 605 expand its scope to include non-exempt short sales and some 

orders submitted outside of market hours. Since these orders will not be in separate order type categories, it 

will not be possible to exclude them from amended Rule 605 reports for the purposes of comparison to 

preexisting Rule 605 reports. 

1724  See IEX Letter at 3 (“There are myriad sources of information that both regulators and market participants 

draw on to consider how orders are handled and how markets compete with and compare to each other.”) 

1725  See Schwab Letter II at 32, 34 (“The 605(a)(1) report’s beyond-the-midpoint limit order category adds 

unnecessary complexity, as it is not a large category today, and will become de minimis with the Market 

Data Infrastructure (‘MDI’) round lot definitions . . . Further, when the MDI’s new round lot definitions 

take effect, the percent of the time ‘best available price’ differs from the NBBO will be even smaller”); 

Fidelity Letter at 4: (“[W]e anticipate market data costs will increase in several areas under the Proposals. 

Market data is a critical element of the equity markets, but the SEC has not yet required the self-regulatory 

organizations (‘SROs’) to re-submit a proposal setting fees for the data content underlying consolidated 

market data offerings pursuant to the Commission’s Market Data Infrastructure Rules (‘MDIR’) nor acted 

on simple governance reforms to help curtail market data costs”). 



504 

amendments with new baseline assumptions, is not available.1726 In further response to the 

comments, the new round lot definition is not expected to reduce the benefits of the amendments 

to Rule 605 because Rule 605 report metrics are at the individual stock level; since the new 

round lot definition will affect only stocks with prices of $250 or greater, the vast majority of 

stocks will not be affected by it.1727 Likewise, the amendments to Rule 605 will not alter the 

contents or requirements of consolidated market data, so the final rule is not expected to affect 

the cost of consolidated market data. 

3. Economic Effects on Efficiency, Competition, and Capital Formation 

a) Efficiency 

The Commission believes that these amendments to Rule 605 will improve the efficiency 

of analyzing Rule 605 reports, which will result in improved price efficiency. Improved 

transparency is expected to result in an increase in competition, which, in turn, is expected to 

improve order execution quality and price efficiency. Investors are expected to benefit from 

improved execution quality as a result of these amendments, such that these investors will also 

likely benefit from lower transaction costs. Transaction costs reflect a friction in the trading 

process that limits the ability of prices to fully reflect a stock’s underlying value.1728 Such friction 

makes it more costly to trade and makes investing less efficient, and limits the ability of 

arbitrageurs or informed investors to push prices to their underlying values. Thus, transaction 

costs make prices less efficient. These amendments to Rule 605 are expected to improve order 

 

1726  See section IX.C.1.c)(2), infra, discussing benefits and costs based on implementation assumptions. 

1727  See id. 

1728  See Hans R. Stoll, Friction, 55 J. FIN. 1479 (2000). 



505 

execution quality and reduce transaction costs. This, in turn, will reduce financial friction and 

improve price efficiency. 

b) Competition 

As previously discussed in the benefits section of this economic analysis, the 

Commission believes that these amendments to Rule 605 will facilitate competition on the basis 

of execution quality in the markets for brokerage services and trading services.1729 These 

amendments may also have additional effects on competition, such as increasing the extent to 

which Rule 605 reporting entities compete within other quality areas (such as rebates and 

transaction fees), and increasing competition in related markets (such as the market for TCA).  

(1) Competition in Other Areas 

 An increase in the extent to which Rule 605 reporting entities compete on the basis of 

execution quality as a result of these amendments may also spill over to increase incentives to 

compete along other lines, i.e., reduce fees or increase rebates (including PFOF), or offer new 

products or functionalities to attract customers.  

First, national securities exchanges may be incentivized to increase rebates or lower fees 

as a result of these amendments. Exchanges compete on the basis of fees and rebates to 

incentivize broker-dealers to route more order flow to them.1730 If an exchange offers the same 

execution quality as another reporting entity, an exchange may be incentivized to lower its 

transaction fees or raise its rebates in order to increase its competitive position in attracting more 

 

1729  See supra section IX.D.1 for a detailed discussion of the effects of the amendments on competition in these 

markets on the basis of execution quality. 

1730  See supra section IX.C.4.b)(2) for a discussion of competition between national securities exchanges on the 

basis of fees and rebates. 



506 

customers or order flow.1731 To the extent that this occurs and to the extent that the resulting 

lower fees or higher rebates will be passed on to investors, this could be beneficial for investors.  

Reporting entities may also be incentivized to innovate to offer new products in order to 

compete. For example, some broker-dealers may be incentivized to differentiate themselves by 

offering new functionalities that appeal to customers, such as the ability to trade on margin; to 

trade in additional asset classes, such as options; or to trade fractional shares.1732  

(2) Competition in Related Markets 

These amendments to Rule 605 can have an impact on markets other than brokerage and 

trading services, such as the market for TCA. For example, suppose that a customer chooses to 

no longer purchase TCA once the amended Rule 605 reports become available, because the 

customer decides that the information contained in the reports is sufficient. If fewer customers 

purchase TCA, this will have a negative impact on the market for third-party providers of TCA 

as well as third-party data vendors, because of a reduction in the demand for their services. 

Further, the quality of TCA provided by third parties may decrease because third-party providers 

of TCA may have fewer resources for the development and maintenance of their product 

offerings and because with fewer customers, third-party providers may have less data to use to 

build their models. At the same time, the quality of TCA reports may also improve if their 

publishers need to offer better products in order to compete with the publicly available data, 

 

1731  Another possibility is that a reporting entity that offers inferior execution quality may try to compete on the 

basis of lower fees or higher rebates instead of improving its execution quality. To the extent that this 

occurs, this may limit the extent to which competition will lead to improved execution quality for the 

customers of these reporting entities. However, these customers will still benefit from the lower fees or 

higher rebates. 

1732  See, e.g., supra note 1140, describing how trading volume increased substantially for brokers after they 

introduced the use of fractional shares. 



507 

and/or use the expanded information available under the final rule to offer new or better 

products. 

(3) Interacting Rule Effects 

In addition, as stated above, some commenters requested the Commission consider 

interactions between the economic effects of the proposed rule and other recent Commission 

rules.1733 As discussed above, the Commission acknowledges that overlapping compliance 

periods may in some cases increase costs.1734 This may be particularly true for smaller entities 

with more limited compliance resources.1735 This effect can negatively impact competition 

because these entities may be less able to absorb or pass on these additional costs, making it 

more difficult for them to remain in business or compete. However, the rules highlighted by 

commenters have compliance dates that do not significantly overlap with the expected industry 

compliance dates of the amendments to Rule 605, and therefore we do not expect these effects 

on competition to be significant.1736 We acknowledge that to the extent such overlap (in scope or 

timing) occurs, there could be costs which could affect competition, but we do not expect these 

costs to be significant. 

c) Capital Formation 

These amendments to Rule 605 might promote capital formation by improving price 

efficiency. As discussed above, these amendments are expected to improve order execution 

 

1733  See supra section IX.C.1.d). 

1734  See supra section IX.D.2.a)(5). 

1735  See supra section IX.D.2.a)(4) (discussing generally the competitive effect of fixed and variable 

compliance costs on smaller reporting entities). This issue may be mitigated by the fact that Rule 605 

reporting requirements will only apply to larger broker-dealers. In addition, the Commission has estimated 

that, of the firms that will be impacted by the amendments, only one exchange market maker is a “small 

entity” within the meaning of the Regulatory Flexibility Act. See infra section X. 

1736  See supra section IX.D.2.a)(5). 



508 

quality and reduce transaction costs, which is expected to improve price efficiency, and to reduce 

financial friction and promote investors’ ability to trade. Financial friction in the form of higher 

transaction costs can limit trading activity, and thereby hinder the efficient adjustment of prices 

and limit the ability of prices to reflect fundamental values. Less efficient prices can result in 

some issuers experiencing a cost of capital that is higher or lower than if their prices fully 

reflected underlying values, as a result of the market’s incomplete information about the value of 

the issuer. This, in turn, may limit efficient allocation of capital and capital formation. Under 

these amendments, improved price efficiency is expected to cause firms’ stock prices to reflect 

their underlying values more accurately, which can improve capital allocation and promote 

capital formation. 

E. Reasonable Alternatives 

1. Reasonable Alternative Modifications to Reporting Entities 

a) Different customer account thresholds for differentiating larger 

broker-dealers 

The Commission considered alternatives to the adopted amendment, which requires 

larger broker-dealers1737 to prepare execution quality reports pursuant to Rule 605 and excludes 

broker-dealers that introduce or carry less than a threshold number of customer accounts, 

defining the customer account threshold as 100,000 customer accounts.1738 Lowering this 

threshold would increase the total costs of the proposed amendments, as more broker-dealers 

would be subject to the costs of preparing Rule 605 reports; however, lowering the threshold 

might also be beneficial if more broker-dealer customers are able to benefit from the proposed 

 

1737  See supra note 61 defining the term “larger broker-dealers.”  

1738  See supra section II.A.2.a) discussing the adopted customer account threshold. 



509 

modifications to reporting entities.1739 On the other hand, raising the customer account threshold 

would lower the total costs of the proposal, but might result in fewer broker-dealer customers 

benefiting from the proposed modifications to reporting entities.1740 

In order to examine the number of broker-dealers that would be subject to Rule 605 

reporting requirements under the final rule at different customer account thresholds, it is first 

necessary to estimate the number of customers both for carrying and for introducing broker-

dealers.1741 To estimate the number of carrying broker-dealers’ customers, the Commission used 

data from broker-dealers’ 2022 FOCUS Report Form X-17A-5 Schedule I, which asks 

respondents whether they carry their own public customer accounts, along with the number of 

carrying broker-dealers’ public customer accounts.1742 To estimate the number of introducing 

broker-dealers’ customers, the Commission used data from CAT during the calendar year 2022 

on the number of unique customer accounts whose order originations are associated with broker-

dealers that do not identify as carrying their own public customer accounts in FOCUS Report 

 

1739  See supra section IX.D.1.d)(1) for a discussion of the extent to which excluding smaller-brokers dealers 

(i.e., those broker-dealers with customer accounts numbers below the customer account threshold) limits 

the benefits of the enhanced reporting requirements on competition for customer order flow. 

1740  While one commenter supported the 100,000 customer account threshold (see Nasdaq Letter at 43), and 

several commenters supported expanding reporting requirements to all broker-dealers (see infra section 

IX.E.1.b), the Commission did not receive comments supporting alternative customer account thresholds.  

1741  See supra note 98 and accompanying text for a definition of carrying and introducing broker-dealers.  

1742  Specifically, item 8080 asks for information on “respondent’s total number of public customer accounts,” 

but only broker-dealers that are carrying firms are required to answer this question, so information on 

introducing broker-dealers’ customers is not included. 



510 

Form X-17A-5 Schedule I.1743 The resulting customer numbers are then used to estimate the 

number of both carrying and introducing broker-dealers that would be subject to the reporting 

requirements of Rule 605 as proposed, using various definitions of the customer account 

threshold. The estimated costs of these amendments from the various definitions of the customer 

account thresholds are then calculated using the estimated initial and ongoing costs for new Rule 

605 filers.1744 

Lowering the customer account threshold might be beneficial if more broker-dealer 

customer accountholders are able to benefit from the enhanced reporting requirements. To 

 

1743  Customer accounts are identified in CAT as accounts belonging to either the “Institutional Customer” 

account type, defined as accounts that meet the definition in FINRA Rule 4512(c), or the “Individual 

Customer” account holder type, defined as accounts that do not meet the definition in FINRA Rule 4512(c) 

and are also not a proprietary account. See supra note 1144 for more information about account types in 

CAT. Broker-dealers are identified according to their FDID as defined in section 1.1 of the CAT NMS 

Plan. Introducing broker-dealers are identified as those broker-dealers that originate orders from customer 

accounts in the CAT dataset and do not identify as carrying their own public customer accounts in FOCUS 

Report Form X-17A-5 Schedule I. However, a customer account is only observed in this dataset if it 

actually originated orders during the sample period from Jan. to Dec. 2022. Therefore, to the extent that 

there are customer accounts that did not originate orders during this period, these accounts would be 

missing from our sample. In order to adjust for these missing accounts, an adjustment factor was 

constructed based on the assumption that, for carrying broker-dealers identified in both FOCUS and CAT, 

the number of customer accounts associated with the broker-dealer in CAT represents some percentage of 

that broker-dealer’s total customer base available from FOCUS (i.e., those customer accounts that actually 

originated orders during 2022). Dividing the number of accounts from CAT by the number of customer 

accounts from FOCUS reveals that, on average, around 26.6% of these broker-dealers’ customer accounts 

traded during 2022. Observed customer numbers from CAT are then scaled up using the adjustment factor 

of 1/0.266 to estimate the total number of customers for each broker-dealer (both carrying and introducing). 

In order to ensure that this estimate of customer account numbers is as conservative as possible, if a broker-

dealer is observed in both datasets, the number of customers for that broker-dealer is taken as the higher of 

its customer account number reported in FOCUS and the adjusted number of customers estimated from 

CAT. This method may underestimate the total number of customers to the extent that carrying broker-

dealers identified in FOCUS introduce customers that they do not carry (see supra note 1278 discussing 

hybrid carrying/introducing broker-dealers), and/or that introducing broker-dealers would have a higher or 

lower adjustment factor than carrying broker-dealers. This method may also underestimate or overestimate 

any particular broker-dealer’s total number of customers to the extent that a larger or smaller portion of the 

broker-dealer’s customer base originated orders during the sample period than the number implied by the 

adjustment factor. Lastly, this method may underestimate the number of customer accounts to the extent 

that some broker-dealers introduce customer accounts on an omnibus basis, which pools together the 

accounts of potentially multiple underlying customers but would only be recorded as a single account in 

CAT. 

1744  See supra section VIII.D for a description of these costs. This analysis assumes the same costs for both 

larger and smaller broker-dealers. 



511 

estimate the benefits of different customer account thresholds, the Commission calculated the 

cumulative number of customer accounts (expressed as a percentage of all identified carrying 

and introducing broker-dealer customer accounts) associated with broker-dealers that will be 

subject to the amended reporting requirements of Rule 605 according to various definitions of 

the customer account threshold. Additionally, using estimates of the number of orders that 

originate from institutional or individual accounts at broker-dealers as identified in CAT,1745 the 

Commission calculated the cumulative percentage of customer order originations associated with 

broker-dealers that would be included under the various thresholds.1746 

Table 131747 presents the estimated number of broker-dealers (both carrying and 

introducing) that would be subject to Rule 605 reporting requirements according to different 

 

1745  This is estimated as the total number of order originations associated with a broker-dealer’s institutional 

and individual customer accounts identified in CAT during calendar year 2022. See supra note 1743 for 

more information about how these accounts are identified. 

1746  Some of these order originations are likely to be excluded from Rule 605 reporting requirements to the 

extent that they belong to an order type or size group that is not subject to Rule 605.  

1747  This analysis has been updated since the Proposing Release in several ways. First, to measure the scope of 

broker-dealer customer activity that would be included in Rule 605 reports according to different 

definitions of the customer account threshold, the Proposing Release used data from broker-dealers’ 2021 

FOCUS Report Form X-17A-5 Schedule I and CAT data from calendar year 2021. The updated analysis in 

Table 13 below uses more recently available data from calendar year 2022. See supra note 1743 for further 

discussion; see also Proposing Release, 88 FR 3786 at 3885, n.1008 (Jan. 20, 2023). The customer account 

thresholds have also been updated since the Proposing Release to provide additional granularity on the 

costs and percentage of customers that would be covered by extending the rule to cover broker-dealers with 

between 250,000 and 500,000 customer accounts. Finally, the Proposing Release included a statistic, 

labeled “Customer Transactions Included,” that was calculated by taking the higher of the number of 

broker-dealer’s customer transactions as reported in FOCUS or the number of order originations from the 

broker-dealer’s institutional and individual customer accounts observed in CAT and then summing across 

broker-dealers. The Proposing Release describes the methodology as using the number of transactions 

observed in CAT, although order data was actually used. See Proposing Release, 88 FR 3786 at 3886, 

n.1010, 3887 (tbl.13) (Jan. 20, 2023). Upon further review, the Commission believes that order originations 

are the appropriate way to assess changes in the scope of Rule 605 as the threshold changes. This is 

 

 

 



512 

customer account thresholds, the resulting estimated costs, and the resulting estimated benefits in 

terms of the cumulative percentage of included customer accounts and orders. The table shows 

that increasing the customer account threshold from 100,000 to 250,000 would reduce both the 

initial and ongoing costs of the amendments by around 41.7%,1748 but would also result in lower 

coverage. In particular, coverage of customer order originations would drop by 55.7 percentage 

points.  

Meanwhile, reducing the customer account threshold from 100,000 to 10,000 would 

increase the coverage of customer order originations by an additional 21.0 percentage points. 

However, it would significantly increase both the initial and ongoing compliance costs, which 

would increase by approximately 187%.1749 The Commission also understands that accounts of 

broker-dealers with fewer customers are more likely to belong to institutional traders,1750 who are 

likely to have access to alternative information about the execution quality achieved by their 

broker-dealers and/or are likely to make use of not held orders that are excluded from Rule 605 

reporting requirements, and would therefore be less likely to depend on Rule 605 reports for 

 

because Rule 605 requires the reporting of all covered orders, regardless of whether they result in a 

transaction; see, e.g., final Rule 605(a), requiring reporting entities to prepare “a report on the covered 

orders in NMS stocks that it received for execution…” (emphasis added). In the updated Table 13, we 

therefore continue to use the total number of order originations associated with a broker-dealer’s 

institutional and individual customer accounts observed in CAT. As FOCUS does not include information 

on order originations, we have not included it in updated Table 13. Therefore, changes to the data and 

methodology did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release; namely, the updated data analysis continues to support a 100,000-customer threshold. 

1748  Increasing the customer account threshold from 100,000 to 250,000 would reduce the initial compliance 

costs from $3,412,750 to $2,409,000 and the ongoing compliance costs from $4,390,080 to $3,098,880. 

1749  Reducing the customer account threshold from 100,000 to 10,000 would increase the initial compliance 

costs from $3,412,750 to $9,796,600 and the ongoing compliance costs from $4,390,080 to $12,602,112. 

1750  For example, data from CAT order originations reveals that broker-dealers with less than 100,000 

customers have a higher percentage of institutional accounts on average than broker-dealers with 100,000 

or more customer accounts. 



513 

information about their broker-dealers’ execution quality.1751 Therefore, lowering the customer 

account threshold to include these customers might not be particularly beneficial, especially 

when compared to the substantial increase in compliance costs. 

Table 13: Cost-Benefit Analysis of Different Customer Account Thresholds Defining 

“Larger Broker-Dealers” 

Customer Account 

Threshold Number of Broker Dealers Estimated Compliance Costs 
CAT Order 

Originations 

Included (%) 

Customer 

Accounts 

Included 

 Carrying Introducing Total Initial Ongoing   

500,000 28 16 44 $1,766,600 $2,272,512 4.80% 95.80% 

250,000 35 25 60 $2,409,000 $3,098,880 4.80% 97.20% 

100,000 46 39 85 $3,412,750 $4,390,080 60.50% 98.30% 

10,000 74 170 244 $9,796,600 $12,602,112 81.50% 99.70% 

1,000 104 498 602 $24,170,300 $31,092,096 84.70% 100.00% 

100 130 847 977 $39,226,550 $50,460,096 93.90% 100.00% 

10 142 1025 1167 $46,855,050 $60,273,216 94.00% 100.00% 

1 153 1092 1245 $49,986,750 $64,301,760 100.00% 100.00% 

This table presents the estimated number of broker-dealers that would be subject to Rule 605 reporting requirements according 

to different definitions of the customer account threshold. The number of customer accounts are estimated from 2022 FOCUS 

Report Form X-17A-5 Schedule I and CAT data for the calendar year 2022, using the methodology described in supra note 

1743. CAT order originations are the total number of order originations from institutional or individual accounts associated 

with a broker-dealer, summed across all stocks and days in the sample. See supra note 1743 for further details on 

methodology. Compliance costs are estimated using the per-respondent costs from section VIII.D. 
 

An indirect cost of requiring these smaller broker-dealers to publish Rule 605 reports is 

an increased risk of information leakage. To the extent that a broker-dealer serves multiple 

institutional investors and/or these institutional investors exclusively use not held orders, it might 

be difficult to identify the orders of a particular customer in the amended Rule 605 reports. 

However, a smaller broker-dealer might have only a few institutional investor customers that 

represent the majority of its business and this might be known to other market participants. In 

this case, it might be possible to learn from Rule 605 reports some information about the 

customer’s order flow that is handled by the specific broker-dealer. This information will only 

 

1751  See supra section IX.C.2.c) for a discussion of institutional investors’ access to alternative sources of 

execution quality other than Rule 605 reports. 



514 

pertain to historical order flow and will only include a possibly limited subset of the customer’s 

orders that are held orders, but could nevertheless provide information about the general 

characteristics of the customer’s order flow, which might be useful to other market participants. 

Such a potential outcome could put smaller broker-dealers (that is, those with a small set of 

customers or handling a relatively small number of institutional orders) at a competitive 

disadvantage relative to larger broker-dealers, as institutional investors might avoid using smaller 

broker-dealers to avoid possible disclosure that could be traced back to the customer.  

b) Require all broker-dealers to prepare Rule 605 reports 

Another alternative to the adopted amendment to require larger broker-dealers to prepare 

execution quality reports pursuant to Rule 605 is to require all broker-dealers to prepare such 

reports, excluding broker-dealers with de minimis order flow. Several commenters supported this 

alternative.1752 

Expanding reporting requirements to all broker-dealers, subject to a de minimis 

threshold, would greatly increase the scope of these amendments, as there were 3,494 registered 

broker-dealers as of Q2 2023.1753 However, only around a third (specifically, 1,245) of these 

broker-dealers introduced or carried at least one individual and/or institutional investor in the 

market for NMS stocks within the sample time period.1754 The Commission is mindful of the 

additional costs that broad expansion of the rule to all broker-dealers would entail, relative to the 

 

1752  See, e.g., Robinhood Letter at 44; Angel Letter at 3. 

1753  See supra section IX.C.4.a)(1). In addition, based on Q2 2021 data, the Commission stated in the Proposing 

Release that there were 3,498 registered broker-dealers with only around a third (specifically, 1,267) of 

these broker dealers introducing or carrying at least one individual and/or institutional investor in the 

market for NMS stocks within the sample time period. See Proposing Release, 88 FR 3786 at 3887 (Jan. 

20, 2023). These numbers are comparable to the ones in this adopting release. 

1754  See analysis in supra Table 13 for estimated number of broker-dealers that introduce or carry at least one 

customer account. 



515 

likely limited benefits of expanding reporting requirements to a substantial number of broker-

dealers that do not directly handle, and thus have less discretion over the execution quality of, 

individual and institutional investors’ orders. Therefore, it is likely that the increase in cost that 

would accompany a requirement for all broker-dealers to prepare Rule 605 reports, subject to a 

de minimis threshold, would not be justified by the corresponding benefit, and that limiting 

reporting obligations to broker-dealers that handle customer orders will focus the associated 

implementation costs on those broker-dealers for which the availability of more specific 

execution quality statistics would provide a greater benefit. One commenter stated that only 

6.7% of broker-dealers that carry or introduce at least one customer account would be required to 

prepare Rule 605 reports.1755 However, as discussed above, these broker-dealers, while a 

relatively small percentage of broker-dealers, are responsible for the vast majority (more than 

98%) of customer accounts, as well as a significant percentage (59.5%) of customer order 

flow.1756  

c) Defining the threshold for differentiating larger broker-dealers 

using number of customer transactions rather than number of 

customer accounts. 

The Commission also considered defining the threshold for differentiating larger broker-

dealers using number of customer transactions rather than number of customer accounts. An 

approach requiring that broker-dealers handling above a threshold level of customer transactions 

publish Rule 605 reports would likely capture an overall larger number of customer orders. 

However, it would also be subject to a number of issues that would limit the benefits of this 

 

1755  See Robinhood Letter at 44. 

1756  See Table 13 and corresponding discussion. 



516 

approach. The Commission did not receive comment on this alternative, which was also in the 

Proposing Release.1757 

First, this approach would likely exclude from reporting requirements broker-dealers that 

have a large number of relatively inactive customer accounts, and include broker-dealers that 

have a small number of accounts associated with large amounts of trading volume. While the 

former are likely to be accounts belonging to individual investors, the latter are very likely to be 

institutional accounts. Institutional investors are likely to have access to alternative information 

about the execution quality achieved by their broker-dealers and/or are likely to make use of not 

held orders that are excluded from Rule 605 reporting requirements, and would therefore be less 

likely to depend on Rule 605 reports for information about their broker-dealers’ execution 

quality.1758 Meanwhile, individual investors have fewer alternatives to Rule 605 for information 

about the execution quality achieved by their broker-dealers.1759 Therefore, while expanding 

overall coverage, defining the threshold using the number of customer transactions would be less 

likely to target the types of orders that might be most useful for consumers of Rule 605 reports. 

Second, defining the threshold using the number of customer transactions might result in 

a less stable classification of broker-dealers into those that are and are not subject to Rule 605 

requirements, as there is likely to be more month-to-month variation in transaction numbers 

resulting from changes in market conditions, as compared to number of customer accounts.1760 

 

1757  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 

1758  See section IX.C.2.c) for a discussion of institutional investors’ access to alternative sources of execution 

quality information other than Rule 605 reports. 

1759  See section IX.C.2.b) for a discussion of individual investors’ usage of Rule 605 reports. 

1760  This possibility is somewhat limited by the adopted amendment requiring a broker or dealer that equals or 

exceeds the customer account threshold to provide reports for at least three calendar months. See supra 

section II.A.2. 



517 

This could potentially be disruptive to broker-dealers, who would have to coordinate compliance 

with Rule 605 during some periods but not others and interfere with customers’ or market 

participants’ ability to look at a broker-dealer’s execution quality over time by analyzing 

historical data. Furthermore, the dependence of transaction volumes on market conditions might 

result in broker-dealers being newly defined as “larger broker-dealers” subject to reporting 

requirements, even though their size relative to other broker-dealers did not change. For 

example, a period of sustained market volatility resulting in overall increases in market activity 

levels might trigger the need for many or even most broker-dealers to file Rule 605 reports, even 

if the broker-dealer’s relative portion of order flow (as a percentage of total broker-dealer 

customer order flow) did not change.1761 This would increase the total compliance costs 

associated with the amendments to Rule 605. 

Lastly, the number of customer accounts is likely less costly for broker-dealers to 

calculate and track compared to the number of transactions associated with customer accounts. 

Given that around 88.1% of customer-carrying broker-dealers reported the actual number of their 

customer transactions (rather than an estimated number) on their FOCUS Report Form X-17A-5 

Schedule I in 2022,1762 the extent to which broker-dealers would be able or choose to track the 

number of transactions associated with their customer accounts is unclear.  

 

1761  This possibility would be somewhat limited by the adopted amendment requiring broker-dealers to publish 

Rule 605 reports only after a three-month initial grace period. See supra section II.A.2. 

1762  This number was calculated by dividing the number of broker-dealers that answered “yes” to items I8084 

(“Respondent carries its own public customer accounts”) and I8105 (“Actual number of respondent’s 

public customer transactions”) and that reported at least one customer transaction, by the total number of 

 

 

 



518 

2. Reasonable Alternative Modifications to Scope of Covered Orders 

a) Explicitly include ISO orders with limit prices inferior to the 

NBBO.  

Both prior to and after these amendments, marketable Intermarket Sweep Orders 

(“ISOs”) with a limit price inferior to the NBBO, i.e., an ISO with a limit price less than the 

national best bid for sell orders or higher than the national best offer for buy orders, may be 

viewed as being subject to special handling, which will exclude them from Rule 605 reports.1763 

The Commission considered an alternative to explicitly include these orders within the scope of 

covered orders, either aggregated with other order types or as a separate order type category. The 

Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1764 

ISOs make up a large percentage of on-exchange trade volume; one academic working 

paper found that, between January 2019 and April 2021, ISOs accounted for 48% of on-

 

broker-dealers that answered “yes” to item I8084 and reported at least one customer transaction. See supra 

note 1746 for a description of FOCUS Report Form X-17A-5 Schedule I. The Proposing Release included a 

similar analysis using 2021 FOCUS Report Form X-17A-5 Schedule I that looked that customer-carrying 

broker dealers that reported the actual number of respondent’s public customer transactions, but did not 

control for whether the respondent reported at least one customer transaction (i.e., it additionally includes 

broker-dealers that reported no transactions during the calendar year). Using 2022 FOCUS Report Form X-

17A-5 Schedule I, this number is 47.7%, which is similar to the number from the Proposing Release. See 

Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). The Commission has adjusted its methodology to 

control for the number of broker-dealers that report at least one customer transaction in order to achieve a 

more conservative estimate of broker-dealers that will face costs from updating their systems to record 

transaction information. It is unlikely that broker-dealers that report actual transaction numbers of zero, to 

the extent that they continue to not handle any transactions, will need to update their systems in this way 

for the purposes of tracking customer transactions. While these methodologies produce different numbers, 

they both support the idea that the extent to which broker-dealers will be able or choose to track the number 

of transactions associated with their customer accounts is unclear. 

1763  See supra note 4, discussing the exclusion of orders for which the customer requests special handling from 

the definition of “covered orders.” See also 2013 FAQs, answer to Question 1.  

1764  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 



519 

exchange trade volume.1765 In order to estimate the volume of ISOs that are excluded from Rule 

605 reporting requirements as a result of the exclusion of ISOs with inferior limit prices, an 

analysis was performed using data on ISO marketable limit orders from the Tick Size Pilot B.II 

Market and Marketable Limit Order dataset.1766 Table 131767 shows that ISO orders with limit 

prices inferior to the NBBO make up 4.9% of ISO buy orders (6.3% of buy share volume), and 

4.7% of ISO sell orders (9.0% of ISO sell volume). Therefore, it could be the case that these 

orders make up a small but non-negligible percent of order flow.1768 

 

1765  See Ariel Lohr, Sweep Orders and the Costs of Market Fragmentation (Sept. 18, 2021), available at 

https://ssrn.com/abstract=3926296 (retrieved from SSRN Elsevier database). 

1766  See supra note 1545 for dataset description. For the analysis of ISO orders, the Commission limited this 

analysis to a randomly selected sample of 100 stocks and for the time period of Mar. 2019. This analysis 

uses data from prior to the implementation of the MDI Rules and specific numbers may differ following the 

implementation of the MDI Rules. In particular, for stocks with prices over $250, quoted spreads and price 

improvement statistics are expected to narrow because they will be measured against a narrower NBBO. 

The effects on effective spread, price impact, and realized spread statistics in these stocks is uncertain, 

because they are measured against the NBBO midpoint, and the Commission is uncertain how this will be 

affected. See supra section IX.C.1.c)(2). However, the Commission does not anticipate that the existence of 

a negative relation between the retail brokers' adverse selection risk and the execution quality that they 

receive from wholesalers described here would be affected by the implementation of the MDI Rules. 

1767  The same table can be found in the Proposing Release. See Table 14 in the Proposing Release, 88 FR 3786 

at 3888 (Jan. 20, 2023). 

1768  As the Tick Size Pilot covered only small-cap stocks (i.e., NMS common stocks that have a market 

capitalization of $3 billion or less, a closing price of at least $2.00, and a consolidated average daily volume 

of one million shares or less), ISO volumes and properties may be different for mid- or large-cap stocks. 

Furthermore, as the Tick Size Pilot data are based on self-reported data by trading centers, there is the 

possibility that the data may be subject to certain errors or omissions. 



520 

Table 14: Marketable Intermarket Sweep Orders by Price Relative to NBBO, Mar. 2019 

Percent of Orders ISO Buy Orders ISO Sell Orders 

Price Equal to the NBBO 95.1% 95.2% 

Price Worse Than NBBO 4.9% 4.7% 

Price Better Than NBBO 0.05% 0.06% 

Percent of Share Volume ISO Buy Orders ISO Sell Orders 

Price Equal to the NBBO 93.5% 90.1% 

Price Worse Than NBBO 6.3% 9.0% 

Price Better Than NBBO 0.2% 0.9% 

This table shows the percentage of ISO marketable limit orders with limit prices inferior to the NBBO, equal to the NBBO, 

and better than the NBBO, using a randomly selected sample of 100 stocks from the Tick Size Pilot B.II Market and 

Marketable Limit Order dataset and for the time period of Mar. 2019. Percentages are calculated as the number of shares 

(resp. orders) submitted with an ISO designation and within a given price type (i.e., priced equal to, worse than, or better than 

the NBBO), divided by the total number of shares (resp. orders) submitted with an ISO designation. Results are calculated and 

presented separately for buy and sell orders. See supra note 1545 for dataset description. The numbers reported here, in 

particular those related to the NBBO, may change once the amendments in the MDI Adopting Release are implemented. See 

supra note 1766 and section IX.C.1.c)(2). 

However, there are questions as to whether ISOs with inferior limit prices would be 

comparable to other marketable limit orders. When the limit price of an ISO is inferior to the 

NBBO at time of order receipt, the customer is effectively instructing the trading center that it 

can execute the order at a price inferior to the NBBO. If the order executes, any adverse effects 

that this inferior limit price has on the order’s execution quality metrics (e.g., a negative price 

improvement, or a higher effective spread) would be a result of the customer’s instructions, 

rather than the market center or broker-dealer’s discretion. As a result, these orders are likely to 

skew execution quality metrics downwards if included with other order types, which would harm 

market participants’ ability to use these metrics to accurately compare reporting entities.  

One alternative could be to explicitly include ISOs with inferior limit prices as a separate 

order type category in Rule 605 reports. However, the instruction that a market center should 

execute an ISO order at a price inferior to the NBBO, even when other market centers are 

displaying liquidity at better prices, limits broker-dealers’ discretion over the execution price of 

these orders. Thus, market participants might only benefit from this information to the extent that 

market centers or broker-dealers still have some discretion over some dimension of the order’s521 

execution quality such that this information would be useful in comparing metrics across 

reporting entities.1769  

b) Exclude orders that are cancelled quickly after submission. 

Limit orders that are canceled within a very short amount of time after submission are 

likely driven by trading strategies (for example, high frequency trading1770 and “pinging”) that 

are not intended to provide liquidity, and therefore might have limited information about the 

execution quality of a particular market center. Excluding quickly cancelled orders from the 

definition of “covered order” might allow fill rates (i.e., number of shares executed at or away 

from the market center, divided by number of covered shares) to better capture the execution 

probability of resting orders that are given a minimum opportunity to be executed, leading to a 

more meaningful ranking of Rule 605 reporting entities. At the same time, excluding cancelled 

orders also might entail losing important information if these cancellations capture information 

about orders that did not or could not receive a fill, rather than trading strategies. The 

Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1771 

In order to examine how the presence of quickly cancelled orders might impact fill rates 

and subsequently impact the ranking of market centers, the Commission first examined data on 

cancellation and execution times of executable NMLOs from MIDAS during the month of 

 

1769  For example, the willingness of traders to accept prices worse than the NBBO could help illuminate the 

premium paid by traders to quickly trade in a fragmented trading environment, which could differ across 

market centers. 

1770  The Concept Release on Equity Market Structure states that “the submission of numerous orders that are 

cancelled shortly after submission” is a primary characteristic of high-frequency traders. See 75 FR 3594 at 

3606 (Jan. 21, 2010). 

1771  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 



522 

March 2023.1772 Figure 241773 plots the conditional distribution of cancellation and execution 

times,1774 and shows that cancellation times tend to be shorter than execution times: while the 

largest percentage (30.5%) of cancelled executable NMLOs are cancelled between 1 and 100 

milliseconds after submission, the largest percentage (46.4%) of executable NMLOs that 

received execution are not executed until between 1 and 30 seconds after submission. In fact, 

while 70.6% of cancelled orders are cancelled in less than 1 second, only 34.2% of executions 

happen within the same time frame. This imbalance implies that many orders may be cancelled 

before they are given a reasonable opportunity to execute.  

 

1772  See supra note 1130 for data description. This analysis does not include IOC NMLOs, which are not 

captured in MIDAS metrics. As discussed in supra section IX.C.3.c)(9), these orders may have contributed 

to low fill rates in reports under preexisting Rule 605. Execution times and cancellations times are 

calculated from the time of order receipt to the first time that one or more of the order’s shares are 

executed, or the first time that one or more of the order’s shares are cancelled, respectively. 

1773  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons discussed in supra note 1130. See Proposing Release, 88 FR 3786 at 3890 (Figure 16), 3842, n.634 

(Jan. 20, 2023) (for data description). The numbers in the Proposing Release are similar: while the largest 

percentage (29.8%) of cancelled executable NMLOs are cancelled between 1 and 100 milliseconds after 

submission, the largest percentage (44.8%) of executable NMLOs that received execution are not executed 

until between 1 and 30 seconds after submission; and that while 75% of cancelled orders are cancelled in 

less than 1 second, only 41.1% of executions happen within the same time frame. Therefore, changes to the 

MIDAS dataset did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that many orders may be cancelled before they are given a reasonable opportunity to 

execute. 

1774  The conditional distribution examines the percentage of cancelled (executed) orders that are cancelled 

(executed) within the defined time thresholds, and not the percentage of all orders that are cancelled or 

executed within the defined thresholds. Therefore, the cancellation (execution) percentages plotted in the 

Figure should sum up to 100%. 



523 

Figure 24: Distribution of Execution and Cancellation Times for Executable NMLOs,  

Mar. 2023 

 

This figure plots the distribution of execution and cancellation times across various time categories, using data from MIDAS. See 

supra note 1130 for data description. Percentages are calculated as the number of shares that executed (resp. cancelled) within a 

particular time horizon, summed across all stocks and days in the sample, divided by the total number of executed (resp. 

cancelled) shares, summed across all stocks and days. Execution times and cancellation times are calculated as the time of order 

receipt to the first time that one or more of the order’s shares are executed, or the first time that one or more of the order’s shares 

are cancelled, respectively.  

Therefore, it might be the case that excluding orders cancelled below some minimum 

threshold might lead to more informative fill rates. However, one question might be how to 

determine this threshold. For example, if the intent is to exclude cancellations that are part of 

high-frequency trading strategies such as pinging, it might be useful to keep in mind that 

estimates of human reaction time range from between one second and several hundred 

milliseconds, setting an upper bound for what might be considered high-frequency trading.1775 

Meanwhile, one recent academic paper found that high frequency trading strategies operate in 

 

1775  See, e.g., Neil Johnson et al., Abrupt Rise of New Machine Ecology Beyond Human Response Time, 3 SCI. 

REPS. 1 (2013); Albert Menkveld & Marius A. Zoican, Need for Speed? Exchange Latency and Liquidity, 

REV. FIN. STUD. 1188 (2017). 



524 

approximately 5 to 10 microseconds.1776 This would imply that a useful range for determining an 

appropriate threshold might be between approximately a few microseconds and one second. 

Figure 251777 plots the fill rates1778 of executable NMLOs that result from excluding orders that 

are cancelled below a variety of minimum time thresholds, showing that fill rates increase and 

approach 100% as more and more cancelled orders are excluded from the calculation of the fill 

rate. Importantly, fill rates do not change much when orders cancelled in less than 100 

microseconds, increasing by less than 0.1%. Fill rates increase when orders cancelled in less than 

1 second are excluded, but still remain on the lower side at 4.55%. This implies that the impact 

of excluding quickly cancelled orders on fill rates might be limited.1779  

 

1776  See Aquilina et al. 

1777  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3891 (fig. 17), 3842, n.634 

(Jan. 20, 2023) (for data description). The analysis in the Proposing Release found similar results: fill rates 

increase and approach 100% as more and more cancelled orders are excluded from the calculation of the 

fill rate, and do not change much when orders cancelled in less than 100 microseconds (only increasing by 

0.2%). Fill rates increase when orders cancelled in less than 1 second are excluded, but still remain on the 

lower side at 11.5%. Therefore, changes to the MIDAS dataset did not affect the Commission’s conclusions 

from this analysis relative to the Proposing Release, namely that the impact of excluding quickly cancelled 

orders on fill rates might be limited. 

1778  As discussed in supra note 1199, the analysis may overestimate fill rates due to the exclusion of orders with 

multiple submission messages. In the alternative analysis without this exclusion described in supra note 

1199, fill rates differ from those in Figure 25 by less than 1 percentage point. While this alternative 

analysis, by assigning to the total submitted volume the price at the time of submission, tended to 

overestimate the number of executable NMLOs, it is unclear that this would systematically overestimate fill 

rates for executable NMLOs as discussed in supra note 1442. Therefore, the Commission’s conclusions 

from this analysis are not affected by the exclusion of orders with multiple submission messages. 

1779  This sample contains a mixture of stocks in terms of share price and market capitalization, and these 

numbers are likely to look different for individual stocks according to their market capitalization and 

liquidity characteristics. 



525 

Figure 25: Effect of Excluding Quickly Cancelled Orders on Fill Rates for Executable 

NMLOs, Mar. 2023 

 

This figure plots the fill rates of executable NMLOs that result from excluding orders that are cancelled below a variety of 

minimum time thresholds using data from MIDAS. See supra note 1130 for data description. Cancellations times are calculated 

as the time of order receipt to the first time that one or more of the order’s shares are cancelled. Fill rates are calculated as the 

number of shares that execute summed across all stocks and days in the sample, divided by the number of submitted shares 

excluding shares that are canceled within a given time frame, summed across all stocks and days. 

The benefit of excluding quickly cancelled orders is also likely to be limited if excluding 

these orders systemically increases fill rates across all reporting entities and does not necessarily 

lead to a change in ranking between reporting entities. To explore this possibility, the 

Commission limited the sample to the five largest market centers in terms of execution volume, 

to examine how the rankings between these market centers changes in terms of their fill rates for 

executable NMLOs resulting from changes to the threshold below which to exclude cancelled 

orders. Then it examined changes to their fill rate rankings for executable NMLOs as the 

threshold below which to exclude cancelled orders increased. The Commission found that 

market centers’ rankings did not change until cancellations below one second were excluded, 

when the market centers ranked first and third switched places. As for reasons described above 

one second represents a maximum bound on a reasonable threshold for excluding cancellations, 



526 

this again implies that the benefits of excluding quickly cancelled orders on fill rates might be 

limited. 

c) Include NMLOs submitted outside of regular trading hours as a 

separate order category.  

These amendments to Rule 605 will require NMLOs submitted outside of regular trading 

hours to be included in Rule 605 reports if they become executable during regular trading hours. 

The Commission considered whether it would be useful to include these orders as a separate 

order type category in Rule 605 reports. If NMLO orders submitted outside of regular trading 

hours have characteristics that are fundamentally different from other types of orders and have 

sufficient volume, their inclusion along with other orders could skew execution quality statistics. 

Pre-open orders likely have characteristics that differ from orders submitted during regular 

hours.1780 However, these pre-open orders make up only a very small percentage of order 

volume.1781 Therefore, it is unlikely that the inclusion of these orders along with other order 

types would significantly skew execution quality statistics, and including them as a separate 

order type category would likely only increase the complexity and size of Rule 605 report files. 

The Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1782 

 

1780 See supra section IX.C.3.b)(4) for an analysis showing that orders submitted pre-open are more likely to be 

more individual customer accounts as compared to orders submitted during regular opening hours. 

1781  See supra section IX.C.3.b)(4) for an analysis. 

1782  See Proposing Release, 88 FR 3786 at 3891 (Jan. 20, 2023). 



527 

3. Reasonable Alternative Modifications to Required Information 

a) Reasonable Alternative Order Size Categories 

(1) Defining order sizes based on number of round lots rather 

than notional categories. 

Instead of redefining order size categories according to notional values, the Commission 

considered an alternative that defined categories based on the number of round lots.1783 This 

approach has several advantages. First, similar to defining categories based on notional values as 

in these amendments, categories based on number of round lots might make it easier to compare 

execution quality metrics across market centers that trade in differently priced stocks. Pre-

controlling for the stock price would thus eliminate the need for users of Rule 605 to go through 

the extra step of collecting and controlling for stock price information before being able to 

meaningfully compare market centers using Rule 605 data. However, according to the MDI 

Rules, round lots are based on the previous month’s trading price.1784 Furthermore, as stated by 

several commenters, the MDI round lot categories are wide and therefore contain a wide range of 

stocks in terms of price, and as such, order size categories based on round lot denominations 

might not meet the objective of grouping orders with similar notional values.1785 Therefore, 

unlike categories based on round lots, categories based on notional values include a more 

granular categorization of order sizes, and also incorporate information about changing stock 

prices in real time, thereby better grouping together similarly sized orders. 

 

1783  One commenter supported this alternative. See Better Markets Letter at 6. 

1784 See supra note 1015 and accompanying text. A commenter stated that one issue with defining order size 

categories in terms of round lots would be that the definitions would not be based on real-time data. See 

Rule 605 Citadel Letter at 6. 

1785  See, e.g., FIF Letter at 14; SIFMA Letter at 32; Rule 605 Citadel Letter at 6; Schwab Letter at 33. 



528 

(2) Require separate information for orders larger than one 

share with a fractional component 

The Commission considered an alternative in which, in addition to odd-lots, round lots, 

and fractional orders less than one share, reporting entities would also be required to report 

separate execution quality information for round lots with a fractional component, and odd-lots 

with a fractional component. This was suggested by a commenter, who stated that “when a round 

lot or odd-lot order has a fractional share component, this could, in some cases, impact the time 

to execution and the execution price.”1786 The Commission agrees that, similarly to fractional 

orders less than a share, handling practices regarding orders greater than one share with 

fractional components may vary across broker-dealers and market centers1787 and, to the extent 

that this is the case, this might have an impact on execution quality. However, an analysis of 

CAT data from 2023 for 400 stocks1788 shows that odd-lots with fractional components and 

round lots with fractional components only make up a small percentage of order flow (0.003% 

and 0.0008%, respectively). Furthermore, in contrast to fractional orders less than a share, the 

Commission did not find execution quality to systematically vary significantly between odd-lots 

and rounds lots with fractional components and their counterparts without fractional components. 

Specifically, Figure 26 shows the share-weighted average time-to-execution of fractional orders 

less than a share, and orders greater than a share both with and without fractional components. In 

order to focus on order flow that is most likely to contain fractional components, this analysis 

focuses on orders originating from individual customer accounts at broker-dealers. The results 

 

1786  See FIF Letter at 15. 

1787  See supra section IX.C.3.b)(1)(b) for further discussion for differences in handling practices for fractional 

shares. 

1788  See supra note 1211 for dataset description. 



529 

show that, while fractional orders less than a share have much longer execution times, the 

execution times of odd-lot and round lot orders with fractional components do not appear to be 

systematically longer than those without fractional components. Therefore, the Commission does 

not believe that there would be a significant benefit to including separate execution quality 

information for these types of orders. 



530 

Figure 26: Time-to-Execution of Fractional Orders, Q1 2023 

 

 

This figure plots the share-weighted average time-to-execution of fractional orders less than a share, odd-lots, odd-lots with a 

fractional component, round lots, and round lots with a fractional component. Execution times are calculated as the time of order 

receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the time of executability) to the first time that one or more of 

the order’s shares are executed. Share weights are calculated as the number of executed shares in an order divided by the total 

number of executed shares summed across stocks and all days in the sample. This analysis uses CAT data for a sample of 400 

stocks. See supra note 1211 for data description. 

b) Reasonable Alternative Time-to-Execution Statistics 

(1) Replace time-to-execution buckets with time-to-execution 

statistics. 

In the Proposing Release, the Commission proposed eliminating time-to-execution 

buckets and instead requiring reporting entities to report additional time-to-execution 

statistics,1789 specifically, the median and 99th percentile of time-to-execution statistics.1790 

The Commission continues to believe that requiring time-to-execution statistics as 

proposed would provide market participants with useful information about the distribution of 



531 

time-to-execution for a given stock, order size, and order type combination (i.e., a given “row” in 

a Rule 605 report). However, the Commission acknowledges that, as stated by a commenter, one 

issue with point estimates of distribution information, such as the median and 99th percentile, is 

that they would not allow for an aggregation across rows.1791 The commenter instead suggested 

including two measures of the share-weighted average time-to-execution – one adjusted for 

outliers, and one not adjusted for outliers.1792  

The Commission understands that consumers of Rule 605 reports benefit from the ability 

to aggregate information across various order types and sizes (i.e., rows) of Rule 605 reports1793 

and therefore agrees that the inability to aggregate across median and 99th percentile time-to-

execution measures represents a disadvantage to including these measures. However, requiring 

time-to-execution buckets will allow market participants to recreate average time-to-

execution1794 in a way that is more straightforward than the method suggested by the 

commenter.1795 

(2) Calculate time-to-execution based on time of order route 

The Commission also considered an alternative in which, rather than calculating order 

execution times from the time of order receipt, broker-dealers would calculate the execution time 

 

1791  See FIF Letter at 21, stating that “market participants and other firms analyzing Rule 605 data cannot 

aggregate [median and 99th percentile] across different symbols and order type categories.” 

1792  See FIF Letter at 22. 

1793  See, e.g., id. 

1794  See, e.g., Healthy Markets Letter at 17, stating that “[b]y creating buckets for timestamp, rather than 

average time to execution, the reports would provide much greater granularity while still allowing a user of 

the data to recreate average time to execution.” 

1795  Furthermore, the commenter’s suggested alternative of a time-to-execution average adjusted for outliers 

would result in the same issue as with median and 99th percentile – i.e., it would not be possible to 

aggregate these measures across rows as the identified outliers in the aggregated group could be different 

from those identified within each individual pre-aggregate group.  



532 

from the time of order route, i.e., a time after the broker-dealer has performed internal risk 

controls and decided to accept the order. This alternative was suggested by several commenters, 

who stated that current order management systems may not generate a timestamp for when risk 

controls have been applied and it would be costly to generate such markers,1796 and that using 

order receipt time could create a perverse incentive for firms to diminish time spent on necessary 

reviews in an effort to improve execution speed statistics.1797 The Commission disagrees that the 

use of order receipt time will incentivize broker-dealers to circumvent their risk controls. Broker-

dealers are subject to other regulatory requirements, including the Commission’s market access 

rule, that will continue to apply.1798 Furthermore, broker-dealers likely have other incentives to 

perform these risk controls, such as reputational and business concerns. Furthermore, to the 

extent that the requirement to use order receipt time requires broker-dealers to update their 

management systems to generate such a timestamp, such costs are included in the cost estimates 

for first-time Rule 605 reporters as described in section IX.D.2.a)(1). On the other hand, there are 

greater benefits associated with using time of order receipt rather than time of order route. This 

timestamp method is more relevant to customers because it will show how the broker-dealer 

handled the order from the time the broker-dealer received it.1799  

 

1796  See FIF Letter at 19. 

1797  See Schwab Letter II at 33; Schwab Letter III at 5; FIF Letter II at 9. 

1798  See supra note 185 and corresponding text.  

1799  See supra section II.A.2.c) for further discussion. One commenter supported the use of receipt time rather 

than route time for broker-dealers; see Healthy Markets Letter at 16. 



533 

c) Reasonable Alternative Spread Measures 

(1) Use different clock time horizons to calculate realized 

spread. 

The adopted amendments to Rule 605 will require the realized spread to be calculated at 

a range of time horizons between 50 milliseconds and 5 minutes. This represents an expansion to 

what was proposed, that the realized spread be calculated at two time horizons (15 seconds and 

one minute).1800 The Commission also considered alternative approaches, such as including a 

smaller set of time horizons.1801  

In the Proposing Release, the Commission acknowledged that “requiring an additional 

specification of realized spreads would entail adding another data item, which would also 

increase the complexity of Rule 605 reports.”1802 However, upon further review, the Commission 

agrees with a commenter that the detailed Rule 605 reports are “intended to be machine-

readable, not human-readable,” and that “[a]dding rows and columns to the Rule 605 report, 

within reason, would not materially increase the costs of processing these reports and storing the 

relevant data.”1803 Furthermore, a lower number of time horizons would reduce the benefits from 

including a wide range of realized spread time horizons, as discussion in section 

IX.D.1.b)(2)(c)(i). 

 

1800  See Proposing Release, 88 FR 3786 at 3814-3816 (Jan. 20, 2023); see also supra section III.B.4.a)(1). 

1801  Specifically, in the Proposing Release, the Commission proposed including two realized spread time 

horizons, 15 seconds and one minute. See Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023). 

1802  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

1803  See FIF Letter at 16. 



534 

One commenter suggested replacing the five-minute time horizon with “short timeframes 

to include 50ms, 100ms.”1804 Some of the results from the Commission’s analysis of realized 

spreads in section IX.D.1.b)(2)(c)(i) support the inclusion of very short time horizons, 

particularly for the largest stocks, and as discussed above the Commission is including a 50-

millisecond time horizon.1805 However, other analyses show that including longer time horizons 

will be beneficial for smaller stocks.1806 Therefore, as discussed above, it will be beneficial to 

include a wide range of time horizons between 50 milliseconds and 5 minutes.  

(2) Use trade time horizons to calculate realized spread. 

The Commission also considered whether the time horizon used to calculate realized 

spreads should be measured in terms of “trade time,” rather than “clock time.” The Commission 

did not receive comment on this alternative, which was also in the Proposing Release.1807 An 

ideal measurement horizon for realized spreads would be one that aligns with the amount of time 

an average liquidity provider holds onto the inventory positions established from providing 

liquidity. This horizon varies according to characteristics that impact liquidity providers’ ability 

to turn over their positions, including stock liquidity;1808 however, this time horizon also varies 

over time, as overall market conditions change. The use of a fixed time horizon could therefore 

make it so that the ability of realized spread measures to capture information about adverse 

selection varies over time. 

 

1804  See Healthy Markets Letter at 17. 

1805  See, e.g., the results in Figure 19 and surrounding discussion. 

1806  See, e.g., the results in Figure 18 and Table 6 and surrounding discussion. 

1807  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

1808  See supra note 1239 and the results in Figure 14 and surrounding discussion. 



535 

 Instead of setting a fixed “clock time” horizon, volume or “trade time” measures changes 

between the “the initial trade to the ith trade thereafter,”1809 and therefore allows for a time 

horizon that is flexible to different levels across stocks, and also over different time periods. In 

other words, while prices may update under liquid conditions in a few seconds or less, during 

very illiquid conditions several minutes may go by without a trade. Measuring time in terms of 

number of trades allows for the horizon to match these different speed “regimes” and might 

result in realized spread calculations that are more consistently relevant.1810 

However, the Commission is mindful of the additional computational resources that 

would be required if trade time were required to calculate realized spreads, as this would require 

reporting entities to match their execution information both to information on the NBBO, as 

would be necessary under the proposed clock time horizons, but additionally historical trade 

information from the exclusive SIPs.1811 More computationally intensive metrics would likely 

increase reporting entities’ compliance costs. Therefore, the adopted amendment to include 

multiple fixed time horizons will allow for sufficient flexibility in capturing realized spread 

information for stocks and/or time periods with different liquidity characteristics without 

increasing the computational resources required to calculate this measure. 

 

1809  See Conrad and Wahal, supra note 544, at 241. 

1810  For this reason, some academic studies use trade time instead of clock time when calculating metrics; see, 

e.g., David Easley, Marcos M. Lopez De Prado & Maureen O’Hara, Flow Toxicity and Liquidity in a High-

Frequency World, 25 REV. FIN. STUD. 1457 (2012). 

1811  See supra note 1009. 



536 

(3) Use weighted midpoint to calculate effective and realized 

spread. 

Under the adopted amendments, Rule 600(b)(8) defines effective spreads as, for buy 

orders, double the amount of difference between the execution price and the midpoint of the 

national best bid and national best offer at the time of order receipt and, for sell orders, as double 

the amount of difference between the midpoint of the national best bid and national best offer at 

the time of order receipt and the execution price. For midpoint-or-better limit orders, the time of 

executability is used rather than the time of order receipt.1812 The Commission is further adopting 

a definition of the average percentage effective spread, which will be equal to the average 

effective spread for order executions, divided by the midpoint for order executions.1813 However, 

an academic study1814 found that measuring the effective spread relative to the midpoint 

overestimates effective spreads by an average of 13%-18%, and that the bias can vary across 

stocks, trading venues, and investor groups. The paper instead suggests measuring effective 

spreads relative to a weighted midpoint, which factors in the depth available at the best bid and 

ask price, in order to reduce this bias.1815  

The presence of bias in effective spreads in Rule 605 reports would impact market 

participants’ ability to use this metric to make comparisons across reporting entities, particularly 

if the bias leads to a systematic over- or under-estimation of spreads for a particular entity or 

group of entities. However, there are benefits and costs to the use of the midpoint compared to 

 

1812  See final 17 CFR 242.600(b)(8). 

1813  See final 17 CFR 242.600(b)(10). 

1814  See Bias in the Effective Bid-Ask Spread, supra note 1244. 

1815  The weighted midpoint is calculated using the following formula: weighted midpoint = ((bid price × 

quantity at the ask price) + (ask price × quantity at the bid price))/(quantity at the ask price + quantity at the 

bid price). See id. 



537 

the weighted midpoint for calculating effective spreads. On the one hand, the midpoint requires 

only data on the best available bid and ask price. Calculating the weighted midpoint on the other 

hand would require that reporting entities additionally collect data on the depth available at the 

NBBO.1816 Furthermore, the midpoint may be easier to compute and interpret, as it is more 

familiar to market participants than the weighted midpoint. The Commission did not receive 

comment on this alternative, which was also in the Proposing Release.1817 

d) Reasonable Alternative Size Improvement Measures 

(1) Dollar size improvement calculated using proprietary full 

depth-of-book data. 

The Commission considered alternative measures of size improvement, including 

requiring a measure of dollar size improvement that would capture the dollar savings that an 

investor receives from size improvement offered by a reporting entity, taking into account the 

depth of book quotes and odd-lot quotes available from all exchanges’ proprietary depth-of-book 

data feeds. The measures of dollar size improvement considered include both RPI and a modified 

RPI measure that would account for the fact that order sizes may exceed the consolidated depth 

available across all order levels. 

First, as suggested by a petitioner, the Commission considered requiring the reporting of 

RPI, which would be calculated as the signed difference between the value-weighted average 

price (“VWAP”) of the transaction, and a reference price calculated as the VWAP that the trader 

would have gotten from walking a consolidated limit order book consisting of displayed liquidity 

 

1816  This may not be a significant cost, as reporting entities are required to collect information on NBBO depth 

for computing the size improvement measures under the adopted amendments. See supra section 

III.B.4.e)(2). 

1817  See Proposing Release, 88 FR 3786 at 3893 (Jan. 20, 2023). 



538 

from all national securities exchanges, taking into account both odd-lots and depth available at 

prices outside of the NBBO.1818 In other words, it calculates how much money a trader saved by 

the market center executing their trade at a particular price, rather than having their order walk 

the consolidated limit order book.1819 Because prices worsen deeper in the book, this measure 

could contain more information than combining price improvement with the size improvement 

metrics described in section IX.D.1.b)(2)(c)(v). Further, because the execution price is measured 

relative to depth of book as opposed to midpoint, this measure could contain information beyond 

effective spread. 

In addition to RPI, the Commission also considered a modified RPI measure that would 

account for the fact that order sizes may exceed the consolidated depth available across all order 

levels.1820 This alternative would account for this possibility by truncating the calculation of 

dollar size improvement at the consolidated depth of book size, and separately requiring the 

reporting of the number of shares executed in excess of consolidated depth of book size. 

Specifically, this alternative would consist of the following three data elements: (1) The share-

weighted average of, for each order, the signed difference between the value-weighted average 

price (“VWAP”) that the trader would have gotten from walking a consolidated limit order book 

 

1818  See supra section III.B.4.e)(2) for further discussion of the RPI measure.  

1819  There can be variation in the information contained in different national securities exchanges’ proprietary 

depth-of-book data feeds. For example, some exchange depth-of-book products may offer information on 

order messages while others may offer aggregate information on the shares available at different price 

levels. Additionally, it is also possible that some national securities exchanges may not offer depth-of-book 

data feeds. It may be difficult to compare RPI across reporting entities if different entities used different 

depth-of-book feeds containing different information to compute the metric.  

1820  To see why this matters for a measure of dollar size improvement, consider an example where a wholesaler 

internalizes a sell order for 10,000 shares at the NBB, while there are only 6,000 shares available across all 

bid prices in the consolidated book. The hypothetical price that the trader would have gotten for the 4,000 

shares in excess of the consolidated book depth is not defined, and thus it is unclear how the RPI reference 

price (i.e., the VWAP that the trader would have gotten from walking a consolidated limit order book 

consisting of displayed liquidity from all national securities exchanges) should be calculated. 



539 

consisting of the depth available from consolidated proprietary depth-of-book data, and the 

midpoint (“reference spread”); (2) The share-weighted average of, for each order, the signed 

difference between the VWAP that the trader actually received on their order and the midpoint. 

If the number of executed shares exceeded the depth available from consolidated proprietary 

depth-of-book data, the VWAP should only be calculated for those executed shares that are not 

in excess of this sum (“truncated effective spread”); (3) The sum of, for each order, the number 

of shares executed in excess of the depth available from consolidated proprietary depth-of-book 

data (“shares executed in excess of consolidated depth-of-book”). With this information, market 

participants would be able to compare the truncated effective spread to the reference spread to 

determine the dollar size improvement that they received for their order (capped at the 

consolidated depth-of-book size). Market participants would also be able to use the shares 

executed in excess of consolidated depth-of-book for two purposes. First, market participants 

would be able to get a sense of the number of executed shares that are not included in the 

truncated effective spread and reference benchmark measures, which would help contextualize 

the informativeness of these measures. Second, in combination with information about total 

executed shares and share-weighted average effective spread in Rule 605 reports, market 

participants could use this measure to back out the per share effective spread paid for shares 

executed in excess of consolidated depth-of-book.1821  

 

1821  To see this, consider that the average effective spread (EffSpr) can be calculated as the weighted average 

between the truncated effective spread (EffSprtrunc) and the effective spread paid for shares in excess of 

consolidated depth-of-book (EffSprexcess). By defining by stotal the total number of executed shares, sexcess the 

shares executed in excess of consolidated depth-of-book, one can calculate the number of shares available 

from the consolidated depth-of-book at strunc=stotal-sexcess. The effective spread paid for shares in excess of 

consolidated depth-of-book EffSprexcess could then be derived from the following relationship: 

EffSpr=(strunc/stotal) * EffSprtrunc + (sexcess/stotal) * EffSprexcess.  



540 

Dollar size improvement metrics differ from the size improvement metrics in the adopted 

amendments in several ways. First, in the adopted amendments, both the order size benchmark 

and the size improved outsized shares1822 are reported in terms of numbers of shares, and as such 

do not ascribe a dollar value to the size improvement received by traders. Therefore, while 

market participants can use these metrics to calculate the rate of size improvement offered by a 

reporting entity (e.g., by calculating the outsized size improvement rate1823), they do not allow 

market participants to associate this rate with a particular cost savings.1824 Second, while the size 

improvement metrics included in the adopted amendments consider only displayed depth 

available at the NBBO, the alternative dollar size improvement metrics would incorporate 

information about the consolidated depth and prices available across all order book levels.  

Requiring the reporting of dollar size improvement in Rule 605 reports could result in 

additional benefits for market participants relative to the adopted amendments. Because it 

incorporates information across all order book levels, a measure of dollar size improvement 

(such as RPI) may be more informative than measures calculated only using information about 

depth at the best displayed prices. In order to compare the extent to which RPI and the adopted 

size improvement metrics contain similar information about size improvement, the Commission 

 

1822  See supra section III.B.4.e)(2) for more information about these metrics. 

1823  See supra note 1547 and corresponding text for information about how the outsized size improvement rate 

is calculated. 

1824  Rule 605 as amended will allow for market participants to calculate some information about their cost 

savings. First, the measures of price improvement in final Rule 605(a)(1)(ii)(F) and (O) will allow market 

participants to calculate their savings relative to, respectively, the NBBO and best displayed price. 

However, this measure will be incomplete for orders that execute with size improvement. Second, the 

average effective spread in final Rule 605(a)(1)(ii)(B) will allow market participants to calculate their 

savings relative to the midpoint. However, this measure does not take into consideration the prices or depth 

available at different order books levels.541 

used data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset1825 to 

calculate the average correlation1826 between these measures. Similar to the analysis in Table 8 

examining whether price improvement and size improvement measures contain different 

information, the Commission also calculated the average correlation between RPI, price 

improvement and effective spreads to confirm that RPI contains different information than the 

metrics that are already included in Rule 605 reporting requirements. As in Table 8, the analysis 

is performed separately for national securities exchanges and off-exchange market centers.  

Results are presented in Table 15 and show that RPI and price improvement have a 

correlation of around 0.4 for both national securities exchanges and off-exchange market centers, 

implying that these measures contain some (but not all) of the same information about execution 

quality.1827 Similarly, there is moderate negative correlation between RPI and effective spreads, 

implying that these measures are also somewhat overlapping in terms of their information about 

execution quality for both types of market centers. The analysis shows a low level of correlation 

between RPI and the outsized size improvement rate for exchanges (6.4%) and for off-exchange 

market centers (14.1%). This implies that the adopted size improvement measure may be missing 

some information about size improvement that would be contained in a measure of dollar size 

improvement, such as RPI. 

 

1825  See supra note 1545 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and the specific numbers may be different following the implementation of the MDI Rules. 

However, it is unclear whether or how these effects will impact the correlations between these measures 

documented in this analysis. See supra section IX.C.1.c)(2).  

1826  See supra note 1546 for a description of how average correlations are calculated. 

1827  This analysis has been updated from the Proposing Release for the reasons described in supra note 1548. 

See Proposing Release, 88 FR 3786 (tbl. 15) (Jan. 20, 2023). The Proposing Release found higher 

correlation between RPI and the proposed measure of size improvement (18.4% for exchanges and 22.7% 

for off-exchange market centers). Therefore, relative to the Proposing Release, the analysis in Table 15 is 

more indicative of the adopted size improvement measure missing some information about size 

improvement that would be contained in a measure of dollar size improvement, such as RPI.  



542 

Table 15: Average Correlation between Measures of Price and Size Improvement 

Variables National Securities 

Exchanges 

Off-Exchange Market 

Centers 

RPI and Price Improvement 0.421 0.372 

RPI and Effective Spreads -0.113 -0.138 

RPI and Outsized Size Improvement Rate 0.064 0.141 

This table presents correlations between three measures of price improvement and size improvement: price improvement, 

calculated as the signed difference between the execution price and the NBBO, the effective spread, calculated as twice the 

signed difference between the execution price and the NBBO midpoint, and the outsized size improvement rate. This analysis 

uses data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset. See supra note 1545 for dataset 

description and supra note 1546 for methodology. To construct a measure of average correlation, the Pearson correlation 

coefficient is first calculated for each pair of execution quality metrics, for each market center-stock combination. Then value-

weighted average correlation coefficient across all stocks for each market center is constructed, using dollar volume as 

weights. The resulting correlation coefficients are then averaged across market centers using an equal-weighted average. This 

analysis uses data from prior to the implementation of the MDI Rules and specific numbers may be different following the 

implementation of the MDI Rules. See supra note 1825 and section IX.C.1.c)(2). 

Reporting RPI or the modified version of RPI would require depth-of-book information. 

In the Proposing Release, the Commission stated that it was not clear that the cost of requiring 

reporting entities to have access to the full set of consolidated depth information would justify 

the benefits of RPI. One commenter disagreed with this conclusion and stated that “[t]he SEC 

does not however quantify these costs or benefits.”1828 However, the Commission observed in 

the Proposing Release that one market center estimated its costs related to subscribing to depth 

of book data feeds for 11 national securities exchanges to be between $51,480 and $226,320 per 

exchange per year.1829 The Commission otherwise qualitatively analyzed the costs and benefits 

of this alternative.1830 Another commenter stated that “many brokers utilize vendors to produce 

 

1828  See CCMR Letter at 16. 

1829  See Proposing Release, 88 FR 3786 at 3818, n.414 (Jan. 20, 2023). 

1830  See id.  



543 

Rule 605 reports and these vendors are capable of handling depth-of-book data.”1831 The 

Commission acknowledges these to be potential cost reductions to reporting RPI to the extent 

that multiple market centers use vendors that subscribe to depth-of-book data and vendors pass 

along the resultant cost savings to market participants. It is also the case that the data may be 

available at lower cost if not purchased in real time, though the cost may still be substantial.1832 

To mitigate the costs of calculating dollar size improvement using full depth-of-book 

data, the Commission considered a second alternative that would add a field (or fields) to Rule 

605 reports for a dollar size improvement measure (or measures), but allow reporting entities that 

subscribe to the full set of proprietary data feeds to voluntarily report this measure.1833 This 

approach would standardize the disclosure for those entities that choose to report. And only those 

reporting entities that decide to voluntarily report would incur additional costs, which may be 

minimal to the extent they already subscribe to proprietary depth-of book products. However, 

reporting entities could voluntarily provide this same information on their websites, alongside 

their Rule 605 reports, without the Commission amending the Rule 605 reports to add this field, 

and the information benefits of reporting this information as part of the Rule 605 reports versus 

reporting the information separately, in the same format but a different file, is not clear. The 

Commission acknowledges, however, that there may be a benefit to investors and to market 

 

1831  Virtu Letter II at 12-13. The commenter also states that more market centers would need to purchase depth 

of book data should the Commission adopt the Minimum Pricing Proposal; see Minimum Pricing 

Increments Proposing Release, 87 FR 80266 (Dec. 29, 2022). This Proposal has not been adopted and thus 

is not considered as either part of the baseline or a cost mitigant here. See supra note 981. 

1832  See, e.g., Price List – U.S. Equities, the Nasdaq Stock Market, NASDAQ, available at 

https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv (last visited Feb. 2, 2024, 2:11 P.M.); and 

Historical Proprietary Market Data Pricing, NYSE (Jan. 2024), available at 

https://www.nyse.com/publicdocs/nyse/data/NYSE_Historical_Market_Data_Pricing.pdf. 

1833  This alternative was also discussed in the Proposing Release. See Proposing Release, 88 FR 3786 at 3893 

(Jan. 20, 2023). 



544 

participants, wishing to signal execution quality, to have these statistics as part of their Rule 605 

reports. The Commission may evaluate the issues raised after the implementation of the MDI 

Rules. 

(2) Dollar size improvement calculated using MDI depth-of-

book data. 

The Commission also considered an alternative that would require all Rule 605 reporting 

entities to report information that is similar to the petitioner’s measure of RPI described above 

but adapted to require this information only to be reported relative to the odd-lot, aggregate 

quotation size, and depth-of-book information that will be available from competing 

consolidators following the implementation of the MDI Rules.1834 Since consolidated market 

data under MDI includes only five levels of depth-of-book data,1835 under this alternative, the 

required size improvement information would be truncated at the sum of displayed liquidity 

available of shares available from odd-lot information,1836 aggregate quotation size,1837 and 

depth-of-book data.1838 Similarly to the measure described in section IX.E.3(d)(1), this would 

also have the effect of excluding from the measure shares that are executed in excess of 

consolidated depth of book size, for which RPI is not defined.  

 

1834  See supra section IX.C.1.c)(2). One commenter stated that a size improvement measure should not be 

included within Rule 605 until such a time when the public data feed contains more information regarding 

the depth of quotations. See Healthy Markets Letter at 18. 

1835  See MDI Adopting Release, 86 FR 18596 at 18625 (Apr. 9, 2021). MDI requires all national securities 

exchanges to make market data feeds containing their odd-lot information and depth-of-book data available 

to competing consolidators and self-aggregators, which would ensure that all exchanges provide the 

information needed to calculate this measure.  

1836  See final 17 CFR 242.600(b)(69)(ii). 

1837  See 17 CFR 242.600(b)(3). 

1838  See final 17 CFR 242.600(b)(31). 



545 

Specifically, this alternative would consist of the following three data elements: (1) The 

share-weighted average of, for each order, the signed difference between the value-weighted 

average price (“VWAP”) that the trader would have gotten from walking a consolidated limit 

order book consisting of the depth available from odd-lot information, aggregate quotation size, 

and depth-of-book data (“reference spread”); (2) The share-weighted average of, for each order, 

the signed difference between the VWAP that the trader actually received on their order and the 

midpoint. If the number of executed shares exceeds the depth available from odd-lot information, 

aggregate quotation size, and depth-of-book data, the VWAP should only be calculated for those 

executed shares that are not in excess of this sum (“truncated effective spread”); (3) The sum of, 

for each order, the number of shares executed in excess of the depth available from odd-lot 

information, aggregate quotation size, and depth-of-book data (“shares executed in excess of 

consolidated depth-of-book”).  

Requiring the reporting of dollar size improvement calculated using data available from 

competing consolidators could result in some additional costs, as reporting entities (following the 

implementation of MDI rules) would be required to obtain depth-of-book data from competing 

consolidators in order to calculate these measures.1839 To the extent that these reporting entities 

would have purchased a less expensive data product that does not include depth-of-book 

information absent this requirement, this would result in additional costs for market participants. 

However, this alternative could result in additional benefits for market participants relative to the 

adopted amendments. Because it would incorporate information across multiple order book 

levels, it may be more informative than measures calculated using information only about depth 

 

1839 To the extent competing consolidators make it available, reporting entities could compute the metrics using 

historical depth-of-data, which could have a lower price than real-time depth of book. 



546 

at the best displayed prices. As such, it would have some of the same benefits as the alternative 

in section IX.E.3(d)(1), though it would not have all of these benefits as the measure would only 

incorporate information from a subset of order book levels. It would be likely to come at lower 

cost compared to the alternative above.1840 Though the Commission is not adopting this 

alternative, the Commission will continue to evaluate the issues raised to determine if any further 

action is appropriate following the implementation of MDI. 

(3) Other measures of size improvement 

As an alternative to the adopted size improvement metrics, one commenter suggested 

including three metrics related to size improvement: “(1) the number of orders for which the 

order size exceeded the available shares displayed on the relevant side of the NBBO (‘outsized 

orders’); (2) the total number of shares executed as part of these outsized orders; and (3) the 

number (or percentage) of shares within the outsized orders that received size improvement (i.e., 

were executed at or better than the NBBO price, in excess of the amount of aggregate displayed 

liquidity at the NBBO).”1841 The commenter stated that, compared to the proposed size 

improvement metrics, “[t]hese metrics would be more informative as they are not affected by 

orders in which there was not a need to provide size improvement.”1842 

The Commission agrees with the commenter that “the number (or percentage) of shares 

within the outsized orders that received size improvement (i.e., were executed at or better than 

the NBBO price, in excess of the amount of aggregate displayed liquidity at the NBBO)” would 

 

1840  Also, unlike the alternative in section IX.E.3(d)(1), this alternative would not require the Commission to 

identify which proprietary depth-of-book data products would be needed to calculate the measure, since the 

measure would be calculated based on depth-of-book data as defined in core data under the MDI rule. 

1841  See Virtu Letter at 10. 

1842  See id. 



547 

be useful for market participants, and is adopting the “size improvement outsized shares,” which 

is substantively equivalent to the commenter’s third suggested metric.1843 However, the 

information provided by the other two metrics suggested by the commenter would not be as 

informative as similar information included in the amendments. 

The suggested metric, “the number of orders for which the order size exceeded the 

available shares displayed on the relevant side of the NBBO (‘outsized orders’)”, is similar to the 

outsized share count in the adopted amendments but less informative because it is based on the 

number of orders.1844 As most other metrics required by Rule 605 are recorded in terms of 

number of shares, rather than number of orders,1845 market participants would not have been able 

to compare the suggested measure to the other measures in Rule 605 reports.  

The suggested metric, “the total number of shares executed as part of these outsized 

orders”, is similar to the outsized share count in the adopted amendments, but less informative 

because it would not control for size improvement opportunities. While the commenter did not 

specify why this metric would be informative to market participants regarding size improvement, 

one possible use would be to assess the number of shares within outsized orders that execute 

with size improvement, as a percentage of total executed shares within outsized orders, as a way 

to calculate a size improvement “rate.” For example, if the metrics would reveal that 200 shares 

 

1843  See supra section III.B.4.e)(2) for further discussion of the “size improvement outsized shares.” 

1844  As discussed in section IX.D.1.b)(2)(c)(v), by comparing the adopted order size benchmark to the total 

number of submitted shares, market participants will be able calculate the number of shares that were 

submitted in excess of the available shares displayed on the relevant side of the NBBO (“outsized share 

count”). Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. See supra note 

1543.  

1845  For example, the metrics required by final Rule 605(a)(1)(i)(C) through (N); (a)(1)(ii)(E), (H), (J), (M), 

(O), (P), (R), and (S); (a)(1)(iii)(B) and (C) are required to be reported in terms of number of shares. In 

contrast, final Rule 605(a)(1)(i)(A) and (a)(1)(iii)(A) are the only statistics required to be reported in terms 

of number of orders. 



548 

executed as part of outsized orders, and 100 shares of outsized orders received size improvement, 

a market participant could infer that 50% of shares executed as part of outsized orders were 

executed with size improvement. However, this rate metric would not be able to distinguish 

between different size improvement opportunities in cases of different levels of available depth, 

and thus would lead to an inaccurate comparison across market centers.  

To see this, consider Market A, which fully executes a 500-share order at the NBBO 

while there were only 200 shares of available NBBO depth. The metrics suggested by the 

commenter would reveal the following information: (1) one outsized order, (2) 500 shares 

executed as part of outsized orders, and (3) 300 shares of outsized orders that received size 

improvement. Compare this to Market Center B, which fully executes a 500-share order at the 

NBBO while there were 400 shares of available NBBO depth. The metrics suggested by the 

commenter would reveal the following information: (1) one outsized order, (2) 500 shares 

executed as part of outsized orders, and (3) 100 shares of outsized orders that received size 

improvement. While Market Center B would reveal a “worse” rate of only 20% of executed 

outsized shares receiving size improvement (compared to Market Center A’s 60%), this would 

not take into account that Market Center B had fewer “opportunities” to provide size 

improvement (in terms of the number of shares that were eligible to receive size improvement), 

due to the higher available depth. In other words, comparing the number of shares executed with 

size improvement to the number of executed shares in outsized orders would not result in a 

measure that takes into account the number of shares that were eligible to receive size 

improvement. Instead, a more informative assessment of size improvement is to compare (1) the 

number of shares within outsized orders that received size improvement to (2) the number of 

shares that were eligible to receive size improvement. The first metric is equivalent to the size 



549 

improved outsized share count, which the Commission is adopting.1846 The second metric is 

equivalent to the “outsized share count”, which can also be calculated from metrics included in 

the adopted amendments, i.e., by subtracting the order size benchmark from the number of 

submitted shares.1847  

In sum, because a size improvement rate calculated relative to “the total number of shares 

executed as part of these outsized orders” would not control for size improvement opportunity, 

and because a measure of submitted volume that exceed available depth expressed in terms of 

number of orders would not allow market participants to compare this measure to most other 

Rule 605 measures, the Commission does not believe that the metrics suggested by the 

commenter would be more informative than those included in these amendments. Furthermore, 

the Commission disagrees that the metrics suggested by the commenter “would be more 

informative as they are not affected by orders in which there was not a need to provide size 

improvement.”1848 While it is true that the metrics suggested by the commenter “are not affected 

by orders in which there was not a need to provide size improvement,” as discussed in section 

IX.D.1.b)(2)(c)(v), the adopted size improvement metrics also allow market participants to net 

out the effect of shares for which there were no size improvement opportunities from an analysis 

of size improvement, i.e., by subtracting the order size benchmark from the number of submitted 

shares to get the outsized share count.  

 

1846  See final 17 CFR 242.605(a)(1)(ii)(S). 

1847  See supra note 1844. 

1848  See Virtu Letter at 10. 



550 

4. Reasonable Alternative Modifications to Accessibility  

a) Require a System for the Centralized Posting of Rule 605 Reports 

Instead of or in addition to having market centers and larger broker-dealers post Rule 605 

reports on their websites, the Commission considered requiring market centers to submit Rule 

605 reports to a centralized electronic system, which would have then made these reports 

available to market participants. Multiple commenters supported the centralized posting of Rule 

605 reports, stating that such centralization would “facilitate accessibility”1849 and ultimately 

“increase transparency”1850 and “promot[e] competition”1851 leading to “improvements in 

execution quality.”1852 By contrast, one commenter opposed centralized filing of Rule 605 

reports because the resulting ease of access would give too much information to “free riders” 

who would “use market modeling for mischief.”1853 We do not agree that increasing accessibility 

to Rule 605 reports would be detrimental to markets. As discussed in further detail below, 

centralized posting of Rule 605 reports would likely have better enabled market participants to 

access, evaluate, and compare the reports of multiple (or even the complete set of) reporting 

entities. However, because implementing such centralization would have entailed costs and 

uncertainties as well as potential time delays in implementation, the Commission did not adopt 

this alternative.1854 

 

1849  See Fidelity Letter at 8; see also Nasdaq Letter at 46; BlackRock Letter at 4; J.T. Letter; HMA Letter at 16. 

1850  See BlackRock Letter at 4; see also J.T. Letter. 

1851  See BlackRock Letter at 4; see also Nasdaq Letter at 46. 

1852  See Nasdaq Letter at 46.  

1853  See Data Boiler Letter I at 27-28; see also supra section IX.D.2.b)(5) for further discussion of the cost of 

free riding as a potential cost of the amendments to Rule 605. 

1854  See supra section V.B.2.a) for further discussion. 



551 

Market participants may face search costs when collecting existing Rule 605 reports in 

order to compare execution quality across reporting entities, in particular when collecting Rule 

605 reports for multiple entities and across longer time periods.1855 Such search costs will 

increase under the adopted amendments, which expand the number of reporting entities from 228 

to 343, including 85 broker-dealers that introduce or carry 100,000 or more customer 

accounts.1856 Compared to the adopted amendments, which maintain the requirement for market 

centers to post Rule 605 reports on their individual websites, creating a centralized electronic 

system would have lowered these search costs by making it easier for market participants to 

locate, collect and aggregate data from multiple Rule 605 reports in order to compare reporting 

entities, because all reports would have been available at a single central location. Compared to 

the adopted amendments, this reduction in search costs and resulting increase in accessibility 

would have enabled investors to use Rule 605 reports to compare execution quality across larger 

broker-dealers more efficiently. This might have increased the extent to which broker-dealers 

would need to compete on the basis of execution quality. 

Likewise, compared to the adopted amendments, a centralized electronic system would 

have better enabled broker-dealers to use Rule 605 reports to compare execution quality across 

 

1855  For example, in order to collect a complete or mostly complete set of Rule 605 reports to select the 

reporting entity offering the best execution quality in a given stock, a market participant will need to 

perform the following tasks, for each reporting entity: first, search the internet for the website(s) of the 

reporting entity; second, find the area of the reporting entity’s website(s) that links to its Rule 605 report; 

and third, find the correct link and download the appropriate report (or multiple reports, if the information 

for multiple months is desired). The process of collecting Rule 605 reports may be simplified by the NMS 

Plan’s requirement that each market center must designate a single Participant to act as the market center’s 

Designated Participant, and by the use of third-party vendors. See supra section IX.C.3.d) for a discussion; 

see also supra section IX.D.1.d)(3) for a discussion of how these search costs may increase as a result of an 

increase in the number of Rule 605 reporting entities under the adopted amendments. 

1856  See supra section VIII.C for a discussion of the estimated number of reporting entities under the adopted 

amendments; see also supra section IX.D.1.d)(3) for a discussion of how the increase in reporting entities 

under the adopted amendments may increase search costs for some market participants.  



552 

market centers, and thus might have increased competition among market centers on the basis of 

execution quality in order to attract order flow.1857 Also, unlike the individual website posting 

requirement under the amended rule, a centralized electronic system could have enabled 

programmatic checks for appropriate standardization, formatting, and completeness before 

posting, and thus could have reduced processing costs for users compared to the amendments.  

While the Commission agrees with commenters that centralizing Rule 605 reports would 

have created these benefits, the Commission also recognizes that requiring such centralization 

would impose uncertainties and costs related to implementation. As discussed above, 

commenters did not have a consensus view on how to accomplish centralization.1858 One 

commenter recommended having FINRA maintain a public database for Rule 605 reports,1859 

another recommended the Commission post all Rule 605 reports on a single page on the 

Commission’s website,1860 and another recommended working out the details of a central 

repository through the Rule 605 NMS Plan.1861  

The entity or entities responsible for administering the Rule 605 centralized electronic 

system would have incurred costs to create and maintain a system (including any compliance, 

programmatic formatting, completeness, and/or consistency checks that the system would run on 

the reports before dissemination). Administering entities could have passed these costs on to 

reporting entities in the form of filing fees, and/or to consumers of Rule 605 reports in the form 

 

1857  Several commenters agreed that centralization would promote the benefits of Rule 605 for competition. 

See, e.g., Blackrock Letter at 4; Nasdaq Letter at 46; J.T. Letter at 7. 

1858  See supra section V.B.2.a. 

1859  See Healthy Markets Letter at 16. 

1860  See Fidelity Letter at 8. 

1861  See Angel Letter at 3. 



553 

of access fees. If potential consumers of Rule 605 reports decided not to access the reports 

because of these access fees, this would have represented a cost in the form of reduced 

accessibility of Rule 605 reports.1862 Furthermore, to the extent that the centralized electronic 

system would have included programmatic formatting, completeness, and/or consistency checks 

on Rule 605 reports before accepting them, reporting entities would also have incurred costs to 

resolve any issues detected by such checks.1863  

The Commission specifically considered two options for how to implement the 

centralized electronic system: using the existing Rule 605 NMS Plan and the Commission’s 

EDGAR system.  

One commenter supported a requirement that procedures established pursuant to the 

NMS Plan provide for the creation and maintenance of a centralized electronic system to serve as 

a repository for Rule 605 reports.1864 As discussed above, the creation of a centralized electronic 

system would generally have resulted in additional economic benefits as compared to the 

adopted amendments by further promoting transparency and competition, and by reducing 

market participants’ search costs through the availability of all Rule 605 reports at a single 

location. However, as the NMS Plan would have been tasked with designing and implementing 

the centralized electronic system, the Commission would ex ante be uncertain as to the specific 

functionality, ease of access, and extent of user fees that such a centralized electronic system 

 

1862  However, maintaining the current requirement for reporting entities to post a free version of the report on 

their websites would have mitigated this cost by requiring that Rule 605 reports would continue to be freely 

available. 

1863  Reporting entities would likely have been most efficiently situated to remedy any identified issues in their 

own reports before posting (as opposed to having system administrators or report users remedy such 

issues). 

1864  See Angel Letter at 3. 



554 

would have provided. Likewise, the accessibility and timeliness of centralized Rule 605 

information would have depended on how the NMS Plan would develop the functionality for 

distributing or making the Rule 605 reports public. Thus, adopting this alternative would have 

introduced a level of uncertainty as to the access and use of Rule 605 reports. 

The Commission also considered requiring reporting entities to disclose Rule 605 

information directly to the Commission through the Commission’s EDGAR system, with the 

Commission subsequently making the information publicly available on EDGAR.1865 However, 

two commenters opposed this alternative, characterizing EDGAR technology as “outdated” and 

“inadequate for the task.”1866 Unlike an NMS Plan requirement, an EDGAR requirement would 

not have involved any costs to NMS Plan participants of creating and maintaining an electronic 

system for Rule 605 reports, and, as EDGAR does not charge any reporting or access fees, would 

not have involved the cost to reporting entities of paying reporting fees or the cost to consumers 

of Rule 605 reports of paying access fees. However, an EDGAR alternative would have 

increased certain reporting entities’ compliance costs relative to the adopted amendments, as any 

reporting entities that do not already submit documents to the Commission via EDGAR would 

have incurred a one-time burden of submitting a notarized Form ID application to obtain 

EDGAR access codes, a burden that does not apply under the adopted amendments.1867 EDGAR 

 

1865  EDGAR functionality would allow consumers of Rule 605 to search for specific reports or all reports for a 

given month. However, consumers wishing to combine reports for analysis would need to pull each report 

separately. 

1866  See FIF Letter at 33; Healthy Markets Letter at 16. 

1867  See 17 CFR 232.10; Section 3 of the EDGAR Filer Manual (Volume I) version 41 (Dec. 2022). Any 

market centers, brokers, and dealers that already submit documents on EDGAR would not incur this 

burden. For example, some broker-dealers choose to file the annual audit reports required by Form X-17A-

5 Part III on EDGAR rather than via paper, and would thus already have the required access and procedures 

in place to submit Rule 605 Reports to EDGAR. See section 8.2.19 of the EDGAR Filer Manual (Volume 

II) version 68 (Dec. 2023). 



555 

functionality would also have allowed for programmatic checks for appropriate standardization, 

formatting, and completeness of Rule 605 reports before dissemination, and while such checks 

would have improved the quality of Rule 605 data and thus benefited users of Rule 605 data, 

they would also have imposed upon reporting entities the additional burden of resolving any 

detected issues and submitting a corrected report before dissemination.  

Because the centralization of Rule 605 disclosures, whether through an NMS Plan, 

EDGAR, or some other means, would have introduced implementation costs and uncertainties as 

well as implementation time delays compared to the adopted amendments, the Commission did 

not adopt a requirement for centralized posting of Rule 605 reports. 

b) Modify Format Requirements for Rule 605 Reports  

Rule 605 requires reports to be made available to the public in a uniform, readily 

accessible, and usable electronic format through procedures established by the NMS plan 

participants,1868 and the governing NMS Plan specifies that Rule 605 reports must be provided in 

pipe-delimited ASCII, which is a machine-readable electronic format.1869 This has not changed 

under the adopted amendments. The Commission considered an alternative that would have 

required the detailed Rule 605 reports to be provided using an expanded version of the existing 

XML schema for Rule 606 reports.1870 This alternative would have allowed the data on detailed 

Rule 605 reports to be used interchangeably with the data in Rule 606 reports, thus facilitating 

 

1868  See prior 17 CFR 242.605(a)(2); final 17 CFR 242.605(a)(3). 

1869  See Rule 605 NMS Plan at 2 (“Section V . . . provides that market center files must be in standard, pipe-

delimited ASCII format”); see also supra note 135 and accompanying text. Even in the absence of an 

effective NMS plan, reports must be prepared “in a consistent, usable, and machine-readable electronic 

format.” Prior 17 CFR 242.605(a)(2); final 17 CFR 242.605(a)(4). 

1870  See 17 CFR 242.606(b)(3), requiring reports to be made available “using the most recent versions of the 

XML schema and the associated PDF renderer as published on the Commission’s website.” See also Order 

Routing and Handling Data Technical Specification, SEC (Feb. 25, 2022), available at 

https://www.sec.gov/files/order_handling_data_technical_specification-2022-02-25.pdf. 



556 

the usage of Rule 605 data together with Rule 606 data, in line with the Commission’s original 

intent for the rules.1871 In addition, the use of XML rather than pipe-delimited ASCII would have 

facilitated the use of more complex data error checks (such as checks on elements in nested 

structures).  

On the other hand, this alternative would have required reporting entities to establish 

technical systems to format the reports using the expanded XML schema and render them using 

the PDF renderer, thus imposing additional compliance costs relative to the adopted 

amendments. Furthermore, because Rule 605 reports consist solely of a series of discrete 

numeric values, and do not contain elements in nested structures, the sophisticated validations 

that XML enables would not have provided significant benefits for Rule 605 reports. In addition, 

because the nature of the Rule 606 data (which include narrative discussions) differs from the 

nature of the Rule 605 data (which are limited to a discrete set of numerical statistics), and 

because the population of entities that report Rule 606 data (broker-dealers) does not coincide 

with the population of entities that will report Rule 605 data (market centers and larger broker-

dealers), the benefits to be realized from interchangeable usage of Rule 605 and Rule 606 data 

would not have been significant. 

In a change from the proposal, the adopted amendments require market centers to publish 

summary reports in CSV and PDF formats. One commenter recommended this approach, stating 

CSV (or another format that can be copied into a spreadsheet program) “would allow investors to 

compare summary data across firms more readily.”1872 We could alternatively have adopted the 

proposed requirement for market centers to publish summary reports in XML and PDF formats. 

 

1871  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75414 (Dec. 1, 2000). 

1872  See FIF Letter at 6. 



557 

Compared to CSV, XML can accommodate a wider variety of content structures, such as a series 

of multiple differently laid out tables or tables accompanied by textual footnotes. XML also 

enables more sophisticated validations than CSV does, such as validations on multiple nested 

elements. However, summary reports do not contain multiple differently laid out tables, textual 

footnotes, or nested elements, so these capabilities of XML are not relevant to summary reports. 

Instead, the Commission agrees with the commenter that using CSV rather than XML for the 

summary reports will allow investors to analyze summary report data more readily, and that this 

increased usability is more relevant to summary report data than the broader technical coverage 

that XML provides. The amended rules therefore replace the proposed XML requirement for 

summary reports with a CSV requirement. 

5. Other Reasonable Alternatives 

a) Releasing Aggregated CAT Data 

As an alternative to the adopted amendments, the Commission considered using CAT 

data to have either the Commission or the CAT Plan Processor1873 provide execution quality 

information to the public at monthly intervals – or more frequently. This alternative would 

effectively eliminate the need for Rule 605 reports.  

This approach would have lower compliance costs for reporting entities than the adopted 

amendments, as it would not require reporting entities to prepare Rule 605 reports. Another 

benefit of this alternative with regard to the adopted amendments is that the data in this 

 

1873  As set forth in the CAT NMS Plan, the Plan Processor is required to develop and, with the prior approval of 

the Operating Committee, implement policies, procedures, and control structures related to the CAT 

System that are consistent with 17 CFR 242.613(e)(4), and Appendix C and Appendix D of the CAT NMS 

Plan. See Joint Industry Plan; Order Approving the National Market System Plan Governing the 

Consolidated Audit Trail, SEC (Nov. 15, 2016), n.136, available at 

https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf. 



558 

alternative could be more comprehensive in terms of the breadth of broker-dealers whose 

execution quality information could be aggregated and published, because the Commission could 

publish aggregated data on execution quality from all broker-dealers instead of just those that 

meet the customer account threshold. As a result, the data would be more comprehensive, 

resulting in even greater benefits from transparency.1874 

Numerous commenters supported this alternative, stating that requiring CAT to produce 

Rule 605 reports would increase efficiency and reduce the burdens and costs associated with 

preparing Rule 605 reports,1875 and would result in more consistent and standardized 

reporting.1876 

However, there are several drawbacks to this alternative relative to the adopted 

amendments. First, it would take some time before CAT data could be used to produce execution 

quality reports. The Commission continues to believe that it would be a major undertaking for 

the Plan Processor to build out and adapt systems to collect, process, and publish this 

information. This might result in a delay in market participants’ access to information about 

execution quality, which would delay the benefits of the adopted rule. Second, costs associated 

with the Plan Processor would also increase because of increased requirements for processing 

power for the aggregation of CAT data if such computations could not be performed with 

existing resources (without reducing other functionality). Any costs incurred by the Plan 

Processor would be passed along to Plan Participants and Industry Members, which could result 

 

1874  See supra section IX.E.1.b) for a discussion of increased transparency from expanding reporting 

requirements to include all broker-dealers. 

1875  See, e.g., SIFMA Letter II at 25; Blackrock Letter at 3-4; State Street Letter at 2; Angel Letter at 3. 

1876  See, e.g., FIF Letter at 32; SIFMA Letter II at 25; State Street Letter at 2; Angel Letter at 3; Tastytrade 

Letter at 4 and 6. 



559 

in larger costs to some reporting entities.1877 Lastly, another drawback to this alternative is that 

releasing CAT data to the public could increase security risks. CAT contains highly sensitive 

information and creating a process that would release portions of the data, even if aggregated, 

could present risks.  

b) Expand Rule 606 Reporting Requirements 

The Commission also considered an alternative suggested by a commenter in which, 

rather than requiring larger broker-dealers to prepare Rule 605 reports, broker-dealers would be 

required to submit expanded Rule 606 reports1878 with additional information about the execution 

quality of their orders.1879 While this might result in some lower compliance costs as a result of 

broker-dealers’ existing experience with preparing and filing Rule 606 reports, many of the costs 

associated with the initial reporting of execution quality information, such as building out 

systems to collect data and calculate metrics, would still be incurred by broker-dealers regardless 

of whether those metrics are reported via Rule 606 or Rule 605 reports.1880 Furthermore, since 

Rule 606 reports are both more aggregated and less frequent than Rule 605 reports, the benefits 

of this alternative in terms of increased transparency would be substantially lower than those of 

the adopted amendments.1881 

 

1877  Some reporting entities, on the other hand, may incur lower costs if they pay a smaller proportion of CAT 

costs. 

1878  See supra section IX.C.1.b) for a discussion of broker-dealer reporting requirements under Rule 606. 

1879  See Robinhood Letter at 42, stating that “...the SEC should require broker-dealers that already publish Rule 

606 reports (which we expect would include all of the broker-dealers that would be subject to Proposed 

Rule 605, among others) to add execution quality statistics to their Rule 606 reports.” 

1880  See supra section IX.D.2.a)(1) for further discussion of these costs. 

1881  Rule 605 reports would be more transparent because they are published each month and provide execution 

quality for individual stocks. In contrast, Rule 606 reports under this alternative would be published 

quarterly and would report aggregated execution quality metrics for S&P 500 and non-S&P 500 stocks for 

each market center included in the broker-dealer’s Rule 606 report.  



560 

X. Regulatory Flexibility Act Certification  

The RFA1882 requires Federal agencies, in promulgating rules, to consider the impact of 

those rules on small entities. Section 603(a)1883 of the Administrative Procedure Act,1884 as 

amended by the RFA, generally requires the Commission to undertake a regulatory flexibility 

analysis of all proposed rules, or proposed rule amendments, to determine the impact of such 

rulemaking on “small entities.”1885 Section 605(b) of the RFA states that this requirement shall 

not apply to any proposed rule or proposed rule amendment which, if adopted, would not have a 

significant economic impact on a substantial number of small entities.1886 

In the Proposing Release, the Commission certified that the proposed amendments to 

Rules 600 and 605 would not have a significant economic impact on a substantial number of 

small entities for purposes of the RFA.1887 The Commission solicited comments about whether 

the proposed rules would have a significant economic impact on a substantial number of small 

entities, and, if so, what would be the nature of any impact on small entities.1888 No commenters 

 

1882  5 U.S.C. 601 et seq. 

1883  5 U.S.C. 603(a). 

1884  5 U.S.C. 551 et seq. 

1885  Although section 601(b) of the RFA defines the term “small entity,” the statute permits agencies to 

formulate their own definitions. The Commission adopted definitions for the term “small entity” for 

purposes of Commission rulemaking in accordance with the RFA. Those definitions, as relevant to this 

proposed rulemaking, are set forth in 17 CFR 240.0–10. 

1886  See 5 U.S.C. 605(b). 

1887  See Proposing Release, 88 FR 3786 at 3901 (Jan. 20, 2023). 

1888  See id.561 

responded to these requests with feedback on the economic impact of the proposed rules on 

small entities.1889  

As adopted, the amendments to Rules 600 and 605 apply to market centers – which 

includes any exchange market maker, OTC market maker, ATS, national securities exchange 

registered with the Commission under section 6 of the Exchange Act, or national securities 

association registered with the Commission under section 15A of the Exchange Act – and certain 

brokers or dealers that are not a market center.1890 

None of the exchanges registered under section 6 that will be subject to the proposed 

amendments are “small entities” for purposes of the RFA.1891 There is only one national 

securities association, and it is not a small entity as defined by 13 CFR 121.201.1892 

A broker-dealer is considered a small entity for purposes of Regulatory Flexibility Act if: 

(1) it had total capital of less than $500,000 on the date in the prior fiscal year as of which its 

 

1889  One commenter stated, in connection with the Proposing Release and multiple other Commission 

proposals, that the Commission should provide “a reasonable, workable, and staggered schedule for public 

comment on the adoption and implementation of the proposals, considering their overlapping nature, 

significant compliance and operational burdens, and if they may be insurmountable for smaller or emerging 

firms.” McHenry et al. letter at 2. The Commission has considered the potential effects of the Rule on 

smaller broker-dealers and the interactions of the final rule with certain other Commission rules. See supra 

section IX.D.1.d)(1) for a discussion of the potential effects of the amendments on smaller broker-dealers. 

See supra sections IX.C.1.d) and IX.D.2.a)(5) for a discussion of the interactions of the final rule with 

certain other Commission rules. 

1890  A broker or dealer that is not a market center will not be subject to the requirements unless it reaches or 

exceeds the customer account threshold. See supra section II.A.2.a). 

1891  See 17 CFR 240.0–10(e). The regulation at 17 CFR 240.0–10(e) states that the term “small business,” when 

referring to an exchange, means any exchange that has been exempted from the reporting requirements of 

17 CFR 242.601 (“Rule 601” of Regulation NMS), and is not affiliated with any person (other than a 

natural person) that is not a small business or small organization as defined in 17 CFR 240.0-10. The 

exchanges subject to this proposed rulemaking do not satisfy this standard. See also Securities Exchange 

Act Release Nos. 82873 (Mar. 14, 2018), 83 FR 13008, 13074 (Mar. 26, 2018) (File No. S7–05–18) 

(Transaction Fee Pilot for NMS Stocks Proposed Rule); 55341 (May 8, 2001), 72 FR 9412, 9419 (May 16, 

2007) (File No. S7–06–07) (Proposed Rule Changes of Self-Regulatory Organizations Proposing Release). 

1892  See, e.g., Securities Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 at 18808 & n.2549 

(Apr. 9, 2021). 



562 

audited financial statements were prepared, or, if not required to prepare such statements, it had 

total capital of less than $500,000 on the last business day of the preceding fiscal year; and (2) it 

is not affiliated with any person (other than a natural person) that is not a small entity. Applying 

this standard, the Commission estimates that, of the firms that will be impacted by the 

amendments, only one exchange market maker, no OTC market makers, no larger broker-

dealers, and no ATSs are small entities.1893 Because the Commission estimates that not more 

than one small entity will be required to comply with the rule changes, the Commission certifies 

that the amendments to Rule 605 will not have a significant economic impact on a substantial 

number of small entities for purposes of the RFA. 

XI. Other Matters 

If any of the provisions of these rules, or the application thereof to any person or 

circumstance, is held to be invalid, such invalidity shall not affect other provisions or application 

of such provisions to other persons or circumstances that can be given effect without the invalid 

provision or application. 

Pursuant to the Congressional Review Act,1894 the Office of Information and Regulatory 

Affairs has designated these rules as a “major rule”, as defined by 5 U.S.C. 804(2). 

Statutory Authority  

Pursuant to the Exchange Act and particularly sections 3(b), 5, 6, 11A, 15, 17, 19, 23(a), 

24, and 36 thereof, 15 U.S.C. 78c, 78e, 78f, 78k–1, 78o, 78q, 78s, 78w(a), 78x, and 78mm, the 

 

1893  These estimates are based on the FYE 2022 FOCUS Reports received by the Commission from exchange 

market makers, OTC market makers, larger broker-dealers, and ATSs that would be subject to the changes 

proposed to 17 CFR 242.600 and 242.605. 

1894  5 U.S.C. 801 et seq. 



563 

Commission is amending parts 240 and 242 of chapter II of title 17 of the Code of Federal 

Regulations.  

List of Subjects in 17 CFR Parts 240 and 242 

 Brokers, Confidential business information, Fraud, Reporting and recordkeeping 

requirements, Securities. 

For the reasons stated in the preamble, the Commission is amending title 17, chapter II of 

the Code of Federal Regulations: 

PART 240–GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT 

OF 1934 

1. The general authority citation for part 240 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j–4, 78k, 78k-1, 78l, 78m, 78n, 

78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 

80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 

U.S.C. 5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. 

L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. 

* * * * * 

§ 240.3a51-1 [Amended] 

2. Amend § 240.3a51-1 by, in paragraph (a) introductory text, removing the text “§ 

242.600(b)(55)” and adding in its place “§ 242.600(b)(65)”. 

§ 240.13h-1 [Amended] 

3. Amend § 240.13h-1 by, in paragraph (a)(5), removing the text “§ 242.600(b)(54)” and 

adding in its place “§ 242.600(b)(64)”. 



564 

PART 242–REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 

MARGIN REQUIREMENTS FOR SECURITY FUTURES  

4. The authority for part 242 continues to read as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78c–4, 78g(c)(2), 78i(a), 78j, 78k-

1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-

23, 80a-29, 80a-37, and 8343. 

§242.105 [Amended] 

5. Amend § 242.105 by: 

a. In paragraph (b)(1)(i)(C), removing the text “§ 242.600(b)(30)” and adding in its place 

“§ 242.600(b)(35))”; and 

b. In paragraph (b)(1)(ii), removing the text “§ 242.600(b)(77)” and adding in its place “§ 

242.600(b)(88)”. 

§ 242.201 [Amended] 

6. Amend § 242.201 by: 

a. In paragraph (a)(1), removing the text “§ 242.600(b)(55)” and adding in its place “§ 

242.600(b)(65)”; 

b. In paragraph (a)(2), removing the text “§ 242.600(b)(30)” and adding in its place “§ 

242.600(b)(35)”; 

c. In paragraph (a)(3), removing the text “§ 242.600(b)(68)” and adding in its place “§ 

242.600(b)(79)”; 

d. In paragraph (a)(4), removing the text “§ 242.600(b)(50)” and adding in its place “§ 

242.600(b)(60)”; 



565 

e. In paragraph (a)(5), removing the text “§ 242.600(b)(58)” and adding in its place “§ 

242.600(b)(68)”; 

f. In paragraph (a)(6), removing the text “§ 242.600(b)(67)” and adding in its place “§ 

242.600(b)(78)”; 

g. In paragraph (a)(7), removing the text “§ 242.600(b)(77)” and adding in its place “§ 

242.600(b)(88)”; and 

h. In paragraph (a)(9), removing the text “§ 242.600(b)(95)” and adding in its place “§ 

242.600(b)(106)”. 

§ 242.204 [Amended] 

7. Amend § 242.204 by, in paragraph (g)(2), removing the text “§ 242.600(b)(77) (Rule 

600(b)(77) of Regulation NMS)” and adding in its place “§ 242.600(b)(88) (Rule 600(b)(88) of 

Regulation NMS)”. 

 8. Amend § 242.600 by revising and republishing paragraph (b) to read as follows:§ 

242.600  NMS security designation and definitions. 

* * * * * 

(b) * * *  

(1) Actionable indication of interest means any indication of interest that explicitly or 

implicitly conveys all of the following information with respect to any order available at the 

venue sending the indication of interest:  

(i) Symbol;  

(ii) Side (buy or sell);  

(iii) A price that is equal to or better than the national best bid for buy orders and the 

national best offer for sell orders; and  



566 

(iv) A size that is at least equal to one round lot.  

(2) Administrative data means administrative, control, and other technical messages made 

available by national securities exchanges and national securities associations pursuant to the 

effective national market system plan or plans required under § 242.603(b) or the technical 

specifications thereto as of April 9, 2021.  

(3) Aggregate quotation size means the sum of the quotation sizes of all responsible 

brokers or dealers who have communicated on any national securities exchange bids or offers for 

an NMS security at the same price.  

(4) Alternative trading system has the meaning provided in § 242.300(a).  

(5) Auction information means all information specified by national securities exchange 

rules or effective national market system plans that is generated by a national securities exchange 

leading up to and during auctions, including opening, reopening, and closing auctions, and 

publicly disseminated during the time periods and at the time intervals provided in such rules and 

plans.  

(6) Automated quotation means a quotation displayed by a trading center that:  

(i) Permits an incoming order to be marked as immediate-or-cancel;  

(ii) Immediately and automatically executes an order marked as immediate-or-cancel 

against the displayed quotation up to its full size;  

(iii) Immediately and automatically cancels any unexecuted portion of an order marked as 

immediate-or-cancel without routing the order elsewhere;  

(iv) Immediately and automatically transmits a response to the sender of an order marked 

as immediate-or-cancel indicating the action taken with respect to such order; and  



567 

(v) Immediately and automatically displays information that updates the displayed 

quotation to reflect any change to its material terms.  

(7) Automated trading center means a trading center that:  

(i) Has implemented such systems, procedures, and rules as are necessary to render it 

capable of displaying quotations that meet the requirements for an automated quotation set forth 

in paragraph (b)(6) of this section;  

(ii) Identifies all quotations other than automated quotations as manual quotations;  

(iii) Immediately identifies its quotations as manual quotations whenever it has reason to 

believe that it is not capable of displaying automated quotations; and  

(iv) Has adopted reasonable standards limiting when its quotations change from 

automated quotations to manual quotations, and vice versa, to specifically defined circumstances 

that promote fair and efficient access to its automated quotations and are consistent with the 

maintenance of fair and orderly markets. 

(8) Average effective spread means the share-weighted average of effective spreads for 

order executions calculated, for buy orders, as double the amount of difference between the 

execution price and the midpoint of the national best bid and national best offer at the time of 

order receipt and, for sell orders, as double the amount of difference between the midpoint of the 

national best bid and national best offer at the time of order receipt and the execution price. For 

order executions of midpoint-or-better limit orders, average effective spread shall be calculated 

from the time such orders first become executable rather than the time of order receipt. 

(9) Average midpoint means the share-weighted average of the midpoint of the national 

best bid and national best offer at the time of order receipt or, for non-marketable limit orders, 



568 

midpoint-or-better limit orders, and orders submitted with stop prices, at the time such orders 

first become executable. 

(10) Average percentage effective spread means the average effective spread for order 

executions divided by the average midpoint for order executions. 

(11) Average percentage realized spread means the average realized spread for order 

executions divided by the average midpoint for order executions. 

(12) Average quoted spread means the share-weighted average of the difference between 

the national best offer and the national best bid at the time of order receipt or, for order 

executions of midpoint-or-better limit orders, the difference between the national best offer and 

the national best bid at the time such orders first become executable. 

(13) Average realized spread means the share-weighted average of realized spreads for 

order executions calculated, for buy orders, as double the amount of difference between the 

execution price and the midpoint of the national best bid and national best offer at a specified 

interval after the time of order execution and, for sell orders, as double the amount of difference 

between the midpoint and the national best bid and national best offer at a specified interval after 

the time of order execution and the execution price; provided, however, that the midpoint of the 

final national best bid and national best offer disseminated for regular trading hours shall be used 

to calculate a realized spread if it is disseminated less than that specified interval after the time of 

order execution. 

(14) Best available displayed price means, with respect to an order to buy, the lower of: 

the national best offer at the time of order receipt or the price of the best odd-lot order to sell at 

the time of order receipt as disseminated pursuant to an effective transaction reporting plan or 

effective national market system plan; and, with respect to an order to sell, the higher of: the 



569 

national best bid at the time of order receipt or the price of the best odd-lot order to buy at the 

time of order receipt as disseminated pursuant to an effective transaction reporting plan or 

effective national market system plan. With respect to a midpoint-or-better limit order, the best 

available displayed price shall be determined at the time such order becomes executable rather 

than the time of order receipt. 

(15) Best bid and best offer mean the highest priced bid and the lowest priced offer.  

(16) Bid or offer means the bid price or the offer price communicated by a member of a 

national securities exchange or member of a national securities association to any broker or 

dealer, or to any customer, at which it is willing to buy or sell one or more round lots of an NMS 

security, as either principal or agent, but shall not include indications of interest.  

(17) Block size with respect to an order means it is:  

(i) Of at least 10,000 shares; or  

(ii) For a quantity of stock having a market value of at least $200,000.  

(18) Categorized by order size means dividing orders into separate categories for the 

following sizes:  

(i) Less than $250 and less than a share; 

(ii) Less than $250 and odd-lot; 

(iii) Less than $250 and at least a round lot; 

(iv) $250 to less than $1,000 and less than a share; 

(v) $250 to less than $1,000 and odd-lot; 

(vi) $250 to less than $1,000 and at least a round lot; 

(vii) $1,000 to less than $5,000 and less than a share; 

(viii) $1,000 to less than $5,000 and odd-lot; 



570 

(ix) $1,000 to less than $5,000 and at least a round lot; 

(x) $5,000 to less than $10,000 and less than a share; 

(xi) $5,000 to less than $10,000 and odd-lot; 

(xii) $5,000 to less than $10,000 and at least a round lot; 

(xiii) $10,000 to less than $20,000 and less than a share; 

(xiv) $10,000 to less than $20,000 and odd-lot; 

(xv) $10,000 to less than $20,000 and at least a round lot; 

(xvi) $20,000 to less than $50,000 and less than a share; 

(xvii) $20,000 to less than $50,000 and odd-lot; 

(xviii) $20,000 to less than $50,000 and at least a round lot; 

(xix) $50,000 to less than $200,000 and less than a share; 

(xx) $50,000 to less than $200,000 and odd-lot; 

(xxi) $50,000 to less than $200,000 and at least a round lot; 

(xxii) $200,000 or more and less than a share; 

(xxiii) $200,000 or more and odd-lot; and 

(xxiv) $200,000 or more and at least a round lot. 

(19) Categorized by order type means dividing orders into separate categories for market 

orders, marketable limit orders (excluding immediate-or-cancel orders), marketable immediate-

or-cancel orders, midpoint-or-better limit orders (excluding immediate-or-cancel orders), 

midpoint-or-better limit orders that are immediate-or-cancel, executable non-marketable limit 

orders (excluding orders submitted with stop prices, midpoint-or-better limit orders, and 

immediate-or-cancel orders), executable non-marketable orders that are immediate-or-cancel, 



571 

executable market orders submitted with stop prices, executable stop marketable limit orders, 

and executable stop non-marketable limit orders. 

(20) Categorized by security means dividing orders into separate categories for each 

NMS stock that is included in a report.  

(21) Competing consolidator means a securities information processor required to be 

registered pursuant to § 242.614 (Rule 614) or a national securities exchange or national 

securities association that receives information with respect to quotations for and transactions in 

NMS stocks and generates a consolidated market data product for dissemination to any person.  

(22) Consolidated display means:  

(i) The prices, sizes, and market identifications of the national best bid and national best 

offer for a security; and  

(ii) Consolidated last sale information for a security.  

(23) Consolidated last sale information means the price, volume, and market 

identification of the most recent transaction report for a security that is disseminated pursuant to 

an effective national market system plan.  

(24) Consolidated market data means the following data, consolidated across all national 

securities exchanges and national securities associations:  

(i) Core data;  

(ii) Regulatory data;  

(iii) Administrative data;  

(iv) Self-regulatory organization-specific program data; and  



572 

(v) Additional regulatory, administrative, or self-regulatory organization-specific 

program data elements defined as such pursuant to the effective national market system plan or 

plans required under § 242.603(b).  

(25) Consolidated market data product means any data product developed by a 

competing consolidator that contains consolidated market data or data components of 

consolidated market data. For purposes of this paragraph (b)(25), data components of 

consolidated market data include the enumerated elements, and any subcomponent of the 

enumerated elements, of consolidated market data in paragraph (b)(24) of this section. All 

consolidated market data products must reflect data consolidated across all national securities 

exchanges and national securities associations.  

(26) Core data means:  

(i) The following information with respect to quotations for, and transactions in, NMS 

stocks:  

(A) Quotation sizes;  

(B) Aggregate quotation sizes;  

(C) Best bid and best offer;  

(D) National best bid and national best offer;  

(E) Protected bid and protected offer;  

(F) Transaction reports;  

(G) Last sale data;  

(H) Odd-lot information;  

(I) Depth of book data; and  

(J) Auction information.  



573 

(ii) For purposes of the calculation and dissemination of core data by competing 

consolidators, as defined in paragraph (b)(21) of this section, and the calculation of core data by 

self-aggregators, as defined in paragraph (b)(94) of this section, the best bid and best offer, 

national best bid and national best offer, protected bid and protected offer, and depth of book 

data shall include odd-lots that when aggregated are equal to or greater than a round lot; such 

aggregation shall occur across multiple prices and shall be disseminated at the least aggressive 

price of all such aggregated odd-lots.  

(iii) Competing consolidators shall represent the quotation sizes of the following data 

elements, if disseminated in a consolidated market data product as defined in paragraph (b)(25) 

of this section, as the number of shares rounded down to the nearest multiple of a round lot: The 

best bid and best offer, national best bid and national best offer, protected bid and protected 

offer, depth of book data, and auction information.  

(iv) Competing consolidators shall attribute the following data elements, if disseminated 

in a consolidated market data product as defined in paragraph (b)(25) of this section, to the 

national securities exchange or national securities association that is the source of each such data 

element: Best bid and best offer, national best bid and national best offer, protected bid and 

protected offer, transaction reports, last sale data, odd-lot information, depth of book data, and 

auction information. 

(27) Covered order means any market order or any limit order (including immediate-or-

cancel orders) received by a market center, broker, or dealer during regular trading hours at a 

time when a national best bid and national best offer is being disseminated and after the primary 

listing market has disseminated its first firm, uncrossed quotations in the security, and, if 

executed, is executed during regular trading hours; or any non-marketable limit order (including 



574 

an order submitted with a stop price) received by a market center, broker, or dealer outside of 

regular trading hours, or at a time before the primary listing market has disseminated its first 

firm, uncrossed quotations in the security, or at a time when a national best bid and national best 

offer is not being disseminated and, if executed, is executed during regular trading hours. 

Covered order shall exclude any order for which the customer requests special handling for 

execution, including, but not limited to, orders to be executed at a market opening price or a 

market closing price, orders to be executed only at their full size, orders to be executed on a 

particular type of tick or bid, orders submitted on a “not held” basis, orders for other than regular 

settlement, and orders to be executed at prices unrelated to the market price of the security at the 

time of execution. 

(28) Customer means any person that is not a broker or dealer.  

(29) Customer limit order means an order to buy or sell an NMS stock at a specified price 

that is not for the account of either a broker or dealer; provided, however, that the term customer 

limit order shall include an order transmitted by a broker or dealer on behalf of a customer.  

(30) Customer order means an order to buy or sell an NMS security that is not for the 

account of a broker or dealer, but shall not include any order for a quantity of a security having a 

market value of at least $50,000 for an NMS security that is an option contract and a market 

value of at least $200,000 for any other NMS security.  

(31) Depth of book data means all quotation sizes at each national securities exchange 

and on a facility of a national securities association at each of the next five prices at which there 

is a bid that is lower than the national best bid and offer that is higher than the national best offer. 

For these five prices, the aggregate size available at each price, if any, at each national securities 

exchange and national securities association shall be attributed to such exchange or association.  



575 

(32) Directed order means an order from a customer that the customer specifically 

instructed the broker or dealer to route to a particular venue for execution.  

(33) Dynamic market monitoring device means any service provided by a vendor on an 

interrogation device or other display that:  

(i) Permits real-time monitoring, on a dynamic basis, of transaction reports, last sale data, 

or quotations with respect to a particular security; and  

(ii) Displays the most recent transaction report, last sale data, or quotation with respect to 

that security until such report, data, or quotation has been superseded or supplemented by the 

display of a new transaction report, last sale data, or quotation reflecting the next reported 

transaction or quotation in that security.  

(34) Effective national market system plan means any national market system plan 

approved by the Commission (either temporarily or on a permanent basis) pursuant to § 242.608.  

(35) Effective transaction reporting plan means any transaction reporting plan approved 

by the Commission pursuant to § 242.601.  

(36) Electronic communications network means, for the purposes of § 242.602(b)(5), any 

electronic system that widely disseminates to third parties orders entered therein by an exchange 

market maker or OTC market maker, and permits such orders to be executed against in whole or 

in part; except that the term electronic communications network shall not include:  

(i) Any system that crosses multiple orders at one or more specified times at a single 

price set by the system (by algorithm or by any derivative pricing mechanism) and does not 

allow orders to be crossed or executed against directly by participants outside of such times; or  



576 

(ii) Any system operated by, or on behalf of, an OTC market maker or exchange market 

maker that executes customer orders primarily against the account of such market maker as 

principal, other than riskless principal.  

(37) Exchange market maker means any member of a national securities exchange that is 

registered as a specialist or market maker pursuant to the rules of such exchange.  

(38) Exchange-traded security means any NMS security or class of NMS securities listed 

and registered, or admitted to unlisted trading privileges, on a national securities exchange; 

provided, however, that securities not listed on any national securities exchange that are traded 

pursuant to unlisted trading privileges are excluded. 

(39) Executable means, for any non-marketable buy order (excluding orders submitted 

with stop prices), that the limit price is equal to or greater than the national best bid during 

regular trading hours and after the primary listing market has disseminated its first firm, 

uncrossed quotations in the security, and, for any non-marketable sell order (excluding orders 

submitted with stop prices), that the limit price is equal to or less than the national best offer 

during regular trading hours and after the primary listing market has disseminated its first firm, 

uncrossed quotations in the security. Executable means, for any order submitted with a stop 

price, that the stop price has been triggered during regular trading hours and after the primary 

listing market has disseminated its first firm, uncrossed quotations in the security. The time an 

order becomes executable shall be measured in increments of a millisecond or finer. 

(40) Executable stop marketable limit order means, for buy orders, orders submitted with 

stop prices that have limit prices that are equal to or greater than the national best offer at the 

time such orders become executable, and, for sell orders, orders submitted with stop prices that 



577 

have limit prices that are equal to or less than the national best bid at the time such orders 

become executable.  

(41) Executable stop non-marketable limit order means, for buy orders, orders submitted 

with stop prices that have limit prices that are less than the national best offer at the time such 

orders become executable, and, for sell orders, orders submitted with stop prices that have limit 

prices that are greater than the national best bid at the time such orders become executable.  

(42) Executed at the quote means, for buy orders, execution at a price equal to the 

national best offer at the time of order receipt and, for sell orders, execution at a price equal to 

the national best bid at the time of order receipt. 

(43) Executed outside the best available displayed price means, for buy orders, execution 

at a price higher than the best available displayed price; and, for sell orders, execution at a price 

lower than the best available displayed price. 

(44) Executed outside the quote means, for buy orders, execution at a price higher than 

the national best offer at the time of order receipt and, for sell orders, execution at a price lower 

than the national best bid at the time of order receipt.  

(45) Executed with price improvement means, for buy orders, execution at a price lower 

than the national best offer at the time of order receipt and, for sell orders, execution at a price 

higher than the national best bid at the time of order receipt. 

(46) Executed with price improvement relative to the best available displayed price 

means, for buy orders, execution at a price lower the best available displayed price and, for sell 

orders, execution at a price higher than the best available displayed price. 

(47) Intermarket sweep order means a limit order for an NMS stock that meets the 

following requirements:  



578 

(i) When routed to a trading center, the limit order is identified as an intermarket sweep 

order; and  

(ii) Simultaneously with the routing of the limit order identified as an intermarket sweep 

order, one or more additional limit orders, as necessary, are routed to execute against the full 

displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of 

any protected offer, in the case of a limit order to buy, for the NMS stock with a price that is 

superior to the limit price of the limit order identified as an intermarket sweep order. These 

additional routed orders also must be marked as intermarket sweep orders.  

(48) Interrogation device means any securities information retrieval system capable of 

displaying transaction reports, last sale data, or quotations upon inquiry, on a current basis on a 

terminal or other device.  

(49) Joint self-regulatory organization plan means a plan as to which two or more self-

regulatory organizations, acting jointly, are sponsors.  

(50) Last sale data means any price or volume data associated with a transaction.  

(51) Listed equity security means any equity security listed and registered, or admitted to 

unlisted trading privileges, on a national securities exchange.  

(52) Listed option means any option traded on a registered national securities exchange or 

automated facility of a national securities association.  

(53) Make publicly available means posting on an Internet website that is free and readily 

accessible to the public, furnishing a written copy to customers on request without charge, and 

notifying customers at least annually in writing that a written copy will be furnished on request.  

(54) Manual quotation means any quotation other than an automated quotation.  



579 

(55) Market center means any exchange market maker, OTC market maker, alternative 

trading system, national securities exchange, or national securities association. 

(56) Marketable limit order means, with respect to an order received at a time when a 

national best bid and national best offer is being disseminated and after the primary listing 

market has disseminated its first firm, uncrossed quotations in the security, any buy order with a 

limit price equal to or greater than the national best offer at the time of order receipt, or any sell 

order with a limit price equal to or less than the national best bid at the time of order receipt, and, 

with respect to an order received at a time when a national best bid and national best offer is not 

being disseminated, any buy order with a limit price equal to or greater than the national best 

offer at the time that the national best offer is first disseminated during regular trading hours after 

the time of order receipt, or any sell order with a limit price equal to or less than the national best 

bid time at the time that the national best bid is first disseminated during regular trading hours 

after the time of order receipt. For orders received at a time when the national best bid and 

national best offer is being disseminated but the primary listing market has not disseminated its 

first firm, uncrossed quotations in the security, whether an order is a marketable limit order shall 

be determined from the time that the primary listing market disseminates its first firm, uncrossed 

quotations in the security. 

(57) Midpoint-or-better limit order means, with respect to an order received at a time 

when a national best bid and national best offer is being disseminated and the primary listing 

market has disseminated its first firm, uncrossed quotations in the security, any non-marketable 

buy order with a limit price that is equal to or higher than the midpoint of the national best bid 

and national best offer at the time of order receipt and any non-marketable sell order with a limit 

price that is equal to or lower than the midpoint of the national best bid and national best offer at 



580 

the time of order receipt, and, with respect to an order received at a time when a national best bid 

and national best offer is not being disseminated, any non-marketable buy order with a limit 

price that is equal to or higher than the midpoint of the national best bid and national best offer at 

the time that the national best bid and national best offer is first disseminated after the time of 

order receipt, or any non-marketable sell order with a limit price that is equal to or lower than the 

midpoint of the national best bid and national best offer at the time that the national best bid and 

national best offer is first disseminated after the time of order receipt. For orders received at a 

time when the national best bid and national best offer is being disseminated but the primary 

listing market has not disseminated its first firm, uncrossed quotations in the security, whether an 

order is a midpoint-or-better limit order shall be determined from the time that the primary 

listing market disseminates its first firm, uncrossed quotations in the security. 

(58) Moving ticker means any continuous real-time moving display of transaction reports 

or last sale data (other than a dynamic market monitoring device) provided on an interrogation or 

other display device.  

(59) Nasdaq security means any registered security listed on The Nasdaq Stock Market, 

Inc.  

(60) National best bid and national best offer means, with respect to quotations for an 

NMS stock, the best bid and best offer for such stock that are calculated and disseminated on a 

current and continuing basis by a competing consolidator or calculated by a self-aggregator and, 

for NMS securities other than NMS stocks, the best bid and best offer for such security that are 

calculated and disseminated on a current and continuing basis by a plan processor pursuant to an 

effective national market system plan; provided, that in the event two or more market centers 

transmit to the plan processor, a competing consolidator or a self-aggregator identical bids or581 

offers for an NMS security, the best bid or best offer (as the case may be) shall be determined by 

ranking all such identical bids or offers (as the case may be) first by size (giving the highest 

ranking to the bid or offer associated with the largest size), and then by time (giving the highest 

ranking to the bid or offer received first in time).  

(61) National market system plan means any joint self-regulatory organization plan in 

connection with:  

(i) The planning, development, operation or regulation of a national market system (or a 

subsystem thereof) or one or more facilities thereof; or  

(ii) The development and implementation of procedures and/or facilities designed to 

achieve compliance by self-regulatory organizations and their members with any section of this 

Regulation NMS and part 240, subpart A, of this chapter promulgated pursuant to section 11A of 

the Act (15 U.S.C. 78k–1).  

(62) National securities association means any association of brokers and dealers 

registered pursuant to section 15A of the Act (15 U.S.C. 78o-3).  

(63) National securities exchange means any exchange registered pursuant to section 6 of 

the Act (15 U.S.C. 78f).  

(64) NMS security means any security or class of securities for which transaction reports 

are collected, processed, and made available pursuant to an effective transaction reporting plan, 

or an effective national market system plan for reporting transactions in listed options.  

(65) NMS stock means any NMS security other than an option.  

(66) Non-directed order means any order from a customer other than a directed order.  

(67) Non-marketable limit order means any limit order other than a marketable limit 

order.  



582 

(68) Odd-lot means an order for the purchase or sale of an NMS stock in an amount less 

than a round lot.  

(69) Odd-lot information means:  

(i) Odd-lot transaction data disseminated pursuant to the effective national market system 

plan or plans required under § 242.603(b) as of April 9, 2021; and  

(ii) Odd-lots at a price greater than or equal to the national best bid and less than or equal 

to the national best offer, aggregated at each price level at each national securities exchange and 

national securities association.  

(70) Options class means all of the put option or call option series overlying a security, as 

defined in section 3(a)(10) of the Act (15 U.S.C. 78c(a)(10)).  

(71) Options series means the contracts in an options class that have the same unit of 

trade, expiration date, and exercise price, and other terms or conditions. 

(72) Order size benchmark means the number of shares of the full displayed size of all 

protected bids at the same price as the national best bid at the time of order receipt, in the case of 

a market or limit order to sell, or the full displayed size of all protected offers at the same price 

as the national best offer at the time of order receipt, in the case of a market or limit order to buy. 

For midpoint-or-better limit orders, the full displayed size should be measured at the time the 

order becomes executable rather than the time of order receipt. For each order, the share count 

shall be capped at the order size. 

(73) Orders providing liquidity means orders that were executed against after resting at a 

trading center.  

(74) Orders removing liquidity means orders that executed against resting trading interest 

at a trading center.  



583 

(75) OTC market maker means any dealer that holds itself out as being willing to buy 

from and sell to its customers, or others, in the United States, an NMS stock for its own account 

on a regular or continuous basis otherwise than on a national securities exchange in amounts of 

less than block size.  

(76) Participants, when used in connection with a national market system plan, means 

any self-regulatory organization which has agreed to act in accordance with the terms of the plan 

but which is not a signatory of such plan.  

(77) Payment for order flow has the meaning provided in § 240.10b–10 of this chapter.  

(78) Plan processor means any self-regulatory organization or securities information 

processor acting as an exclusive processor in connection with the development, implementation 

and/or operation of any facility contemplated by an effective national market system plan.  

(79) Primary listing exchange means, for each NMS stock, the national securities 

exchange identified as the primary listing exchange in the effective national market system plan 

or plans required under § 242.603(b).  

(80) Profit-sharing relationship means any ownership or other type of affiliation under 

which the broker or dealer, directly or indirectly, may share in any profits that may be derived 

from the execution of non-directed orders.  

(81) Protected bid or protected offer means a quotation in an NMS stock that:  

(i) Is displayed by an automated trading center;  

(ii) Is disseminated pursuant to an effective national market system plan; and  

(iii) Is an automated quotation that is the best bid or best offer of a national securities 

exchange, or the best bid or best offer of a national securities association.  

(82) Protected quotation means a protected bid or a protected offer.  



584 

(83) Published aggregate quotation size means the aggregate quotation size calculated by 

a national securities exchange and displayed by a vendor on a terminal or other display device at 

the time an order is presented for execution to a responsible broker or dealer.  

(84) Published bid and published offer means the bid or offer of a responsible broker or 

dealer for an NMS security communicated by it to its national securities exchange or association 

pursuant to § 242.602 and displayed by a vendor on a terminal or other display device at the time 

an order is presented for execution to such responsible broker or dealer.  

(85) Published quotation size means the quotation size of a responsible broker or dealer 

communicated by it to its national securities exchange or association pursuant to § 242.602 and 

displayed by a vendor on a terminal or other display device at the time an order is presented for 

execution to such responsible broker or dealer.  

(86) Quotation means a bid or an offer.  

(87) Quotation size, when used with respect to a responsible broker's or dealer's bid or 

offer for an NMS security, means:  

(i) The number of shares (or units of trading) of that security which such responsible 

broker or dealer has specified, for purposes of dissemination to vendors, that it is willing to buy 

at the bid price or sell at the offer price comprising its bid or offer, as either principal or agent; or  

(ii) In the event such responsible broker or dealer has not so specified, a normal unit of 

trading for that NMS security.  

(88) Regular trading hours means the time between 9:30 a.m. and 4 p.m. Eastern Time, 

or such other time as is set forth in the procedures established pursuant to § 242.605(a)(3).  

(89) Regulatory data means:  



585 

(i) Information required to be collected or calculated by the primary listing exchange for 

an NMS stock and provided to competing consolidators and self-aggregators pursuant to the 

effective national market system plan or plans required under § 242.603(b), including, at a 

minimum:  

(A) Information regarding Short Sale Circuit Breakers pursuant to § 242.201;  

(B) Information regarding Price Bands required pursuant to the Plan to Address 

Extraordinary Market Volatility (LULD Plan);  

(C) Information relating to regulatory halts or trading pauses (news 

dissemination/pending, LULD, Market-Wide Circuit Breakers) and reopenings or resumptions;  

(D) The official opening and closing prices of the primary listing exchange; and  

(E) An indicator of the applicable round lot size.  

(ii) Information required to be collected or calculated by the national securities exchange 

or national securities association on which an NMS stock is traded and provided to competing 

consolidators and self-aggregators pursuant to the effective national market system plan or plans 

required under § 242.603(b), including, at a minimum:  

(A) Whenever such national securities exchange or national securities association 

receives a bid (offer) below (above) an NMS stock's lower (upper) LULD price band, an 

appropriate regulatory data flag identifying the bid (offer) as non-executable; and  

(B) Other regulatory messages including subpenny execution and trade-though exempt 

indicators.  

(iii) For purposes of paragraph (b)(89)(i)(C) of this section, the primary listing exchange 

that has the largest proportion of companies included in the S&P 500 Index shall monitor the 

S&P 500 Index throughout the trading day, determine whether a Level 1, Level 2, or Level 3 



586 

decline, as defined in self-regulatory organization rules related to Market-Wide Circuit Breakers, 

has occurred, and immediately inform the other primary listing exchanges of all such declines.  

(90) Responsible broker or dealer means:  

(i) When used with respect to bids or offers communicated on a national securities 

exchange, any member of such national securities exchange who communicates to another 

member on such national securities exchange, at the location (or locations) or through the facility 

or facilities designated by such national securities exchange for trading in an NMS security a bid 

or offer for such NMS security, as either principal or agent; provided, however, that, in the event 

two or more members of a national securities exchange have communicated on or through such 

national securities exchange bids or offers for an NMS security at the same price, each such 

member shall be considered a responsible broker or dealer for that bid or offer, subject to the 

rules of priority and precedence then in effect on that national securities exchange; and further 

provided, that for a bid or offer which is transmitted from one member of a national securities 

exchange to another member who undertakes to represent such bid or offer on such national 

securities exchange as agent, only the last member who undertakes to represent such bid or offer 

as agent shall be considered the responsible broker or dealer for that bid or offer; and  

(ii) When used with respect to bids and offers communicated by a member of an 

association to a broker or dealer or a customer, the member communicating the bid or offer 

(regardless of whether such bid or offer is for its own account or on behalf of another person).  

(91) Revised bid or offer means a market maker's bid or offer which supersedes its 

published bid or published offer.  

(92) Revised quotation size means a market maker's quotation size which supersedes its 

published quotation size.  



587 

(93) Round lot means:  

(i) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $250.00 or less per share, an order for the purchase or sale of an 

NMS stock of 100 shares;  

(ii) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $250.01 to $1,000.00 per share, an order for the purchase or sale of 

an NMS stock of 40 shares;  

(iii) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $1,000.01 to $10,000.00 per share, an order for the purchase or 

sale of an NMS stock of 10 shares;  

(iv) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $10,000.01 or more per share, an order for the purchase or sale of 

an NMS stock of 1 share; and  

(v) For any NMS stock for which the prior calendar month's average closing price is not 

available, an order for the purchase or sale of an NMS stock of 100 shares.  

(94) Self-aggregator means a broker, dealer, national securities exchange, national 

securities association, or investment adviser registered with the Commission that receives 

information with respect to quotations for and transactions in NMS stocks, including all data 

necessary to generate consolidated market data, and generates consolidated market data solely 

for internal use. A self-aggregator may make consolidated market data available to its affiliates 

that are registered with the Commission for their internal use. Except as provided in the 

preceding sentence, a self-aggregator may not disseminate or otherwise make available 



588 

consolidated market data, or components of consolidated market data, as provided in paragraph 

(b)(25) of this section, to any person.  

(95) Self-regulatory organization means any national securities exchange or national 

securities association.  

(96) Self-regulatory organization-specific program data means:  

(i) Information related to retail liquidity programs specified by the rules of national 

securities exchanges and disseminated pursuant to the effective national market system plan or 

plans required under § 242.603(b) as of April 9, 2021; and  

(ii) Other self-regulatory organization-specific information with respect to quotations for 

or transactions in NMS stocks as specified by the effective national market system plan or plans 

required under § 242.603(b).  

(97) Specified persons, when used in connection with any notification required to be 

provided pursuant to § 242.602(a)(3) and any election (or withdrawal thereof) permitted under § 

242.602(a)(5), means:  

(i) Each vendor;  

(ii) Each plan processor; and  

(iii) The processor for the Options Price Reporting Authority (in the case of a notification 

for a subject security which is a class of securities underlying options admitted to trading on any 

national securities exchange).  

(98) Sponsor, when used in connection with a national market system plan, means any 

self-regulatory organization which is a signatory to such plan and has agreed to act in accordance 

with the terms of the plan.  



589 

(99) SRO display-only facility means a facility operated by or on behalf of a national 

securities exchange or national securities association that displays quotations in a security, but 

does not execute orders against such quotations or present orders to members for execution.  

(100) SRO trading facility means a facility operated by or on behalf of a national 

securities exchange or a national securities association that executes orders in a security or 

presents orders to members for execution.  

(101) Subject security means:  

(i) With respect to a national securities exchange:  

(A) Any exchange-traded security other than a security for which the executed volume of 

such exchange, during the most recent calendar quarter, comprised one percent or less of the 

aggregate trading volume for such security as reported pursuant to an effective transaction 

reporting plan or effective national market system plan; and  

(B) Any other NMS security for which such exchange has in effect an election, pursuant 

to § 242.602(a)(5)(i), to collect, process, and make available to a vendor bids, offers, quotation 

sizes, and aggregate quotation sizes communicated on such exchange; and  

(ii) With respect to a member of a national securities association:  

(A) Any exchange-traded security for which such member acts in the capacity of an OTC 

market maker unless the executed volume of such member, during the most recent calendar 

quarter, comprised one percent or less of the aggregate trading volume for such security as 

reported pursuant to an effective transaction reporting plan or effective national market system 

plan; and  

(B) Any other NMS security for which such member acts in the capacity of an OTC 

market maker and has in effect an election, pursuant to § 242.602(a)(5)(ii), to communicate to its 



590 

association bids, offers, and quotation sizes for the purpose of making such bids, offers, and 

quotation sizes available to a vendor. 

(102) Time of order execution means the time (at a minimum to the millisecond) that an 

order was executed at any venue. 

(103) Time of order receipt means the time (at a minimum to the millisecond) that an 

order was received by a market center for execution, or in the case of a broker or dealer that is 

not acting as a market center, the time (at a minimum to the millisecond) that an order was 

received by the broker or dealer for execution. 

(104) Time of the transaction has the meaning provided in § 240.10b–10 of this chapter.  

(105) Trade-through means the purchase or sale of an NMS stock during regular trading 

hours, either as principal or agent, at a price that is lower than a protected bid or higher than a 

protected offer.  

(106) Trading center means a national securities exchange or national securities 

association that operates an SRO trading facility, an alternative trading system, an exchange 

market maker, an OTC market maker, or any other broker or dealer that executes orders 

internally by trading as principal or crossing orders as agent.  

(107) Trading rotation means, with respect to an options class, the time period on a 

national securities exchange during which:  

(i) Opening, re-opening, or closing transactions in options series in such options class are 

not yet completed; and  

(ii) Continuous trading has not yet commenced or has not yet ended for the day in options 

series in such options class.  



591 

(108) Transaction report means a report containing the price and volume associated with 

a transaction involving the purchase or sale of one or more round lots of a security.  

(109) Transaction reporting association means any person authorized to implement or 

administer any transaction reporting plan on behalf of persons acting jointly under § 242.601(a).  

(110) Transaction reporting plan means any plan for collecting, processing, making 

available or disseminating transaction reports with respect to transactions in securities filed with 

the Commission pursuant to, and meeting the requirements of, § 242.601.  

(111) Vendor means any securities information processor engaged in the business of 

disseminating transaction reports, last sale data, or quotations with respect to NMS securities to 

brokers, dealers, or investors on a real-time or other current and continuing basis, whether 

through an electronic communications network, moving ticker, or interrogation device. 

§ 242.602 [Amended] 

9. Amend § 242.602 by, in paragraphs (a)(5)(i) and (ii), removing the text “§ 

242.600(b)(90)” and adding in its place “§ 242.600(b)(101)”. 

 10. Amend § 242.605 by revising the introductory text and paragraph (a) to read as 

follows: 

§ 242.605  Disclosure of order execution information. 

This section requires market centers, brokers, and dealers to make available standardized, 

monthly reports of statistical information concerning their order executions. This information is 

presented in accordance with uniform standards that are based on broad assumptions about order 

execution and routing practices. The information will provide a starting point to promote 

visibility and competition on the part of market centers and broker-dealers, particularly on the 

factors of execution price and speed. The disclosures required by this section do not encompass 



592 

all of the factors that may be important to investors in evaluating the order routing services of a 

broker-dealer. In addition, any particular market center, broker, or dealer’s statistics will 

encompass varying types of orders routed by different broker-dealers on behalf of customers 

with a wide range of objectives. Accordingly, the statistical information required by this section 

alone does not create a reliable basis to address whether any particular broker-dealer failed to 

obtain the most favorable terms reasonably available under the circumstances for customer 

orders. 

(a) Monthly electronic reports by market centers, brokers, and dealers. (1) Every market 

center, broker, or dealer shall make available for each calendar month, in accordance with the 

procedures established pursuant to paragraph (a)(3) of this section, a report on the covered orders 

in NMS stocks that it received for execution from any person or that it received for execution in 

a prior calendar month but which remained open. Any OTC market maker that provides a trading 

system for only a single dealer to solely buy and sell securities against all other persons entering 

orders in that system shall produce a separate report pertaining only to covered orders entered in 

such trading system. Alternative trading systems (as defined in §242.300(a)) shall prepare reports 

separately from their broker-dealer operators to the extent such entities are required to prepare 

reports. Each report shall be in electronic form; shall be categorized by security, order type, and 

order size; and shall include the following columns of information: 

(i) For market orders, marketable limit orders, marketable immediate-or-cancel orders, 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable non-marketable limit orders, executable non-marketable limit orders that are 

immediate-or-cancel, executable market orders submitted with stop prices, executable stop 

marketable limit orders, and executable stop non-marketable limit orders:  



593 

(A) The number of covered orders;  

(B) The cumulative notional value of covered orders; 

(C) The cumulative number of shares of covered orders;  

(D) The cumulative number of shares of covered orders cancelled prior to execution;  

(E) The cumulative number of shares of covered orders executed at the receiving market 

center, broker, or dealer (excluding shares that the market center, broker, or dealer executes on a 

riskless principal basis);  

(F) The cumulative number of shares of covered orders executed at any other venue;  

(G) The cumulative number of shares of covered orders executed less than 100 

microseconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(H) The cumulative number of shares of covered orders executed from 100 microseconds 

to less than 1 millisecond after the time of order receipt; or, for non-marketable limit orders or 

orders submitted with stop prices, after the time the order becomes executable ; 

(I) The cumulative number of shares of covered orders executed from 1 millisecond to 

less than 10 milliseconds after the time of order receipt; or, for non-marketable limit orders or 

orders submitted with stop prices, after the time the order becomes executable; 

(J) The cumulative number of shares of covered orders executed from 10 milliseconds to 

less than 1 second after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(K) The cumulative number of shares of covered orders executed from 1 second to less 

than 10 seconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 



594 

(L) The cumulative number of shares of covered orders executed from 10 seconds to less 

than 30 seconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(M) The cumulative number of shares of covered orders executed from 30 seconds to less 

than 5 minutes after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(N) The cumulative number of shares of covered orders executed 5 minutes or more after 

the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, 

after the time the order becomes executable; 

(O) For executions of covered orders, the average realized spread as calculated 50 

milliseconds after the time of execution; 

(P) For executions of covered orders, the average percentage realized spread as calculated 

50 milliseconds after the time of execution; 

(Q) For executions of covered orders, the average realized spread as calculated 1 second 

after the time of execution; 

(R) For executions of covered orders, the average percentage realized spread as 

calculated 1 second after the time of execution; 

(S) For executions of covered orders, the average realized spread as calculated 15 

seconds after the time of execution; 

(T) For executions of covered orders, the average percentage realized spread as 

calculated 15 seconds after the time of execution; 

(U) For executions of covered orders, the average realized spread as calculated 1 minute 

after the time of execution; 



595 

(V) For executions of covered orders, the average percentage realized spread as 

calculated 1 minute after the time of execution; 

(W) For executions of covered orders, the average realized spread as calculated 5 minutes 

after the time of execution;  

(X) For executions of covered orders, the average percentage realized spread as 

calculated 5 minutes after the time of execution;   

(Y) For executions of covered orders, the average midpoint; and 

(ii) For market orders, marketable limit orders, marketable immediate-or-cancel orders, 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable market orders submitted with stop prices, and executable stop marketable limit 

orders: 

(A) For executions of covered orders, the average quoted spread; 

(B) For executions of covered orders, the average effective spread; 

(C) For executions of covered orders, the average percentage effective spread; 

(D) For executions of covered orders, the average effective divided by the average quoted 

spread, expressed as a percentage; 

(E) The cumulative number of shares of covered orders executed with price 

improvement; 

(F) For shares executed with price improvement, the share-weighted average amount per 

share that prices were improved; 

(G) For shares executed with price improvement, the share-weighted average period from 

the time of order receipt to the time of order execution, expressed in increments of a millisecond 

or finer, or, in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are 



596 

immediate-or-cancel, executable market orders submitted with stop prices, and executable stop 

marketable limit orders, from the time such orders first become executable to the time of order 

execution, expressed in increments of a millisecond or finer; 

(H) The cumulative number of shares of covered orders executed at the quote; 

(I) For shares executed at the quote, the share-weighted average period from the time of 

order receipt to the time of order execution, expressed in increments of a millisecond or finer, or, 

in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-

or-cancel, executable market orders submitted with stop prices, and executable stop marketable 

limit orders, from the time such orders first become executable to the time of order execution, 

expressed in increments of a millisecond or finer; 

(J) The cumulative number of shares of covered orders executed outside the quote; 

(K) For shares executed outside the quote, the share-weighted average amount per share 

that prices were outside the quote; 

(L) For shares executed outside the quote, the share-weighted average period from the 

time of order receipt, expressed in increments of a millisecond or finer, or, in the case of 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable market orders submitted with stop prices, and executable stop marketable limit 

orders, from the time such orders first become executable to the time of order execution, 

expressed in increments of a millisecond or finer; 

(M) The cumulative number of shares of covered orders executed with price 

improvement relative to the best available displayed price;  



597 

(N) For shares executed with price improvement relative to the best available displayed 

price, the share-weighted average amount per share that prices were improved as compared to 

the best available displayed price; 

(O) The cumulative number of shares of covered orders executed at the best available 

displayed price;  

(P) The cumulative number of shares of covered orders executed outside the best 

available displayed price;  

(Q) For shares executed outside the best available displayed price, the share-weighted 

average amount per share that prices were outside the best available displayed price; 

(R) For executions of covered orders, the cumulative number of shares of the order size 

benchmark; 

(S) The sum of, for each execution of a covered order, the greater of: the total number of 

shares executed with price improvement plus the total number of shares executed at the quote 

minus the order size benchmark, or zero; and 

(iii) For midpoint-or-better limit orders, midpoint-or-better limit orders that are 

immediate-or-cancel, executable non-marketable limit orders, executable non-marketable limit 

orders that are immediate-or-cancel, and executable stop non-marketable limit orders:  

(A) The number of covered orders that received either a complete or partial fill;  

(B) The cumulative number of shares executed regular way at prices that could have 

filled the order while the order was in force, as reported pursuant to an effective transaction 

reporting plan or effective national market system plan. For each order, the share count shall be 

capped at the order size;  



598 

(C) The cumulative number of shares executed regular way on any national securities 

exchange at prices that could have filled the order while the order was in force, as reported 

pursuant to an effective transaction reporting plan or effective national market system plan. For 

each order, the share count shall be capped at the order size; and 

(D) For shares executed, the share-weighted average period from the time the order 

becomes executable to the time of order execution expressed in increments of a millisecond or 

finer. 

(2) Every market center, broker, or dealer shall make publicly available for each calendar 

month a report providing summary statistics on all covered orders that are market and marketable 

limit orders that it received for execution from any person. Such report shall be made available 

as an electronic file using the most recent version of the schema for comma separated values 

format (CSV) and the associated PDF renderer as published on the Commission’s website for all 

reports required by this paragraph (a)(2). Such report shall include a section for NMS stocks that 

are included in the S&P 500 Index as of the first day of that month and a section for other NMS 

stocks. Each section shall be categorized by order type (market orders or marketable limit orders) 

and order size (less than $250, $250 to less than $1,000, $1,000 to less than $5,000, $5,000 to 

less than $10,000, $10,000 to less than $20,000, $20,000 to less than $50,000, $50,000 to less 

than $200,000, $200,000 or more, and all order sizes combined, excluding orders with a notional 

value of $200,000 or more), and shall include the following columns of information: 

(i) The average order size in shares; 

(ii) The average notional order size; 

(iii) For executions of covered orders, the average midpoint; 



599 

(iv) For executions of covered orders, the percentage of shares executed at the quote or 

better; 

(v) For executions of covered orders, the percentage of shares that received price 

improvement; 

(vi) For executions of covered orders, the share-weighted average percentage price 

improvement, calculated as the cumulative amount that prices were improved less the cumulative 

amount that prices were executed outside the quote divided by sum of the average midpoint 

times the number of shares executed; 

(vii) For executions of covered orders, the average percentage effective spread; 

(viii) For executions of covered orders, the average percentage quoted spread, calculated 

as the average quoted spread divided by the average midpoint for such orders; 

(ix) For executions of covered orders, the average effective spread divided by the average 

quoted spread, expressed as a percentage;  

(x) For executions of covered orders, the average percentage realized spread as calculated 

15 seconds after the time of execution;  

(xi) For executions of covered orders, the average percentage realized spread as 

calculated 1 minute after the time of execution; and  

(xii) For executions of covered orders, the share-weighted average execution speed, in 

milliseconds. 

(3) Every national securities exchange on which NMS stocks are traded and each national 

securities association shall act jointly in establishing procedures for market centers, brokers, and 

dealers to follow in making available to the public the reports required by this section in a 

uniform, readily accessible, and usable electronic form. 



600 

(4) In the event there is no effective national market system plan establishing such 

procedures, market centers, brokers, and dealers shall prepare their reports in a consistent, 

usable, and machine-readable electronic format, in accordance with the requirements in 

paragraph (a)(1) of this section, and make such reports available for downloading from an 

internet website that is free and readily accessible to the public.  

(5) Every market center, broker, or dealer shall keep the reports required by paragraphs 

(a)(1) and (2) of this section posted on an internet website that is free and readily accessible to 

the public for a period of three years from the initial date of posting on the internet website. 

(6) A market center, broker, or dealer shall make available the reports required by 

paragraphs (a)(1) and (2) of this section within one month after the end of the month addressed 

in the reports. 

(7) A broker or dealer that is not a market center shall not be subject to the requirements 

of this section unless that broker or dealer introduces or carries 100,000 or more customer 

accounts through which transactions are effected for the purchase or sale of NMS stocks (the 

“customer account threshold” for purposes of this paragraph). For purposes of this section, a 

broker or dealer that utilizes an omnibus clearing arrangement with respect to any of its 

underlying customer accounts shall be considered to carry such underlying customer accounts 

when calculating the number of customer accounts that it introduces or carries. Any broker or 

dealer that meets or exceeds this customer account threshold and is also a market center shall 

produce separate reports pertaining to each function. A broker or dealer that meets or exceeds the 

customer account threshold shall be required to produce reports pursuant to this section for at 

least three calendar months (“Reporting Period”). The Reporting Period shall begin the first 

calendar day of the next calendar month after the broker or dealer met or exceeded the customer601 

account threshold, unless it is the first time the broker or dealer has met or exceeded the 

customer account threshold, in which case the Reporting Period shall begin the first calendar day 

four calendar months later. If, at any time after a broker or dealer has been required to produce 

reports pursuant to this section for at least a Reporting Period, a broker or dealer falls below the 

customer account threshold, the broker or dealer shall not be required to produce a report 

pursuant to this paragraph (a)(7) for the next calendar month. 

* * * * * 

§ 242.611 [Amended] 

 11. Amend § 242.611 by, in paragraph (c), removing the text “§ 242.600(b)(38)” and 

adding in its place “§ 242.600(b)(47)”. 

§ 242.614 [Amended] 

12. Amend § 242.614 by, in paragraphs (d)(1) through (3), removing the text “§ 

242.600(b)(20)” and adding in its place “§ 242.600(b)(25)”. 

§ 242.1000 [Amended] 

13. Amend § 242.1000, in the definition Plan processor, by removing the text “§ 

242.600(b)(67)” and adding in its place “§ 242.600(b)(78)”. 

By the Commission. 

Dated: March 6, 2024. 

 

 

Sherry R. Haywood, 

Assistant Secretary.

Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION 

17 CFR Parts 240 and 242 

[Release No. 34-99679; File No. S7-29-22] 

RIN 3235-AN22 

Disclosure of Order Execution Information 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) is adopting 

amendments to a rule under the Securities Exchange Act of 1934 (“Exchange Act”) that requires 

disclosures for order executions in national market system (“NMS”) stocks. First, the 

amendments expand the scope of reporting entities subject to the preexisting rule that requires 

market centers to make available to the public monthly execution quality reports to encompass 

broker-dealers with a larger number of customers. Next, the amendments modify the definition 

of “covered order” to include certain orders submitted outside of regular trading hours and 

certain orders submitted with stop prices. In addition, the amendments modify the information 

required to be reported under the rule, including changing how orders are categorized by order 

size as well as how they are categorized by order type. The amendments, as part of the changes 

to the order size categories, modify the rule to capture execution quality information for 

fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the amendments 

modify reporting requirements for non-marketable limit orders (“NMLOs”) in order to capture 

more relevant execution quality information for these orders by requiring statistics to be reported 

from the time such orders become executable. The amendments modify time-to-execution 

categories and require average time to execution to be measured in increments of a millisecond 



2 

or finer and calculated on a share-weighted basis for all orders. The amendments require that the 

time of order receipt and time of order execution be measured in increments of a millisecond or 

finer, and that realized spread be calculated at multiple time intervals. Finally, the amendments 

enhance the accessibility of the reported execution quality statistics by requiring all reporting 

entities to make a summary report available. 

DATES: Effective date: The final rules are effective June 14, 2024.  

Compliance date: See section VII, titled “Transition Matters,” for further information on 

transitioning to the final rules. 

FOR FURTHER INFORMATION CONTACT: Kathleen Gross, Senior Special Counsel, 

Lauren Yates, Senior Special Counsel, Susie Cho, Special Counsel, Christopher Chow, Special 

Counsel, David Michehl, Special Counsel, or Laura Harper Powell, Special Counsel at (202) 

551-5500, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 

20549. 

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 17 CFR 

242.600 (“Rule 600”) to add new defined terms to and modify certain existing defined terms in 

Rule 600 that are used in 17 CFR 242.605 (“Rule 605”) as amended, as well as amendments to 

Rule 605; and to make conforming amendments to defined terms in 17 CFR 242.602, 242.611, 

and 242.614; and conforming amendments to defined terms in 17 CFR 240.3a51-1, 240.13h-1, 

242.105, 242.201, 242.204, and 242.1000. 

Table of Contents 

I. Introduction and Background .......................................................................................... 4 
A. Overview of Need for Rule Modernization ..................................................................... 7 
B. Overview of the Proposal and Comments Received...................................................... 15 
C. Overview of Final Rule 605 ........................................................................................... 21 

II. Modifications to Reporting Entities ............................................................................... 24 
A. Larger Broker-Dealers ................................................................................................... 24 

1. Proposed Approach ........................................................................................................ 24 



3 

2. Final Rule and Discussion .............................................................................................. 28 
B. Qualified Auction Mechanisms ..................................................................................... 51 

1. Proposed Approach ........................................................................................................ 51 
2. Final Rule and Discussion .............................................................................................. 52 

C. NMS Stock ATSs and SDPs .......................................................................................... 53 
1. Proposed Approach ........................................................................................................ 53 
2. Final Rule and Discussion .............................................................................................. 54 

III. Modifications to Scope of Orders Covered and Required Information ......................... 62 
A. Covered Order ................................................................................................................ 62 

1. Orders Submitted Pre-Opening/Post-Closing ................................................................ 63 

2. Stop Orders ..................................................................................................................... 71 
3. Non-Exempt Short Sale Orders ...................................................................................... 81 

B. Required Information ..................................................................................................... 83 
1. Categorization by Order Size ......................................................................................... 83 

2. Categorization by Order Type ...................................................................................... 104 
3. Timestamp Conventions and Time-to-Execution Statistics ......................................... 116 

4. Execution Quality Statistics ......................................................................................... 128 

IV. Summary Execution Quality Report ............................................................................ 180 
A. Proposed Approach ...................................................................................................... 181 

B. Final Rule and Discussion ........................................................................................... 182 
1. Required Information ................................................................................................... 188 

2. Required Format ........................................................................................................... 205 
3. Investor Testing and Education .................................................................................... 207 

V. Requirements for Making Rule 605 Reports Available to the Public ......................... 210 
A. Proposed Approach ...................................................................................................... 210 

B. Final Rule and Discussion ........................................................................................... 211 
1. Accessibility of Rule 605 Reports ................................................................................ 211 
2. Alternatives to Rule 605 Proposal ................................................................................ 215 

VI. Existing Commission Exemptive Relief and Staff Statements .................................... 221 

VII. Transition Matters ........................................................................................................ 223 

VIII. Paperwork Reduction Act ............................................................................................ 229 
A. Summary of Collection of Information........................................................................ 230 
B. Proposed Use of Information ....................................................................................... 231 

C. Respondents ................................................................................................................. 231 
D. Total PRA Burdens ...................................................................................................... 232 

IX. Economic Analysis ...................................................................................................... 241 
A. Introduction .................................................................................................................. 241 
B. Market Failure .............................................................................................................. 242 

C. Baseline ........................................................................................................................ 248 
1. Regulatory Baseline ..................................................................................................... 249 
2. Use of Reports under Rule 605 Prior to Rule Amendments ........................................ 264 

3. Disclosure Requirements under Preexisting Rule 605 ................................................. 276 
4. Markets for Brokerage and Trading Services for NMS Stocks under Preexisting Rule 



4 

605 Disclosure Requirements ...................................................................................... 338 
D. Economic Effects ......................................................................................................... 349 

1. Benefits......................................................................................................................... 350 
2. Costs ............................................................................................................................. 440 
3. Economic Effects on Efficiency, Competition, and Capital Formation ....................... 471 

E. Reasonable Alternatives............................................................................................... 475 
1. Reasonable Alternative Modifications to Reporting Entities ....................................... 475 

2. Reasonable Alternative Modifications to Scope of Covered Orders ........................... 484 
3. Reasonable Alternative Modifications to Required Information ................................. 493 
4. Reasonable Alternative Modifications to Accessibility ............................................... 514 
5. Other Reasonable Alternatives ..................................................................................... 522 

X. Regulatory Flexibility Act Certification ...................................................................... 524 

XI. Other Matters ............................................................................................................... 526 

Statutory Authority ..................................................................................................................... 526 

 

I. Introduction and Background 

On December 14, 2022, the Commission proposed amendments to Rule 605 under 

Regulation National Market System (17 CFR 242.600 through 242.614) (“Regulation NMS”) to 

update the disclosure of order execution quality statistics in national market system (“NMS”) 

stocks.1 Rule 605, formerly known as Rule 11Ac1-5, was adopted in 20002 and requires market 

 

1  See Securities Exchange Act Release No. 96493 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) (“Proposing 

Release”). 

2  See Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414 at 75416 (Dec. 1, 2000) 

(Disclosure of Order Execution and Routing Practices) (“Rule 11Ac1-5 Adopting Release”). Along with 

Rule 11Ac1-5, the Commission also adopted Rule 11Ac1-6 as part of the Rule 11Ac1-5 Adopting Release. 

See 17 CFR 242.606 (“Rule 606”). When the Commission later adopted Regulation NMS in 2005, Rule 

11Ac1-5 was re-designated as Rule 605, and Rule 11Ac1-6 was re-designated as Rule 606. See Securities 

Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (“Regulation NMS 

Adopting Release”). Rule 606 requires the public disclosure of order routing practices and was amended in 

2018. See Securities Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) 

(“2018 Rule 606 Amendments Release”). 



5 

centers3 to make available standardized monthly reports of statistical information concerning 

covered orders4 in NMS stocks5 that they received for execution.6 Prior to these amendments, the 

Rule 605 report contained a number of execution quality metrics for covered orders.7 The 

 

3  Regulation NMS defines the term “market center” to mean any exchange market maker, over-the-counter 

(“OTC”) market maker, alternative trading system (“ATS”), national securities exchange, or national 

securities association. See final 17 CFR 242.600(b)(55). “Exchange market maker” means any member of a 

national securities exchange that is registered as a specialist or market maker pursuant to the rules of such 

exchange. See final 17 CFR 242.600(b)(37). “OTC market maker” means any dealer that holds itself out as 

being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its 

own account on a regular or continuous basis otherwise than on a national securities exchange in amounts 

of less than a block size. See final 17 CFR 242.600(b)(75). “Alternative trading system” or “ATS” means 

any organization, association, person, group of persons, or system: (1) That constitutes, maintains, or 

provides a market place or facilities for bringing together purchasers and sellers of securities or for 

otherwise performing with respect to securities the functions commonly performed by a stock exchange 

within the meaning of 17 CFR 240.3b-16; and (2) That does not: (i) Set rules governing the conduct of 

subscribers other than the conduct of such subscribers’ trading on such organization, association, person, 

group of persons, or system; or (ii) Discipline subscribers other than by exclusion from trading. See 17 

CFR 242.300(a). See also final 17 CFR 242.600(b)(4) (stating that “alternative trading system” has the 

meaning provided in 17 CFR 242.300(a)). “National securities exchange” means any exchange registered 

pursuant to section 6 of the Exchange Act. See final 17 CFR 242.600(b)(63). “National securities 

association” means any association of brokers and dealers registered pursuant to section 15A of the 

Exchange Act. See final 17 CFR 242.600(b)(62). 

4  Prior to these amendments, a “covered order” was defined to include any market order or any limit order 

(including immediate-or-cancel orders) received by a market center during regular trading hours at a time 

when a national best bid and national best offer (“NBBO”) is being disseminated, and, if executed, is 

executed during regular trading hours, and did not include any orders for which the customer requests 

special handling, including, but not limited to, market on open and market on close orders, stop orders, all 

or none orders, and “not held” orders. See prior 17 CFR 242.600(b)(22). Generally, a “not held” order 

provides the broker-dealer with price and time discretion in handling the order, whereas a broker-dealer 

must attempt to execute a “held” order immediately. See 2018 Rule 606 Amendments Release, 83 FR 

58338 at 58340, n.19 (Nov. 19, 2018). 

5  “NMS stock” is defined under Regulation NMS as any NMS security other than an option. See final 17 

CFR 242.600(b)(65). An “NMS security” is defined as any security or class of securities for which 

transaction reports are collected, processed, and made available pursuant to an effective transaction 

reporting plan, or an effective national market system plan for reporting transactions in listed options. See 

final 17 CFR 242.600(b)(64). 

6  See prior 17 CFR 242.605. The procedures for market centers to make their execution quality data 

available to the public are set forth in the National Market System Plan Establishing Procedures Under 

Rule 605 of Regulation NMS (“Rule 605 NMS Plan”). See prior 17 CFR 242.605(a)(2) and Securities and 

Exchange Commission File No. 4-518 (Rule 605 NMS Plan). See also Securities Exchange Act Release 

No. 44177 (Apr. 12, 2001), 66 FR 19814 (Apr. 17, 2001) (order approving the Rule 605 NMS Plan) (“Rule 

605 NMS Plan Release”). 

7  See prior 17 CFR 242.605(a)(1); Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423-25 (Dec. 1, 

2000). 



6 

information was categorized: by (1) individual security, (2) one of five order types,8 and (3) one 

of four order sizes.9 Within each of the three categories, the Rule 605 report that was required 

prior to these amendments included statistics about the total number of orders submitted, and the 

total number of shares submitted, shares cancelled prior to execution, shares executed at the 

receiving market center, shares executed at another venue, shares executed within different time-

to-execution buckets, and average realized spread.10 For market and marketable limit orders 

specifically, the report required by Rule 605 prior to these amendments also included statistics 

about the (1) average effective spread; (2) number of shares executed better than the quote, at the 

quote, or outside the quote; (3) average time to execution when executed better than the quote, at 

the quote, or outside the quote; and (4) average dollar amount per share that orders were 

executed better than the quote or outside the quote.11 To calculate the required statistics, the time 

of order execution and time of order receipt were measured to the nearest second.12  

At the time the Commission adopted Rule 11Ac1-5, there was little publicly available 

information to enable investors to compare and evaluate execution quality among different 

 

8  See prior 17 CFR 242.605(a)(1). Prior to these amendments, “Categorized by order type” referred to 

categorization by whether an order is: (1) a market order, (2) a marketable limit order, (3) an inside-the-

quote limit order, (4) an at-the-quote limit order, or (5) a near-the-quote limit order. See prior 17 CFR 

242.600(b)(14). 

9  See prior 17 CFR 242.605(a)(1). Prior to these amendments, the size categories were: 100 to 499 shares; 

500 to 1,999 shares; 2000 to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13). 

On June 22, 2001, the Commission granted exemptive relief to any order with a size of 10,000 shares or 

greater (“Large Order Exemptive Relief”), reasoning that the exclusion of very large orders would help 

assure greater comparability of statistics in the largest size category of 5,000 or greater shares. See letter 

from Annette L. Nazareth, Director, Division of Market Regulation to Darla C. Stuckey, Assistant 

Secretary, NYSE Group, Inc., dated June 22, 2001 (“Large Order Exemptive Letter”). 

10  See prior 17 CFR 242.605(a)(1)(i). 

11  See prior 17 CFR 242.605(a)(1)(ii). 

12  See prior 17 CFR 242.600(b)(91), (92). 



7 

market centers.13 Rule 605, along with Rule 606 of Regulation NMS, was adopted in 2000, and 

together these rules required the public disclosure of execution quality and order routing 

practices.14 The Commission intended Rule 11Ac1-5 to provide awareness about how broker-

dealers responded to trade-offs between price and other factors, such as speed or reliability, and 

establish a baseline level of disclosure in order to facilitate cross-market comparisons of 

execution quality.15 The Commission reasoned that once investors could evaluate execution 

performance provided by various broker-dealers, competitive forces could then be brought to 

bear on broker-dealers both with respect to the explicit trading costs associated with brokerage 

commissions and the implicit trading costs associated with execution quality.16 

The information disclosed under Rule 605 has provided significant insight into execution 

quality at different market centers.17 However, Rule 605 has not been substantively updated 

since it was adopted in 2000. In the interim, equity market conditions have changed due in part 

to many technological advancements that have altered the speed and nature of trading. In 

 

13  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). For clarity, when this release 

discusses the adoption of Rule 605, it is referring to the Rule 11Ac1-5 Adopting Release, supra note 2. 

14  See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). 

15  See id. at 75418. Data obtained from Rule 605 reports are used by the third parties including academics and 

the financial press to study a variety of topics related to execution quality, including liquidity measurement, 

exchange competition, zero commission trading, and broker-dealer execution quality. See Proposing 

Release, 88 FR 3786 at 3833, n.545-547 (Jan. 20, 2023) and accompanying text. 

16  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). Although it is difficult to 

isolate the effects of Rule 605 given the evolution of the equity markets over time, one academic study 

examining the introduction of Rule 605 found that the routing of marketable order flow by broker-dealers 

became more sensitive to changes in execution quality across market centers after Rule 605 reports became 

available. See Ekkehart Boehmer et al., Public Disclosure and Private Decisions: Equity Market Execution 

Quality and Order Routing, 20 REV. FIN. STUD. 315 (2007) (“Boehmer et al.”). Another study attributed a 

significant decline in effective and quoted spreads following the implementation of Rule 605 to an increase 

in competition between market centers, who improved the execution quality that they offered in order to 

attract more order flow. See Xin Zhao & Kee H. Chung, Information Disclosure and Market Quality: The 

Effect of SEC Rule 605 on Trading Costs, 42 J. FIN. QUANTITATIVE ANALYSIS, 657 (Sept. 2007) (“Zhao & 

Chung”). 

17  See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 at 3604, n.55 (Jan. 21, 2010) 

(“Concept Release on Equity Market Structure”).  



8 

addition, the participation of individual investors in the equity markets has increased.18 

Accordingly, the Commission is adopting amendments to Rule 605 to update and improve the 

disclosure of execution quality information by expanding the scope of entities subject to Rule 

605, modifying the information required, and making key execution quality metrics more 

accessible to investors. 

A. Overview of Need for Rule Modernization 

The U.S. equity markets have evolved significantly in the last couple of decades. For 

instance, the equities markets have become increasingly fragmented, as both the market shares of 

individual national securities exchanges have decreased and an increased percentage of order 

flow has moved off-exchange. In 2000, there were nine registered national securities exchanges 

and one registered national securities association.19 A large proportion of the order flow in listed 

equity securities was routed to a few, mostly manual, trading centers,20 and the primary listing 

exchanges maintained a high percentage of the order flow for exchange-listed equities.21 

 

18  See Proposing Release, 88 FR 3786 at 3787-88 (Jan. 20, 2023). As used in this release, “individual 

investor” refers to natural persons that trade relatively infrequently for their own or closely related 

accounts. 

19  See Securities and Exchange Commission, Annual Report for fiscal year 2000, at 38 available at 

https://www.sec.gov/pdf/annrep00/ar00full.pdf. 

20  See Securities Exchange Act Release Nos. 78309 (July 13, 2016), 81 FR 49432 at 49436 (July 27, 2016) 

(“Rule 606 Amendments Proposing Release”); 42450 (Feb. 23, 2000), 65 FR 10577 at 10579-80 (Feb. 28, 

2000) (“Fragmentation Release”). 

21  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75415 (Dec. 1, 2000) (stating that in Sep. 2000, for 

example, the New York Stock Exchange Inc. (“NYSE”) accounted for 83.3% of the share volume in NYSE 

equities and that the American Stock Exchange, LLC (“Amex”) accounted for 69.9% of share volume in 

Amex equities). See also Concept Release on Equity Market Structure, 75 FR 3594 at 3595 (Jan. 21, 2010) 

(stating that in Jan. 2005, NYSE executed approximately 79.1% of the consolidated share volume in its 

listed stocks, as compared to 25.1% in Oct. 2009). In addition, NYSE-listed stocks were traded primarily 

on the floor of the NYSE in a manual fashion until Oct. 2006, at which time NYSE began to offer fully 

automated access to its displayed quotations. See id. at 3594-95. However, stocks traded on the NASDAQ 

Stock Market LLC (“NASDAQ”), which in 2000 was owned and operated by a national securities 

association, were already trading in a highly automated fashion at many different trading centers. See id. at 

3595; Fragmentation Release, 65 FR 10577 at 10580 (Feb. 28, 2000). See also Proposing Release, 88 FR 

3786 at 3791, n.76 (Jan. 20, 2023). 



9 

In contrast, trading in the U.S. equity markets today is highly automated and spread even 

more among different types of trading centers, allowing even more choices about where orders 

may be routed. The types of trading centers that currently trade NMS stocks are: (1) national 

securities exchanges operating self-regulatory organization (“SRO”) trading facilities;22 (2) 

ATSs that trade NMS stocks (“NMS Stock ATSs”);23 (3) exchange market makers; (4) 

wholesalers;24 and (5) any other broker-dealer that executes orders internally by trading as 

principal or crossing orders as agent.25 Some OTC market makers, such as wholesalers, operate 

single-dealer platforms (“SDPs”) through which they execute institutional orders in NMS stocks 

against their own inventory.26 In the first quarter of 2023, NMS stocks were traded on 16 

national securities exchanges, and off-exchange at 33 NMS Stock ATSs and at over 220 other 

Financial Industry Regulatory Authority (“FINRA”) members.27 Approximately 56% of NMS 

 

22  See final 17 CFR 242.600(b)(100) (defining “SRO trading facility” as, among other things, a facility 

operated by a national securities exchange that executes orders in a security). 

23  An “NMS Stock ATS” as used in this release is an ATS that has filed an effective Form ATS-N with the 

Commission. 

24  The term “wholesaler” is not defined in Regulation NMS, but is commonly used to refer to an OTC market 

maker that seeks to attract orders from broker-dealers that service the accounts of a large number of 

individual investors. The primary business model of wholesalers is to trade internally as principal with 

individual investor orders. They do not publicly display or otherwise reveal the prices at which they are 

willing to trade internally as a means to attract individual investor orders from broker-dealers. 

25  See 15 U.S.C. 78c(a)(4)(A) (defining “broker” generally as any person engaged in the business of effecting 

transactions in securities for the account of others); 15 U.S.C. 78c(a)(5)(A) (defining “dealer” generally as 

any person engaged in the business of buying and selling securities for such person’s own account through 

a broker or otherwise). The term “broker-dealer” is used in this release to encompass all brokers, all 

dealers, and firms that are both brokers and dealers. See also final 17 CFR 242.600(b)(106) (defining 

“trading center”). Broker-dealers that primarily service the accounts of individual investors (referred to in 

this release as “retail brokers”) often route the marketable orders of individual investors in NMS stocks to 

wholesalers. 

26  See Proposing Release, 88 FR 3786 at 3860, n.768 (Jan. 20, 2023) and accompanying text. 

27  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.766 (Jan. 20, 2023) and 

accompanying text; and 3861 (Table 7). 



10 

share volume was executed on national securities exchanges.28 The majority of off-exchange 

share volume was executed by wholesalers, who executed over one quarter of total share volume 

(26.9%) and about 61% of off-exchange share volume.29  

In addition, developments in trading further point toward the utility of amending Rule 

605. Average stock prices have continued to increase over time,30 and odd-lots31 and fractional 

shares32 continue to trade with increasing frequency. In addition, odd-lot quotes in higher-priced 

stocks continue to offer prices that are frequently better than the round lot NBBO for these 

 

28  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.767 (Jan. 20, 2023) and 

accompanying text; and 3861 (Table 7). 

29  See infra Table 6. See also Proposing Release, 88 FR 3786 at 3861 (Table 7) (Jan. 20, 2023). 

30  See Securities Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 at 18606-07 (Apr. 9, 2021) 

(“Market Data Infrastructure (“MDI”) Adopting Release”) (citing Securities Exchange Act Release No. 

88216 (Feb. 14, 2020), 85 FR 16726 at 16739 (Mar. 24, 2020) (“MDI Proposing Release”)) (stating that 

“between 2004 and 2019, the average price of a stock in the Dow Jones Industrial Average nearly 

quadrupled”). See also Proposing Release, 88 FR 3786 at 3787, n.16 (Jan. 20, 2023). 

31  See MDI Adopting Release, 86 FR 18596 at 18616 (Apr. 9, 2021) (describing analyses included in the 

MDI Adopting Release confirming observations made in the MDI Proposing Release that a significant 

proportion of quotation and trading activity occurs in odd-lots, particularly for frequently traded, high-

priced stocks); and Proposing Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023) (describing analysis using 

the NYSE Trade and Quote database (obtained via Wharton Research Data Services (“WRDS”)) (“TAQ 

data” or “NYSE TAQ data”) that found that odd-lots increased from around 15% of trades in Jan. 2014 to 

more than 55% of trades in Mar. 2022). An analysis of data from the SEC’s Market Information Data 

Analytics System (“MIDAS”) analytics tool available at 

https://www.sec.gov/marketstructure/datavis.html#.YoPskqjMKUk shows that, in Q1 2023, odd-lots made 

up 80.5% of on-exchange trades (37.3% of volume) for stocks in the highest price decile and 18.8% of on-

exchange trades (1.2% of volume) for stocks in the lowest price decile. See dataset “Summary Metrics by 

Decile and Quartile” available at https://www.sec.gov/marketstructure/downloads.html. See also Proposing 

Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023). 

32  Analysis using Consolidated Audit Trail (“CAT”) data for executed orders in Aug. 2023 found that an 

estimated 67.4 million originating orders with a fractional share component were eventually executed on- 

or off-exchange. Orders with a fractional share component represented approximately 4% of all executed 

orders and 22% of executed orders from “individual” accounts. Generally, accounts classified as 

“individual” in CAT are attributed to natural persons. See also Proposing Release, 88 FR 3786 at 3792, 

n.92 (Jan. 20, 2023). 



11 

stocks,33 and this better-priced odd-lot liquidity is distributed across multiple price levels.34 In 

addition, odd-lot rates35 have increased among lower priced stocks.36 Because Rule 605 size 

categories prior to these amendments excluded orders smaller than 100 shares, a significant 

proportion of market activity was excluded.37 An analysis of Rule 605 data shows that Rule 605 

coverage has declined in the decades since the initial adoption of Rule 605.38 Further, because 

order size categories were tied to the number of shares, the categories may have grouped orders 

 

33  See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis using data from 

May 2020 and finding that approximately 45% of all trades executed on exchange and approximately 10% 

of all volume executed on exchange in corporate stocks and exchange-traded funds (“ETFs”) (6,926 unique 

symbols) occurred in odd-lot sizes (i.e., less than 100 shares) and 40% of those odd-lot transactions 

(representing approximately 35% of all odd-lot volume) occurred at a price better than the NBBO). In 

addition, a recent academic working paper shows that odd-lots offer better prices than the NBBO 18% of 

the time for bids and 16% of the time for offers. This percentage increases monotonically in the stock price, 

for example, for bid prices, increasing from 5% for the group of lowest-price stocks in their sample, to 42% 

for the group of highest-priced stocks. See Robert P. Bartlett, Justin McCrary, and Maureen O’Hara, The 

Market Inside the Market: Odd-Lot Quotes (working paper Feb. 1, 2022), available at 

SSRN: https://ssrn.com/abstract=4027099 (retrieved from SSRN Elsevier database) (“Bartlett, et al.”). See 

also Elliot Banks, BMLL Technologies, Inside the SIP and the Microstructure of Odd-Lot Quotes 

(observing an upward trend in odd-lot trading inside the NBBO from Jan. 2019 to Jan. 2022). See also 

Proposing Release, 88 FR 3786 at 3792, n.93 (Jan. 20, 2023). 

34 See MDI Adopting Release, 86 FR 18596 at 18613 n.202 (Apr. 9, 2021) (describing analysis included in 

the MDI Adopting Release that examined quotation data for the week of May 22-29, 2020 for stocks priced 

from $250.01 to $1000.00 and found that there is odd-lot interest priced better than the new round lot 

NBBO 28.49% of the time, and, in 48.49% of those cases, there are better priced odd-lots at multiple price 

levels). See also Proposing Release, 88 FR 3786 at 3792, n.94 (Jan. 20, 2023). 

35  The odd-lot rate is the total number of odd-lot trades divided by the total number of all trades. 

36  For example, odd-lot rates for corporate stock price deciles 1-3 (the lowest priced corporate stocks 

comprising 30% of all corporate stocks) have been higher on average in 2021, 2022, and Sep. 2023 (34%, 

34%, 34%) as compared to 2019 and 2020 (23%, 27%). Similarly, exchange-traded products (“ETPs”) also 

exhibit higher average odd-lot rates in price quartiles 1 and 2 (the lowest priced ETPs comprising 50% of 

all ETPs) on average in 2021, 2022, and Sep. 2023 (26%, 28%, 28%) compared to 2019 and 2020 (19%, 

22%). Analysis has been updated based on MIDAS, available at https://www.sec.gov/opa/data/market-

structure/marketstructuredownloadshtml-by_decile_and_quartile. See also Proposing Release, 88 FR 3786 

at 3792, n.95 (Jan. 20, 2023). 

37  See Proposing Release, 88 FR 3786 at 3792, n.91-92 (Jan. 20, 2023). See also id. at 3840, n.619-622 and 

accompanying text (estimating, based on analysis of Tick Size Pilot data, coverage of current Rule 605 

reporting requirements). 

38  See id. at 3841 (Figure 3) (describing analysis comparing one market center’s volume (NYSE) to TAQ data 

that showed that an estimated 50% of shares executed during regular market hours were included in Rule 

605 reports as of Feb. 2021, and showed that this number has been on a slightly downward trend since 

around mid-2012). 



12 

of very different notional values, which might have complicated comparisons of aggregate 

execution quality. Finally, the speed of trading in the market has increased exponentially since 

2000,39 rendering the 1 second timestamp conventions of preexisting Rule 605 less informative. 

Moreover, since the adoption of Rule 605, the Commission and its staff have continually 

assessed market events and their impact on market structure, with much of this effort aimed at 

achieving enhanced transparency for investors.40 In 2010, the Commission issued a Concept 

Release on Equity Market Structure seeking public comment on, among other things, the metrics 

for assessing the performance of the current market structure and the effectiveness of tools such 

as Rule 605 reports to protect investor interests.41 In 2015, the Commission formed the Equity 

Market Structure Advisory Committee (“EMSAC”), which considered issues related to 

Regulation NMS and equity market structure.42 The EMSAC recommended that the Commission 

 

39  Analysis of data from the SEC’s MIDAS analytics tool shows that the percent of on-exchange NMLOs that 

are fully executed within 1 millisecond (as a percentage of all fully executed on-exchange NMLOs) has 

increased from 2.1% in Q1 2012 to 11.7% in Q1 2023 for small cap stocks, and from 5.9% in Q1 2012 to 

14.0% in Q1 2023 for large cap stocks. Further, in Q1 2023 nearly half (48.0%) of NMLOs executed in less 

than 1 second in large market capitalization stocks. See dataset “Conditional Cancel and Trade 

Distribution,” available at https://www.sec.gov/marketstructure/downloads.html. See also infra notes 1216-

1217 and accompanying text. See also Proposing Release, 88 FR 3786 at 3792, n.98 (Jan. 20, 2023). 

40  For example, since the adoption of Rule 605 in 2000, the Commission has periodically revised certain of its 

NMS rules, including the adoption of Regulation NMS in 2005. See, e.g., Regulation NMS Adopting 

Release, 70 FR 37496 (June 29, 2005); and MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 

41  See Concept Release on Equity Market Structure, 75 FR 3594 at 3605 (Jan. 21, 2010). 

42  The archives of these meetings are available at https://www.sec.gov/spotlight/emsac/emsac-archives.htm. 



13 

amend Rule 605 to modernize it and increase the usefulness of available execution quality 

disclosures.43 In addition, one broker-dealer petitioned the Commission to amend Rule 605.44 

In 2018, the Commission modified Rule 606, which requires broker-dealers to disclose 

the identity of market centers to which they route orders on behalf of customers.45 Rule 

606(a)(1), which focuses on held orders,46 requires broker-dealers to produce quarterly public 

reports regarding their routing of non-directed orders47 in NMS stocks that are submitted on a 

held basis and these reports include the identity of regularly used venues, the percentage of 

orders routed to each venue, and information about the broker-dealer’s relationship with each 

venue.48 When adopting the 2018 Rule 606 Amendments, the Commission identified intensified 

competition for customer orders, the rise in the number of trading centers, and the introduction of 

new fee models for execution services as the main concerns with held orders for NMS stocks that 

it sought to address with the proposal.49 The Commission adopted enhanced public disclosures 

 

43  See Transcript from EMSAC Meeting (Aug. 2, 2016), available at 

https://www.sec.gov/spotlight/emsac/emsac-080216-transcript.txt (“EMSAC I”); Transcript from EMSAC 

Meeting (Nov. 29, 2016), available at https://www.sec.gov/spotlight/equity-market-structure/emsac-

transcript-112916.txt (“EMSAC II”); EMSAC Recommendations Regarding Modifying Rule 605 and Rule 

606 (“EMSAC III”), Nov. 29, 2016, available at https://www.sec.gov/spotlight/emsac/emsac-

recommendations-rules-605-606.pdf. 

44  See Letter from Virtu Financial re Petition for Rulemaking to Amend SEC Rule 605 (Sept. 20, 2021) 

(“Virtu Petition”), available at https://www.sec.gov/rules/petitions/2021/petn4-775.pdf. 

45  The amendments to Rule 606 in 2018 (“2018 Rule 606 Amendments”) also modified Rule 605 to require 

that the public order execution quality reports be kept publicly available for a period of three years. See 

2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018). 

46  See supra note 4 (discussing held and not held orders). 

47  A “non-directed order” means any order from a customer other than a directed order. See final 17 CFR 

242.600(b)(66). A “directed order” means an order from a customer that the customer specifically 

instructed the broker or dealer to route to a particular venue for execution. See final 17 CFR 

242.600(b)(32). 

48  See 17 CFR 242.606(a)(1). Held orders are typically used by individual investors. See, e.g., 2018 Rule 606 

Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018) (stating that retail investors’ orders are 

typically submitted on a held basis and are typically smaller in size). 

49  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018).  



14 

pursuant to Rule 606(a)(1) that focused on increased transparency for the financial inducements 

that broker-dealers face when determining where to route held order flow.50 The Commission 

also adopted Rule 606(b)(3) to require detailed, customer-specific order handling disclosures that 

can be requested by a customer that places, directly or indirectly, one or more orders in NMS 

stocks that are submitted on a not held basis.51 

At the time of the 2018 Rule 606 Amendments, the Commission considered suggestions 

from the EMSAC and other commenters that the Commission include more or different 

execution quality statistics in the required disclosures.52 But the Commission stated that the 

enhancements to Rule 606(a) that it was adopting were 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 customer orders and how their broker-dealers manage those potential conflicts.53 

The Commission further stated the limited modifications being adopted at that time were 

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, and that the 

suggested execution quality statistics were not necessary to achieve that goal.54 However, the 

 

50  See id. at 58373. 

51  See 17 CFR 242.606(b)(3); 2018 Rule 606 Amendments Release, 83 FR 58338 at 58345 (Nov. 19, 2018) 

(stating that by using the not held order distinction, Rule 606(b)(3) as adopted will likely result in more 

Rule 606(b)(3) disclosures for order flow that is typically characteristic of institutional customers—not 

retail customers—and will likely cover all or nearly all of the institutional order flow). 

52  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). See also Proposing 

Release, 88 FR 3786 at 3790, n.66 (Jan. 20, 2023) and accompanying text. 

53  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). 

54  See id. The Commission further stated that the amendments to Rule 606 provide an appropriate level of 

insight into the widespread financial arrangements between broker-dealers and execution venues that may 

affect broker-dealers’ order routing decisions. See id. 



15 

Commission stated that its determination not to adopt the additional specific disclosures was not 

an indication that the Commission had formed a decision on the validity or usefulness of the 

suggested execution quality statistics.55 

Separately, each broker-dealer has a legal duty to seek to obtain best execution of 

customer orders.56 The duty of best execution requires broker-dealers to execute customers’ 

trades at the most favorable terms reasonably available under the circumstances.57 When 

adopting Rules 605 and 606, the Commission stated that these rules do not address and therefore 

do not change the existing legal standards that govern a broker-dealer’s duty of best execution.58 

The Commission recognized that the information contained in the Rule 605 reports (and Rule 

606 reports) will not, by itself, be sufficient to support conclusions regarding a broker-dealer’s 

compliance with its legal responsibility to obtain the best execution of customer orders.59 As the 

Commission stated, any such conclusions would require a more in-depth analysis of the broker-

 

55  See id. 

56  See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537 (June 29, 2005); Newton v. Merrill, 

Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525 U.S. 811 

(1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900, 53 SEC 

1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 

SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). In addition, the 

Commission has separately proposed a rule concerning broker-dealers’ duty of best execution. See 

Securities Exchange Act Release No. 96496 (Dec. 14, 2022), 88 FR 5440 (Jan. 27, 2023) (“Regulation Best 

Execution Proposing Release”). See also Proposing Release, 88 FR 3786 at 3790, n.69 (Jan. 20, 2023). 

57  See Regulation NMS Adopting Release, 70 FR 37496 at 37538 (June 29, 2005) (referring to the best 

reasonably available price and citing Newton, 135 F.3d at 266, 269-70, 274). Newton also specified certain 

other factors relevant to best execution—order size, trading characteristics of the security, speed of 

execution, clearing costs, and the cost and difficulty of executing an order in a particular market. See 

Newton, 135 F.3d at 270, n.2. See also Proposing Release, 88 FR 3786 at 3791, n.70 (Jan. 20, 2023). 

58  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75420 (Dec. 1, 2000). 

59  See id. 



16 

dealer’s order routing practices than will be available from the disclosures required by the 

rules.60 

B. Overview of the Proposal and Comments Received 

In acknowledgment of the myriad changes to the securities markets since the adoption of 

Rule 605 more than two decades ago, the proposed amendments to Rule 605 sought to ensure the 

continued transparency and utility of the execution quality statistics required by Rule 605. The 

Commission proposed to amend Rule 605 by expanding the scope of reporting entities to include 

broker-dealers with a larger number of customers (“larger broker-dealers”).61 The Commission 

also proposed to modify the set of required data to capture execution quality information for 

more order types and sizes, require time-based execution statistics to be at a more granular level, 

and enhance the utility of the statistics.62 The Commission further proposed to require that 

reporting entities provide a report of summary execution quality statistics, in addition to the more 

detailed reports.63  

 

60  See id. For example, the execution quality statistics included in Rule 605 do not encompass every factor 

that may be relevant in determining whether a broker-dealer has obtained best execution, and the statistics 

in a market center’s reports typically will reflect orders received from a number of different routing broker-

dealers. See id. See also infra notes 1097-1098 and accompanying text for discussion of an investment 

adviser’s fiduciary duty, including the duty to seek best execution of a client’s transactions where the 

investment adviser has the responsibility to select broker-dealers to execute client trades. See also 

Proposing Release, 88 FR 3786 at 3791 (Jan. 20, 2023). 

61  See Proposing Release, 88 FR 3786 at 3796-3801 (Jan. 20, 2023). Throughout the release, the term “larger 

broker-dealer” refers to a broker-dealer that meets or exceeds the “customer account threshold,” as defined 

in final Rule 605(a)(7). See also infra section II.A. 

62  See Proposing Release, 88 FR 3786 at 3804-22 (Jan. 20, 2023). 

63  See id. at 3823-25. 



17 

The Commission received numerous comment letters in response to the Proposing 

Release, a large portion of which were from individual investors.64 Many commenters supported 

updating the disclosures required by Rule 605.65
 Several commenters, including industry groups, 

broker-dealers, financial services firms,66 and investor advocacy groups, suggested clarifications 

or changes to the scope of reporting entities and to certain proposed metrics included in the 

detailed report or summary report.67 Other commenters broadly supported the more detailed 

recommendations of other commenters.68  

 

64  The Commission received comments from a wide range of market participants, including individual 

investors, broker-dealers, academics, securities industry groups, national securities exchanges, and investor 

advocacy groups. Comments received on the Proposing Release are available on the Commission’s 

website, available at https://www.sec.gov/comments/s7-29-22/s72922.htm. 

65  See, e.g., letters from: Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Mar. 

31, 2023) (“SIFMA Letter II”) at 2; Stephen John Berger, Managing Director, Global Head of Government 

and Regulatory Policy, Citadel Securities (Mar. 31, 2023) (“Rule 605 Citadel Letter”) at 1; Stephen W. 

Hall, Legal Director and Securities Specialist, Better Markets, Inc. (Mar. 31, 2023) (“Better Markets 

Letter”) at 1-2. 

66  As used in this release, “financial services firm” refers to an entity that includes multiple types of affiliated 

entities providing financial services, including broker-dealers, investment advisers, or banks.  

67  See, e.g., SIFMA Letter II at 27-28; and letters from: Howard Meyerson, Managing Director, Financial 

Information Forum (Mar. 31, 2023) (“FIF Letter”) at 2-5; Tyler Gellasch, President and CEO, Healthy 

Markets Association (Mar. 31, 2023) (“Healthy Markets Letter”) at 16-18; Douglas A. Cifu, Chief 

Executive Officer, Virtu Financial, Inc. (Mar. 30, 2023) (“Virtu Letter II”) at 10-12. These and other 

comment letters discussing the scope of reporting entities and proposed metrics included in the detailed 

report or summary report are described infra throughout this release. 

68  See, e.g., Rule 605 Citadel Letter at 5; and letters from: Ryan Kwiatkowski, Chairman of the Board, and 

James Toes, President & CEO, Security Traders Association (Apr. 3, 2023) (“STA Letter”) at 4-5; Derrick 

Chan, Head of Equities, Fidelity Capital Markets (Mar. 31, 2023) (“Fidelity Letter”) at 2, 8; Naureen 

Hassan, President, UBS Americas, Robert Karofsky, President, UBS Investment Bank, and Suni Harford, 

President, UBS Asset Management, UBS (Mar. 31, 2023) (“UBS Letter”) at 2; Tim Gately, Managing 

Director, Head of Equities Sales, Americas, Citigroup Global Markets Inc. (Mar. 31, 2023) (“CGMI 

Letter”) at 1-2, 3; Jason Clague, Managing Director, Head of Operations, The Charles Schwab Corporation 

(Mar. 31, 2023) (“Schwab Letter II”) at 2, 30, 33. These and other comment letters discussing the 

recommendations of other commenters are described infra throughout this release. Several individual 

investors stated that in Dec. 2022, FINRA and the Commission sent out risk alerts regarding a lack of 

compliance with reports pursuant to Rule 606 of Regulation NMS and that “one would suspect that brokers 

will be as non-compliant with the new 605 reports.” Letter Type D; Letter Type E; and Letter Type H at 

https://www.sec.gov/comments/s7-29-22/s72922.htm. The Commission will monitor the implementation of 

the amendments to Rule 605. 



18 

One industry group recommended that the Commission reissue the proposed rule after 

incorporating comments from it and other market participants “to ensure that the final rule 

achieves the Commission’s intended purpose and allow market participants to identify additional 

enhancements.”69 A broker-dealer stated that the Commission should provide market participants 

the opportunity to review and comment on such a revised proposal prior to finalization.70 The 

Commission does not agree with these commenters. Delaying the adoption of a final rule, and 

thereby delaying the benefits of Rule 605, is not warranted. The Commission has reviewed and 

carefully considered the extensive comment file,71 which included input from a broad array of 

market participants, and as discussed below, has made certain changes in response to these 

comments.72 For these reasons, re-proposal of the Rule 605 amendments is not necessary. 

Contemporaneously with the proposal to modify Rule 605, the Commission issued three 

other proposals related to separate aspects of equity market structure and Regulation NMS.73 A 

 

69  Letter from Howard Meyerson, Managing Director, Financial Information Forum (June 22, 2023) (“FIF 

Letter II”) at 11. See also letter from Howard Meyerson, Managing Director, Financial Information Forum 

(Feb. 14, 2024) (“FIF Letter III”) at 2, 5. 

70  See letter from Stephen John Berger, Managing Director, Global Head of Government & Regulatory 

Policy, Citadel Securities (Dec. 5, 2023) (“Equity Market Structure Citadel Letter II”) at 3. 

71  The Commission voted to issue the Proposing Release on Dec. 14, 2022. The release was posted on the 

Commission’s website that day, and comment letters were received beginning the same day. The comment 

period closed on Mar. 31, 2023. The Commission has considered comments received since Dec. 14, 2022. 

72  In addition, as discussed above, the EMSAC and commenters responding to the Commission’s Concept 

Release on Equity Market Structure and to the 2018 Rule 606 Amendments recommended that the 

Commission update Rule 605 and one broker-dealer petitioned the Commission to amend the Rule. See 

supra notes 40-44, 52, and accompanying text. The Commission considered these suggestions when 

proposing amendments to Rule 605. See Proposing Release, 88 FR 3786 at 3792-95 (Jan. 20, 2022).  

73  See Regulation Best Execution Proposing Release, 88 FR 5440 (Jan. 27, 2023) (proposing rule that would 

establish Commission rule-based best execution standards); and Securities Exchange Release Nos. 96494 

(Dec. 14, 2022), 87 FR 80266 (Dec. 29, 2022) (“Minimum Pricing Increments Proposing Release”) 

(proposing amendments to Regulation NMS to reduce minimum pricing increments, add a minimum 

trading increment, reduce access fee caps, improve transparency of exchange fees and rebates, and enhance 

the transparency of market data infrastructure); 96495 (Dec. 14, 2022), 88 FR 128 (Jan. 3, 2023) (“Order 

Competition Rule Proposing Release”) (proposing rule that would enhance competition for the execution of 

marketable orders of individual investors). 



19 

number of commenters provided comments on all four proposals jointly.74 Some commenters 

requested that the Commission publicly release anonymized subsets of CAT data used in 

connection with the tables and figures in the proposals’ economic analyses.75  

The Commission is not releasing anonymized subsets of CAT data used in connection 

with the proposals, including CAT data used in connection with data and figures in the Proposing 

 

74  See, e.g., SIFMA Letter II (Mar. 31, 2023); Equity Market Structure Citadel Letter II (Dec. 5, 2023); and 

letters from: Michael Blaugrund, Chief Operating Officer, NYSE Group, Inc., Jason Clague, Managing 

Director, Head of Operations, Charles Schwab & Co., and Joseph Mecane, Head of Execution Services, 

Citadel Securities (Mar. 6, 2023) (“NYSE, Schwab, and Citadel Letter”); Christopher A. Iacovella, 

President & Chief Executive Officer, American Securities Association (Mar. 31, 2023) (“American 

Securities Association Letter II”); Hope Jarkowski, General Counsel, NYSE Group, Inc. (Mar. 31, 2023) 

(“NYSE Letter”); Stephen John Berger, Managing Director, Global Head of Government & Regulatory 

Policy, Citadel Securities (Mar. 31, 2023) (“Equity Market Structure Citadel Letter”); Jason Clague, 

Managing Director, Head of Operations, The Charles Schwab Corporation (Mar. 22, 2023) (“Schwab 

Letter”); Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative (Mar. 24, 2023) (“Modern 

Markets Initiative Letter”); Joanna Mallers, Secretary, FIA Principal Traders Group (Mar. 31, 2023) (“FIA 

PTG Letter II”); Peter D. Stutsman, Global Head of Equity Trading, and Timothy J. Stark, Head of Equity 

Markets and Transaction Research, The Capital Group Companies, Inc. (Mar. 31, 2023) (“Capital Group 

Letter”); Andrew Hartnett, NASAA President and Deputy Commissioner, Iowa Insurance Division, North 

American Securities Administrators Association, Inc. (Mar. 31, 2023) (“NASAA Letter”); David Howson, 

Executive Vice President, Global President, Cboe Global Markets, Nathaniel N. Evarts, Managing 

Director, Head of Trading, Americas, State Street Global Advisors, Kimberly Russell, Market Structure 

Specialist, Global SPDR Business, State Street Global Advisors, Mehmet Kinak, Global Head of Equity 

Trading, T. Rowe Price, Todd Lopez, Americas Head of Execution Services, UBS Securities LLC, and 

Douglas A. Cifu, Chief Executive Officer, Virtu Financial, Inc. (Mar. 24, 2023) (“Cboe, State Street, et al., 

Letter”); John A. Zecca, Executive Vice President, Global Chief Legal, Risk & Regulatory Officer, 

Nasdaq, Inc. (Mar. 30, 2023) (“Nasdaq Letter”); Jennifer W. Han, Executive Vice President, Chief Counsel 

& Head of Global Regulatory Affairs, Managed Funds Association (Mar. 30, 2023) (“Managed Funds 

Association Letter”); Jonathan Kanter, Assistant Attorney General, Antitrust Division, U.S. Department of 

Justice (Apr. 11, 2023) (“DOJ Letter”); Nathanial N. Evarts, Managing Director, Head of Trading, 

Americas, and Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global 

Advisors (Mar. 30, 2023) (“State Street Global Advisors Letter”); Michael Markunas, Deputy General 

Counsel, Chief Compliance Officer, B. Riley Securities, Inc. (Mar. 31, 2023) (“B. Riley Letter”). 

75  See, e.g., Virtu Letter at 1; Equity Market Structure Citadel Letter at 16-17; Schwab Letter II at 3-4 (“there 

is a distinct absence of economic data to support many aspects of the Proposals and to support the 

Commission’s analysis of costs versus benefits . . . CAT data is not publicly available and thus public 

commenters … do not have access to the very data on which the Commission relies”); and letters from: 

Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Feb. 8, 2023) (“SIFMA 

Letter”) at 3-4; Kristen Malinconico, Director, Center for Capital Markets Competitiveness, U.S. Chamber 

of Commerce (Mar. 31, 2023) (“Chamber of Commerce Letter”) at 2-3. Some of these commenters also 

requested that the Commission identify the specific broker-dealers whose Rule 605 and Rule 606 reports, 

which are publicly available, were used in the proposals. See, e.g., SIFMA Letter at 2; Virtu Letter at 1-2. 



20 

Release. The CAT database contains highly sensitive and granular market information.76 The 

Commission fully described in the Proposing Release and this Release the CAT data used, the 

methodology for analysis, and the results of its analyses. This provides notice of the 

Commission’s use and analysis of CAT data in support of this rulemaking.77  

Market participants, such as broker-dealers, may analyze their own order and transaction 

information as well as commercially available data and use this analysis to provide meaningful 

comment on the Proposing Release from their own perspectives.78 The level of aggregation that 

would be required to protect market and proprietary information so that it cannot be used, either 

itself, or with other commercially or publicly available information, to reverse engineer or 

otherwise reveal market participants’ identities, market positions, or trading strategies would also 

 

76  See, e.g., Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 at 56978 (Aug. 1, 

2012) (stating that maintaining the confidentiality of customer and other information reported to CAT “is 

essential” and that “[w]ithout adequate protections, market participants would risk the exposure of highly-

confidential information about their trading strategies and positions”); Securities Exchange Act Release No. 

84696 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (stating that a security breach involving CAT data 

could, among other things, “leak highly-confidential information about trading strategies or positions, 

which could be deleterious for market participants’ trading profits and client relationships” or “expose 

proprietary information about the existence of a significant business relationship with either a counterparty 

or a client, which could reduce business profits”).  

77  In addition, the Commission declines to provide the identities of the specific broker-dealers whose Rule 

606 reports were used in connection with the Proposing Release. See supra note 75. The reports themselves 

are publicly available and interested parties can analyze these reports using their own selection of broker-

dealers. As with the CAT data, the Commission has fully described in the Proposing Release the Rule 606 

data used, the methodology for analysis, and the results of its analyses. This information provides notice of 

the Commission’s use and analysis of Rule 606 data used in support of this rulemaking. 

78  For example, the SEC’s MIDAS analytics tool collects and processes data from the consolidated tapes as 

well as from the separate proprietary feeds made individually available by each equity exchange. See 

MIDAS: Market Information Data Analytics System, SEC, available at 

https://www.sec.gov/marketstructure/midas-system. See also letter from John Ramsay, Chief Market Policy 

Officer, Investors Exchange LLC (“IEX”) (Oct. 13, 2023) (“IEX Letter”) at 3 (stating that there are 

“myriad sources of information that . . . market participants draw on to consider how orders are handled 

and how markets compete with and compare to each other,” including NYSE TAQ data, other exchange 

proprietary and consolidated market data, and FINRA’s reports on off-exchange trading). See also, e.g., 

infra note 330 (FIF Letter) and accompanying text; notes 113-114 (Professor Christopher Schwarz, 

University of California Irvine, Professor Brad Barber, University of California, Davis, Professor Xing 

Huang, Washington University in St. Louis, Professor Philippe Jorion, University of California, Irvine, 

Professor Terrance Odean, University of California, Berkeley (Feb. 7, 2023) (“Professor Schwarz et al. 

Letter”)) and accompanying text.21 

mean that the dataset would be substantially dissimilar from the actual data used in the 

Commission’s analysis.  

In addition, several commenters suggested a sequencing of the equity market structure 

proposals, such that the Commission would implement the amendments to Rule 605 and evaluate 

the execution quality data from the updated reports, before undertaking further action on the 

remaining equity market structure proposals.79 One group of members of Congress 

recommended that no equity market structure rule “should be finalized or implemented” until the 

Commission “[c]onduct[s] a comprehensive cost-benefit analysis of the aggregate impact of 

[these rules] and seek[s] public comment on this analysis[,]” and proposes “a reasonable, 

workable, and staggered schedule for public comment on the adoption and implementation of the 

 

79  See, e.g., SIFMA Letter II at 2 (“[o]nce an amended Rule 605 is implemented, the Commission will have 

the data it needs to fully assess market quality and consider whether additional rulemaking is needed and 

how any such rulemaking should be designed”); Equity Market Structure Citadel Letter II at 1-3; NYSE, 

Schwab and Citadel Letter at 1-2; STA Letter at 4; Modern Markets Initiative Letter at 2; Cboe, State 

Street, et al. Letter dated Mar. 24, 2023 at 1-2; Managed Funds Association Letter at 2; T. Rowe Letter at 3; 

UBS Letter at 1-2; Virtu Letter II at 2; SIFMA Letter II at 11; Professor Schwarz et al. Letter at 5; and 

letters from Bill Foster, French Hill, Henry Cuellar, Bill Huizenga, Wiley Nickel, Andy Barr, Ritchie 

Torres, Ann Wagner, Brittany Pettersen, Dan Meuser, Josh Gottheimer, Mike Flood, Vicente Gonzalez, 

Byron Donalds, Mike Quigley, Michael V. Lawler, David Scott, Andrew R. Garbarino, Gregory W. Meeks, 

Monica De La Cruz, Sean Casten, Scott Fitzgerald, Bradley S. Schneider, Erin Houchin, Jim Himes, Young 

Kim, Steven Horsford, Ralph Norman, Gwen Moore, Tom Emmer, Marc Veasey, and Zach Nunn, United 

States House of Representatives (Sep. 26, 2023) at 2; Michelle Bryan Oroschakoff, Managing Director and 

Chief Legal Officer, LPL Financial (Mar. 31, 2023) (“LPL Financial Letter”) at 3-4; Chester Spatt, Pamela 

R. and Kenneth B. Dunn Professor of Finance, Tepper School, Carnegie Mellon University and former 

Chief Economist, U.S. Securities and Exchange Commission (2004-2007), Thomas Ernst, Assistant 

Professor of Finance, Smith School of Business, University of Maryland, Andrey Malenko, Professor of 

Finance, Carroll School of Management, Boston College, Jian Sun, Assistant Professor of Finance, Le 

Kong Chian School of Business, Singapore Management University (Nov. 29, 2023) (“Professor Spatt et 

al. Letter”) at 5; see also letter from Patrick McHenry, French Hill, Frank Lucas, Pete Sessions, Bill Posey, 

Blaine Luetkemeyer, Bill Huizenga, Ann Wagner, Andy Barr, Roger Williams, Tom Emmer, Barry 

Loudermilk, Alexander X. Mooney, Warren Davidson, John Rose, Bryan Steil, William Timmons, Ralph 

Norman, Dan Meuser, Scott Fitzgerald, Andrew R. Garbarino, Young Kim, Byron Donalds, Mike Flood, 

Michael V. Lawler, Zach Nunn, Monica De La Cruz, Erin Houchin, and Andy Ogles, United States House 

of Representatives (Sept. 26, 2023) (“McHenry et al. Letter”) at 2. But see IEX Letter at 5 (“the premise 

that Rule 605 updates must be a precondition to any other changes looks more like a calculated stall than an 

argument for careful, reasoned decision making”); letter from Stephen W. Hall, Legal Director and 

Securities Specialist, Better Markets, Inc. (Oct. 31, 2023) (“Better Markets Letter II”) at 5 (“argument that 

the Commission should first get more information is a delaying tactic designed to forestall meaningful 

reforms that are already clearly necessary and appropriate”). 



22 

proposals, considering their overlapping nature, significant compliance and operational burdens, 

and if they may be insurmountable for smaller or emerging firms.”80 As discussed below in the 

economic analysis, the Commission uses as a baseline the world as it exists today, including 

adopted rules but not proposed rules.81 Comments on how the adoption of the Rule 605 

amendments should affect the timing or sequence of the other equity market structure proposals 

will be considered if and when those rules are acted on. Similarly, because the effects of the final 

rule are measured against the existing regulatory baseline, which does not include rules that have 

not been adopted, the Commission does not agree that an additional analysis of the aggregate 

impact of the several equity market structure rules is necessary before the adoption of the Rule 

605 amendments.82 

The proposed amendments to Rule 605, as well as the costs and benefits of the proposed 

amendments, were detailed in the Proposing Release and received substantial public comment. 

The proposed amendments to Rule 605 received broad support from many commenters. The 

Commission has considered the comments received, updated its data analysis where needed, and, 

in some instances, has modified the proposal in response to comments received.  

 

80  See McHenry et al. Letter at 2. As discussed further below, Rule 605 as amended imposes reporting 

requirements only on market centers and larger broker-dealers that meet the customer account threshold 

(i.e., introduce or carry at least 100,000 customer accounts) and thus does not bring smaller or emerging 

firms within scope on the basis of their customer-facing broker-dealer business. The Commission addresses 

the impact of its rulemaking on smaller or emerging firms in its releases, including this release. See infra 

section IX.D.1.d)(1). Further, the Regulatory Flexibility Act (“RFA”) (5 U.S.C. 601 et seq.) requires 

Federal agencies, in promulgating rules, to consider the impact of those rules on small entities. See infra 

section X for further discussion of the Commission’s consideration of the impact of the amendments on 

small entities. 

81  See infra note 981. 

82  See id. The Order Competition Rule Proposing Release, the Regulation Best Execution Proposing Release, 

and the Minimum Pricing Increments Proposing Release mentioned by commenters remain at the proposal 

stage. To the extent that the Commission takes final action on any or all of those proposals, the baseline in 

each of those subsequent rulemakings will reflect the regulatory landscape that is current at that time. See 

also infra section IX.C.1.d). 



23 

C. Overview of Final Rule 605 

After reviewing the comments received and considering the recommendations from 

commenters,83 the Commission has determined to adopt the proposal with several modifications. 

In some cases, final amendments to Rule 605 add new data elements that provide additional 

context and information for both the detailed and summary execution quality reports. In adopting 

the final amendments to Rule 605, the Commission aims to provide individual investors, 

institutional customers, and broker-dealers with information that they can use to choose market 

centers or broker-dealers that align with their investment and execution objectives. Further, as 

with Rule 605 reports prior to these amendments,84 the Commission anticipates that third parties, 

such as academics and journalists, will also utilize the reported execution quality data for 

comparison purposes and analysis of market conditions. 

As discussed in section II (Modifications to Reporting Entities) below, the Commission is 

adopting the amendments to the scope of reporting entities largely as proposed, with a few 

modifications. The Commission is retaining in the adopted amendments to Rule 605 the 

proposed requirements that brokers and dealers introducing or carrying 100,000 or more 

customer accounts prepare Rule 605 reports and that separate reports be prepared for a firm’s 

broker-dealer activity and its market center activity. The Commission is also providing 

additional explanation of these requirements. The Commission has determined not to require 

market centers that operate a proposed qualified auction to prepare a separate report for covered 

orders received for execution in the qualified auction. The Commission is specifying that ATSs 

must prepare Rule 605 reports separately from their broker-dealer operators as proposed and is 

 

83  See, e.g., FIF Letter, SIFMA Letter II. 

84  See, e.g., supra note 16 (discussing studies by Boehmer et al. and Zhao & Chung). 



24 

also retaining the proposed requirement that a broker-dealer that operates an SDP prepare a 

separate report for activity specific to the SDP, but with a modified description of what 

constitutes an SDP. 

In addition, as discussed in section III (Modifications to Scope of Orders Covered and 

Required Information) below, the Commission is adopting amendments to the information 

required to be reported in the detailed report required by Rule 605(a)(1) with modifications from 

the proposal. The Commission is adopting amendments to the scope of covered orders largely as 

proposed, with changes to the coverage of orders with stop prices. The Commission is also 

revising the categorization by order size from the proposal to incorporate notional size buckets 

and whether an order is for less than a share, is an odd-lot, or is a round lot. With respect to the 

categorization by order type, the Commission is adopting the categorization of executable 

NMLOs as proposed, but is modifying the categorization of NMLOs priced at or better than the 

midpoint and adding more categories of immediate-or-cancel orders and more categories related 

to orders submitted with stop prices. The Commission is also adopting a timestamp convention 

of at least a millisecond as proposed, but eliminating the proposed statistics for median and 99th 

percentile time to execution in favor of utilizing more granular time-to-execution buckets. 

Further, the Commission is adopting the other required statistics for inclusion in the detailed 

report with several changes from the proposal, including: (1) adding realized spread statistics for 

more time intervals; (2) calculating effective spread and effective spread divided by quoted 

spread for marketable order types and NMLOs priced more aggressively than the midpoint only; 

(3) utilizing spread-based weighting to calculate effective spread divided by quoted spread; (4) 

adding statistics for average quoted spread, average midpoint, and cumulative notional size; (5) 

measuring size improvement at time of order receipt rather than time of execution, adding an 



25 

additional size improvement statistic focused on orders that can receive size improvement, and 

calculating these size improvement statistics for marketable order types and NMLOs priced more 

aggressively than the midpoint only; and (6) adding a relative fill rate statistic for NMLOs based 

on order executions occurring on national securities exchanges. 

Further, as discussed in section IV (Summary Execution Quality Report) below, the 

Commission is adopting a requirement for a summary report pursuant to Rule 605(a)(2), with 

several changes from the proposal. The Commission is changing the weighting of certain 

statistics and grouping orders into notional size buckets. The Commission is modifying the 

required statistics related to average order size in shares; share-weighted average percentage 

price improvement; and effective spread divided by quoted spread. The Commission is including 

additional metrics in the summary report for share-weighted average midpoint; share-weighted 

average notional size; average percentage quoted spread; and average percentage realized spread 

as calculated at two time horizons. The Commission also is requiring that the summary report be 

provided in an alternative format. 

Finally, as discussed in section V (Requirements for Making Rule 605 Reports Available 

to the Public) below, the Commission is adopting procedures for making the Rule 605 reports 

publicly available as proposed. 

 The Commission endeavors to ensure that investors are provided with timely and 

accurate information needed to make informed investment decisions, and the final amendments 

to Rule 605 reflect the Commission’s ongoing commitment to enhance transparency for 

investors. Facilitating the ability of the public to compare and evaluate execution quality among 

different market centers, brokers, and dealers, is an effective means of reconciling the need to 

promote both vigorous price competition and fair competition among market centers and broker-



26 

dealers, to the benefit of individual investors. Section 11A of the Exchange Act85 grants the 

Commission the authority to promulgate rules necessary or appropriate to assure the fairness and 

usefulness of information on securities transactions86 and to assure that broker-dealers transmit 

and direct orders for the purchase or sale of qualified securities in a manner consistent with the 

establishment and operation of a national market system.87 By requiring the uniform public 

disclosure of useful and accessible statistics, amended Rule 605 will better promote competition 

among market centers and broker-dealers on the basis of execution quality and ultimately 

improve the efficiency of securities transactions, consistent with the objectives of our national 

market system.88  

II. Modifications to Reporting Entities 

A. Larger Broker-Dealers 

1. Proposed Approach 

Prior to the adopted amendments, Rule 605 of Regulation NMS required only market 

centers, such as national securities exchanges, OTC market makers, and ATSs, to produce 

publicly available, monthly execution quality reports. The Commission proposed to expand the 

scope of entities that must prepare Rule 605 reports to include larger broker-dealers that 

introduce or carry at least 100,000 customer89 accounts. The Commission reasoned that the 

 

85  15 U.S.C. 78k-1. 

86  15 U.S.C. 78k-1(c)(1)(B). 

87  15 U.S.C. 78k-1(c)(1)(E). 

88  The national market system objectives of section 11A of the Exchange Act include the economically 

efficient executions of securities transactions; fair competition among brokers and dealers, among exchange 

markets, and between exchange markets and markets other than exchange markets; the availability of 

information on securities quotations and transactions; and the practicability of brokers executing investor 

orders in the best market. See 15 U.S.C. 78k-1(a)(1)(C). 

89  “Customer” means any person that is not a broker or dealer. See final 17 CFR 242.600(b)(28). 



27 

proposed expansion would “improve the usefulness of execution quality statistics, promote fair 

competition, and enhance transparency by providing investors with information that they could 

use to compare the execution quality provided by customer-facing broker-dealers.”90 As 

discussed further below, the proposed minimum reporting threshold of 100,000 customers was 

intended to balance the benefits of having broker-dealers produce execution quality statistics 

with the costs of implementation and continued reporting.91 

To implement this proposed expansion, the Commission proposed to insert references to 

“brokers” and “dealers” where prior Rule 605 referred to “market centers.”92 In addition, the 

Commission proposed to revise the definition of “covered order” in prior Rule 600(b)(22), which 

referred to any market order or any limit order (including immediate-or-cancel orders) “received 

by a market center,”93 to refer to orders “received by a market center, broker, or dealer.”94  

Proposed Rule 605(a)(7) stated that a broker or dealer that is not a market center shall not 

be subject to the requirements of Rule 605 unless that broker or dealer introduces or carries 

100,000 or more customer accounts through which transactions are effected for the purchase or 

sale of NMS stocks (the “customer account threshold”).95 As explained in the Proposing Release, 

the Commission analyzed available data to determine the proposed customer account threshold 

 

90  Proposing Release, 88 FR 3786 at 3795 (Jan. 20, 2023). 

91  See id. at 3797. 

92  See id. at 3796 (discussing amendments to Rule 605 in proposed Rule 605 introductory text, (a) heading, 

(a)(1) introductory text, (a)(1)(i)(D), and (a)(3), (4), (5), and (6)). 

93  Prior 17 CFR 242.600(b)(22).  

94  See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); proposed Rule 605(b)(30). The Commission 

also proposed to require all market centers and broker-dealers that would be subject to Rule 605’s reporting 

requirements to produce summary reports with aggregated execution quality information. See infra section 

IV for further discussion of the summary report. 

95  See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). 



28 

given the additional costs that broad expansion of the rule to broker-dealers would entail.96 

Utilizing a 100,000 customer account threshold as proposed would allow the Rule 605 reporting 

requirements to capture those broker-dealers that introduce or carry the vast majority of customer 

accounts, while subjecting only a relatively small percentage of broker-dealers that accept 

customer orders for execution to the reporting obligation and excluding those broker-dealers that 

introduce or carry fewer customer accounts.97  

The proposed customer account threshold also required brokers-dealers to include in their 

calculations the public customer accounts that they introduce, as well as the customer accounts 

that they carry.98 Because an introducing broker-dealer may use an omnibus clearing 

arrangement and not disclose certain information about its underlying customer accounts to the 

clearing firm, the Commission proposed that, for purposes of Rule 605, a broker or dealer that 

utilizes an omnibus clearing arrangement for any of its underlying customer accounts would be 

considered to carry such underlying customer accounts when calculating the number of customer 

accounts that it introduces or carries.99  

 

96  See id. at 3797, 3886-87. 

97  See id. (discussing analysis of the estimated number of broker-dealers that would be subject to Rule 605 

reporting requirements according to different definitions of the customer account threshold). See infra note 

146 and accompanying text for a discussion of an updated analysis. 

98  See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). An introducing broker-dealer is a broker-

dealer that has a contractual arrangement with another firm, known as the carrying or clearing firm, under 

which the clearing/carrying firm agrees to perform certain services for the introducing firm. Usually, the 

introducing firm transmits its customer accounts and customer orders to the clearing/carrying firm, which 

executes the orders and carries the account. See Securities Exchange Act Release No. 31511 (Nov. 24, 

1992), 57 FR 56973 at 56978 (Dec. 2, 1992) (Net Capital Rule). Alternatively, some broker-dealers utilize 

an “omnibus clearing arrangement,” where the clearing firm maintains one account for all customer 

transactions of the introducing firm, rather than a “fully disclosed introducing relationship.” In an omnibus 

arrangement, the clearing firm does not know the identity of the customers of the introducing firm, whereas 

in a fully disclosed arrangement, the clearing/carrying firm knows the names, addresses, securities 

positions, and other relevant data as to each customer. See id. at 56978, n.16. 

99  See Proposing Release, 88 FR 3786 at 3797-98 (Jan. 20, 2023); proposed Rule 605(a)(7). 



29 

Proposed Rule 605(a)(7) stated that any broker or dealer that meets or exceeds the 

customer account threshold and is also a market center shall produce separate reports pertaining 

to each function.100 Further, as proposed a broker-dealer is excluded from Rule 605’s reporting 

requirements only with respect to its customer-facing broker-dealer function (as opposed to its 

market center function, if applicable) if the number of customer accounts that it introduces or 

carries is less than the customer account threshold.101 However, under the proposal, a broker-

dealer that meets or exceeds the customer account threshold for the first time has a grace period 

of three calendar months before being required to comply with Rule 605’s reporting 

requirements.102  

Prior to the amendments, Rule 605 required that reporting entities calculate certain 

statistics based on the time of order receipt.103 Moreover, Regulation NMS defined “time of 

order receipt” based on the time an order was received by a market center for execution.104 In 

 

100  See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 

101  See id. at 3798-99. Proposed Rule 605(a)(7) stated that a broker or dealer that meets or exceeds the 

customer account threshold shall be required to produce reports pursuant to this section for at least three 

calendar months (“Reporting Period”). See id. at 3799. As proposed, the Reporting Period shall begin the 

first calendar day of the next calendar month after the broker or dealer met or exceeded the customer 

account threshold, unless it is the first time the broker-dealer had met or exceeded the customer account 

threshold. See id. Any time after a broker or dealer has been required to produce reports pursuant to this 

proposed section for at least a Reporting Period, if a broker or dealer falls below the customer account 

threshold, the broker or dealer shall not be required to produce a report pursuant to this paragraph for the 

next calendar month. See id. 

102  See id. at 3799. The Commission also proposed that after the three-calendar month grace period, the 

Reporting Period shall begin on the first calendar day of the fourth calendar month after the broker or 

dealer has met or exceeded the customer account threshold. See id. As proposed, a broker-dealer that 

crosses the customer account threshold for the first time is required to comply with the reporting 

requirements of Rule 605 for at least a Reporting Period, even if that broker-dealer falls below the customer 

account threshold during the grace period. See id. 

103  See, e.g., prior 17 CFR 242.605(a)(1)(ii)(D) (measuring, for shares executed with price improvement, the 

share-weighted average period from the time of order receipt to the time of order execution). 

104  See prior 17 CFR 242.600(b)(92). See also Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 

1, 2000) (“The definition [of ‘time of order receipt’] is intended to identify the time that an order reaches 

the control of the market center that is expected, at least initially, to execute the order.”). 



30 

conjunction with the proposed expansion of Rule 605 to cover larger broker-dealers, the 

Commission proposed to modify the definition of “time of order receipt” to specify that, in the 

case of a broker or dealer that is not acting as a market center, the time of order receipt is the 

time that the order was received by the broker or dealer for execution.105 

2. Final Rule and Discussion 

The Commission is adopting amendments to Rule 605 to include larger broker-dealers as 

proposed and addresses certain commenters’ questions below. These amendments will provide 

enhanced transparency to investors, allowing them to compare and evaluate execution quality 

among different customer-facing larger broker-dealers and promoting competition among these 

broker-dealers. As discussed in section II.A.2.a), the Commission is adopting the customer 

account threshold as proposed. In addition, as discussed in section II.A.2.b), the Commission is 

adopting as proposed the requirement that larger broker-dealers that are also market centers 

produce separate reports pertaining to each function. Finally, as discussed in section II.A.2.c), 

the Commission is adopting as proposed the requirement that all reporting entities, including 

larger broker-dealers, measure certain statistics from the time of order receipt.  

The Commission received comments from a variety of market participants on the 

proposed expansion to require larger broker-dealers to provide Rule 605 reports. Certain 

individual investors supported the proposed expansion of publicly available Rule 605 reports to 

include broker-dealers because this expansion would increase transparency and encourage 

 

105  See Proposing Release, 88 FR 3786 at 3799-800 (Jan. 20, 2023); proposed Rule 600(b)(109). The time that 

the order is received by the market center for execution should be the same as the time that the order is 

received by the broker-dealer for execution when the broker-dealer also acts as a market center for that 

order. 



31 

competition among broker-dealers.106 One such commenter stated that the proposal would: (1) 

require broker-dealers to provide more detailed information about the execution quality of their 

trades, including data on execution speeds, price improvements, and order routing practices, 

which would help retail investors “make more informed decisions about where to route our 

orders and which broker-dealers to work with”; (2) provide more data on execution quality that 

would “help level the playing field between individual investors and large institutional players 

who currently have an information advantage”; and (3) “encourage broker-dealers to compete on 

the quality of their executions, which would ultimately benefit all investors.”107 Two other 

individual investors supported the inclusion of broker-dealers and the proposed rule overall, 

stating that it would “provide a more detailed and comprehensive standard for broker-dealers to 

follow, resulting in consistently robust best execution practices.”108 In addition, an academic and 

an individual investor suggested expanding the Rule 605 reporting requirement to include all 

broker-dealers, rather than just larger broker-dealers.109 

For reasons similar to those offered by individual investors, financial services firms, 

industry groups, and a group of academics supported the proposed expansion of Rule 605 

 

106  See, e.g., letters from: Dylan Hodges (Dec. 27, 2022); Edward Murray (Dec. 26, 2022); Dr. Paul Pritchard 

(Dec. 27, 2022); Cody Welch (Mar. 7, 2023) (“Welch Letter”); Abanes (Mar. 3, 2023) (“Abanes Letter”); 

Ryan Macarthur (Feb. 24, 2023) (“Macarthur Letter”); David Genco, Jr. (Feb. 24, 2023) (“Genco Letter”). 

107  Letter from Caleb C. (Mar. 18, 2023). 

108  Letters from Justin West (Mar. 19, 2023); Ankit (Mar. 19, 2023). 

109  See letter from Aswin Joy (Mar. 7, 2023) (“Joy Letter”); letter from James J. Angel, Georgetown 

University (Mar. 31, 2023) (“Angel Letter”) at 2-3. See infra section II.A.2.a) for additional discussion 

about the scope of the broker-dealer reporting requirement. 



32 

reporting requirements to larger broker-dealers.110 One financial services firm stated that the 

proposed expansion would “fill a gap in coverage that currently obscures the order handling 

practices of many broker-dealers” because many customer-facing broker-dealers do not meet the 

definition of a market center and thus do not produce Rule 605 reports.111 This commenter stated 

that the customers of these broker-dealers are left without any “reliable way to evaluate and 

compare broker-dealer performance.”112 A group of academics that authored an academic 

working paper concerning the execution quality of market orders received from various broker-

dealers113 also submitted a comment letter supporting the proposed expansion and cited the need 

 

110  See Fidelity Letter at 9 (stating that expanding Rule 605 reporting requirements to new entities will provide 

greater transparency into execution quality differences and increase the ability to measure retail order 

outcomes in a competitive environment); letter from Gregory Davis, Managing Director and Chief 

Investment Officer, and Matthew Benchener, Managing Director, Personal Investor, The Vanguard Group, 

Inc. (Mar. 31, 2023) (“Vanguard Letter”) at 3 (stating that the proposal will increase transparency by 

empowering investors to compare execution quality across broker-dealers and make more informed 

decisions about their choice of broker-dealer); Healthy Markets Letter at 16 (stating that Rule 605 reports 

should cover large brokers that route orders for investors); Better Markets Letter at 5 (stating that the 

proposed expansion of entities subject to Rule 605 disclosures will help the public compare and evaluate 

execution quality among different market centers and broker-dealers, and thereby increase transparency of 

order execution quality, increase information available to both retail and institutional investors, and help 

promote competition among market centers and broker-dealers); Professor Schwarz et al. Letter at 2; and 

letter from John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Co-Chair, 

Committee on Capital Markets Regulation (Mar. 31, 2023) (“CCMR Letter”) at 14 (stating that the 

proposed expansion “will allow retail investors to determine the execution quality of their orders” and 

“would likely enhance competition among retail broker-dealers based on price improvement and overall 

execution quality”). 

111  See Vanguard Letter at 3. 

112  Id. at 3-4 (stating that requiring larger broker-dealers to make Rule 605 disclosures would address this 

coverage gap and give their customers a “direct line of sight into broker-dealer performance”). See also 

NASAA Letter at 5-6 (stating that the proposed expansion of reporting entities would “provide the public 

with a more comprehensive view of order execution quality across the national market system” and “allow 

brokerage customers to compare execution quality among different broker-dealers”). 

113  See Proposing Release, 88 FR 3786 at 3832, n.529 (Jan. 20, 2023) and accompanying text (citing 

Christopher Schwarz et al., The ‘Actual Retail Price’ of Equity Trades (Aug. 28, 2022)). 



33 

for improved public transparency based on their research.114 These commenters stated that, even 

if retail investors do not pay attention to broker-level disclosures about execution quality if the 

dollar cost to retail investors is low, such disclosures are likely to be scrutinized by brokers, 

leading to greater competition and ultimately better execution for retail investors.115 A broker-

dealer supported the proposed expansion to retail brokers, stating that it will make order 

execution quality, and the marketplace generally, more transparent to retail investors.116 This 

commenter also stated that, given the “highly competitive state of the current retail brokerage 

market,” it is not certain that the proposed enhancements to Rule 605 would improve execution 

quality for individual investors because outcomes for such investors could be “asymmetric.”117 

However, this commenter stated that to the extent that there are opportunities to optimize 

execution quality for individual investors, “empowering investors to compare execution quality 

 

114  See Professor Schwarz et al. Letter at 1-2 (strongly supporting the inclusion of large broker-dealers given 

their research study finding that shows economically and statistically significant price execution variation 

across brokers; the level of such differences was previously unknown to retail traders and a large portion of 

the financial industry). A group consisting of some of these academics submitted another comment letter in 

which they cited a more recent academic working paper regarding competition among wholesalers and 

stated that their results “emphasize the need for further price execution disclosure at the broker level.” 

Letter from Xing Huang, Philippe Jorion, and Christopher Schwarz (Dec. 12, 2023) (“Huang et al. Letter”) 

at 1 (attaching Xing Huang, Philippe Jorion, Jeongmin Lee & Christopher Schwarz, Who Is Minding the 

Store? Order Routing and Competition in Retail Trade Execution (Nov. 19, 2023)).  

115  See Professor Schwarz et al. Letter at 3. See also Better Markets Letter at 9-10 (stating that even though 

some retail investors may not read Rule 605 reports, these investors will benefit indirectly by virtue of 

enhanced disclosure that will “promote competition, improve regulatory oversight, and facilitate use by 

third-party researchers and academics” to expose problematic order routing and execution practices). 

116  See Virtu Letter II at 3. 

117  See id. at 9. This commenter stated that the proposal “may lead to changes in the equilibrium mix of 

customer types at each broker” because investors would migrate towards brokers that have better execution 

quality statistics. See id. at 9, n.24. This commenter explained that “order execution quality tends to be 

inversely related to the aggregate cost to provide liquidity to that broker’s customers’ orders because 

market makers are willing to provide more price improvement to orders that are less expensive to service.” 

Id. This commenter also stated that if the proposal “induces retail investors with more costly to service 

orders to move to brokers that previously had less costly to service orders, it could cause execution quality 

to worsen at the broker with previously less costly to service orders.” Id. 



34 

across retail brokers (and consequently to switch brokers based on this information) would be the 

most efficient and effective way to address these concerns.”118  

Some broker-dealers and financial services firms opposed the proposed expansion to 

include larger broker-dealers, citing costs and the risk of confusion, especially for individual 

investors.119 One such broker-dealer stated that retail customers are not asking for or seeking 

information at the level of granularity required by the proposed rule, stating that the potential risk 

of investor confusion seems disproportionate to the defined transparency benefits it may 

provide.120 Another commenter opposed the proposed expansion because the 605 reports are 

“overly complicated for the average investor” and may give a “false sense of comfort” about 

order execution practices and quality.121 

After considering the comments, the Commission is adopting the requirement for broker-

dealers that meet the 100,000 customer account threshold to produce Rule 605 reports, as 

proposed. To implement this requirement, the Commission also is adopting the related 

 

118  Id. at 9. 

119  See Robinhood Letter at 41-42 (stating that adding the proposed expansion to include larger broker-dealers 

is not realistically going to get usable execution quality information in the hands of individual investors 

because the voluminous data are in a format proven not to be particularly useful for them and that the 

Commission underestimates the costs for a type of report not generally prepared by broker-dealers that are 

not also market centers); letter from Seth A. Miller, President Advocacy & Administration, Cambridge 

Investment Research, Inc. (Mar. 31, 2023) (“Cambridge Letter”) at 7 (stating in its capacity as a broker-

dealer and investment adviser that the broad scope of the proposed inclusion of larger retail broker-dealers 

will impose significant costs and is “likely to lead to misaligned, misleading comparisons between totally 

different entities”); Schwab Letter II at 35 (stating that differences in certain execution statistics such as 

E/Q may be attributable to different business models across firms rather than actual differences in E/Q 

among comparable business models, and thus would create investor confusion rather than provide useful 

information); Tastytrade Letter at 4-5 (observing that the proposal will significantly increase the number of 

reported data points per ticker on approximately 10,000 NMS traded products, and expressing concern 

about the ability of customers to digest the additional “confusing and complicated” data points in Rule 605 

reports). 

120  See Tastytrade Letter at 4 (“While we agree in general that greater transparency results in a level playing 

field for retail customers, it seems counterproductive to do so in a manner that risks confusion.”).  

121  See letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Mar. 31, 2023) (“Data 

Boiler Letter”) at 27-28. 



35 

amendments to Rules 600 and 605.122 The Commission agrees with commenters who recognized 

the need for Rule 605 data pertaining to customer-facing larger broker-dealers. Larger broker-

dealer reporting will be useful in increasing the transparency of larger broker-dealers’ order 

execution quality so that investors have information available to compare and evaluate order 

execution quality and order routing practices among market centers and larger broker-dealers. As 

discussed further in section II.A.2.a) below, by limiting Rule 605 reporting requirements to 

larger-broker dealers that meet the customer account threshold only, Rule 605 will balance the 

benefits of broker-dealer reporting with the costs. 

The Commission disagrees with commenters’ concerns that larger broker-dealer 

reporting will be too confusing or misleading to investors, or will create a “false sense of 

comfort” about order execution practices and quality.123 Individual investor commenters 

expressed interest in receiving access to execution quality statistics pertaining to larger broker-

dealers because this increased transparency would allow individual investors to make more 

informed decisions and encourage competition among larger broker-dealers.124 Due to the 

expansion of Rule 605 reporting requirements to larger broker-dealers, customers of these 

broker-dealers, including individual investors, and other market participants will no longer need 

to make inferences about these broker-dealers’ execution quality based on a combination of 

 

122  See final 17 CFR 242.605(a)(7) (establishing the customer account threshold for larger broker-dealer 

reporting requirements, production of separate reports, and applicable Reporting Period). See also final 17 

CFR 242.605 (inserting references to “brokers” and “dealers” in introductory text, heading for (a), (a)(1) 

introductory text, (a)(1)(i)(E), and (a)(3), (4), (5), and (6)). See also final 17 CFR 242.600(b)(27) (inserting 

references to orders received by a “broker” or “dealer” in definition of “covered order”) and final 17 CFR 

242.600(b)(103) (specifying that the definition of “time of order receipt,” in the case of a broker or dealer 

that is not acting as a market center, is the time (at a minimum to the millisecond) that an order was 

received by the broker or dealer for execution). For further discussion of these amendments, see Proposing 

Release, 88 FR 3786 at 3796, 3798-99 (Jan. 20, 2023). 

123  See supra notes 119-121 and accompanying text. 

124  See supra notes 106-108 and accompanying text. 



36 

broker-dealers’ routing information contained in reports required by Rule 606 and market 

centers’ Rule 605 reports. Instead, customers will be able to use execution quality information 

contained in larger broker-dealers’ Rule 605 reports to make comparisons across these broker-

dealers and select those broker-dealers that offer better execution quality. The availability of 

information about larger broker-dealers’ execution quality also is expected to increase the extent 

to which these broker-dealers compete on the basis of execution quality when making their order 

routing decisions. Further, to the extent that broker-dealers increase the extent to which they 

route orders to the market centers offering better execution quality, increased liquidity at those 

venues may further improve execution quality, as a result of promoting the flow of orders to 

market centers that offer better execution quality. 

The stock-by-stock order execution information that will be provided in the detailed 

report will allow market participants, including individual investors familiar with data analysis, 

to make their own determinations about how to group stocks or orders when comparing 

execution quality information across broker-dealers. However, the Commission is mindful that 

the detailed report will contain a larger volume of statistical data and many market participants, 

including individual investors, may not have the means to directly analyze the detailed report. As 

discussed further below, the Commission is adopting a requirement that every market center, 

broker, or dealer produce a summary execution quality report in addition to the more detailed 

report required by Rule 605(a)(1).125 These summary reports will make available to market 

participants and other interested parties readily accessible, aggregated data that will allow them 

to compare some of the more significant aspects of the execution quality provided by specific 

 

125  See infra section IV.B. 



37 

market centers and larger broker-dealers. These summary reports will provide human-readable 

information that any investor, including individual investors, can assess without needing 

technical expertise or relying on an intermediary.126 Moreover, even individual investors that do 

not read Rule 605 reports from larger broker-dealers will benefit from independent analysts, 

consultants, broker-dealers, the financial press, or market centers analyzing and producing more 

digestible information using Rule 605 data.127 

One industry group stated that it remains unclear whether broker-dealers’ Rule 605 

reports would increase competition.128 This commenter stated its concern that producing Rule 

605 statistics without accounting for different broker-dealer business models could lead investors 

to make incorrect decisions regarding broker-dealer selection.129 This commenter further stated 

that differences in execution quality could be the result of a myriad of factors, including “the 

customers . . . different brokers serve and the equities the customers trade.”130 In response to this 

 

126  See infra section IV.B.2. For a discussion of comments regarding investor education or testing related to 

the summary reports, see infra section IV.B.3. As the new Rule 605 requirements, including the expansion 

of scope to include larger broker-dealers, are implemented, the Commission will consider whether there is a 

need for additional educational resources to assist investors. 

127  See infra notes 1075-1077 and accompanying text (discussing ways in which third parties have used Rule 

605 reports to produce information that is meant for public consumption). 

128  See SIFMA Letter II at 29. 

129  See id. at 30. This commenter also stated it does not understand on what basis the Commission believes 

that differences in business models are well-known by market participants, and particularly retail investors, 

for purposes of evaluating execution quality statistics. See id. (discussing Proposing Release, 88 FR 3786 at 

3800 (Jan. 20, 2023)). However, the Commission’s statement in the Proposing Release was made in 

specific reference to market participants’ use of Rule 605 reports to compare a market center and a broker-

dealer, rather than use of Rule 605 reports to compare broker-dealers with one another. The Commission 

agrees with the commenter that differences between broker-dealer business models may not be ex ante 

well-known to market participants. However, market participants, including individual investors, will be 

able to use the information in Rule 605 detailed reports and the Rule 605 summary reports to account for 

differences in broker-dealer order flow, and broker-dealers are not precluded from separately providing 

their customers with information that can be used to contextualize the information in the Rule 605 reports.  

130  See id. at 30 (stating that when pointing to potential shifts in order flow from one broker-dealer to another, 

the Commission does not account for any potential effects on execution quality caused by the shifting of 

the order flow itself or the potential for order flow to consolidate among a smaller number of firms, thereby 

reducing competition and ultimately hurting execution quality). 



38 

commenter, the Commission agrees that, as a result of different business models, a particular 

broker-dealer’s order flow may be made up of a different mixture of securities, order types, and 

order sizes, which may impact or constrain that broker-dealer’s overall execution quality level.131 

However, under these amendments, larger broker-dealers will be required to categorize the 

execution quality information required by Rule 605 by individual security, different types of 

orders, and different order sizes. Giving market participants access to this information in Rule 

605 reports will help ensure that they are able to control for these differences in order flow 

characteristics and make apples-to-apples comparisons when assessing and comparing execution 

quality information across broker-dealers.132 

An industry group suggested that the Commission allow firms an opportunity to provide 

a statement in their Rule 605 reports explaining how to contextualize the report based on the 

nature of the firm’s order flow.133 In addition, a broker-dealer suggested that the Commission 

permit retail brokers to provide background and contextual information to explain how their 

obligations are different from those of wholesalers or other market centers that currently report 

under Rule 605.134 The Commission is not adopting the suggestion to include a descriptive 

statement within the Rule 605 reports because it would be inconsistent with the structure of these 

reports, which are designed to be structured, standardized, machine-readable, quantitative 

 

131  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023). See also infra note 984 for an example of how 

differences in order flow characteristics may impact inferences about execution quality. For further 

discussion, see infra section IX.C.1.a). 

132  That some of the information contained in the summary execution quality report will be useful for 

controlling for differences across differences in order flow characteristics of broker-dealer was supported 

by comment. See, e.g., comments in support of including average notional order size and average realized 

spreads in the summary reports, discussed in infra section IV.B.1.b). 

133  See SIFMA Letter II at 31. 

134  See Virtu Letter II at 3-4. 



39 

disclosures.135 As the Commission stated in the original adopting release for Rule 605, Rule 605 

is intended to establish a baseline level of disclosure and facilitate cross-market comparisons of 

execution quality.136 Similarly, the adopted amendments to Rule 605 provide a baseline level of 

disclosure that all market centers and larger broker-dealers must meet. Rule 605 does not 

preclude larger broker-dealers from disclosing additional information concerning their order 

execution practices that they believe would provide useful context concerning the quality of their 

services on their websites or through other means of communication.137 

A broker-dealer recommended that rather than expanding Rule 605 to include larger 

broker-dealers, the Commission should update Rule 606, which already applies to nonmarket 

center broker-dealers, to require additional information regarding execution quality.138 In 

response to the commenter’s suggestion, the Commission considers the inclusion of larger 

broker-dealers in Rule 605 as adopted to be the preferable option. Although providing Rule 605 

data within an expanded version of the existing Rule 606 reports could result in lower 

compliance costs as a result of broker-dealers’ existing experience with preparing and filing Rule 

606 reports, many of the costs associated with the initial reporting of execution quality statistics 

would still be incurred by broker-dealers and therefore broker-dealers would not benefit from a 

significant reduction in compliance costs overall. Moreover, the format and frequency of the 

 

135  See Rule 605 NMS Plan at 2 (providing that the detailed report must be in standard, pipe-delimited ASCII 

format); final 17 CFR 242.605(a)(2) (providing that the summary report must be made available using the 

most recent version of the schema for CSV format and the associated PDF renderer). 

136  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). 

137  Any such statements will be subject to applicable securities laws and regulations. 

138  See Robinhood Letter at 42 (“Instead of unnecessarily imposing additional costs on the industry to create 

new Rule 605 reports that may not have the desired result of empowering investors to analyze broker-

dealers’ execution quality, the SEC should require broker-dealers that already publish Rule 606 reports … 

to add execution quality statistics to their Rule 606 reports.”). 



40 

Rule 606 reports differs because the data are more aggregated and the reports are issued 

quarterly.139 In contrast, Rule 605 reports are monthly and provide detailed, symbol-by-symbol 

data that will allow market participants and other users of the report to analyze the data and 

consider the execution quality that a broker-dealer provides for orders with specific 

characteristics. Further, while Rule 606 covers all brokers or dealers, subject to a de minimis 

exception, as described below, the customer account threshold will focus the Rule 605 reporting 

requirement on those larger broker-dealers for which the provision of Rule 605 data will include 

data for most of the customer accounts handled by broker-dealers and, therefore, will balance the 

benefits of broker-dealer reporting with the costs of reporting.140 

a) Customer Account Threshold 

An investor advocacy group and a national securities exchange specifically supported the 

proposed customer account threshold that would include in scope a broker or dealer that 

introduces or carries 100,000 or more customer accounts.141 An academic and an individual 

 

139  See supra notes 45-51 and accompanying text (discussing Rule 606(a)(1) reports that provide quarterly 

information about order routing and payment arrangements). 

140  See infra section II.A.2.a) (discussing the Commission’s analysis to support the adoption of the customer 

account threshold, which indicates that approximately 85 broker-dealers introduce or carry more than 

100,000 customer accounts and these broker-dealers together handle over 98% of customer accounts). See 

also infra section IX.E.5.b) (discussing a reasonable alternative to expand Rule 606 reporting 

requirements). 

141  See Healthy Markets Letter at 16, n.38; Nasdaq Letter at 43 (stating that the proposed customer account 

threshold “appears to balance the associated implementation costs on those broker-dealers that may provide 

the execution quality statistics with the greatest benefit”).41 

investor suggested that all broker-dealers should be required to submit Rule 605 reports.142 In 

contrast, a broker-dealer stated that it is not clear why it is necessary to include such a broad 

scope of larger broker-dealers.143 According to this commenter, the proposal would require larger 

retail broker-dealers to produce execution quality reporting and metrics that are identical to those 

required of securities exchanges and market makers, even if those broker-dealers do not direct 

client orders.144 

After considering the comments, the Commission is adopting the 100,000 customer 

account threshold, as proposed. The Commission’s analysis of available data on the number of 

broker-dealers that will meet the minimum reporting threshold of 100,000 customers confirmed 

that such threshold will balance the benefits of having broker-dealers produce execution quality 

statistics with the costs of implementation and continued reporting,145 given the smaller amount 

of benefits relative to costs that there would be if the Rule 605 reporting requirements extended 

to broker-dealers that introduce or carry a smaller number of customer accounts. Specifically, 

 

142  See Joy Letter; Angel Letter at 2-3 (stating that all broker-dealers should be required to show execution 

quality information, and that CAT could easily produce Rule 605 reports at low incremental cost). See also 

Robinhood Letter at 44-45 (recommending that, if the Commission decides to proceed with the proposed 

rule, it should require all broker-dealers to report under Rule 605, because the number of large broker-

dealers is relatively small (6.7% of all broker-dealers); the limited application of the rule would create an 

information gap about execution quality for investors that use smaller broker-dealers and new retail broker 

entrants). With respect to the commenter’s suggestion that CAT data could be used to produce Rule 605 

reports, see infra section V.B.2.b) for a discussion of the potential alternative to generate order execution 

quality reports using CAT data. 

143  See Cambridge Letter at 7 (“such breadth cannot be justified in light of the likely significant costs to be 

imposed on certain participants”). 

144  See id. 

145  See infra section IX.D.2.a)(1) for a discussion of the costs related to expanding the scope of Rule 605 

reporting entities. As discussed further below, broker-dealers that were not previously required to publish 

Rule 605 reports will incur initial costs to prepare and post Rule 605 reports for the first time, which may 

include developing any policies and procedures that may be needed to do so, and all broker-dealers will 

face ongoing costs to continue to prepare the reports each month. See also infra section IX.E.1.a) for a 

discussion about the estimated costs of utilizing a different number of customer accounts as the minimum 

reporting threshold. 



42 

this analysis indicates that approximately 85 broker-dealers introduce or carry more than 100,000 

customer accounts and these broker-dealers together handle over 98% of customer accounts.146 

The Commission is not subjecting all broker-dealers to Rule 605 reporting requirements, as 

suggested by certain commenters, because of the lower benefits relative to costs for broker-

dealers with a smaller number of customer accounts.147 Conversely, the Commission disagrees 

with the commenter that states that the scope of larger broker-dealers that will be required to 

provide Rule 605 reports is overbroad.148 The relative market-wide benefit of having a broker-

dealer prepare Rule 605 reports increases when the broker-dealer has more customers.149 The 

Commission’s updated analysis indicates that utilizing a lower customer account threshold, such 

as 10,000 customer accounts, would nearly triple both initial and ongoing costs for non-market 

 

146  Analysis from the Proposing Release was repeated regarding the estimated number of broker-dealers that 

will be subject to Rule 605 reporting requirements according to different definitions of the customer 

account threshold. See Proposing Release, 88 FR 3786 at 3886-87 (Jan. 20, 2023). For a description of how 

this analysis differs from the analysis in the Proposing Release, see infra note 1747. This updated analysis 

indicates that approximately 85 broker-dealers (or approximately 6.7% of customer-carrying broker-

dealers) introduce or carry more than 100,000 customer accounts and these broker-dealers together handle 

over 98% of customer accounts. See infra Table 13 for a cost-benefit analysis of different customer account 

thresholds that could be used to define “larger broker-dealer” and accompanying text for methodology. For 

example, approximately 244 broker-dealers introduce or carry more than 10,000 customer accounts and 

these broker-dealers together handle over 99% of customer accounts. Further, approximately 1,245 broker-

dealers introduce or carry at least 1 customer account.  

147  See infra section IX.E.1.a) (reducing the customer account threshold from 100,000 to 10,000 would almost 

triple both initial and ongoing costs); see also infra section IX.E.1.b) (discussing the alternative of requiring 

all broker-dealers to prepare Rule 605 reports).  

148  See supra notes 143-144 and accompanying text. It is unclear, and the commenter does not explain, why 

any of the required execution quality metrics will not be appropriate for reporting by a larger broker-dealer 

and the commenter does not suggest any alternative metrics. It is also unclear, and the commenter does not 

explain, how a Rule 605 report prepared by a retail broker will be less useful if the retail broker did not 

direct client orders. Even though the same underlying order may be reflected on multiple Rule 605 reports, 

the aggregated statistics within each report will provide different views of execution quality specific to the 

group of orders received by each reporting entity. Thus, a Rule 605 report prepared by a retail broker will 

allow that retail broker’s customers, as well as other market participants, to view the execution quality 

specific to those orders received by the specific retail broker.  

149  See Proposing Release, 88 FR 3786 at 3797, n.167 (Jan. 20, 2023) and accompanying text (discussing 

potential initial and ongoing costs that broker-dealers would incur as a result of the proposed amendments 

to Rule 605). 



43 

center broker-dealers (which are not otherwise subject to Rule 605’s reporting requirements) and 

yet would result in capturing only modestly more customer accounts than the 100,000 customer 

account threshold.150 The Commission’s updated analysis also indicates that utilizing a higher 

customer account threshold, such as 250,000 customer accounts, would lower costs but also 

decrease coverage of customer accounts and customer order originations.151 Thus, utilizing 

100,000 customer accounts as the adopted minimum reporting threshold will better balance the 

benefits of having broker-dealers produce execution quality statistics with the costs of 

implementation and reporting.  

The customer account threshold will require brokers-dealers to include in their 

calculations the customer accounts that they introduce, as well as the customer accounts that they 

carry. Rule 605 reports that reflect orders received from customer accounts that a broker-dealer 

introduces or carries will provide useful information to market participants because both 

introducing and carrying broker-dealers make decisions about where to route those orders and it 

will be helpful for customers to be able to evaluate the execution quality received as a result of 

those decisions. 

One industry group requested an exception from the Rule 605 reporting requirement for 

an introducing firm that routes all of its customer orders to its clearing firm, on a non-directed 

basis, where the clearing firm makes all routing decisions and the introducing firm does not 

 

150  See infra section IX.E.1.a) and Table 13 (demonstrating that, for example, reducing the customer account 

threshold from 100,000 to 10,000 would increase estimated initial and ongoing compliance costs from 

about $3.4 million and $4.4 million, respectively, to about $9.8 million and $12.6 million, respectively, 

while increasing the coverage of customer accounts by 1.4% and the coverage of customer order 

originations by 21%). See also infra notes 1749-1751 (discussing why lowering the customer account 

threshold to include these customers might not be particularly beneficial). 

151  See Table 13 (demonstrating that raising the customer account threshold to 250,000 would lower estimated 

initial and ongoing compliance costs to about $2.4 million and $3.1 million, respectively, while decreasing 

the coverage of customer accounts by 1.1% and the coverage of customer order originations by 55.7%). 



44 

receive payment for order flow (“PFOF”).152 This commenter explained that its request would 

reduce the reporting burden for smaller introducing firms.153 This commenter stated that, given 

its suggested conditions for the exception from reporting requirements that an introducing broker 

would be required to examine the clearing firm’s Rule 605 report and not have reason to believe 

the clearing firm’s report materially misrepresents the introducing broker’s order flow, the 

quality of the disclosure should not be impacted.154 A second industry group made a similar 

request for an exception from reporting for certain introducing broker-dealers, stating that when 

introducing broker-dealers send customer orders to a clearing broker that makes the routing 

decisions, the introducing broker may not be in the best position to generate Rule 605 reports.155 

The Commission considered these commenters’ suggestion that Rule 605 provide an 

exception for certain introducing broker-dealers, but is not adopting the suggested exception for 

the following reasons: (1) Rule 605 reports prepared by larger broker-dealers will provide market 

participants and other interested parties with information relevant to evaluating how relationships 

among broker-dealers may affect execution quality, and the payment of PFOF is not the only 

circumstance that leads to conflicted relationships between an introducing broker-dealer and its 

customers;156 (2) an introducing firm would not be able to determine whether or not its clearing 

 

152  See FIF Letter at 6. 

153  See FIF Letter II at 2. 

154  See id. 

155  See letter from William C. Thum, Managing Director and Assistant General Counsel, SIFMA AMG (Mar. 

31, 2023) (“SIFMA AMG Letter”) at 6. 

156  For instance, retail brokers potentially face conflicts of interest when making order routing decisions, 

including whether to route to a particular wholesaler. See infra section IX.C.4.a)(2). As an example, broker-

dealers face conflicts of interest when making routing decisions due to their own affiliation with market 

centers (e.g., if the broker-dealer operates its own ATS), from the presence of liquidity fees and rebates on 

some market centers, or from payments that some retail brokers receive from wholesalers to attract the 

order flow of their individual investor customers (i.e., PFOF). See infra notes 1300-1304 and 

accompanying text. 



45 

firm’s Rule 605 report materially misrepresents the introducing firm’s order flow without 

independently calculating its own execution quality statistics, and if the introducing firm needed 

to make these calculations to do this assessment, then any additional burden due to the 

requirement to prepare Rule 605 reports will be minimal; (3) different firms could have differing 

interpretations of how much variation there could be in execution quality statistics between an 

introducing firm and its clearing firm before the clearing firm’s Rule 605 report would 

“materially misrepresent” the introducing firm’s order flow; and (4) even if an introducing firm 

determined that it has no reason to believe that its clearing firm’s Rule 605 report materially 

misrepresents the introducing firm’s order flow, the introducing firm’s customers could consider 

certain differences between the execution quality statistics of the introducing firm and its 

clearing firm to be meaningful.157 

An industry group asked for clarification regarding how firms would calculate their 

number of customer accounts for purposes of the customer account threshold.158 In response, the 

Commission is providing the following guidance. First, the introducing broker-dealer generally 

should only count the institutional top-level account when an introducing broker-dealer that is 

 

157  In some instances, the same underlying order may be reflected on the Rule 605 reports provided by both an 

introducing firm and its clearing firm, but the separate reports will provide different views of execution 

quality specific to the group of orders handled by each broker-dealer. See also Proposing Release, 98 FR 

3786 at 3798 (Jan. 20, 2023).  

158  See FIF Letter at 5-6 (requesting clarifications on how a firm would calculate its number of accounts to 

determine whether it meets the customer account threshold in the following circumstances: 1) an 

introducing firm that is not a clearing firm, where the introducing firm establishes a top-level trading 

account for an institutional asset manager and the asset manager allocates trade executions to sub-accounts; 

2) a firm that has accounts for non-U.S. customers; 3) a firm that provides routing services for other broker-

dealers; and 4) a firm that has authorized an account to trade NMS stocks but that account has never traded 

an NMS stock or has not traded an NMS stock for an extended period of time). 



46 

not a clearing broker-dealer establishes a top-level account for an institutional asset manager.159 

The Commission recognizes that in such instances the introducing broker-dealer often utilizes an 

omnibus clearing arrangement and thus does not have specific knowledge of how many 

underlying accounts a top-level account may represent.160 Second, broker-dealers generally 

should count and only count the accounts for all of their customers that are authorized by their 

broker-dealers to trade NMS stocks, including non-U.S. customers. A focus on customers that 

are authorized to trade NMS stocks generally should align with the scope of Rule 605 reports 

because these reports relate to covered orders in NMS stocks.161 Third, broker-dealers that 

provide routing services for other broker-dealers could have customer accounts for that portion 

of their business and the routing broker-dealer generally should consider whether a top-level 

account pertains to customer orders and count only those top-level accounts that the routing 

broker-dealer introduces or carries that are associated with customer orders. Fourth, broker-

dealers generally should count only active customer accounts. Broker-dealers generally should 

consider customer accounts as active in the same manner as defined and reported in their 

Financial and Operational Combined Uniform Single (“FOCUS”) Reports on Form X-17A-5.162 

Consistent with their FOCUS reports, larger broker-dealers reporting under Rule 605 generally 

 

159  In this scenario as presented by the commenter, the asset manager submits orders using this top-level 

account and separately establishes multiple underlying accounts with the clearing broker-dealer to allocate 

trades post-execution. See id. at 5-6.  

160  See supra note 98 and accompanying text (discussing omnibus clearing arrangements in which the clearing 

firm does not know the identity of the customers of the introducing firm). Having an introducing broker-

dealer count the top-level account through which trading occurs is consistent with the approach for 

reporting transactions to the CAT. See FINRA CAT FAQ M4, available at https://catnmsplan.com/faq 

(stating that in scenarios involving managed accounts where an order may be placed in a master account 

with subaccount allocations made at a later time, the identifier representing the master/top account should 

be reported to CAT for transaction events requiring such identifier). 

161  See final 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(7). 

162  See Instructions to FOCUS Report – Form X-17A-5 at 2. 



47 

should count only active accounts that have a non-zero cash or securities balance at the end of 

the reporting period. Leveraging an existing classification of active accounts in these FOCUS 

reports generally should facilitate the identification of inactive accounts. 

b) Production of Separate Reports 

Two investor advocacy groups expressed their support for the proposed requirement that 

larger broker-dealers that are also market centers produce separate reports for each activity.163  

After considering the comments, the Commission is adopting the requirement that larger 

broker-dealers that are also market centers produce separate reports pertaining to each function, 

as proposed. As explained in the Proposing Release, requiring a firm to produce separate reports 

pertaining to its market center function and its broker-dealer function will allow market 

participants and other interested parties to view the firm’s execution quality from the perspective 

of how it operates in each of these separate roles.164  

An industry group stated that the proposed distinction between broker-dealer activity and 

market center activity in Rule 605 reports requires clarification and asked specific questions to 

clarify this distinction for purposes of grouping orders to prepare the separate reports.165 In 

 

163  See Healthy Markets Letter at 16 (“[B]rokers that are also market centers (including as OTC market 

makers) should be required to separately report their market center functions for all covered orders (e.g. 

ATS or SDP operations).”); Better Markets Letter at 5, n.12.  

164  See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 

165  See SIFMA Letter II at 28 (asking the following questions as to how a firm should group different 

transactions for Rule 605 separate reports: 1) “If a firm is an OTC market maker and introduces or carries 

100,000+ customer accounts, how should the firm determine which orders to report as broker-dealer trades 

versus those executed as a market center?”; 2) “If a firm engages in a mixed capacity trade involving both a 

portion executed as agent and a portion executed as principal, would this order need to be bifurcated 

between the two reports?”; 3) “If a firm trades in a riskless principal capacity, but the transaction was part 

of its internal broker-dealer business and not its OTC market making business, should the firm nonetheless 

attribute the riskless principal trade to its market center Rule 605 report? The Commission only discusses a 

market center engaging in riskless principal transactions, but it seems possible that a non-market center 

might transact on a riskless principal basis as well.”). 



48 

response, the Commission provides the following clarifications. First, a firm that is an OTC 

market maker and introduces or carries over 100,000 customer accounts (i.e., meets the customer 

account threshold for larger broker-dealers) generally should include in its Rule 605 report 

pertaining to its broker-dealer function all covered orders in NMS stocks that the firm’s broker-

dealer received for execution as part of its customer-facing line of business. The firm generally 

should include in its Rule 605 report pertaining to its market center function all covered orders in 

NMS stock that the firm received for execution that are the type of order for which the firm 

serves as an OTC market maker. The set of orders pertaining to a firm’s broker-dealer function 

may overlap with the set of orders pertaining to its market center function. The firm generally 

should include an order in both of its Rule 605 reports if its broker-dealer received the order 

from a customer and the firm also acts as a market center for that type of order. 

Second, a firm that engages in a mixed capacity trade (i.e., a trade involving both a 

portion executed as agent and a portion executed as principal) generally should include in its 

Rule 605 report pertaining to its broker-dealer function the entire covered order that it received 

for execution as part of its customer-facing line of business and subsequently executed in a 

mixed capacity. Based on the firm’s execution of a portion of the order as principal, as a general 

matter, the firm acts as an OTC market maker for that type of order and, because an OTC market 

maker falls within the definition of a “market center,”166 that portion of the order generally 

should be included in its report pertaining to its market center function. The firm’s execution of a 

portion of the order as agent generally should not be determinative of whether the firm acts as an 

OTC market maker for that type of order. The firm also generally should include in its Rule 605 

 

166  See final 17 CFR 242.600(b)(55). 



49 

report pertaining to its market center function the portion of the covered order that it executed as 

agent if it received the order for execution as an OTC market maker.167 Whether the firm 

received the entire covered order in its capacity as an OTC market maker (and thus as market 

center) or only a portion of the order in its capacity as an OTC market maker generally will 

depend on the types of orders for which it acts as an OTC market maker.168 

Third, a firm that trades in a riskless principal capacity with respect to a transaction 

handled by its non-market center, internal broker-dealer business rather than its OTC market 

making business generally should not need to include the transaction in its Rule 605 report 

pertaining to its market center function because this division of business lines suggests that the 

firm is acting in its capacity as a broker-dealer only. However, the firm generally should evaluate 

whether or not it acts as an OTC market maker in connection with its internal broker-dealer 

 

167  When a market center, broker, or dealer receives a covered order for execution, it may execute in part at the 

receiving market center, broker, or dealer and in part at an away venue, but the entire covered order will be 

included in the firm’s Rule 605 report. See final 17 CFR 242.605(a)(1)(i)(E) (requiring a market center, 

broker, or dealer to report the cumulative number of shares of covered orders executed at the receiving 

market center, broker, or dealer, excluding shares executed on a riskless principal basis) and final 17 CFR 

242.605(a)(1)(i)(F) (requiring a market center, broker, or dealer to report the cumulative number of shares 

of covered orders executed at any other venue). 

168  The Commission agrees with the previous guidance provided by the staff that the Rule 605 reporting 

requirement for market centers generally should apply to broker-dealers insofar as they act as a market 

center with respect to orders received from other persons. See Proposing Release, 88 FR 3786 at 3798, 

n.180 (Jan. 20, 2023) (citing Division of Market Regulation: Staff Legal Bulletin No. 12R (Revised), 

Question 4 (June 22, 2001), available at https://www.sec.gov/interps/legal/slbim12a.htm). The Commission 

provides the following example to illustrate. Assume that Firm A generally acts as an OTC market maker 

for XYZ stock. If Firm A receives an order for 100 shares of XYZ stock, it may choose to execute as 

principal 50 shares of XYZ stock that it holds in inventory and execute as agent the 50 shares of XYZ stock 

necessary to fill the entire order. Firm A generally would have received the entire 100-share order in its 

capacity as an OTC market maker, notwithstanding its execution of a portion of the order as agent. In 

contrast, Firm B acts as an OTC market maker for XYZ stock but not ABC stock. If Firm B receives an 

order for 50 shares of XYZ stock and an order for 50 shares of ABC stock, Firm B generally would have 

received the order for 50 shares of XYZ stock in its capacity as an OTC market maker, regardless of 

whether it executed those shares as principal or as agent. In this scenario, Firm B generally would not have 

received the order for 50 shares of ABC stock in its capacity as an OTC market maker and therefore 

generally would have received this order in connection with its broker-dealer function only.  



50 

business, in which case that portion of the business may be a market center and thus be required 

to be reported as such. 

A financial services firm requested clarification of whether a broker-dealer that 

principally facilitates the trading of fractional shares must publish a separate Rule 605 report as a 

market center.169 In response, the Commission clarifies that under the adopted amendments to 

Rule 605 a reporting entity must produce a separate Rule 605 report as a market center if it meets 

the definition of an “OTC market maker” and receives “covered orders” for execution in such 

capacity.170 As stated in the Proposing Release, as a general matter, a broker-dealer generally 

should categorize a customer’s submitted order for an NMS stock, whether it be for a fractional 

share, whole shares, or whole shares with a fractional share component, as a “held” order (and 

thus a covered order) if the customer reasonably expects its broker-dealer to attempt to execute 

such order immediately.171  

One group of academics suggested that the Commission require separate disclosures for 

each account type at each broker-dealer to reflect the observation that execution quality differs 

across platforms with different commission and PFOF structures.172 A group consisting of some 

of these academics also suggested that the Commission require separate disclosures of specific 

 

169  See Fidelity Letter at 9-10. 

170  See supra note 3 for the definition of “OTC market maker.” The term “covered order” is defined in final 17 

CFR 242.600(b)(27). As discussed above, a firm may act as an OTC market maker for certain types of 

orders only. For example, Firm C acts as an OTC market maker for fractional shares only. If Firm C 

receives an order for 51.25 shares of XYZ stock, it may execute as principal 0.25 shares of XYZ stock and 

execute as agent 51 shares of XYZ stock. Firm B generally would have received only the fractional share 

component of the order (i.e., 0.25 shares) in its capacity as an OTC market maker and therefore only the 

fractional share component generally should be included in Firm C’s Rule 605 report pertaining to its 

market center function. 

171  See Proposing Release, 88 FR 3786 at 3789, n.36 (Jan. 20, 2023). 

172  See Professor Schwarz et al. Letter at 5. See also Better Markets Letter at 5, n.14 (agreeing with this 

recommendation). 



51 

“broker-wholesaler pairs” consisting of a broker-dealer and each wholesaler to which the broker-

dealer routes orders from retail investors.173 A broker-dealer stated that execution quality 

metrics, including the proposed summary reports, would be more informative if Rule 605 reports 

differentiated between retail investors and professional customers because the nature of order 

flow and resulting execution quality may be quite different.174 Another broker-dealer stated that 

“each firm’s order flow is unique” and suggested that the Commission “consider the balance of 

this additional transparency of order flow” both: (1) “in the context of reporting fragmentation 

for trading venues that have built in segmentation (i.e., ATS with multiple pools or an exchange 

that has a continuous order book and a retail price improvement order book)”; and (2) “in the 

context of retail brokers where experience may be materially different within a broker-dealer 

(i.e., a retail broker chooses to offer retail customers different experiences within the same 

broker-dealer).” 

The Commission is not adopting these commenters’ suggestions that larger broker-

dealers be required to produce multiple reports that differentiate between account types, business 

segments, or routing destinations. Requiring larger broker-dealers to split their orders amongst 

multiple Rule 605 reports pertaining to their broker-dealer function would create additional 

implementation costs and potentially undercut the goal of having standardized reports that are 

comparable across entities. For instance, differences among how firms structure different 

 

173  See Huang et al. Letter at 1 (“[O]ur results suggest that disclosures for each broker-wholesaler pair should 

provide additional helpful information to monitor broker and wholesaler performance. This would allow 

within-broker comparisons of execution quality that are more meaningful than comparisons solely across 

brokers.”). 

174  See Rule 605 Citadel Letter at 8 (recommending that the Commission engage with market participants to 

appropriately define a retail order, such as by reference to an order or trade threshold and stating that forty 

trades per day would be inappropriately high). 



52 

business lines would pose challenges in ensuring that each firm is capturing order flow with 

similar characteristics in the same way, which could impede the comparability of reports. 

c) Time of Order Receipt 

One investor advocacy group stated that broker-dealers should be required to calculate 

time of order receipt based on when that broker-dealer received the order because, in the 

commenter’s view, the use of the time the order was received would show if there are order-

delays and thereby provide a useful metric for anyone examining order-routing latency across 

brokers.175 An industry group and a financial services firm suggested instead of the proposed rule 

text that broker-dealers should be required to calculate time of order receipt based on the time 

that the broker-dealer first routes the order.176 The industry group questioned whether execution 

metrics should be measured before or after the broker-dealer has applied risk controls and 

decided whether to reject the order.177 This commenter stated that current order management 

systems may not generate a timestamp for when risk controls have been applied and it would be 

costly to generate such markers.178 For this reason, this commenter suggested permitting a 

routing firm to use the time of its first route as the time of order receipt and stated that the time 

of first route would be consistent with the Staff frequently asked questions (FAQs) regarding 

 

175  See Healthy Markets at 16-17. 

176  See FIF Letter at 18-19; Schwab Letter II at 33; letter from Jason Clague, Managing Director, Head of 

Operations, The Charles Schwab Corporation (Sep. 28, 2023) (“Schwab Letter III”) at 5. 

177  See FIF Letter at 19. 

178  See id. 



53 

Rule 606.179 The financial services firm stated that Rule 605 reports for a non-market center 

should use the time of order routing, not the time of order receipt, because broker-dealers 

perform necessary review activities following receipt of the order but prior to routing the 

order.180 

After consideration of comments, the Commission is adopting the requirement that larger 

broker-dealers calculate time of order receipt based on the time that they received the initial 

order, as proposed.181 Time of order receipt, rather than order route time, is more relevant to 

customers of a broker-dealer because it will show how the broker-dealer handled the order from 

the time of receipt by the broker-dealer. Time of order receipt will show any delays in executing 

the order, and any resulting consequences on the execution quality the broker-dealer obtained for 

that order, because the execution quality statistics will be measured based on the prevailing 

market prices at the time the order was received. In addition, counting time of order receipt from 

the time that a broker-dealer initially receives the order will allow broker-dealers to assign a time 

of order receipt in a prompt and uniform manner and thus help to ensure that the time of order 

receipt is assigned in a non-manipulatory manner.182  

 

179  See id. (citing Rule 606 Staff FAQs, FAQ 11.01). Rule 606 Staff FAQs are available at: 

https://www.sec.gov/tm/faq-rule-606-regulation-nms. Staff reports, Investor Bulletins, and other staff 

documents (included those cited herein) represent the views of Commission staff and are not a rule, 

regulation, or statement of the Commission. The Commission has neither approved nor disapproved the 

content of these staff documents and, like all staff documents, they have no legal force or effect, do not 

alter or amend the applicable law, and create no new or additional obligations for any person. 

180  See Schwab Letter II at 33; Schwab Letter III at 5 (“The use of order receipt time rather than route time 

would result in some execution quality statistics like execution speed not being fairly represented in the 

reports due to outliers caused by market access review activities.”). 

181  See final 17 CFR 242.600(b)(103). 

182  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000) (discussing a commenter’s 

concern that a market center might attempt to manipulate the time of receipt for its order flow by, for 

example, monitoring market movements before and/or after receipt of any order and assigning the NBBO 

that is most favorable to them during that brief option period). 



54 

A financial services firm that suggested the use of order route time stated that larger share 

orders are more likely to be sent to a review queue and could have a “disproportionate negative 

impact” on average execution speed.183 This commenter further stated that, “[c]onsequently, 

using order receipt time could create a perverse incentive for firms to diminish time spent on 

necessary reviews in an effort to improve execution speed statistics.”184 The Commission 

disagrees that broker-dealers will be incentivized to circumvent their risk controls because time-

to-execution statistics take into account the period during which a broker-dealer is performing 

various reviews and before the broker-dealer routes an order. Broker-dealers have multiple 

reasons to implement risk controls upon the receipt of customer orders. For example, broker-

dealers are subject to other regulatory requirements, including the Commission’s market access 

rule, that will continue to apply.185 The existence of such requirements means that broker-dealers 

will continue to utilize risk controls necessary to comply with these requirements, including risk 

controls implemented to comply with the market access rule, because the potential consequences 

of failing to comply with these requirements likely would counterbalance any perceived benefits 

of being able to report faster execution times. Broker-dealers also have reputational and business 

concerns that serve as additional incentives to continue to apply risk controls. Further, to the 

extent that larger orders received by broker-dealers may result in slower execution times due to 

the application of risk controls, measuring time to execution at the time of order receipt may 

motivate broker-dealers to make their risk controls more efficient. Moreover, time-to-execution 

 

183  See Schwab Letter II at 33; Schwab Letter III at 5. 

184  Schwab Letter II at 33; Schwab Letter III at 5. 

185  See 17 CFR 240.15c3-5.  



55 

statistics are only one aspect of execution quality statistics and price-based execution quality 

statistics will provide a different dimension of the reporting firms’ execution quality. 

An industry group requested confirmation that orders rejected based on the application of 

risk and compliance controls would not count as having been received for purposes of Rule 605 

reporting.186 In response, the Commission confirms that a broker-dealer generally should not 

include orders rejected based on the application of risk and compliance controls within its Rule 

605 reports. Including these rejected orders in Rule 605 reports would not provide data useful to 

understanding the execution quality provided by the reporting broker-dealer because these orders 

would not have been received by the firm in a form where execution was possible. Thus, these 

rejected orders generally should not be treated as “received” by the broker-dealer for Rule 605 

reporting purposes. 

B. Qualified Auction Mechanisms 

1. Proposed Approach 

In today’s equity markets, retail brokers often identify and route the marketable orders of 

individual investors in NMS stocks to wholesalers and the wholesalers often internalize these 

orders.187 At the same time that the Commission proposed the amendments to Rule 605 

discussed herein, the Commission separately proposed rules that generally would require that 

individual investor orders be exposed to order-by-order competition in fair and open auctions 

designed to obtain the best prices before such orders could be internalized by wholesalers or any 

 

186  See FIF Letter at 19.  

187  This practice of separately identifying and routing the marketable orders of individual investors to 

wholesalers is a form of “segmentation.” 



56 

other type of trading center that restricts order-by-order competition.188 The proposal focused on 

the treatment of segmented orders, which the Commission proposed to define as an order for an 

NMS stock that is for an account that is: (1) of a natural person or an account held in legal form 

on behalf of a natural person or group of related family members; and (2) in which the average 

daily number of trades executed in NMS stocks was less than 40 in each of the six preceding 

calendar months.189 The intent of the proposed definition was to encompass the marketable 

orders of individual investors that retail brokers currently route to wholesalers for handling and 

execution.190 Under those proposed rules, a “restricted competition trading center” would not be 

allowed to execute internally a segmented order for an NMS stock until after a broker or dealer 

has exposed such order to competition at a specified limit price in a “qualified auction” that met 

certain requirements and was operated by an “open competition trading center.”191  

If the Commission adopts the order competition rule proposal, a national securities 

exchange or NMS Stock ATS that serves as an open competition trading center and is required to 

prepare execution quality reports under Rule 605 would be required to include covered orders 

that it received for execution in a qualified auction within its blended execution quality statistics. 

 

188  For a full description and discussion of the order competition rule proposal, see Order Competition Rule 

Proposing Release, 88 FR 128 (Jan. 3, 2023); proposed 17 CFR 242.615 (“Rule 615”).  

189  See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023); proposed Rule 600(b)(91) 

(defining “segmented order”). 

190  See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023). 

191  See id. at 243; proposed Rule 600(b)(87) (defining “restricted competition trading center”); proposed Rule 

615(a) (describing the order competition requirement). An “open competition trading center” would be a 

national securities exchange or NMS Stock ATS that meets certain requirements, including being 

transparent and having a substantial trading volume in NMS stocks independent of qualified auctions. See 

Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed Rule 600(b)(64) 

(defining “open competition trading center”). A “qualified auction” would be an auction operated by an 

open competition trading center pursuant to specified requirements that are designed to achieve 

competition. See Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed 

Rule 600(b)(81) (defining “qualified auction”); proposed Rule 615(c) (setting forth requirements for 

operation of a qualified auction). 



57 

Because of concerns that differences in execution quality for orders executed within proposed 

qualified auctions as compared to orders executed outside of these qualified auctions would not 

be apparent in blended execution quality statistics, the Commission proposed to amend Rule 

605(a)(1) to state that market centers that operate a qualified auction must prepare a separate 

report under Rule 605 pertaining only to covered orders that the market center receives for 

execution in a qualified auction.192  

2. Final Rule and Discussion 

In this release, the Commission is not acting on the proposal to require separate Rule 605 

reports for orders that a market center receives for execution from a qualified auction. The 

Commission received generally supportive comments from a variety of market participants, 

including individual investors, on this proposed amendment.193 Some industry commenters 

suggested that Rule 605 reports should distinguish between segmented and non-segmented 

orders, as described in the Order Competition Rule Proposing Release.194  

The Commission is still considering the order competition rule proposal and the proposal 

to require separate Rule 605 reports for orders that a market center receives for execution in a 

qualified auction. Therefore, the qualified auctions contemplated by the Order Competition Rule 

Proposing Release do not exist as a place of execution at this time. Accordingly, in this release, 

 

192  See Proposing Release, 88 FR 3786 at 3802 (Jan. 20, 2023).  

193  See, e.g., Joy Letter; Pritchard Letter; and letters from Julio Cesar (Feb. 24, 2023) (“Cesar Letter”); Nevin 

Varghese (Dec. 26, 2022) (“Varghese Letter”). 

194  See FIF Letter at 13 (stating that segmented orders would likely need to be separate from non-segmented 

orders); Fidelity Letter at 9 (recommending that the Commission distinguish Rule 605 data by segmented 

and non-segmented order flow and display such orders separately in detailed reports and summary reports); 

SIFMA Letter II at 29 (stating that it is unclear why retail broker-dealers should have to report on 

segmented orders because execution quality will depend on the qualified auction rather than actions by the 

originating broker, and suggesting instead a single Rule 605 report that evaluates all qualified auctions). 



58 

the Commission is not acting on the proposed separate Rule 605 reporting requirement for orders 

a market center receives for execution in a qualified auction. 

C. NMS Stock ATSs and SDPs 

1. Proposed Approach 

Under Rule 605 prior to the amendments, firms that operate two separate markets must 

prepare separate Rule 605 reports for each market center.195 This requirement allows market 

participants to assess the execution quality of each market individually and prevents differences 

in the nature of each market from obscuring information about execution quality. The 

Commission proposed to specify in Rule 605(a)(1) that an NMS Stock ATS (as defined in 

Regulation ATS196) shall prepare reports separately from their broker-dealer operators to the 

extent such entities are required to prepare reports.197 The Commission also proposed to require 

in Rule 605(a)(1) that any market center that provides a separate routing destination that allows 

persons to enter orders for execution against the bids and offers of a single dealer shall produce a 

separate report pertaining only to covered orders submitted to such routing destination.198 This 

provision would have covered an SDP operated by a broker-dealer and required a separate report 

 

195  See prior 17 CFR 242.605(a)(1) (requiring “every” market center to produce a report). See also Rule 605 

NMS Plan at n.1 (“An entity that acts as a market maker in different trading venues (e.g., as a specialist on 

an exchange and as an OTC market maker) would be considered as a separate market center under the Rule 

for each of these trading venues. Consequently, the entity should arrange for a Designated Participant for 

each market center/trading venue (e.g., an exchange for its specialist trading and an association for its OTC 

trading).”) For a description of “Designated Participant” as defined in the Rule 605 NMS Plan, see infra 

note 869. 

196  17 CFR 242.300(k). “Regulation ATS” consists of 17 CFR 242.300 through 242.304 (Rules 300 through 

304 under the Exchange Act).  

197  See Proposing Release, 88 FR 3786 at 3803 (Jan. 20, 2023). 

198  See id. To the extent that a reporting firm produces more than one Rule 605 report, the firm could label 

each report with the type of business reflected on the report.  



59 

pertaining to those orders submitted to the SDP, allowing customers and other market 

participants to distinguish SDP activity from more traditional dealer activity.199 

2. Final Rule and Discussion 

The Commission is specifying that NMS Stock ATSs must report separately from their 

broker-dealer operators, as proposed, and adopting a separate reporting requirement for SDPs 

largely as proposed. In each instance, separate reporting under Rule 605 will bring transparency 

to these segments of the OTC equity market. 

The Commission received generally supportive comments from a variety of market 

participants regarding having firms produce separate Rule 605 reports for NMS Stock ATSs and 

for SDPs.200 After considering the comments, and for the reasons discussed in the Proposing 

Release, the Commission is specifying the separate reporting requirement for NMS Stock ATSs 

as proposed.  

Two commenters requested clarification and confirmation that order and execution 

management systems (“OEMSs”) will not need to register as ATSs under the Commission’s 

 

199  See id. 

200  See, e.g., Healthy Markets Letter at 16 (“[B]rokers that are also market centers (including as OTC market 

makers) should be required to separately report their market center functions for all covered orders (e.g. 

ATS or SDP operations).”); Better Markets Letter at 5, n.10 (“[R]equiring SDPs and ATSs to produce Rule 

605 reports independently from their broker-dealers operations would increase transparency by allowing 

market participants to distinguish such activity from more traditional broker-dealer activity.”); Varghese 

Letter (“Expanding the scope of entities subject to Rule 605 to include … single dealer platforms will 

ensure that a wider range of market participants are held to the same standards of transparency and 

accountability.”). 



60 

proposal to amend the definition of “exchange” under 17 CFR 240.3b-16 (“Rule 3b-16”)201 and 

thus need not comply with Rule 605’s separate reporting requirement for NMS Stock ATSs.202 

The Commission is still considering whether to adopt the proposed changes to the definition of 

“exchange” discussed in the 2022 Regulation ATS/Definition of Exchange Proposing Release 

and 2023 Regulation ATS/Definition of Exchange Reopening Release. Any need to comply with 

Rule 605’s separate reporting requirement under any future rulemaking is outside the scope of 

this rulemaking. 

An industry group and a broker-dealer requested additional clarity around what 

constitutes an SDP.203 The broker-dealer suggested that the Commission avoid an over-inclusive 

definition of SDPs by focusing on the order types used by non-retail investors to interact with 

SDPs, such as immediate-or-cancel (“IOC”) orders and fill-or-kill orders (“FOKs”), while also 

capturing substantially similar trading activities to ensure a level playing field.204 This 

 

201  Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) (“2022 

Regulation ATS/Definition of Exchange Proposing Release”). The comment period was reopened on May 

9, 2022, and ended on June 13, 2022: Securities Exchange Act Release No. 94868 (May 9, 2022), 87 FR 

29059 (May 12, 2022). The Commission reopened the comment period for the 2022 Regulation 

ATS/Definition of Exchange Proposing Release again in the 2023. See Securities Exchange Act Release 

No. 97309 (Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (“2023 Regulation ATS/Definition of Exchange 

Reopening Release”). The 2023 Regulation ATS/Definition of Exchange Reopening Release provided 

supplemental information and economic analysis regarding trading systems that trade crypto asset 

securities that would be newly included in the definition of “exchange” under the proposed rules. See id. 

202  See letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic 

Trading, Samantha DeZur, Managing Director, Global Public Policy Group, BlackRock, Inc. (Mar. 31, 

2023) (“BlackRock Letter”) at 4-5 (“Unlike market centers, OEMSs only route orders based on explicit 

order handling direction provided by a user. … OEMSs would not have the necessary data – and are not 

structured in a manner – that would allow them to file Rule 605 reports.”); Managed Funds Association 

Letter at 5-6 (“[I]t would be inappropriate for [OEMSs] to fall within the communication protocol systems 

definition. … [OEMSs], which are essentially software systems that help to facilitate and manage trade 

executions, do not have (and should not be required to develop) the operational capabilities to gather and 

disseminate information required by Rule 605 reports … due to [their] limited role.”). 

203 See SIFMA Letter II at 28 (noting that the Commission provides no formal SDP definition); Rule 605 

Citadel Letter at 7 (stating its views about the importance of clearly defining what constitutes an SDP). 

204  See Rule 605 Citadel Letter at 7 (recommending that the Commission review FINRA Regulatory Notice 

18-28, and the comments submitted in response, to define “SDP” more precisely).61 

commenter stated that “the Commission should consider whether certain Rule 605 metrics may 

be unduly impacted by differences in SDP business models, rather than execution quality” (e.g., 

“a SDP that sends indications of interest (“IOIs”) to customers may have materially higher fill 

rates than a SDP that solely receives blind IOCs”).205 This commenter further suggested that the 

Commission “conduct a more holistic review of the Rule 605 reports already produced by ATSs 

in order to determine whether any additional revisions are warranted in order to accurately report 

execution quality for non-retail orders” (e.g., “the definition of a ‘covered order’ may need to be 

amended in order to ensure that the Rule 605 reports are sufficiently comprehensive for non-

retail orders”).206 Another broker-dealer opposed the separate reporting requirement for SDPs, 

stating that it is “unnecessary to report these execution quality statistics separately, as users of 

SDPs are all sophisticated entities capable of carrying out their own execution quality 

measurements,” and thus the requirement “imposes an additional cost on SDPs without any clear 

benefit.”207  

After considering the comments, the Commission is adopting separate reporting for SDPs 

largely as proposed. The Commission acknowledges that SDPs have different business models 

and that SDPs that receive blind IOCs throughout the trading day (so-called “blind pinging”) 

would likely have execution quality statistics that differ significantly from the statistics of SDPs 

that send out IOIs. Although a commenter raised concerns about potential differential impacts on 

Rule 605 metrics for SDPs with different business models,208 in the Commission’s experience 

 

205  Id. at 7. 

206  Id. at 8. 

207  Virtu Letter II at 12-13. 

208  See Virtu Letter at 12. 



62 

SDPs largely receive institutional orders and therefore those market participants that send orders 

to SDPs generally are or represent sophisticated market participants that would likely be aware 

of and understand these differences in business models; thus these market participants can 

contextualize the Rule 605 reports appropriately. To the extent that OTC market makers 

operating SDPs think that additional context would help market participants understand their 

Rule 605 reports, these firms generally should consider whether to provide additional 

explanation on their websites about the nature of their order flow and how it affects the particular 

SDP’s execution quality statistics.  

In response to one commenter’s statement that imposing a separate reporting requirement 

on SDPs lacks any clear benefit to justify the additional cost,209 these order flow differences 

highlight the transparency benefits that justify the costs of requiring OTC market makers 

operating SDPs to produce Rule 605 reports separate from their other trading activity.210 

Otherwise, commingling SDP activity with other market center activity in Rule 605 reports may 

obscure differences in execution quality or distort the general execution quality metrics for the 

market center. Moreover, Rule 605’s description of what constitutes SDP activity for purposes of 

the separate reporting requirement will help ensure that the SDP-specific Rule 605 reports reflect 

comparable activity.  

In response to one commenter’s suggestion that the Commission consider revisions to 

Rule 605 “in order to accurately report execution quality for non-retail orders,”211 no further 

 

209  See supra note 207 and accompanying text. 

210  See section IX.D.2.a)(1) for a discussion of compliance costs related to expanding the scope of Rule 605 

reporting entities. See also section IX.D.1.a)(2) for a discussion of the benefits of requiring separate Rule 

605 reports for SDPs. 

211  See supra note 206 and accompanying text. 



63 

changes to Rule 605 are necessary to accommodate reporting by SDPs. Prior to the amendments, 

market centers included non-retail orders in their Rule 605 reports, to the extent that such orders 

were held orders, and therefore the reporting requirement for SDPs will not represent the first 

time that market centers were required to report execution quality for non-retail orders. It is more 

appropriate in the context of Rule 605 to require the same metrics for all reporting entities. As 

discussed above, market participants that utilize SDPs generally understand nuances of different 

market centers. Further, the Commission is adopting a requirement that SDPs prepare Rule 605 

reports separate from the Rule 605 reports of their associated broker-dealers so that their 

customers and market participants will be able to distinguish SDP activity from more traditional 

dealer activity and separately evaluate reporting firms’ execution quality with respect to each 

type of activity. It is not necessary for the achievement of this goal to make adjustments to the 

scope of Rule 605 to include more non-retail orders because the amendments to Rule 605 

address this separation of SDPs’ execution quality statistics. 

The Commission also agrees with the two commenters regarding the need for additional 

clarity around the scope of entities that are SDPs for purposes of Rule 605. After considering 

commenter suggestions,212 the Commission is replacing the proposed description of what type of 

broker-dealer activity constitutes SDP activity for purposes of the separate SDP reporting 

obligation. In its place, the Commission is adopting a modified description of SDP activity that 

states: “Any OTC market maker that provides a trading system for only a single dealer213 to 

 

212  In response to the commenter’s suggestion that the Commission consider FINRA Regulatory Notice 18-28 

to define “SDP” more precisely (see supra note 204), the Commission observes that FINRA requested 

comment on a definition of SDP but did not propose or adopt a definition. See FINRA Regulatory Notice 

18-28. 

213  A dealer is defined in Exchange Act section 3(a)(5), 15 U.S.C. 78c(a)(5). 



64 

solely buy and sell securities against all other persons entering orders in that system shall 

produce a separate report pertaining only to covered orders entered in such trading system.”214 

Specifically, the Commission’s modified SDP description contains two substantive changes to 

the proposed SDP description. First, the Commission is replacing the term “market center” with 

the term “OTC market maker” because the term “market center” would have been overbroad. 

“Market center” includes an ATS, national securities exchange, or national securities association, 

none of which can be a single dealer.215 Second, the Commission is replacing “separate routing 

destination” with “trading system” to focus on the activity that occurs on SDPs and adding 

“only” before “a single dealer” to clarify that the trading system offered will not be for multiple 

dealers and instead will be limited to one dealer.216  

A broker-dealer recommended that the Commission clarify: (i) the circumstances in 

which an SDP can be considered to be embedded within an ATS (e.g., by constituting a separate 

tier within an ATS that can be specifically targeted by IOC or FOK orders), and (ii) whether SDP 

 

214  Final 17 CFR 242.605(a)(1). Compare final 17 CFR 242.605(a)(1) with proposed Rule 605(a)(1) (“Any 

market center that provides a separate routing destination that allows persons to enter orders for execution 

against the bids and offers of a single dealer shall produce a separate report pertaining only to covered 

orders submitted to such routing destination.”). SDPs are a type of market center as defined in Regulation 

NMS Rule 600(b)(55) because the description of an SDP in the adopted amendments to Rule 605 includes 

the term “OTC market maker” and the definition of “market center” lists OTC market maker as one of the 

included entities. See final 17 CFR 242.600(b)(55). Therefore, as a general matter, SDPs are a type of 

market center and, as such, are within the scope of Rule 605 reporting entities without reference to the 

100,000 customer account threshold. 

215  See final 17 CFR 242.600(b)(55) (defining “market center” to mean any exchange market maker, OTC 

market maker, ATS, national securities exchange, or national securities association). Compare final 17 CFR 

242.600(b)(75) (defining “OTC market maker” to mean any dealer that holds itself out as being willing to 

buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a 

regular and continuous basis otherwise than on a national securities exchange in amounts of less than a 

block size). 

216 Unlike an ATS, on an SDP the broker-dealer operator is the only counterparty to any trade that occurs on 

the SDP. See, e.g., Where Do Stocks Trade?, FINRA.org (Sep. 28, 2023), available at 

https://www.finra.org/investors/insights/where-do-stocks-

trade#:~:text=The%20most%20familiar%20type%20of,in%20popularity%20in%20recent%20years. In 

contrast, an ATS meets the criteria of 17 CFR 240.3b-16(a) and “brings together the orders for securities of 

multiple buyers and sellers.” 



65 

activity includes orders received from both the client (whether a broker-dealer or not) and from 

internal smart order routers.217 First, executions that occur on or through an NMS Stock ATS are 

attributable to that NMS Stock ATS and covered orders received for execution on or through an 

ATS must be included in the Rule 605 report pertaining to the ATS rather than on a separate 

Rule 605 report.218 Therefore Rule 605 reporting requirements are not dependent on whether “an 

SDP [could] be considered to be embedded within an ATS.” The Commission understands that 

certain NMS Stock ATSs offer counterparty selection and segmentation procedures that may 

allow the orders of a particular participant to interact with the orders of only a subset of 

participants, and in this respect trading activity that occurs on certain NMS Stock ATSs may 

resemble trading activity that occurs on SDPs.219 Providing separate Rule 605 reports for SDP-

like activity on ATSs would not be practicable given the lack of uniformity among NMS Stock 

ATSs’ operations, particularly their counterparty and segmentation procedures. Another factor 

that could decrease comparability across reports if they were divided, as suggested by the 

commenter, is that trading activity on an NMS Stock ATS occurs within the context of 

 

217  See Rule 605 Citadel Letter at 7. 

218  See final 17 CFR 242.605(a)(1). 

219  NMS Stock ATSs may offer counterparty selection or certain segmentation profiles that allow a single 

participant to interact with one or certain counterparties. Form ATS-N requires public disclosures about 

these aspects of an NMS Stock ATS. See Form ATS-N, Part III, Items 13 and 14. An NMS Stock ATS that 

permits a subscriber to use its counterparty selection or segmentation procedures to trade with only one 

subscriber or a certain subset of subscribers can be required, depending on its operations and arrangement 

with the subscriber, to disclose additional information in response to other requirements of the Form ATS-

N. These disclosures can include, among others, Part II, Item 2 (Affiliates Trading Activities on ATS), Part 

II, Item 4 (Arrangements with Trading Centers), Part III, Item 7 (Order Types and Attributes), Part III, Item 

11 (Trading Services, Facilities, and Rules), and Part III, Item 18 (Fees). 



66 

regulatory requirements specific to NMS Stock ATSs.220 In contrast, SDPs (as defined for 

purposes of Rule 605) operate as broker-dealer trading systems that are not ATSs and thus that 

are not subject to ATS regulatory requirements. Given the differences in operations and 

regulatory requirements between the types of trading systems, which affect order interaction and 

execution, the execution quality statistics for SDP-like trading activity occurring on ATSs could 

significantly vary in a manner that differs from the variation in execution quality statistics among 

SDPs, thereby reducing the utility of comparing execution quality statistics for trading activity 

occurring on SDPs. Second, SDP activity includes orders received from both a client (whether or 

not a broker-dealer) and internal smart order routers. Orders received from internal smart order 

routers are included in Rule 605 reports specific to SDPs because the determination that a trading 

system is an SDP for purposes of Rule 605 reporting requirements depends on the type of trading 

system that receives the orders and the single dealer counterparty that interacts with the orders 

that the system receives.221 

An industry group asked specific questions about how to distinguish between OTC 

market making and SDP activities in Rule 605 reports.222 The Commission provides the 

 

220  See, e.g., 17 CFR 242.301(b)(3) (containing requirements for ATSs pertaining to order display and 

execution access); 17 CFR 242.301(b)(5) (containing requirements for ATSs that have a significant 

percentage of overall trading volume in a security or category of securities during a certain period of time 

to comply with fair access requirements, which include, among other things, that the ATS establish written 

standards for granting access to trading on the ATS and not unreasonably prohibit or limit access by 

applying those access standards in an unfair or discriminatory manner). 

221  See final 17 CFR 242.605(a)(1) (defining an SDP as a trading system for only a single dealer to solely buy 

and sell securities against “all other persons entering orders in that system”). 

222  See SIFMA Letter II at 28 (posing the following interpretive questions to distinguish between OTC market 

makers and SDPs: 1) “Is the Commission suggesting that an SDP is a type of OTC market maker and 

therefore a market center?”; 2) “Would an SDP be considered an OTC market maker for purposes of any 

other rule?”; 3) “Is the Commission assuming that an SDP only accepts IOC orders?”; 4) “Under what 

circumstances can an SDP be considered to be embedded within an ATS (such as when an SDP can be 

specifically targeted within an ATS by IOC or FOK orders)?”; 5) “Would SDP activity include orders 

received from both a client (whether or not a broker-dealer) and from internal smart order routers?”). 



67 

following responses. First, Rule 605(a), as adopted, defines the separate Rule 605 reporting 

obligation as applying to any OTC market maker that provides a separate trading system that 

meets specified criteria; therefore, as it pertains to Rule 605 reporting, any SDP required to 

prepare Rule 605 reports will be a type of OTC market maker and therefore a market center.223 

Second, the Commission is not changing the definition of “OTC market maker” in Rule 600. 

Thus, any other rule that refers to an “OTC market maker” will utilize the same definition in 

Rule 600. Third, the Commission is not assuming that an SDP accepts only IOC orders. As such, 

an SDP is not limited to accepting or receiving a particular type of covered order for execution. 

Fourth, as described above, although a subscriber’s activity on an NMS Stock ATS may 

resemble SDP activity, the trading activity occurs on the ATS and thus is attributable to the ATS 

for purposes of Rule 605 reporting requirements. Fifth, as described above, SDP activity includes 

orders received from both a client (whether or not a broker-dealer) and from internal smart order 

routers. 

III. Modifications to Scope of Orders Covered and Required Information 

The reports required by Rule 605(a)(1) prior to these amendments grouped orders by both 

order size and order type and included certain standardized execution quality metrics for all types 

of orders, as well as additional metrics for market orders and marketable limit orders. For all 

reporting entities, including larger broker-dealers, the Commission proposed to: (1) modify the 

order size and order type groupings; and (2) make changes to the required information for all 

types of orders, market and marketable limit order types, and non-marketable order types. The 

Commission is adopting the proposed changes to Rule 605 largely as proposed, with certain 

 

223  See supra note 214.  



68 

modifications discussed below. Section III.A. describes the ways in which the Commission is 

modifying its proposed definition of “covered order” in the adopted amendments. Section III.B. 

describes the modifications that the Commission is making to the information contained in the 

detailed execution quality reports required by Rule 605(a)(1), including how orders are 

categorized by size and type, the timestamp conventions, and which execution quality statistics 

are included.  

A. Covered Order 

The scope of Rule 605’s reporting requirements is limited to covered orders.224 The 

Commission proposed expanding the definition of “covered order” to include: (1) certain orders 

received outside of regular trading hours; and (2) orders submitted with stop prices. The 

Commission also addressed whether non-exempt short sale orders would be covered orders when 

a price test restriction is in effect for the security. 

1. Orders Submitted Pre-Opening/Post-Closing 

a) Proposed Approach 

Prior to these amendments, Rule 605 reports were required to include only orders 

received during regular trading hours225 at a time when an NBBO is being disseminated. When 

the Commission adopted Rule 11Ac1-5, the Commission excluded orders submitted during the 

pre-opening or after the close, among other order types, from the scope of reporting because 

nearly all of Rule 605’s statistical measures required the availability of the NBBO at the time of 

 

224  See prior 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(1). See supra note 4. 

225  “Regular trading hours” is defined as the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other 

time as is set forth in the procedures established pursuant to 17 CFR 242.605(a)(3). See final 17 CFR 

242.600(b)(88).  



69 

order receipt as a benchmark.226 Similarly, orders for which customers requested special 

handling, including orders to be executed at a market opening price, were excluded from Rule 

605 reports because of a concern that their inclusion would skew the general statistics.227  

In the Proposing Release, the Commission proposed to: (1) expand the scope of Rule 605 

reporting to include certain NMLOs submitted outside of regular trading hours if they become 

executable after the opening or reopening of trading during regular trading hours;228 (2) amend 

the definition of “marketable limit order” to specify that the marketability of an order received 

when the NBBO is not being disseminated would be determined using the NBBO that is first 

disseminated after the time of order receipt;229 and (3) exclude from Rule 605 reports market or 

limit orders received during regular trading hours at a time when an NBBO is being disseminated 

but prior to the dissemination of the primary listing market’s first firm, uncrossed quotations for 

a trading day (“Opening Exemption”),230 thereby incorporating previously granted exemptive 

 

226  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000). 

227  See id. 

228  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). The Commission proposed to revise the 

definition of “categorized by order type” to include executable NMLOs and executable orders submitted 

with stop prices. See id. at 3804, n.227; proposed Rule 600(b)(20). The Commission also proposed to 

expand the definition of “covered order” to cover NMLOs received by a market center or broker-dealer 

outside of regular trading hours or when an NBBO is not being disseminated and, if executed, executed 

during regular trading hours. See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023); proposed Rule 

600(b)(30). 

229  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). Specifically, the Commission proposed that an 

order received at a time when a national best bid and national best offer is not being disseminated would be 

a marketable limit order if it is a buy order with a limit price equal to or greater than the national best offer 

at the time that the national best offer is first disseminated during regular trading hours after the time of 

order receipt, or if it is a sell order with a limit price equal to or less than the national best bid time at the 

time that the national best bid is first disseminated during regular trading hours after the time of order 

receipt. See id.; proposed Rule 600(b)(57). 

230  See Proposing Release, 88 FR 3786 at 3804-05 (Jan. 20, 2023); proposed Rule 600(b)(30). The 

Commission stated that, pursuant to the proposed amendments to Rule 605, NMLOs (including orders 

submitted with stop prices) received outside of regular trading hours or at a time when an NBBO is not 

being disseminated would have been considered covered orders, provided the NMLOs were not executed 

outside of regular trading hours. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 



70 

relief into the proposed definition of “covered order.”231 The Commission’s proposed definition 

of “covered order” would have excluded market orders and marketable limit orders submitted 

prior to open or during a trading halt; therefore, any limit order received outside of regular 

trading hours or during a trading halt that is marketable based on the first disseminated NBBO 

during regular trading hours after the time of order receipt would not have been a covered order 

for purposes of Rule 605.232 Additionally, the Commission proposed amending Rule 605(a)(1) to 

require a market center, broker, or dealer to include in its monthly report, in addition to the 

covered orders in NMS stocks that it received for execution from any person, those covered 

orders in NMS stocks that it received for execution in a prior calendar month but which remained 

open.233 

b) Final Rule and Discussion 

The Commission is adopting as proposed an expansion to the scope of Rule 605 reporting 

to include NMLOs submitted outside of regular trading hours that become executable after the 

opening or reopening of trading during regular trading hours.234 The Commission is adopting the 

definition of “covered order” as it relates to orders submitted outside of regular trading hours 

largely as proposed, but with a modification to accept a commenter’s recommendation as 

discussed below. The Commission is similarly modifying the proposed definitions of 

“executable,” “marketable limit order,” and “beyond-the-midpoint limit order”235 to 

 

231  See letter from Annette L. Nazareth, Director, Division of Market Regulation to Theodore Karn, President, 

Market Systems, Inc., dated June 22, 2001 (“Market Systems Exemptive Letter”) at 2. The Commission 

proposed to rescind the Opening Exemption. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 

232  See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). 

233  See id. at 3805. 

234  See final 17 CFR 242.600(b)(19) (defining “categorized by order type”). 

235  As discussed further below, the Commission is making additional modifications to this order type category 

and renaming the associated definition as “midpoint-or-better limit order.” See infra section III.B.2.b). 



71 

accommodate this modification. Further, the Commission is adopting as proposed the 

requirement for a market center, broker, or dealer to include in its monthly report those covered 

orders in NMS stocks that it received for execution in a prior calendar month but which remained 

open.236  

Generally, individual investors supported including certain orders submitted outside of 

regular trading hours within the scope of covered orders.237 One individual investor who 

supported the proposed change stated that after-market and pre-market trades play a greater role 

today than ever before, with many of the price changes occurring during these times rather than 

during market hours.238 

A broker-dealer supported the inclusion of pre-market orders in Rule 605 reports, stating 

these orders (along with other included order types) would provide investors with a more 

complete picture of order execution quality across the marketplace.239 Another commenter stated 

that NMLOs entered outside of “normal hours” should not be included because “these will likely 

skew the statistics.”240 Specifically, this commenter stated that frequently the first quote after 

opening is wide and not representative of the quote when the primary exchange opens, and many 

orders deemed NMLOs by this benchmark would likely fill as soon as the primary exchange 

 

236  See final 17 CFR 242.605(a)(1). 

237  See, e.g., Pritchard Letter; letter from Dan Liefwalker (Mar. 7, 2023); Macarthur Letter; Genco Letter; 

Varghese Letter; letter from Jeremy B. Beddo (Mar. 30, 2023) (“Beddo Letter”). 

238  See Joy Letter. However, an individual investor who opposed the proposal stated that including as covered 

orders certain orders submitted outside of regular trading hours (as well as certain orders submitted with 

stop prices) “could make it difficult for retail investors to place orders at the best possible price” and “[t]his 

could lead to retail investors being left with less favorable prices and missing out on potential gains in the 

dark markets.” Letter from Jacob Gillmore (Feb. 24, 2023) (“Gillmore Letter”). It is not clear—and the 

commenter does not explain—how including orders submitted outside of regular trading hours in Rule 605 

reports could make it difficult for retail investors to place orders at the best possible price. 

239  See Virtu Letter II at 3. 

240  Schwab Letter II at 32. 



72 

opens. Therefore, according to this commenter, “including these orders will skew the NMLO 

stats and lead to difficult comparisons between brokers.”241 

A national securities exchange supported inclusion of certain orders submitted outside of 

regular trading hours within the definition of “covered order.”242 An investor advocacy group 

recommended that Rule 605 run from primary market open to primary market close (e.g., 9:30 

a.m. to 4 p.m. eastern standard time).243 

An industry group stated that the proposed definition of “covered order,” in the context of 

NMLOs, does not address orders received during regular trading hours but prior to the primary 

listing market disseminating its first firm, uncrossed quotations in a security (referred to herein 

as the “interim opening period”).244 This commenter recommended that the demarcation point 

for whether an order should be treated as a pre-open (or post-close) order or an order received 

during regular trading hours should be the point at which the primary listing market disseminates 

its first firm, uncrossed quotations for the applicable security.245 To address orders received 

during the interim opening period, this commenter recommended that the Commission change 

each of the references to the “time when a national best bid and national best offer is being 

disseminated” in the proposed definitions of “marketable limit order” and “beyond-the-midpoint 

limit order” to reflect not only that a national best bid and national best offer has been 

 

241  Id. 

242  See Nasdaq Letter at 43, text accompanying n.121. 

243  See Healthy Markets Letter at 17. This commenter’s suggestion of when Rule 605 should be in effect is 

consistent with the definition of “regular trading hours.” See final 17 CFR 242.600(b)(88) (“Regular 

trading hours means the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other time as is set forth 

in the procedures established pursuant to § 242.605(a)(3).”) This commenter did not address whether to 

include certain orders submitted outside of regular trading hours but executed during regular trading hours 

within the scope of Rule 605’s reporting requirements as proposed. 

244  See FIF Letter at 8. 

245  See id. at 7. 



73 

disseminated but also that the primary market has disseminated its first firm, uncrossed 

quotations for the security.246  

After a review of the comments, for the reasons discussed in the Proposing Release and 

discussed below, the Commission is adopting the definition of “covered order,” along with other 

changes addressing the expansion of the scope of Rule 605 to include certain orders received 

outside of regular trading hours, largely as proposed.247 However, in response to comments, the 

Commission is making several modifications that address the treatment of orders received during 

the interim opening period. As discussed below, these changes help address the concerns of one 

of the commenters that the inclusion of NMLOs entered outside of normal hours in Rule 605 

reports would skew the reported execution quality statistics.248 

When proposing to incorporate the exemptive relief contained in the Opening 

Exemption249 into the definition of “covered order” with respect to market or limit orders 

received during regular trading hours at a time when an NBBO is being disseminated, the 

Commission recognized that quotations disseminated prior to a primary listing market 

disseminating its first quotations in a security often reflect spreads that vary significantly from 

the norm and intended that the proposed changes to the definition would prevent such quotations 

from skewing execution quality statistics.250 In proposing to expand the scope of Rule 605 

reporting requirements to include certain NMLOs submitted outside of regular trading hours if 

 

246  See id. at 8. 

247  As discussed below, the Commission also is rescinding a portion of the Market Systems Exemptive Letter 

and updating a related staff FAQ. See infra section VI. 

248  See supra note 240 and accompanying text. 

249  See supra note 230 and accompanying text. 

250  See Proposing Release, 88 FR 3786 at 3804-05 (Jan. 20, 2023). 



74 

they become executable during the opening or reopening of trading during regular trading hours, 

the Commission intended to provide increased visibility into the execution quality for individual 

investor orders.251 The Commission agrees with the commenter who recommended additional 

changes to the definition of “covered order” (along with related changes to the definitions of 

“marketable limit order” and “beyond-the-midpoint limit order”) and stated that treating orders 

received during the interim opening period in the same manner as orders received outside of 

regular trading hours will be consistent with the Commission’s stated objectives.252  

Accordingly, the Commission is adopting a definition of “covered order” that scopes in 

any NMLO (including an order submitted with a stop price) that is received by a market center, 

broker, or dealer at a time before the primary listing market has disseminated its first firm, 

uncrossed quotations in the security and that, if executed, is executed during regular trading 

hours.253 The “covered order” definition, as proposed and as the Commission is adopting, does 

not include within its scope those market orders and marketable order types received outside of 

regular trading hours. Keeping market and marketable limit orders received during the interim 

opening period outside the scope of covered orders is consistent with how these orders are 

treated when received outside of regular trading hours. The changes to the definition of “covered 

order,” together with the modifications to the definition of “executable” and “marketable limit 

order” discussed below, will help ensure that an order received or executed during the interim 

opening period will be treated in the same manner as any other order received or executed pre-

open or post-close. 

 

251  See id. at 3804. 

252  See FIF Letter at 7-8.  

253  See final 17 CFR 242.600(b)(27). 



75 

The Commission is also adopting a modified version of the proposed definition of 

“executable” that specifies that whether an NMLO is executable will be determined based on the 

order’s limit price during regular trading hours and after the primary listing market has 

disseminated its first firm, uncrossed quotations in the security.254 Under the definition of 

“executable” as proposed, an NMLO (including an order submitted with a stop price) received 

during the interim opening period would have had the possibility of becoming executable before 

the primary listing market has disseminated its first firm uncrossed quotations in the security. 

During this interim opening period, quotations and execution prices may be less representative of 

the value of the security than during the rest of regular trading hours because, as stated above, 

quotations disseminated prior to a primary listing market disseminating its first quotations in a 

security often reflect spreads that vary significantly from the norm during regular trading hours. 

Therefore, a scenario in which an NMLO becomes executable (as defined in the proposal) during 

the interim opening period led to two potential ways in which including these orders could skew 

execution quality statistics. First, if the NMLO executed during the interim period (including at 

the opening of the primary listing market), that order would have been included in reports 

required pursuant to proposed Rule 605(a)(1) as an NMLO that became executable and executed 

during regular trading hours. Second, the benchmark that would have been used for those 

statistics to measure from the time that an order becomes executable255 would have been a 

quotation price from the interim opening period. The modification to the proposed definition of 

“executable” that the Commission is adopting addresses both concerns. Pursuant to the adopted 

 

254  See final 17 CFR 242.600(b)(39). 

255  The Commission proposed to measure the time to execution for non-marketable orders from the time such 

orders become executable. See infra section III.B.3.  



76 

rule, an NMLO (including an order submitted with a stop price) received during regular trading 

hours will not have the possibility of being considered executable until after the primary listing 

market has disseminated its first firm, uncrossed quotations in the security.256 Further, the 

benchmark used for those statistics that are measured from the time that an order becomes 

executable will be measured from a point in time that is after the primary listing market has 

disseminated its first firm, uncrossed quotations in the security. These changes to the final rule 

will help to prevent the potential skewing of execution quality statistics caused by reliance on 

quotations from the interim opening period, and thereby increase the comparability of Rule 605 

reports. 

In addition, the Commission is revising the proposed definition of “marketable limit 

order” so that, with respect to an order received at a time when the NBBO is being disseminated 

but before the primary listing market has disseminated its first firm, uncrossed quotations in the 

security (i.e., during the interim opening period), whether the order is a marketable limit order 

will be determined from the time that the primary listing market disseminates its first firm, 

uncrossed quotations in the security.257 This change will move the determination of whether an 

order is a marketable limit order or a NMLO to a time when the NBBO is more representative of 

the security’s price than may be the case during the interim opening period. The Commission is 

 

256  An NMLO (including orders submitted with stop prices) that executes during the interim opening period 

(including an NMLO that executes at the opening of the primary listing market) will not have the 

opportunity to meet the definition of executable; therefore, such an order will not be included in a Rule 605 

report because the reports required by Rule 605(a)(1) include only NMLOs that are executable. See final 17 

CFR 242.600(b)(39). This treatment of an NMLO that executes during the interim opening period will be 

similar to the treatment of an NMLO that executes outside of regular trading hours and will similarly 

prevent order executions where quotations may vary significantly from the norm from skewing execution 

quality statistics. See section III.A.2.b) infra for additional discussion of orders submitted with stop prices 

and section III.B.2.a)(2) infra for additional discussion of the defined term “executable.” 

257  See final 17 CFR 242.600(b)(56). 



77 

also modifying the definition of “midpoint-or-better limit order” from the proposed definition258 

in a similar manner so that the price used to determine whether an order is a midpoint-or-better 

limit order will be more representative of the security’s price. The definition that the 

Commission is adopting specifies that, for orders received when an NBBO is being disseminated 

and the primary listing market has disseminated its first firm, uncrossed quotations in the 

security (i.e., after the interim opening period), whether the order is a midpoint or better limit 

order will be determined based on the time of order receipt.259 The adopted definition also 

specifies that, for orders received at a time when the NBBO is being disseminated but before the 

primary listing market has disseminated its first firm, uncrossed quotations in the security (i.e., 

during the interim opening period), whether the order is a midpoint-or-better limit order will be 

determined from the time that the primary listing market disseminates its first firm, uncrossed 

quotations in the security.260 These changes also will help to prevent skewing of execution 

quality statistics and thereby increase the comparability of Rule 605 reports. 

2. Stop Orders 

a) Proposed Approach 

Orders submitted with stop prices were not included in Rule 605 reports prior to these 

amendments because the definition of “covered order” excluded orders with special handling 

instructions, including orders submitted with stop prices.261 The Commission proposed to 

 

258  As discussed further below, the Commission is making additional modifications to this order type category 

and renaming the proposed term “beyond-the-midpoint limit order” to be “midpoint-or-better limit order.” 

See infra section III.B.2.b). 

259  See final 17 CFR 242.600(b)(57). 

260  See id. 

261  See prior 17 CFR 242.600(b)(22). Generally, an order submitted with a stop price may become either a 

market order or a limit order when the offer (bid) reaches the stop price for a buy (or sell) order or the 

security trades at or above (or below) the stop price for a buy (or sell) order. 



78 

remove this exclusion and measure the execution quality of orders submitted with stop prices 

from the time such orders become executable.262 As part of the proposed definition of 

“executable,” the Commission specified that executable means, for any buy order submitted with 

a stop price, that the stop price is equal to or greater than the national best bid during regular 

trading hours, and, for any sell order submitted with a stop price, that the stop price is equal to or 

less than the national best offer during regular trading hours.263 In addition, the Commission 

proposed to modify the definition of “categorized by order type” to add executable orders 

submitted with stop prices as a separate order type category.264 

b) Final Rule and Discussion 

The Commission is adopting the definition of “covered order” as proposed to include 

orders submitted with stop prices within the scope of Rule 605. However, the Commission is 

modifying the proposed definition of “executable” as it pertains to orders submitted with stop 

prices in response to recommendations from commenters. Additionally, the Commission is 

modifying the proposed definition of “categorized by order type” to include separate categories 

for executable market orders submitted with stop prices, executable marketable limit orders 

submitted with stop prices (“executable stop marketable limit orders”), and executable non-

marketable limit orders submitted with stop prices (“executable stop non-marketable limit 

orders” or “executable stop NMLOs”), in response to comments. As part of adding these separate 

stop order categories, the Commission is also adding new definitions of “executable stop 

marketable limit order” and “executable stop non-marketable limit order.” 

 

262  See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023); proposed Rule 600(b)(30). 

263  See Proposing Release, 88 FR 3786 at 3805, 3810, n.302 (Jan. 20, 2023); proposed Rule 600(b)(42). 

264  See Proposing Release, 88 FR 3786 at 3805, n.241 (Jan. 20, 2023); proposed Rule 600(b)(20). 



79 

Individual investors generally supported including certain orders submitted with stop 

prices within the definition of “covered order.”265 A national securities exchange supported 

inclusion of orders submitted with stop prices within the definition of “covered order.”266 One 

broker-dealer supported the inclusion of executable stop orders as an order type.267  

Another broker-dealer supported including stop orders, but stated that there are many 

different types of stop orders. This commenter stated that, “rather than attempting to define what 

constitutes a trigger and its corresponding reference market for purposes of determining whether 

and how a stop order is included within Rule 605, it would be preferable to simply require that 

all stop orders that are triggered be included in Rule 605 reports to the extent that the resulting 

market or limit order is a covered order.”268 Another commenter stated that the definition of 

executable stop order “runs counter to how stop orders actually become executable.”269 

According to this commenter, while FINRA Rule 5350 defines a stop order as “an order to buy 

(or sell) that becomes a market order to buy (or sell) when a transaction occurs at or above 

(below) the stop price,” broker-dealers may elect to trigger a stop order in a different fashion but 

are prevented from calling it a “stop order.”270  

An industry group suggested that the Commission and FINRA adopt consistent usage of 

the term “stop order” and other relevant terms because the proposed definition is inconsistent 

 

265  See Macarthur Letter; Cesar Letter; Genco Letter; Varghese Letter. See also supra note 238 (discussing 

Gillmore Letter, which relates to whether to include as covered orders certain orders submitted outside of 

regular trading hours and orders submitted with stop prices).  

266  See Nasdaq Letter at 44. 

267  See Virtu Letter II at 3. 

268  Rule 605 Citadel Letter at 12. 

269  Schwab Letter III at 5-6. 

270  Id. at 6. According to this commenter, the most common other trigger condition on a sell stop is the bid, but 

very rarely do equity sell stop orders trigger off the ask. See id. 



80 

with the terminology in FINRA Rule 5350 in a number of respects.271 The commenter stated that 

stop orders should be reported separately from other types of orders, but suggested that the 

Commission modify the criteria for when to include stop orders in Rule 605(a)(1) reports and 

expand the order type categories related to stop orders.272 This commenter recommended that 

stop orders become reportable if the order is “triggered” or “activated” and that an alternate term 

along these lines be used instead of “executable.”273 According to this commenter, requiring 

reporting pursuant to Rule 605 “with respect to any time period prior to the triggering of a stop 

order would provide no value to market participants and would provide misleading information 

to the market” because there is no action that a firm can take to execute a stop order prior to the 

point when the order is triggered.274  

After review of the comments, the Commission is adopting a modified definition of 

“executable” as it pertains to orders submitted with stop prices. As adopted, “executable,” with 

respect to orders submitted with stop prices, means that the stop price has been triggered during 

regular trading hours and after the primary listing market has disseminated its first firm, 

 

271  See FIF Letter at 9, 12. This commenter stated that it was using the term “stop order” in a manner 

consistent with the Commission’s usage of the term in the Proposing Release. See id. at 9. This commenter 

stated that it used “stop order” to include stop orders and stop limit orders, as those terms are defined in 

FINRA Rule 5350, but also included orders that are triggered upon the stop price matching (or passing) a 

quoted price, in addition to those orders triggered upon the stop price matching (or passing) a trade price, 

and trailing stop orders. See id.  

272  See id. at 9-11. 

273  See id. at 10, 11-12. This commenter stated that the terms “triggered” and “activated” are used 

interchangeably in FINRA Rule 5350, Supplementary Material .01 and .02 and that the commenter 

considers these terms to have the same meaning as applied to stop orders. See id. at 10 & n.25. This 

commenter also stated that its members do not believe that it would be necessary for the Commission to 

define “triggering” or “activation” because this concept for a stop order is well-understood by industry 

members and regulators. See id. at 11. See also FIF Letter II at 2. Further, this commenter stated that a 

material percentage of stop orders are triggered based on a change in the NBBO (in most cases, but not 

always, the opposite-side quote) and a material percentage of stop orders are triggered based on a change in 

the last sale price. See id. 

274  See FIF Letter at 10.81 

uncrossed quotations in the security.275 As stated by commenters, orders may be submitted with 

stop prices that trigger or activate based on different conditions, such as a last sale price or a 

change in the NBBO.276 The definition of “executable” that the Commission is adopting will 

more broadly encompass the different conditions that may convert an order with a stop price into 

an order that may execute.277 Additionally, this change addresses a commenter’s suggestion by 

preventing stop orders from being executable before they have been triggered.278 

A commenter suggested that Rule 605 reports should exclude stop orders to “avoid 

confusion” and allow firms to disclose the relevant details to their clients in a manner consistent 

with the clients’ trading experience.279 However, such disclosures would not be an adequate 

substitute because they would not be required, might not be provided in a uniform format, and 

might not be available to market participants that are not clients of a particular firm, all of which 

would impede market participants’ ability to compare statistics across firms. 

An industry group recommended that: (1) once a stop order without a limit price has been 

triggered, the order should be reported as a stop market order; and (2) once a stop limit order has 

been triggered, the order should be reported in one of several new order type categories based on 

 

275  See final 17 CFR 242.600(b)(39). The addition of the reference to the interim opening period is discussed 

in section III.A.1.b) supra. 

276  The Commission’s analysis of stop order volume demonstrates that most stop orders are triggered by the 

last sale price, but there is also nontrivial order flow associated with other trigger events, including changes 

to the quotation. See infra text accompanying note 1167; Table 3. 

277  Although the Commission is not adopting a commenter’s suggestion to use the term “triggered” or 

“activated” instead of “executable” when used in connection with stop orders (see supra note 273 and 

accompanying text), redefining “executable” to mean that an order’s stop price has been triggered during 

regular trading hours will have the same substantive effect. 

278  See supra note 274 and accompanying text. In addition, revising the definition of “executable” to focus on 

when a stop order has been triggered is consistent with the Commission’s goal of helping investors 

compare the performance of market centers and broker-dealers from a point in time when such orders could 

reasonably be expected to execute. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 

279  See Schwab Letter III at 5-6. This commenter raised, but did not recommend, an alternative approach. See 

infra note 282 and accompanying text. 



82 

the status of the order at the time the order is triggered.280 This commenter further suggested that, 

for purposes of representing all of these order type categories, the Commission should add a 

column to Rule 605(a)(1) reports to indicate whether the applicable row pertains to stop 

orders.281 A commenter that recommended excluding stop orders from Rule 605 reports stated 

that “stop orders can have at least three distinct behaviors after they are triggered—market order, 

marketable limit order, and nonmarketable limit order” and suggested that a “more transparent 

way to include these orders would be to create three separate categories of stop orders reflecting 

these triggers.”282 

In consideration of these comments, the Commission is modifying Rule 605’s treatment 

of stop orders from the proposal to split executable stop orders into three categories—executable 

market orders submitted with stop prices, executable stop marketable limit orders, and 

executable stop NMLOs—based on the stop orders’ status at the time that they are triggered. 

Separating executable stop orders into these three categories will group orders with similar 

execution profiles.283 To implement these changes to the treatment of stop orders, the 

Commission is: (1) modifying the proposed definition of “categorized by order type” to replace 

 

280  See FIF Letter at 10-11. Specifically, this commenter suggested the following new order type categories for 

limit orders with a stop price: (a) stop marketable limit order for an order that is a marketable limit order at 

the trigger time; (b) stop beyond-the-midpoint limit order for an order that is a beyond-the-midpoint limit 

order at the trigger time; and (c) stop executable NMLO for an order that is an NMLO at the trigger time. 

See id. This commenter also stated that a material percentage of stop orders have a limit price and a 

material percentage of stop orders do not have a limit price. See FIF Letter II at 2. 

281  See FIF Letter at 9; FIF Letter III at 4. 

282  Schwab Letter III at 6. This commenter did not recommend this approach because, according to the 

commenter, it would “create increased complexity with little benefit for the individual investor.” Id. The 

Commission disagrees. The Commission continues to believe that including stop orders within the scope of 

the Rule will benefit market participants by allowing them to analyze variations in execution quality. See 

Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). Moreover, stop orders make up a nontrivial 

percentage of orders from individual investors. See infra Table 3. 

283  See infra note 1387 and accompanying text. 



83 

the category for executable orders submitted with stop prices with categories for executable 

market orders submitted with stop prices, executable stop marketable limit orders, and 

executable stop non-marketable limit orders;284 (2) adding new defined terms of “executable stop 

marketable limit order” and “executable stop non-marketable limit order”;285 and (3) modifying 

the execution quality statistics required for stop orders to align the three categories of stop orders 

with the type of order they most resemble once triggered.286 

In response to comments received, the Commission conducted a supplemental analysis of 

the distribution of stop orders that fell into six existing order type categories once triggered using 

a sample of CAT data for 400 stocks for March 2023. The results are presented in Table 1 and 

show that the majority of orders submitted with a stop price that trigger are market orders when 

triggered (almost 86%). However, a significant percentage of orders submitted with a stop price 

that trigger are limit orders.287 

 

284  See final 17 CFR 242.600(b)(19). 

285  See final 17 CFR 242.600(b)(40) and (41). 

286  See final 17 CFR 242.605(a)(1)(i), (ii), and (iii). 

287  In addition, the Commission’s analysis of stop order volume shows that there is a significant volume of 

stop orders with and without limit prices. See infra Table 3 (showing that stop orders placed by institutional 

investors are 36.1% market orders and 63.9% limit orders, and stop orders placed by individual investors 

are 89.0% market orders and 11.0% limit orders). These results are consistent with the commenter who 

stated that a material percentage of stop orders have a limit price and a material percentage of stop orders 

do not have a limit price. See FIF Letter II at 2. 



84 

Table 1: Number of Triggered Stop Orders (Mar. 2023) 

Order Type Number of Stop Orders Percentage of Stop Orders 

Market 190,027 85.99% 

Marketable Limit 26,097 11.81% 

Beyond-the-Midpoint 1,770 0.80% 

At-the-Midpoint 686 0.31% 

Below-the-Midpoint 1,118 0.51% 

At-the-Quote 1,282 0.58% 

This table presents the distribution of stop orders across different order types (market, marketable limit, beyond-the-midpoint, at-

the-midpoint, below-the-midpoint, and at-the-quote), using a sample of CAT data for 400 stocks for Mar. 2023. See infra note 

1261 for a description of this dataset. The data includes all stop orders that were triggered during Mar. 2023 from orders that 

originated during Mar. 2023. Stop limit orders are identified as marketable, beyond-the-midpoint, at-the-midpoint, below-the-

midpoint, or at-the-quote based on the NBBO at the time the stop order triggered. NMLOs categories are defined as follows. 

“Beyond-the-midpoint” NMLOs consist of, for sell orders, NMLOs with limit prices lower than the midpoint but higher than the 

national best bid (“NBB”), and, for buy orders, NMLOs with limit prices higher than the midpoint but lower than the national 

best offer (“NBO”). “At-the-midpoint” NMLOs consist of NMLOs with limit prices equal to the NBBO midpoint. “Below-the-

midpoint” NMLOs consist of, for sell orders, NMLOs with limit prices higher than the midpoint but less than the NBO and, for 

buy orders, NMLOs with limit prices lower than the midpoint but higher than the NBB. “At-the-quote” NMLOs consist of, for 

sell orders, NMLOs with limit prices equal to the NBO and, for buy orders, NMLOs with limit prices equal to the NBB. “Near-

the-quote” NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by no more than $0.10 

and, for buy orders, NMLOs with limit prices worse (i.e., lower) than the NBB by no more than $0.10. “Away-from-the-quote” 

NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by more than $0.10 and, for buy 

orders, NMLOs with limit prices worse (i.e., lower) than the NBB by more than $0.10. 

The Commission is adopting definitions for “executable stop marketable limit order” and 

“executable stop non-marketable limit order” to provide that the determination of which of these 

two categories a limit order submitted with a stop price falls into is made using the point in time 

that the order submitted with a stop price is triggered.288 Utilizing this determination point in 

 

288  See final 17 CFR 242.600(b)(40) and (41). Measurement of the execution quality of an executable stop 

marketable limit order and an executable stop non-marketable limit order begins when the stop price is 

triggered because that is the point in time at which customers generally expect such orders to be eligible to 

execute. While the determination of whether a limit order is a marketable limit order is calculated 

differently, i.e., based on the time of order receipt, see final 17 CFR 242.600(b)(56), the time of order 

receipt will similarly allow customers to compare execution quality from a point in time when such orders 

could reasonably be expected to execute.  



85 

time will help align the sub-grouping of limit orders submitted with stop prices with the 

characteristics of these orders once the stop price is triggered. Under the adopted definitions, an 

“executable stop marketable limit order” will be an order whose limit price is equal to or greater 

than the best offer (for a buy order) or equal to or less than the national best bid (for a sell order) 

at the time the stop price is triggered, i.e., when the limit order submitted with a stop price 

becomes executable.289 Similarly, an “executable stop non-marketable limit order” will be an 

order whose limit price is less than the best offer (for a buy order) or greater than the national 

best bid (for a sell order) at the time the order becomes executable.290  

As proposed, Rule 605 would have required that the execution quality statistics provided 

for executable orders submitted with stop prices include those execution quality statistics 

required for non-marketable order types.291 However, executable market orders submitted with 

stop prices and executable stop marketable limit orders (together, “marketable stop order types”) 

will behave like market and marketable limit orders once triggered rather than NMLOs. 

Therefore, the Commission is modifying the proposed execution quality statistics for marketable 

stop order types to provide that the same statistics required of other marketable order types (e.g., 

price improvement statistics) be calculated for these types of stop orders.292 However, because 

executable stop NMLO orders will behave like other NMLOs once triggered, the Commission is 

requiring that the same statistics required of other non-marketable order types (e.g., relative fill 

rate) be calculated for these stop orders.293  

 

289  See final 17 CFR 242.600(b)(40). 

290  See final 17 CFR 242.600(b)(41). 

291  See Proposing Release, 88 FR 3786 at 3805, 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (iii). 

292  See final 17 CFR 242.605(a)(1)(ii). 

293  See final 17 CFR 242.605(a)(1)(iii). 



86 

The Commission is not adopting the commenter’s recommendation to add an additional 

column to the Rule 605(a)(1) detailed report to denote whether a particular row pertains to stop 

orders.294 The additional order type categories in amended Rule 605 for executable market orders 

submitted with a stop price, executable stop marketable limit orders, and executable stop 

NMLOs partially align Rule 605 with this recommendation substantively because they will 

require firms to provide execution quality statistics for these types of stop orders that are grouped 

according to the characteristics of the orders once triggered. However, the commenter’s 

recommendation would in effect have created a separate order type category for stop orders with 

characteristics of each of the other order types (e.g., executable midpoint-or-better limit order 

with a stop condition, executable marketable IOC with a stop condition). The Commission does 

not believe the execution profiles for an order type category or categories for executable 

midpoint-or-better order types with a stop condition would vary significantly enough from other 

executable stop NMLOs to warrant additional order type categories. A significant portion of 

midpoint-or-better limit orders may have the expectation of executing immediately, for example, 

against hidden or odd-lot liquidity inside of the spread.295 Because these orders are likely to have 

different execution profiles than other types of NMLOs,296 the Commission is requiring separate 

order type categories for midpoint-or-better limit orders.297 In contrast, an order submitter 

placing a stop limit order likely does not have an expectation of executing immediately and does 

not know ex ante what the market conditions will be when the stop price is triggered, i.e., how 

 

294  See supra note 281 and accompanying text. 

295  See infra section IX.D.1.b)(2)(a)(ii). 

296  See infra section IX.C.3.c)(3). 

297  See infra section III.B.2.b)(2). 



87 

aggressive the limit price will be when the order is converted into a limit order. Therefore, 

because executable midpoint-or-better order types with a stop condition are not likely to have 

significantly different execution profiles than other executable stop NMLOs, the Commission is 

not requiring the use of order type categories that would further sub-divide executable stop 

NMLOs. In addition, it is not likely that orders will have both an IOC instruction (which 

indicates an expectation of immediacy) and a stop condition (which indicates an intention to wait 

until market conditions change and trigger the stop condition). Even if such orders are utilized, 

they are not likely to have significantly different execution profiles than other stop orders that 

fall within the same order type categories. Thus, the Commission is not requiring the use of order 

type categories that would further sub-divide the categories for orders submitted with stop prices. 

3. Non-Exempt Short Sale Orders 

a) Proposed Approach 

Commission staff has taken the position that staff would view all short sale orders that 

are not marked “short exempt” (“non-exempt short sale orders”) as special handling orders and, 

in the staff’s view, these orders may be excluded from the definition of “covered order.”298 Non-

exempt short sale orders are subject to a price test under 17 CFR 242.201 (“Rule 201” of 

Regulation SHO (17 CFR 242.200 through 242.204)) that sets forth a short sale circuit breaker 

that is triggered in certain circumstances, after which time a price restriction will apply to short 

 

298  See prior 17 CFR 242.600(b)(22); “Responses to Frequently Asked Questions Concerning Rule 605 of 

Regulation NMS” (Feb. 22, 2013) (“2013 FAQs”). 



88 

sale orders in that security for that day and the following day.299 The Commission proposed that 

non-exempt short sale orders would not be considered special handling orders unless a price test 

restriction is in effect for the security. As proposed, non-exempt short sale orders would fall 

within the definition of “covered order” and thus be subject to Rule 605 reporting, unless another 

exclusion applies. Conversely, during a short sale price test, a short sale order not marked 

“exempt” would continue to be subject to special handling and would be excluded from the 

definition of “covered order” and thus from Rule 605 reporting.300 

b) Final Rule and Discussion 

The Commission is adopting as proposed its position that non-exempt short sales orders 

will not be considered special handling orders unless a price test restriction is in effect for the 

security. The Commission received several comments on this aspect of the proposal. One 

national securities exchange supported the proposed treatment of non-exempt short sale 

orders.301 Another national securities exchange suggested that the Commission provide more 

detailed instructions relating to any order types that would be excluded from the definition of 

“covered order,” e.g., order types that are considered “special handling,” “to ensure that such 

orders are treated uniformly by respondents in their data disclosures.”302 Two broker-dealers 

 

299  Rule 201 generally requires trading centers to establish, maintain, and enforce written policies and 

procedures that are reasonably designed to prevent the execution or display of a short sale at an 

impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 

10% in one day. Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply 

to short sale orders in that security for the remainder of the day and the following day, unless an exception 

applies. See 17 CFR 242.201(b)(1). One exception is for the execution or display of a short sale order 

marked “short exempt.” See 17 CFR 242.201(b)(1)(iii)(B); 17 CFR 242.201(c). 

300  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 

301  See Nasdaq Letter at 43-44. 

302  NYSE Letter at 8. 



89 

supported the proposal,303 as did an individual investor who stated that non-exempt short sale 

orders are “a core component of the current market.”304 An industry association also supported 

this aspect of the proposal, but asked how the Commission intends to document the change, 

which is not reflected in any change to the definition of “covered order.”305 

After consideration of the comments, the Commission is adopting the position that non-

exempt short sale orders will not be considered special handling orders unless a price test 

restriction is in effect for the security, as proposed. As discussed in the Proposing Release, when 

a non-exempt short sale order is subject to a price test restriction under Rule 201 of Regulation 

SHO, a trade may only take place at least one tick above the national bid or offer; however, non-

exempt securities are infrequently subject to such a price test restriction.306 The inclusion of non-

exempt short sale orders within the scope of Rule 605 when a short sale price test is not in effect 

will not skew execution quality statistics because non-exempt short sale orders are not tick-

sensitive during this period. However, when a price test restriction under Rule 201 of Regulation 

SHO is in effect, any non-exempt short sale order (i.e., an order that is tick-sensitive) will be an 

“order to be executed only on a particular type of tick or bid” which is one of the types of special 

handling orders specified as being excluded from the definition of “covered order.”307 Such 

orders will therefore be excluded from the definition of “covered order.” In addition, including 

non-exempt short sale orders for which a price test restriction is not in effect within the scope of 

 

303  See Virtu Letter II at 3; Robinhood Letter at 45-46. 

304  See Joy Letter. 

305  See FIF Letter at 12. 

306  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). See also infra note 1172 and accompanying 

text.  

307  See final 17 CFR 242.600(b)(27).  



90 

Rule 605 reports will lead to a more complete picture of reporting entities’ execution quality.308 

As discussed further below, the prior staff statements that conflict with the Commission’s 

adopted position will be rescinded.309 

B. Required Information 

1. Categorization by Order Size 

a) Proposed Approach 

Prior to the amendments, Rule 605 reports utilized order size categories based on the 

numbers of shares in the order (e.g., 100-499 shares and 500-1,999 shares). Historically, round 

lots generally have been viewed as groups of 100 shares, and Rule 605 prior to these 

amendments reflected this: it did not require reporting of orders smaller than 100 shares, 

including odd-lot orders or fractional share orders (i.e., orders for less than one share).310 

Additionally, preexisting Rule 605 reports did not include orders with a size of 10,000 shares or 

greater, pursuant to exemptive relief provided by the Commission in 2001.311 

The Commission proposed to amend the definition of “categorized by order size” to 

designate the following categories for order sizes: (i) less than 1 share; (ii) odd-lot; (iii) 1 round 

 

308  See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 

309  See infra section VI. As stated earlier, when a short sale price test restriction is in place for the security, a 

short sale order not marked “exempt” generally would continue to be subject to special handling and 

generally would be excluded from the definition of covered order and thus from Rule 605 reporting. See 

supra note 300 and accompanying text. At this time, no further guidance concerning additional order types 

that require “special handling” is required because it is not possible for the Commission to provide an 

exhaustive list of the types of orders that may be considered “special handling” and no specific questions 

regarding whether particular order types should be considered “special handling” have been raised. 

310  There are a variety of circumstances in which an order for an NMS stock submitted to a broker-dealer 

results in a fractional share. Examples include customer orders to buy: (1) a fraction of a share (e.g., order 

to buy 0.5 shares); (2) shares with a fractional component (e.g., order to buy 10.5 shares); and (3) a dollar 

amount that leads to the purchase of a fractional share (e.g., order to buy $1,223 worth of XYZ stock at $50 

per share or 24.46 shares). 

311  See Large Order Exemptive Letter. 



91 

lot to less than 5 round lots; (iv) 5 round lots to less than 20 round lots; (v) 20 round lots to less 

than 50 round lots; (vi) 50 round lots to less than 100 round lots; and (vii) 100 round lots or 

greater.312 The proposed modifications to the order size categories would have utilized the new 

definition of round lot adopted in the Market Data Infrastructure rule (the “MDI Rules”),313 and 

included odd-lots, fractional shares (i.e., orders for less than one share), and larger order sizes.314 

b) Final Rule and Discussion 

In response to comments, the Commission is adopting a definition of “categorized by 

order size” that differs from the proposal’s focus on round lot increments. Instead, as adopted, 

each order size category reflects a notional dollar value range, along with an indication that the 

category reflects orders that were for an odd-lot, a round lot, or less than a share. As adopted, this 

amendment will increase transparency regarding distribution of order sizes that a reporting entity 

handles, particularly for higher-priced stocks. The Commission also is adopting an execution 

quality statistic for cumulative notional order size of covered orders. 

 

312  See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023); proposed Rule 600(b)(19). 

313  For NMS stocks priced $250.00 or less per share, a round lot will be 100 shares; for NMS stocks priced 

$250.01 to $1,000.00 per share, a round lot will be 40 shares; for NMS stocks priced $1,000.01 to 

$10,000.00 per share, a round lot will be 10 shares; and for NMS stocks priced $10,000.01 or more per 

share, a round lot will be 1 share. See prior 17 CFR 242.600(b)(82); MDI Adopting Release, 86 FR 18596 

at 18617 (Apr. 9, 2021). Separately, the Commission proposed to accelerate the implementation of the 

round lot definition. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80270 (Dec. 29, 

2022). The Commission established a phased transition plan for the implementation of the MDI Rules, 

which provided for the implementation of the round lot definition as part of the final phase of 

implementation. See MDI Adopting Release, 86 FR 18596 at 18698-701 (Apr. 9, 2021). At a minimum, 

round lot implementation will be two years after the Commission’s approval of the plan amendment(s) 

required by 17 CFR 242.614(e) (“Rule 614(e)”). Until the round lot definition adopted pursuant to the MDI 

Rules is implemented, round lots continue to be defined in exchange rules. See id. at 16738. For most NMS 

stocks, a round lot is defined as 100 shares. 

314  The Commission proposed to rescind the exemptive relief for orders of 10,000 or more shares and include 

these orders within the scope of Rule 605 reports. See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 

2023). 



92 

Individual investors generally supported the proposed order size categories.315 Some 

individual investors stated that these categories would help them achieve investor confidence or 

better executions.316 Another individual investor stated that reporting execution quality 

information across orders of different sizes would be “incredibly beneficial” to understanding the 

“degree of fairness in the market.”317 An investor advocacy group supported the proposed 

changes to the definition of categorized by order size.318 But one broker-dealer stated that 

“because the Commission has simultaneously submitted for proposal a new rule that would 

change tick sizes and round lot definitions” (i.e., the Minimum Pricing Increments Proposing 

Release319), the reporting requirements pertaining to categorization by order size “are subject to 

change which in turn could create customer confusion.”320 

Other commenters addressed specific elements of the proposed order size categories. An 

investor advocacy group supported basing the order size categories on round lots, stating that 

doing so not only would harmonize Rule 605 disclosure with the MDI Rules321 that established a 

price-based definition of “round lot” but also would better enable Rule 605 reports to group 

 

315  See, e.g., Welch Letter (supporting the inclusion of fractional, odd-lot, and large size orders); Abanes 

Letter; Macarthur Letter. 

316  See Joy Letter (stating that the “inclusion of fractional shares [and] odd-lots are also essential in the 

provided data as these are the most commonly used orders by retail” and that including these order size 

categories “provides retail more information confidence to invest more frequently with smaller order 

sizes”); letter from Art. R Medina (Dec. 26, 2022) (“Medina Letter”) (stating that the proposed new size 

categories would “help for better execution in the lit market exchanges” and “help these systems better 

execute customer orders for broker-dealers and ensure competition”). 

317  See letter from Creighton Bledsoe (Feb. 28, 2023) (“Bledsoe Letter”). 

318  See Healthy Markets Letter at 17. 

319  See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2022). 

320  Tastytrade Letter at 5.  

321  See supra text accompanying note 313 (defining MDI Rules). 



93 

orders in a way that provides useful order execution information.322 However, a number of 

commenters suggested using notional dollar value categories instead of or in addition to the 

share-based categories.323  

Similarly, several commenters, including a broker-dealer and financial services firms, 

suggested using notional size categories rather than round lot-based size categories.324 One of the 

financial services firms stated that “the process for assigning the number of shares per round lot 

per security is not dynamic enough to make this a meaningful delineation.”325 In addition, 

according to this commenter, “after the size of an order has achieved round lot status, there is no 

intrinsic difference in the size of the order until it reaches 10,000 shares or $200,000,” and 

therefore “bucketing by round lots has no application to the broader market structure.”326 

Another financial services firm stated that creating order size categories based on notional dollar 

amounts would provide investors with clearer views of the execution experiences associated with 

 

322  See Better Markets Letter at 6. 

323  See SIFMA Letter II at 32; Angel Letter at 2; Schwab Letter II at 33; Fidelity Letter at 9; Rule 605 Citadel 

Letter at 6. Further, an academic recommended using dollar rather than share amounts and stated that 

“[r]ound lots are obsolete.” Angel Letter at 2. 

324  See Schwab Letter II at 33, Fidelity Letter at 9, Rule 605 Citadel Letter at 6. When discussing a potential 

average notional order size metric for the summary report, one of these broker-dealers stated that notional 

size is measured by multiplying the number of shares by the midpoint at the time of order entry. See 

Schwab Letter III at 3. In addition, an industry group stated that notional value should be based on the 

midpoint at the time of order receipt. See FIF Letter II at 11. See also infra notes 792 and 793 and 

accompanying text. 

325  Schwab Letter II at 33. This commenter stated that the “price of a stock can vary dramatically in the three-

month period in which the round lot size is set,” so an intent to approximate the notional order size by the 

round lot category would “frequently fail.” Id. 

326  Id. 



94 

their orders.327 A broker-dealer stated that grouping orders by notional size would allow for a 

more accurate comparison of execution quality.328  

Two industry groups also recommended grouping orders based on their notional dollar 

values.329 One of these industry groups stated that in 2018 and 2019 it had recommended a set of 

notional size buckets for Rule 605 reporting.330 This commenter suggested that the Commission 

utilize CAT data to conduct an analysis similar to the one conducted by IHS Markit for Q1 2018 

“to determine whether [those] notional value categories would still be appropriate or whether 

these notional value categories should be adjusted.”331 This commenter also specifically 

suggested that one of the thresholds separating notional value categories be $200,000.332 The 

other industry group supported revising Rule 605 to utilize notional buckets for the order size 

categorizations instead of, or in addition to, using the number of round lots as proposed.333 This 

 

327  See Fidelity Letter at 9. This commenter stated that notional sizes would: (1) be more easily compared over 

time as lot sizes change or stocks splits occur; and (2) provide “a more representative view of the cost to 

implement different types of trades and [be] more consistent with increased market use of 

fractional/notional trading.” Id. 

328  See Rule 605 Citadel Letter at 6. 

329  See SIFMA Letter II at 32; FIF Letter at 14-15. 

330  See FIF Letter at 14-15. This commenter also stated that it was providing information on the percentage of 

orders that fell within each notional value category, as estimated by IHS Markit for Q1 2018. See id. at 15. 

Specifically, the notional size buckets and associated percentage of orders were as follows: (1) $1 to $999 

(33%); (2) $999 to $4,999 (29%); (3) $5,000 to $19,999 (24%); (4) $20,000 to $49,999 (8%); and (5) 

$50,000 to $500,000 (6%). See id. at 14-15. 

331  Id. at 15. As discussed below, consistent with this commenter’s recommendation, the Commission analyzed 

current CAT data to establish the notional size buckets it is adopting. 

332  See id. See also infra note 353 and accompanying text. 

333  See SIFMA Letter II at 32. 



95 

commenter recommended that the Commission “calculate appropriately informative notional 

size buckets.”334 

A national securities exchange suggested using the following notional value buckets 

rather than share size categories: less than $10,000; $10,000 to less than $50,000; $50,000 to less 

than $100,000; $100,000 to less than $200,000; and $200,000 to $400,000.335 This commenter 

stated that this alternative would avoid the drawbacks of the current order size categories based 

on number of shares while ensuring coverage of most retail trades.336  

To address the Commission’s concern that defining order size buckets according to 

notional dollar values would no longer produce a meaningful distinction between round lot and 

odd-lot orders, one industry group suggested adding a column to the Rule 605 report to signify 

whether the orders in the applicable row are round lot or odd-lot orders.337 This commenter also 

recommended that mixed lot orders be classified as round lot orders for purposes of Rule 605 

reporting.338 Another industry group and a broker-dealer recommended distinguishing round lot 

and odd-lot orders using a separate flag.339  

 

334  Id. This commenter suggested that, for example, the Commission could use the notional buckets 

recommended by the first industry group in 2019. See id. at 32, n.78 and accompanying text (citing a letter 

to Brett Redfearn, Director, Division of Trading & Markets, Commission, from Christopher Bok, Financial 

Information Forum (Jan. 30, 2019), available at https://www.sec.gov/comments/s7-02-10/s70210-5002077-

182848.pdf). 

335  See Nasdaq Letter at 46. 

336  See id. at 44. 

337  See FIF Letter at 15. 

338  See id.; FIF Letter II at 3. 

339  See SIFMA Letter II at 32; Rule 605 Citadel Letter at 6. A group of academics also recommended having a 

separate entry solely for round lot trades, which they said accounts of a large fraction of trade sizes and 

dollar values. See Professor Schwarz et al. Letter at 5. 



96 

Several individual investor commenters supported the proposed inclusion of odd-lot and 

fractional share orders in Rule 605 reports.340 A group of academics stated that odd-lots currently 

account for over 60% of trades341 and, under current disclosure requirements, retail traders are 

unable to evaluate market center execution quality for a majority of their trades.342 These 

commenters also stated that fractional share market orders receive widely different price 

improvement across broker-dealers and full share price improvement statistics are not 

informative for the execution quality of fractional trades.343 These commenters stated that these 

factors justify adding fractional and odd-lot trades to Rule 605 reports.344 A broker-dealer 

similarly supported the proposed new category for fractional share orders as well as a category 

for orders from one share to 99 shares.345 Another broker-dealer also supported including odd-lot 

orders in Rule 605 reports and stated this would particularly benefit retail investors seeking to 

accurately assess execution quality delivered by wholesale broker-dealers.346  

Explaining that when a round lot or odd-lot order has a fractional share component, the 

time to execution and execution price may be impacted, one industry group recommended that: 

(1) fractional share orders (i.e., orders for less than one share) be reported separately from round 

lot and odd-lot orders; and (2) round lot and odd-lot orders be broken-out further to differentiate 

 

340  See, e.g., Pritchard Letter; Welch Letter; Macarthur Letter; Genco Letter; Cesar Letter; Joy Letter. 

341  See Professor Schwarz et al. Letter at 3. 

342  See id. at 4. 

343  See id. 

344  See id. 

345  See Virtu Letter II at 3. 

346  See Rule 605 Citadel Letter at 11. 



97 

between those orders that have, and do not have, a fractional share component.347 However, 

another industry group suggested eliminating the requirement to include orders for fractional 

shares in Rule 605 reports, contending that “this information is of limited value to investors.”348 

This commenter stated that “[t]here is also no clear way to execute fractional shares in a purely 

agency capacity” and, “[a]s a result, to the extent fractional share orders are required to be 

included in Rule 605 reports, any broker-dealer, even a small broker-dealer, that wanted to 

facilitate a fractional share order for its customer would be considered a market center for 

purposes of Rule 605.”349 Additionally, this commenter stated that “much of today’s market 

infrastructure does not yet support fractional share trading” and the “costs to fully modify this 

infrastructure would be high compared to the minimal benefit of including fractional share 

reporting.”350  

With respect to the proposed inclusion of larger-sized orders, a commenter stated that a 

“natural breakpoint” between size categories exists at $200,000 and suggested establishing a size 

bucket of $200,000 and greater.351 Another commenter supported the proposed order size 

category for orders greater than 10,000 shares.352 An industry group recommended designating 

 

347  See FIF Letter at 15; FIF Letter II at 3. This commenter recommended that orders be broken out into the 

following categories within each notional value range because orders in each of these categories have 

distinct execution characteristics: round lot without fractional component; round lot with fractional 

component; odd-lot without fractional component; odd-lot with fractional component; and fractional (less 

than one share). See FIF Letter II at 3. According to the commenter, if these five categories are separately 

reported for each notional value range, reporting based on the number of shares would not provide any 

material value for market participants. See id. 

348  SIFMA Letter II at 31. 

349  Id. 

350  Id. This commenter stated as an example that “FINRA does not currently have a mechanism to report 

fractional share trades, because all of these trades are rounded up today.” Id. 

351  See Schwab Letter II at 33. 

352  See Virtu Letter II at 3. 



98 

one of the thresholds for separating notional value categories at $200,000 because in the Order 

Competition Rule Proposing Release the Commission proposed to utilize a $200,000 threshold 

for an exception from the obligation to submit a segmented order to a qualified auction.353 A 

national securities exchange stated that the Commission should “consider increasing the current 

cap of $200,000 [the notional block size], as this benchmark has not changed with the market or 

inflation over time.”354 This commenter stated that increasing the cap may provide “information 

that is helpful for institutional buyers.” 355 

Taking into consideration the comments received, the Commission is adopting a modified 

definition of “categorized by order size.” The Commission followed the suggestion that it use 

CAT data to examine which notional order size buckets would be appropriate.356 Based on this 

analysis (discussed below), the Commission is adopting order size categories that utilize the 

following notional dollar value ranges: (i) less than $250; (ii) $250 to less than $1,000; (iii) 

$1,000 to less than $5,000; (iv) $5,000 to less than $10,000; (v) $10,000 to less than $20,000; 

(vi) $20,000 to less than $50,000; (vii) $50,000 to less than $200,000; and (viii) $200,000 or 

more.357  

 

353  See FIF Letter at 14-15. 

354  Nasdaq Letter at 46. 

355  Id. 

356  See supra note 331 and accompanying text. See also supra note 334 and accompanying text (suggesting that 

the Commission calculate appropriate notional size buckets). 

357  See infra Figure 16 and Figure 17. In aggregate, order flow appears reasonably well-distributed across the 

various notional order size buckets that the Commission is adopting, with the exceptions of the smallest 

size bucket (orders for $250 or less) and the largest size bucket (orders for $200,000 or more), both of 

which have little order flow. See infra Section IX.D.1.b)(2)(a)(i). The Commission is adopting these 

notional order size buckets for the reasons described below. 



99 

Each adopted order size category reflects one of these notional dollar value ranges, along 

with an indication that the orders were for an odd-lot, a round lot, or less than a share.358 

Accordingly, as adopted, “categorized by order size” means dividing orders into separate 

categories for the following sizes:  

• Less than $250 and less than a share;  

• Less than $250 and odd-lot;  

• Less than $250 and at least a round lot;  

• $250 to less than $1,000 and less than a share;  

• $250 to less than $1,000 and odd-lot;  

• $250 to less than $1,000 and at least a round lot;  

• $1,000 to less than $5,000 and less than a share;  

• $1,000 to less than $5,000 and odd-lot;  

• $1,000 to less than $5,000 and at least a round lot;  

• $5,000 to less than $10,000 and less than a share;  

• $5,000 to less than $10,000 and odd-lot;  

• $5,000 to less than $10,000 and at least a round lot;  

• $10,000 to less than $20,000 and less than a share;  

• $10,000 to less than $20,000 and odd-lot;  

 

358 Some commenters suggested utilizing a column or a flag to designate whether orders in a particular row are 

odd-lots or round lots. See supra notes 337-339 and accompanying text. Instead, the Commission is 

incorporating into the defined order size categories whether an order is for a round lot, odd-lot, or less than 

a share for ease of application. The two approaches have the same substantive effect of having a single row 

representing each possible combination of round lot, odd-lot, and fractional share with each notional value 

size range. 



100 

• $10,000 to less than $20,000 and at least a round lot;  

• $20,000 to less than $50,000 and less than a share;  

• $20,000 to less than $50,000 and odd-lot;  

• $20,000 to less than $50,000 and at least a round lot;  

• $50,000 to less than $200,000 and less than a share;  

• $50,000 to less than $200,000 and odd-lot;  

• $50,000 to less than $200,000 and at least a round lot;  

• $200,000 or more and less than a share;  

• $200,000 or more and odd-lot; and  

• $200,000 or more and at least a round lot.359  

As discussed further below, the adopted categories will facilitate market participants’ 

ability to compare across orders of different sizes in higher-priced stocks, while controlling for 

potential differences in the treatment of larger-sized orders. Additionally, the adopted buckets 

better account for potential differences in the distribution of order sizes that reporting entities 

typically handle for a given stock when comparing execution quality metrics across reporting 

entities, facilitating apples-to-apples comparisons of execution quality across reporting entities.  

For purposes of the order size categories, a mixed lot order (i.e., an order for an amount 

of shares greater than a round lot that is not a multiple of such round lot) will be grouped in the 

“at least a round lot” category and an order for an odd-lot with a fractional share component or a 

 

359  See final 17 CFR 242.600(b)(18). The adopted categories address the concern expressed by a commenter 

that the proposed categories, which were based on round lots (and also included categories for orders for 

less than one share and for odd-lots), may cause confusion because the definition of round lot may change. 

See supra note 320 and accompanying text.101 

round lot with a fractional share component will be grouped with other odd-lots or round lots, 

respectively.360 Reporting entities generally should calculate a limit order’s notional value by 

multiplying the number of shares by the order’s limit price. In addition, reporting entities 

generally should calculate a market order to buy’s notional value by multiplying the number of 

shares by the national best offer at the time of order receipt and a market order to sell’s notional 

value by multiplying the number of shares by the national best bid at the time of order receipt.361 

Calculation of the notional value of a stop order generally should follow these principles based 

on whether the order once triggered is a limit order or a market order, except that the notional 

value of a stop market order should be based upon the national best bid or national best offer at 

the time the order is triggered rather than the time of order receipt.  

The Commission used CAT data to examine the distribution of orders across a granular 

set of notional order size buckets to determine which breakpoints form the most appropriate 

notional order size buckets. Figure 1 presents the distribution of orders across the notional order 

size buckets and shows that orders tend to be clustered around certain round notional values 

(e.g., $100, $1,000, $10,000, and $50,000). 

 

360  See final 17 CFR 242.600(b)(18). 

361  The Commission does not agree with the commenters’ suggestion that notional value of an order generally 

should be calculated based on the midpoint of the national best bid and national best offer at time of order 

receipt. See supra note 324. The order size categories reflect the order from the perspective of the order 

submitter. Likewise, calculating an order’s notional value for purposes of categorization by order size by 

referencing the limit price for a limit order or the far touch for a market order generally should better reflect 

the order submitter’s expectation of the order’s notional value.  



102 

Figure 1: Distribution of Orders Across Notional Order Size Buckets, Q1 2023 

 

 
This figure shows the distribution of orders (as a percent of total orders) across notional order size buckets. Percentages are 

calculated as the number of submitted orders within each order size bucket, summed across all stocks and days in the sample, 

divided by the total number of submitted shares summed across all stocks and days. This analysis uses data from CAT for a 

sample of 400 stocks for Q1 2023. See infra note 1261 for a description of this dataset. The 196 notional order size buckets were 

determined as follows: For orders between $0 and $1,000, notional order size buckets were set in increasing $50 increments (i.e., 

less than $50, from $50 to less than $100, from $100 to less than $150, etc.). For orders between $1,000 and $10,000, order size 

buckets were set in increasing $100 increments. For orders between $10,000 and $25,000, order size buckets were set in 

increasing $500 increments. For orders between $25,000 and $50,000, order size buckets were set in increasing $1,000 

increments. For orders between $50,000 and $200,000, order size buckets were set in increasing $5,000 increments.  

 When trying to determine the optimal cut-off points between notional order size buckets, 

the Commission considered how the order size buckets selected could meaningfully capture 

variations in order sizes across a variety of different factors, including stock prices, market 

centers, lot type and order share size categorization (i.e., round lot, odd-lot, and fractional share 

orders). Based on its analysis, the Commission makes the following observations about the types 

of variations in order characteristics that will be captured by the adopted order size buckets. 

First, Figure 2 below presents the cumulative order flow (as a percentage of total orders) across 

notional order size buckets. These results show that, for stocks priced less than $5, 87.6% of 



103 

orders are valued below $1,000 and 66.9% of orders are valued below $500. Given that nearly a 

quarter of stocks are priced below $5,362 including a set of smaller notional order size buckets 

(i.e., less than $250; and $250 to less than $1,000) will help ensure that orders are meaningfully 

distributed across order size categories and not clustered within a single category. Additionally, 

odd-lot orders tend to be valued less than $1,000, so the smaller notional order size buckets are 

useful for capturing the distribution of odd-lot orders specifically.363  

 

362  This number is based on an analysis of the volume-weighted average price (“VWAP”) calculated for each 

stock during normal trading hours for Q1 2023 using data from WRDS Intra-Day Indicators. 

363  Based on an analysis of the CAT data described in note 1261 infra, 17.4% of odd-lot orders are valued 

below $1,000, and for stocks priced less than $50 (which represent 85% of all stocks), this percentage 

increases to 68.9%. 



104 

Figure 2: Cumulative Order Flow across Notional Order Size Buckets, by Stock Price, Q1 

2023 

 

 
This figure shows the cumulative percentage of orders across notional order size buckets for stocks grouped according to average 

stock prices. Percentages are calculated as the cumulative number of submitted orders within each size bucket, summed across all 

stocks within a given price group and across all days in the sample, divided by the total number of submitted orders summed 

across all stocks within a given price group and across all days in the sample. This analysis uses data from CAT for a sample of 

400 stocks for Q1 2023. See infra note 1261 for a description of this dataset. Stocks were grouped according to their average 

share price over the sample period. The 196 notional order size buckets were determined as follows: For orders between $0 and 

$1,000, notional order size buckets were set in increasing $50 increments (i.e., less than $50, from $50 to less than $100, from 

$100 to less than $150, etc.). For orders between $1,000 and $10,000, notional order size buckets were set in increasing $100 

increments. For orders between $10,000 and $25,000, notional order size buckets were set in increasing $500 increments. For 

orders between $25,000 and $50,000, notional order size buckets were set in increasing $1,000 increments. For orders between 

$50,000 and $200,000, notional order size buckets were set in increasing $5,000 increments. 

 Second, orders valued below $250 contain a higher percentage of individual investor 

orders than higher-valued orders. To proxy for small individual investor orders, the Commission 

analyzed the distribution of non-IOC orders that are valued less than $1,000 and that originate 



105 

from Individual Customer364 accounts and are handled by wholesalers.365 The Commission found 

that 54.2% of these orders are valued less than $250. Furthermore, 99.7% of fractional orders for 

less than a share, the majority of which are originated from Individual Customer accounts, are 

valued less than $250. Figure 3 below shows the breakdown of orders originating from 

Individual and Institutional Customer account types and shows that nearly three-fourths of orders 

valued under $250 originate from Individual Customers. Therefore, a separate notional order size 

category for orders valued less than $250 will be particularly useful in allowing individual 

investors to compare the execution quality of their orders across reporting entities. 

 

364  See infra note 1144 for a description of an “Individual Customer” account. 

365  This proxy was employed for two reasons. First, it was utilized because a high percentage of individual 

investors’ orders are handled by wholesalers. See Proposing Release, 88 FR 3786 at 3839, n.614 (Jan. 20, 

2023) (describing a Commission analysis of Rule 606 reports that showed that, in Q1 2022, a sample of 46 

retail broker-dealers routed 87.3% of orders in S&P 500 stocks and 87.9% of orders in non-S&P 500 stocks 

to wholesalers, as compared to 9.1% and 8.5%, respectively, to national securities exchanges). Second, it 

was utilized because it is the Commission’s understanding that IOC orders handled by wholesalers are 

likely to be orders directed to wholesaler SDPs. See infra note 1110. Based on an analysis of the CAT data 

described in in note 1261 infra, non-IOC orders that are valued less than $1,000 and that originate from 

Individual Customer accounts make up around 10.2% of wholesalers’ total order flow.  



106 

Figure 3: Percentage of Individual and Institutional Customer Orders, by Notional Order 

Size Bucket, Q1 2023 

 

 

This figure shows the percentage breakdown of orders originating from either individual customer accounts or institutional 

customer accounts. Percentages are calculated as the number of submitted orders within each order size bucket that originated 

from a given account type, summed across all stocks and days in the sample, divided by the total number of submitted orders 

within each order size bucket, summed across all stocks and days. This analysis uses data from CAT for a sample of 400 stocks 

for Q1 2023. See infra note 1261 for a description of this dataset. See infra note 1144 for a description of account types in CAT.  

 Third, for stocks priced less than $50 (which, again, represent 85% of all stocks366), 

68.0% of orders are valued between $1,000 and $10,000. Two of the adopted notional order size 

buckets ($1,000 to less than $5,000; and $5,000 to less than $10,000) will capture some variation 

across the majority of orders for the majority of stocks. 

 Fourth, 69.6% of round lots have relatively higher notional order sizes of between 

$10,000 and $200,000. In addition, some market centers seem to specialize in larger orders. For 

 

366  See supra note 363. 



107 

example, 63.3% of order flow to ATSs is valued between $10,000 and $200,000. The remaining 

adopted notional order size buckets ($10,000 to less than $20,000; $20,000 to less than $50,000; 

and $50,000 to less than $200,000) capture the distributions of these larger notional value orders, 

and thus allow for measurement of execution quality at market centers that specialize in larger 

notional value order sizes. 

Lastly, the additional notional order size category for orders for valued $200,000 or more 

will be useful because these orders typically warrant different treatment than smaller orders.367 

Designating order size categories based on notional order size buckets represents a shift 

in approach from the proposed order size categories based on round lot size ranges. In the 

Proposing Release, the Commission stated that modifying the order size categories to reflect the 

number of round lots would better allow Rule 605 reports to group orders with similar 

characteristics and notional values, and thereby provide more useful execution quality 

information.368 The Commission also stated its belief that notional buckets and caps would not 

be necessary because the definition of round lot, as modified by the MDI Rules, incorporates the 

current market price of the security.369 However, the Commission requested and, as described 

above, received, comments supporting the use of order size categories based on notional value.370 

In the Proposing Release, the Commission recognized advantages to defining order size 

 

367  See, e.g., 17 CFR 242.606(a)(1) (requiring reports on the routing of customer orders) and prior 17 CFR 

242.600(b)(25) (defining “customer order” to exclude an order with a market value of $200,000 or more); 

17 CFR 242.604(b)(4) (providing an exception for orders of block size from required limit order display) 

and prior 17 CFR 242.600(b)(12) (defining “block size” as, in part, an order for a quantity of stock having a 

market value of at least $200,000). In addition, the adopted rule is consistent with the recommendations by 

two commenters to establish a $200,000 threshold and to increase the cap above $200,000. See supra notes 

353 and 354 and accompanying text. 

368  See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023). 

369  See id.  

370  See id. at 3809. 



108 

categories based on dollar value of the order, while also recognizing that this approach would no 

longer produce a meaningful distinction between round lot and odd-lot orders according to the 

new definitions under the MDI Rules and therefore it would not be possible to distinguish orders 

that may not be at the same price as quotes protected under 17 CFR 242.611 (“Rule 611”).371 

Many commenters favored utilizing order size categories based on notional dollar value.372 

Further, accepting commenters’ suggestion to combine notional dollar value ranges with an 

indication of whether a category represents round-lot orders and odd-lot orders,373 and also 

indicating whether a category represents orders of less than a share, will preserve the ability to 

distinguish between such orders.374 Designating order size categories according to notional value 

and whether the order represents a round lot, an odd-lot, or an order smaller than a single share 

preserves the comparability of order execution quality statistics within an order size category and 

is responsive to comments.375  

 

371  See id. at 3891-92 (describing reasonable alternative to define order sizes based on dollar volume 

categories rather than number of round lots). 

372  See supra notes 323-335 and accompanying text. 

373  See supra notes 337-339 and accompanying text. 

374  One commenter supported the proposed order sized definitions in part because they would harmonize Rule 

605 disclosures with the price-based definition of round lot from the MDI Rules. See supra note 322. 

Because the adopted order size categories combine notional value with an indication of whether the order 

was a round lot, odd-lot, or order less than a share, the order size categories will reflect the price-based 

definition of round lot when it is implemented.  

375  The Commission disagrees with a commenter’s statement that the reporting requirements relating to order 

size categories are subject to change and thus could create confusion because of the changes being 

proposed in the Minimum Pricing Increments Proposing Release. See supra notes 319-320 and 

accompanying text. The Minimum Pricing Increments Proposing Release includes a proposal to accelerate 

the implementation of the round lot definition adopted under the MDI Rules that will assign NMS stocks 

priced over $250 to round lot sizes smaller than 100 shares. See Minimum Pricing Increments Proposing 

 

 

 



109 

In addition, in response to commenters’ suggestions that the statistics in the summary 

report should be derivable from the detailed report,376 the Commission is adding a metric to the 

detailed report under Rule 605(a)(1) for the cumulative notional order size of all covered 

orders.377 Specifically, users of the detailed reports can use the cumulative notional order size 

metric to calculate average notional order size, which is a metric in the summary report, and thus 

either reconstruct a firm’s calculations in its summary report or calculate the metric for different 

combinations of orders.378 Users of the detailed report also can use the cumulative notional order 

size metric to calculate the average share price for covered orders received by combining the 

metric with shares submitted. Further, the cumulative notional order size metric provides 

information to users of the detailed report regarding whether the orders that the reporting entity 

received are more heavily weighted towards the higher or the lower end of a notional order size 

range. 

For the reasons discussed in the Proposing Release and as described below, the 

Commission continues to believe that fractional, odd-lot, and larger-sized orders of 10,000 or 

 

Release, 87 FR 80266 at 80270 (Dec. 29, 2022). Although the new round lot definition when implemented 

will be dynamic and lead to changes in the round lot for stocks priced over $250, market participants will 

have notice of these changes. Further, the use of notional value in the adopted order size categories will 

help users of Rule 605 reports understand the effect of a change in round lot size for a security because a 

notional value range will remain constant even if the size of a round lot changes. Moreover, it is not clear, 

and the commenter does not explain, how the proposals to modify tick sizes in the Minimum Pricing 

Increments Proposing Release would potentially affect Rule 605’s requirements concerning categorization 

by order size. 

376  See infra note 769 and accompanying text. One commenter specifically recommended “adding to the 

[605](a)(1) report the aggregate notional value of covered orders for each row.” See FIF Letter II at 11. 

377  See final 17 CFR 242.605(a)(1)(i)(B) (requiring the reporting of the cumulative notional value of covered 

orders for all order types). 

378  See final 17 CFR 242.605(a)(2)(ii). See also infra note 796 and accompanying text (discussing the average 

notional order size metric in the summary report).  



110 

more shares represent important order flow segments.379 By incorporating these orders into the 

new order size categories, Rule 605 reports will contain information about some orders that were 

previously missing from Rule 605 reports. The Commission disagrees with the commenter that 

stated that execution quality information for fractional share orders is of limited value to 

investors and suggested not including such orders in Rule 605 reports.380 Fractional share orders 

have become increasingly popular with individual investors and the Commission continues to 

believe that it is important to provide standardized execution quality metrics for this segment of 

order flow.381 Analysis of CAT data from August 2023 found that executed orders with a 

fractional share component originated from almost five and a half million unique accounts. 

Further, orders for less than a single share represented a significant portion of fractional order 

executions.382 While fractional share orders continue to represent a small percentage (around 

 

379  See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). The Commission is rescinding the portion of 

the Large Order Exemptive Letter that grants the Large Order Exemptive Relief because it is inconsistent 

with, and will be obsolete in light of, the new order size categories. See infra section VI for further 

discussion. 

380  See supra note 348 and accompanying text. 

381  See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). A broker-dealer that principally facilitates the 

trading of fractional shares must produce a separate Rule 605 report as a market center if it meets the 

definition of an “OTC market maker” and receives covered orders for execution in such capacity. See final 

17 CFR 242.600(b)(18) (defining “categorized by order size” to include categories for orders of less than a 

share); final 17 CFR 242.600(b)(55) (defining “market center”); final 17 CFR 242.600(b)(75) (defining 

“OTC market maker”); final 17 CFR 242.605(a)(1) (“Every market center . . . shall make available for each 

calendar month . . . a report on the covered orders in NMS stocks that it received for execution from any 

person or that it received for execution in a prior calendar month but which remained open.”). See also 

supra note 170 and accompanying text. As discussed below, the inclusion of orders less than one share will 

expand the number of market centers filing Rule 605 reports, and therefore this change will increase 

transparency about the execution quality achieved by those market centers. See infra notes 1436-1438 and 

accompanying text. 

382  Analysis of CAT data from Mar. 2022 found that almost 68% percent (31.67 million) of the 46.63 million 

executed orders with a fractional component were for less than a single share. See Proposing Release, 88 

FR 3786 at 3808, n.279 (Jan. 20, 2023). Updated analysis from Aug. 2023 found that both the number and 

percentage of orders for less than a share increased. In Aug. 2023, approximately 81% (54.7 million) of the 

67.4 million executed orders with a fractional component were for less than a single share. 



111 

4.1%) of originating orders that eventually execute, they represent a significant percentage 

(21.6%) of order executions originating from individual accounts.383  

With respect to the commenter’s statement that the cost of modifying market 

infrastructure to accommodate fractional share trading “would be high compared to the minimal 

benefit” of including fractional shares in Rule 605 reports,384 this commenter has not provided 

data to quantify the projected increased costs. Although this commenter provides as an example 

of potential infrastructure issues that FINRA “does not currently have a mechanism to report 

fractional share trades, because all of these trades are rounded up today,”385 these trades must 

still be reported to FINRA’s trade reporting facility.386 Further, CAT accepts reports involving 

fractional shares.387 Only market centers or larger broker-dealers that accept orders with 

fractional shares for execution will need to include fractional shares in their Rule 605 reports, 

and those firms have the necessary systems to handle fractional shares.388 Therefore, the 

Commission does not agree that the cost to implement any modifications to infrastructure needed 

 

383  This considers any order with a fractional component. However, orders for less than one share still account 

for over 16% of order executions originating from individual accounts. See infra note 1424. Generally, 

accounts classified as “individual” in CAT are attributed to natural persons. 

384  See supra note 350 and accompanying text. 

385  SIFMA Letter II at 31. 

386  See FINRA Trade Reporting FAQs, available at https://www.finra.org/filing-reporting/market-

transparency-reporting/trade-reporting-faq (“Q101.15: Must trades for less than one share be reported? 

A101.15: Yes…where a trade is executed for less than one share, e.g., 1/3 share, firms should round up and 

report a share quantity of 1.”)  

387  See CAT FAQ B.10 available at https://catnmsplan.com/faq.  

388  For example, a broker-dealer that accepts orders with fractional shares for execution will need to provide a 

trade confirmation to its customer that includes the execution price. In addition, such broker-dealer will 

need to have the ability to compare the execution price to the NBBO at the time of execution in order to 

help ensure compliance with the order protection rule. See 17 CFR 242.611.  



112 

to provide for the inclusion of fractional shares in Rule 605 reports would be so high as to exceed 

the benefits of providing standardized execution quality metrics for this segment of order flow.389 

In addition, the Commission is not adopting the commenter’s suggestion that Rule 605 

reports also include separate reporting categories for round lot orders with a fractional share 

component and odd-lot orders with a fractional share component.390 The majority of orders that 

have a fractional share component are orders for less than one share and these orders will appear 

separately in Rule 605 reports in the designated order size category. The value of including an 

additional category of orders of larger than one share with a fractional share component is 

unclear.391 Such orders will be grouped with orders of the same notional size and according to 

whether the order based on overall share size is an odd-lot or a round lot, which should provide 

sufficient comparability for such orders.  

2. Categorization by Order Type 

Rule 605 reports include data for orders as categorized by order type. Prior to the 

amendments, Rule 605 defined “categorized by order type” to mean dividing orders into separate 

categories for market orders, marketable limit orders, inside-the-quote limit orders, at-the-quote 

limit orders, and near-the-quote limit orders.392 The Commission proposed to modify this 

definition: (1) to remove the order type categories for inside-the-quote limit orders, at-the-quote-

limit orders, and near-the-quote limit orders; (2) to add order type categories for marketable 

immediate-or-cancel orders, beyond-the-midpoint limit orders, executable NMLOs (excluding 

 

389  See infra notes 1674-1676 and accompanying text (discussing costs and benefits). 

390  See supra note 347. 

391  As discussed below, the Commission did not find execution quality to systematically vary significantly 

between odd-lots and rounds lots with fractional components and their counterparts without fractional 

components. See infra at section IX.E.3.(a)(2). 

392  See prior 17 CFR 242.600(b)(14). 



113 

beyond-the-midpoint limit orders and orders submitted with stop prices), and executable orders 

submitted with stop prices; and (3) to specify that the category for marketable limit orders will 

exclude immediate or cancel orders.393 

The Commission received comments supporting the overall changes to order type 

categories being proposed.394 Additionally, and as discussed in relevant subsections below, many 

commenters discussed specific aspects of the proposed changes to the order type categories. The 

Commission is adopting the amendments to the order type categories, with a few adjustments 

from the proposal. First, in connection with the proposed order type categories for NMLOs, the 

Commission is making certain modifications to the proposed definition of executable, as 

discussed in section III.B.2.a) below. Second, the Commission is retaining a separate order type 

category for executable beyond-the-midpoint limit orders largely as proposed, with a small 

expansion in scope and corresponding change to the name of the relevant defined term to refer to 

them as “midpoint-or-better limit orders,” as discussed in section III.B.2.b) below. Finally, the 

Commission is adopting the proposed order type category for marketable IOCs, while also 

adding order type categories for two other types of IOCs, as discussed in section III.B.2.c) 

below.395 

 

393  See Proposing Release, 88 FR 3786 at 3809-12 (Jan. 20, 2023); proposed Rule 600(b)(20). 

394  See, e.g., Better Markets Letter at 6-7; Pritchard Letter; Abanes Letter. An individual investor stated that 

creation of new order type categories would help improve executions in the lit exchanges and ensure 

competition among broker-dealers. See Medina Letter. 

395  In addition, as discussed in section III.A.2 above, the Commission is subdividing the order type category 

for executable orders submitted with stop prices and modifying the definition of executable as it pertains to 

stop orders.  



114 

a) NMLOs 

(1) Proposed Approach 

The Commission proposed to eliminate the three separate order type categories pertaining 

to NMLOs (i.e., inside-the-quote limit orders, at-the-quote limit orders, and near-the-quote limit 

orders)396 and to replace them with new categories for NMLOs that become executable 

(excluding orders submitted with stop prices and beyond-the-midpoint limit orders) and beyond-

the-midpoint limit orders.397 The Commission recognized that more meaningful measures of 

execution quality for NMLOs, as well as orders submitted with stop prices, would assist 

investors in measuring execution quality, and stated that it was proposing to add the concept of 

“executable” to allow execution quality statistics to be measured from a point where an order 

could be executed.398 Specifically, the Commission proposed the following definition of 

“executable” for NMLOs (other than orders submitted with stop prices): for any non-marketable 

buy order (excluding orders submitted with stop prices), executable means that the limit price is 

equal to or greater than the national best bid during regular trading hours, and, for any non-

marketable sell order (excluding orders submitted with stop prices), that the limit price is equal 

to or less than the national best offer during regular trading hours.399 The Commission stated 

that, as is the case for orders submitted with stop prices, incorporation of the “executable” 

concept would have two effects—NMLOs would only be reported as part of a Rule 605 report if 

 

396  Inside-the-quote limit order, at-the-quote limit order, and near-the-quote limit order mean non-marketable 

buy orders with limit prices that are, respectively, higher than, equal to, and lower by $0.10 or less than the 

national best bid at the time of order receipt, and non-marketable sell orders with limit prices that are, 

respectively, lower than, equal to, and higher by $0.10 or less than the national best offer at the time of 

order receipt. See prior 17 CFR 242.600(b)(37). 

397  See Proposing Release, 88 FR 3786 at 3809 (Jan. 20, 2023); proposed Rule 600(b)(20).  

398  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). 

399  See id.; proposed Rule 600(b)(42). 



115 

they become executable during regular trading hours and the point that NMLOs first become 

executable would be used as an input for several execution quality metrics.400 

(2) Final Rule and Discussion 

An individual investor supported the proposed modifications to reporting requirements 

for NMLOs, stating they would capture more relevant execution quality information for these 

orders.401 A broker-dealer supported replacing the current NMLO order categories with NMLOs 

that become executable and beyond-the-midpoint limit orders, and stated that “[a]dding these 

new categories should capture many more orders compared to current Rule 605 reports.”402 A 

national securities exchange asked for clarification regarding whether market centers would be 

permitted to use their own view of the NBBO, data from the securities information processors 

(“SIPs”), or data from competing consolidators (in the future, pursuant to the MDI Rules) when 

determining order marketability.403 Another national securities exchange supported replacing the 

three current categories for NMLOs with NMLOs that become executable, beyond-the-midpoint 

limit orders, and executable orders submitted with stop prices and stated that these changes 

would enhance execution quality information within Rule 605 reports and better group 

comparable orders.404 According to a group of academics, some broker-dealers convert their 

 

400  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). 

401  See Genco Letter. 

402  Rule 605 Citadel Letter at 11. 

403  See NYSE Letter at 8. Until the implementation of the MDI Rules, a reporting entity generally should use 

data from the exclusive SIPs to calculate its Rule 605 statistics, including the determination of whether a 

limit order is marketable. The MDI Rules include a phased transition plan to implement the 

decentralization consolidation model, including a parallel operation period followed by the cessation of 

operations of the exclusive SIPs, which will only cease operations if the Commission approves an 

amendment to the effective national market system plan(s) to effectuate such a cessation. See MDI 

Adopting Release, 86 FR 18596 at 18700-01 (Apr. 9, 2021). The Commission will monitor the 

implementation of the decentralized consolidation model required under the MDI Rules. 

404  See Nasdaq Letter at 44. 



116 

customers’ order types and route most of them to the broker-dealer’s ATS.405 These commenters 

recommended, to provide transparency on order types selected by customers, that Rule 605 

statistics reflect the order type selected by customers rather than the routing broker-dealer.406
  

After reviewing the comments, the Commission is eliminating the definition of “inside-

the-quote limit order, at-the-quote limit order, and near-the-quote limit order,”407 as proposed 

and is adopting the order type category for executable NMLOs largely as proposed for the 

reasons stated in the Proposing Release.408 As a result, Rule 605 reports will capture more of 

those NMLOs that have an opportunity to execute, and execution quality statistics will be more 

useful for these types of NMLOs. However, as discussed above in section III.A.1.b), the 

Commission is modifying the definition of “executable” in response to a comment regarding the 

treatment of orders received during the interim opening period.409 

A national securities exchange stated that under the Limit-Up Limit-Down (“LULD”) 

Plan, certain NMLOs would not necessarily be “executable” and requested that the Commission 

 

405  See Professor Schwarz et al. Letter at 5. 

406  See id. Each firm or market center generally should classify orders based on the order type when received. 

This generates execution quality statistics that are comparable among different types of reporting entities 

because many of the Rule’s statistical measures are based on time of order receipt (or benchmarked to the 

NBBO when received, for marketable order types). In addition, some receiving market centers or broker-

dealers may not have information about the order type when the originating customer entered the order and 

thus would not have the information needed to classify orders based on the order type selected by the 

customer.  

407  These terms will no longer be used with the adopted changes to the order type categories, which focus on 

whether a NMLO becomes executable rather than on how a NMLO’s limit price compares to the quote, as 

discussed further below. The Commission received one comment supporting the elimination of this 

definition. See Nasdaq Letter at 44. 

408  See Proposing Release, 88 FR 3786 at 3809-10 (Jan. 20, 2023); final 17 CFR 242.600(b)(19). As discussed 

further below, the Commission is adopting a new order type category for executable NMLOs that are 

immediate-or-cancel and thus these orders will not be included within the scope of the order type category 

for executable NMLOs. See infra section III.B.2.c).  

409  See final 17 CFR 242.600(b)(39). See also supra notes 244-246 and accompanying text. 



117 

modify the definition of “executable” to conform to the provisions of the LULD Plan.410 The 

Commission agrees with the commenter that an order generally should not fall within the 

definition of “executable” when the underlying security is in a Straddle State. The market for a 

security in a Straddle State can substantially differ from the market for that security outside of a 

Straddle State, as reflected in the fact that the primary listing exchange may declare a trading 

pause for an NMS Stock in a Straddle State.411 Even if the primary listing exchange has not 

declared a trading pause for a security in a Straddle State, the decision to not consider an order 

executable based on a whether the national best bid or national best offer reaches a specific price 

at a time when the underlying security is in a Straddle State is consistent with the Commission’s 

decision to include within the scope of Rule 605 reports only those NMLOs that become 

executable during regular trading hours. The Commission stated that it was only including in 

Rule 605 reports those NMLOs that become executable during regular trading hours in order to 

provide a basis for more comparable execution quality measures because there are substantial 

differences in the nature of the market between regular trading hours and after-hours.412 

Accordingly, for purposes of determining when an order first became executable, an order 

 

410  See NYSE Letter at 8-9. This commenter stated that, under the LULD Plan, a security is in a “Straddle 

State” when the national best bid is below the LULD lower price band or the national best offer is above 

the LULD upper price band and an order is not executable when the underlying security is in a Straddle 

State. See id. at 9, n.12. 

411  See Section VII(A)(2) of 20th Amendment to the National Market System Plan to Address Extraordinary 

Market Volatility (“LULD Plan”). The LULD Plan defines a “Straddle State” as when the national best bid 

(offer) is below (above) the lower (upper) price band and the stock is not in a limit state, and “trading in 

that NMS Stock deviates from normal trading characteristics such that declaring a Trading Pause would 

support the [LULD] Plan’s goal to address extraordinary market volatility.” Id. The primary listing 

exchange for a stock must have policies and procedures to determine when to declare a trading pause. See 

id.  

412  See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). The Commission is further advancing this goal 

through the adopted definition of “executable,” which additionally specifies that NMLOs will be 

executable only after the primary listing market has disseminated its first firm, uncrossed quotations in the 

security. See final 17 CFR 242.600(b)(39). 



118 

generally should not become executable during a time when the underlying security is in a 

Straddle State.413 

b) Midpoint-or-Better Limit Orders 

(1) Proposed Approach 

Inside-the-quote limit orders were a separate order type category under Rule 605 before 

the amendments,414 and Rule 605 did not require price improvement statistics to be calculated for 

these orders because they are not a marketable order type (i.e., they do not fully cross the 

spread).415 The Commission proposed to require execution quality statistics for limit orders 

priced more aggressively than the midpoint and to classify these types of orders as beyond-the-

midpoint limit orders.416 Specifically, the Commission proposed to define a “beyond-the-

midpoint limit order” as follows: with respect to an order received at a time when a NBBO is 

being disseminated, (i) any non-marketable buy order with a limit price that is higher than the 

midpoint of the national best bid and national best offer at the time of order receipt, or (ii) any 

non-marketable sell order with a limit price that is lower than the midpoint of the national best 

bid and national best offer at the time of order receipt; and, with respect to an order received at a 

time when a NBBO is not being disseminated, (i) any non-marketable buy order with a limit 

price that is higher than the midpoint of the national best bid and national best offer at the time 

that the national best bid and national best offer is first disseminated after the time of order 

 

413  This guidance is based upon the current definition of Straddle State in the LULD Plan, as described above. 

If this definition changes due to an LULD Plan amendment and the change impacts the guidance provided 

here, this guidance may no longer be valid.  

414  See prior 17 CFR 242.600(b)(14). 

415  Prior Rule 605(a)(1)(i) specified execution quality statistics to be provided for all order types, and prior 

Rule 605(a)(1)(ii) specified execution quality statistics to be provided for marketable order types. See prior 

17 CFR 242.605(a)(1)(i) and (ii). 

416  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023). 



119 

receipt, or (ii) any non-marketable sell order with a limit price that is lower than the midpoint of 

the national best bid and national best offer at the time that the national best bid and national best 

offer is first disseminated after the time of order receipt.417  

Additionally, the Commission proposed to require that the execution quality statistics for 

beyond-the-midpoint limit orders include the additional information required of both marketable 

and non-marketable order types.418 The Commission also proposed to modify the time-to-

execution statistics to state that, with respect to beyond-the-midpoint limit orders, these time-

based statistics would have been measured from the time such orders become executable rather 

than from the time of order receipt.419 

(2) Final Rule and Discussion 

A national securities exchange and a broker-dealer supported including beyond-the-

midpoint orders among the new order type categories.420 The broker-dealer stated that adding 

beyond-the-midpoint limit orders, along with NMLOs that become executable, should capture 

many more orders.421 On the other hand, an industry group questioned whether the proposed 

inclusion of beyond-the-midpoint limit orders would be worthwhile given their current sparse 

usage (2.9% of NMLOs), which the commenter predicts would decrease if the minimum pricing 

increments proposed in the pending Minimum Pricing Increments Proposing Release422 are 

 

417  See id.; proposed Rule 600(b)(16). 

418  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) through (iii). 

419  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(9) (definition of average 

effective order quoted spread), (10) (definition of average effective spread), (11) (definition of average 

percentage effective spread). 

420  See Nasdaq Letter at 44; Rule 605 Citadel Letter at 11. 

421  See Rule 605 Citadel Letter at 11. 

422  See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2023). 



120 

adopted.423 In addition, this commenter suggested clarifying that an order that is a beyond-the-

midpoint limit order would not also be a NMLO.424 

After consideration of the comments, the Commission is adopting an order type for limit 

orders priced aggressively as compared to the midpoint, but with several modifications from the 

beyond-the-midpoint limit order that was proposed. The specific changes being made from the 

proposal are: (1) revising the definition of “beyond-the-midpoint limit order” to include limit 

orders priced at the midpoint and renaming this term “midpoint-or-better limit order”; and (2) 

making a modification to this definition to account for the interim opening period, as suggested 

by a commenter.425 In addition, the Commission is adopting as proposed the requirements that 

for this order type: (1) the Rule 605 report will include the execution quality statistics specific to 

both marketable order types and non-marketable order types;426 and (2) time-based statistics will 

be measured from the time such orders become executable.427 

The Commission is expanding the scope, as compared to the proposal, of the “midpoint-

or-better” order types to include limit orders priced at the midpoint in response to a commenter’s 

concern that a category for orders that are priced more aggressively than the midpoint may not be 

worthwhile because these types of NMLOs are sparsely used.428 The Commission conducted 

 

423  See FIF Letter at 13. 

424  See id. at 12. 

425  See final 17 CFR 242.600(b)(57). See also supra section III.A.1.b) (discussing modifications to account for 

interim opening period). 

426  See final 17 CFR 242.605(a)(1)(i) through (iii). See also final 17 CFR 242.600(b)(19). 

427  See final 17 CFR 242.600(b)(8), (9), and (12). As discussed further below, the Commission is adopting a 

separate order type category for midpoint-or-better limit orders that are also IOCs. See infra section 

III.B.2.c). As such, the Commission is adopting separate order type categories for midpoint-or-better limit 

orders (excluding IOCs) and midpoint-or-better limit orders that are immediate-or-cancel. For purposes of 

this release, these two order types may be referred to collectively as “midpoint-or-better order types.” 

428  See supra note 423 and accompanying text. The Commission is still considering the proposed changes to 

minimum pricing increments discussed in the Minimum Pricing Increments Proposing Release.121 

additional analysis of NMLOs priced in between the national best bid and national best offer and 

continues to believe that market participants would benefit from receiving execution quality 

information specific to NMLOs priced better than the midpoint, along with NMLOs priced at the 

midpoint, because they may have different execution quality statistics than other types of 

NMLOs.429 The Commission understands that some NMLOs priced inside the quote are 

submitted by traders with the intention of executing immediately against hidden or odd-lot 

liquidity that may be available. Scoping in limit orders priced at the midpoint will increase the 

size of this order type category, while including additional orders that have certain execution 

quality statistics that are similar to limit orders priced more aggressively than the midpoint.430 

Midpoint-or-better limit orders may be treated more like marketable limit orders in certain 

contexts, and the Commission continues to believe that market participants will benefit from 

receiving price improvement statistics and effective spread statistics for these order types. 

In response to a commenter’s request for clarification that an order that falls within this 

order type would not also be a NMLO,431 the Commission confirms that midpoint-or-better limit 

orders will not fall within the order type category for NMLOs that become executable. Although 

midpoint-or-better limit orders are technically a subset of NMLOs, the definition of “categorized 

by order type” expressly excludes midpoint-or-better limit orders from the order type category 

 

429  For example, Commission analysis demonstrates that midpoint-or-better limit orders executed by 

wholesalers tend to have somewhat higher fill rates and on-exchange midpoint-or-better limit orders tend to 

have a higher percentage of orders that execute in less than 1 millisecond. See infra note 1213; Table 4. See 

also Proposing Release, 88 FR 3786 at 3810-11 (Jan. 20, 2023). 

430  See infra Section IX.C.3.c)(3). 

431  See supra note 424 and accompanying text. 



122 

for executable NMLOs.432 Accordingly, execution quality data for midpoint-or-better limit 

orders will be included within the statistics for only the order type categories for midpoint-or-

better limit orders (excluding IOCs) or midpoint-or-better limit orders with an immediate-or-

cancel instruction, and described in section III.B.2.c)(2) below. 

c) Marketable and Non-Marketable IOCs 

(1) Proposed Approach 

Prior to the amendments, Rule 605 reports grouped marketable IOCs together with other 

marketable orders. The Commission proposed to assign marketable IOCs their own separate 

order type category by adding a category for “marketable immediate-or-cancel orders” and 

indicating that the category for “marketable limit orders” excludes IOC orders.433 The 

Commission also proposed to require the same execution quality information for marketable 

IOCs as is required for other marketable order types.434 

(2) Final Rule and Discussion 

A national securities exchange supported establishing a new order type category for 

marketable IOC orders.435 An industry group stated that, for each order type, the execution 

profile differs based on whether the orders are IOC or time-in-force orders and therefore 

recommended requiring broker-dealers and market centers to break out reporting of all order 

 

432  The Commission is modifying this exclusion in the definition of “categorized by order type” from the 

proposal to refer to the midpoint-or-better order types instead of beyond-the-midpoint limit orders to 

conform with the modification to the defined term as discussed above. See final 17 CFR 242.600(b)(19). 

433  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(20). 

434  See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (ii). 

435  See Nasdaq Letter at 44. 



123 

types (not just marketable order types, as proposed by the Commission) to distinguish between 

IOC and time-in-force orders.436  

A broker-dealer stated that it supported assigning IOCs to a separate order category so 

that they would no longer be commingled with retail orders.437 According to this commenter, 

many wholesale broker-dealers execute IOC orders for non-retail investors and currently “these 

IOC orders may be aggregated with retail orders for reporting purposes, even though the 

execution profile is very different and could negatively skew a wholesale broker-dealer’s 

execution quality metrics.”438 This commenter also stated that although the Commission 

proposed to assign marketable IOCs as a separate order type category, similar treatment was not 

proposed for non-marketable IOCs.439 Thus, this commenter suggested that the Commission 

“include a flag for IOC orders that equally applies across both marketable and non-marketable 

orders” because of the commenter’s view that including non-marketable IOCs within the same 

order type category as regular NMLOs would significantly skew reported data.440  

Following consideration of the comments, the Commission is adopting a separate order 

type category for marketable IOCs as proposed.441 Moreover, to address commenters’ 

suggestions that there also be separate order type categories for non-marketable IOCs,442 the 

Commission is adopting, in addition to the categories that were proposed, order type categories 

 

436  See FIF Letter at 13. This commenter stated that an additional column in the Rule 605(a)(1) report could be 

used to indicate whether a particular row pertains to IOC or time-in-force orders. See id. See also FIF 

Letter III at 4. 

437  See Rule 605 Citadel Letter at 7. 

438  Id. 

439  See id. at 10. 

440  See id. 

441  See final 17 CFR 242.600(b)(19). 

442  See supra notes 436, 440, and accompanying text. 



124 

for NMLOs that are immediate-or-cancel (“NMLO IOCs”) and midpoint-or-better limit orders 

that are immediate-or-cancel (“midpoint-or-better IOCs”). As is the case with other non-

marketable order types, NMLO IOCs will be included in Rule 605 reports if they become 

executable.443 Additional Commission analysis demonstrates that IOCs represent a significant 

component of order flow for both marketable orders and non-marketable orders.444 Moreover, the 

Commission agrees with the commenter that commingling NMLO IOCs with NMLOs that are 

not immediate-or-cancel or midpoint-or-better IOCs with midpoint-or-better limit orders that are 

not immediate-or-cancel could distort execution quality statistics445 because the Commission’s 

analysis demonstrates that IOCs tend to have shorter execution times and, with respect to orders 

received by wholesalers, lower fill rates.446  

However, the Commission is not fully adopting commenters’ suggestion that the 

Commission differentiate between IOCs and orders that are not immediate-or-cancel for every 

 

443  To implement this change from the proposed amendments, the Commission is modifying the proposed 

amendments to the definition of “categorized by order type” to add midpoint-or-better limit orders that are 

immediate-or-cancel and executable non-marketable limit orders that are immediate-or-cancel, as well as to 

exclude IOCs from the order types for midpoint-or-better limit orders and executable NMLOs. See final 17 

CFR 242.600(b)(19). Consistent with this change, the Commission is also modifying Rule 605 to refer to 

midpoint-or-better limit orders and midpoint-or-better IOCs in Rule 605(a)(1)(i) (setting forth execution 

quality statistics required of all order types), (ii) (setting forth execution quality statistics required of 

marketable order types), and (iii) (setting forth execution quality statistics required of non-marketable order 

types); and to refer to executable NMLOs and executable NMLO IOCs in Rule 605(a)(1)(i) and (iii).  

444  See infra Table 5. With respect to orders that would fall within the adopted NMLO IOC category, this 

analysis demonstrates that for orders received by exchanges and ATSs, IOCs represent 4.7% of orders 

priced below the midpoint and 13.3% of orders priced at the quote, and for orders received by wholesalers, 

IOCs represent 65.3% of orders priced below the midpoint and 67.0% of orders priced at the quote. And 

with respect to orders that would fall within the adopted midpoint-or-better IOC category, this analysis 

demonstrates that for orders received by exchanges and ATSs, IOCs represent 35.8% of orders priced 

above the midpoint and 37.9% of orders priced at the midpoint, and for orders received by wholesalers, 

IOCs represent 90.8% of orders priced above the midpoint and 84.2% of orders priced at the midpoint. See 

id. 

445  See supra notes 437-440 and accompanying text. 

446  See infra Table 5. 



125 

order type category used in Rule 605.447 While the adopted amendments will add order type 

categories for marketable IOCs, executable NMLO IOCs, and midpoint-or-better IOCs, the 

adopted amendments will not include separate order type categories for IOCs that have 

characteristics of the other order types (e.g., market order with an immediate or cancel 

instruction, executable stop marketable limit order with an immediate or cancel instruction). An 

order submitter placing a market order likely has an expectation of receiving an immediate 

execution because there is no limit price. IOC limit orders are also submitted with an expectation 

of executing immediately. Moreover, an order submitter placing a market order with an 

immediate or cancel instruction or a limit order with an immediate or cancel instruction can 

reasonably expect that, if the order receives an execution, it will be at the prevailing market price 

at the time of order receipt. Therefore, the Commission does not believe that the execution 

profile for market orders with an immediate or cancel instruction will vary significantly enough 

from other marketable IOCs to warrant an order type category for market orders with an 

immediate or cancel instruction that separates these orders from other marketable IOCs.448 In 

addition, as discussed above, the execution profiles for an order type category or categories for 

limit orders with a stop condition and an IOC instruction are not likely to have significantly 

different execution profiles than other stop orders that fall within the same order type categories 

 

447  See supra notes 436, 440, and accompanying text. 

448  See infra Table 5. 



126 

based upon marketability, and thus the Commission is not requiring order type categories that 

would further sub-divide the categories for orders submitted with stop prices.449 

3. Timestamp Conventions and Time-to-Execution Statistics 

a) Proposed Approach 

Prior to the amendments, Rule 605 required the reporting of information on the number 

of shares of covered orders executed within certain timeframes, as measured in seconds after the 

time of order receipt.450 Rule 605 also required the reporting of information on the average time 

to execution for marketable order types.451 In addition, the definitions “time of order execution” 

and “time of order receipt” in preexisting Rule 600 specified that time must be measured “to the 

second.”452  

The Commission proposed to update the timestamp conventions in the definitions of 

“time of order receipt” and “time of order execution” so that these definitions require that such 

times be measured in increments of a millisecond or finer.453 The Commission also proposed to 

 

449  See supra section III.A.2.b). It is unlikely that many market participants will submit a market order with 

both a stop condition and an IOC instruction. However, even if such orders are submitted, they will either: 

(1) trigger immediately and execute at market prices, or (2) not trigger and cancel immediately because of 

the IOC instruction. In the case of (1), such orders are not likely to have different execution profiles than 

other market orders submitted with a stop price. In the case of (2), such orders will be cancelled before they 

become executable and will therefore not be in reported as part of Rule 605 reports because orders 

submitted with stop prices must be triggered to become executable and be included in a Rule 605 report. 

450  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (requiring for all orders the reporting of the cumulative 

number of shares of covered orders executed within 5 specified time intervals after the time of order 

receipt). The preexisting time-to-execution bucket intervals were: (1) 0 to 9 seconds; (2) 10 to 29 seconds; 

(3) 30 to 59 seconds; (4) 60 to 299 seconds; and (5) 5 to 30 minutes. 

451  See prior 17 CFR 242.605(a)(1)(ii)(D), (F), and (I) (requiring for market and marketable limit orders the 

reporting of average time to execution for shares executed with price improvement, shares executed at the 

quote, and shares executed outside the quote, respectively). See infra section III.B.4.g) for additional 

information about Rule 605 statistics based on whether orders executed with price improvement, at the 

quote, or outside the quote.  

452  See prior 17 CFR 242.600(b)(91) and (92). 

453  See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 600(b)(108) and (109). 



127 

specify that the average time-to-execution statistics that Rule 605 required for marketable order 

types should be expressed in increments of a millisecond or finer.454 Further, the Commission 

proposed to require that the share-weighted average time to execution be provided for non-

marketable order types, as calculated from the time such orders become executable, and the 

proposed definition of “executable” provided that the time an order becomes executable shall be 

measured in increments of a millisecond or finer.455 Finally, the Commission proposed to 

eliminate the existing time-to-execution buckets and require the reporting of share-weighted 

median and 99th percentile time to execution for all order types.456 

b) Final Rule and Discussion 

As discussed below, after consideration of the comments, the Commission is adopting the 

use of timestamp conventions of a millisecond or finer for time-based execution quality statistics 

as proposed. The Commission is also requiring average time-to-execution statistics for all order 

types and specifying that for NMLOs these statistics will be measured from when the order 

becomes executable as proposed. However, the Commission is not adopting the proposed median 

and 99th percentile execution quality statistics for all order types. Instead, the Commission is 

 

454 See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(C), (G), and (L). 

Prior to the amendments, Rule 605 did not specify a level of granularity for the existing time-to-execution 

statistics. However, the Rule 605 NMS Plan requires these fields to be expressed in number of seconds and 

carried out to one decimal place. See Rule 605 NMS Plan section VI (a)(21), (23), and (26). 

455 See Proposing Release, 88 FR 3786 at 3812-13 (Jan. 20, 2023); proposed Rule 600(b)(42); proposed Rule 

605(a)(1)(iii)(C). 

456  See Proposing Release, 88 FR 3786 at 3812-13 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(D), (E), (H), 

(I), (M), and (N); proposed Rule 605(a)(1)(iii)(D) and (E). Specifically, the Commission stated that while 

the distribution of execution speeds in addition to the average would still be useful, the then-existing time-

to-execution buckets are of limited utility because the smallest time-to-execution bucket encompasses all 

orders executed between zero and nine seconds. See Proposing Release, 88 FR 3786 at 3813 (Jan. 20, 

2023). The Commission further stated that, rather than adding additional buckets to provide distribution 

information for execution speeds of less than one second, the Commission was proposing to require both 

share-weighted median and 99th percentile time-to-execution statistics to allow users of the data to assess 

how quickly a market center or broker-dealer is able to execute incoming orders and understand the extent 

to which the time to execution for a particular category is affected by outlier values. See id. 



128 

retaining the time-to-execution buckets from Rule 605 prior to these amendments, which apply 

to all order types, but is modifying the associated time ranges to account for the overall increase 

in trading speeds since Rule 605 was adopted and as supported by certain commenters. 

Several individual investors supported the proposal to require reporting of average time 

to execution, median time to execution, and 99th percentile time to execution in increments of a 

millisecond or finer.457 Another individual investor stated that measuring in milliseconds would 

be a “huge step forward” in understanding order execution.458 A national securities exchange 

supported eliminating time-to-execution categories in favor of average time to execution, median 

time to execution, and 99th percentile time to execution, each as measured in increments of a 

millisecond or finer and calculated on a share-weighted basis.459 This commenter stated that 

requiring average time to execution for all order types, as well as statistics regarding the 

distribution of execution times within each order type, “would offer more consequential 

information.”460 According to this commenter, “[t]hese statistics could be used to judge and 

compare the average time to execution for a particular order type and still provide information 

about the extent to which outlier values may skew the average.”461 

One industry group stated that the use of milliseconds is the best approach at this time.462 

This commenter suggested that the Commission should engage in discussions with market 

 

457  See, e.g., Pritchard Letter, Macarthur Letter, and Cesar Letter. 

458  See Bledsoe Letter. In addition, several commenters stated that “broker-dealers are able and should be 

required to measure order executions in seconds or milliseconds, rather than 2 days.” Letter Type C at 

https://www.sec.gov/comments/s7-29-22/s72922.htm.  

459  See Nasdaq Letter at 44. 

460  See id. at 45. 

461  Id. 

462  See FIF Letter at 17. 



129 

centers to consider whether a requirement for market centers to report with increased granularity 

for CAT, Rule 605, and other required reporting would be appropriate.463 An investor advocacy 

group stated that requiring timestamp information in millisecond increments would allow for 

meaningful points of comparison between market centers and/or broker-dealers for data that uses 

timestamp information and time-to-execution statistics.464 Another investor advocacy group 

recommended that the Commission modify the required time-to-execution buckets for all order 

types to time buckets that can be adjusted over time, starting with the following buckets: less 

than 500 microseconds; 500 microseconds to 1 millisecond; 1 to 10 milliseconds; 10 to 100 

milliseconds; 100 milliseconds to 1 second; 1 to 10 seconds; and greater than 10 seconds.465 This 

commenter stated that “[b]y creating buckets for timestamp, rather than average time to 

execution, the reports would provide much greater granularity while still allowing a user of the 

data to recreate average time to execution.”466 A broker-dealer supported the new statistics 

reporting times in increments of a millisecond or finer and stated that this will better reflect the 

speed at which orders are executed today.467  

The Commission is adopting the updates to the timestamp conventions to measure time-

based statistics in increments of a millisecond or finer as proposed for the reasons discussed in 

the Proposing Release.468 Requiring that Rule 605 reports include timestamp information in 

 

463  See id. 

464  See Better Markets Letter at 8. 

465  See Healthy Markets Letter at 17 (recommending that the Commission adopt these time buckets pursuant to 

an attachment to the Rule, rather than the Rule itself, to facilitate the easy updating of these buckets). 

466  Id. 

467  See Robinhood Letter at 46. 

468  See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023). 



130 

millisecond increments will allow for meaningful points of comparison among market centers or 

broker-dealers.469  

A broker-dealer stated that although it supports transitioning time-to-execution metrics to 

smaller increments of time, it is concerned that more granular timestamps may lead to greater 

variation across firms because firms may have different practices around when to mark the same 

event, quotation information may vary materially due to geographic latency, and SIP data are 

likely to vary from proprietary feeds.470 This commenter stated that the Commission should 

address these potential issues with timestamps to ensure that execution quality statistics for 

brokers are not misleading, biased, or inconsistent.471 However, evidence suggests that 

geographic latencies, which may account for the majority of latency differences experienced by 

the SIP, are currently below a millisecond.472 Therefore, any distortions related to latencies are 

likely to be smaller than the timestamp granularity. Further, it is likely that distortions may be 

reduced by using finer timestamp conventions that more closely align to existing market practice, 

as the NBBO that is matched to a particular order is likely to be closer to the NBBO at the time 

of order receipt.473 Reporting firms generally should record the time of order receipt at the time 

that the firm first receives the order and the time of order execution at the time of execution as 

included on the trade confirmation. 

 

469  See id. Reporting entities that choose to utilize a timestamp convention finer than a millisecond generally 

should utilize that same convention throughout their detailed report required by Rule 605(a)(1) for a 

particular month.  

470  See Robinhood Letter at 47-48. 

471  See id. at 48. 

472  See infra note 1461 and accompanying text. 

473  See id. 



131 

One individual investor, who expressed concern related to the proposal, stated that 

focusing on the speed of execution only benefits high-frequency traders who can take advantage 

of small price discrepancies to make quick profits.474 This commenter stated that he is more 

concerned with getting a fair price for his trades than the speed of execution.475 The Commission 

is retaining time-to-execution statistics in Rule 605 reports for the reasons discussed herein. 

Different investors benefit from faster execution times for different reasons. With respect to 

individual investors in particular, delays in execution can lead to worse prices for market orders 

in an increasing (for buy orders) or decreasing (for sell orders) market and lower probabilities of 

execution for IOCs.476 However, amended Rule 605 does not focus on speed to the exclusion of 

other important aspects of execution quality, including fill rates and price improvement. 

The Commission is adopting, as proposed, the requirement that average time-to-

execution statistics be calculated for all order types, including non-marketable order types.477 

The Commission is also adopting, as proposed, the requirement that average time to execution 

for non-marketable order types be measured from the point in time that orders become 

executable because this will provide a control for prevailing market conditions and benchmark 

orders from a point when such orders can reasonably be expected to execute.  

An industry group raised concerns with reporting time to execution when the size of the 

customer’s order exceeds the size of the opposite-side bid or offer and suggested that time-to-

execution statistics for marketable orders should only consider the time to execution for shares 

 

474  See Gillmore Letter. 

475  See id. 

476  See infra notes 1476-1477 and accompanying text. 

477  See final 17 CFR 242.605(a)(1)(ii)(G), (I), and (L); final 17 CFR 242.605(a)(1)(iii)(D). See also Proposing 

Release, 88 FR 3786 at 3813 (Jan. 20, 2023). 



132 

executed by a reporting firm during the time period prior to the order first becoming 

unmarketable.478 This commenter stated that firms that receive marketable orders that are larger 

relative to the opposite-side displayed NBBO quantity would show a longer time to execution as 

compared with firms that receive marketable orders that are smaller relative to the opposite-side 

displayed NBBO quantity, and in this way reported performance would be impacted by factors 

that do not reflect a true comparison of the execution performance across firms.479 In addition, a 

broker-dealer stated that execution time statistics should be required only for market orders 

because marketable limit orders (including NMLOs that become marketable) may be partially 

executed or may exceed the consolidated quote size and it would be difficult to interpret this data 

without more context and information.480 Another commenter stated that the execution speed 

metric for marketable limit orders should be limited to size available at the best protected quote 

at the far touch because this will ensure that orders larger than the quoted size that take out the 

best price and are posted for the balance do not skew the statistics.481 

The Commission is not adopting these commenters’ suggestions to limit the application 

of time-to-execution statistics to take into account concerns about marketable limit orders that 

exceed the available quantity at the opposite side bid or offer. The Commission disagrees with 

 

478  See FIF Letter II at 3-4. In an earlier comment letter, this commenter had suggested that the time-to-

execution period should only consider the portion of an order that is marketable at the time of order receipt 

or, alternatively, only count towards the time of execution the period during which the order is marketable. 

See FIF Letter at 18. See also FIF Letter II at 3 (amending its suggestion after further discussions). 

479  See FIF Letter at 17-18; FIF Letter II at 3. This commenter also requested confirmation that time to 

execution should not be reported for unfilled shares and that unfilled shares would be reflected through the 

reporting of the number of shares of covered orders and the number of shares cancelled prior to execution. 

See FIF Letter at 18. The Commission agrees that, as is currently the case, the time to execution for unfilled 

shares will not be required to be reported as part of the time-to-execution statistics because their inclusion 

could distort the statistics. See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring disclosure of “the 

cumulative number of shares of covered orders” executed in less than 100 microseconds) (emphasis added). 

480  See Rule 605 Citadel Letter at 10. 

481  See Schwab Letter II at 32. 



133 

restricting time-to-execution statistics so that they apply to market orders only because time-to-

execution statistics will provide meaningful information for all marketable and non-marketable 

order types and the time it takes to execute an initially marketable limit order that becomes non-

marketable is still relevant.482 The Commission also disagrees with the suggestion that it is 

necessary to limit time-to-execution statistics to the time it takes to execute the size available at 

the opposite side quote or the time it takes to first exhaust available liquidity to avoid skewed 

statistics. If a covered order receives a partial execution, the share-weighted time-to-execution 

statistics will consider the execution time of each subset of shares that received an execution and 

will not consider any subset of shares that does not receive an execution, and this will help 

mitigate against partial executions distorting time-to-execution statistics.483 Similarly, if some 

shares of a covered order execute more quickly than others due to the availability of liquidity, the 

share-weighted time-to-execution statistics will take into account the time to execution for each 

subset of shares. Other available information will allow users of Rule 605 reports to control for 

these types of factors and facilitate their ability to interpret time-to-execution statistics for 

marketable limit orders. In particular, Rule 605 statistics will be categorized by order type and 

size and this categorization will provide useful context to understand time-to-execution statistics. 

For example, larger-sized orders may be more likely to exceed the consolidated quote size and 

the time-to-execution statistics for covered orders that fall within different size ranges will 

appear in separate rows. 

 

482  See supra note 480 and accompanying text. 

483  Requiring that average time-to-execution statistics be calculated for non-marketable order types from the 

point in time that they become executable will realize the benefits of including those orders in the statistics 

while, at the same time, minimizing the distortions that could occur if time-to-execution statistics included 

the time during which such orders were non-marketable. 



134 

Individual investors and a national securities exchange supported the proposed addition 

of median and 99th percentile time-to-execution statistics for all order types.484 However, an 

industry group recommended an alternative to the reporting of the median and 99th percentile 

statistics because of its view that market participants and other firms analyzing Rule 605 data 

would not be able to aggregate these statistics across symbols and order types.485 The commenter 

stated that “it is important that users of the report have the ability to aggregate this data . . . 

across different sub-categories of orders.” 486 Specifically, this commenter recommended that 

firms report share-weighted average time to execution without adjusting for outliers and 

separately report share-weighted average time to execution with an adjustment for outliers.487 In 

addition, an investor advocacy group suggested that the Commission modify the required time-

to-execution buckets for all order types to time buckets that can be adjusted over time rather than 

requiring average time-to-execution statistics.488 

 The Commission agrees with the commenter that it would not be possible to aggregate 

median or 99th percentile time-to-execution statistics across symbols or order types.489 Although 

median or 99th percentile time-to-execution statistics may have provided useful information in 

each individual row (i.e., representing a particular symbol, order type, and order size), users of 

the reports would have been unable to aggregate these statistics across multiple rows without the 

 

484  See supra notes 457, 459-461, and accompanying text. 

485  See FIF Letter at 21-22; FIF Letter II at 7-9; FIF Letter III at 3. 

486  FIF Letter III at 3. 

487  See FIF Letter at 21-22. This commenter suggested that, for example, the share-weighted average time to 

execution that is adjusted for outliers could exclude the one percent of orders with the longest time to 

execution. See id. 

488  See supra notes 465-466 and accompanying text. 

489  See supra note 485 and accompanying text. 



135 

full underlying dataset because the median and 99th percentile values cannot be aggregated 

across different stocks or order types. The inability to aggregate these statistics would have made 

them less useful because the final rule amendments will result in more rows of information, and 

the median and 99th percentile time-to-execution statistics would only have provided 

information to compare more discrete subsets of Rule 605 data. Therefore, the Commission is 

not adopting its proposal to require the reporting of median and 99th percentile time-to-execution 

statistics for all order types. 

 The Commission is not adopting the commenter’s suggestion that, instead of requiring 

median and 99th percentile time-to-execution statistics, the Commission should require the 

separate reporting of average time to execution with outliers and without outliers.490 The 

Commission does not agree that these alternative metrics would solve the identified problem 

because the method of identifying outliers, such as the longest 1% of orders, would also prevent 

aggregation across multiple rows. As is the case with median and 99th percentile statistics, any 

cut-off selected as the means to identify outliers would not be constant across different stocks or 

order types and thus interfere with aggregation.  

 As another means of providing such distribution information, and consistent with the 

alternative that the Commission considered in the Proposing Release491 and a commenter’s 

suggestion,492 the Commission is retaining the time-to-execution buckets in place prior to the 

amendments and modifying these buckets to incorporate additional granularity. The Commission 

continues to believe that information about the distribution of order execution speeds is useful 

 

490  See supra note 487 and accompanying text. 

491  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

492  See supra notes 465-466 and accompanying text. 



136 

because orders may execute near instantaneously or over the course of several minutes and thus 

average time-to-execution statistics in some instances could be skewed by outlier values. The 

amended time-to-execution buckets that the Commission is adopting will provide information 

about the distribution of execution times at a more granular level. This information will allow 

market participants and other users of the data to assess how quickly a market center or broker-

dealer is able to execute incoming orders and better understand whether and to what extent the 

average time to execution within a particular category may be affected by outlier values. 

 The adopted time-to-execution buckets differ from the time-to-execution buckets that 

existed in Rule 605 prior to the amendments in two respects. First, the Commission is utilizing 

new time ranges for the time-to-execution buckets to make the buckets more granular in 

recognition of increased execution speeds and consistent with comment. As adopted, the time-to-

execution bucket ranges are: (1) less than 100 microseconds; (2) 100 microseconds to less than 1 

millisecond; (3) 1 millisecond to less than 10 milliseconds; (4) 10 milliseconds to less than 1 

second; (5) 1 second to less than 10 seconds; (6) 10 seconds to less than 30 seconds; (7) 30 

seconds to less than 5 minutes; and (8) 5 minutes or more.493 The Commission is selecting these 

amended time-to-execution bucket ranges based on its analysis of the distribution of shares 

across various time-to-execution buckets.494 The Commission’s analysis demonstrates that most 

market and marketable limit orders have execution times clustered in the faster buckets and most 

at-the-quote NMLOs have execution times in the slower buckets.495 The time-to-execution 

 

493  See final 17 CFR 242.605(a)(1)(i)(G) through (N). The Commission is not specifying time ranges for the 

time-to-execution bucket in a separate attachment as suggested by a commenter (see supra note 465) and is 

instead adopting set time buckets. 

494  See infra Figure 20 and Figure 21. 

495  See infra note 1466; Figure 21. 



137 

buckets that the Commission is adopting are designed to best capture variations in execution 

times across different order types.  

 Specifically, the Commission is including a time-to-execution bucket of less than 100 

microseconds in order to provide visibility into differences in execution times for IOCs. Most 

IOCs execute in less than 100 microseconds and the distribution of some IOCs across slower 

time-to-execution buckets will allow market participants to use Rule 605 reports to identify IOCs 

that are outliers with respect to execution time.496 The Commission is also adopting a time-to-

execution bucket of 100 microseconds to less-than-one millisecond that will capture an 

additional set of sub-millisecond orders. The inclusion of sub-millisecond orders in distinct time-

to-execution buckets is consistent with the commenter’s suggestion to utilize more granular time 

buckets for orders executed in less than 500 microseconds and for orders executed in between 

500 microseconds and 1 millisecond.497 The two adopted time-to-execution buckets for orders 

executed from 1 millisecond to less than 1 second are similar to the commenter’s 

recommendation for sub-second time buckets,498 but utilize two time-to-execution buckets 

instead of the suggested three based on the Commission’s analysis of order distribution.499 The 

time-to-execution buckets for orders executed from 1 second to less than 10 seconds and from 10 

seconds to less than 30 seconds are comparable to the two shortest time-to-execution buckets in 

the preexisting rule.500 The longest time-to-execution buckets being adopted are comparable to 

 

496  See infra note 1465; Figure 20. 

497  See supra notes 465-466 and accompanying text.  

498  See supra note 465 and accompanying text. 

499  See supra notes 494-495 and accompanying text. 

500  See prior 17 CFR 242.605(a)(1)(i)(F) (for covered orders executed from 0 to 9 seconds after the time of 

order receipt) and (G) (for covered orders executed from 10 to 29 seconds after the time of order receipt). 



138 

the longest time-to-execution buckets in the preexisting rule, but combine the second- and third-

longest buckets based on the Commission’s analysis of order distribution.501 

 Under the amended rule, the Commission is adopting time-to-execution buckets at the 

sub-millisecond level while also adopting a timestamp convention that will not require the use of 

reporting increments finer than a millisecond. These two aspects of Rule 605 are not inconsistent 

because the time-to-execution buckets will not require reporting entities to record time in 

microseconds. Instead, reporting entities that record time at the millisecond-level only generally 

should bucket orders based on the difference between the recorded time of order receipt (or 

executability in the case of NMLOs) and the recorded time of execution.502 Accordingly, a 

reporting entity that records time in milliseconds generally should report in milliseconds and will 

not be able to identify orders as being completed in less than 100 microseconds; therefore, this 

time-to-execution bucket will remain empty.503 

 Second, when calculating where an NMLO falls within a time-to-execution bucket, time 

to execution will be calculated from the time the order becomes executable.504 Prior to the 

amendments, Rule 605 reporting requirements included only those NMLOs that fell within 

limited order type categories (i.e., inside-the-quote limit orders, at-the-quote limit orders, and 

near-the-quote limit orders) and the preexisting time-to-execution buckets contemplated that, for 

all orders, the relevant time period to be measured was from the time of order receipt to the time 

 

501  See prior 17 CFR 242.605(a)(1)(i)(I) (for covered orders executed from 60 seconds to 299 seconds after the 

time of order receipt) and (J) (for covered orders executed from 5 minutes to 30 minutes after the time of 

order receipt). 

502  See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring reporting of “[t]he cumulative number of shares of 

covered orders executed less than 100 microseconds after the time of order receipt; or, for non-marketable 

limit orders, after the time the order becomes executable”). 

503  See note 496 and accompanying text (stating that most IOCs execute in less than 100 microseconds). 

504  See, e.g., final 17 CFR 242.605(a)(1)(i)(G). 



139 

of order execution.505 Calculating where NMLOs fall within the time-to-execution buckets 

utilizing the time the order becomes executable rather than the time of order receipt is consistent 

with how the Commission proposed, and is adopting, to measure other time-based execution 

quality statistics for NMLOs.506 

4. Execution Quality Statistics 

Preexisting Rule 605(a)(1) required market centers to include in their monthly reports 

columns of detailed execution quality information. For all order types, the required statistics 

included information on the number of orders; cumulative number of shares; cumulative number 

of shares cancelled prior to execution; cumulative number of shares executed at the receiving 

market center and at any other venue; and average realized spread.507 In addition, for market 

orders and marketable limit orders, the required statistics included information on the average 

effective spread; cumulative number of shares executed with price improvement, at the quote, 

and outside the quote; for shares executed with price improvement, the share-weighted average 

amount per share that prices were improved; and for shares executed outside the quote, the share-

weighted average amount per share that prices were outside the quote.508 

As described further herein, the Commission proposed to modify the execution quality 

statistics required for all order types and marketable order types, and to add execution quality 

statistics specific to non-marketable order types. As proposed, the required statistics for all order 

types would have included information on the number of orders; cumulative number of shares; 

 

505  See, e.g., prior 17 CFR 242.605(a)(1)(i)(F). 

506  See supra note 455 and accompanying text.  

507  See prior 17 CFR 242.605(a)(1)(i). 

508  See prior 17 CFR 242.605(a)(1)(ii). For a discussion of the time-to-execution statistics in the current rule, 

see supra section III.B.3. 



140 

cumulative number of shares cancelled prior to execution; cumulative number of shares executed 

at the receiving market center, broker, or dealer, and at any other venue; cumulative number of 

shares of the full displayed size of the protected bid or offer at the time of execution; average 

realized spread and average percentage realized spread at two time intervals; average effective 

spread; average percentage effective spread; and average effective over quoted spread.509 In 

addition, the required statistics for marketable order types and beyond-the-midpoint limit orders 

would have included the cumulative number of shares for shares executed with price 

improvement, at the quote, and outside the quote; share-weighted average amount per share that 

prices were improved; share-weighted average amount per share that prices were outside the 

quote; and price improvement statistics relative to the best available displayed price.510 Finally, 

for non-marketable order types the required statistics would have included the number of orders 

that received a complete or partial fill, and cumulative number of shares executed regular way at 

prices that could have filled the order while the order was in force.511 

Several individual investors generally supported the proposal to add new execution 

quality statistics.512 One of these individual investors stated that the proposed enhancements to 

the required statistical measures of execution quality will provide valuable insights for 

investors.513 Another individual investor stated that the proposed modification to reporting 

requirements for NMLOs would capture more relevant execution quality information for these 

 

509  See Proposing Release, 88 FR 3786 at 3903-04 (Jan. 20, 2023). 

510  See id. at 3904. 

511  See id. at 3904-05. For a discussion of the proposed modifications to time-to-execution statistics as 

discussed in the Proposing Release, see supra section III.B.3. 

512  See, e.g., Prichard Letter; Varghese Letter; Welch Letter. 

513  See Varghese Letter.141 

orders.514 However, an individual investor that expressed concerns about the proposal stated that 

the proposed amendments to execution quality statistics “do not address the fundamental of 

market fragmentation, where orders are routed to different venues depending on their likelihood 

of being executed quickly and cheaply.”515 

An industry group stated that the Commission does not appear to have considered the 

impact of variable tick sizes for securities, as contemplated by the proposed harmonization of 

quoting and trading increments discussed in the Minimum Price Increments Proposing Release, 

on market participants’ ability to compare execution quality over several months.516 This 

commenter suggested that there should be some mechanism by which investors are informed of 

how to interpret Rule 605 reports in situations where the tick size is recalibrated and it impacts 

reported execution quality.517 

A group of academics stated that although some of the new disclosure requirements may 

be helpful for a subset of trades, they suggest limiting changes to the Rule 605 statistics to the 

new order size categories, including new categories for fractional shares and odd-lots, and E/Q 

statistics.518 These commenters stated that these adjustments would reduce implementation costs 

and speed up adoption.519 However, although limiting the changes to order size categories and 

E/Q statistics could potentially reduce costs and speed implementation, the other adopted 

 

514  See Genco Letter. 

515  See Gillmore Letter. The proposed changes to Rule 605’s execution quality metrics are not intended to 

reduce market fragmentation. Instead, the Commission expects that these changes will ameliorate the 

potentially adverse effects of market fragmentation on efficiency, price transparency, best execution of 

investor orders, and order interaction. 

516  See SIFMA Letter II at 20. 

517  See id. at 21. The Commission is still considering the proposal to change tick sizes discussed in the 

Minimum Pricing Increments Proposing Release. 

518  See Professor Schwarz et al. Letter at 5. 

519  See id. 



142 

modifications to the execution quality statistics described herein are designed to enhance the 

disclosures required by prior Rule 605. Even if the Commission were to limit the amendments to 

order sizes and E/Q statistics, preexisting market centers would still need to adjust their systems 

and processes to capture new information and new reporting entities would need to develop their 

systems and processes to capture the required execution quality statistics.  

The Commission received many comments concerning specific execution quality 

statistics and discusses these comments below. Further, with respect to the proposed execution 

quality statistics in general, an academic suggested adding median data in addition to average 

data because, according to this commenter, “fat tails” can make average numbers “highly 

misleading.”520 This commenter also generally suggested that percentages should be included 

along with dollar amounts.521  

The Commission is adopting the proposed detailed execution quality statistics with 

several adjustments. In the subsections below, the Commission discusses the comments received 

and the execution quality statistics being adopted as they pertain to: (1) realized spread, (2) 

average effective spread, (3) percentage-based effective and realized spread, (4) effective over 

quoted spread, (5) size improvement, (6) riskless principal, (7) price improvement, and (8) 

relative fill rate.522 In response to the commenter’s suggestion to add median data and 

percentages, as described herein, the Commission is adopting additional statistics that will 

provide modified time-to-execution buckets, percentage-based statistics that will complement 

 

520  See Angel Letter at 4. 

521  See id. 

522  For a discussion of the time-to-execution statistics that the Commission is adopting and the changes made 

to those statistics as compared to what was proposed, see supra section III.B.3. For a discussion of the 

cumulative notional value of covered orders statistic that the Commission is adopting, see supra notes 376-

378 and accompanying text. 



143 

certain dollar-based statistics, and an average midpoint statistic that will make it possible to 

calculate percentages relevant to other statistics. 

a) Realized Spread 

(1) Proposed Approach 

Prior to these amendments, Rule 605 required calculation of average realized spread for 

executions of all covered orders and this metric was calculated by comparing the execution price 

of an order and the midpoint of the NBBO as it stands 5 minutes after the time of order 

execution.523 The Commission proposed to shorten this time horizon and require that average 

realized spread be calculated 15 seconds and 1 minute after the time of execution in recognition 

of the increased speed of the contemporary market environment.524 The Commission proposed to 

require realized spreads to be calculated at both intervals in order to provide relevant information 

for symbols with different liquidity characteristics.  

(2) Final Rule and Discussion 

The Commission is adopting the proposed realized spread time horizons of 15 seconds 

and 1 minute for the realized spread statistics required for all order types. After considering 

comments received, the Commission is also adding shorter time horizons of 50 milliseconds and 

1 second, and additionally retaining preexisting Rule 605’s requirement to calculate realized 

spread 5 minutes after the time of order execution. In total, there will be five realized spread time 

horizons: 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes.  

 

523  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). For buy orders, realized spread was calculated 

as double the amount of difference between the execution price and the midpoint of the NBBO 5 minutes 

after the time of order execution. For sell orders, realized spread was calculated as double the amount of 

difference between the midpoint of the NBBO 5 minutes after the time of order execution and the execution 

price. See id. 

524  See id. at 3815. 



144 

A national securities exchange, an investor advocacy group, and an individual investor 

supported the proposed changes to realized spread.525 However, an industry group and two 

broker-dealers opposed the continued inclusion of realized spread statistics and recommended 

that the Commission remove these statistics from Rule 605’s reporting requirements.526 The 

industry group stated that it was concerned that this data element is being misused as a proxy for 

certain firm profits.527 One of the broker-dealers stated that “the Commission’s assertion that 

realized spread can serve as a proxy for liquidity provider profitability has been thoroughly 

discredited, including by academic research.”528 The other broker-dealer stated that realized 

spread statistics are not a measure of profitability because they ignore inputs that impact 

profitability, including inventory holding costs, fixed costs, and transaction rebates and fees.529 

This commenter further stated that “there is a risk that such measurements are improperly used 

… as a proxy for liquidity providers’ profitability.”530  

The Commission observes that commenters to the original Rule 11Ac1-5 proposal also 

questioned the usefulness of a realized spread statistic and recommended that it be eliminated.531 

When adopting Rule 11Ac1-5, the Commission stated that average realized spread is an essential 

measure for evaluating a market center’s order execution practices.532 Average realized spread 

 

525  See Better Markets Letter at 8; Nasdaq Letter at 44; Pritchard Letter. See also Schwab Letter III at 3 

(supporting the inclusion of realized spread statistics in the summary report to provide “better transparency 

regarding the distinct characteristics of order flow among brokers”). 

526  See SIFMA Letter II at 31; Rule 605 Citadel Letter at 8; Virtu Letter II at 11. 

527  See SIFMA Letter II at 31. 

528  Rule 605 Citadel Letter at 8-9 (stating that realized spread does not consider the actual exit trade, does not 

account for fixed or variable costs, and cannot compare a large “parent” order with smaller “child” orders). 

529  See Virtu Letter II at 11-12. 

530  Id. at 12. 

531  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75424 (Dec. 1, 2000). 

532  See id. 



145 

remains an essential measure for evaluating execution quality because it measures the portion of 

the spread that liquidity providers earn in excess of adverse selection.533 Liquidity providers’ 

adverse selection risk represents the risk that market prices will move against them before they 

can unwind their accumulated positions. A lower average realized spread can indicate that prices 

have moved in a direction more adverse to the liquidity provider after the order was executed. 

Thus, a low average realized spread can indicate that a liquidity provider was providing liquidity 

at a time when prices were moving against it. In addition, average realized spread can provide 

useful information about the type of order flow a larger broker-dealer receives because smaller 

(or even negative) realized spreads reflect that liquidity providers are earning less of the spread 

from their liquidity provisions, which is usually a reflection of order flow with greater adverse 

selection risk. Therefore, the Commission is retaining the metric, and is adopting the 15 second 

and 1 minute time horizons as proposed along with additional time horizons as discussed below, 

to make the metric more useful in relation to current market speeds.  

The Commission stated in the Proposing Release that to the extent realized spreads 

capture adverse selection costs faced by liquidity providers, they provide a measure of the 

potential profitability of trading for liquidity providers.534 The Commission does not maintain 

that realized spread is a measure of a firm’s overall profitability.535 Instead, realized spread 

statistics allow market participants to identify those market centers willing to supply liquidity 

during stressed markets or when prices are moving quickly, and to evaluate larger broker-

dealers’ order execution or routing practices, as well as to understand the type of order flow a 

 

533  See infra note 1230 and accompanying text. 

534  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). 

535  See infra note 1232 and accompanying text. 



146 

particular broker-dealer may be handling. One commenter, in the context of summary reports, 

stated that realized spread can be used to calculate price impact (when combined with effective 

spread statistics), which “would provide better transparency regarding the distinct characteristics 

of order flow among brokers.”536 For both market centers and larger broker-dealers, realized 

spread can allow market participants to control for the extent to which orders submitted by 

persons with better information than is generally available in the market are routed to different 

market centers or received by different broker-dealers, as compared to orders submitted by 

persons without an information advantage. Orders submitted by persons with such an 

information advantage represent a substantial risk to liquidity providers that take the other side of 

the position.  

Several commenters discussed the proposed time horizons for measuring realized spread. 

An investor advocacy group stated the 15 second and 1 minute time horizons “better capture the 

reality of today’s fast-paced market transactions and align well with the available academic 

literature.”537 An industry group stated that the Commission has not provided a rational basis for 

its method of calibrating the realized spread timeframes and, in particular, has not appropriately 

analyzed inventory turnover, thereby making the proposed 15 second and 1 minute timeframes 

 

536  Schwab Letter III at 3. Similarly, an industry group advocated including realized spread statistics in the 

summary report in order to provide a means of assessing the impact of order flow that market participants 

may classify as more or less informed as well the size of an order relative to the average daily value of the 

stock. See FIF Letter at 31-32. Because realized spreads will be measured using the price at the time of 

order execution, and effective spreads will be measured using the price at the time of order receipt (or order 

executability, in the case of NMLOs and midpoint-or-better limit orders), the decomposition of realized 

spreads into effective spreads and price impact will not be exact. See infra note 1484 for further discussion. 

537  Better Markets Letter at 8.  



147 

arbitrary with respect to inventory turnover.538 A broker-dealer stated that “[r]ealized spread 

assumes that liquidity providers exit each position in a costless manner at the end of a fixed 

period and is highly dependent on the time horizon used to make the calculation” and questioned 

the Commission’s choice of 15 seconds and 1 minute.539 This commenter stated that “[w]hile 

mark-out metrics like realized spread might have limited use in comparing samples of otherwise 

substantially similar order flow, these metrics become largely useless when attempting to 

compare different types of order flow or market centers.”540 Another broker-dealer stated that it 

is unclear what the Commission’s basis is for “bluntly” measuring realized spreads at 15 seconds 

and 1 minute.541 Another investor advocacy group recommended that to best identify adverse 

selection, realized spread should be calculated on even shorter time horizons, including 50 

milliseconds and 100 milliseconds.542 

As discussed in the Proposing Release, requiring realized spread information at different 

time horizons will provide investors with relevant information for more liquid stocks and more 

thinly traded stocks.543 The Commission selected the 15 second and 1 minute time horizons for 

calculating realized spread based on its own analysis, which was supported by several 

 

538  See SIFMA Letter II at 31-32. This commenter further stated that it does not believe a one-size-fits-all 

metric can work because market participants have different views regarding the appropriate time periods 

for measuring realized spread and the appropriate period can vary based on the specific symbol or type of 

order flow involved. See id. at 32. 

539  See Rule 605 Citadel Letter at 8. 

540  Id. 

541  See Virtu Letter II at 12. 

542  See Healthy Markets Letter at 17. 

543  See Proposing Release, 88 FR 3786 at 3815-16 (Jan. 20, 2023). 



148 

commenters and aligned with existing academic literature.544 However, several commenters 

questioned the Commission’s basis for measuring realized spreads at 15 seconds and 1 minute.545 

In the Proposing Release, the Commission acknowledged that both shorter (50 millisecond, 100 

millisecond) and longer (3 minute, 5 minute) time horizons would provide useful information for 

certain groups of stocks, but stated that each additional time horizon adds computational burden 

and increases the size and complexity of reports.546 Further, in the Proposing Release, the 

Commission analyzed the decline in realized spreads of increasing time horizons in order to 

determine when a significant percentage of the decline in realized spread had been captured.  

The Commission replicated its realized spread analysis from the Proposing Release, using 

data from Q1 2023, and in both analyses the cumulative decline in realized spread captured at 

different time horizons varies by market capitalization.547 These results indicate that, consistent 

with the Commission’s statement in the Proposing Release,548 both shorter and longer time 

horizons than those proposed will provide useful information for certain subsets of stocks.  

 

544  See id. at 3814, n.367 (citing Jennifer S. Conrad & Sunil Wahal, The Term Structure of Liquidity 

Provision, 136(1) J. FIN. ECON. 239-259 (2020)) and at 3815. In response to the commenter’s statement that 

the Commission has not appropriately analyzed inventory turnover (see supra note 538 and accompanying 

text), the Commission observes that although an ideal measurement horizon would align with the amount 

of time that an average liquidity provider holds only inventory positions established from providing 

liquidity, these data are not easily observable. See infra note 1489 and accompanying text. Instead, the 

Commission’s analysis of realized spreads in the Proposing Release was based on the theoretically 

motivated and empirically observed decline in realized spreads over increasing time horizons, similar to the 

academic literature. See infra notes 1490-1491 and accompanying text. 

545  See supra notes 537-541 and accompanying text. 

546  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

547  See id.; infra Table 7. In the Proposing Release, the analysis showed that most of the difference in realized 

spread was captured for the largest stocks at 15 seconds, and more than half of the difference was captured 

for smaller cap stocks at one minute. See Proposing Release, 88 FR 3786 at 3815 (Table 1) (Jan. 20, 2023). 

Similarly, the analysis using Q1 2023 data shows approximately 90% of the cumulative decline in realized 

spread is captured by the 15-second horizon for the largest market capitalization group, compared to only 

about 50% for the smaller market capitalization groups. At the one-minute horizon, approximately 75% of 

the realized spread is captured for the smaller market capitalization groups. See infra Table 7. 

548  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



149 

After consideration of the comments and the Commission’s original and updated 

analysis, the Commission is adopting two shorter time horizons (50 milliseconds and 1 second) 

and one longer time horizon (5 minutes, consistent with prior Rule 605) in addition to the two 

time horizons that were proposed (15 seconds and 1 minute).549 The time horizons of 50 

milliseconds and 1 second are in line with the commenter’s suggestion that the Commission 

include shorter time horizons to better capture adverse selection.550 Further, as discussed below, 

the 50 millisecond time horizon is appropriate for large capitalization stocks. The 1 second time 

horizon offers another point of comparison along the range of time horizons and aligns with a 

realized spread measure that industry analysts often use.551 The Commission is also adopting the 

requirements to calculate realized spread at 15 seconds and 1 minute, which were the time 

horizons proposed. Finally, the Commission is retaining the requirement in place prior to the 

amendments to calculate realized spread at 5 minutes. The results of the Commission’s replicated 

realized spread analysis continue to show that a 5 minute time horizon is informative for illiquid 

 

549  See also infra notes 833-838 and accompanying text for discussion of the addition of average realized 

spread to the summary report. 

550  See supra note 542 and accompanying text (suggesting that realized spread should be calculated on even 

shorter time horizons, including 50 milliseconds and 100 milliseconds). The Commission considered 50 

and 100 millisecond time horizons as part of its updated analysis, consistent with the commenter’s 

suggestion to add 50 and 100 millisecond time horizons (see infra note 1492), but, based on this analysis, 

determined that one very fast time horizon, such as 50 milliseconds, among a wider range of time horizons 

will be beneficial, for the reasons described below. 

551  See, e.g., Bringing the Power of Signal V6 to D-Limit, IEX (Oct. 31, 2023), available at 

https://www.iex.io/article/bringing-the-power-of-signal-v6-to-d-limit; Mackintosh, Phil, What Markouts 

Are and Why They Don't Always Matter, Nasdaq (July 2020) available at 

https://www.nasdaq.com/articles/what-markouts-are-and-why-they-dont-always-matter-2020-07-23; and 

Mackintosh, Phil, All-in Economics to Trade Are What Matters Most, available at 

https://www.nasdaq.com/articles/all-in-economics-to-trade-are-what-matters-most. 



150 

stocks.552 Thus, requiring realized spread at five time horizons will better capture variation553 

among different capitalization stocks with different liquidity profiles than the two proposed 

thresholds alone. 

In response to commenters critical of the Commission’s basis for its selection of realized 

spread time horizons,554 the Commission performed additional empirical analyses of optimal 

realized spread time horizons for robustness. The Commission examined the amount of noise in 

price impact measures to analyze the time horizon that incorporates the lowest amount of noise 

into measurements of price impact.555 For the largest stocks, the signal-to-noise ratio begins to 

decline immediately, even at very fast time horizons.556 This latter result supports including a 

very fast time horizon, such as 50 milliseconds, consistent with a comment received.557 

However, the ratio starts to flatten out after the 1 minute horizon for smaller stocks and for 

medium to large stocks after 15 seconds.558 Further, for the two smaller stock groups, the results 

show a small but steady increase in the signal-to-noise ratio as the time horizon increases, 

implying that realized spread measures are becoming more informative as the noise in the price 

impact component decreases. This result supports including a longer time horizon, i.e., 5 

minutes, which maximizes the signal-to-noise ratio for these stocks.559 These additional 

 

552  See infra Table 7.  

553  Offering a range of realized spread time horizons is also consistent with industry practice, in which a range 

of time horizons is used to compare adverse selection with so-called “mark-out curves.” See, e.g., supra 

note 551. 

554  See supra notes 538 and 541.  

555  See infra Figure 22 and Figure 23 

556  See infra Figure 23.  

557  See supra note 542. 

558  See infra Figure 23.  

559  See id.  



151 

empirical analyses also support a range of realized spread time horizons, consistent with the 

amended time horizons.  

b) Average Effective Spread 

(1) Proposed Approach 

Prior to these amendments, Rule 605 required firms to calculate average effective spread 

for market and marketable limit order types only.560 Preexisting Rule 600(b)(8) defined “average 

effective spread” as the share-weighted average of effective spreads for order executions 

calculated, for buy orders, as double the amount of difference between the execution price and 

the midpoint of the national best bid and national best offer at the time of order receipt and, for 

sell orders, as double the amount of difference between the midpoint of the national best bid and 

national best offer at the time of order receipt and the execution price.561  

The Commission proposed to expand effective spread reporting requirements to require 

that firms report average effective spread statistics for all covered orders, and to modify the 

methodology for calculating this metric for executable NMLOs, beyond-the-midpoint limit 

orders, and executable stop orders.562 Specifically, the Commission proposed to revise the 

definition of “average effective spread” to provide that, for order executions of NMLOs563 and 

orders submitted with stop prices, average effective spread be calculated from the time the order 

becomes executable.564 

 

560  See prior 17 CFR 242.605(a)(1)(ii)(A). 

561  See prior 17 CFR 242.600(b)(8).  

562  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

563  See proposed Rule 600(b)(10). As proposed, beyond-the-midpoint limit orders would have been a type of 

NMLO. See Proposing Release, 88 FR 3786 at 3816, n.385 (Jan. 20, 2023). 

564  See proposed Rule 600(b)(10). See also Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



152 

(2) Final Rule and Discussion 

The Commission is adopting a requirement to report effective spread statistics for 

marketable order types (i.e., market orders, marketable limit orders, and marketable IOCs), 

marketable stop order types, and midpoint-or-better order types, but is not adopting the proposal 

to expand the effective spread reporting requirement to other non-marketable order types. For 

marketable stop order types and midpoint-or-better order types, average effective spread will be 

measured from the time that the order becomes executable.  

One broker-dealer suggested that the Commission should reconsider whether to require 

firms to report effective spread statistics for NMLOs because “effective spread is not widely 

accepted as a meaningful measure of execution quality for NMLOs.”565 This commenter stated 

that the proposed effective spread metric for NMLOs does not measure a dimension of execution 

quality that is likely to differ across market centers or be affected much by where an order is 

routed.566 This commenter further stated that “[f]or orders submitted outside the NBBO, 

[effective spread] essentially amounts to negative one times the quoted spread at the moment the 

order becomes executable” and “shows better execution when the quoted spread is wider.”567 

After consideration of the comments, the Commission is adopting a modified version of 

the proposed amendments. The Commission is adopting amendments that will expand effective 

spread reporting requirements to include marketable stop order types and midpoint-or-better 

order types, in addition to market and marketable limit order types as required by the preexisting 

 

565  Virtu Letter II at 12. See also infra notes 609-611 and accompanying text (describing a commenter’s 

suggestion that the Commission remove reporting of E/Q for all orders and not add price improvement 

statistics for non-marketable group orders). 

566  See Virtu Letter II at 12.  

567  Id.  



153 

rule. However, the Commission is not adopting the proposed requirement to require average 

effective spread statistics for all covered orders, and thus is not requiring reporting for other non-

marketable order types. The Commission is also revising the proposed definition of “average 

effective spread” to specify that, for order executions of marketable stop order and midpoint-or-

better limit orders, average effective spread is calculated from the time the order becomes 

executable. In effect, the adopted amendments require average effective spread for all marketable 

order types (i.e., market orders, marketable limit orders, and marketable IOCs), marketable stop 

orders, and midpoint-or-better order types.  

The Commission acknowledged in the Proposing Release that average effective spread 

for NMLOs and orders submitted with stop prices would measure something different than the 

average effective spread for marketable order types.568 Generally, because these orders are less 

aggressively priced, average effective spread would not measure the price paid for immediacy of 

execution as it would for marketable order types.569 Instead it would provide a measure of the 

amount a liquidity provider could expect to earn for providing liquidity.570 As the commenter 

states, this amount would generally vary based on the width of spread, which is outside the 

control of the reporting entities that are receiving orders for execution. Therefore, average 

effective spread for NMLOs and stop NMLO orders may not provide a useful measure to 

distinguish between market centers or larger broker-dealers and thus the Commission has 

determined not to adopt this proposed metric. The exception is with respect to midpoint-or-better 

 

568  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 

569  See id. 

570  See id. 



154 

limit orders, which in some cases behave more like marketable orders.571 Similar to market and 

marketable limit orders, some inside-the-quote limit orders are submitted by traders with the 

intention of executing immediately, in this case against hidden or odd-lot inside-the-quote 

liquidity. Because midpoint-or-better order types are more aggressively priced, the average 

effective spread metric will also measure the price these orders could expect to pay for 

immediacy. Further, requiring average effective spread for midpoint-or-better order types is 

consistent with requiring the same statistics for this order type as are required for marketable 

order types (for example, price improvement statistics).  

Finally, because marketable stop orders will be either market orders or marketable limit 

orders at the time they are triggered (i.e., at the time they are executable), measuring effective 

spread from the point of executability will also measure the price these orders pay for immediacy 

once triggered. Therefore, as described in section III.A.2.b) above, the Commission is requiring 

the same statistics for marketable stop orders as for other marketable order types, including 

average effective spread.  

c) Percentage Spreads (Effective and Realized) 

(1) Proposed Approach 

Prior to these amendments, Rule 605 statistics included the average realized spread and 

average effective spread for executions of covered orders, and these statistics provide dollar-

based spread data.572 The Commission proposed to add a requirement that effective spread and 

realized spread also be reported as percentages.573 The proposed definitions for “average 

 

571 See infra note 1209 and accompanying text. 

572  See prior 17 CFR 242.605(a)(1)(i)(K) and (a)(1)(ii)(A). 

573  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 



155 

percentage effective spread” and “average percentage realized spread” would have: (1) utilized 

the dollar-based effective and realized spread statistics for the numerator; (2) utilized the 

midpoint of the NBBO at either the time of order receipt (for marketable order types) or the time 

an order first becomes executable (for non-marketable order types) as the denominator; and 

(3)then the result would be averaged on a share-weighted basis for the month.574  

(2) Final Rule and Discussion 

The Commission is adopting the proposed requirement to disclose percentage-based 

spread statistics for average realized spread and average effective spread. However, the 

Commission is modifying the proposed definitions of “average percentage effective spread” and 

“average percentage realized spread” to use a new defined term (“average midpoint”) in the 

denominator. Doing so will eliminate any ambiguity about how to calculate these statistics, as 

described in more detail below. In addition, the Commission is making the percentage effective 

spread statistic applicable to marketable order types, marketable stop order types, and midpoint-

or-better limit order types only, rather than all order types as proposed. Further, the Commission 

is adding a requirement to include an average midpoint statistic, which serves as the denominator 

of percentage-based spread statistics, in the detailed reports required pursuant to Rule 605(a)(1). 

An investor advocacy group stated that a percentage-based spread measure would 

provide additional information where there is a significant price change in a security during the 

month.575 In addition, an industry group stated its agreement with the approach proposed by the 

Commission for calculating average percentage effective spread.576 Specifically, this commenter 

 

574  See id. at 3816-17. 

575  See Better Markets Letter at 8. 

576  See FIF Letter at 29. 



156 

described share-weighted average percentage spread as the sum of effective spread per share 

times shares executed divided by the sum of the midpoint times shares executed.577  

The Commission continues to believe including percentage-based statistics for effective 

spread and realized spread, in addition to the dollar-based statistics in the existing report, will 

account for differing underlying stock prices and better facilitate comparisons of spread statistics 

across different time periods and securities.578 In order to simplify the definitions and eliminate 

ambiguity about how to calculate percentage-based spread statistics, and because the 

Commission is requiring the separate disclosure of an average midpoint statistic as described 

below, the Commission is modifying the adopted definitions of “average percentage effective 

spread” and “average percentage realized spread” to use defined terms. As proposed, both 

percentage-based spread statistics would have been share-weighted and used as their 

denominator the midpoint of the national best bid and national best offer at the time of order 

receipt or, for non-marketable limit orders, beyond-the-midpoint limit orders, and orders 

submitted with stop prices, at the time such orders first become executable.579  

A commenter stated it interpreted the definition of share-weighted average percentage 

spread as the ratio of share-weighted effective spread divided by share-weighted midpoint.580 

However, based on the commenter’s interpretation, the Commission acknowledges that it is 

ambiguous whether the modifier “share-weighted” in the proposed amendment applied to: (1) the 

percentage calculation (i.e., calculating the percentage effective spread or percentage realized 

 

577  See id. 

578  See Proposing Release, 88 FR 3786 at 3816-17 (Jan. 20, 2023). 

579  See id. at 3817; proposed Rule 600(b)(11) (average percentage effective spread) and proposed Rule 

600(b)(12) (average percentage realized spread). 

580  See supra note 577. 



157 

spread for each transaction and then share-weighting such percentage);581 or (2) each of the 

denominator and the numerator (i.e., calculating the share-weighted average effective or realized 

spread and dividing that by the share-weighted midpoint).582 Therefore, in order to simplify these 

definitions and eliminate ambiguity as to how percentage-based spread statistics will be required 

to be calculated, and consistent with the commenter’s interpretation of how to calculate this 

statistic, the Commission is modifying the definitions of “average percentage effective spread” 

and “average percentage realized spread” from the definitions proposed.  

Specifically, “average percentage effective spread” will be defined as the average 

effective spread583 for order executions divided by the average midpoint for order executions.584 

“Average percentage realized spread” will be defined as the average realized spread585 for order 

executions divided by the average midpoint for order executions.586 As proposed, the definitions 

of “average percentage effective spread” and “average percentage realized spread” used as their 

numerators the share-weighted effective spread and the share-weighted realized spread, 

respectively.587 However, because “average effective spread” and “average realized spread” are 

defined as share-weighted averages, the Commission is instead using the defined terms “average 

effective spread” and “average realized spread” as the numerator in order to simplify the adopted 

 

581  See Proposing Release, 88 FR 3786 at 3817, n.392 (Jan. 20, 2023) and accompanying text (stating the 

percentage would be averaged on a share-weighted basis). 

582  See id. at 3816-17 (stating “this [referring to the denominator] would then be averaged on a share-weighted 

basis for the month”). 

583  See final 17 CFR 242.600(b)(8). 

584  See final 17 CFR 242.600(b)(10). See also 17 CFR 242.600(b)(9) (defining average midpoint). 

585  See final 17 CFR 242.600(b)(13).  

586  See final 17 CFR 242.600(b)(11). 

587  See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023); proposed Rule 600(b)(11) (average percentage 

effective spread) and proposed Rule 600(b)(12) (average percentage realized spread). 



158 

definitions of “average percentage effective spread” and “average percentage realized spread.” 

Instead of repeating the same definition of average midpoint in each of the percentage-based 

spread definitions as proposed, the Commission is adopting the defined term “average midpoint” 

and will use this term in the denominator (i.e., average midpoint for order executions). “Average 

midpoint” will be defined as the share-weighted average of the midpoint of the national best bid 

and national best offer at either the time of order receipt or, for non-marketable limit orders, 

midpoint-or-better limit orders, and orders submitted with stop prices, at the time such orders 

first become executable.588 The term “average midpoint” as applied to order executions will be 

substantively the same as the proposed denominator for the percentage-based spread statistics.589 

Further, the Commission is adding an average midpoint statistic to the detailed report required by 

Rule 605(a)(1) so that certain statistics in the summary report—namely, average midpoint and 

the percentage-based statistics—will be derivable from the detailed report,590 as suggested by 

commenters.591 With the detailed report containing the information necessary to calculate the 

statistics in the summary report, market participants and other users of the reports will be able to 

recalculate the statistics in the summary report with different subsets of data.  

Finally, the Commission is requiring average percentage effective spread only for 

marketable order types, marketable stop order types, and midpoint-or-better order types for the 

 

588  See final 17 CFR 242.600(b)(9). The Commission is modifying the order types listed in the definition of 

average midpoint from the definition that was proposed to be included in both percentage-based spread 

statistics in order to conform to the order types adopted herein. See supra section III.B.2. 

589  The definition includes “share-weighted” to make clear that average midpoint is also a share-weighted 

statistic. See final 17 CFR 242.600(b)(9). 

590  See final 17 CFR 242.605(a)(1)(i)(Y); final 17 CFR 242.605(a)(2)(vi), (vii), (viii), (x), and (xi). 

591  See infra note 769 and accompanying text. 



159 

same reasons that the Commission is requiring average effective spread only for these order 

types.592 

d) Effective over Quoted Spread (E/Q) 

(1) Proposed Approach 

Effective over quoted spread (“E/Q”) can be derived from Rule 605 reports required prior 

to these amendments, but the prior Rule did not require the reporting of E/Q or quoted spread.593 

The Commission proposed to require, for executions of all covered orders, that reporting entities 

report the average E/Q, expressed as a percentage, for all marketable and non-marketable order 

types.594 The proposed definition “average effective over quoted spread” would have required 

the computation of a share-weighted average E/Q by dividing effective spread by quoted spread 

for each transaction and then averaging that over the month (weighted by number of shares).595 

The quoted spread would have been the difference between the national best bid and the national 

best offer at either the time of order receipt (for marketable order types) or the time an order first 

becomes executable (for non-marketable order types).596  

(2) Final Rule and Discussion 

The Commission is adopting a statistic for average E/Q, expressed as a percentage, but 

with a modified weighting methodology to utilize spread-based weighting rather than the 

proposed weighting methodology of share-weighting the E/Q for each transaction. In addition, 

 

592  See supra notes 568-571 and accompanying text. 

593  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

594  See id. E/Q is generally expressed as a percentage that represents how much price improvement an order 

received. An E/Q of 100% means a buy order was executed at the national best offer or a sell order was 

executed at the national best bid, and an E/Q of 0% means an order was executed at the midpoint of the 

NBBO. See id. 

595  See id. 

596  See id. 



160 

the Commission is making the average E/Q statistic applicable to marketable order types, 

marketable stop order types, and midpoint-or-limit order types only, instead of all order types. 

Further, the Commission is adding a requirement to include average quoted spread, which is the 

denominator of average E/Q, in the detailed reports required pursuant to Rule 605(a)(1). 

A financial services firm stated that E/Q is a “very common metric used within the 

industry to judge execution quality” and that it “does a good job of providing a normalized 

comparison of price improvement relative to the price improvement opportunity.”597 Another 

financial services firm stated that “E/Q directly quantifies how much of the spread the broker 

secures for its investor-client” and “[i]ncluding E/Q on Rule 605 reports will enable investors to 

make ‘apples to apples’ comparisons of execution quality.”598 In addition, an investor advocacy 

group stated that requiring a separate field in Rule 605 reports for E/Q allows market participants 

to compare price improvement statistics across securities and across market centers and broker-

dealers.599  

However, several commenters recommended that the Commission require spread-based 

weighting, rather than share-based weighting, for the calculation of average E/Q and indicated 

that the industry uses spread-based weighting when calculating E/Q.600 One industry group stated 

that spread-based weighting “results in the same amount of E/Q being reported for the same 

aggregate dollar amount of E/Q being provided.”601 This commenter further stated that the 

 

597  Schwab Letter II at 31. 

598  Vanguard Letter at 4. 

599  See Better Markets Letter at 8. 

600  See FIF Letter at 23; SIFMA Letter II at 27; Schwab Letter II at 31; Schwab Letter III at 4; Rule 605 

Citadel Letter at 5. 

601  FIF Letter at 23.161 

method of weighting can influence the reported E/Q metrics and, using share-based or notional-

based weighting, a firm that provides a lower aggregate dollar amount of price improvement 

relative to a second firm could result in the first firm reporting a lower E/Q than the second firm, 

even though this lower E/Q would not reflect that customers received better executions.602 

Another industry group stated that a share-weighting formula would tend to weigh sub-dollar 

stocks more heavily and could allow a firm to manipulate its average E/Q by adjusting the type 

of stocks for which it provides better price improvement.603 This commenter also stated that 

using a spread-weighting formula would preserve the relationship between price improvement in 

dollars and E/Q and therefore the firm’s E/Q would remain the same regardless of how the firm 

distributes its price improvement among different stocks.604  

Similarly, a financial services firm stated share-weighting detaches E/Q from the ability 

to understand it in the context of the opportunity for price improvement and this “opens the door 

for possible manipulation of results.”605 This commenter also stated that wholesalers’ 

discretionary price improvement dollars are fungible and that share-weighting of E/Q would 

result in an incentive to provide more price improvement on narrow spread securities and less 

price improvement on wide spread securities.606 A broker-dealer stated that a share-weighted 

methodology may incentivize market participants to allocate price improvement to lower priced 

securities with narrower quote spreads.607 This commenter recommended the use of a spread-

 

602  See id. at 23-24. 

603  See SIFMA Letter II at 27. 

604  See id. 

605  Schwab Letter III at 4. 

606  See Schwab Letter II at 31; Schwab Letter III at 4. 

607  See Rule 605 Citadel Letter at 5. 



162 

weighted average because a spread-weighted average would be tied to the total price 

improvement delivered in dollars and unaffected by how that price improvement is allocated 

among different symbols.608 

An industry group and a financial services firm suggested that Rule 605 reports not 

include E/Q and leave it to users of the report to calculate E/Q from other statistics that are 

currently included in the reports.609 The industry group further stated that the Commission was 

inconsistent when it proposed requiring the reporting of E/Q for non-marketable order types but 

not requiring the reporting of price improvement statistics for such order types.610 This 

commenter provided four alternative approaches to address this perceived inconsistency, but did 

not recommend two of the alternatives because they required the reporting of E/Q and did not 

recommend a third alternative because, according to the commenter, price improvement is only a 

relevant statistic for marketable orders.611 

After review of the comments, as stated above, the Commission is adopting a 

requirement that Rule 605 reports include a statistic for average E/Q, expressed as a percentage, 

 

608  See id. This commenter provided examples of how the same amount of price improvement in dollars can 

generate different share-weighted average E/Q statistics depending on the symbols to which it is allocated, 

whereas spread-weighting yields the same E/Q in each scenario. See id. at 5, 13.  

609  See FIF Letter at 20-21 (stating that for marketable order types, it is not necessary to include E/Q in the 

detailed reports required by Rule 605(a)(1) because E/Q can be derived from other data that is already 

included and this data, specifically, is found in the price improvement, price dis-improvement, and 

effective spread statistics); Schwab Letter II at 31 (suggesting that the reports include effective spread and 

quoted spread and then allow individuals to compute E/Q). 

610  See FIF Letter at 21. As described in supra section III.B.4.b)(2), the Commission is requiring effective 

spread statistics only for marketable order types, marketable stop order types, and midpoint-or-better order 

types, rather than all order types as proposed. As described in more detail below, the Commission is 

requiring E/Q only for these same order types. Further, the required statistics for each of these order types 

also include price improvement statistics. See final 17 CFR 605(a)(1)(ii)(E) through (L). Therefore, there 

are no order types for which Rule 605 will require the reporting of E/Q but not price improvement 

statistics.  

611  See FIF Letter at 21. 



163 

but is adjusting the weighting methodology from the proposal. The Commission is adopting a 

spread-weighted average E/Q statistic, consistent with commenters’ suggestions.612 In addition, 

the Commission is requiring average E/Q only for marketable order types, marketable stop order 

types, and midpoint-or-better order types, rather than all order types as proposed. Because 

spread-weighted average E/Q is the same as average effective spread divided by average quoted 

spread, in lieu of creating a separate definition for “average effective over quoted spread” as 

proposed, Rule 605 as adopted specifies that the required statistics for marketable order types, 

marketable stop order types, and midpoint-or-better order types include, for executions of 

covered orders, the average effective spread divided by the average quoted spread, expressed as a 

percentage.613 The Commission is also requiring that Rule 605 reports include a reported statistic 

for average quoted spread and is defining “average quoted spread” as the share-weighted average 

of the difference between the national best offer and the national best bid at the time of order 

receipt or, for order executions of non-marketable limit orders,614 the difference between the 

national best offer and the national best bid at the time such orders first become executable.615 

Thus, Rule 605 as adopted also will specify that the required statistics for marketable order 

types, marketable stop order types, and midpoint-or-better order types include, for executions of 

covered orders, average quoted spread.616 

 

612  See supra notes 600-608 and accompanying text.  

613  See final 17 CFR 242.605(a)(1)(ii)(D).  

614 Because the requirement to report average quoted spread applies only to market orders, marketable limit 

orders, marketable IOCs, marketable stop order types, and the midpoint-or-better order types, the only non-

marketable limit orders this will apply to are the midpoint-or-better order types and marketable stop order 

types (which are non-marketable until triggered). See final 17 CFR 242.605(a)(1)(ii)(A).  

615  See final 17 CFR 242.600(b)(12); final 17 CFR 242.605(a)(1)(ii)(A); final 17 CFR 242.605(a)(2)(viii). See 

also infra notes 817-827 and accompanying text for discussion of E/Q and quoted spread statistics in the 

summary report. 

616  See final 17 CFR 242.605(a)(1)(ii)(A).  



164 

The Commission agrees with commenters that the use of a spread-weighting 

methodology will provide a consistent measure of E/Q that will not vary based on the specific 

symbols to which price improvement is allocated.617 The adopted methodology will avoid a 

potential incentive to allocate price improvement in a manner that would maximize the reported 

E/Q statistic without changing the total dollar value of the price improvement provided. Thus, 

the use of a spread-weighted average E/Q is consistent with the Commission’s stated goal of 

facilitating the comparability price improvement statistics across symbols.618 In addition, the 

Commission acknowledges that the industry generally uses spread-weighting when calculating 

E/Q619 and thus, as stated by a commenter, will provide a “normalized comparison of price 

improvement relative to the price improvement opportunity”620 that is consistent with existing 

industry practice.  

The adopted definition of “average quoted spread” is the same as the description of “total 

quoted spread” that was embedded in the proposed definition of “average effective over quoted 

spread,” with two modifications from the embedded definition as proposed.621 First, the 

Commission is specifying that average quoted spread is a share-weighted average. Second, the 

Commission is limiting the list of order types for which the average quoted spread will be 

required to be measured at the time the order first becomes executable to conform to the order 

 

617  See supra notes 600-608 and accompanying text. 

618  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

619  See supra note 600 and accompanying text. 

620 See supra note 597. 

621  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). The substantive difference between the two is 

that “average quoted spread” as adopted will reflect the share-weighted average of quoted spreads of all 

transactions for the month within a reporting category, whereas “average effective over quoted spread” 

would have divided effective spread by quoted spread for each transaction and then used a share-weighted 

average of that number over the month. See id. 



165 

types being adopted herein. The inclusion of an average quoted spread statistic in Rule 605 

reports will provide an additional piece of information that market participants and other users of 

the reports can use to evaluate execution quality. Moreover, in response to the commenters who 

stated that E/Q could be calculated using the effective spread and quoted spread statistics and 

that the Commission should allow users to derive E/Q,622 as stated in the Proposing Release, E/Q 

is a relatively simple metric to capture contemporaneously with execution and requiring a 

separate field for E/Q will increase the ability of market participants to access and utilize E/Q to 

compare price improvement statistics across securities, and across market centers and broker-

dealers.623 

In addition, because effective spread is a necessary input into E/Q, the Commission is not 

adopting the application of E/Q to non-marketable order types other than midpoint-or-better 

order types (and marketable stop order types, which are generally non-marketable orders upon 

receipt).624 Accordingly, the Commission will include E/Q within the statistics required for 

marketable order types, marketable stop order types, and midpoint-or-better order types only.625 

e) Size Improvement 

(1) Proposed Approach 

Prior to the amendments, Rule 605 reports included price improvement metrics but did 

not include any statistics that directly measured whether orders received an execution of more 

 

622  See supra note 609.  

623  See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). See also infra notes 1534-1537 (discussing that 

the concern in the Proposing Release that extrapolating an average E/Q using average effective spread and 

average quoted spread may lead to a noisier level of E/Q is no longer relevant with the use of a spread-

weighted average E/Q).  

624  See supra section III.B.4.b)(2).  

625  See final 17 CFR.605(a)(1)(ii)(D).  



166 

than the displayed size at the quote.626 The Commission proposed adding a benchmark metric 

that would, in combination with information about shares executed, indicate the level of “size 

improvement,” i.e., the extent to which orders received an execution at prices at or better than the 

quote for share quantities greater than the displayed size at the quote.627 Specifically, the 

Commission proposed requiring the reporting of the cumulative number of shares of the full 

displayed size of the protected bid at the time of execution, in the case of a market or limit order 

to sell; and of the full displayed size of the protected offer at the time of execution, in the case of 

a market or limit order to buy.628 As proposed, for each order, the share count would have been 

capped at the order size if the full displayed size of the national best bid or national best offer is 

larger than the order.629 The Commission explained that the proposed size improvement 

benchmark metric could be combined with information about the number of shares executed at 

or above the quote to measure a market center or broker-dealer’s ability to offer customers 

execution at the quote (or better), even when there is no depth available at that price.630 

(2) Final Rule and Discussion 

The Commission is adopting a modified version of the proposed size improvement 

benchmark metric that measures the displayed size at the time of order receipt (or the time the 

order becomes executable for midpoint-or-better order types) instead of measuring the displayed 

size at the time of order execution as proposed. The Commission is also modifying the proposed 

 

626  Although share-weighted effective spread metrics may provide information about size improvement 

because effective spread will be larger for orders that have to “walk the book” (i.e., consume available 

depth beyond the best-priced quotes), effective spread combines both price and size information. See 

Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

627  See id. at 3818. 

628  See id.; proposed Rule 605(a)(1)(i)(F). 

629  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023); proposed Rule 605(a)(1)(i)(F). 

630  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 



167 

size improvement benchmark metric by having it apply only to marketable order types, 

marketable stop order types, and midpoint-or-better order types rather than all order types, as 

proposed. Finally, based on comments received, the Commission is adopting an additional size 

improvement metric (as discussed below, “size improved outsized shares”) that was not part of 

the proposal and indicates the amount of size improvement in those instances in which an order 

could have received size improvement. 

Several commenters supported adding a requirement that Rule 605 reports include the 

proposed size improvement benchmark metric.631 A broker-dealer stated that the proposed size 

improvement metric would provide market participants with important information about an 

additional dimension of execution quality that is not captured by current Rule 605 statistics.632 

According to this commenter, this metric will be particularly beneficial for retail investors 

seeking to accurately assess execution quality delivered by wholesale broker-dealers.633 Another 

broker-dealer stated that size improvement is a “substantial benefit” offered by broker-dealers 

and market makers to retail orders and “its absence in Current Rule 605 reports means that 

execution quality is significantly undercounted.”634 This commenter requested an explanation of 

how fractional share orders should be addressed in certain statistics, for example size 

 

631  See Pritchard Letter; SIFMA Letter II at 25; SIFMA AMG Letter at 6; Rule 605 Citadel Letter at 11; 

CCMR Letter at 13. See also Nasdaq Letter at 44 (stating that size improvement opportunities are 

significant and relevant to best execution decisions). 

632  See Rule 605 Citadel Letter at 11. 

633  See id. (stating that, according to a recent study, factoring in size improvement more than doubled the 

dollar amount of price improvement reported by wholesale broker-dealers). 

634  Robinhood Letter at 46-47. This commenter opposed the proposed changes to Rule 605 but suggested 

expanding Rule 606 reports to add a column for size improvement, among other execution quality metrics. 

See id. at 42-43. 



168 

improvement statistics.635 Another commenter stated that it supported the addition of a size 

improvement metric because of its significant impact on transaction costs for retail investors.636  

An industry group stated that it agreed with the Commission on the value of including 

size improvement statistics, but opposed measuring size improvement based on the number of 

shares available at the time of execution.637 Instead, this commenter recommended measuring 

size improvement against the full displayed size at the opposite side of the NBBO as of the time 

of order receipt (for marketable group orders) or as of the time an order becomes executable (for 

non-marketable group orders).638 This commenter presented three scenarios to illustrate why it 

supports measuring size improvement against the full displayed size at the time of order receipt 

rather than at the time of execution.639 This commenter also stated that it assumes that where an 

order has multiple executions, the Commission would require adding the displayed size to the 

benchmark metric at the time of each execution, rather than counting the displayed size for only 

one execution.640  

 

635  See id. at 48 (asking how the displayed size and the time of execution of fractional share orders would be 

counted for purposes of the size improvement benchmark). 

636  See CCMR Letter at 13. 

637  See FIF Letter at 20. 

638  See id. This commenter stated that this method is how other statistics in the report, such as effective 

spreads, are measured. See id. 

639  See FIF Letter II at 4-7. In the first scenario, the customer’s order size is larger than the displayed size, and 

the commenter states its suggested approach would reflect this oversizing and provide for a more accurate 

comparison across brokers that receive customer orders that, on average, oversize the NBBO by different 

percentages. See id. at 4-5. In the second scenario, the customer’s order size is larger than the displayed 

size and results in price dis-improvement, and the commenter states that its suggested approach would 

require the broker-dealer to report price dis-improvement but would also include data to reflect that the 

broker-dealer received an order that oversized the opposite-side NBBO. See id. at 5-6. In the third scenario, 

a broker-dealer is delayed in executing the customer’s order due to a systems issue and the executed size is 

the same as the displayed size at the time of order receipt but larger than the displayed size at the time of 

order execution, and the commenter states that its suggested approach would correctly reflect that the 

broker-dealer did not provide size improvement. See id. at 6-7. 

640  See id. at 5, n.10, and 6, n.11. 



169 

Further, this commenter stated that a market could have protected bids and offers that are 

not represented in the NBBO but are at the same price as the NBBO, and these bids and offers 

are included in Level 1 market data.641 This commenter also stated that it understands that when 

the Commission refers to the cumulative number of shares of the full displayed size of the 

protected bid or offer, the Commission is including in this number shares of protected bids and 

offers that are not represented in the NBBO but are at the same price as the NBBO.642  

A broker-dealer stated that the proposal “falls well short of including the necessary 

statistics to reflect the benefits of size improvement.”643 This commenter stated that the proposed 

size improvement metric would be inadequate because it would include all orders in the 

calculation, even when there is no opportunity to provide size improvement, and thereby would 

dilute the amount and obfuscate the value of size improvement provided when the need for size 

improvement actually exists.644 This commenter suggested the following alternative metrics that, 

in its view, would more accurately reflect size improvement benefits obtained by each broker for 

its retail investor customers: (1) the number of orders for which the order size exceeded the 

available shares displayed on the relevant side of the NBBO (“outsized orders”); (2) the total 

number of shares executed as part of these outsized orders; and (3) the number (or percentage) of 

shares within the outsized orders that received size improvement (i.e., were executed at or better 

than the NBBO price, in excess of the amount of aggregate displayed liquidity at the NBBO).645  

 

641  See FIF Letter at 20. 

642  See id. 

643  Virtu Letter II at 5. 

644  See id. at 10. 

645  See id. According to this commenter, these metrics would be more informative because they would not 

include orders in which there was no need to provide size improvement. See id. 



170 

As discussed in the Proposing Release, this commenter also suggested in a petition for 

rulemaking to the Commission that Rule 605 should include an alternative metric, referred to as 

“real price improvement” (“RPI”), that combines price improvement with size improvement by 

using as its benchmark a price that reflects the equivalent size of shares—including depth of 

book quotes and odd-lot quotes.646 When the Commission described why it was not proposing to 

include an RPI benchmark or metric in the proposed rule, the Commission stated that although 

RPI may be a more informative measure of size improvement than a measure that can be 

calculated using the proposed size improvement benchmark metric, the RPI would require 

market centers and reporting broker-dealers to subscribe to all exchanges’ proprietary depth-of-

book data feeds and would entail a “significant cost” to reporting entities that did not already 

subscribe to these feeds.647 Therefore, the Commission preliminarily believed that the benefits to 

market participants of having an RPI metric were not justified by the potentially significant 

additional costs to reporting entities.648  

In commenting on this rulemaking, this commenter again suggested that the Commission 

add an RPI benchmark or metric to Rule 605 and responded to the Commission’s statement that 

such measure could be too costly for market participants who would need to subscribe to 

exchanges’ depth-of-book data feeds.649 According to this commenter, many brokers utilize 

 

646  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (citing Virtu Petition at 3). 

647  See id. 

648  See id. at 3818-19. 

649  See Virtu Letter II at 7 (“To truly and accurately measure execution quality, Rule 605 disclosures should be 

updated to compare fill prices for all orders to the average price in the market to fill the same number of 

shares considering all displayed quotes—including NBBO, depth of book, and odd lots.”), 10 (“To properly 

reflect the value of size improvement benefits that brokers obtain for retail investors, Rule 605 should 

measure an order’s execution price that is the volume-weighted average price (‘VWAP’) for an equivalent 

quantity of shares based on the shares available across exchanges.”). 



171 

vendors to produce Rule 605 reports and these vendors are capable of handling depth-of-book 

data.650 This commenter also stated that “if the Commission’s proposed tick size reductions are 

adopted, there would be less liquidity at the NBBO, and investors who currently use SIP data 

would have less visibility into market liquidity and would need to access the exchanges’ depth-

of-book data feeds anyway.”651 Another commenter suggested that the Commission undertake a 

more detailed analysis of the costs and benefits of requiring RPI statistics in Rule 605 reports and 

that the Commission should require the reporting of RPI information if this analysis “indicates 

that the benefits . . . outweigh the costs."652 According to this commenter, the Commission did 

not quantify either the costs of requiring reporting entities to have access to a full set of 

consolidated depth information or the benefits of providing this additional information about size 

improvement to market participants.653 Finally, one commenter stated that “[p]rice improvement 

should be measured relative to the displayed book, not the NBBO. Odd lots are ignored in the 

calculation of the NBBO.”654 

An investor advocacy group recommended eliminating the proposed size improvement 

metric until such a time when the public data feed contains more information regarding the depth 

 

650  See id. at 10. 

651  Id. The Commission is still considering the proposed changes discussed in the Minimum Pricing 

Increments Proposing Release, including changes to tick sizes. See Minimum Pricing Increments Proposing 

Release, 87 FR 80266 (Dec. 29, 2023). The Commission will consider comments regarding whether 

changes to tick sizes would lead to changes in the use of depth-of-book feeds in the context of that 

proposal. 

652  See CCMR Letter at 16. See also id. at 15 (stating that current Rule 605 disclosures fail to consider that 

there is a limited size available at the NBBO on exchanges, thus failing to account for size improvement, 

and price improvement should be measured with reference to the average price obtainable for the full order 

on the exchange, not just with reference to the NBBO). 

653  See id. at 16 (citing Proposing Release, 88 FR 3786 at 3894 (Jan. 20, 2023)). 

654  Angel Letter at 3. 



172 

of quotations.655 According to this commenter, accurately identifying size improvement would 

require proprietary depth of book feeds, and if the size improvement statistic relied solely on the 

SIP it would be misleading because it would not reflect the top of book across public quotes or 

hidden or mid-point priced orders.656 A group of academics stated that some of the proposed 

disclosure requirements, such as size improvement, may be helpful for a subset of trades, but 

recommended limiting changes to Rule 605 to a more limited set of statistics to reduce 

implementation costs and speed up adoption.657  

 The Commission considered the comments and, in response to commenter feedback, is 

modifying the proposed size improvement benchmark metric and adding an additional size 

improvement metric. Further, the Commission is requiring the disclosure of both size 

improvement metrics only for marketable order types, marketable stop order types, and 

midpoint-or-better order types, rather than for all order types as proposed. To implement these 

changes, the Commission is adopting a defined term for the size improvement benchmark 

metric—the “order size benchmark.” As adopted, “order size benchmark” means the number of 

shares of the full displayed size of all protected bids at the same price as the national best bid at 

the time of order receipt, in the case of a market or limit order to sell, or the full displayed size of 

all protected offers at the same price as the national best offer at the time of order receipt, in the 

case of a market or limit order to buy.658 For marketable stop order types and midpoint-or-better 

order types, the full displayed size is measured at the time the order becomes executable rather 

 

655 See Healthy Markets Letter at 18. 

656  See id. 

657  See Professor Schwarz et al. Letter at 5. 

658  See final 17 CFR 242.600(b)(72). 



173 

than the time of order receipt.659 For each order, the share count is capped at the order size.660 

The Commission is also modifying the proposed Rule 605(a)(1) metrics to require the reporting 

of, for executions of covered orders, the cumulative number of shares of the order size 

benchmark.661 The term “order size benchmark” is the same as the proposed size improvement 

benchmark metric, except in the following two respects. 

First, in response to the commenter who recommended the size improvement benchmark 

be captured at the time of order receipt,662 the Commission is modifying the time at which the 

order size benchmark measures the available displayed size on the opposite side of the NBBO. 

Instead of measuring the displayed size at the time of execution as proposed, the order size 

benchmark in the final rule measures displayed size at the time of order receipt, for market and 

marketable limit orders, and at the time an order becomes executable, for marketable stop order 

types and midpoint-or-better order types. Capturing the displayed size of the opposite side quote 

at the time of order receipt (or the time of executability for marketable stop order types and 

midpoint-or-better order types) provides a view of the available size at the time an order could 

first reasonably be expected to execute and therefore provides users of the Rule 605 data 

information relating to which market centers and broker-dealers are more likely to be able to fill 

orders in a size larger than what may be readily available. Using the time of order receipt (or 

time the order becomes executable) as in the final rule will simplify calculation of the order size 

benchmark because there will be one relevant time for each order, even if that order results in 

 

659  See id. 

660  See id. 

661  See final 17 CFR 242.605(a)(1)(ii)(R). 

662  See supra notes 637-639 and accompanying text. 



174 

multiple executions. In contrast, if the Commission required calculation of the order size 

benchmark at the time of execution as proposed, an order with multiple executions would have 

different times of execution for different portions of the order. The Commission also agrees with 

the commenter that measuring the displayed size at the time of execution could result in a less 

accurate picture of size improvement in some instances,663 particularly if some shares priced at 

the opposite side of the NBBO are displayed at the time of order receipt and then lifted before 

the time of execution.664  

Second, the Commission is adopting a modification to make clear that the order size 

benchmark measures the full displayed size of all shares at the same price as the protected bid or 

offer (as applicable).665 The Commission agrees with the commenter that the share count should 

be required to include not just those shares that are represented in the NBBO but also shares of 

protected bids and offers that are not represented in the NBBO but are at the same price as the 

NBBO.666 Reporting entities will be able to capture information about these shares without 

relying on proprietary depth-of-book feeds because the SIP includes all protected bids and offers. 

 

663  See supra note 637. This commenter also provided several scenarios presenting how the presentation of 

size improvement statistics would differ if size improvement is measured against the full displayed size at 

the time of order receipt (as suggested by the commenter) or the time of execution (as proposed). See supra 

note 639 and accompanying text. As described, final Rule 605 measures size improvement at the time of 

order execution. 

664  See supra note 639 In response to the commenter’s request for clarification about how to calculate size 

improvement for fractional shares (see supra note 635 and accompanying text), the order size benchmark is 

capped at the size of the order and therefore in the case of a fractional share order where the displayed size 

exceeds the order size, the order size benchmark will reflect the fractional size of the order. See final 17 

CFR 242.600(b)(72). The commenter’s question about how to calculate time of execution is moot because 

the adopted rule will measure the size improvement statistics at the time of order receipt rather than the 

time of execution. 

665  See final 17 CFR 242.600(b)(72). 

666  See supra notes 641-642 and accompanying text. 



175 

 The Commission considered commenter’s suggestions for alternative size improvement 

metrics.667 In response to the commenter’s recommendation to include the number of shares 

executed as part of outsized orders, the Commission observes that, using the Rule 605 statistics 

as adopted, it is possible to calculate the number of shares eligible for size improvement 

(“outsized share count”) for any row of Rule 605 data by taking the cumulative number of shares 

of covered orders received and subtracting the cumulative number of shares of the order size 

benchmark.668 Although the outsized share count that can be calculated using Rule 605 statistics 

as adopted differs slightly from the commenter’s recommended metric, it similarly addresses 

commenter’s criticism that the order size benchmark includes orders in which the reporting 

entity does not have the opportunity to provide size improvement because the order size is equal 

to or less than the available shares at the NBBO.669 The Commission is not adopting the 

commenter’s suggestion to include the number of outsized orders in the Rule 605 statistics 

because the number of outsized orders alone is less meaningful when this information is 

aggregated across orders.670 Instead, the outsized share count, which will be derivable from the 

Rule 605 statistics as adopted, will provide a metric that is more useful for comparison purposes 

when aggregated. 

The Commission agrees with the commenter that it would provide useful information to 

add a size improvement metric that will measure the level of size improvement in those instances 

 

667  See supra notes 645-653 and accompanying text. 

668  See final 17 CFR 242.605(a)(1)(i)(C); final 17 CFR 242.605(a)(1)(ii)(R).  

669  See Virtu Letter II at 10. 

670  For further discussion of the Commission’s consideration of alternative size improvement measures, see 

infra section IX.E.3.d)(3). 



176 

in which the order presents an opportunity for size improvement.671 Therefore, the Commission 

is adopting an additional Rule 605 statistic that will require reporting of the sum of, for each 

execution of a covered order, the greater of: the total number of shares executed with price 

improvement plus the total number of shares executed at the quote minus the order size 

benchmark; or zero (the “size improved outsized shares”).672 For each execution of a covered 

order, the total number of shares executed with price improvement plus the total number of 

shares executed at the quote represents the number of shares executed at or better than the 

opposite side of the NBBO at the time of order receipt (or executability). Subtracting the order 

size benchmark from that sum represents the extent to which the reporting entity provided such 

executions at a size greater than the displayed size at the quote. The resulting number can be 

negative if a reporting entity does not provide an execution at or better than the NBBO for the 

full number of displayed shares at the opposite side of the NBBO (i.e., there is “size dis-

improvement”). However, the size improved outsized shares metric is designed to capture the 

extent to which the reporting entity achieves size improvement when an order presents an 

opportunity for size improvement and as such will never be negative. Instead, for each execution 

of a covered order, the size improved outsized shares metric will be the greater of the described 

calculation and zero. As an example, assume the protected NBBO for a security is $5.00 - $5.05. 

If a market center receives a 400-share market order to sell and executes all 400 shares at $5.00, 

and there were 300 shares displayed at the national best bid at the time of order receipt, the order 

size benchmark will be 300 shares. To continue this example, the size improved outsized shares 

will be the greater of 100 shares (i.e., 400 shares minus 300 shares) and zero shares, and thus the 

 

671  See supra note 645 and accompanying text.  

672  See final 17 CFR 242.605(a)(1)(ii)(S). 



177 

size improved outsized shares will be 100 shares.673 As a second example, assume the protected 

NBBO for a security is $10.00 - $10.10. If a market center receives a 300-share market order to 

buy but only executes 100 shares at $10.10 and there were 200 shares displayed at the national 

best offer for $10.10 at the time of order receipt, the order size benchmark will be 200 shares. To 

continue this example, the size improved outsized shares will be the greater of – 100 shares (i.e., 

100 shares minus 200 shares) and zero shares, and thus the size improved outsized shares will be 

zero shares.  

 Where the size improved outsized shares will differ from information derivable from 

other execution quality statistics in final Rule 605 is in cases where there is size dis-

improvement, which may occur when some shares execute at prices worse than the quote or do 

not execute even though a sufficient number of shares are displayed at the quote. With respect to 

the information that can be derived from other Rule 605 statistics, as discussed in the Proposing 

Release, the order size benchmark can be compared to the number of shares executed at or better 

than the quote to calculate whether the reporting entity filled any portion of the customer order at 

the opposite side of the NBBO (or better), even when insufficient depth was available at that 

price (“net size improvement”).674 Unlike the size improved outsized shares, the net size 

improvement will take into account instances of size dis-improvement and, in such instances, 

 

673  The Commission is not adopting a metric that would reflect the percentage of shares within outsized orders 

that received size improvement because it will be possible to calculate this percentage using the outsized 

share count and the size improved outsized shares. 

674  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (discussing the “size improvement share 

count”). To better distinguish this term from size improved outsized shares, the Commission is using the 

term “net size improvement” herein instead of “size improvement share count.” 



178 

will take into account negative values.675 To continue the second example above, where the 

market center is able to fill 100 shares at $10.10 but the depth available at the protected offer is 

200 shares, the net size improvement will be – 100 shares (i.e., 100 shares minus 200 shares). 

The ability to compare size improved outsized shares and net size improvement will 

contain useful information for market participants as well. For example, market participants will 

be able to use this variable to tell the difference between a market center that has a net size 

improvement value of zero because it does not offer size improvement, or because it offers a mix 

of size improvement and size dis-improvement. This will be informative for market participants 

that are concerned about the risk of receiving size dis-improvement. Market participants and 

other users of Rule 605 reports will be able to divide the size improved outsized shares by the net 

size improvement to obtain a ratio that informs about the extent to which a reporting entity is 

executing orders with size dis-improvement. The higher the ratio (i.e., the higher it is above 1), 

the more size dis-improvement occurred. For example, assume a market participant compares 

two market centers for a particular order type, size, and security and calculates that Market 

Center 1 has net size improvement of 2,500 and size improved outsized shares of 4,000; and 

Market Center 2 has net size improvement of 5,000 and size improved outsized shares of 6,000. 

To continue this example, Market Center 1 would have a ratio of 8/5 (i.e., 4,000 / 2,500) and 

 

675  In cases where the best displayed quote equals or exceeds the order size (i.e., where there is no opportunity 

to provide size improvement), the size improved outsized shares will always be zero. In contrast, the net 

size improvement will not be negative in instances in which the depth at the best displayed quote exceeds 

the customer-requested order size because the share count used to calculate the order size benchmark will 

be capped at the order size. The Commission’s analysis of the correlation between the proposed measure of 

size improvement and this additional measure of size improvement indicates that including information 

about size improved outsized shares will likely provide information that is not available from the net size 

improvement. See infra note 1548 and accompanying text; Table 8. This analysis also indicates that these 

size improvement metrics convey different information about execution quality than the price improvement 

metrics contained in Rule 605 reports prior to these amendments, particularly for orders received by off-

exchange market centers. See infra note 1548 and accompanying text; Table 8. 



179 

Market Center 2 would have a ratio of 6/5 (i.e., 6,000 / 5,000), indicating that orders received 

size dis-improvement more frequently on Market Center 1 than on Market Center 2.676 In 

addition, market participants can standardize the size improved outsized shares by dividing this 

metric by the outsized share count.677 

 Finally, the Commission is limiting the application of the size improvement metrics to 

marketable order types, marketable stop order types, and midpoint-or-better order types, rather 

than to all order types as proposed. The order size benchmark is more useful in conjunction with 

information about the number of shares executed at, better than, or worse than the NBBO,678 and 

these statistics are available only for marketable order types, marketable stop order types, and 

midpoint-or-better order types in Rule 605 as amended. Further, the size improved outsized 

shares metric is more informative when it can be compared to net size improvement and 

providing information about size improved outsized shares without a view of net size 

improvement could be misleading. In addition, NMLOs generally do not have an expectation of 

execution at the price of the protected quote at the time of order receipt and therefore providing 

 

676  In this simplified example, it is possible to compare the overall size improvement percentage (calculated by 

dividing the net size improvement by the outsized share count) to the size improvement outsized shares 

percentage (calculated by dividing the size improved outsized shares by the outsized share count) to see the 

difference between these two metrics. To continue the above example, assume that Market Center 1 has an 

outsized share count of 10,000 and Market Center 2 has an outsized share count of 20,000. Market Center 1 

and Market Center 2 would each have 25% overall size improvement, indicating that Market Center 1 and 

Market Center 2 achieved similar amounts of overall size improvement. Market Center 1 would have 40% 

size improved outsized shares and Market Center 2 would have 30% size improved outsized shares. Market 

Center 1’s higher size improved outsized shares percentage, combined with the fact that it has the same 

overall size improvement percentage as Market Center 2, indicates that orders received size dis-

improvement more frequently on Market Center 1 than Market Center 2. 

677  See infra note 1547 and accompanying text. 

678  See final 17 CFR 242.605(a)(1)(ii)(E), (H), and (I). For example, the count of shares executed at or better 

than the NBBO is necessary to calculate net size improvement.  



180 

information about the size available at that price is less informative.679 Therefore, the 

Commission is not requiring the order size benchmark or the size improved outsized shares 

metric for non-marketable order types other than midpoint-or-better order types.  

The Commission is not adopting a metric based on RPI.680 As the Commission stated in 

the Proposing Release, RPI would require market centers and reporting broker-dealers to 

subscribe to all exchanges’ proprietary depth-of-book feeds and these subscriptions would entail 

a significant cost for those reporting entities that do not already subscribe to the feeds.681 

Although a commenter states that many broker-dealers use vendors to prepare Rule 605 reports 

that can handle depth-of-book data,682 Rule 605 does not require use of a vendor and the 

Commission does not assume that all reporting entities will choose to use a vendor. Moreover, if 

vendors need to subscribe to all exchanges’ proprietary depth-of-book feeds for purposes of 

preparing Rule 605 reports, these vendors may pass on these costs to the reporting entities. 

 In response to the commenter’s suggestion that the Commission should not adopt Rule 

605 metrics concerning size improvement, among others, because of concerns about 

implementation costs and adoption speed,683 reporting entities will have the underlying raw data 

necessary to calculate the order size benchmark and the new size improved outsized shares 

metric because they are already capturing this information for trade confirmations or internal 

purposes or will be easily able to obtain this information from publicly available data sources. 

 

679  Information about the size available at the protected quote may be more informative for midpoint-or-better 

order types because the Commission understands that some traders submit inside-the-quote limit orders 

with the intention of executing immediately. 

680  For further discussion of the RPI metric, see infra section IX.E.3.d)(1). 

681  See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 

682  See supra note 650 and accompanying text. 

683  See supra note 657 and accompanying text.181 

Therefore, the inclusion of these metrics in Rule 605 reports will not make a significant 

difference in the costs or amount of time needed to implement the changes to Rule 605 being 

adopted.  

f) Riskless principal 

(1) Proposed Approach 

In effecting riskless principal transactions, a market center or broker-dealer submits a 

principal order to an away market center in order to fulfill a customer order. Upon execution at 

the away market center, the market center or broker-dealer that initially received the customer 

order (i.e., the receiving market center or broker-dealer) executes the customer transaction on the 

same terms as the principal execution. Prior to these amendments, a market center that executed 

the riskless principal leg of the trade (i.e., the receiving market center’s execution of the 

customer order on the same terms as the principal transaction) generally should have reported 

those orders in its Rule 605 statistics as part of the cumulative number of shares of covered 

orders that were executed at the receiving market center under Rule 605(a)(1)(i)(D), rather than 

as a part of the cumulative number of shares of covered orders executed at any other venue under 

Rule 605(a)(1)(i)(E).684 The Commission proposed to carve riskless principal orders out from 

Rule 605(a)(1)(i)(D) by providing that the number of shares of covered orders executed at the 

receiving market center, broker, or dealer excludes shares that the market center, broker, or 

dealer executes on a riskless principal basis.685 As a result, the market center that executes the 

 

684  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). In the Proposing Release, the Commission 

stated that Commission staff has taken the position that the market center executing an order as riskless 

principal should reflect the order on its monthly report as executed at such market center, and not at another 

venue, using the time that the order was executed at such market center. See id. (citing Staff Legal Bulletin 

No. 12R, “Frequently Asked Questions About Rule 11Ac1-5” (June 22, 2001)). 

685  See id.; proposed Rule 605(a)(1)(i)(D). 



182 

riskless principal order would have included these shares as part of the cumulative number of 

shares executed away from that venue under Rule 605(a)(1)(i)(E), and only the market center 

that executes the corresponding principal order would have included those shares as part of the 

cumulative number of shares executed at the receiving market center under proposed Rule 

605(a)(1)(i)(D). 

(2) Final Rule and Discussion 

The Commission is adopting the requirement that the calculation of the number of shares 

of covered orders executed at the receiving market center, broker, or dealer will exclude shares 

executed on a riskless principal basis as proposed, for the reasons described in the Proposing 

Release.686 Therefore, a receiving market center, broker, or dealer will reflect the execution of 

the principal order as executed at any other venue.687 For example, Market Center 1 receives a 

customer order for 100 shares that it executes on a riskless principal basis. Market Center 1 sends 

a corresponding principal order of 100 shares to Market Center 2, where it executes in full. Prior 

to these amendments, Market Center 1 generally would have counted 100 shares as executed at 

the market center (rather than away). Because Market Center 2 was the execution venue for the 

corresponding principal order, it also would have counted 100 shares executed at the market 

center (i.e., at Market Center 2). Under the amendments, Market Center 1 will instead count 100 

shares executed away and Market Center 2 will count 100 shares executed at the market center.  

A broker-dealer requested clarification regarding the Commission’s proposed changes to 

the treatment of riskless principal orders.688 This commenter stated that the “Proposal’s 

 

686  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(i)(E). 

687  Final 17 CFR 242.605(a)(1)(i)(F) (cumulative number of shares executed at any other venue). 

688  See Rule 605 Citadel Letter at 10. 



183 

suggestion” that the proposed change would make execution statistics more informative to 

market participants “is misleading.”689 According to this commenter, execution quality metrics 

reported under current Rule 605 “correctly take into account all orders routed to a wholesale 

broker-dealer (irrespective of where execution occurs) in order to provide a comprehensive view 

of the market center’s overall execution quality” and “[t]his would not change under the 

Proposal.”690 

The Commission agrees with the commenter that the execution quality statistics for these 

shares are already reported as part of Rule 605 reports (i.e., regardless of whether such shares are 

executed at a market center or away, market centers must include the statistics for such orders). 

However, modifying whether riskless principal orders are required to be classified as shares 

executed at a market center, broker, or dealer will make the Rule 605 statistics more informative. 

If both the market center that executes the riskless principal order and the away market center 

that executes the corresponding principal order count their legs of the transaction as part of their 

shares executed at the receiving market center, it could obscure information about how often a 

market center internalizes an order. As applied to wholesalers, it will be useful for investors to be 

able to observe what percentage of orders a wholesaler internalizes because internalized orders 

are not exposed to competition on an order-by-order basis, whereas the principal order associated 

with a riskless principal transaction may be exposed to trading interest from other market 

participants. In response to the commenter’s request for clarification, the Commission observes 

that it was referring to only proposed Rule 605(a)(1)(i)(D) and (E) (i.e., the statistics concerning 

the cumulative number of shares of covered orders executed at the receiving market center, 

 

689  See id. (citing Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023)). 

690  Id. 



184 

broker, or dealer and executed at any other venue) when it stated in the Proposing Release that 

Rule 605’s execution quality statistics would be more informative if riskless principal orders 

were reported as executed at another venue.691  

g) Price Improvement 

(1) Proposed Approach 

Preexisting Rule 605 required the reporting, for marketable order types, of: (1) the 

cumulative number of shares of covered orders (a) executed with price improvement, (b) 

executed at the quote, and (c) executed outside the quote; (2) for shares executed with price 

improvement, the share-weighted average amount per share that prices were improved; and (3) 

for shares executed outside the quote, the share-weighted average amount per share that prices 

were outside the quote.692 Under these preexisting requirements, an order executed at a price 

better than the NBBO would have been an order executed with price improvement. The MDI 

Rules expanded the data that will be made available for dissemination within the national market 

system (“NMS data”) and included certain odd-lot information in NMS data.693 While this odd-

 

691  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). 

692  See prior 17 CFR 242.605(a)(1)(ii)(B) through (I). “Executed with price improvement” means, for buy 

orders, execution at a price lower than the national best offer at the time of order receipt and, for sell orders, 

execution at a price higher than the national best bid at the time of order receipt. See final 17 CFR 

242.600(b)(45). “Executed at the quote” means, for buy orders, execution at a price equal to the national 

best offer at the time of order receipt and, for sell orders, execution at a price equal to the national best bid 

at the time of order receipt. See final 17 CFR 242.600(b)(42). “Executed outside the quote” means, for buy 

orders, execution at a price higher than the national best offer at the time of order receipt and, for sell 

orders, execution at a price equal to the national best bid at the time of order receipt. See final 17 CFR 

242.600(b)(44). 

693  See final 17 CFR 242.600(b)(69); MDI Adopting Release, 86 FR 18596 at 18613 (Apr. 9, 2021). 



185 

lot information will include pricing information for odd-lots priced inside the NBBO,694 using 

the Rule 605’s price improvement statistics prior to the amendments, there is no way for market 

participants to evaluate the performance of broker-dealers and market centers relative to such 

better-priced orders.  

The Commission proposed to add a definition for “best available displayed price,” which 

would include the best priced odd-lot if that price is inside the NBBO and to provide additional 

price improvement statistics related to the best available displayed price.695 Specifically, the 

Commission proposed to define “best available displayed price” as, with respect to an order to 

buy, the lower of (i) the national best offer at the time of order receipt or (ii) the price of the best 

odd-lot order to sell at the time of order receipt as disseminated pursuant to an effective 

transaction reporting plan or effective national market system plan; and, with respect to an order 

to sell, the higher of (i) the national best bid at the time of order receipt or (ii) the price of the 

best odd-lot order to buy at the time of order receipt as disseminated pursuant to an effective 

transaction reporting plan or effective national market system plan.696 The Commission also 

proposed to specify that, for beyond-the-midpoint limit orders, the best available displayed price 

 

694  “Odd-lot information” means (i) odd-lot transaction data disseminated pursuant to the effective national 

market system plan or plans required under 17 CFR 242.603(b) as of Apr. 9, 2021; and (ii) odd-lots at a 

price greater than or equal to the national best bid and less than or equal to the national best offer, 

aggregated at each price level at each national securities exchange and national securities association. See 

final 17 CFR 242.600(b)(69). Contemporaneously with the Proposing Release, the Commission separately 

proposed to, among other things, amend the definition of odd-lot information to include a new data element 

to identify the best odd-lot orders available in the market inside the NBBO, and accelerate the 

implementation of the round lot and the odd-lot information definitions. See Minimum Pricing Increments 

Proposing Release, 87 FR 80266 at 80293-302 (Dec. 29, 2022). 

695  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023).  

696  See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). Because the best 

odd-lot order to buy or sell would be inside the NBBO, the national best bid or national best offer would 

only be used if there is not a best odd-lot price on the same side of the market as the order. See id. at 3820, 

n.427. 



186 

shall be determined at the time such order becomes executable instead of the time of order 

receipt.697  

The Commission further proposed to add two defined terms—“executed outside the best 

available displayed price” and “executed with price improvement relative to the best available 

displayed price”—to classify order executions based on their execution price relative to the best 

available displayed price.698 Finally, the Commission proposed to require the reporting, for 

marketable order types, of (1) the cumulative number of shares of covered orders (a) executed 

with price improvement relative to the best available displayed price, (b) executed at the best 

available displayed price, and (c) executed outside the best available displayed price; (2) for 

shares executed with price improvement relative to the best available displayed price, the share-

weighted average amount per share that prices were improved as compared to the best available 

displayed price; and (3) for shares executed outside the best available displayed price, the share-

weighted average amount per share that prices were outside the best available displayed price.699 

(2) Final Rule and Discussion 

The Commission is adopting the definition of “best available displayed price” as 

proposed. Further, the Commission is requiring price improvement statistics relative to the best 

 

697  See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). 

698  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). The Commission proposed to define “executed 

outside the best available displayed price” as, for buy orders, execution at a price higher than the best 

available displayed price; and, for sell orders, execution at a price lower than the best available displayed 

price. See id.; proposed Rule 600(b)(44). Similarly, the Commission proposed to define “executed with 

price improvement relative to the best available displayed price” as, for buy orders, execution at a price 

lower than the best available displayed price; and, for sell orders, execution at a price higher than the best 

available displayed price. See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 

600(b)(47). 

699  See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(O) through (S). 



187 

available displayed price, in addition to price improvement statistics relative to the NBBO, for 

marketable order types and midpoint-or-better order types as proposed. 

An investor advocacy group agreed with the Commission that additional price 

improvement statistics specifically related to the best available displayed price would allow 

market participants to evaluate how well market centers and broker-dealers perform in executing 

covered orders relative to the best available displayed price.700 In addition, an academic stated in 

support of the proposal that it “is ludicrous to measure price improvement while ignoring visible 

odd lot liquidity” and that price improvement should be measured relative to the effective best 

bid or offer for the dollar amount of the order.701 

However, several commenters disagreed with the proposed price improvement statistics 

based on the best available displayed price because, according to these commenters, these 

statistics could be “misleading.”702 An industry group stated that metrics that measure price 

improvement utilizing a comparison to the best odd-lot price would “yield misleading 

information because it ignores the size of the order as compared to the size available at the odd-

lot price.”703 A financial services firm suggested that the detailed report should exclude best 

available displayed price because this metric is only relevant in the commenter’s view in a small 

number of occasions and would add “misleading” information to the report.704 This commenter 

stated that while the Commission cited a recent academic working paper showing that odd-lots 

offer better prices than the NBBO 16-18% of the time, the percent of the time that the best 

 

700  See Better Markets Letter at 8. 

701  See Angel Letter at 3. 

702  See SIFMA Letter II at 32; Schwab Letter III at 6; Robinhood Letter at 47; Rule 605 Citadel Letter at 6. 

703  SIFMA Letter II at 32. 

704  See Schwab Letter III at 6. 



188 

available price differs from the NBBO will be smaller when the MDI Rule’s new round lot 

definitions take effect.705 According to this commenter, if the best available displayed price is 

relevant only for a small part of the time and absent context regarding how many shares are 

included in the price or how many shares the order was for, the best available displayed price 

metrics would “border on meaningless and add unnecessary complexity to the report.”706  

Another broker-dealer suggested that the Commission reconsider the use of execution 

quality statistics based on best available displayed price because the use of two sets of execution 

quality statistics with differing reference points would be “confusing to retail investors.”707 This 

commenter also stated that using the best displayed odd-lot price as a reference point presents a 

number of difficulties or opportunities to be misleading because, for example, these quotes could 

“be flickering quotes that are generally not accessible” or for a “size substantially smaller than 

the order size.”708 Another broker-dealer stated that measuring price improvement against odd-

lot prices would “yield unhelpful and misleading information” because the size associated with 

odd-lot prices “will vary greatly.”709 One commenter added that “[c]ompilation of protected 

quotes is complicated. An odd-lot NBBO creates ambiguity.”710 An industry group and a 

financial services firm stated that any data related to the best available displayed price should not 

 

705  See Schwab Letter II at 34; Schwab Letter III at 6. See also Proposing Release, 88 FR 3786 at 3821 (Jan. 

20, 2023) (citing Bartlett et al. (2022)). 

706  See Schwab Letter II at 34; Schwab Letter III at 6. 

707  See Robinhood Letter at 47. 

708  Id. This commenter also stated that the best displayed odd-lot price might be a reasonable reference point 

for very small sized orders, such as fractional shares orders, but is not reasonable for any order of a round 

lot or greater. See id. at 47, n.115. 

709  See Rule 605 Citadel Letter at 6. 

710  Data Boiler Letter at 28. 



189 

be included in the report format until the best odd-lot order to buy and best odd-lot order to sell 

have been included in the SIP.711 

After consideration of the comments, the Commission is adopting the definition of “best 

available displayed price” and the addition of price improvement statistics based on this price for 

marketable order types and midpoint-or-better order types as proposed. As discussed in the 

Proposing Release, requiring price improvement statistics relative to the best available displayed 

price in the market, whether that is the NBBO or the best odd-lot order to buy or sell, will 

enhance the ability of market participants to evaluate the performance of market centers and 

broker-dealers.712 The Commission continues to hold this view. Odd-lots often reflect pricing 

that is superior to the NBBO.713 A recent academic working paper shows that odd-lots offer 

better prices than the NBBO 18% of the time for bids and 16% of the time for offers.714 

Although the round lot definition in the MDI Rules will result in fewer odd-lot orders in stocks 

with prices greater than $250, most stocks will not be affected by the new round lot definition.715 

In addition, a substantial amount of odd-lot transaction volume in stocks greater than $250 will 

not be included in the MDI round lot definition.716 The changes in the MDI Rules may also result 

in a higher number of odd-lot trades, as the inclusion of odd-lot quotes that may be priced better 

 

711  See Schwab Letter III at 6; FIF Letter at 33. 

712  See Proposing Release, 88 FR 3786 (Jan. 20, 2023) at 3820-21 (Jan. 20, 2023). 

713  See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis that found, among 

other things, that in May 2020, “40% of [odd-lot] transactions (representing approximately 35% of all odd-

lot volume) occurred at a price better than the NBBO”).  

714  See Bartlett et al. (2022). The authors found that this percentage increases monotonically in the stock price, 

for example, for bid prices, increasing from 5% for the group of lowest-price stocks in their sample, to 42% 

for the group of highest-priced stocks. 

715  See MDI Adopting Release, 86 FR 18596 at 18753, n.1960 (Apr. 9, 2021) and accompanying text 

(estimating “approximately 98.5% of NMS stocks will have a round lot size of 100 shares”). 

716  See id. at 18753. 



190 

than the current NBBO in consolidated market data may attract more trading interest from 

market participants that did not have access to this information prior to the MDI Rules.717 

Therefore, even though implementation of MDI Rules may result in changes to the number of 

odd-lot orders, price improvement statistics relative to the best available displayed price will 

continue to enhance the ability of market participants to evaluate order performance after 

implementation of the MDI Rules’ round lot definition. 

Under the MDI Rules, odd-lot information will include pricing information about odd-

lots priced better than the NBBO and competing consolidators will be able to offer a product that 

contains information on the best priced odd-lot on each exchange.718 Once this odd-lot 

information is available, reporting entities will be able to calculate the best available displayed 

price by using the information to identify the best-priced odd-lot order to buy (order to sell) 

available in the market and comparing it to the national best bid (offer). The MDI Rules have 

been approved but have not yet been implemented. As discussed further in section VII below, 

Rule 605’s price improvement statistics that are relative to the best available displayed price will 

not be required to be reported until six months after odd-lot order information needed to 

calculate the best available displayed price is made available pursuant to an effective national 

market system plan.719  

 

717  See id. at 18754. See also infra notes 1032-1034 and accompanying text. 

718  See MDI Adopting Release, 86 FR 18596 at 18753 (Apr. 9, 2021). 

719  The Commission is still considering the proposed changes discussed in the Minimum Pricing Increments 

Proposing Release, which included proposals to accelerate the implementation of the round lot and odd-lot 

 

 

 



191 

The Commission disagrees with commenters’ concerns that price improvement statistics 

relative to the best available displayed price will be misleading or confusing.720 The price 

improvement statistics relative to the NBBO contained in preexisting Rule 605 will still be 

available to market participants and other users of Rule 605 reports and therefore the price 

improvement statistics relative to the best available displayed price will be a supplement to, 

rather than a replacement for, price improvement statistics relative to the NBBO. While an odd-

lot price that is better than the NBBO may not reflect sufficient quantity to execute certain 

orders, particularly larger-sized orders, the NBBO similarly may not reflect the best price at 

which certain orders can be filled using readily available liquidity. Statistics on price 

improvement relative to the best available displayed price will provide an additional data point 

for market participants to consider in the detailed Rule 605(a)(1) reports. Further, Rule 605’s 

price improvement statistics will be presented within order size categories, including order size 

categories for orders of less than one share and odd-lot orders. Thus, to the extent that price 

improvement relative to the best available displayed price may be more informative for smaller-

sized orders than larger-sized orders, the Rule 605 reports will present the price improvement 

statistics related to best available displayed price in a format that will make it possible to focus 

on those smaller-sized orders. 

 

information definitions contained in the MDI Release and amend the definition of odd-lot information to 

include a new data element for the best available odd-lot orders available in the market. See Minimum 

Pricing Increments Proposing Release, 87 FR 80266 at 80294-95 (Dec. 29, 2022). If, in the future, the 

Commission determined to adopt an amendment to the definition of odd-lot information to include a data 

element that identifies the best odd-lot orders available in the market, reporting entities would be required 

to use such information to determine the best available odd-lot price. However, when the MDI Rules are 

implemented, there will be sufficient odd-lot information for reporting entities to calculate the best 

available displayed price because odd-lot information will include better priced odd-lot orders. 

720  See supra notes 702-710 and accompanying text.  



192 

h) Relative Fill Rate 

(1) Proposed Approach 

Prior to these amendments Rule 605 did not contain any execution quality metrics 

specific to non-marketable order types. Recognizing the need for more meaningful measures of 

execution quality for NMLOs and orders submitted with stop prices, the Commission proposed 

requiring additional information for executable NMLOs, executable stop orders, and beyond-the-

midpoint limit orders. Specifically, the Commission proposed to require the reporting of the 

number of orders that received either a complete or partial fill.721 The Commission also proposed 

to require the reporting of the cumulative number of shares executed regular way at prices that 

could have filled the order while the order was in force, as reported pursuant to an effective 

transaction reporting plan or effective national market system plan.722 As proposed, the share 

count for each order would be capped at the order size.723  

(2) Final Rule and Discussion 

The Commission did not receive comment on the proposal to report the number of orders 

that received either a complete or partial fill. For the reasons discussed in the Proposing Release, 

the Commission is adopting Rule 605(a)(1)(iii)(A) as proposed, with one correction to the rule 

text.724 Specifically, the Commission is adding the word “covered” to keep the language of Rule 

 

721  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(A). 

722  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). Generally, 

“regular way” refers to bids, offers, and transactions that embody the standard terms and conditions of a 

market whereas a non-regular way transaction refers to one executed other than pursuant to standardized 

terms and conditions, such as a transaction that has extended settlement terms. See, e.g., Regulation NMS 

Adopting Release, 70 FR 37496 at 37537, n.326 (June 29, 2005).  

723  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). 

724  See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023). 



193 

605(a)(1)(iii)(A) consistent with other parts of Rule 605725 as amended and avoid creating any 

ambiguity in the language of Rule 605.726 The Commission also is adopting the relative fill rate 

metric as proposed, and, in response to comments received, is adopting an additional relative fill 

rate metric that measures only on-exchange executions. 

With respect to the proposed metric based on the cumulative number of shares executed 

regular way at prices that could have filled the order while it was in force, an industry group 

stated that it would be fairer to measure a firm’s execution rate against on-exchange executions 

because exchanges are fair-access venues, while ATS and dealer trades may not represent 

liquidity accessible to all market participants.727 This commenter recommended that the 

Commission also require firms to report the cumulative number of shares executed “regular 

way” on any exchange at prices that could have filled the order while the order was in force.728 

Further, a broker-dealer stated that it may be useful to receive data on the number of shares that 

traded on all market centers for NMLOs as compared to an individual market center because 

being able to compare relative fill rates would potentially allow market participants to choose 

venues they perceive as being more likely to execute their NMLOs or assess if changes to the 

venues they route these orders to produce better fill rates.729 

 

725  For example, final 17 CFR 242.605(a)(1)(i)(A) requires disclosure of the number of “covered orders.”  

726  See final 17 CFR 242.605(a)(1)(iii)(A). Rule 605 as amended applies only to covered orders, so this does 

not represent a substantive change to Rule 605(a)(1)(iii)(A) as proposed. Final 17 CFR 242.605(a)(1) 

specifies that “[e]very market center, broker, or dealer shall make available . . .: a report on the covered 

orders in NMS stocks that it received for execution.” 

727  See FIF Letter at 22. See also 17 CFR 242.610(a) and (b) (addressing means of access to quotations);15 

U.S.C. 78f(b)(2) and 15 U.S.C. 78o(b)(3) (providing for fair access to membership in SROs). 

728  See FIF Letter at 22. 

729  See Virtu Letter II at 12. 



194 

After consideration of the comments, the Commission is adopting the requirement for 

reporting of the cumulative number of shares executed regular way at prices that could have 

filled the order while the order was in force as proposed, for the reasons discussed in the 

Proposing Release.730 In response to commenters’ concerns about being able to compare the 

relative fill rate for orders executed on venues accessible to all market participants, the 

Commission is adopting an additional requirement for the reporting of the cumulative number of 

shares executed regular way on any national securities exchange at prices that could have filled 

the order while the order was in force, as reported pursuant to an effective transaction reporting 

plan or effective national market system plan.731 Similar to the other relative fill rate metric that 

the Commission is adopting as proposed, for each order the share count will be capped at order 

size to prevent relatively small orders from skewing the metric.732 The Commission agrees with 

commenters that the general metric that will measure the cumulative number of shares executed 

regular way anywhere in the market may include liquidity that was not accessible to the 

reporting firm.733 Under the Exchange Act, national securities exchanges must provide fair 

access to displayed quotations.734 Therefore, the additional metric concerning the relative fill rate 

on national securities exchanges will provide a comparative metric based on displayed quotations 

that all firms will have had the ability to access. 

 

730  See Proposing Release, 88 FR 3786 at 3821-22 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(iii)(B).  

731  See final 17 CFR 242.605(a)(1)(iii)(C). 

732  See id. 

733  See supra note 727 and accompanying text.  

734  See 15 U.S.C. 78f(b)(2), (4), (5), and (8). See also 17 CFR 242.610. 



195 

IV. Summary Execution Quality Report 

Prior to the amendments, Rule 605 required market centers to produce detailed execution 

quality statistics and make this data available via large electronic data files, as required by the 

Rule 605 NMS Plan.735 This detailed report was in machine-readable, rather than human-

readable, format. The required format made the detailed report more suitable for further 

processing and analysis than for ready use by market participants and other interested parties. 

The Commission proposed in Rule 605(a)(2) that all market centers and larger broker-dealers 

required to produce the detailed report pursuant to Rule 605(a)(1) must also produce a summary 

execution quality report. After consideration of the comments, the Commission is adopting Rule 

605(a)(2), with modifications from the proposal, as described further below. 

A. Proposed Approach 

Proposed Rule 605(a)(2) would have required every market center, broker, or dealer736 to 

make publicly available for each calendar month a report providing summary statistics on all 

executions of covered orders that are market orders and marketable limit orders that it received 

for execution from any person.737 The proposed summary report included a section for NMS 

stocks that are included in the S&P 500 Index as of the first day of the month and a section for 

other NMS stocks, and within each section, each symbol would have been equally weighted 

based on share volume.738 The Commission proposed that each section of the report required by 

Rule 605(a)(2) contain the following summary statistics: (i) the average order size; (ii) the 

 

735  See prior 17 CFR 242.605(a)(1) and (2); Rule 605 NMS Plan, at sections V and VI. 

736  As described in section II.A supra, a broker or dealer that is not a market center is not subject to the 

reporting requirements of Rule 605(a)(1) or (2) unless that broker or dealer introduces or carries 100,000 or 

more customer accounts through which transactions are effected for the purchase or sale of NMS stocks. 

737  See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 

738  See id. 



196 

percentage of shares executed at the quote or better; (iii) the percentage of shares that received 

price improvement; (iv) the average percentage price improvement per order; (v) the average 

percentage effective spread; (vi) the average effective over quoted spread, expressed as a 

percentage; and (vii) the average execution speed, in milliseconds.739 

The Commission proposed that the summary report be made available using the most 

recent version of the XML schema and the associated PDF renderer published on the 

Commission’s website.740 The proposed schema would have been a set of custom XML tags and 

XML restrictions designed by the Commission to reflect the disclosures in proposed Rule 

605(a)(2).  

B. Final Rule and Discussion 

The Commission is adopting Rule 605(a)(2), with modifications from the proposal, to 

require that every market center, broker, or dealer produce a summary execution quality report in 

addition to the more detailed report required by Rule 605(a)(1).741 The summary report will 

enable market participants and other interested parties to have ready access to focused 

aggregated data that will allow them to compare some of the more significant aspects of the 

execution quality provided by specific market centers and larger broker-dealers. Moreover, by 

requiring market centers, brokers, and dealers to produce a summary report in addition to, rather 

than instead of, the more voluminous data called for by Rule 605(a)(1), those market participants 

or other observers that would like to perform more comprehensive or specific analyses of 

 

739  See id. at 3823-24. 

740  See id. at 3824; proposed Rule 605(a)(2). XML enables data to be defined, or “tagged,” using standard 

definitions. XML and PDF are “open standards,” which is a term that is generally applied to technological 

specifications that are widely available to the public, royalty-free, at no cost. 

741  See final 17 CFR 242.605(a)(2). 



197 

execution quality remain able to download the more granular underlying data files and perform 

such analyses.  

Several commenters supported the proposal to produce a summary report on the basis 

that investors would benefit from the greater access to execution quality data.742 A financial 

services firm stated that although some broker-dealers voluntarily publish summary-level 

execution quality reports on their websites, “these ad hoc disclosures are not universal, and, in 

any event, generally feature statistics brokers prefer to ‘showcase’ that may not reflect the most 

meaningful measures of execution quality.”743 According to this commenter, the proposal would 

address this “coverage gap” by requiring larger broker-dealers to make Rule 605 disclosures and 

giving customers of these larger broker-dealers “a direct line of sight into broker-dealer 

performance.”744 This commenter added that a “standardized summary report will provide retail 

investors with a comprehensible overview of the thousands of rows and dozens of columns that 

appear on Rule 605 reports today.”745 Another financial services firm stated that a summary 

report “will help investors more effectively evaluate competing broker offerings”746 and that 

compliance and technology costs associated with enhanced Rule 605 reporting “are outweighed 

by the significant benefits to retail investors,” including “greater competition among firms to 

provide customers with strong execution quality.”747 

 

742  See, e.g., Beddo Letter; Genco Letter; Pritchard Letter; Macarthur Letter; Varghese Letter; letter from Ian 

Marshall (Mar. 6, 2023).  

743  Vanguard Letter at 4. 

744  Id. 

745  Id. 

746  Fidelity Letter at 8. 

747  Id. 



198 

In contrast, other commenters, including broker-dealers, stated that a summary report 

could mislead investors, especially if the metrics required by Rule 605(a)(2) do not adequately 

account for differences in broker-dealer business models and customer bases.748 One broker-

dealer stated that using the summary report to compare execution quality across broker-dealers 

“without normalizing for different order activity ignores differences in the flow of orders 

handled by these brokers and other aspects of the services that brokers provide or offer, including 

fees, interest rates, commissions, ease of use, customer service, accessibility, tools, and 

educational resources, and therefore could be potentially misleading to individual investors.”749 

A financial services firm stated that the summary report “needs additional descriptive statistics 

showing order flow attributes that can affect the comparability of execution quality statistics to 

enable a more accurate and useful measure of execution quality.”750 This commenter also stated 

that “retail brokers have vastly different client bases reflected in vastly different order flow 

characteristics, which affects execution quality” and “[t]hese differences need to be reflected in 

the Summary Report so that the individual investor has sufficient data to make an educated 

assessment of execution quality performance between different brokers.”751 To address these 

concerns, this commenter suggested that the Commission add several metrics to the summary 

report “to enable investors to accurately compare execution quality between different brokers”—

 

748  See, e.g., SIFMA Letter II at 30; Virtu Letter II at 11; Rule 605 Citadel Letter at 5; Schwab Letter II at 30-

31; Schwab Letter III at 2; Data Boiler Letter at 17-18; letter from Kelvin To, Founder and President, Data 

Boiler Technologies, LLC (Apr. 12, 2023) (“Data Boiler Letter II”) at 1.  

749  Virtu Letter II at 11. Another broker-dealer stated more generally that the Commission should account for 

“retail client personas that vary considerably among broker-dealers,” and these “differences cause 

execution quality data to be difficult to compare on an apples-to-apples basis because, for example, trade 

and execution data generated from buy-and-hold investors’ orders differs vastly from the same data 

generated from active traders’ orders.” Letter from Steven M. Greenbaum, Senior Vice President and 

General Counsel, TradeStation Securities, Inc. (Mar. 30, 2023) (“TradeStation Letter”) at 7.  

750  Schwab Letter III at 2. 

751  Id. 



199 

specifically, average notional order size, percentage realized spread, and percentage quoted 

spread.752 

The Commission acknowledges that differences in execution quality can be driven by 

differences between reporting entities other than differences in their skills at handling and/or 

executing orders, such as differences in the characteristics of their order flow. Any particular 

market center or broker-dealer’s order flow may be made up of a different mixture of securities, 

order types, and order sizes, which may impact that market center or broker-dealer’s execution 

quality statistics753 The Commission recognizes that it is important to strike a balance between 

sufficient aggregation of orders to produce statistics that are meaningful and sufficient 

differentiation of orders to facilitate fair comparisons of execution quality across reporting 

entities. After reviewing the comments received, the Commission is modifying the calculation of 

several proposed metrics and is also adding several new metrics to the final summary report. For 

example, the Commission agrees with a commenter’s suggestion754 to add certain metrics—

average notional order size, percentage realized spread, and percentage quoted spread—to the 

final summary report.755  

Although a commenter suggested that the summary reports be “normalized across 

brokers” in order to reflect differences in order flow that may impact a broker’s execution 

quality, including “the difficulty of order flow the broker is handling,”756 the commenter did not 

explain how the summary reports should be normalized. The changes to the proposed summary 

 

752  See id. at 2-3.  

753  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023).  

754  See Schwab Letter III at 2-3. 

755  See infra section IV.B.1.b) for additional discussion of these specific metrics. 

756  Virtu Letter II at 4. 



200 

report will provide more information about a broker-dealer’s order flow characteristics than 

originally proposed757 and will therefore enable users of the summary reports to better compare 

the execution quality metrics of broker-dealer firms with similar order flow characteristics and 

identify when different order flow characteristics may be contributing to differences in execution 

quality. Further, while the Rule 605(a)(2) summary report presents only one particular set of 

metrics related to execution quality, customers and other interested parties may also take into 

consideration other aspects of broker-dealer service, including but not limited to, fees, 

commissions, and educational resources, when comparing broker-dealers. In section IV.B.1.b) 

below the Commission discusses the specific execution quality statistics in detail. 

Another broker-dealer stated that the detailed Rule 605 reports are often difficult for retail 

investors to analyze.758 However, this commenter stated that the proposed solution—creating a 

high-level summary report—“could lead to retail investor confusion if the summary report does 

not adequately capture or explain the differences in order flow that are present across different 

market centers and broker-dealers.”759 This commenter stated that it may make sense for the 

Commission to first implement the revisions to Rule 605(a)(1) and evaluate the detailed reports 

before working with FINRA, retail brokers, and retail investors to determine how best to produce 

a summary report that contains “digestible and accurate execution quality information.”760 The 

Commission does not agree with the commenter’s approach. The Commission described the 

proposed summary report in detail in the Proposing Release, has considered comments related to 

 

757  See infra note 833 and accompanying text. 

758  See Rule 605 Citadel Letter at 5. 

759  Id. 

760  See id.201 

the summary report, and is making changes in response to comments. The adopted summary 

report will improve the ability of investors and the public to view some of the more significant 

aspects of the execution quality provided by specific market centers and larger broker-dealers. 

Denying investors the opportunity to view a summary report until after the detailed reports are 

fully implemented would entail unnecessary delay of the benefits the summary report is designed 

to provide. 

Finally, according to an individual investor, the information contained in the proposed 

summary report is not useful to investors, and “[m]ost retail investors lack the knowledge and 

expertise to interpret these reports and use them to make informed trading decisions.”761 In 

contrast, an investor advocacy group states it “does not agree with those who would argue that 

the proposed changes to disclosure of order execution will not benefit retail investors, who are 

unlikely to read the Rule 605 reports.”762 This commenter stated that “even though a certain 

percentage of retail investors may not read the Rule 605 reports, they will still benefit indirectly 

as the enhanced disclosure will promote competition, improve regulatory oversight, and facilitate 

use by third-party researchers and academics, who in turn can extract information from the 

reports and use it to expose issues and problems with today’s order routing and execution 

practices.”763 The Commission agrees with the investor advocacy group commenter and 

continues to view the summary report as a useful means to provide individual investors and other 

market participants with an overview of execution quality data. The summary report will aid 

 

761  Gillmore Letter. 

762  Better Market Letter at 9. 

763  Id. at 9-10. 



202 

investors by providing information in a more easily digestible format than the detailed Rule 

605(a)(1) reports.  

Moreover, the changes that the Commission is making to the summary report in response 

to commenters, including breaking out the statistics into notional size categories and adding 

average percentage realized and quoted spreads, will provide more information about the type of 

order flow received by the reporting entity. The increased amount of data required by final Rule 

605(a)(2) will add some complexity to the adopted summary report as compared to the proposed 

summary report, however, based on such information, users of the report will be able to identify 

reporting entities with more comparable order flow and have greater context to understand the 

differences in execution quality statistics across market centers or broker-dealers with less 

comparable order flow.  

The summary report contains a selection of execution quality metrics for interested 

parties to assess, rather than imposing a single metric that might require a subjective judgment or 

obscure meaningful differences in execution quality among broker-dealers or market centers. 

Despite being an abbreviated overview of the more detailed Rule 605(a)(1) report, as with the 

detailed report, independent analysts, consultants, broker-dealers, the financial press, and market 

centers likely will respond to the needs of investors by analyzing the disclosures and producing 

even more digestible information using data from the summary report, so that the broader public, 

including those that may not read the summary report, will benefit.764 As with the Rule 605(a)(1) 

detailed report, if a market center or broker-dealer believes that the statistics do not fully reflect 

its order flow and execution practices, it is encouraged to make any additional information 

 

764  See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); Rule 11Ac1-5 Adopting Release, 65 FR 75414 

at 75419 (Dec. 1, 2000). 



203 

publicly available, outside of the summary report, that it believes will be helpful to investors and 

other market participants.765 

1. Required Information 

The Commission received comments discussing the calculation and utility of individual 

proposed statistics in the proposed summary report, along with comments recommending the 

addition of new statistics or requesting clarification or confirmation of how proposed statistics 

should be calculated, as described further below.766  

After review of the comments, the Commission is adopting the statistics in Rule 

605(a)(2) largely as proposed, with modifications to the computation of certain statistics. The 

Commission is also adding new execution quality statistics to the summary report.767 For the 

reasons described in section IV.B.1.a) below, the Commission is not requiring that the summary 

report be equally weighted by symbol based on share volume. Section IV.B.1.b) below discusses 

each of the execution quality statistics in the summary report, including, where appropriate, how 

these statistics will be weighted. As described in section IV.B.1.b), the summary report will 

divide each of market and marketable limit orders into separate categories based on eight 

notional order size buckets plus an aggregated category for all orders with a notional value of 

less than $200,000.  

 

765  Any such statements will be subject to applicable securities laws and regulations. 

766  See, e.g., Rule 605 Citadel Letter; FIF Letter; Schwab Letter II. 

767  The Commission is including in the summary report the following metrics that were not in the Proposing 

Release’s rule text: (i) average notional order size; (ii) for executions of covered orders, the average 

midpoint; (iii) for executions of covered order, the average percentage quoted spread; (iv) for executions of 

covered orders, the average percentage realized spread as calculated 15 seconds after the time of execution; 

and (v) for executions of covered orders, the average percentage realized spread as calculated 1 minute 

after the time of execution. These metrics are discussed in greater detail infra at section IV.B.1.b). 



204 

The Commission agrees with one industry group that stated it is “important to ensure that 

the summary report provides the necessary information to allow for a fair comparison across 

reporting firms.”768 The final summary report will provide statistics that are relevant to 

evaluating what type of pricing orders received, how quickly orders were executed, and what 

type of order flow the market center or broker-dealer received. As discussed further in section 

IV.B.1.b) below, the Commission is including several execution quality statistics beyond those 

included in the proposal to help ensure that the summary report provides sufficient information 

for a meaningful comparison across firms. 

Some commenters stated that any statistic included in the summary report or necessary to 

calculate a statistic in the summary report should also be included in the Rule 605(a)(1) report, 

so that the statistics in the summary report may be derived from the detailed Rule 605(a)(1) 

report.769 The Commission agrees and, as discussed further below, is making conforming 

changes so that the Rule 605(a)(1) detailed report will contain all information necessary to be 

able to reconstruct the Rule 605(a)(2) summary report. In addition, market participants will be 

able to use the data contained in the Rule 605(a)(1) reports to create their own summary-level 

report with any adjustments that they find useful for comparison with and evaluation of a 

reporting entity’s published summary report.  

A broker-dealer suggested that the summary report may be more informative if it 

differentiated between retail investors and professional customers because the nature of each 

order flow is different and segmentation would allow retail investors to obtain execution quality 

 

768  FIF Letter at 22. 

769  See id. at 29; FIF Letter II at 9; FIF Letter III at 3; Schwab Letter II at 32; Schwab Letter III at 4. 



205 

statistics for similar types of orders.770 A financial services firm stated that the Commission 

“should distinguish Rule 605 data by [s]egmented [o]rder and non-[s]egmented [o]rder flow and 

display this information separately in both the detailed Rule 605 reports and the proposed 

Summary Reports.”771 The Commission has decided not to revise the summary report to divide 

the report between retail investors and professionals or between segmented and non-segmented 

orders, as suggested by the commenters, for the same reasons that the Commission is not making 

corresponding changes to the reports required by Rule 605(a)(1).772  

Another commenter argued that the summary report should limit the orders in the report 

to those with a notional value of less than $200,000.773 This commenter argued that the 

Commission in its economic analysis of the Order Competition Rule Proposing Release774 and 

the Proposing Release775 had limited the scope of retail order flow to orders of less than 

$200,000, to “normalize order flow variables for analysis in order to meaningfully compare 

broker-dealers’ execution quality.”776 The commenter stated its belief that the summary report 

should likewise limit the report to orders of a notional value less than $200,000, “which is a 

natural breakpoint between size categories.”777 In response to this commenter’s suggestion, as 

described in more detail in section IV.B.1.b) below, while the Commission is not establishing 

 

770  See Rule 605 Citadel Letter at 8. 

771  Fidelity Letter at 9. 

772  See supra notes 172-174 and accompanying text; note 194 and accompanying text. 

773  See Schwab Letter III at 4. 

774  See Order Competition Rule Proposing Release, 88 FR 128 at 199 (Jan. 3, 2023) (Table 15—Regression 

Analysis Showing Relationship Between Execution Quality and PFOF in NMS Common Stocks and 

ETFs). 

775  See Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 2023) (Table 3—Average Wholesaler Execution 

Quality Received by Retail Broker Quintiles, January-March 2022). 

776  Schwab Letter III at 4. 

777  Id. 



206 

such a limit for the summary report as a whole, the Commission is adding execution quality 

information as divided by notional order size buckets, along with a row of execution quality 

information that aggregates all orders in a particular category, excluding orders with a notional 

value of $200,000 or more. This aggregated information will provide users of the summary 

report a means to compare among market centers’ or broker-dealers’ execution quality for orders 

less than $200,000. 

a) Weighting Method 

The Commission proposed that within each section of the summary report, each symbol 

would have been equally weighted based on share volume. The Commission stated in the 

Proposing Release that equal weighting of each symbol would facilitate the comparability of 

execution quality statistics among market centers or broker-dealers that receive for execution 

different mixes of stocks and prevent the nature of the stocks traded from making it more 

difficult to determine how the reporting entity performed with respect to execution quality for the 

particular mix of orders that it received for execution.778  

One industry group, however, stated that the summary report statistics should not be 

equally weighted by symbol based on share volume because this approach would result in 

misleading data being provided to customers.779 This commenter agreed with the Commission 

that the mix of symbols traded by a firm could impact its reported execution quality statistics, but 

was concerned that symbol-based weighting would create distortions that “would significantly 

 

778  See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 

779  See FIF Letter at 25-26, 28. This commenter stated that one interpretation of “equal weighting by symbol 

based on share volume” is to use share-based weighting within each symbol and then symbol-based 

weighting across symbols, but requested clarification. See id. at 25. The Commission confirms that this 

explanation is consistent with the weighting method as proposed. 



207 

outweigh any potential benefits.”780 The commenter recommended as an alternative that the 

Commission require each market center and broker-dealer producing a summary report to 

include its weighted average execution price as a separate reportable item on the summary 

report.781 The commenter stated that its recommended approach would avoid the “misleading 

data that would result from symbol-based weighting” and “customers can take a broker’s 

weighted average execution price into account when reviewing the summary report data.”782 This 

commenter further recommended that the same approach be used for weighting within and 

across symbols and, as described further below, that the Commission require the use of spread-

based weighting for E/Q and share-based weighting for certain other statistics.783  

After considering the comments, the Commission is not requiring that the summary 

report be equally weighted by symbol based on share volume as proposed.784 The Commission is 

persuaded that symbol-based weighting could cause distortions in cases where a reporting entity 

receives a significantly different volume of orders in one symbol as compared to another 

symbol,785 and these distortions potentially might not justify any potential benefit of utilizing this 

weighting method. As discussed further below, the Commission is not adding the share-weighted 

notional average execution price to the summary report as recommended by the commenter,786 

 

780  See id. at 27. 

781  See id. The commenter stated that weighted average execution price would be computed as follows: first, 

for each individual execution, multiply the number of shares executed by the execution price; next, sum the 

results; and last, divide the result by the total number of shares executed. See id. 

782  Id. 

783  See id. at 23, 27, 28-32. 

784  See supra section III.B.4.d for a more detailed discussion of comments with respect to weighting of 

statistics in the detailed reports required under Rule 605(a)(1).  

785  See FIF Letter at 25-26 (providing a comparison between two hypothetical firms of average effective over 

quoted spread with symbol-based weighting). 

786  See supra note 781 and accompanying text. 



208 

but the Commission is adding average midpoint for order executions. Similar to the commenter’s 

recommendation, this metric will provide information about whether a reporting entity’s order 

flow was more heavily weighted towards lower-priced stocks or higher-priced stocks. The 

summary report statistics will also utilize share-based weighting, instead of equally weighting by 

symbol based on share volume, except as discussed specifically below.  

b) Statistics Included 

The summary report required by final Rule 605(a)(2) includes sections for NMS stocks in 

the S&P 500 Index and for all other NMS stocks. Within each section, the final rule requires that 

the summary report divide market and marketable limit orders into categories based on eight 

notional order size buckets and an aggregated bucket for orders with a notional value less than 

$200,000 (as described below). The Commission is requiring that the summary report include the 

following statistics as proposed, as described below: (i) percentage of shares executed at the 

quote or better; (ii) percentage of shares that received price improvement; (iii) average 

percentage effective spread; and (iv) average execution speed, in milliseconds. The Commission 

is also requiring that the summary report include the following statistics with modifications from 

the proposal, as described below: (i) average order size in shares; (ii) share-weighted average 

percentage price improvement; and (iii) average effective spread divided by the average quoted 

spread, expressed as a percentage. Finally, the Commission is requiring that the summary report 

include the following additional statistics that were not part of the proposal, as described below: 

(i) average notional order size; (ii) average midpoint; (iii) average percentage quoted spread; (iv) 

average percentage realized spread as calculated 15 seconds after the time of execution; and (v) 

average percentage realized spread as calculated 1 minute after the time of execution. 



209 

Average order size. The Commission proposed to include in the summary report a metric 

for average order size.787 As described below, the Commission is adopting this metric largely as 

proposed and adding a break-out of execution quality metrics by notional size bucket and an 

additional order size metric in response to comments. 

One industry group recommended that “average order size in shares for the summary 

report be calculated (for the covered orders that must be reported in the summary report) by 

dividing the aggregate number of shares of covered orders by the number of orders.”788 This 

commenter further recommended adding “average order size in notional value” to the summary 

report, which “can be calculated by a reporting firm (for the covered orders that must be reported 

in the summary report) by dividing the aggregate notional value of covered orders by the number 

of orders.”789 A couple of financial services firms also recommended presenting order-size 

categories in the summary report by average notional order size instead of lot size.790 One of 

these commenters stated that order notional sizes provide investors a clearer view of the 

execution experience associated with their order, are more easily compared over time, are more 

representative of the cost to implement different types of trades, and are more consistent with 

increased market use of fractional/notional trading.791 Similarly, the other commenter stated its 

belief that including “average notional order size”792 in the summary report alongside average 

 

787  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(i). 

788  FIF Letter II at 11. 

789  Id. This commenter also stated that notional value should be obtained by multiplying the number of shares 

by the midpoint at the time of order receipt. See id. 

790  See Fidelity Letter at 9; Schwab Letter III at 3.  

791  See Fidelity Letter at 9. 

792  This commenter would calculate “average notional order size” by multiplying the number of shares by the 

midpoint at the time of order entry. See Schwab Letter III at 3.  



210 

order size in shares would allow a user of the summary report to calculate another metric, 

“average price per share,” by dividing “average notional order size” by “average share order 

size.”793 

After reviewing the comments, the Commission is retaining the “average order size” 

metric in the summary report largely as proposed with a modification to state that average order 

size will be reported in number of shares because the proposed rule was ambiguous about 

whether average order size would have been measured in number of shares or notional value.794 

The average order size in shares is relevant to understanding the relative size of the orders that 

the reporting market center, broker, or dealer received for execution.  

However, the Commission also agrees with commenters that the average order size in 

notional value is relevant to understanding relative order size. For example, one broker-dealer 

stated that certain orders may be harder to execute, “for example, when market liquidity is scarce 

or when the customers have difficult (e.g., large-sized) orders to execute.”795 The Commission 

agrees with commenters that differences in a firm’s execution quality metrics may correspond to 

differences in order flow. In particular, smaller orders may receive different execution quality 

than larger orders because, among other things, available liquidity in a particular security at a 

particular price is more likely to be sufficient to fill a smaller order. Therefore, the Commission 

 

793  See id. 

794  See final 17 CFR 242.605(a)(2)(i).  

795  Virtu Letter II at 11. 



211 

is modifying the proposed summary report to: (1) add a metric for average notional order size;796 

and (2) require categorization of the data by notional order size.797 Dividing execution quality 

statistics in the summary reports according to notional order size buckets provides investors with 

a more nuanced means to differentiate between firms and allows for comparison of execution 

quality statistics for more similar orders. Moreover, the average notional order size metric 

provides important context for where a firm’s orders tend to fall within the range of a particular 

notional order size bucket.  

With respect to the categorization of the data by notional order size, the statistical 

information in the summary reports for market orders and marketable limit orders is divided into 

eight notional order size ranges: less than $250; $250 to less than $1,000; $1,000 to less than 

$5,000; $5,000 to less than $10,000; $10,000 to less than $20,000; $20,000 to less than $50,000; 

$50,000 to less than $200,000; and $200,000 or more. These notional order size ranges 

correspond with the notional order size ranges that are used in the detailed reports required 

pursuant to Rule 605(a)(1).798 As discussed in section III.B.1.b) above, the Commission selected 

these notional order size ranges based on its analysis of CAT data and comments received. 

Moreover, using the same notional order size ranges for the detailed reports and summary reports 

 

796  See final 17 CFR 242.605(a)(2)(ii). An industry group recommended that average order size in notional 

value be calculated “by dividing the aggregate notional value of covered orders by the number of orders.” 

FIF Letter II at 11. Average order size in notional value will be calculated as the cumulative notional value 

of covered orders divided by the total number of orders, as recommended by the commenter. As discussed 

above, the Commission is adopting a requirement that the detailed reports required by Rule 605(a)(1) 

include a cumulative notional value of covered orders metric so that average order size in notional value 

can be calculated from the summary report. See supra notes 376-378 and accompanying text. 

797  See final 17 CFR 242.605(a)(2). 

798  See supra section III.B.1.b). The Commission is not adopting commenters’ suggestion that the notional 

value of an order should be based on the midpoint. See supra notes 789, 792. Instead, the notional value of 

a market or limit order will be calculated in the same manner for the summary report as it is for the detailed 

report. See supra note 361 and accompanying text. 



212 

allows the statistics in the summary reports to be derived from the detailed reports as suggested 

by commenters. 

As an additional measure of categorization by notional order size, the summary report 

also includes overall statistics for non-block size market and marketable limit orders—i.e., the 

statistics in this row are not divided by notional order size range but only include orders smaller 

than $200,000 in notional value. Capping these overall statistics at $200,000 will prevent 

extremely large, block size orders from skewing the averages. It will also provide an accessible 

snapshot of information for investors. Providing overall execution quality statistics will balance 

providing more detailed execution quality data to market participants with providing an overview 

of a market center’s or broker-dealer’s execution quality in a more readily digestible form for 

investors, other market participants, or interested parties.  

Finally, because average order size in both shares and notional value are the average 

order size received rather than executed, the Commission is modifying the first sentence of Rule 

605(a)(2) to remove the words “executions of” in the clause referring to summary report 

“providing summary statistics on all executions of covered orders that are market and marketable 

limit orders.”799 Instead, to avoid any ambiguity about how each of the statistics are calculated, 

the Commission is specifying where individual data elements apply to executions of covered 

orders, as described below.800 

Percentage of shares executed at the quote or better and percentage of shares that 

received price improvement. The Commission proposed to include in the summary report metrics 

for the percentage of shares executed at the quote or better and percentage of shares that received 

 

799  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2). 

800  See final 17 CFR 242.605(a)(2). 



213 

price improvement and is adopting these metrics as proposed.801 One industry group stated that 

there is no need to reference “equal weighting by share volume,” or any other weighting 

methodology with respect to the “percentage of shares executed at the quote or better” or 

“percentage of shares that received price improvement” metrics, because the weighting is clearly 

understood from the data element itself.802 The Commission agrees that these metrics are 

weighted based on the number of shares executed and that reporting entities will understand this 

based on the metric as proposed. The Commission is adopting these statistics as proposed, while 

clarifying in the rule text that the statistics apply to executions of covered orders. These statistics 

will provide useful information for evaluating what type of pricing orders received. 

Share-weighted average percentage price improvement. The Commission proposed to 

include a metric in the summary report for share-weighted average percentage price 

improvement per order.803 As described below, the Commission is adopting this metric largely as 

proposed and adding a related metric to the detailed report. One industry group stated that it will 

assume that the proposed metric “average percentage price improvement per order” is intended 

to report price improvement as a percentage of the midpoint (as of the time of order receipt) and 

further recommended that average price improvement be share-weighted.804 In addition, for 

clarity, this commenter recommended that the metric be labeled as “share-weighted average 

 

801  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(ii) and (iii); final 

17 CFR 242.605(a)(2)(iv) and (v). 

802  See FIF Letter at 31. This commenter stated that “percentage of shares executed at the quote or better” 

would be calculated by dividing the total shares executed at the quote or better by the total shares executed, 

and “percentage of shares that received price improvement” would be calculated by dividing the total 

number of shares executed with price improvement by the total number of shares executed. See id. 

803  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(iv). 

804  See FIF Letter at 28-29. See also FIF Letter III at 3 (“FIF members understand [‘share weighted average 

percentage price improvement’] to mean the share-weighted price improvement divided by the share-

weighted midpoint.”). 



214 

percentage price improvement” and the words “per order” be removed from the text of proposed 

Rule 605(a)(2)(iv).805 

Average percentage price improvement will be measured as a percentage of the midpoint 

of the national best bid and national best offer at the time of order receipt.806 In other words, 

average percentage price improvement is the share-weighted average price improvement for 

orders executed divided by the share-weighted average midpoint at the time of order receipt for 

those orders. The Commission agrees with the commenter that further clarity in this regard 

would be useful. Therefore the Commission is renaming this metric from the proposal to refer to 

the “share-weighted average percentage price improvement,” as suggested by the commenter, so 

that the use of share-based weighting is explicit, clarifying in the rule text that the share-

weighted average percentage price improvement applies to executions of covered orders, and 

specifying that this statistic is calculated as the cumulative amount that prices were improved 

less the cumulative amount that prices were executed outside the quote divided by sum of the 

average midpoint times the number of shares executed.807 In addition, as suggested by the 

 

805  See FIF Letter at 29. This commenter also recommended that the Commission add a column to the detailed 

Rule 605(a)(1) report that would provide the share-weighted average midpoint for each row, so that the 

market center or broker-dealer could derive the denominator for the share-weighted average percentage 

price improvement calculation. See id. See also FIF Letter II at 10; FIF Letter III at 3. 

806  See final 17 CFR 242.605(a)(2)(vi). 

807  See final 17 CFR 242.605(a)(2)(vi) and final 17 CFR 242.600(b)(9) (defining average midpoint). The 

cumulative amount that prices were improved is derivable from the Rule 605(a)(1) reports by multiplying, 

for each row, the cumulative number of shares of covered orders executed with price improvement 

(required by Rule 605(a)(1)(ii)(E)) by the share-weighted average amount per share that prices were 

improved (required by Rule 605(a)(1)(ii)(F)). Similarly, the cumulative amount that prices were executed 

outside the quote is derivable by multiplying, for each row, the cumulative number of shares of covered 

orders executed outside the quote (required by Rule 605(a)(1)(ii)(J)) by the share-weighted average amount 

per share that prices were outside the quote (required by Rule 605(a)(1)(ii)(K)). The numerator will be the 

total cumulative price improvement for every included row, less the total cumulative amount the prices 

were executed outside the quote for every included row. The denominator is derivable from the Rule 

605(a)(1) reports by multiplying, for each row, the total number of shares executed (i.e., the sum of the 

share counts required by Rule 605(a)(1)(i)(E) and (F)) by the average midpoint (required by Rule 

605(a)(1)(i)(Y)). The denominator will be the sum of the total for every included row.  



215 

commenter,808 the Commission is requiring that the Rule 605(a)(1) detailed report include an 

additional column setting forth the average midpoint for executions of covered orders.809 The 

new defined term for “average midpoint” refers to the share-weighted average of the midpoint of 

the NBB or NBO at the time of order receipt (or, for non-marketable limit orders, beyond-the 

midpoint limit orders, and orders submitted with stop prices, at the time such orders first become 

executable).810 The inclusion of average midpoint for executions of covered orders in the Rule 

605(a)(1) detailed report will enable users to derive the share-weighted average percentage price 

improvement.811 

Average percentage effective spread. The Commission proposed to include in the 

summary report a metric for the average percentage effective spread.812 The Commission is 

adopting the metric largely as proposed. One industry group stated in connection with the 

summary report that it agrees with the approach proposed by the Commission for calculating 

average percentage effective spread.813 As discussed above, the Commission is modifying the 

definition of “average percentage effective spread” from the definition of such term in the 

proposal to make use of other defined terms.814 Although the adopted metric in the summary 

 

808  See supra note 805.  

809  See supra note 591 and accompanying text. 

810  See final 17 CFR 242.600(b)(9). The average midpoint for order executions represents the same calculation 

as the denominator for the percentage-based spread statistics as proposed. See supra notes 588-591 and 

accompanying text.  

811  See final 17 CFR 242.605(a)(1)(i)(Y).  

812  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(v). 

813  See FIF Letter at 29. The commenter also recommended that for clarity the metric be retitled as “share-

weighted average percentage effective spread.” See id. The Commission disagrees with the commenter that 

this additional language is needed because the adopted definition of “average percentage effective spread” 

includes the use of share-weighting. See final 17 CFR 242.600(b)(10). 

814  See supra section III.B.4.b)(2). The “average percentage effective spread” is calculated as the average 

effective spread for order executions divided by the average midpoint for order executions. See final 17 

CFR 242.600(b)(10). 



216 

report utilizes the new definition of “average percentage effective spread,” the metric itself is 

unchanged and the Commission is clarifying in the rule text that the metric applies to executions 

of covered orders.815  

Average effective spread divided by average quoted spread (E/Q). The Commission 

proposed to include a metric in the summary report for average effective spread over average 

quoted spread, expressed as a percentage.816 As discussed below, the Commission is adopting 

this metric largely as proposed and adding a metric for average quoted spread. As discussed 

above, several commenters stated that the Commission should require firms to calculate average 

E/Q utilizing spread-based, rather than share-based, weighting.817 One industry group 

recommended that the summary report include the share-weighted average percentage quoted 

spread, in addition to the share-weighted average effective spread.818 This commenter stated that 

with these statistics any person could derive effective over quoted spread and so it would not be 

necessary to include E/Q in the summary report.819 A financial services firm also suggested that 

the summary report include “percentage quoted spread,” to be calculated by dividing the quoted 

spread by the midpoint of the NBB and NBO at the time of order entry.820 This commenter stated 

that “[i]n addition to providing transparency into the mix of each broker’s order flow, including 

this metric will allow users to confirm the E/Q calculation on the Summary Report by dividing 

 

815  See final 17 CFR 242.605(a)(2)(vii). As discussed above, the Commission is adding a statistic for average 

midpoint for order executions to the detailed report so that the percentage-based spread statistics in the 

summary report can be derived from the detailed report. See supra notes 588-591 and accompanying text. 

816  See Proposing Release, 88 FR 3786 at 3823-24 (Jan. 20, 2023); proposed Rule 605(a)(2)(vi). 

817  See supra notes 600-608 and accompanying text. 

818  See FIF Letter at 29. 

819  See id. This commenter stated that if average percentage effective spread and quoted spread are reported 

then a person could derive the average percentage price improvement for the summary report. See id. 

820  See Schwab Letter III at 3. 



217 

Percentage Effective Spread by Percentage Quoted Spread.”821 This commenter also suggested 

that the summary report show effective spread and quoted spread and then allow individuals to 

compute their own E/Q from those two numbers.822  

After reviewing the comments, the Commission is: (1) adopting average E/Q as a metric 

on the summary report largely as proposed, while adjusting the weighting methodology from 

share-based weighting to spread-based weighting as suggested by commenters;823 and (2) adding 

average percentage quoted spread as a metric in the summary report, also as suggested by 

commenters.824 The Commission is also stating in the rule text for clarity that these metrics apply 

to executions of covered orders.825 As discussed above, requiring spread-based weighting for the 

E/Q statistics will provide a consistent measure of E/Q that will not vary based on the specific 

symbols to which price improvement is allocated and thereby will facilitate the comparability of 

price improvement statistics.826 Further, even though market participants and other interested 

parties could calculate E/Q on their own if the summary report includes average effective spread 

and average quoted spread, there is additional utility in having the average E/Q readily accessible 

 

821  Id. 

822  See Schwab Letter II at 31. 

823  To implement the change in weighting methodology, the Commission is modifying the description of the 

average E/Q metric to specify that it is average effective spread divided by average quoted spread. As is the 

case with the average E/Q statistics in the detailed report required by Rule 605(a)(1), this description of the 

average E/Q statistic for the summary report makes use of adopted defined terms for “average effective 

spread” and “average quoted spread.” See supra notes 613-615 and accompanying text. See also final 17 

CFR 242.605(a)(2)(ix); final 17 CFR 242.600(b)(8); final 17 CFR 242.600(b)(12). In contrast, the 

Commission proposed to utilize a defined term for “average effective over quoted spread,” which would 

have required the calculation of the E/Q for each transaction that would have then been averaged over a 

month, as weighted by number of shares. See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 

824  See final 17 CFR 242.605(a)(2)(viii) (requiring that average percentage quoted spread be included as a 

metric in the summary report and providing that average percentage quoted spread means the average 

quoted spread for order executions divided by the average midpoint for order executions). 

825  See final 17 CFR 242.605(a)(2)(viii) and (ix). 

826  See supra notes 617-620 and accompanying text. 



218 

on the summary report, particularly because market participants often use E/Q as a measure of 

execution quality.827 The inclusion of average quoted spread on the summary report will provide 

another metric that users of the summary report may use to understand the nature of the reporting 

firm’s order flow. 

Average execution speed in milliseconds. The Commission proposed to include a metric 

in the summary report for average execution speed in milliseconds and is adopting this metric 

largely as proposed.828 An industry group stated its understanding that the calculation of 

“average execution speed in milliseconds” would proceed as follows: first, for each individual 

execution multiply the shares executed by the time to execution; second, sum the results; and 

finally, divide that sum by the total shares executed.829 The Commission confirms that reporting 

entities will calculate the metric as stated by the commenter and to add clarity to the rule text is 

specifying that this metric applies to executions of covered orders and is a share-weighted 

average.830 The proposed metric is relevant to evaluating how quickly orders were executed, and 

the Commission therefore has decided to adopt the metric as proposed.831 

Additional statistics in the summary report. In the Proposing Release, the Commission 

solicited comment on whether any additional execution quality statistics required under proposed 

 

827  See Proposing Release, 88 FR 3786 at 3970 (Jan. 20, 2023). 

828  See id. at 3823-24; proposed Rule 605(a)(2)(vii); final 17 CFR 242.605(a)(2)(xii). 

829  See FIF Letter at 31. 

830  The time-to-execution statistics in the detailed report required by Rule 605(a)(1) similarly utilize a share-

weighted average. See final 17 CFR 242.605(a)(1)(ii)(G), (I), (L); final 17 CFR 242.605(a)(1)(iii)(D). 

831  A broker-dealer suggested that the Commission should only require execution-time statistics for market 

orders because marketable limit orders may be partly executed or may exceed the consolidated quote size. 

See Rule 605 Citadel Letter at 10. The summary report will include average execution speed for market and 

marketable limit orders. The Commission is retaining average execution speed for marketable limit orders 

in the summary report for the same reasons that the Commission is retaining execution-time statistics for 

marketable limit orders in the detailed report required by Rule 605(a)(1). See supra section III.B.3.b.  



219 

Rule 605(a)(1) should be included as an aggregated statistic in the summary report.832 As 

described below, in consideration of these comments, the Commission is adding to the summary 

report metrics for average realized spread as calculated at 15 seconds and 1 minute from time of 

execution, and a metric for the average midpoint. 

An industry group stated that order flow characteristics such as the amount of “informed” 

order flow received by a broker-dealer and the size of an order relative to the average daily 

volume of a stock are factors outside of the control of order-handling parties but can impact the 

amount of price improvement received.833 This commenter further stated that the impact of these 

order flow characteristics could be measured in part through statistics such as realized spread and 

price impact and thus recommended that the Commission require firms to include in the 

summary report the weighted-average realized spread at 15 seconds and at 1 minute after the 

time of execution.834 A financial services firm also suggested that percentage realized spread be 

included in the summary report statistics and argued that this “simple addition would provide 

better transparency regarding the distinct characteristics of order flow among brokers which, in 

turn, affects the average execution quality metrics on the reports.”835 Both commenters stated 

that a person reviewing the summary report could calculate the price impact based on the 

realized spread and the effective spread.836  

The Commission agrees with the commenters that viewing the average realized spread in 

the summary report will be useful to investors. The average realized spread metrics for 15 

 

832  See Proposing Release, 88 FR 3786 at 3825.  (Jan. 20, 2023) 

833  See FIF Letter at 31. 

834  See id. at 32. 

835  Schwab Letter III at 3. 

836  See FIF Letter at 32; Schwab III Letter at 3. 



220 

seconds and 1 minute after the time of execution were proposed for inclusion in the detailed 

report required pursuant to Rule 605(a)(1) and will similarly allow users of the summary report 

to differentiate between various types of order flow.837 Moreover, because the final Rule 

605(a)(1) detailed report requires the calculation of average realized spread at multiple time 

horizons, including 15 seconds and 1 minute, adding these two time horizons for average 

realized spread to the summary report should impose a minimum burden on reporting entities. 

Therefore, the Commission is requiring that the summary report include, for executions of 

covered orders, both the average percentage realized spread as calculated 15 seconds after the 

time of execution and the average percentage realized spread as calculated 1 minute after the 

time of execution.838  

An industry group further suggested adding share-weighted average execution price as a 

metric to the summary report.839 Although the Commission agrees with the commenter that the 

share-weighted average execution price could provide useful information, average execution 

price is not a metric included in the detailed report required by Rule 605(a)(1) and therefore if 

this statistic were included in the summary report it would not be derivable from the detailed 

report, contrary to commenters’ suggestions that the metrics in the summary report should be 

derivable. Therefore, the Commission is adding to the summary report a metric for average 

midpoint for executions of covered orders because this metric will be included in the detailed 

report so that other summary report statistics will be derivable from the detailed report and, 

 

837  See supra section III.B.4.a)(2) for a discussion of the utility of the realized spread statistic. 

838  See final 17 CFR 242.605(a)(2)(x) and (xi). As discussed above, the Commission is adding a statistic for 

average midpoint for order executions to the detailed report so that the percentage-based spread statistics in 

the summary report can be derived from the detailed report. See supra notes 589-592 and accompanying 

text. 

839  See FIF Letter at 27.221 

similar to share-weighted average execution price, average midpoint provides information about 

the mix of stocks represented in the reported statistics.840 Thus, the inclusion of the average 

midpoint will provide those using the summary report for comparison purposes with a means to 

assess whether differences in the price mix of stocks could be a factor affecting other execution 

quality statistics of reporting entities.  

2. Required Format 

As discussed below, commenters supported the production of the summary report in a 

human-readable format. A financial services firm supported the proposal to require a 

standardized summary report in a “user-friendly format.”841 A national securities exchange stated 

that the proposed format would make the data in the summary reports accessible to a wider 

audience in a standard format to facilitate comparisons.842 However, one academic believed that 

while the proposed summary reports “are most important,” the Commission’s proposal “did not 

clearly display what the summary reports would look like.”843 Finally, one industry group 

recommended that CSV,844 or another format that could be copied into a spreadsheet software 

program, be used in place of XML for the summary report. According to the commenter, using 

CSV “would allow investors to compare summary data across firms more readily.”845 

 

840  See final 17 CFR 242.605(a)(2)(iii). Pursuant to the definition of “average midpoint,” average midpoint for 

order executions is a share-weighted average. See final 17 CFR 242.600(b)(9). 

841  See Vanguard Letter at 4. 

842  See Nasdaq Letter at 46. 

843  Angel Letter at 3. This commenter stated that additional efforts need to be made to make sure that the 

summary reports are “human-friendly” and provide useful data for comparing brokers. See id. 

844  A CSV (comma-separated values) file is a text file in which commas separate the values in each row. 

845  FIF Letter at 5, 32. 



222 

After review of the comments, the Commission is requiring the use of PDF format as 

proposed and modifying proposed Rule 605(a)(2) to require that market centers and broker-

dealers also produce the summary report in CSV format instead of XML format as suggested by 

the commenter.846 Making the summary report available in these file formats will allow market 

centers and broker-dealers to efficiently prepare the summary reports. In addition, investors and 

other members of the public will benefit from being able to access the summary report in 

multiple formats. Presently, it is challenging for individual investors to decipher and analyze the 

detailed Rule 605(a)(1) report. These individual investors will be more readily able to use a 

summary report to make a more informed choice about selection of a broker-dealer than they can 

now. Because the summary report is human-readable in PDF format, individual investors will be 

able to assess the data by reviewing and comparing summary reports without needing technical 

expertise or relying on an intermediary. Further, independent analysts, consultants, and the 

financial press may also analyze the summary reports to provide more information to individual 

investors, including those who do not themselves access the summary reports. 

The Commission further agrees with the industry group commenter that investors will 

benefit from the summary report being provided in CSV format and has modified proposed Rule 

605(a)(2) to require that the summary report required therein be provided in CSV format, instead 

of XML, and also provided using the associated PDF renderer. As would have been the case 

using XML, the requirement to use the Commission’s schema for CSV format will result in the 

 

846  See final 17 CFR 242.605(a)(2). Rule 605(a)(4) does not apply to the summary report required by Rule 

605(a)(2). This is because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV 

format and associated PDF renderer, and therefore the Rule 605 NMS Plan does not establish the formats 

and fields for the summary report. Further the summary report is not included in Rule 605(a)(4) because the 

procedures for preparation and posting of the summary report under Rule 605(a)(2) are contained in Rule 

605(a)(2), which sets forth the necessary format for the summary report, and Rule 605(a)(5), which 

requires internet posting. 



223 

summary report data being provided in a format that is structured and machine-readable, which 

allows users to more easily process and analyze the data, and provides consistency of format 

across reports. Requiring a CSV file format also provides market participants and other 

interested parties with a simple and versatile format that is viewable in many programs. Like 

XML (and PDF), CSV is “open standard,” which is a term that is generally applied to 

technological specifications that are widely available to the public, royalty-free, at no cost. 

However, the Commission agrees with the commenter that a CSV file format may allow 

investors and other members of the public to compare summary data across firms more readily 

than XML. Investors and other members of the public may find a CSV file format preferable to 

an XML file format because the data can be more readily viewed and analyzed in widely used 

spreadsheet applications. Because the Rule 605 summary report consists solely of a series of 

discrete numeric values in a fixed tabular layout, and does not contain elements in nested 

structures, the sophisticated validations that XML enables would not have provided significant 

benefits for the Rule 605 summary report.847 Instead, the CSV format, which yields much 

smaller file sizes and therefore more efficient processing and storage of data than the XML 

format, is equally capable of handling the Rule 605 summary report content. The increased 

usability of the CSV file format will be more relevant to investors and other members of the 

public viewing and analyzing the summary report than the broader technical coverage of XML. 

Therefore, the Commission is requiring the use of a schema for CSV format rather than an XML 

schema. Further, the requirement that the same data be provided through the use of a PDF 

 

847  See also infra sections IX.D.1.b)(3) and IX.E.4.b). 



224 

renderer helps ensure that the summary report is also available in a human-readable format and 

consistently presented across operating systems and applications. 

3. Investor Testing and Education  

An industry group and an association of securities regulators both strongly encouraged 

the Commission to provide investor education or testing to ensure that the summary report is 

useful.848 In addition, an academic stated that additional effort needs to be made to make sure the 

summary report is “human-friendly and provide[s] useful data for comparing brokers.”849 The 

industry group further stated that “the industry has expended significant effort and resources to 

ensure that retail investors have access to educational materials and support necessary to best 

inform their use of broker-dealer services” and stated that the Commission was in the best 

position to educate investors about the use of summary reports.850 This commenter suggested 

providing educational resources to retail investors that would help them understand the summary 

reports and how such information can be used to inform their investment decisions.851 This 

commenter also suggested that investors should understand how to interpret varying data in order 

to facilitate the most accurate cross-comparisons between broker-dealers’ execution quality.852 

The association of securities regulators suggested testing the summary report with investors prior 

to implementation, such as through focus groups, to confirm that the summary report provides 

useful information for retail investors.853 An individual supported investor testing and investor 

 

848  See SIFMA Letter II at 30; NASAA Letter at 6. 

849  See Angel Letter at 3. 

850  See SIFMA Letter II at 30. 

851  See id. In particular, one commenter suggested educating investors on price impact (as defined in the Order 

Competition Proposal). See Schwab Letter II at 31. 

852  See SIFMA Letter II at 31. 

853  See NASAA Letter at 6. 



225 

roundtables for all equity market system rules recently proposed by the Commission.854 Several 

individuals suggested that the Commission should provide clear guidance on how to read and 

interpret the amended Rule 605 reports.855 

The Commission does not agree that prescribed testing or investor focus groups or 

roundtables are needed at this time. Rule 605 has been in existence for over two decades. 

Although larger broker-dealers will be required to produce the detailed report under Rule 

605(a)(1) for the first time, and both market centers and larger broker-dealers will be required to 

create and post a summary report under Rule 605(a)(2) for the first time, investors should be 

broadly familiar with many of the execution quality metrics that the summary report is intended 

to highlight. Further, many commenters, including individuals, supported the proposed summary 

report as it provides greater access to execution quality data.856 Notwithstanding any potential 

insights into the Rule 605 reports that could be gained from testing or focus groups, delay in the 

adoption of final Rule 605 would delay the benefits of the amendments from accruing.  

Some commenters suggested that the Commission directly provide educational resources 

to individual investors related to the final Rule 605 amendments. However, many market 

participants, in addition to the Commission,857 have undertaken efforts to educate retail investors 

about securities trading and how to compare broker-dealer execution quality, and the 

 

854  See letter from Andrew (Mar. 31, 2023).  

855  See Letter Type G at https://www.sec.gov/comments/s7-29-22/s72922.htm (suggesting this guidance 

“especially for retail investors who may not have a deep understanding of the markets”). 

856  See supra note 742. 

857  See, e.g., https://www.sec.gov/education/investor-education, https://www.investor.gov/introduction-

investing/investing-basics/how-stock-markets-work/executing-order. The Commission’s Office of Investor 

Education and Advocacy regularly posts investor alerts and bulletins. In addition, Investor.gov is an online 

resource from the Commission’s Office of Investor Education and Advocacy to help individual investors 

“make sound investment decisions and avoid fraud.” See https://www.investor.gov/about-us.  



226 

Commission expects that these initiatives will continue to inform retail investors about means to 

evaluate their broker-dealers’ performance, including the utilization of summary report statistics. 

Individual broker-dealers may provide their own educational resources addressing Rule 605 

directly to their customers and other market participants and customers of broker-dealers may 

ask their broker-dealers questions about the Rule 605 reports. Likewise, broker-dealers can 

provide information about their firms and the nature of their order flow on their websites or 

through other communications to customers. Further, as stated above, third parties, including 

analysts, researchers, and the financial press, may also use the summary reports to analyze and 

compare execution quality across broker-dealers or market centers and provide such information 

to individual investors in different formats that provide individual investors with alternative ways 

to engage with Rule 605 data. The Commission therefore does not believe it is necessary to 

prescribe investor education at this time. However, the Commission will monitor the 

implementation of Rule 605, including with regard to whether additional information about 

investor use or analysis of the summary report would be helpful. 

V. Requirements for Making Rule 605 Reports Available to the Public  

A. Proposed Approach 

Prior to these amendments, the requirements for the dissemination of the market center 

report required by Rule 605 were set forth in paragraphs (a)(2) and (3) of Rule 605.858 

Preexisting Rule 605(a)(2) required every national securities exchange on which NMS stocks are 

traded and each national securities association to act jointly in establishing procedures for market 

centers to make the reports required by Rule 605(a)(1) available to the public in a uniform, 

 

858  See Proposing Release, 88 FR 3786 at 3824 (Jan. 20, 2023). 



227 

readily accessible, and usable electronic form.859 The Commission proposed to amend 

preexisting Rule 605(a)(2), which would be reorganized into amended Rule 605(a)(3), so that the 

proposed summary report would also be made available in accordance with the procedures 

established by the Rule 605 NMS Plan.860 Further, preexisting Rule 605(a)(2) provided that, in 

the event there is no effective national market system plan, market centers shall prepare their 

reports in a consistent, usable, and machine-readable electronic format and make such reports 

available for downloading from an internet website that is free and readily accessible to the 

public.861 The Commission proposed to reorganize this provision into amended Rule 605(a)(4) 

and modify amended paragraph (a)(4) to explicitly refer to the requirements in amended Rule 

605(a)(1).862 

Rule 605(a)(2), prior to these amendments, also specified that the detailed reports 

required by Rule 605(a)(1) must be posted on an internet website that is free and readily 

accessible to the public for a period of three years from the initial date of posting.863 As 

proposed, these same requirements would be reorganized into amended Rule 605(a)(5) and 

would be extended to the summary report required under proposed Rule 605(a)(2).864  

Finally, prior to these amendments, Rule 605(a)(3) specified that the detailed report 

required by Rule 605(a)(1) must be made available within one month after the end of the month 

 

859  See id.  

860  See id.  

861  See id. at 3824, n.475. 

862  See id. 

863  See id. at 3824. 

864  See id. at 3824, n.475.  



228 

addressed in the report.865 The Commission proposed to renumber this provision as amended 

Rule 605(a)(6) and to extend this requirement to the amended Rule 605(a)(2) report.866 

B. Final Rule and Discussion 

1. Accessibility of Rule 605 Reports 

The Commission is updating these provisions of preexisting Rule 605 by reorganizing 

paragraphs (a)(2) and (3) of preexisting Rule 605 into amended paragraph (a)(3) and new 

paragraphs (a)(4) through (6) as proposed.867 In the amended paragraphs, the Commission 

proposed to apply the website posting, timing, and retention requirements to the proposed Rule 

605(a)(2) summary report and to extend Rule 605’s procedural requirements to brokers and 

dealers subject to Rule 605. The Commission received no comments regarding the proposed 

renumbering and reorganization of preexisting Rule 605(a)(2) and (3), but did receive comments 

on the substance of proposed Rule 605(a)(3). The Commission is adopting paragraphs (a)(3) 

through (6) of Rule 605 as proposed. These rule provisions set forth the requirements for making 

the Rule 605 reports accessible to the public, and retaining these requirements from preexisting 

Rule 605 will continue to provide interested parties with the ability to access the reports easily 

and efficiently. 

Rule 605(a)(3) directs the SROs to act jointly in establishing procedures for market 

centers, brokers, and dealers to follow in making available to the public the detailed report under 

Rule 605(a)(1) and summary report under Rule 605(a)(2). The Rule 605 NMS Plan establishes 

 

865  See id. at 3825. 

866  See id. 

867  See final 17 CFR 242.605(a)(3) through (6); Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023). 

The Commission proposed to amend current Rule 605 by reorganizing paragraphs (a)(2) and (3) of current 

Rule 605 as paragraphs (a)(3) through (6) of proposed Rule 605.  



229 

procedures for market centers to make data available to the public in a uniform, readily 

accessible, and usable electronic form.868 The Rule 605 NMS Plan requires each market center to 

arrange with a single plan participant to act as the market center’s Designated Participant.869 The 

Rule 605 NMS Plan also requires market centers to post their monthly reports on an internet 

website that is free of charge and readily accessible to the public.870 Inclusion of Rule 605(a)(2)’s 

summary reports within the scope of the Rule 605 NMS Plan will promote consistent 

administration of Rule 605 and allow the Designated Participant for each reporting entity to play 

a role with respect to the reports required by Rule 605(a)(1) and (2). As is the case for market 

centers that are not Participants prior to these rule amendments, the Participants will be required 

to enforce compliance with the terms of the Rule 605 NMS Plan by their members and persons 

associated with their members.871 In addition, formatting for Rule 605 data is governed by the 

Rule 605 NMS Plan. Among other things, the Rule 605 NMS Plan sets forth the file type and 

structure of the reports and the order and format of fields, yielding reports that are structured and 

machine-readable.872 Because of the amendments to Rule 605, the Rule 605 NMS Plan will need 

to be updated in order to incorporate references to larger broker-dealers subject to Rule 605 and 

 

868  See final 17 CFR 242.605(a)(3) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 

19814 at 19815 (Apr. 17, 2001). For a discussion of the implementation of amendments to the Rule 605 

NMS Plan pursuant to 17 CFR 242.608 (“Rule 608”), see infra section VII. 

869  See Rule 605 NMS Plan at section VIII. As of January 2024, the parties to the Rule 605 NMS Plan are the 

16 registered national securities exchanges trading NMS stocks and one national securities association (the 

“Participants”). Although not all market centers are Participants, the Participants are required to enforce 

compliance with the terms of the Rule 605 NMS Plan by their members and persons associated with their 

members. See 17 CFR 242.608(c). Each market center must notify its Designated Participant of the website 

where its reports may be downloaded, and each Designated Participant must maintain a comprehensive list 

of links for all market centers for which it functions as a Designated Participant. See Rule 605 NMS Plan at 

sections IV, VIII(c). 

870  See Rule 605 NMS Plan at section VII. 

871  See 17 CFR 242.608(c). 

872  See Rule 605 NMS Plan at 2 (“Section V . . . provides that market center files must be in standard, pipe-

delimited ASCII format”). 



230 

to account for summary reports and the new data fields required to be reported. The compliance 

period for amending the Rule 605 NMS Plan, and other implementation details, are discussed in 

infra section VII. 

With respect to report formatting, an investor advocacy group stated that header data 

should be included in the Rule 605 reports, arguing that “it is impossible to understand the 

reports” without looking separately to published Commission guidance.873 This commenter also 

stated that Rule 605 reports should continue to be made available in a machine-readable 

format.874 The Commission agrees that having more ready access to the information needed to 

understand the content of the reports could be beneficial for market participants. Because the 

Rule 605 NMS Plan establishes the procedures for reporting entities to follow in making the 

report available in a uniform, readily accessible, and usable electronic form, the Participants are 

well-positioned to determine how to include header information in connection with the updates 

to the record layout for the detailed Rule 605(a)(1) reports.875 The Commission encourages the 

Participants to consider whether header information or a more accessible record layout or key 

should be part of the procedures for making the reports available to the public, especially as it 

pertains to the detailed Rule 605(a)(1) reports.876 

 

873  See Healthy Markets Letter at 16. See also Better Markets Letter at 9, n.26 (“We agree with Healthy 

Market Association that improved header data would go a long way to making Rule 605 Reports more 

readable, particularly for retail investors, and suggest the Commission make this technical enhancement to 

the Rule 605 NMS Plan.”). 

874  See Healthy Markets Letter at 16. 

875  If the Plan Participants determine to amend the Rule 605 NMS Plan to incorporate headers into the reports, 

an amendment must be filed with the Commission pursuant to Rule 608 of Regulation NMS. See 17 CFR 

242.608(a). Amendments to NMS plans are subject to notice and comment, and may be either effective 

upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before 

amendments may be effective, pursuant to 17 CFR 242.608(b)(2). 

876  Under Rule 608(a)(2) of Regulation NMS, the Commission may propose amendments to any effective 

national market system plan. See 17 CFR 242.608(a)(2). The Commission could in the future propose an 

amendment to the Rule 605 NMS Plan to address issues related to the Rule 605 reports. 



231 

In the event that an amendment to the Rule 605 NMS Plan establishing procedures for 

market centers, brokers, and dealers to comply with Rule 605 has not been approved by the 

Commission prior to the compliance date of the amendments to Rule 605, paragraph (a)(4) of 

Rule 605 provides that market centers, brokers, and dealers shall prepare their reports in a 

consistent, usable, and machine-readable electronic format, and make such reports available for 

downloading from an internet website that is free and readily accessible to the public.877 

Paragraph (a)(5) of Rule 605 requires market centers, brokers, and dealers to keep the reports 

required by Rule 605(a)(1) and (2) posted on an internet website that is free and readily 

accessible to the public for a period of three years from the initial date of posting. Finally, 

paragraph (a)(6) of Rule 605 requires market centers, brokers, and dealers to make their Rule 

605(a)(1) and (2) reports available within one month after the end of the month addressed in the 

reports. The Commission received no comments on its proposal to renumber and update 

paragraphs (a)(4) through (6) of Rule 605 and is adopting paragraphs (a)(4) through (6) of Rule 

605 as proposed, for the reasons stated in the Proposing Release.878 Final Rule 605 will extend 

these procedural requirements to the Rule 605(a)(2) summary report so that valuable information 

on order execution quality will be made available to the public without undue delay.879 Further, 

the ability to access Rule 605(a)(1) and (2) reports at the same time and the availability of these 

 

877  The requirements of Rule 605(a)(4) do not apply to the Rule 605(a)(2) summary report because Rule 

605(a)(2) specifies the necessary format for the reports, while Rule 605(a)(5) contains the requirement for 

internet posting. 

878  See Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023). 

879  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75425 (Dec. 1, 2000). If a market center or broker-

dealer believes that its particular circumstances warrant an exemption from the provisions of the Rule, it 

may request an unconditional or conditional exemption pursuant to paragraph (b) of Rule 605. Such an 

exemption will be granted if the Commission determines that it necessary or appropriate in the public 

interest, and is consistent with the protection of investors. See 17 CFR 242.605(b). 



232 

reports for the same period of time will aid users of the reports in their review and analysis of 

execution quality data.880  

2. Alternatives to Rule 605 Proposal  

a) Centralization of Rule 605 Data 

In the Proposing Release, the Commission solicited comment on whether to require 

centralized posting of Rule 605 reports and discussed as an alternative that instead of, or in 

addition to, having market centers and larger broker-dealers post Rule 605 reports to their 

websites, the Commission could require these reporting entities to submit their Rule 605 reports 

to a centralized electronic system, which would then make these reports available to market 

participants.881 The Commission stated that the creation of a centralized electronic system could 

promote greater transparency by better enabling market participants to access and evaluate the 

reports of multiple reporting entities because the reports would be available at a single 

location.882 However, the Commission recognized that the entity responsible for administering 

the centralized electronic system would incur compliance costs as a result of the creation and 

maintenance of such a system, and these costs could be passed on to reporting entities in the 

form of filing fees or to consumers of Rule 605 reports in the form of access fees.883 

Specifically, the Commission considered two options for how to implement a centralized 

electronic system. One option would have been for the Commission to require that the Plan 

Participants establish procedures pursuant to the Rule 605 NMS Plan to provide for the creation 

 

880  See Proposing Release, 88 FR 3786 at 3824-25 (Jan. 20, 2023).  

881  See id. at 3825, 3894. 

882  See id. at 3894. The Commission also stated that a centralized system could enable programmatic checks 

that the Rule 605 reports are appropriately standardized, formatted, and complete before posting. See id. 

883  See id. 



233 

and maintenance of a centralized electronic system to serve as a repository for Rule 605 reports 

and make such reports available for viewing and downloading in a manner that is free and 

readily accessible to the public.884 The second option would have been for the Commission to 

require that reporting entities disclose Rule 605 information directly to the Commission through 

the Commission’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system, with 

the Commission subsequently making the information publicly available on EDGAR.885 

Several commenters supported the centralized posting of Rule 605 reports (summary and 

detailed).886 Some of these commenters stated that providing centralized access to Rule 605 

reports would “facilitate accessibility and comparability of the metrics to the benefit of retail 

customers and market participants”887 and that “market participants would be more likely to use 

the data to compare execution quality, leading to increased competition and improvements in 

execution quality.”888 Some of these commenters suggested various means of centralizing Rule 

605 reports—having FINRA maintain a public database for Rule 605 reports,889 creating a 

central repository for Rule 605 reports to be located on a single page on the Commission’s 

website,890 or working out the details of a central repository through the Rule 605 NMS Plan.891 

 

884  See id. at 3895. 

885  See id. at 3896. Under this alternative, entities would submit Rule 605 information to the Commission, but 

would not file Rule 605 information with the Commission. Under the Exchange Act, documents filed with 

the Commission are subject to heightened liability for misstatements contained therein as compared to 

documents otherwise provided to the Commission (e.g., documents furnished to the Commission). See 15 

U.S.C. 78ff. 

886  See BlackRock Letter at 4; Angel Letter at 3; Fidelity Letter at 8; Healthy Markets Letter at 16; Nasdaq 

Letter at 46; SIFMA Letter II at 25; J.T. Letter. 

887  Fidelity Letter at 8. 

888  Nasdaq Letter at 46. See also BlackRock Letter at 4. 

889  See Healthy Markets Letter at 16. 

890  See Fidelity Letter at 8. 

891  See Angel Letter at 3. 



234 

An individual investor suggested that the Commission should require the summary and detailed 

reports to be posted in a centralized electronic system implemented by the Commission that 

subjects reporting entities to liabilities and has no access fees.892 An industry group and an 

investor advocacy group both specifically discouraged the use of EDGAR as the centralization 

method,893 stating that the EDGAR system is “outdated technology”894 and “inadequate for the 

task.”895  

The Commission has considered the comments but is not adopting a requirement for 

centralized posting of Rule 605 reports for a number of reasons. While several commenters 

supported the goal of centralizing Rule 605 reports, commenters did not have a consensus view 

on how to accomplish centralization. Further, two commenters expressed specific concerns with 

the Commission using EDGAR as a centralized repository. The Commission acknowledges that 

centralization of Rule 605 data, by providing standardization to the reports, could help to make it 

easier for market participants to access and evaluate Rule 605 reports. However, developing a 

centralized repository and procedures for reporting entities to follow, whether done by the 

Commission or by Plan Participants, could potentially result in implementation time delays and 

require the expenditure of considerable technology and personnel resources. Further, although a 

 

892  See J.T. Letter. This commenter stated that it is “essential to ensure that these reports are appropriately 

standardized, formatted, and completed before acceptance through programmatic checks.” Id. 

893  See FIF Letter at 33; Healthy Markets Letter at 16. 

894  See FIF Letter at 33. 

895  See Healthy Markets Letter at 16. Another commenter objected to the standardization and centralization of 

Rule 605 reports and stated that “[g]iving away vast amounts of information to free riders (e.g., activists, 

MEME stock insurgents, and foreign adversaries) increases vulnerabilities” such as “MEME events and 

other irrational exuberance.” Data Boiler Letter at 27. The Commission does not agree that the 

standardization and centralization of Rule 605 reports would increase these so-called “vulnerabilities” 

simply by making the reports viewable at one central location in a consistent format because it is unclear 

how the execution quality information contained in Rule 605 reports would lead to these outcomes. 



235 

centralized repository could lower search cost for market participants, even without 

centralization, Rule 605 reports will be required to be readily available and accessible.896  

The changes to Rule 605 discussed herein will expand the scope of the reports and 

improve the usefulness of the execution quality statistics provided and made public. For 

example, the addition of a reporting requirement for larger-broker dealers will provide investors 

with information that they could use to compare the execution quality provided by different 

broker-dealers. The current disclosure requirements set forth in the amended rule and under the 

Plan will help ensure that implementation of final Rule 605 will proceed in a timely manner.897 

b) Generation of Order Execution Quality Reports Using CAT Data 

As an alternative to the proposed Rule 605 amendments, the Commission asked for 

comment on using CAT data to have either the Commission or the CAT NMS Plan Processor898 

provide execution quality information to the public at monthly (or more frequent) intervals. This 

alternative would have effectively eliminated the need for market centers and larger broker-

dealers to prepare Rule 605 reports.899  

 

896  See final 17 CFR 242.605(a)(5). 

897  In May 2023, FINRA requested comment on whether to require its members to provide Rule 605 reports to 

FINRA for centralized publication. See FINRA Regulatory Notice 23-10 (May 31, 2023) (“Regulatory 

Notice”). FINRA stated in the Regulatory Notice that the proposed requirement to provide Rule 605 reports 

to FINRA would supplement, not replace, firm’s current obligations under Rule 605. See Regulatory 

Notice at 3. Comments received on FINRA Regulatory Notice 23-10 are available at 

https://www.finra.org/rules-guidance/notices/23-10#comments. 

898  As set forth in the National Market System Plan for the Consolidated Audit Trail (“CAT NMS Plan”), the 

CAT NMS Plan Processor is required to develop and, with the prior approval of the Operating Committee, 

implement policies, procedures, and control structures related to the CAT System that are consistent with 

17 CFR 242.613(e)(4), and Appendix C and Appendix D of the CAT NMS Plan. See Securities Exchange 

Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 at 84704, n.136 (Nov. 23, 2016) (order approving 

the CAT NMS Plan). 

899  See Proposing Release, 88 FR 3786 at 3897 (Jan. 20, 2023). 



236 

A few commenters supported the use of CAT data to produce Rule 605 reports.900 An 

investment advisory firm stated that utilizing CAT data to create a report and making such 

reports easily accessible in one location “will likely result in a meaningful increase in 

transparency for investors.”901 An asset management firm stated that if every reporting firm 

generates its own reports, there would be “needless duplication of the costs and burdens 

associated with the implementation and ongoing maintenance of disclosures,” and that “a 

centralized processor for Rule 605 reports would also eliminate the inevitable inconsistencies or 

errors which arise when independent systems are responsible for creating reports.”902 Another 

broker-dealer specified that “for the sake of consistency and transparency, FINRA is best 

positioned to provide these reports” through the use of CAT data.903 Several commenters also 

stated that a central Rule 605 report processor would lower compliance burdens for broker-

dealers.904 An industry group stated that if FINRA/CAT is not used to produce all Rule 605 

reports, but FINRA prepares its own Rule 605 data for regulatory purposes, such FINRA 

data/report should be made available to the relevant firm.905  

The Commission recognizes the value in having one entity calculate the statistics 

required under Rule 605 and produce execution quality disclosures because it could result in 

more standardized data. This in turn could help facilitate one of the primary goals of the Rule 

 

900  See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; FIF Letter at 32; Healthy Markets Letter 

at 16; SIFMA Letter II at 27; State Street Letter at 2; Tastytrade Letter at 4; LPL Financial Letter at 4.  

901  LPL Financial Letter at 4. 

902  BlackRock Letter at 4. 

903  Tastytrade Letter at 4. 

904  See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; SIFMA Letter II at 27; State Street Letter 

at 2. 

905  See SIFMA Letter II at 27; see also Healthy Markets Letter at 16 (“we recommend that as part of its access 

to CAT data to create 605 reports as part of their regulatory oversight/surveillance, FINRA should make its 

report cards publicly available”). 



237 

605 amendments—to enhance order execution quality reporting to better enable investors to 

compare and evaluate execution quality among different market centers and larger-broker-

dealers. This approach could also allow for the publication of execution quality data for all 

broker-dealers instead of just those that meet the customer account threshold. However, there are 

potentially significant costs and time delays associated with implementation of this alternative. 

The obstacles associated with authorizing and enabling FINRA CAT to prepare execution quality 

disclosures could hinder the ability of investors and market participants more broadly to have 

ready access to enhanced execution quality information. Rule 605, as adopted, will require 

updated disclosure within a comparatively shorter timeframe.906 However, the Commission will 

continue to monitor this alternative in the context of the implementation of CAT and may in the 

future consider whether execution quality disclosure utilizing CAT data is practicable or 

advisable.  

If the Commission in the future determines that CAT data should be utilized to produce 

execution quality disclosures, the Commission could also consider whether to eliminate the 

requirement that market centers and broker-dealers themselves produce Rule 605 reports in that 

context. 

An industry group stated that “[t]o the extent FINRA/CAT are not utilized to produce 

Rule 605 reports, the Commission or FINRA should be required to provide a publicly available 

data template that specifies exactly how a market center or broker-dealer’s Rule 605 reports 

should be produced.”907 The commenter further stated that “[d]oing so would establish a 

standardized metric consistent with regulators’ expectations and reduce any regulatory risks 

 

906  See infra section VII.  

907  SIFMA Letter II at 26. 



238 

reporting entities may face from having to make independent interpretations of various reporting 

requirements.”908 Although the Commission will not publish an exact data template for the 

detailed reports, the NMS Plan required by Rule 605(a)(3) will establish procedures for making 

the detailed report available to the public in a “uniform, readily accessible, and usable electronic 

form.”909 Further, Rule 605(a)(2) requires the summary report to be made available using the 

schema for CSV published on the Commission’s website.910 In addition, the Commission is 

providing herein a detailed discussion of the final rule, including responses to issues and 

questions raised by commenters. Therefore, reporting entities will have the information needed 

to produce Rule 605 reports in a uniform manner.  

VI. Existing Commission Exemptive Relief and Staff Statements 

Upon the compliance date of the amendments to Rules 600 and 605, the Commission 

exemptive relief and staff statements listed below will be withdrawn. To the extent any staff 

statement is inconsistent with or conflicts with the requirements of Rule 600 or Rule 605, as 

amended, even if not specifically identified below, those statements are superseded. 

 

908  Id. at 26-27. 

909  Final 17 CFR 242.605(a)(3). 

910  See final 17 CFR 242.605(a)(2). 

Name Date Topic 

Market Systems Exemptive Letter, 

Opening Exemption only 

June 22, 2001 Orders received during regular 

trading hours at a time when an 

NBBO is being disseminated but 

prior to the dissemination of the 

primary listing market’s first 

firm, uncrossed quotations for a 

trading day. 

Large Order Exemptive Relief June 22, 2001  Any order with a size of 10,000 

shares or greater. 

2001 FAQ, Questions 19, 24, and 27 

only 

June 25, 2001 Orders received prior to 

dissemination of quotations by 



239 

As discussed in section III.A.1, the Commission is incorporating the Opening Exemption 

into the definition of covered order with respect to market or limit orders received during regular 

trading hours at a time when an NBBO is being disseminated.911 The Commission did not 

receive any comments opposing the proposed incorporation of the Opening Exemption into rule 

text or the rescission of the Opening Exemption in the 2001 Exemptive Letter. The Commission 

is rescinding the Opening Exemption as proposed, for the reasons discussed in the Proposing 

Release and in section III.A.1. The rescission of the Opening Exemption supersedes a staff 

FAQ.912 

In addition to the Opening Exemption, the Market Systems Exemptive Letter included a 

separate exemption from Rule 605 for orders received during a time when the consolidated best 

bid and offer (“BBO”) reflects a spread that exceeds $1 plus 5% of the midpoint of the 

consolidated BBO (“Spread Width Exemption”).913 As proposed, the Commission is not 

modifying or rescinding the Spread Width Exemption. Orders received during a time when the 

consolidated BBO reflects a spread that exceeds $1 plus 5% of the midpoint of the consolidated 

BBO “could be the result of potentially erroneous quotes or of abnormal trading conditions” and 

their inclusion “could significantly affect the comparability and reliability of the execution 

quality measures in market center monthly reports.”914 

 

911 See supra section III.A.1.b).  

912  See Staff Legal Bulletin No. 12R, “Frequently Asked Questions About Rule 11Ac1-5” (June 22, 2001) 

(“2001 FAQs”), Question 19. 

913  See Market Systems Exemptive Letter at 2.  

914  Id. 

primary listing SRO, riskless 

principal orders, and exemption 

for block orders. 

2013 FAQ, Question 2 only Feb. 25, 2013 Non-exempt short sale orders. 



240 

As discussed in section III.B.1, commenters supported the inclusion of larger-sized 

orders, which necessarily requires the recission of the Large Order Exemptive Relief.915 The 

Commission is rescinding the Large Order Exemptive Relief as proposed, for the reasons 

discussed in the Proposing Release and in section III.B.1. The rescission of the Large Order 

Exemptive Relief supersedes the relevant staff FAQ.916 

Finally, two additional staff FAQs are specifically superseded by Rule 605, as amended, 

and the guidance contained in this release.917 First, the final rule incorporates a provision that 

supersedes current staff statements regarding the treatment of riskless principal orders. 

Specifically, adopted Rule 605(a)(1)(i)(D) provides that the number of shares of covered orders 

executed at the receiving market center, broker, or dealer excludes shares that the market center, 

broker, or dealer executes on a riskless principal basis.918 Second, as proposed, the Commission 

is providing guidance that non-exempt short sale orders will not be special handling orders 

unless a price test restriction is in effect for the security.919 The FAQs will be updated 

accordingly consistent with these changes.  

VII. Transition Matters 

The Commission is providing a transition period between when the amendments to Rule 

605 are adopted and when the changes are fully implemented. As discussed above, the Rule 605 

NMS Plan establishes procedures for market centers to make data available to the public in a 

 

915 See supra notes 351-355 and accompanying text. 

916  See 2001 FAQs, Question 27. 

917  See 2013 FAQs, Question 2; and 2001 FAQs, Question 24. 

918  One commenter requested confirmation that execution quality metrics reported under Rule 605 include 

execution quality information for riskless principal orders. See supra note 688 and accompanying text. 

919  See supra section III.A.2.b).241 

uniform, readily accessible, and usable electronic form.920 In addition, formatting for Rule 605 

data is governed by the Rule 605 NMS Plan, which sets forth, among other things, the file type 

and structure of the reports and the order and format of fields.921 As described in section V.B.1 

above, the Commission is adopting paragraph (a)(3) of Rule 605 as proposed to direct the SROs 

to act jointly in establishing procedures for market centers, brokers, and dealers to follow in 

making Rule 605 reports available to the public. Because of the amendments to Rule 605 that the 

Commission is adopting, the Rule 605 NMS Plan will need to be updated to: (1) incorporate 

references to broker-dealers subject to Rule 605; (2) account for summary reports that will be 

required under Rule 605(a)(2); and (3) incorporate the new data fields that will be required under 

Rule 605(a)(1) for the detailed reports.922 In addition, larger broker-dealers and market centers 

will need time to test and implement programming and systems changes in order to comply with 

Rule 605 as amended.  

The Proposing Release did not include a proposed compliance date for final Rule 605, 

but several commenters recommended that the Commission provide a sufficient implementation 

period for the proposed Rule 605 amendments, including an industry group that recommended a 

minimum of one year and an industry group that recommended a minimum of one year from 

 

920  See prior 17 CFR 242.605(a)(2) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 

19814 at 19815 (Apr. 17, 2001).  

921  See Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001) (“Section V . . . provides that 

market center files must be in standard, pipe-delimited ASCII format”). 

922  The Rule 605 NMS Plan details procedures for market centers to follow and, among other things, specifies 

the order and format of fields in a manner that aligns with Rule 605(a)(1). See Rule 605 NMS Plan 

generally and section VI.(a) of the Rule 605 NMS Plan. As is currently the case for market centers that are 

not Participants, the Participants will be required to enforce compliance with the terms of the Rule 605 

NMS Plan by their members and persons associated with their members. See 17 CFR 242.608(c). 



242 

“approval of applicable Plan amendments.”923 One of these industry groups suggested that the 

Commission should not require the inclusion of any data relating to the best available displayed 

price “until the best odd-lot order to buy and the best odd-lot order to sell have been included in 

the SIP and firms have had a reasonable time period, subsequent to such inclusion, to incorporate 

this data into their Rule 605 reports.”924 This industry group also stated that the implementation 

timetable for final Rule 605 should “commence from the date that the Commission publishes 

guidance in response to interpretive questions from industry members” regarding the adopted 

reporting requirements.925 However, an investor advocacy group recommended implementation 

of the proposed changes to Rule 605 “without delay.”926 In addition, a national securities 

exchange stated that deferring “key implementation details” to the Participants “may introduce 

additional complications and further delay implementation of the Rule 605 Proposal since NMS 

 

923  See letter from Andrew M. Saperstein, Co-President, Morgan Stanley (Mar. 31, 2023) (“Morgan Stanley 

Letter”) at 7 (“The proposed amendments to Rule 605 involve a host of changes, including the introduction 

of new order types in scope, which will require broker-dealers and their vendors to adopt new processes 

and controls.”); SIFMA Letter II at 27 (recommending a minimum implementation period of one year and 

“ideally two years” following adoption of proposed Rule 605 “to allow for the industry, SROs, and the 

Commission to ensure that revised Rule 605 reports are produced in a consistent way”); FIF Letter at 5, 33 

(proposing that the implementation period should be a minimum of one year from the Commission’s 

approval of applicable Plan amendments). 

924  FIF Letter at 33.  

925  FIF Letter III at 5 (“If the Commission does not publish proposed specifications prior to adopting a final 

rule, FIF members recommend that any implementation timetable commence from the date that the 

Commission publishes guidance in response to interpretive questions from industry members relating to the 

reporting requirements that the Commission adopts.”). 

926  See Healthy Markets Letter at 16. An industry group and a broker-dealer recommended implementing 

changes to Rule 605 before any of the other changes to the U.S. equity market structure that the 

Commission has proposed in order to provide a baseline for measuring market quality. See FIF Letter at 1, 

33 (recommending implementation of proposed Rule 605 reporting changes at least one year prior to other 

changes); Morgan Stanley Letter at 2 (recommending a staggered approach to changes to U.S. equity 

market structure, starting with changes to Rule 605). See also supra note 79 and accompanying text 

(discussing other commenters’ views on Rule 605 sequencing). 



243 

Plan Participants would first need to reach agreement and then file amendments to the Rule 605 

NMS Plan with the Commission, which the Commission would need to approve.”927 

The amendments to Rule 605 discussed herein shall become effective 60 days after the 

date of publication in the Federal Register (“Effective Date”). The compliance date shall be 18 

months after the Effective Date (“Compliance Date”).928 This amount of time is consistent with 

the commenter’s request that the Commission provide a minimum implementation period of one 

year following adoption of amendments to Rule 605.929 The Commission also recognizes that 

preexisting market centers and vendors will need time to update their systems and processes to 

ensure that data responsive to the amended requirements are correctly collected and formatted, 

and that larger broker-dealers and market centers newly subject to Rule 605 will need time to 

create such systems and processes. Although two commenters referred to a potentially longer 

timeframe for implementation,930 the adopted timeframe will allow the benefits of the amended 

rule to be achieved sooner and therefore the Commission is adopting the implementation 

timeframe discussed in this section. After considering the comments, the Commission agrees that 

implementation of Rule 605 as amended should not be unnecessarily delayed because the 

 

927  NYSE Letter at 8. 

928  With respect to the compliance date, commenters requested that the Commission consider interactions 

between the proposed rule and other recent Commission rules. See supra note 79. In determining 

compliance dates, the Commission considers the benefits of the rules as well as the costs of delayed 

compliance dates and potential overlapping compliance dates. For the reasons discussed throughout the 

release, to the extent that there are costs from overlapping compliance dates, the benefits of the rule justify 

such costs. See infra sections IX.C.1.d) and IX.D.2.a)(5) for a discussion of the interactions of final Rule 

605 with certain other Commission rules. 

929  See SIFMA Letter II at 27. 

930  See id. (stating the Commission should provide for an implementation period of “ideally two years 

following adoption of the Rule 605 Proposal”) and FIF Letter at 33 (stating the Commission’s 

implementation period should be a “minimum of one year from the Commission’s approval of applicable 

Plan amendments”). Amendments to NMS plans are subject to notice and comment, and may be either 

effective upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before 

amendments may be effective, pursuant to 17 CFR 242.608(b)(2).  



244 

modifications to Rule 605 that the Commission is adopting will expand its scope and improve 

the usefulness of the execution quality statistics that reporting entities will make available 

pursuant to Rule 605.  

As part of the implementation process, and pursuant to the requirement in paragraph 

(a)(3) of Rule 605 as amended directing the SROs to act jointly in establishing procedures for 

market centers, brokers, and dealers to follow in making Rule 605 reports available to the public, 

the Rule 605 NMS Plan Participants (16 national securities exchanges and one national securities 

association) will need to file with the Commission a proposed Rule 605 NMS Plan amendment 

updating the Plan to reflect the amendments made herein to Rule 605, pursuant to Rule 608(a)(1) 

of Regulation NMS. The NMS Plan Participants are the appropriate parties to update the Rule 

605 NMS Plan provisions given their experience in administering the Rule 605 NMS Plan since 

its approval by the Commission in 2001. Many of the detailed issues relating both to the format 

of the reports under Rule 605 as amended, and to the means of access to the reports, are 

appropriately addressed in the context of approval of an amendment to the Rule 605 NMS 

Plan.931 However, while the Rule 605 NMS Plan Participants will need to determine how to 

address certain technical elements of Rule 605,932 the modifications that will need to be made by 

the Rule 605 NMS Plan generally will be dictated by Rule 605 as amended (e.g., updates to the 

list of fields included in the reports required by Rule 605(a)(1)).  

 

931  For example, in the Proposing Release, the Commission discussed potential alternatives to the website 

posting of Rule 605 reports, including, among other things, requiring Rule 605 NMS Plan Participants to 

amend the Rule 605 NMS Plan to create a centralized electronic system repository for Rule 605 reports. 

See Proposing Release, 88 FR 3786 at 3895-96 (Jan. 20, 2023).  

932  Because an amendment to the Rule 605 NMS Plan will address certain technical elements of Rule 605, the 

Commission does not agree that it is necessary to commence implementation after publication of any 

Commission guidance. See FIF Letter III at 5. As noted above, amendments to NMS plans are subject to 

notice and comment. See supra note 930. 



245 

In accordance with Rule 605 as amended, the Rule 605 NMS Plan amendment will need 

to establish procedures for market centers, brokers, and dealers to follow in making Rule 605 

reports publicly available.933 Notice of the proposed amendment to the Rule 605 NMS Plan and 

the opportunity for comment will be provided.934 

In addition, market centers, brokers, and dealers will need to make necessary preparations 

to be in a position to comply with Rule 605 as amended by the Compliance Date.935 The 

Compliance Date strikes an appropriate balance between: (1) affording brokers, dealers, and 

market centers sufficient time to program their systems and implement business process changes 

necessary to comply with the new rules; and (2) requiring that the execution quality statistics in 

their Rule 605 reports become available to investors in a timely manner.  

The Compliance Date is designed to allow time for both an amendment to the Rule 605 

NMS Plan and time for brokers, dealers, and market centers time to comply with Rule 605 as 

amended.936  

Notwithstanding the Compliance Date, reporting entities will not be able to calculate the 

price improvement statistics relative to best available displayed price that will be required to be 

included in the detailed reports required by Rule 605(a)(1) for marketable order types, 

marketable stop orders, and midpoint-or-better order types until odd-lot order information is 

 

933  Because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV and the associated PDF 

renderer, the Rule 605 NMS Plan will not establish the formats and fields for the summary reports. 

934  See 17 CFR 242.608(b).  

935  If the Rule 605 NMS Plan does not incorporate the necessary changes to Rule 605 in advance of the 

Compliance Date, final Rule 605(a)(4) will govern and the Compliance Date will still apply. As described 

further above in section V.B.1, final Rule 605(a)(4) will require that in the event that there is no effective 

national market system plan establishing required procedures, market centers, brokers, and dealers shall 

prepare their reports in a consistent, usable, and machine-readable electronic format, in accordance with the 

requirements in final Rule 605(a)(1), and make such reports available for downloading from a website that 

is free and readily accessible to the public. 

936  See supra note 923 and accompanying text. 



246 

made available pursuant to an effective transaction reporting plan or effective national market 

system plan.937 The MDI Rules included odd-lot information in the data that will be made 

available within the national market system. Although the Commission adopted the MDI Rules, 

the MDI Rules have not been implemented.938 Once odd-lot order information is made available 

pursuant to an effective national market system plan, market centers, brokers, and dealers will 

need time to make any program updates and changes to their business processes that are 

necessary to calculate the price improvement statistics relative to the best available displayed 

price. In order for odd-lot order information to be made available pursuant to an effective 

national market system plan, participants will need to file with the Commission a proposed NMS 

plan or a proposed amendment to an NMS plan pursuant to Rule 608(a)(1) of Regulation NMS. 

Any such filing will be subject to public comment and Commission approval by order before the 

effectiveness of such plan or plan amendments pursuant to Rule 608(b)(2) of Regulation NMS. 

A Commission order approving a proposed plan or plan amendment making odd-lot information 

available will provide market participants notice of when odd-lot order information will be 

required to be made available. Further, to the extent that odd-lot information is collected, 

consolidated, and disseminated by the effective national market system plan(s), market 

participants will be provided notice of the availability of such information through usual 

 

937  See final 17 CFR 242.605(a)(1)(ii)(M) through (Q). 

938  The Commission has outlined a phased transition plan for the implementation of the MDI Rules, including 

the implementation of odd-lot order information to be disseminated by competing consolidators. See 

Proposing Release, 88 FR 3786 at 3820, n.422 (Jan. 20, 2023). The Commission is still considering 

whether to adopt the proposed changes in the Minimum Pricing Increments Proposal to accelerate the 

implementation of the odd-lot information definition and have odd-lot order information disseminated by 

the exclusive SIPs. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80295-99 (Dec. 

29, 2022). If, in the future, the Commission accelerates implementation of this aspect of the MDI Rules, 

implementation of the modifications to the odd-lot definition and dissemination of odd-lot order 

information pursuant to an effective national market system plan would proceed on a revised timeframe as 

designated by the Commission at such time. 



247 

communication channels that may be established by the competing consolidator(s) or that are 

used by exclusive SIPs, to the extent exclusive SIPs collect, consolidate, and disseminate odd-lot 

information pursuant to an effective national market system plan. Market centers, brokers, and 

dealers will have six months after odd-lot order information sufficient to calculate the best 

available displayed price is made available pursuant to an effective national market system plan 

to start including price improvement statistics relative to the best available displayed price in 

their Rule 605 reports. 

VIII. Paperwork Reduction Act 

Certain provisions of the rule amendments contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).939 The 

Commission requested comment on the collection of information requirements in the Proposing 

Release and submitted relevant information to the Office of Management and Budget (“OMB”) 

for review in accordance with 44 U.S.C 3507(d) and 5 CFR 1320.11. The Commission is altering 

an existing collection of information and applying such collection of information to new 

categories of respondents. The title of such existing collection of information is: Rule 605 of 

Regulation NMS (f/k/a Rule 11Ac1-5).940 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. 

Views of commenters relevant to the Commission’s analysis of the reporting burdens 

imposed by the collection of information for Rule 605 as proposed are discussed below. In 

 

939  44 U.S.C. 3501 et seq. 

940  OMB Control Number 3235-0542. 



248 

addition, certain estimates have been modified, as necessary, to conform to the adopted 

amendments and to reflect the most recent data available to the Commission. 

A. Summary of Collection of Information 

The amendments create burdens under the PRA by: (1) adding new categories of 

respondents to the existing collection of information and (2) modifying the requirements of such 

existing collection of information. The amendments do not create any new collections of 

information.  

The categories of new respondents subject to Rule 605, as amended, are larger broker-

dealers and new market centers, consisting of SDPs and entities that act as market centers for 

orders that were previously not covered by Rule 605, e.g., orders smaller than 100 shares. 

The amendments modify both the scope of the standardized monthly reports required 

under Rule 605 and the required information. Rule 605, as amended: (1) expands the definition 

of “covered order” to include certain orders submitted outside of regular trading hours, certain 

orders submitted with stop prices, and non-exempt short sale orders; (2) modifies the existing 

order size categories to base them on notional value as well as whether an order is for less than a 

share, for an odd-lot, or for a round lot or greater rather than number of shares; (3) creates four 

new order type categories (marketable IOCs, executable market orders submitted with stop 

prices, executable marketable limit orders submitted with stop prices, and executable non-

marketable limit orders submitted with stop prices) and replaces three existing categories of non-

marketable order types with four new categories of order types (midpoint-or-better limit orders, 

midpoint-or-better IOCs, executable NMLOs, and NMLO IOCs); (4) modifies current time-to-

execution reporting buckets; (5) modifies realized spread statistics to require realized spread to 

be calculated after 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes; and (6) 



249 

requires new statistical measures of execution quality including average effective spread divided 

by quoted spread, percentage effective and realized spread statistics, a size improvement 

benchmark and statistic, and certain statistical measures that could be used to measure execution 

quality of NMLOs. The amendments require all reporting entities to make a summary report 

available that will be formatted using the most recent versions of the schema for CSV format and 

the associated PDF renderer as published on the Commission’s website. Finally, as a result of the 

amendments to Rule 605, Rule 605 NMS Plan Participants will need to amend the Rule 605 

NMS Plan to account for the new data fields. 

B. Proposed Use of Information 

The purpose of the information collection is to make information about order execution 

practices available to the public and allow investors, broker-dealers, and market centers (which 

include exchange markets, OTC market makers, and ATSs)941 to undertake a comparative 

analysis of these practices across markets. Broker-dealers may use the information to make more 

informed choices in deciding where to route orders for execution and to evaluate their internal 

order handling practices. Investors may use the information to evaluate the order handling 

practices of their broker-dealers. Market centers may use the information to compete on the basis 

of execution quality. 

C. Respondents 

The collection of information obligations of Rule 605 applies to larger broker-dealers and 

market centers that receive covered orders in national market system securities (collectively, 

“reporting entities”). The Commission estimates that there are approximately 228 reporting 

 

941  See final 17 CFR 242.600(b)(55). 



250 

entities (91 OTC market makers, plus 16 national securities exchanges, 1 national securities 

association, 87 exchange market makers, and 33 ATSs) under Rule 605 prior to these 

amendments.942 However, under the amendments, the Commission estimates there will be 343 

reporting entities (91 OTC market makers, 85 broker-dealers that introduce or carry 100,000 or 

more customer accounts,943 16 national securities exchanges, 1 national securities association, 87 

exchange market makers, 33 ATSs,944 plus 30 new market center respondents945) that will be 

subject to the collection of information obligations of Rule 605. Each of these respondents will 

be required to respond to the collection of information on a monthly basis. 

In addition, the amendments to Rule 605 will require the Rule 605 NMS Plan Participants 

(16 national securities exchanges and 1 national securities association) to prepare and file an 

amendment to the Rule 605 NMS Plan. 

 

942  The PRA for preexisting Rule 605 estimates 319 reporting entities (153 OTC market makers, plus 24 

national securities exchanges, 1 national securities association, 80 exchange market makers, and 61 ATSs). 

The Commission’s method of estimating the reporting entities for the Commission’s currently approved 

PRA for prior Rule 605 was over-inclusive. For example, it included national securities exchanges and 

ATSs that do not trade NMS stocks and broker-dealers that may trade NMS stocks but are not market 

makers. Based on updated estimates of the number of respondents, the Commission now estimates that 

there are only 228 current reporting entities. 

943  These 85 brokers-dealers include 39 broker-dealers that act as introducing brokers. The Commission 

initially estimated there would be 85 broker-dealers that introduce or carry 100,000 or more customer 

accounts, which included 37 broker-dealers and 48 carrying broker-dealers. See Proposing Release, 88 FR 

3786 at 3826 (Jan. 20, 2023). The Commission updated this estimate based on the FYE 2022 FOCUS 

Reports received by the Commission and data from CAT for calendar year 2022. See infra Table 13. 

944  As of Nov. 21, 2023, there are 33 NMS Stock ATSs that have filed an effective Form ATS-N with the 

Commission. 

945  These 30 new market center respondents consist of 20 market centers that will need to produce reports as a 

result of including fractional share orders within the scope of Rule 605 and 10 SDPs. The Commission 

initially estimated there would be 38 new market center respondents, which included 8 entities that would 

operate qualified auctions. See Proposing Release, 88 FR 3786 at 3826 (Jan. 20, 2023). Because final Rule 

605 does not include a requirement that entities operating qualified auctions report separately, the 

Commission is revising its estimate to include 30 new market center respondents. 



251 

D. Total PRA Burdens 

Rule 605, as amended, will require broker-dealers and market centers to make available 

to the public monthly order execution reports in electronic form. Broker-dealers and market 

centers retain most, if not all, of the underlying raw data necessary to generate these reports in 

electronic format or, if they do not, may obtain this information from publicly available data 

sources.946 Consequently, Rule 605 will not require new data collection or recordkeeping 

burdens. Respondents could either program their systems to generate the statistics and reports, or 

transfer the data to a service provider (such as an independent company in the business of 

preparing such reports or an SRO) that would generate the statistics and reports. 

The currently approved PRA for prior Rule 605 estimates that each respondent spends 6 

hours a month to collect the data necessary to generate the reports, or 72 hours per year.947 In the 

Proposing Release, the Commission estimated that each respondent would spend 8 hours a 

month, or 96 hours per year, on an ongoing basis, to comply with Rule 605 as proposed to be 

amended.948  

One commenter stated that the proposal did not include burdens related to business-line 

personnel or technical staff.949 Further, one commenter stated that the Commission’s compliance 

cost estimates were too low because the Commission neglected to take into account dedicated 

 

946  National securities exchanges, national securities associations, and registered brokers and dealers are 

subject to existing recordkeeping and retention requirements including 17 CFR 240.17a-1 (“Rule 17a-1”) 

(for SROs); 17 CFR 240.17a-3 (“Rule 17a-3”) and 240.17a-4 (“Rule 17a-4”) (for broker-dealers). See 

Rules 17a-1, 17a-3, and 17a-4. The Commission’s estimates include Rule 605’s requirement that reporting 

market centers and broker-dealers keep Rule 605 reports posted on an internet website that is free and 

readily accessible to the public for a period of three years from the initial date of posting on the internet 

website. See final 17 CFR 242.605(a)(5).  

947  See infra note 953. 

948  See Proposing Release, 88 FR 3786 at 3826-27 (Jan. 20, 2023). 

949  See Data Boiler Letter at 21. 



252 

staff time needed for data reconciliation and validation and other ongoing compliance costs.950 

The commenters provided no data and provided no alternative estimates of the cost of preparing 

the monthly reports. 

In response to the commenters, the Commission is adjusting its estimated annual burdens 

to account for work to be performed by technical staff, as described below. In addition, the 

Commission is adjusting the hourly rates used to monetize burden hours in order to account for 

recent inflation rates.  

The Commission estimates that the initial and ongoing burdens will be different for those 

respondents that are already required to prepare reports and for new respondents. The 

Commission estimates that Rule 605 amendments will result in an initial burden for current 

respondents of 50 hours per respondent951 for systems updates to ensure that data responsive to 

the amended requirements is correctly collected and formatted. The initial burden estimate 

represents the work that will need to be done by existing respondents to modify their systems to 

collect data required under the amendments to Rule 605 and generate the monthly reports. The 

estimate includes time required to program and test automated systems to collect the necessary 

data, as well as review and approval by compliance personnel. The Commission does not believe 

the information required to be aggregated and included in Rule 605 reports, as amended, will 

require preexisting respondents to acquire new hardware or systems to process the information 

 

950  See Robinhood Letter at 42 (stating that annual costs of up to $42,000 per year is “an underestimation of 

annual costs”). 

951  The Commission estimates the monetized initial burden for this requirement to be $4,577,100. The 

Commission derived this estimate based on per hour figures from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Sr. Programmer at $399 for 25 hours) + (Sr. Systems Analyst at $343 for 10 hours) + 

(Compliance Manager at $373 for 10 hours) + (Director of Compliance at $588 for 5 hours)] = $20,075 per 

respondent for a total initial monetized burden of $4,577,100 ($20,075 x 228 respondents).  



253 

required in the reports. The Commission further estimates that the Rule 605 amendments will 

result in an ongoing monthly burden of 11 hours per respondent to collect the necessary data and 

to prepare the required Rule 605 reports, for a total annual burden of 132 hours per 

respondent.952 This estimate represents an increase of 3 hours per respondent over the 

Commission’s initial estimate because it accounts for technical staff time that will be required to 

verify automated processes are functioning as intended and post and prepare the required reports, 

or transfer data to a service provider to generate the reports.953 This estimate has been revised 

from the Proposing Release in response to commenters who stated that the Commission did not 

adequately account for technical staff.954 With an estimated 228 respondents already subject to 

Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 

11,400 hours while the monthly reporting requirement is estimated to be 30,096 hours per year 

(228 x 132). The burdens for respondents currently reporting under Rule 605 are likely to be 

lower than those of new reporting entities because currently reporting entities already have 

systems in place to collect the data necessary to generate reports under the current rule. These 

 

952  The Commission estimates the monetized annual burden for this requirement to be $11,775,744. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + 

(Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) x 12 reports per year] = $51,648 

per respondent for a total annual monetized burden of $11,775,744 ($51,648 x 228 respondents). 

953  The Commission’s currently approved PRA for prior Rule 605 (OMB Control Number 3235-0542), last 

updated in Apr. 2022, estimates that current respondents each will spend 6 hours per month to collect the 

data necessary to generate the reports, or 72 hours per year. Although the amendments to Rule 605 will 

require additional data fields and the generation of summary reports, the data collection and report 

generation process will be an automated process that will not require substantial additional burden hours 

after initial set-up. 

954  See supra notes 949-950 and accompanying text. Specifically, although the commenters did not provide an 

estimate of the costs or time burdens that would be attributable to work performed by technical staff, the 

Commission is allocating 2 hours to a programmer and 1 hour to a systems analyst to account for technical 

assistance that may be necessary to ensure automated processes are functioning as intended. 



254 

estimates include the impact of preparing and making summary reports available using the most 

recent versions of the schema for CSV format and the associated PDF renderer as published on 

the Commission’s website. 

The Commission estimates that Rule 605 amendments will result in an initial burden for 

new respondents of 100 hours for each respondent955 for systems updates to ensure that data 

responsive to the amended requirements is correctly gathered and formatted. This burden is 

higher than the estimated burden for current respondents because new respondents do not 

currently have in place the systems to collect the information required for current Rule 605 

reports. These respondents will likely require additional time to collect the relevant information. 

In addition, this estimate includes additional time for programming and testing automated 

systems to collect the necessary data and additional hours for review and approval by compliance 

personnel. Once the relevant data are collected, respondents could either program their systems 

to generate the reports or transfer the data to a service provider that will generate the reports. 

Respondents will likely not be required to acquire new hardware or other technological resources 

to be able to collect the data required by the amended rule given that respondents already have 

computing systems in place to, for example, transmit and process order information, and such 

systems could be leveraged to collect the required data. Further, to the extent a respondent does 

not have the technological capabilities or resources to generate the reports in-house, such 

respondents will likely utilize a service provider, as discussed below. The Commission estimates 

 

955  The Commission estimates the monetized initial burden for this requirement to be $4,617,250. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Sr. Programmer at $399 for 50 hours) + (Sr. Systems Analyst at $343 for 20 hours) + 

(Compliance Manager at $373 for 20 hours) + (Director of Compliance at $588 for 10 hours)] = $40,150 

per respondent for a total initial monetized burden of $4,617,250 ($40,150 x 115 respondents). 



255 

that the Rule 605 amendments will result in an ongoing monthly burden of 11 hours to collect 

the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 132 

hours per respondent.956 With an estimated 115 new respondents subject to Rule 605, the total 

initial burden to comply with the Rule 605 amendments is estimated to be 11,500 hours while the 

monthly reporting requirement is estimated to be 15,180 hours per year (115 x 132). These 

estimates include the impact of preparing and making summary reports available using the most 

recent versions of the schema for CSV format and the associated PDF renderer as published on 

the Commission’s website. 

  

 

956  The Commission estimates the monetized annual burden for this requirement to be $5,939,520. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + 

(Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) x 12 reports per year] = $51,648 

per respondent for a total annual monetized burden of $5,939,520 ($51,648 x 115 respondents). 



256 

Table 2: Respondent Burdens for Producing Rule 605 Reports 

Respondent Type Number of 

Respondents 

Burden 

Type 

Burden per 

Respondent 

(Hours) 

Number 

of 

Responses 

per Year 

Total Burden 

Hours 

(Number of 

Respondents x 

Burden per 

Respondent)a 
OTC Market 

Makers 

91 Initial 50  4,550 

Annual 11 12 12,012 

Exchange Market 

Makers 

87 Initial 50  4,350 

Annual 11 12 11,484 

Exchanges 16 Initial 50  800 

Annual 11 12 2,112 

Associations 1 Initial 50  50 

Annual 11 12 132 

ATSs 33 Initial 50  1,650 

Annual 11 12 4,356 

Totals for Current 

Respondents 

228 Initial 50  11,400 

Annual 11 12 30,096 

Broker-Dealers with 

≥100,000 customer 

accounts 

85 Initial 100  8,500 

Annual 11 12 11,220 

Non-market center 

broker-dealers 

20 Initial 100  2,000 

Annual 11 12 2,640 

SDPs 10 Initial 100  1,000 

  Annual 11 12 1,320 

Total Burden for 

New Respondents 

115 Initial 100  11,500 

Annual 11 12 15,180 

a In the case of annual burdens, the Total Burden Hours is equal to the burden per respondent multiplied by the 

number of responses per year. 



257 

 The Commission estimates that in lieu of preparing both summary and detailed monthly 

reports in-house, an individual respondent could retain a service provider to prepare its monthly 

reports for between approximately $3,000 and $3,500 per month or approximately $36,000 to 

$42,000 per year.957 This per-respondent estimate is based on the rate that a reporting entity 

could expect to obtain if it negotiated on an individual basis. Based on the $3,000 to $3,500 

estimate, the monthly cost to the 343 respondents to retain service providers to prepare reports 

will be between approximately $1,029,000 and $1,200,500 ((343 x $3,000) and (343 x $3,500), 

respectively), or a total annual cost of between approximately $12,348,000 and $14,406,000 

(($1,029,000 x 12) and ($1,200,500 x 12), respectively). 

Finally, the 16 national securities exchanges and 1 national securities association will 

need to amend the Rule 605 NMS Plan to account for the new data fields required to be reported 

and to include references to larger broker-dealers in addition to market centers. The Commission 

is modifying the estimates for the initial burden and costs to the SROs to file the amendment to 

eliminate the per respondent burden for each SRO and instead estimate the burden for the SROs 

collectively because the respondents would file this amendment jointly, rather than individually, 

 

957  This estimate is the same as the Commission’s estimate in the Proposing Release. The Commission’s 

currently approved PRA for prior Rule 605 estimates that the retention of a service provider to prepare a 

monthly report would cost $2,978 per month, or approximately $35,736 per year. Although the individual 

line items required by Rule 605, as amended, are different than prior Rule 605 or proposed Rule 605, the 

Commission does not believe that the overall cost of creating the required reports will differ substantially 

from these estimates. The Commission received no comments regarding its estimate of the external cost to 

retain a service provider. As discussed above, a commenter stated that the Commission underestimated 

annual compliance costs in the Proposing Release because the Commission’s estimate of up to $42,000 per 

year in annual costs failed to account for staff time and other ongoing compliance costs. See supra note 

950. In response to comments, the Commission increased its annual burden estimate. See supra notes 952 

and 956. 



258 

in connection with their status as participants in the effective national market system plan.958 The 

Commission estimates that there will be a one-time (or initial) burden of 85 hours959 to amend 

the Rule 605 NMS Plan to account for the new reporting fields and reporting parties. The 

Commission does not estimate that there will be any ongoing annual burden associated with the 

Rule 605 NMS Plan amendment to account for the new reporting fields and reporting parties. 

The Commission has based its estimate of SRO burden hours to amend the Rule 605 NMS Plan 

on the burden hours for existing NMS plans, while also taking into account the limited nature of 

the updates to the Rule 605 NMS Plan that will be required under the amendments to Rule 605. 

The Commission estimates that there will be outsourcing of legal time to develop and 

draft the Rule 605 NMS Plan amendment in order to account for additional data fields and 

reporting parties. The Rule 605 NMS Plan amendment will be an update to the list of formats 

and fields to track the data elements set forth in the Rule and add references to broker-dealers 

subject to the Rule, and therefore the Commission estimates the hours necessary to develop and 

draft the amendment will be significantly lower than other recent NMS plan amendments. The 

Commission estimates that the plan participants will outsource 34 hours of legal time to prepare 

and file an amendment to the Rule 605 NMS Plan, at an average hourly rate of $575.960 The 

 

958  Although the Commission is now estimating the collective burden for the SROs to make the necessary 

amendments to the Rule 605 NMS Plan, the Commission’s estimate of total initial burden hours and 

external costs remains consistent with the estimate in the Proposing Release. The Commission did not 

receive any comment on these burden hour estimates and external cost estimates. 

959  The Commission estimates the monetized initial burden for this requirement to be $43,605. The 

Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead: [(Attorney at $501 for 68 hours) + (Assistant General Counsel at $561 for 17 hours)] = a total 

initial monetized burden of $43,605. 

960  The Commission’s estimates of the relevant wage rates for outside legal services take into account staff 

experience, a variety of sources including general information websites, and adjustments for inflation. 



259 

Commission estimates that the aggregate one-time reporting burden for preparing and filing an 

amendment to the Rule 605 NMS Plan will be approximately $19,550 in external costs from 

outsourced legal work [(at $575 for 34 hours = $19,550)].  

The Commission currently estimates a total initial burden of 23,019 hours for all 

respondents and a total annual burden of 45,276 hours for all respondents.961 

IX. Economic Analysis 

A. Introduction 

The Commission is mindful of the economic effects that may result from these 

amendments to Rule 605, including the benefits, costs, and the effects on efficiency, competition, 

and capital formation.962 The following economic analysis identifies and considers the costs and 

benefits—including the effects on efficiency, competition, and capital formation—that could 

result from these amendments to Rule 605.  

In 2000, when the Commission adopted Rule 11Ac1-5, which was later redesignated as 

Rule 605, it stated that the rule should facilitate comparisons across market centers and provoke 

more vigorous competition on execution quality and broker-dealer order routing performance.963 

However, under prior Rule 605 reporting requirements, market participants have not been able to 

 

961  (11,400 + 11,500 + 119) = 23,019 initial burden hours. (24,624 + 12,420) = 37,044 annual burden hours. 

The Commission estimates the monetized initial burden for all respondents to be $9,257,505 ($4,577,100 + 

$4,617,250 + $63,155) and the monetized annual burden for all respondents to be $17,715,266 

($11,775,744 + $5,939,520). 

962  Exchange Act section 3(f) requires the Commission, when it is engaged in rulemaking pursuant to the 

Exchange Act, and is required to consider or determine whether an action is necessary or appropriate in the 

public interest, to consider, in addition to the protection of investors, whether the action will promote 

efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). In addition, Exchange Act section 

23(a)(2) requires the Commission, when making rules pursuant to the Exchange Act, to consider, among 

other matters, the impact that any such rule will have on competition, and not to adopt any rule that would 

impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the 

Exchange Act. See 15 U.S.C. 78w(a)(2). 

963  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75417 (Dec. 1, 2000). 



260 

observe the variations across broker-dealers in terms of the execution quality achieved by their 

order routing services using standardized and publicly available execution quality reports. 

Furthermore, in the subsequent decades, substantial changes in equity markets, including 

increases in trading speeds and fragmentation, have made it so that Rule 605 reports have 

become less informative than they were when Rule 605 was adopted. These amendments to Rule 

605, including expanding the scope of reporting entities, modernizing the content of Rule 605 

reports, and broadening the reports’ accessibility, will increase the relevance and use of the 

information contained in the reports, and promote competition among market centers and broker-

dealers. This increase in competition is expected to ultimately lead to improved execution quality 

for investors.  

The Commission recognizes that these amendments to Rule 605 will entail additional 

costs to market centers and broker-dealers of disclosing the required execution quality 

information. Market centers will face initial compliance costs when updating their methods for 

preparing Rule 605 reports, and broker-dealers that were not required to publish Rule 605 reports 

prior to these amendments will face initial compliance costs, including, but not limited to, 

developing the systems and processes and organizing the resources necessary to generate the 

reports pursuant to Rule 605, and ongoing compliance costs to publish Rule 605 reports each 

month.  

The Commission has considered and is describing the economic effects of these 

amendments to Rule 605 and wherever possible has quantified the likely economic effects of 

these amendments. The Commission has incorporated data and other information, such as 

academic literature, to assist in the analysis of the economic effects of these amendments. 

However, because the Commission does not have, and in certain cases does not believe that it261 

reasonably can obtain, data that may inform on certain economic effects, the Commission is 

unable to quantify those economic effects. Further, even in cases where the Commission has 

some data, the number and type of assumptions necessary to quantify certain economic effects 

would render any such quantification unreliable. Our inability to quantify certain costs, benefits, 

and effects does not imply that such costs, benefits, or effects are less significant. 

B. Market Failure 

The information disclosed under Rule 605 has provided significant insight into execution 

quality at different market centers.964 However, the utility of some of the metrics in Rule 605 

reports has eroded because such metrics have not kept up with the substantial changes in equity 

markets since the initial adoption of Rule 605’s predecessor in 2000. 965 As a result, Rule 605 is 

less able to address the market failures identified in the Rule 11Ac1-5 Adopting Release, 

including market centers’ limited incentives to produce publicly available, standardized 

execution quality reports.966 While some metrics remain robust, particular metrics required to be 

reported by Rule 605 prior to these amendments have become less useful for comparing 

execution quality across market centers than they were when the predecessor of Rule 605 was 

initially adopted. Further, some metrics that will be useful in today’s market were not required to 

be reported prior to these amendments. These market changes have limited the degree to which 

the metrics reported under prior Rule 605 promoted competition among market centers and 

 

964  See supra note 17. 

965  In 2018, while amending Rule 606, the Commission also modified Rule 605 to require that the public order 

execution quality report be kept publicly available for a period of three years but did not change the content 

of the reports. See supra note 45 and corresponding text.  

966  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75414-15 (Dec. 1, 2000).  



262 

improved execution quality.967 To enhance the value of Rule 605 reports, the Commission is 

updating the disclosure of order execution information and expanding the scope of reporting 

entities under Rule 605, which will result in a variety of improvements to market participants’ 

access to information about execution quality.  

The Commission does not believe that improvements to the preexisting Rule 605 metrics 

are likely to be achieved through a market-based solution.968 Even if all market centers were 

incentivized to voluntarily produce updated statistics for competitive or reputational reasons 

(e.g., they may lose business if their competitors provide reports and they do not), under current 

rules, there is little incentive for all market centers to agree on a standardized set of updated 

statistics. For example, market centers may be incentivized to design ad hoc reports to highlight 

areas where they believe they compare well to their competitors. Without a standardized set of 

statistics, it would be difficult for market participants to easily compare execution quality across 

market centers.  

 

967  Several commenters stated that there are limitations to preexisting Rule 605 in light of significant market 

changes since 2000. See, e.g., Vanguard Letter at 3 (stating that “though [Rule 605] provides a helpful 

baseline level of disclosure, it predates Regulation NMS and has not kept pace with advancements in 

technology and changes in market behavior”); Healthy Markets Letter at 16 (stating that “[t]he metrics [in 

Rule 605] – which are decades-old – are wildly outdated”); Better Markets Letter at 1 (stating that “[Rule 

605] has fallen well behind the dramatic changes in the structure of the markets and the advances in 

technology”); McHenry et al. Letter at 3 (stating that “our equity markets have changed dramatically since 

Rule 605 was adopted in 2000…the data reported under Rule 605 no longer provides an accurate measure 

of execution quality, particularly price improvement, for retail investors”). In addition, one commenter 

stated that Rule 605 reports are “incomplete” and stated that they “present an inaccurate picture of 

execution quality.” Virtu Letter II at 1-2. One commenter believes that “the current execution quality 

reports deliver sufficient comparative information on execution quality.” TradeStation Letter at 6. For the 

reasons discussed throughout this release, in this section and in section IX.D.1, the Commission believes 

that there are currently limits to the usefulness of Rule 605 for market participants, and that market 

participants will benefit from these updates to Rule 605. 

968  In the Rule 11Ac1-5 Adopting Release, the Commission stated that, while some market centers may have 

voluntarily made order execution information privately available to independent companies or broker-

dealers, the information in these reports generally had not been publicly disseminated. To the extent such 

information had been made available, not all of it was useful or in a form that would allow for cross-market 

comparisons. See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75431 (Dec. 1, 2000).  



263 

Furthermore, it may be difficult for certain market participants to compute accurate and 

relevant execution quality metrics from data sources other than Rule 605 reports, due to the lack 

of granularity and significant time delay of many other publicly available datasets, which can 

lead to imprecise or stale measures. This limits certain market participants’ ability to conduct 

analyses that examine and compare execution quality across market centers to inform investors. 

Moreover, even if execution quality information were voluntarily reported by market centers, 

there may also be limits to market participants’ incentives to access it. For example, even if a 

subset of market centers is able to coordinate on and produce a standardized set of voluntary 

execution quality metrics, the ability of market participants to use this measure to make 

comparisons across reporting entities would depend on the subset of reporting entities that 

choose to report it. If this subset is not of a significant enough size, there may be few incentives 

for market participants to access the information.969 Therefore, this rulemaking to modernize the 

information required to be reported by all Rule 605 reporting entities will prove beneficial.970 

In addition to modernizing the content of Rule 605, expanding the scope of entities that 

will be required to prepare Rule 605 reports to include larger broker-dealers will result in 

 

969  For example, in 2015, a working group associated with the Financial Information Forum developed a 

standardized template that firms may use when publicly disclosing summary information about execution 

quality for retail investor orders in exchange-listed stocks (“FIF Template”). See Retail Execution Quality 

Statistics, FIN. INFO. F., available at https://fif.com/tools/retail-execution-quality-statistics. While the FIF 

Template represents a standardized set of execution quality statistics, only one wholesaler currently 

produces reports using the FIF Template. See also infra notes 1084-1085 and accompanying text 

(discussing the limited number of firms that have produced reports utilizing the FIF Template at various 

points in time). While it is unclear whether the lack of widespread uptake of the FIF Template was due to a 

lack of incentives for reporting entities to report or due to a lack of consumption by market participants, in 

either case these market failures are addressed by the current amendments to Rule 605, which require 

updates to the information reported under Rule 605 by all reporting entities. The amendments additionally 

increase the usefulness and accessibility of Rule 605 reports by expanding the scope of reporting entities to 

include larger broker-dealers, and by requiring summary execution quality reports.  

970  See supra section III describing the amendments modifying the scope of orders covered and information 

required to be disclosed pursuant to Rule 605.  



264 

benefits that are unlikely to be achieved absent the amendments.971 Broker-dealers and their 

customers are subject to a classic principal-agent relationship in which the customer (the 

principal) submits an order to a broker-dealer (the agent) to handle its execution on the 

customer’s behalf; however, information asymmetries prevent the customer from being able to 

directly observe the broker-dealer’s handling of the customer’s order.972 This limits the extent to 

which broker-dealers need to compete for customers or order flows on the basis of execution 

quality, which may result in lower execution quality for their customers. 

As with market centers, most broker-dealers also do not necessarily have incentives to 

produce public and standardized execution quality reports and, therefore, are subject to the same 

market failures identified in the Rule 11Ac1-5 Adopting Release and described above. 

Furthermore, as discussed above in the context of market centers, even if broker-dealers are 

incentivized to produce execution quality reports, for example for marketing purposes or to 

protect against reputation loss, there are few incentives for broker-dealers to provide execution 

quality information that is standardized.973 As a result, individual investors and, to some extent, 

 

971  A “larger broker-dealer” is a broker-dealer that meets or exceeds the “customer account threshold,” as 

defined in final 17 CFR 242.605(a)(7). See supra note 61; see also supra section II.A (describing the 

amendments expanding the scope of Rule 605 reporting entities to include larger broker-dealers). 

972  Similar information asymmetries were recognized in the Rule 11Ac1-5 Adopting Release, which stated that 

“the decision about where to route a customer order is frequently made by the broker-dealer, and broker-

dealers may make that decision, at least in part, on the basis of factors that are unknown to their 

customers.” Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75433 (Dec. 1, 2000). 

973  See, e.g., supra note 969 for a discussion of the FIF Template. There are also some broker-dealers that 

disclose their own execution quality metrics on their respective websites, but the disclosures tend to differ 

in ways that make them difficult to compare, e.g., reporting different metrics, using different 

methodologies, or different samples of stocks. See also Order Execution Quality, TD AMERITRADE, 

available at https://www.tdameritrade.com/tools-and-platforms/order-execution.html (last updated 2024); 

Execution Quality, E*TRADE, available at https://us.etrade.com/trade/execution-quality (last updated 

2024); Our Execution Quality, ROBINHOOD, available at https://robinhood.com/us/en/about-us/our-

execution-quality/ (last updated 2024). Several commenters stated that the execution quality metrics 

produced by broker-dealers are “not universal” (see Vanguard Letter at 4) and “haphazard and generally 

not comparable across brokers” (see Professor Schwarz et al. Letter at 3). 



265 

institutional investors,974 have limited access to standardized information that could be used to 

compare how execution quality varies across broker-dealers.975 Without standardized reporting 

requirements, broker-dealers may provide their customers with different metrics, such that 

customers would not be able to make comparisons among broker-dealers on the basis of 

execution quality. Additionally, even if broker-dealers provide their customers with the same 

metrics, they may use different methodologies to calculate these metrics, such that they would 

not be easily comparable. Both of these factors would limit customers’ abilities to compare 

execution quality across broker-dealers.  

One commenter stated that vendors could provide a market-based solution for producing 

comprehensive metrics and could compete for business.976 The Commission disagrees that a 

vendor-based market solution would achieve the same benefits as these amendments to Rule 605. 

Vendors would not have access to information that is granular enough to produce execution 

quality metrics similar to the ones required by Rule 605 reporting requirements without getting 

data from market centers and broker-dealers. As discussed above, market centers and broker-

dealers do not necessarily have incentives to provide public and standardized execution quality 

information, and those who choose not to contribute data may do so because they believe it is in 

 

974  While some institutional investors are likely to have access to alternative sources of execution quality 

information, such as Rule 606(b)(3) reports and transaction cost analysis, the information on execution 

quality that is individually collected by institutional investors is typically nonpublic and highly 

individualized, and therefore limited to the execution quality obtained from broker-dealers with which the 

institutional investors currently do business. Since Rule 605 reports are public, institutional investors can 

use these reports to assess the execution quality of the broker-dealers and market centers with which they 

do not currently do business. See infra section IX.C.2.c) for further discussion. 

975  Institutional and individual investor customers of broker-dealers may differ in their abilities to request 

execution quality information from their broker-dealers. See infra sections IX.C.2.b) and IX.C.2.c) for 

further discussion. 

976  See Data Boiler Letter at 5 and 18.  



266 

their interest to keep their data out of public view.977 This makes it unlikely that a commercial 

data vendor will be able to produce an execution quality data product that is comprehensive and 

free from selection biases.978 Absent a requirement for reporting entities to publish standardized 

execution quality reports, competing vendors would likely have incomplete data or produce non-

standardized metrics while market centers and broker-dealers might select the vendors that make 

them look the best. As a result, this market-based solution would be less valuable for comparing 

execution quality across market centers and broker-dealers. Furthermore, while competing 

vendors would likely be able to offer a data product summarizing the information contained in 

Rule 605 reports, it is not necessarily the case that these summary reports would be “free and 

readily accessible to the public,” as required by the amended rule. 979  

 

977  Even if there are reputational reasons for a reporting entity to provide its execution quality data to a vendor, 

for example, because a decision not to report would serve as a signal of poor execution quality, the 

relevance of this as an incentive to report depends on whether market participants are incentivized to access 

the information in the first place. The benefits to market participants from accessing execution quality 

information, and therefore their incentives to do so, are limited if the execution quality information only 

contains a limited subset of reporting entities. See, e.g., the discussion of the limited uptake of the FIF 

Template in note 969, supra, and corresponding text. In theory, this could result in multiple equilibria, in 

which either all market participants are incentivized to access execution quality data and all reporting 

entities are incentivized to report, or no market participants are incentivized to access execution quality 

data and no reporting entities are incentivized to report. Since the benefits from execution quality 

transparency are diffused across many market participants, while the costs of reporting are concentrated 

among a smaller subset of entities, it is likely that the cost effect will dominate, such that the latter 

equilibrium is more likely. The latter equilibrium is also similar to what was observed with the limited 

uptake of the FIF Template. See supra note 969. 

978  Market participants that voluntarily contribute data to commercial datasets “self-select” the data that they 

would like to be included in the dataset. It is widely acknowledged in the empirical economics literature 

that the practice of having entities under study self-select into the dataset very likely leads to biased data. 

See, e.g., James J. Heckman, Selection Bias and Self-Selection, in ECONOMETRICS 201–224 (John Eatwell, 

et al., eds., Palgrave Macmillan 1990). 

979  For example, while it is likely that data vendors would make summary reports available for a fee, final 17 

CFR 242.605(a)(5) requires that reporting entities keep the required summary execution quality reports 

“posted on an internet website that is free and readily accessible to the public for a period of three years 

from the initial date of posting on the internet website.” 



267 

C. Baseline 

The baseline is the status quo against which the costs, benefits, and the effects on 

efficiency, competition, and capital formation of these amendments are measured. This baseline 

consists, first, of the regulatory baseline, which frames both investors’ access to execution 

quality information under Rule 606 and preexisting Rule 605 and market participants’ access to 

market data, both currently and as expected under the unimplemented MDI Rules.980 The 

regulatory baseline also consists of other recently adopted rules. In addition, the baseline consists 

of the usage of preexisting Rule 605 execution quality information by market participants. Next, 

the baseline discusses issues with market participants’ ability to use preexisting Rule 605 

information to evaluate and compare execution quality across reporting entities prior to these 

amendments. Lastly, this baseline describes the state of the markets for brokerage and trading 

services and the extent to which Rule 605’s ability to promote competition on the basis of 

execution quality, both among broker-dealers and among market centers, may have been limited 

prior to these amendments. The economic analysis considers existing regulatory requirements, 

including recently adopted rules, as part of its economic baseline against which the costs and 

benefits of the amended rule are measured.981 

 

980  See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 

981  See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. Cir. 2022). This approach also follows Commission 

staff guidance on economic analysis for rulemaking. See Memorandum from SEC Div. of Risk, Strategy 

Fin. Innovation & Off. Of Gen. Couns. To Staff of the Rulewriting Divisions and Offices (Mar. 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (“The 

economic consequences of proposed rules (potential costs and benefits including effects on efficiency, 

competition, and capital formation) should be measured against a baseline, which is the best assessment of 

how the world would look in the absence of the proposed action.”); id. at 7 (“The baseline includes both the 

economic attributes of the relevant market and the existing regulatory structure.”). The best assessment of 

how the world would look in the absence of the proposed or final action typically does not include recently 

proposed actions, because doing so would improperly assume the adoption of those proposed actions. 



268 

1. Regulatory Baseline 

a) Disclosure Requirements under Preexisting Rule 605 

Rule 605 requires reporting entities to make available, on a monthly basis, standardized 

information concerning execution quality for covered orders in NMS stocks; prior to these 

amendments, these reporting entities included only market centers.982 Aggregated execution 

quality information on covered orders is reported for each individual security, with the 

information for each security broken out into multiple order type and size categories.983 This 

format allows market participants to partially control for differences in market centers’ order 

flow characteristics when assessing execution quality information, facilitating more apples-to-

apples comparisons of execution quality across market centers. This is important because a 

particular market center’s order flow may be made up of a different mixture of securities, order 

types, and order sizes, which may impact or constrain that market center’s overall execution 

quality.984 In addition, some of the information required to be reported by Rule 605, such as the 

realized spread, does not measure execution quality directly but serves the purpose of providing 

 

982  See prior 17 CFR 242.605. 

983  See prior 17 CFR 242.605(a)(1). These size categories were: 100 to 499 shares; 500 to 1,999 shares; 2000 

to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13). 

984  For example, larger order sizes are typically more difficult to “work” than smaller order sizes, so the 

execution quality information of a market center that tends to handle larger order sizes would likely be 

more constrained than that of a market center that tends to handle smaller order sizes. Several commenters 

discussed the importance of being able to make apples-to-apples comparisons of execution quality to help 

ensure that differences in execution quality are not driven by factors such as stock characteristics and 

different clientele. See, e.g., TradeStation Letter at 7, stating that “differences [in retail client personas] 

cause execution quality data to be difficult to compare on an apples-to-apples basis because, for example, 

trade and execution data generated from buy-and-hold investors’ orders differs vastly from the same data 

generate[d] from active traders’ orders;” and Virtu Letter II at 13, stating that “[f]actors like the mix of 

stocks a broker handles and the trading strategies of its customers can make one broker’s order flow more 

costly to fulfill and/or challenging to execute than another’s and therefore explain potential differences in 

execution quality between brokers.” 



269 

context to execution quality metrics and ascertaining how entities handle orders during different 

market conditions.985  

In addition, the execution quality information required by Rule 605 pertains to several 

different aspects of execution quality, namely, execution prices, execution speeds, and fill rates. 

Prior to these amendments, this information on execution prices included, for market orders and 

marketable limit orders, the average effective spread,986 number of shares executed at prices 

better than the quote, at the quote, or outside the quote,987 as well as average dollar amount per 

share that orders were executed at prices better than the quote or outside the quote.988 

Information on execution speeds included, for all order types, the cumulative number of shares 

executed within different time-to-execution buckets989 and, for market and marketable limit 

orders, the share-weighted average time to execution of orders executed better than the quote, at 

the quote, or outside the quote.990 Information that could be used to calculate fill rates included, 

for all order types, the cumulative number of shares of covered orders, the cumulative number of 

shares of covered orders executed at the receiving market center, and the cumulative number of 

shares of covered orders executed at any other venue.991  

 

985  See infra note 1229 and accompanying text for a discussion of realized spread as a measure of market 

makers’ ability to provide liquidity during adverse market conditions. 

986  See prior 17 CFR 242.605(a)(1)(ii)(A). 

987  See prior 17 CFR 242.605(a)(1)(ii)(B), (C), and (G), respectively. 

988  See prior 17 CFR 242.605(a)(1)(ii)(C) and (H), respectively. 

989  Prior to amendment, the time-to-execution categories defined in Rule 605 were shares executed from 0 to 9 

seconds, shares executed from 10 to 29 seconds, shares executed from 30 to 59 seconds, shares executed 

from 60 to 299 seconds, and shares executed from 5 to 30 minutes. See prior 17 CFR 242.605(a)(1)(i)(F) 

through (J).  

990  See prior 17 CFR 242.605(a)(1)(ii)(D), (F), and (I), respectively. 

991  See prior 17 CFR 242.605(a)(1)(i)(B), (D), and (E). The fill rate can be calculated as Fill Rate = 

(Cumulative Number of Shares Executed at Receiving Market Center + Cumulative Number of Shares 

Executed at Other Venues) / (Cumulative Number of Covered Shares). 



270 

The Rule 605 NMS Plan establishes procedures for market centers to make data available 

to the public in a uniform, readily accessible, and usable electronic form.992 The Plan also 

requires market centers to post their monthly reports on an internet website that is free of charge 

and readily accessible to the public.993 Generally, reports are posted on market centers’ own 

websites; however, they may be posted on a third-party vendor site if a market center uses a 

vendor to prepare its reports.994 Among other things, the Plan sets forth the file type and structure 

of the reports and the order and format of fields, yielding reports that are structured and machine-

readable.995 

b) Disclosure Requirements under Rule 606 

Under Rule 606, broker-dealers are required to identify the venues, including market 

centers, to which they route customer orders for execution.996 Specifically, with respect to held 

orders, Rule 606(a)(1) requires broker-dealers to produce quarterly public reports containing 

information about the venues to which the broker-dealer regularly routed non-directed orders for 

execution, including any payment relationship between the broker-dealer and the venue, such as 

any PFOF arrangements.997 In addition, Rule 606(b)(1) requires broker-dealers to provide to their 

customers, upon request, reports that include high-level customer-specific order routing 

 

992  See Rule 605 NMS Plan Release, 66 FR 19814 (Apr. 17, 2001). 

993  See supra note 869 for further discussion. 

994  See Rule 605 NMS Plan at section VII & n.3. 

995  See Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001) (“Section V . . . provides that 

market center files must be in standard, pipe-delimited ASCII format”). 

996  See 17 CFR 242.606(a)(1).  

997  See id. These reports must provide information, for each venue identified, on 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 per share, for each of the 

following non-directed order types: (A) market orders; (B) marketable limit orders; (C) non-marketable 

limit orders; and (D) other others. See 17 CFR 242.606(a)(1)(iii). 



271 

information, such as the identity of the venues to which the customer orders were routed for 

execution in the prior six months and the time of the transactions, if any, that resulted from such 

orders.998 For orders submitted on a held basis, the reports required by Rule 606 do not contain 

any execution quality information.  

When the Commission adopted the predecessor to Rule 606, it was intended to supply 

investors with information on where their orders are routed, which could be used along with 

information from Rule 605 about the quality of execution from the market centers to which their 

orders are routed.999 In theory, investors should be able to use Rule 606 reports to identify the 

market centers to which their broker-dealers are routing orders, and then use Rule 605 to 

estimate the execution quality offered by those market centers.1000 These market centers’ 

aggregated execution quality metrics could then be used as a proxy for the execution quality that 

broker-dealers achieved for their customers’ orders.  

Following amendments to Rule 606 in 2018,1001 broker-dealers are subject to 

requirements to provide information about the execution quality that they achieved for not held 

 

998  See 17 CFR 242.606(b)(1).  

999  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75435 (Dec. 1, 2000), stating that “[s]upplied with 

information on where their orders are routed, as well as information about the quality of execution from the 

market centers to which their orders are routed, investors will be able to make better informed decisions 

with respect to their orders.” 

1000  See infra section IX.C.3.a)(1) for a discussion of current issues with using information from Rule 606 

reports to infer the execution quality of broker-dealers.  

1001  See generally 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018). 



272 

orders, which are typically used by institutional investors.1002 Specifically, Rule 606(b)(3) 

requires broker-dealers to produce reports pertaining to order handling upon the request of a 

customer that places, directly or indirectly, one or more orders in NMS stocks that are submitted 

on a not held basis, subject to a de minimis exception.1003 These reports include aggregated 

execution quality metrics such as fill rate, percentage of shares executed at the midpoint, and 

percentages of total shares executed that were priced on the side of the spread more favorable to 

the order and on the side of the spread less favorable to the order.1004  

c) Rules Addressing Consolidated Market Data 

In 2020, the Commission adopted a new rule and amended existing rules to establish a 

new infrastructure for consolidated market data,1005 and the regulatory baseline includes these 

changes to the current arrangements for consolidated market data. However, as discussed in 

more detail below, the MDI Rules have not been implemented, and so they have not yet affected 

market practices. As a result, the data used to measure the baseline below reflects the regulatory 

structure in place for consolidated market data prior to the implementation of the MDI Rules.  

 

1002  An analysis included in the 2018 Rule 606 Amendments Release looked at orders submitted from customer 

accounts of 120 randomly selected NMS stocks listed on NYSE during the sample period of Dec. 5, 2016, 

to Dec. 9, 2016, consisting of 40 large-cap stocks, 40 mid-cap stocks, and 40 small-cap stocks. The analysis 

found that among the orders received from the institutional accounts, about 69% of total shares and close to 

39% of total number of orders in the sample are not held orders, whereas among the orders received from 

the individual accounts, about 19% of total shares and about 12% of total number of orders in the sample 

are not held orders. See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58393 (Nov. 19, 2018); see 

also id. at 58345 (stating that by using the not held order distinction, Rule 606(b)(3) as adopted will likely 

result in more Rule 606(b)(3) disclosures for order flow that is typically characteristic of institutional 

customers—not retail customers—and will likely cover all or nearly all of the institutional order flow). In 

contrast, held orders are typically used by individual investors. See, e.g., id. at 58372 (stating that retail 

investors’ orders are typically submitted on a held basis and are typically smaller in size). 

1003  See 17 CFR 242.606(b)(3). In addition, Rule 606(b)(5)’s customer-level de minimis exception exempts 

broker-dealers from providing upon request execution quality reports for customers that traded on average 

each month, for the prior six months, less than $1,000,000 of notional value of not held orders in NMS 

stocks through the broker-dealer. See 17 CFR 242.606(b)(5). 

1004  See 17 CFR 242.606(b)(3)(ii). 

1005  See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021). 



273 

The Commission received comments regarding uncertainty over the market effect of the 

MDI Rules, once implemented, and how this will affect the baseline assumptions of Rule 605, as 

amended.1006 Accordingly, this section will first briefly summarize the regulatory structure for 

consolidated market data prior to the implementation of the MDI Rules. It then will discuss the 

current status of the implementation of the MDI Rules and provide an assessment of the potential 

effects that the implementation of the MDI Rules can have on the baseline estimations. 

(1) Regulatory Structure for Consolidated Market Data Prior to 

the MDI Rules 

Consolidated market data are made widely available to investors through the national 

market system, a system set forth by Congress in section 11A of the Exchange Act1007 and 

facilitated by the Commission in Regulation NMS.1008 Market data are collected by exclusive 

SIPs,1009 which consolidate that information and disseminate an NBBO and last sale information. 

For quotation information, only the 16 national securities exchanges that currently trade NMS 

stocks provide quotation information to the SIPs for dissemination in consolidated market 

 

1006  See Schwab Letter at 2; Tastytrade Letter at 2 & n.1; DOJ Letter at 6-7.  

1007  See 15 U.S.C. 78k-1(a)(1)(C).  

1008  17 CFR 242.600 through 242.614. 

1009  See MDI Adopting Release, 86 FR 18596 at 18598-99 (Apr. 9, 2021) (describing that the exclusive SIPs, 

among other things, disseminate core data, which currently consist of: (1) the price, size, and exchange of 

the last sale; (2) each exchange’s current highest bid and lowest offer and the shares available at those 

prices; and (3) the NBBO). A securities information processor (“SIP”) is defined in section 3(a)(22)(A) of 

the Exchange Act. See 15 U.S.C. 78c(a)(22)(A). Further, an “exclusive processor” (also known as an 

exclusive SIP) is defined in section 3(a)(22)(B) of the Exchange Act. See 15 U.S.C. 78c(a)(22)(B). 



274 

data.1010 FINRA has the only SRO display-only facility (the Alternative Display Facility, or 

ADF). No broker-dealer, however, currently uses it to display quotations in NMS stocks in 

consolidated market data.1011 Disseminated quotation information includes each exchange's 

current highest bid and lowest offer and the shares available at those prices, as well as the 

NBBO. For transaction information, currently all national securities exchanges that trade NMS 

stocks, as well as FINRA, provide real-time transaction information to the SIPs for dissemination 

in consolidated market data. Such information includes the symbol, price, size, and exchange of 

the transaction, and it includes odd-lot transactions. 

 

1010  Currently, these national securities exchanges are: Cboe BYX Exchange, Inc. (“Cboe BYX”); Cboe BZX 

Exchange, Inc. (“Cboe BZX”); Cboe EDGA Exchange, Inc. (“Cboe EDGA”); Cboe EDGX Exchange, Inc. 

(“Cboe EDGX”); Investors Exchange LLC (“IEX”); Long-Term Stock Exchange, Inc. (“LTSE”); MEMX 

LLC (“MEMX”); MIAX Pearl, LLC (“MIAX PEARL”); Nasdaq BX, Inc. (“Nasdaq BX”); Nasdaq PHLX 

LLC (“Nasdaq Phlx”); The Nasdaq Stock Market LLC (“Nasdaq”); NYSE; NYSE American LLC (“NYSE 

American”); NYSE Arca, Inc. (“NYSE Arca”); NYSE Chicago, Inc. (“NYSE CHX”); and NYSE National, 

Inc. (“NYSE National”). The Commission approved rules proposed by BOX Exchange LLC (“BOX”) for 

the listing and trading of certain equity securities that would be NMS stocks on a facility of BOX known as 

BSTX LLC (“BSTX”), but BSTX is not yet operational. See Securities Exchange Act Release No. 94092 

(Jan. 27, 2022), 87 FR 5881 (Feb. 2, 2022) (SR-BOX-2021-06) (approving the trading of equity securities 

on the exchange through a facility of the exchange known as BSTX); Securities Exchange Act Release No. 

94278 (Feb. 17, 2022), 87 FR 10401 (Feb. 24, 2022) (SR-BOX-2021-14) (approving the establishment of 

BSTX as a facility of BOX). BSTX cannot commence operations as a facility of BOX until, among other 

things, the BSTX Third Amended and Restated Limited Liability Company Agreement approved by the 

Commission as rules of BOX is adopted. See id. at 10407. 

1011  On Dec. 16, 2022, FINRA filed with the Commission a proposed rule change to add IntelligentCross ATS 

as a new entrant to the ADF. On Aug. 24, 2023, the Division of Trading and Markets approved FINRA’s 

proposed rule change pursuant to delegated authority. On Aug. 25, 2023, the Deputy Secretary of the 

Commission notified FINRA that, pursuant to Commission Rule of Practice 431, the Commission would 

review the Division of Trading and Markets’ action pursuant to delegated authority and that the Division of 

Trading and Markets’ action pursuant to delegated authority was stayed until the Commission orders 

otherwise. See Securities Exchange Act Release No. 96550 (Dec. 20, 2022), 87 FR 79401 (Dec. 27, 2022) 

(FINRA proposed rule change to add IntelligentCross ATS as a new entrant to the ADF); Securities 

Exchange Act Release No. 98212 (Aug. 24, 2023), 88 FR 59958 (Aug. 30, 2023) (release approving 

FINRA’s proposal by the Division of Trading and Markets pursuant to delegated authority). Securities 

Exchange Act Release No. 98642 (Sept. 29, 2023) (Commission order staying the Division of Trading and 

Markets’ approval pursuant to delegated authority until the Commission orders otherwise). 



275 

(2) Unimplemented Market Data Infrastructure Rules 

Among other things, the unimplemented MDI Rules update and expand the content of 

consolidated market data to include: (1) certain odd-lot information;1012 (2) information about 

certain orders that are outside of an exchange’s best bid and best offer (i.e., certain depth of book 

data);1013 and (3) information about orders that are participating in opening, closing, and other 

auctions.1014 The MDI Rules also introduce a four-tiered definition of round lot that is tied to a 

stock’s average closing price during the previous month.1015 For stocks with prices greater than 

$250, a round lot is defined as consisting of between 1 and 40 shares, depending on the tier.1016 

The MDI Rules also introduce a decentralized consolidation model under which competing 

consolidators, rather than the existing exclusive SIPs, will collect, consolidate, and disseminate 

certain NMS information.1017 These competing consolidators are not required to offer a product 

containing all elements of consolidated market data, but are able to develop the consolidated 

market data products that their subscribers demand.1018 

In the MDI Adopting Release, the Commission established a transition period for the 

implementation of the MDI Rules.1019 The Commission’s approval of such amendments will be 

 

1012  See final 17 CFR 242.600(b)(69); MDI Adopting Release, 86 FR 18596 at 18613 (Apr. 9, 2021).  

1013  See MDI Adopting Release, 86 FR 18596 at 18625 (Apr. 9, 2021). 

1014  See id. at 18630. 

1015 See id. at 18617. 

1016  See id. The Commission adopted a four-tiered definition of round lot: 100 shares for stocks priced $250.00 

or less per share, 40 shares for stocks priced $250.01 to $1,000.00 per share, 10 shares for stocks priced 

$1,000.01 to $10,000.00 per share, and 1 share for stocks priced $10,000.01 or more per share. 

1017  See id. at 18637. 

1018  See id. at 18608, 18671-72. 

1019  See id. at 18698-18701. 



276 

the starting point for the rest of the MDI implementation schedule.1020 After approval of the MDI 

Plan Amendments, the next step will be a 180-day development period, during which competing 

consolidators can register with the Commission.1021 Based on the times provided in the transition 

plan for implementation of the MDI Rules, the Commission estimated that the full 

implementation of the MDI Rules will be at least two years after the Commission’s approval of 

the plan amendment(s) required by Rule 614(e).1022  

The Operating Committees of the CTA/CQ Plan and UTP Plan filed the MDI Plan 

Amendments on November 5, 2021.1023 The Commission disapproved the proposed amendments 

on September 21, 2022.1024 As a result, the participants to the effective national market system 

plan(s) will need to develop and file new proposed amendments as required by Rule 614(e), 

before the implementation period prescribed by the phased transition plan can commence. 

Because the implementation of the MDI Rules has been delayed, the end date of the 

implementation period cannot be estimated with greater certainty. 

Given that the MDI Rules have not yet been implemented, they have not affected market 

practice and therefore data that would be required for a quantitative analysis of a baseline that 

 

1020  See id. at 18698. 

1021  See id. at 18699-18700. 

1022  See id. at 18700-18701; Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80295 (Dec. 29, 

2022). The transition time frame includes the implementation of the round lot definition, which is 

scheduled to occur at the end of the transition plan. The Commission has proposed to accelerate the 

implementation of the odd-lot information and round lot definition. See id. at 80295-99. As this proposal 

has not been adopted, it is not part of the baseline of the Rule 605 amendments. See supra note 981. 

1023  The Operating Committees of CTA Plan and UTP Plan filed proposed amendments on Nov. 5, 2021, which 

were published for comment in the Federal Register. See Securities Exchange Act Release Nos. 93615 

(Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021); 93625 (Nov. 19, 2021), 86 FR 67517 (Nov. 26, 2021); 

93620 (Nov. 19, 2021), 86 FR 67541 (Nov. 26, 2021); 93618 (Nov. 19, 2021), 86 FR 67562 (Nov. 26, 

2021). 

1024  See Securities Exchange Act Release Nos. 95848 (Sept. 21, 2022), 87 FR 58544 (Sept. 27, 2022); 95849 

(Sept. 21, 2022), 87 FR 58592 (Sept. 27, 2022); 95850 (Sept. 21, 2022), 87 FR 58560 (Sept. 27, 2022); 

95851 (Sept. 21, 2022), 87 FR 58613 (Sept. 27, 2022). 



277 

includes the effects of the MDI Rules is not available. It is possible that the baseline (and 

therefore the economic effects relative to the baseline) could be different once the MDI Rules are 

implemented. The following discussion reflects the Commission’s assessment of the anticipated 

economic effects of the MDI Rules described in the MDI Adopting Release as they relate to the 

baseline for the adoption of these amendments.1025  

The Commission anticipated that the new round lot definition will result in narrower 

NBBO spreads for most stocks with prices greater than $250 because, for these stocks, fewer 

odd-lot shares will need to be aggregated together (possibly across multiple price levels1026) to 

form a round lot and qualify for the NBBO.1027 The reduction in spreads will be greater in 

higher-priced stocks because the definition of a round lot for these stocks will include fewer 

shares, such that even fewer odd-lot shares will need to be aggregated together.1028 This could 

cause statistics that are measured against the NBBO to change because they will be measured 

against the new, narrower NBBO. For example, execution quality statistics on price 

improvement for higher-priced stocks may show a reduction in the number of shares of 

marketable orders that received price improvement because price improvement will be measured 

 

1025  See MDI Adopting Release, 86 FR 18596 at 18741-18799 (Apr. 9, 2021). 

1026  The calculation of the NBBO includes odd-lots that, when aggregated, are equal to or greater than a round 

lot. Under final 17 CFR 242.600(b)(26)(ii), “such aggregation shall occur across multiple prices and shall 

be disseminated at the least aggressive price of all such aggregated odd-lots.” For example, if there is one 

50-share bid at $25.10, one 50-share bid at $25.09, and two 50-share bids at $25.08, the odd-lot aggregation 

method would show a protected 100-share bid at $25.09. 

1027  For example, if there is one 20-share bid at $250.10, one 20-share bid at $250.09, and two 50-share bids at 

$250.08, prior to MDI the NBB would be $250.08, as even aggregated together the odd-lot volume would 

not add up to at least a round lot. After MDI, the NBB would be $25.09, as the odd-lot aggregation method 

would show a protected 40-share round lot bid at $25.09. 

1028  See supra note 1026. An analysis in the MDI Adopting Release showed that the new round lot definition 

caused a quote to be displayed that improved on the current round lot quote 26.6% of the time for stocks 

with prices between $250.01 and $1,000, and 47.7% of the time for stocks with prices between $1,000.01 

and $10,000. See MDI Adopting Release, 86 FR 18596 at 18743 (Apr. 9, 2021). 



278 

against a narrower NBBO. In addition, the Commission anticipated that the NBBO midpoint in 

stocks priced higher than $250 could be different under the MDI Rules than it otherwise would 

be, resulting in changes in the estimates for statistics calculated using the NBBO midpoint, such 

as effective spreads. In particular, at times when bid odd-lot quotations exist within the current 

NBBO but no odd-lot offer quotations exist (and vice versa), the midpoint of the NBBO resulting 

from the rule will be higher than the current NBBO midpoint.1029 More broadly, the Commission 

anticipated that the adopted rules will have these effects whenever the new round lot bids do not 

exactly balance the new round lot offers. However, the Commission stated that it does not know 

to what extent or in which direction such odd-lot imbalances in higher priced stocks currently 

exist, so it is uncertain of the extent or direction of the change.1030 

The Commission also anticipated that the MDI Rules could result in a smaller number of 

shares at the NBBO for most stocks in higher-priced round lot tiers.1031 To the extent that this 

occurs, there could be an increase in the frequency with which marketable orders must walk the 

book to execute. This would affect statistics that are calculated using consolidated depth 

information, such as measures meant to capture information about whether orders received an 

execution of more than the displayed size at the quote, i.e., “size improvement.” 

The new round lot definition will result in fewer odd-lot orders in stocks with prices 

greater than $250, as some orders that were defined as odd-lots prior to the MDI Rules are now 

defined as round lots. At the same time, the MDI Rules may also result in a higher number of 

 

1029  For example, if the NBB is $260 and the NBO is $260.10, the NBBO midpoint is $260.05. Under the 

adopted rules a 40-share buy quotation at $260.02 will increase the NBBO midpoint to $260.06. Using this 

new midpoint, calculations of effective spread will be lower for buy orders but higher for sell orders. 

1030  See MDI Adopting Release, 86 FR 18596 at 18750 (Apr. 9, 2021). 

1031  However, this effect will depend on how market participants adjust their order submissions. See id. at 

18746 for further discussion. 



279 

odd-lot trades, as the inclusion of odd-lot quotes that may be priced better than the current 

NBBO in consolidated market data may attract more trading interest from market participants 

that did not have access to this information prior to the MDI Rules.1032 However, the magnitude 

of this effect depends on the extent to which market participants who rely solely on SIP data and 

lack information on odd-lot quotes choose to receive the odd-lot information and trade on it. The 

Commission states in the MDI Adopting Release that it believes it is not possible to observe this 

willingness to trade with existing market data.1033 

The MDI Rules may have implications for broker-dealers’ order routing practices. For 

those market participants that rely solely on SIP data for their routing decisions and that choose 

to receive the expanded set of consolidated market data, the Commission anticipated that the 

additional information contained in consolidated market data will allow them to make more 

informed order routing decisions. This in turn would help facilitate best execution, which would 

reduce transaction costs and increase execution quality.1034 Broker-dealers may choose to receive 

market data from competing consolidators, who may offer different consolidated market data 

products at different prices or at different latencies or with different amounts of data content.1035 

Competing consolidators will be required to disclose information about their consolidated market 

data products, including the services they will offer, the prices for such services as well as 

performance metrics, which will assist a broker-dealer in selecting an appropriate competing 

consolidator.1036 The Commission states in the MDI Adopting Release that it believes that 

 

1032  See id. at 18754. 

1033  See id. 

1034  See id. at 18725. 

1035  See id. at 18606. 

1036  See id. 



280 

competition among consolidators will support high quality consolidated market data.1037 

Furthermore, while competing consolidators are not required to offer a product containing all 

elements of consolidated market data, the Commission states that it believes that one or more 

competing consolidators will be incentivized to offer a consolidated market product containing 

all of the data elements.1038  

The MDI Rules may also result in differences in the baseline competitive standing among 

different trading venues, for several reasons. First, for stocks with prices greater than $250, the 

Commission anticipated that the new definition of round lots may affect order flows as market 

participants who rely on consolidated data will be aware of quotes at better prices that are 

currently in odd-lot sizes, and these may not be on the same trading venues as the one that has 

the best 100 share quote.1039 Similarly, it anticipated that adding information on odd-lot quotes 

priced at or better than the NBBO to expanded core data may cause changes to order flow as 

market participants take advantage of newly visible quotes.1040 However, the Commission stated 

that it was uncertain about the magnitude of both of these effects.1041 To the extent that it occurs, 

a change in the flow of orders across trading venues may result in differences in the competitive 

baseline in the market for trading services.  

Second, national securities exchanges and ATSs have a number of order types that are 

based on the NBBO, and so the Commission anticipated that the changes in the NBBO caused by 

the new round lot definitions may affect how these order types perform and could also affect 

 

1037  See id. at 18661. 

1038  See id. at 18752. 

1039  See id. at 18744. 

1040  See id. at 18596, 18754. 

1041  See id. at 18745, 18754.281 

other orders with which they interact.1042 The Commission stated that these interactions may 

affect relative order execution quality among different trading platforms, which may in turn 

affect the competitive standing among different trading venues, with trading venues that 

experience an improvement/decline in execution quality attracting/losing order flow.1043 

However, the Commission stated that it was uncertain of the magnitude of these effects.1044 

Third, the Commission anticipated that, as the NBBO narrows for securities in the 

smaller round lot tiers, it may become more difficult for the retail execution business of 

wholesalers to provide price improvement and other execution quality metrics at levels similar to 

those provided under a 100 share round lot definition.1045 To the extent that wholesalers are held 

to the same price improvement standards by retail brokers in a narrower spread environment, the 

wholesalers’ profits from executing individual investor orders might decline,1046 and to make up 

for lower revenue per order filled in a narrower spread environment, wholesalers may respond by 

changing how they conduct their business in a way that may affect retail brokers. However, the 

Commission stated that it was uncertain as to how wholesalers may respond to the change in the 

round lot definition, and, in turn, how retail brokers may respond to those changes, and so was 

uncertain as to the extent of these effects.1047 If wholesalers do change how they conduct 

 

1042  See id. at 18748. 

1043  See id. 

1044  See id. 

1045  See id. at 18747. 

1046  Individual investor orders typically feature lower adverse selection than other types of orders, such as 

institutional orders. All else equal, it is generally more profitable for any liquidity provider, including 

wholesalers, to execute against orders with lower adverse selection risk, due to the reduced risk that prices 

will move against the liquidity provider. See, e.g., David Easley, Nicholas M. Kiefer & Maureen O’Hara, 

Cream-Skimming or Profit-Sharing? The Curious Role of Purchased Order Flow, 51 J. FIN. 811 (1996).  

1047  See MDI Adopting Release, 86 FR 18596 at 18748 (Apr. 9, 2021). 



282 

business, it may impact wholesalers’ competitive standing in terms of the execution quality 

offered, particularly to individual investor orders.  

Where implementation of the above-described MDI Rules may affect certain numbers in 

the baseline, the description of the baseline below notes those effects. 

d) Other Recently Adopted/Proposed Rules 

Several commenters requested that the Commission consider interactions between the 

economic effects of the proposal to amend Rule 605 and other recent Commission proposals.1048 

In addition to interaction between this rulemaking and the MDI Adopting Release, discussed 

supra, commenters stated that there could be interactions between this rulemaking and another 

proposal1049 that has since been adopted, the Settlement Cycle Adopting Release,1050 which 

affects the same market participants as the amendments to Rule 605. Commenters stated that 

implementing the rules together would impact industry resources, or that the rules had uncertain 

interacting effects.1051 This rule was not included as part of the baseline in the Proposing Release 

 

1048  See, e.g., Nasdaq Letter at 6 (“the Commission must be careful to consider both the individual and 

combined effects of its Proposals”); SIFMA AMG Letter at 4 (“the cumulative effects of multiple, major 

changes to the market structure necessarily compound, making the need for careful analysis of their 

intersections indispensable”).  

1049  Securities Exchange Act Release No. 94196 (Feb. 9, 2022), 87 FR 10436 (Feb. 24, 2022) (Shortening the 

Securities Transaction Settlement Cycle).  

1050  Securities Exchange Act Release No. 96930 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 2023) (Shortening the 

Securities Transaction Settlement Cycle) (“Settlement Cycle Adopting Release”). The Settlement Cycle 

Adopting Release shortens the standard settlement cycle for most broker-dealer transactions from two 

business days after the trade date to one business day after the trade date (“T+1”). To facilitate orderly 

transition to a shorter settlement cycle, the rule requires same-day confirmations, allocations, and 

affirmations for processing transactions subject to the rule, and requires records of each confirmation 

received, and of any allocation and each affirmation sent or received, with a date and time stamp for each 

indicating when it was sent or received. With certain exceptions, the rule has a compliance date of May 28, 

2024. See Settlement Cycle Adopting Release, 88 FR 13872 at 13918, section VII (Mar. 6, 2023). 

1051  See SIFMA AMG Letter at 3; Chamber of Commerce Letter at 3; Fidelity Letter at 4, n.4; BlackRock 

Letter at 17; Rebekah Goshorn Jurata, General Counsel, American Investment Council, at 9, n.30 (Aug. 8, 

2023), available at https://www.sec.gov/comments/s7-29-22/s72922-245802-509962.pdf (“American 

Investment Council”). 



283 

because it was not adopted at the time of the Proposing Release. In response to commenters, this 

economic analysis considers potential economic effects arising from any overlap between the 

compliance period for the final amendments and that of the Settlement Cycle Adopting 

Release.1052  

In addition, commenters stated that there were overlapping compliance costs between the 

final amendments and the proposals that have not been adopted: in particular, the Order 

Competition Rule Proposing Release, the Regulation Best Execution Proposing Release, and the 

Minimum Pricing Increments Proposing Release.1053 Numerous commenters accordingly 

recommended an incremental or sequential approach to the Commission’s market structure 

proposals.1054 To the extent the Commission takes final action on any or all of those proposals, 

the baseline in each of those subsequent rulemakings will reflect the existing regulatory 

requirements at that time.  

 

1052  Since proposing this rule, the Commission adopted Securities Exchange Act Release No. 99477 (Feb. 6, 

2024) (Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government 

Securities Dealer) (“Dealer Definition Amending Release”). Commenters identified the proposed rule as 

having interacting effects with Rule 605. See Chamber of Commerce Letter at 3; Fidelity Letter at 4, n.4; 

BlackRock Letter at 2 & n.6, 17 (citing Securities Exchange Act Release No. 94524 (Mar. 28, 2022), 87 FR 

23054 (Apr. 18, 2022)). The Dealer Definition Amending Release adopts new rules to further define the 

phrase “as a part of a regular business” as used in the statutory definitions of “dealer” and “government 

securities dealer.” The Commission believes there are no potential significant effects from overlapping 

requirements to comply with the amendments to Rule 605. Under Rule 605(a)(7), as adopted, a broker-

dealer which is not a market center is subject to the final rule only if it “introduces or carries 100,000 or 

more customer accounts through which transactions are effected for the purchase or sale of NMS stocks.” 

By contrast, under the Dealer Definition Amending Release, the affected parties are liquidity providers that 

introduce or carry no customer accounts, that will be required to register as dealers. As a result, the 

Commission does not anticipate the compliance costs associated with these amendments to Rule 605 to be 

incurred directly by those who are impacted by the Dealer Definition Amending Release. 

1053  See, e.g., SIFMA Letter II, at 2-3, 8-9, 11-13, 16-21 & app. E. In addition to the three other market 

structure proposals, commenters also stated interacting effects with another proposal that has not yet been 

adopted, Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) 

(Amendments Regarding the Definition of “Exchange” and Alternative Trading Systems (ATSs) That 

Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities). 

See, e.g., Chamber of Commerce Letter at 3; Fidelity Letter at 4 nn.4, 10. 

1054  See, e.g., SIFMA AMG Letter at 2, 18; STA Letter at 9-10. 



284 

In a related comment, one commenter stated that the other market structure proposals 

should be delayed for a period sufficient to analyze the metrics under the amended Rule 605 

reporting requirements, to establish an updated baseline for the other rules’ benefits and costs 

and—if the other rules are adopted—to accurately measure their impact.1055 This comment 

pertains to the timing of adoption and baseline assumptions of the other market structure 

proposals and will be considered in connection with those proposals. 

2. Use of Reports under Rule 605 Prior to Rule Amendments  

a) Relevance of Execution Quality Information 

When a customer places an order in an NMS stock with a broker-dealer, the broker-

dealer acts as an agent on behalf of that customer, to whom the broker-dealer owes a duty of best 

execution.1056 These broker-dealers can generally decide how to route that order for execution to 

an exchange, a wholesaler, or an ATS, where the trade may be executed or potentially routed 

further. These market centers, among other things, match traders with counterparties, provide a 

framework for price negotiation and provide liquidity to those seeking to trade. In this way, 

individual and institutional investors are subject to a principal-agent relationship in which an 

order submitter (the principal) submits an order to an agent to handle on its behalf, in this case 

the broker-dealer. Since information asymmetries prevent the principal from being able to 

directly observe the agent’s handling of the order, this creates possible conflicts of interest in 

 

1055  See Rule 605 Citadel Letter at 1-2, 4; see also Equity Market Structure Citadel Letter at 15, 21; Equity 

Market Structure Citadel Letter II at 1-3. 

1056  Some investors may not value order-level execution quality in all cases. For example, it is the 

Commission’s understanding that when an institutional customer submits a large order to be executed on 

behalf of one account (e.g., a single mutual fund or pension fund), it expects the broker-dealer that handles 

and executes such large order to do so in a manner that ensures best execution is provided to the “parent” 

order. See infra section IX.C.4.a)(1)(b) for further discussion.  



285 

which the agent’s incentives may not align with the interests of the principal.1057 Since the 

broker-dealers typically do not directly observe market centers’ executions of their routed 

orders,1058 similar information asymmetries exist between broker-dealers and the market centers 

to which they route customer orders. 

Standardized execution quality information, such as the information available from Rule 

605 reports, alleviates these information asymmetries.1059 First, it provides broker-dealers access 

to information about the execution quality of market centers, which they can use to inform their 

routing decisions.1060 Secondly, in conjunction with broker-dealer routing information from Rule 

606 reports,1061 preexisting Rule 605 allowed investors access to information about the execution 

quality achieved by the market centers to which their broker-dealers typically route.1062  

 

1057  If there were no information asymmetries and the principal could perfectly observe the agent’s handling of 

its order, and if there is competition among agents, then the principal-agent relationship would not 

necessarily result in a situation where the agent’s incentives may not align with the principal’s, as the 

principal would be able to directly observe the agent’s actions and switch to another agent. 

1058  See supra note 972, noting that a similar principal-agent problem was recognized in the Rule 11Ac1-5 

Adopting Release, 65 FR 75414 (Dec. 1, 2000). 

1059  Several commenters stated that execution quality information from Rule 605 reports is generally useful, 

including as a “valuable source of information which the investing public reviews to compare and evaluate 

executions” (see BlackRock Letter at 3); as a “valuable feature of the equities markets and provides 

investors the ability to make informed decisions about where to send their orders” (see SIFMA Letter II at 

25); and as “the primary tool for measuring the quality of order execution in our equity markets” (see 

McHenry et al. Letter at 3). 

1060  This was supported by comment. See, e.g., Healthy Markets Letter at 15 (“Timely, reliable, and useful 

statistics about order execution information from trading venues is essential to empowering investors and 

their brokers with the information they need to make sound order routing decisions”). 

1061  See infra section IX.C.3.a)(1), which discusses issues with the usage of Rule 606 broker-dealer routing 

information and Rule 605 execution quality information to infer the execution quality achieved by broker-

dealers. 

1062  Some market participants may have access to sources of execution quality information that reduce these 

information asymmetries and may serve as an alternative to Rule 605 data. See infra sections IX.C.2.b) 

through IX.C.2.d) for a detailed discussion. Any source of ex post execution quality information is unlikely 

to eliminate this information asymmetry entirely, as it is likely infeasible for any principal to perfectly 

observe ex ante or even in real time how an agent will perform in executing its order.  



286 

Information on the execution quality obtained by broker-dealers is particularly important 

for investors. As broker-dealers that route customer orders have many choices about how and 

where to route orders for execution,1063 their routing decisions affect the execution quality that 

their customers’ orders receive, leading to significant variations in execution quality across 

broker-dealers. For example, a broker-dealer may route a marketable IOC order to a market 

center that is not posting any liquidity at the NBBO (in which case the order would be 

cancelled), or a broker-dealer may route a NMLO to a market center that is not attracting any 

trading interest (in which case the NMLO would likely be cancelled at the end of day, if not 

earlier). The authors of one recent academic working paper ran an experiment in which they 

placed identical simultaneous market orders across various broker-dealers; they found that the 

execution quality of these orders differed significantly in terms of average price improvement 

and effective spreads.1064 The authors argue that these differences in execution quality across 

 

1063  See infra section IX.C.4.b)(1) for a discussion of fragmentation in the market for trading services. 

1064  See Christopher Schwarz et al., The ‘Actual Retail Price’ of Equity Trades (working paper Sept. 14, 2022), 

available at https://ssrn.com/abstract=4189239 (retrieved from SSRN Elsevier database) (“Schwarz et al. 

(2023)”). The authors find that this dispersion is due to off-exchange wholesalers systematically giving 

different execution prices for the same trades to different brokers. See also Bradford (Lynch) Levy, Price 

Improvement and Payment for Order Flow: Evidence from A Randomized Controlled Trial (working paper 

June 27, 2022), available at https://ssrn.com/abstract=4189658 (retrieved from SSRN Elsevier database) 

(“Levy (2022)”). Levy (2022) also conducts a randomized controlled trial that involves trading random 

stocks at random times across random brokers and comparing execution quality across direct market access 

and PFOF-based brokers. The author found variation in the extent of price improvement provided by 

PFOF-based brokers, with the broker deriving high PFOF revenues providing less price improvement to 

customer orders compared to the broker deriving low PFOF revenue. Levy (2022) also stated that one 

limitation of Schwarz et al. (2023) is that they limited their study to $100 orders, so it is unclear whether 

execution statistics of $100 orders generalize to those of the average retail trader. However, Schwarz et al. 

(2023) also observe differences in the price improvement offered by broker-dealers in a more limited 

sample of $1,000 orders they place. Both these studies include only trades that were initiated by the authors 

and do not include other trades that were handled by the brokers in their samples, preventing them from 

 

 

 



287 

broker-dealers are economically significant, as they estimate that every basis point difference in 

execution quality is equivalent to an annual cost to investors of $2.8 billion.1065 The evidence 

that there are significant differences in execution quality across broker-dealers suggests that 

without access to standardized information about broker-dealer execution quality, it is difficult 

for investors to compare these differences when choosing a broker-dealer.  

Some information asymmetries are not fully addressed through the use of aggregated 

execution quality information, such as that available through Rule 605 (both prior to and after 

these amendments), because the principal is not able to use these data to observe the execution 

quality that the agent achieved for the principal’s individual orders. However, the principal is 

able to receive a signal of the execution quality that the agent has achieved for comparable orders 

over a certain time period. This signal can be a useful proxy that investors and their broker-

dealers can use to assess and compare the execution quality that they can expect to receive across 

market centers. Despite being aggregated, Rule 605 reports have indeed been useful. One 

academic study examining the introduction of Rule 605 found that the routing of marketable 

order flow by broker-dealers became more sensitive to changes in execution quality across 

market centers after Rule 605 reports became available.1066 The authors attribute this effect to 

 

examining the attributes of a typical retail order handled by each broker. As such, these studies would not 

observe the variation in price improvements that reflect differences in the adverse selection risk associated 

with the order flow of different brokers. At the same time, an analysis by the Commission found that 

wholesalers provide different execution quality to different retail brokers depending on the adverse 

selection risk of their orders; see Table 3 of the Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 2023). 

Additionally, analysis submitted by two commenters also showed that for a given broker-dealer, execution 

quality can also vary across different wholesalers. See Huang et al. Letter at 27 and Professor Spatt et al. 

Letter at 30-32. 

1065  See id. at 27.  

1066  See Boehmer et al., supra note 16. 



288 

broker-dealers factoring in information about the execution quality of market centers from Rule 

605 reports when making their order routing decisions.  

Market participants have access to some public information about the execution quality 

of market centers from sources other than Rule 605. For example, some wholesalers and ATSs 

produce order flow and execution quality statistics other than those required under Rule 605 and 

make them available either on their websites or as part of their ATS-N filings.1067 However, 

these sources are either not standardized1068 or are not available across all market centers1069 such 

that Rule 605 remains an important source of standardized information about market center 

execution quality. At the same time, while Rule 605 data have been used by some market 

participants, such as broker-dealers and investment advisers as part of their review of execution 

quality, and by academics, analysts and the financial press, the use of these data by both 

individual and institutional investors to directly evaluate and compare execution quality across 

market centers has been limited. The following sections will discuss the use of data under 

preexisting Rule 605 by individual investors, institutional investors, and other market 

participants. 

 

1067  If an ATS provides one or more of its subscribers with aggregate platform-wide order flow and execution 

statistics that are not otherwise required disclosures under Rule 605, that ATS is required either to attach 

that information to its Form ATS-N, or to certify that the information is available on its website. See Item 

26 of Form ATS-N, available at https://www.sec.gov//files/formats-n.pdf.  

1068  For example, reports contain different execution quality metrics or, if they contain the same execution 

quality metrics, these metrics are calculated using different methodologies, different samples of stocks, 

and/or different time horizons, making it difficult to compare across reporting entities. For example, some 

ATSs produce execution quality information on a monthly basis (see, e.g., Unlocking Global Liquidity, 

UBS, available at https://www.ubs.com/global/en/investment-bank/electronic-trading/equities/unique-

liquidity.html) (last visited Jan. 25, 2024, 4:26 p.m.), while at least one ATS operator produces reports on a 

quarterly basis (see, e.g., JPM-X & JPB-X U.S. Quarterly Summary, J.P. MORGAN, available at 

https://www.jpmorgan.com/solutions/cib/markets/jpm-x-jpb-x-us-quarterly-summary) (last visited Jan. 25, 

2024, 5:05 p.m.). 

1069  While the FIF Template provides a standardized template for summary information about execution quality 

for retail investor orders in exchange-listed stocks, the Commission understands that currently only one 

retail broker voluntarily provides reports using the FIF Template. See supra note 973. 



289 

b) Usage of Rule 605 Reports by Individual Investors 

The extent to which individual investors directly access Rule 605 reports has likely been 

limited. Several commenters to the Proposing Release stated that individual investors have 

limited or no usage of Rule 605 data.1070 This limited usage is likely for two reasons. 

First, since Rule 605 reporting requirements did not extend to broker-dealers that were 

not market centers prior to these amendments,1071 investors’ ability to use preexisting Rule 605 

to assess and compare the execution quality that they receive from their broker-dealers has been 

limited. Information about the execution quality received by market centers is only or mostly 

relevant for investors to the extent that investors can combine this information with information 

about broker-dealer routing practices from Rule 606 reports to infer the execution quality of their 

broker-dealers. As will be discussed in detail later in this analysis, if broker-dealers receive 

different execution quality from a given market center, combining Rule 606 and preexisting Rule 

605 data is not necessarily informative about an individual broker-dealer’s average execution 

quality at that market center, since a market center’s Rule 605 report is aggregated across all of 

its broker-dealer customers.1072 This has likely limited the incentive for broker-dealer customers, 

including individual investors, to access Rule 605 reports. Second, to the extent that information 

in Rule 605 reports has been relevant to individual investors such that they are incentivized to 

access them, Rule 605 reports are designed to be machine readable, rather than human readable. 

 

1070  See, e.g., Direct Edge Letter at 10, stating that “Rule 605 is not a meaningful factor in how retail investors 

decide which brokers to use and how to place and route orders;” see also comments discussed in the 

Proposing Release, 88 FR 3786 at 3833, n.541-542 (Jan. 20, 2023). 

1071  Prior to these amendments, a broker-dealer may have been subject to Rule 605 reporting requirements to 

the extent that the broker-dealer was acting as or operates a market center. However, such reports were 

required to cover the orders that the broker-dealer handled within its capacity as a market center. See 

Proposing Release, 88 FR 3786 at 3798, n.179-180 (Jan. 20, 2023) and corresponding text, for further 

discussion. 

1072  See infra section IX.C.3.a)(1) for a detailed discussion. 



290 

While machine-readable data are useful for facilitating further processing and analysis,1073 they 

are not easily consumable by market participants who do not have the access to necessary 

software or programming skills. This may limit the accessibility of Rule 605 reports, particularly 

for those individual investors who lack access to these resources.1074 Such individual investors 

may instead prefer to consume human-readable reports or summary statistics. In the Rule 11Ac1-

5 Adopting Release, the Commission anticipated that, rather than individual investors obtaining 

and digesting Rule 605 reports themselves, independent analysts, consultants, broker-dealers, the 

financial press, and market centers would analyze the information and produce summaries that 

respond to the needs of investors.1075 Although the Commission is unable to observe the full 

extent to which this has occurred, third parties have produced information based on Rule 605 

reports that is meant for public consumption. For example, data obtained from Rule 605 reports 

have been used by academics to study a variety of topics related to execution quality, including 

liquidity measurement, exchange competition, zero-commission trading, and broker-dealer 

execution quality.1076 Rule 605 data have also been used in the financial press.1077  

 

1073  See discussion in supra section IX.C.2.c). 

1074  Several commenters described a similar assessment of usability of Rule 605 reports for individual 

investors. See, e.g., Robinhood Letter at 41, stating that “[Rule 605 data] has proven not to be a particularly 

useful format for individual investors;” and TastyTrade Letter at 4, stating that “neither [Rule 606 nor Rule 

605] report is easily digestible nor often, if ever, used by retail customers.” 

1075  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000).  

1076  See, e.g., Ruslan Y. Goyenko et al., Do Liquidity Measures Measure Liquidity?, 92 J. FIN. ECON. 153 

(2009); Edward D. Watson & Donovan Woods, Exchange Introduction and Market Competition: The 

Entrance of MEMX and MIAX, 54 GLO. FIN. J. (2022) 100756; Pankaj K. Jain et al., Trading Volume 

Shares and Market Quality: Pre-and Post-Zero Commissions (working paper Feb. 15, 2023), available at 

https://ssrn.com/abstract=3741470 SSRN 3741470 (retrieved from SSRN Elsevier database); Schwarz et al. 

(2023), supra note 1064; Anne Haubo Dyhrberg et al., The Retail Execution Quality Landscape (working 

paper Dec. 10, 2022), available at https://ssrn.com/abstract=4313095 SSRN 4313095 (retrieved from SSRN 

Elsevier database). 

1077  See, e.g., Bill Alpert, Who Makes Money on Your Stock Trades, BARRON’S (Feb. 28, 2015) (retrieved from 

Factiva database) (stating that “we ran each market maker’s Rule 605 execution reports through statistical-

analysis scripts that we wrote in the widely used open-source math software known as ‘R.’”). 



291 

Unlike institutional investors,1078 individual investors typically have limited access to 

alternative sources of standardized execution quality information that could be used to compare 

across broker-dealers other than information obtained (directly or indirectly) from reports under 

prior Rule 605.1079 The requirement in Rule 606(b)(3) for broker-dealers to provide 

individualized reports of execution quality to their customers upon request does not extend to 

held orders, which are those most used by individual investors,1080 and contains a customer-level 

de minimis exception that likely excludes most individual investors.1081 In addition, many 

individual investors likely do not have access to the data processing tools and/or sufficiently 

granular datasets that are required to calculate their own execution quality statistics, which 

makes it difficult for them to compare how execution quality varies across broker-dealers.1082 

One exception is the recent effort by a few broker-dealers and wholesalers to make available 

voluntary summary disclosures of execution quality in exchange-listed stocks for individual 

investors using the FIF Template.1083 Although the reports produced using the FIF Template may 

be useful, this disclosure is voluntary, and only a few firms are making or have made such 

disclosures. The Commission understands that only three retail brokers began producing reports 

using the FIF Template in 2015 on a quarterly basis. One of these broker-dealers was acquired 

 

1078  See discussion in infra section IX.C.2.c). 

1079  There are also some broker-dealers that disclose their own execution quality metrics on their respective 

websites, but the disclosures are not standardized and tend to differ in ways that make them difficult to 

compare, such as reporting different metrics, using different methodologies, or using different samples of 

stocks. See supra note 973. 

1080  See supra note 1002 describing an analysis showing that not held orders made up only 19% of total shares 

and about 12% of total number of orders among the sample of orders received from the individual 

accounts.  

1081  See supra note 1003 describing the customer-level de minimis exception of Rule 606(b)(5). 

1082  See infra section IX.C.3.a)(1) discussing several analyses that find significant differences in execution 

quality across retail brokers. 

1083  See supra note 973 and accompanying text for further discussion of the FIF Template. 



292 

and stopped producing these reports in 2017, and another stopped producing these reports in 

2018. Only one retail broker currently produces reports using the FIF Template.1084 Likewise, the 

Commission understands that there is currently only one wholesaler producing reports using the 

FIF Template.1085 

c) Usage of Rule 605 Reports by Institutional Investors 

The Commission understands that, while the usage of Rule 605 reports by institutional 

investors has been limited by several factors, Rule 605 reports nevertheless contain information 

about execution quality that has been useful for institutional investors.  

First, the ability of institutional investors to use preexisting Rule 605 to assess and 

compare the execution quality that they receive from their broker-dealers has been limited, for 

several reasons. First, Rule 605 reports only contain information about the execution quality of 

investors’ held orders. Not held orders, which are excluded from the definition of “covered 

order,”1086 are excluded from Rule 605 metrics.1087 As many institutional orders tend to be not 

 

1084  See Retail Execution Quality Statistics, FIN. INFO. F., available at https://fif.com/tools/retail-execution-

quality-statistics (last visited Jan. 18, 2024); Retail Execution Quality Statistics Q2 – 2022, FIDELITY, 

available at https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/FIF-FBS-retail-

execution-quality-stats.pdf (last visited Jan. 26, 2024).  

1085 See Retail Execution Quality Statistics, supra note 1084; Retail Execution Quality Statistics – Wholesale 

Market Maker Perspective, TWO SIGMA, available at 

https://www.twosigma.com/businesses/securities/execution-statistics/ (2024). The Commission is aware of 

at least two wholesalers that formerly produced reports using the FIF Template, but both stopped in Q3 

2019. 

1086 See prior 17 CFR 242.600(b)(22). Currently, there are no requirements for aggregated information about 

the execution quality of not held orders to be made public. The potential ability for customers and broker-

dealers to use aggregated order handling information for not held orders to better understand broker-

dealers’ routing behavior or compare broker-dealers’ order routing performance is limited because of the 

disparate behavior of customers when using not held orders. See, e.g., 2018 Rule 606 Amendments 

Release, 83 FR 58338 at 58369-70 (Nov. 19, 2018), in which the Commission stated that, in contrast to 

held orders, not held order flow is diverse and customers may provide specific order handling instructions 

to their broker-dealers, limit the order handling discretion of their broker-dealers, or have specific needs 

that impact the broker-dealers’ handling of these orders. 

1087  See supra note 1003 and accompanying text discussing broker-dealer requirements under Rule 606(b)(3) to 

provide individualized reports of execution quality upon request for not held orders. 



293 

held,1088 this may limit the extent to which Rule 605 reports contain relevant information for 

institutional investors. Second, to the extent that institutional investors make use of held 

orders,1089 the ability of institutional investors to use Rule 605 reports in combination with Rule 

606 reports to assess the execution quality of broker-dealers has been limited for the same 

reasons described above.1090 This has likely limited the incentives for some institutional investors 

to access Rule 605 reports.  

Second, even if institutional investors are incentivized to access execution quality 

information such as that in Rule 605 reports, institutional investors typically have access to 

alternative sources of execution quality information. Many institutional investors regularly 

conduct, directly or through a third-party vendor, transaction cost analysis (“TCA”) of their 

orders to assess execution quality against various benchmarks. Institutional investors that 

perform their own in-house analyses of execution quality or obtain analyses of execution quality 

from third-party vendors may have been less likely to rely on information from Rule 605 reports. 

Furthermore, Rule 606(b)(3) requires broker-dealers to provide some of their customers with 

individualized reports of execution quality of not held orders upon request.1091 Since not held 

orders, which are not covered by Rule 605 reporting requirements,1092 are most likely to be 

 

1088  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders. 

1089  For example, large institutional “parent” orders are often split into multiple smaller “child” orders, which 

may be handled as held orders and reflected in Rule 605 reports. Institutional investors may incorporate 

information from Rule 605 reports into their TCA when evaluating the performance of their broker-dealers’ 

Smart Order Router (“SOR”) algorithms. See infra section IX.C.4.a)(1)(b) discussing the use of SORs by 

broker-dealers to split a large institutional “parent” order into multiple “child” orders in a way that achieves 

the best execution for the parent order. 

1090  See supra note 1072 and infra section IX.C.3.a)(1). 

1091  See supra section IX.C.1.b) discussing broker-dealer reporting requirements under Rule 606; see also supra 

note 1003 describing the customer-level de minimis exception of Rule 606(b)(5). 

1092  The exclusion of held orders from Rule 605 reporting requirements is not affected by these amendments. 



294 

utilized by institutional investors,1093 Rule 606(b)(3) provides institutional investors with another 

alternative source of information about the execution quality of their orders. Given the large size 

of most institutional investors and their businesses, institutional investors may also have 

sufficient bargaining power such that broker-dealers have strong incentives to provide them with 

execution quality information of their held orders when asked. However, any ad hoc reports that 

institutional investors may receive from their broker-dealers containing information about their 

held orders may not be sufficiently standardized to allow for easy comparisons across broker-

dealers or market centers. 

At the same time, the information on execution quality that is collected by institutional 

investors from these alternative sources may only cover the institutions’ own orders, and as such 

could be highly individualized and nonpublic.1094 Therefore, institutional investors may not be 

able to use these individualized reports to compare their broker-dealers’ execution quality to that 

of broker-dealers with which they do not currently have a relationship, or to examine the 

execution quality of a market center to which their broker-dealers do not currently route 

orders.1095 In contrast, because Rule 605 reports are public, institutional investors can use these 

reports to assess the execution quality of the broker-dealers and market centers with which they 

do not currently do business.  

 

1093  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders.  

1094  In 2018, the Commission proposed but ultimately did not adopt a requirement that broker-dealers that 

handle orders subject to the customer-specific disclosures required by Rule 606(b)(3) issue a quarterly 

public aggregated disclosure on order handling. See 2018 Rule 606 Amendments Release, 83 FR 58338 at 

58369 (Nov. 19, 2018).  

1095  Some broker-dealers may make aggregate execution quality information from their customer’s orders 

available to other institutional investors. However, for the reasons described in supra section IX.B, this 

information may not be standardized.  



295 

To the extent that institutional investors do utilize Rule 605 reports, the Commission 

believes that, due to their typically greater resources, institutional investors may be more likely 

than individual investors to access Rule 605 reports directly. Rule 605 reports are machine-

readable, which makes them useful for facilitating further processing and analysis by market 

participants that have access to the resources necessary for handling large amounts of raw data, 

such as many institutional investors. However, the Commission understands some institutional 

investors may use aggregated statistics or summaries of Rule 605 reports prepared by third 

parties, who make these reports available, possibly for a fee. 

d) Other Users of Rule 605 Reports 

While the direct usage of Rule 605 reports by individual and institutional investors may 

have been limited, Rule 605 reports have been used by other market participants, including 

analysts and researchers,1096 as well as financial service providers, such as investment advisers 

and broker-dealers, that are subject to best execution obligations. 

The Commission understands that investment advisers and broker-dealers typically use 

Rule 605 reports as part of their internal review of execution quality. As fiduciaries, investment 

advisers owe their clients a duty of care and a duty of loyalty.1097 The duty of care includes, 

among other things, the duty to seek best execution of a client's transactions where the 

 

1096  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press.  

1097  See Investment Advisers Act Release No. 5248 (June 5, 2019), 84 FR 33669 (July 12, 2019) (Commission 

Interpretation Regarding Standard of Conduct for Investment Advisers) (“IA Fiduciary Interpretation”). 



296 

investment adviser has the responsibility to select broker-dealers to execute client trades.1098 

Broker-dealers also have an obligation to seek best execution of customer orders.1099 The 

Commission understands that these financial service providers often have Best Execution 

Committees that periodically review order execution quality, and typically use Rule 605 reports 

as part of their review.1100  

3. Disclosure Requirements under Preexisting Rule 605 

The information disclosed under preexisting Rule 605 has provided significant insight 

into execution quality at different market centers. However, market participants’ access to 

information about execution quality under Rule 605 has been limited in several areas. 

Specifically, broker-dealers that are not market centers have not been required to report under 

Rule 605, which has limited market participants’ ability to assess and compare the execution 

quality that broker-dealers obtain for their customers. Furthermore, changes in equity market 

conditions and technological advancements since Rule 11Ac1-5 was adopted in 2000, such as an 

increase in the number of high-priced stocks,1101 the corresponding greater use of odd-lots, and 

 

1098  See, e.g., Investment Advisers Act Rule 206(3)-2(c). The Commission previously has described the 

contours of an investment adviser’s duty to seek best execution. See IA Fiduciary Interpretation, 84 FR 

33669 at 33674-75 (July 12, 2019). In addition, the Commission has brought a variety of enforcement 

actions against registered investment advisers in connection with their alleged failure to satisfy their duty to 

seek best execution. See, e.g., In the Matter of Aventura Capital Management, LLC, Investment Advisers 

Act Release No. 6103 (Sept. 6, 2022) (settled action); In the Matter of Madison Avenue Securities, LLC, 

Investment Advisers Act Release No. 6036 (May 31, 2022) (settled action). 

1099  See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537 (June 29, 2005); Newton v. Merrill, 

Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir. 1998), cert. denied, 525 U.S. 811 

(1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900, 53 SEC 

1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 

SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). 

1100  See, e.g., Citigroup Letter II at 7 (stating that, “under the current market structure, broker-dealers closely 

review and analyze Rule 605 statistics as part of their regular and rigorous review for best execution”). 

1101  See, e.g., infra note 1133. 



297 

the greater speed of trading in some stocks, have led to a situation in which certain aspects of 

Rule 605 reports are no longer as well-tailored to current market conditions.  

a) Scope of Reporting Entities under Preexisting Rule 605 Reporting 

Requirements 

The scope of entities that were required to report under Rule 605 prior to these 

amendments did not include broker-dealers that only route customer orders externally, rather 

than executing customer orders internally, because they did not meet the definition of a market 

center. As a result, it has been difficult for market participants to use available execution quality 

statistics to compare execution quality across these broker-dealers. Furthermore, to the extent 

that firms operating two separate market centers commingled execution quality information 

about multiple market centers in Rule 605 reports, this has made it difficult for market 

participants to assess the execution quality of each market center individually. 

(1) Broker-Dealers 

Prior to these amendments, broker-dealers that were not market centers were not required 

to prepare Rule 605 reports,1102 which has limited market participants’ ability to assess and 

compare the execution quality that broker-dealers obtain for their customers.  

Rules 605 and 606 operate together to allow investors to evaluate what happens to their 

orders after investors submit their orders to a broker-dealer for execution.1103 If a market center’s 

Rule 605 reports are representative of the aggregate execution quality that any given broker-

dealer receives from that market center, then a customer of a broker-dealer can use that broker-

 

1102  Prior to these amendments, a broker-dealer may have been subject to Rule 605 reporting requirements to 

the extent that the broker-dealer was acting as or operates a market center. See supra note 1071 for further 

discussion.  

1103  See supra note 999 and accompanying text. 



298 

dealer’s Rule 606 reports to identify the venues to which the broker-dealer regularly routes 

orders for execution and use Rule 605 reports to get information on aggregate order execution 

quality at those market centers.1104 However, if the aggregate execution quality from a given 

market center varies across broker-dealers, combining Rule 606 and Rule 605 data will not be 

informative about the execution quality of individual broker-dealers’ average execution 

quality.1105 Specifically, combining this data will not be informative because a market center’s 

Rule 605 report is aggregated across all of its broker-dealer customers, meaning that it is not 

possible to determine how execution quality varies across individual broker-dealers at a 

particular market center.1106 This is an important consideration given evidence that execution 

quality can differ significantly across broker-dealers, and that this dispersion is at least partially 

due to off-exchange wholesalers systematically giving different execution prices for the same 

trades to different brokers.1107 

 

1104  See supra section IX.C.1.b) for a discussion of broker-dealers’ current reporting requirements under Rule 

606. 

1105  Several commenters stated that market participants’ ability to use Rule 606 and Rule 605 reports to assess 

and compare broker-dealers’ execution quality is currently limited. See, e.g., Vanguard Letter at 3-4; 

Nasdaq Letter at 43; Virtu Letter II at 11; see also supra note 1070, describing a commenter who stated that 

Rule 605 reports are generally not a meaningful factor in how retail investors decide which brokers to use 

and how to place and route orders. 

1106  For example, consider two broker-dealers, Broker-Dealer 1 and Broker-Dealer 2, which both route orders 

to a market center (“Market Center A”) according to these broker-dealers’ Rule 606 reports. Assume that 

the orders routed by Broker-Dealer 1 receive consistently below-average execution quality from the 

wholesaler, while the orders routed by Broker Dealer 2 receive consistently above-average execution 

quality. If a customer of Broker-Dealer 1 were to examine Market Center A’s Rule 605 report to get a sense 

of the average execution quality that its broker-dealer achieves for its orders, the customer would see only 

the execution quality statistics aggregated across Broker-Dealers 1 and 2, which would likely reveal that 

Market Center A offers about average levels of execution quality. However, this would not reveal the 

worse execution quality that Broker-Dealer 1, and therefore the customer of Broker-Dealer 1, is receiving 

from the market center. 

1107  See supra note 1076 for a discussion of Schwarz et al. (2023), an academic paper finding that OTC market 

maker execution quality of identical orders differed significantly across different broker dealers, and that 

this dispersion was due to off-exchange wholesalers systematically giving different execution prices for the 

same trades to different brokers. See also Table 3 of the Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 

2023), showing that wholesalers provide different execution quality to different retail brokers depending on 

the adverse selection risk of their orders. 



299 

(2) Reporting Entities that Operate SDPs 

Prior to these amendments, the commingling of SDP activity in Rule 605 reports with 

other market center activity, by market centers that also operate SDPs, may have obscured or 

distorted information about the market centers’ execution quality, making it more difficult for 

market participants to observe the execution quality of each separate trading venue. For example, 

an SDP that accepts IOC orders will offer different order execution quality than other market 

centers.1108 These types of SDPs are sometimes called “ping pools,”1109 reflecting that 

institutional investors use these venues to “ping” (i.e., submit a small order in search of hidden 

liquidity on) SDPs, often using IOC orders.1110 IOC orders typically have different execution 

profiles than other types of orders, including lower fill rates.1111 Combining information on 

orders submitted to a market center’s SDP “ping pool” along with its other orders will therefore 

effect a downward skew on the market center’s fill rates, and analogously an upward skew on the 

SDP’s fill rates.1112 This may particularly be the case for wholesalers who combine the orders 

submitted to their SDPs with orders that are internalized or executed on a riskless principal 

 

1108  See supra section II.C.2 for additional discussions on different types of SDPs. 

1109  See, e.g., Annie Massa, Trader VIP Clubs, ‘Ping Pools’ Take Dark Trades to New Level, MIAMI DAILY 

BUS. J. (Jan. 17, 2018) (retrieved from Factiva database).  

1110  See, e.g., Rule 605 Citadel Letter at 7, stating that “[m]any wholesale broker-dealers execute immediate-or-

cancel (‘IOC’) orders for non-retail investors (including pension plans, insurance companies, and other 

asset managers), particularly through the use of a single-dealer platform (‘SDP’).” 

1111  See infra section IX.C.3.c)(9) for discussion of differences between marketable IOC order executions and 

the executions of other marketable order types. 

1112  See, e.g., Rule 605 Citadel Letter at 7, stating that “[a]t the moment, depending on the structure of the 

broker-dealer, these IOC orders [executed on SDPs] may be aggregated with retail orders for reporting 

purposes, even though the execution profile is very different and could negatively skew a wholesale broker-

dealer’s execution quality metrics.” 



300 

basis,1113 since SDP activity represents a significant portion of their trading volume.1114 Also, 

since information on executions in SDPs largely reflects institutional orders, combining 

information on SDP orders along with other orders will tend to obscure information that is 

particularly relevant for institutional investors or broker-dealers handling institutional investors’ 

orders in assessing differences across these market centers. To the extent that institutional 

investors have been less able to observe and compare differences in execution quality across 

market centers as a result, this may have reduced incentives for these market centers to compete 

for institutional investor orders on the basis of execution quality.  

b) Coverage of Orders under Preexisting Rule 605 Reporting 

Requirements  

Prior to these amendments, Rule 605 reporting requirements excluded execution quality 

information about some order sizes and types that are relevant to market participants.  

To estimate the percentage of shares that have been excluded from Rule 605 reporting 

requirements and the driving factor behind their exclusion (i.e., whether they are excluded based 

on their submission time, type, or size), the Commission analyzed data from the Tick Size Pilot 

B.I Market Quality dataset,1115 which had much broader reporting requirements than Rule 605 

 

1113  See infra section IX.C.3.c)(10) for a discussion of how the treatment of wholesalers’ riskless principal 

trades in Rule 605 reports may also obscure information on execution quality. 

1114  See infra note 1312 and accompanying text, describing that the combined trading volume of the affiliated 

SDPs of the two most active wholesalers accounted for over 4% of total U.S. consolidated trading volume 

in Q1 2023. 

1115  See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840 (June 30, 2014) (Order 

Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a Tick Size Pilot Plan) 

(“Tick Size Pilot Plan”). The Tick Size Pilot B.I Market Quality dataset contains information for 

approximately 2,400 small cap stocks for a period from Apr. 2016 to Mar. 2019. As the Tick Size Pilot data 

only collected data for small cap stocks, results using this dataset are not necessarily representative of all 

stocks.301 

prior to these amendments,1116 for a period from April 2016 to March 2019. As a first step, 

approximately 25% of orders were estimated to have been excluded from Rule 605 requirements 

as they were flagged as having special handling requests.1117 A breakdown of the remaining 

submitted share volume (i.e., after excluded special handling orders) is presented in Figure 4,1118 

and shows that around 2.2% of shares were excluded from preexisting Rule 605 reporting 

requirements due to having effective times outside of regular trading hours. A further 51.6% of 

shares were excluded from Rule 605 reports because they were of an order type that was 

excluded from reporting requirements prior to these amendments.1119 An additional 11.3% of the 

remaining order volume was excluded from Rule 605 reports because of the exclusion of orders 

less than 100 shares and larger-sized orders from reporting requirements prior to these 

 

1116  See FINRA, APPENDIX B AND C REQUIREMENTS AND TECHNICAL SPECIFICATIONS, available at 

https://www.finra.org/sites/default/files/Appendix_B_C_Reporting_Requirements_version2.pdf. Order 

types that are included in the Tick Size Pilot dataset that are not covered by Rule 605 include Resting 

Intermarket Sweep orders, Retail Liquidity Providing orders, Midpoint Passive Liquidity orders, Not Held 

orders, Clean Cross orders, Auction orders, and orders that became effective when an invalid NBBO was in 

effect. Order sizes included in the Tick Size Pilot dataset that are not covered by Rule 605 include orders 

for between 1-99 shares and orders for 10,000+ shares. See also FINRA, TICK SIZE PILOT PROGRAM, 

APPENDIX B AND C STATISTICS FREQUENTLY ASKED QUESTIONS, available at 

https://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf (“Tick Size Pilot 

FAQs”), answer to Question 2.1. Furthermore, the Tick Size Pilot dataset includes separate statistics for 

orders submitted outside of regular trading hours (trading sessions E and BE). See Tick Size Pilot FAQs, 

answer to Question 4.11.  

1117  These orders will continue to be excluded following the amendments to Rule 605, as the amended 

definition of covered orders will continue to exclude orders subject to special handling. See final 17 CFR 

242.600(b)(27).  

1118  The same figure can be found in the Proposing Release; see Proposing Release, 88 FR 3786 at 3840 (Figure 

2) (Jan. 20, 2023). 

1119  Of the shares excluded on the basis of order type, the largest percentage (73.6%) are excluded because they 

are not-held orders.  



302 

amendments. This leaves only around a third of share volume that was eligible to be included in 

Rule 605 reports prior to these amendments.1120  

 

1120  An additional percentage of this order flow is also excluded from coverage due to the exclusion of stop-loss 

orders and non-exempt short sales, but these are not one of the listed order types in the Tick Size Pilot 

dataset and therefore it is not possible to exclude them. See Appendix B and C Requirements and Technical 

Specifications, supra note 1116. In addition, an analysis in the Proposing Release examined changes over 

time in one market center’s Rule 605 coverage (as compared to its execution volume in TAQ), and found 

that Rule 605 coverage was on a slightly downward trend between mid-2012 and Feb. 2021, when an 

estimated 50% of shares executed during regular market hours were included in Rule 605 reports. See 

Figure 3 of the Proposing Release, 88 FR 3786 at 3841 (Jan. 20, 2023). An analysis of more recent data 

found that this number rose somewhat in 2023, to around 64% as of Aug. 2023.  



303 

Figure 4: Rule 605 Coverage, by Submission Time, Order Type, and Order Size, Apr. 2016 

to Mar. 2019 

 

This figure shows the additional percentage of share volume that is excluded from Rule 605 reporting requirements after the 

sequential addition of various exclusions, using data from the Tick Size Pilot B.I Market Quality dataset, for all pilot and control 

stocks and for the entire pilot period from Apr. 2016 to Mar. 2019. Percentages are calculated as the number of shares within a 

given category summed across all stocks and days in the sample, divided by the total number of shares summed across all stocks 

and days. See supra note 1116 for dataset description. 

The following sections will discuss the various facets of preexisting Rule 605 reporting 

requirements that led to the exclusion of orders from Rule 605 reports prior to these 

amendments, as well as the extent to which these orders are relevant for assessing execution 

quality. This includes orders that were excluded on the basis of size, as well as other orders that 

were excluded such as stop orders, non-exempt short sale orders, and orders submitted outside of 

regular trading hours.  



304 

(1) Orders Less Than 100 Shares and Larger-Sized Orders 

Prior to these amendments, orders of certain sizes were excluded from Rule 605 reporting 

requirements, including orders for less than 100 shares and larger-sized orders.1121 Taken 

together, data on the usage of orders of these sizes imply that a large percentage of orders and 

trades was excluded from preexisting Rule 605 reporting requirements on the basis of order size, 

thus limiting the ability of reporting entities to compete for customers on the basis of execution 

quality. 

(a) Orders Less Than 100 Shares 

Due to preexisting Rule 605’s exclusion of orders sized smaller than 100 shares, which 

excluded all odd-lot orders and, in some cases, round lot orders where a round lot was less than 

100 shares, information about an important segment of order flow has been missing from Rule 

605 reports.1122 

 

1121  See prior 17 CFR 242.605(a)(1). The size categories in preexisting Rule 605 included: 100 to 499 shares; 

500 to 1,999 shares; 2,000 to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13); 

see also supra note 9 discussing the Large Order Exemptive Relief, which grants exemptive relief to any 

order with a size of 10,000 shares or greater. 

1122  The idea that Rule 605 reports have been missing an important segment of order flow because of the 

preexisting exclusion of orders less than 100 shares was supported by comment. See, e.g., Rule 605 Citadel 

Letter at 11; Better Markets Letter at 3; and Virtu Letter II at 9. In addition, citing an earlier comment letter 

examining how the inclusion of odd-lots would impact execution quality metrics, one commenter stated 

that the lack of information about odd-lots in preexisting Rule 605 “has created perverse reporting issues.” 

Healthy Markets Letter at 17, citing Healthy Markets 2019 Letter (Mar. 5, 2019), available at 

https://www.sec.gov/comments/4-729/4729-5020185-182987.pdf. 



305 

The rise in the use of odd-lot orders is a phenomenon that has been well-documented in 

modern markets.1123 An analysis of data from the SEC’s MIDAS analytics tool1124 confirms that 

the use of odd-lots has increased substantially as a percentage of total on-exchange trades within 

the past decade. Figure 51125 plots monthly averages of odd-lot share volumes across stock price 

deciles, showing that executed odd-lot shares as a percentage of total executed shares have 

increased sharply between 2012 and 2023, for high-priced stocks in particular.1126 Specifically, 

the figure shows that odd-lot share volume increased from around 0.6% to 1.25% for the lowest-

price stocks (Decile 1), and from 10.6% to 37.5% for the highest-priced stocks (Decile 10).1127 

 

1123  See, e.g., Proposing Release, 88 FR 3786 at 3808, n.273 (Jan. 20, 2023). Until the round lot definition 

adopted pursuant to the MDI Rules is implemented, round lots continue to be defined in exchange rules. 

For most NMS stocks, a round lot is defined as 100 shares. Following the implementation of the MDI 

Rules, for stocks with prices greater than $250, a round lot will be defined as consisting of between 1 and 

40 shares, depending on the tier. See supra note 1016 for a definition of these tiers. 

1124  See Summary Metrics by Decile and Quartile, SEC (2023), available at 

https://www.sec.gov/marketstructure/downloads.html. This analysis uses data between Jan. 2012 and Mar. 

2023.  

1125  The data used in this analysis have been updated since the Proposing Release to include a more recent time 

period. See Proposing Release, 88 FR 3786 at 3842 (Figure 4) (Jan. 20, 2023), which presents the same 

analysis for the period of Jan. 2012 to Mar. 2022. Between Mar. 2022 and Mar. 2023, we observe small 

overall declines in odd-lot share volumes. However, these differences due to updates to the dataset did not 

affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely that odd 

lots represent a significant percentage of executed share volume. 

1126  The number of executed odd-lot shares may be higher following the implementation of the MDI Rules due 

to the availability of odd-lot quotes in consolidated market data, which may result in numbers that are 

different from those reported here. For stocks priced above $250, the change in the definition of round lots 

may in result in fewer executed odd-lot shares, as more odd-lot trades will be incorporated into the 

definition of round lots. See supra section IX.C.1.c)(2) for further discussion.  

1127  See, e.g., Virtu Letter II at 7 (quoting Phil Mackintosh, Odd Facts About Odd Lots, NASDAQ (Apr. 22, 

2021, 10:23 a.m. EDT), available at https://www.nasdaq.com/articles/odd-facts-about-odd-lots-2021-04-

22), that “over the past nine years the proportion of odd-lot trades has roughly tripled, and in high-priced 

stocks, odd-lots have increased to 70% of all trades.” Another commenter stated that, based on data from 

TAQ, “two-thirds of all trades represent odd-lots.” Professor Schwarz et al. Letter at 4. 



306 

Figure 5: Odd-Lot Share Volumes by Stock Price Deciles, Jan. 2012 to Mar. 2023 

  

This figure plots odd-lot shares executed on national securities exchanges as a percentage of total on-exchange executed shares, 

across stock price deciles for the period from Jan. 2012 to Mar. 2023. For brevity the plot contains data for the smallest (Decile 

1), median (Decile 5) and largest (Decile 10) stock price deciles. See supra note 1124 for dataset description. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. See supra note 1123 and section IX.C.1.c)(2). 

There is evidence that these high percentages are not only the case for odd-lot trades, but 

for odd-lot orders as well. Using data from January to March 2021, a recent academic working 

paper found that the rate of orders sized between 1 and 100 shares ranges from 5.6% of all 

submitted orders for less than 500 shares in the lowest-priced stocks, to 46.9% of all such orders 

in the highest-priced stocks.1128 This is supported by an analysis of the distribution of order sizes 

 

1128  See Bartlett, et al (2022), supra note 33. The authors divide their sample of stocks into five price-based 

buckets, with stocks in the lowest-priced group defined as those priced at $20.00 or less, and stocks in the 

highest-priced group priced at $250.00 or more. 



307 

using order submission data from MIDAS for a sample of 80 stocks1129 during the month of Mar. 

2023.1130 Confirming results from Figure 5 examining the time series of odd-lot order rates, 

 

1129  This sample of 80 stocks was constructed from the sample of 400 stocks described in infra note 1181, in 

which a random sample of 5 stocks was selected from each of the 16 combinations of market capitalization 

group and price quartile. 

1130  This dataset consists of NMLO order submission data collected from MIDAS and includes the posted 

orders and quotes on 11 national securities exchanges, for a sample of 80 stocks, across all trading days in 

Mar. 2023. For more details on this dataset, see https://www.sec.gov/marketstructure/midas-system. See 

supra note 1129 for information about the sample selection. The MIDAS dataset has some limitations. 

First, MIDAS data include only on-exchange, non-marketable limit orders that do not execute immediately, 

and thus do not include some orders that are included in Rule 605 data both prior to and after these 

amendments, such as market and marketable limit orders, inside-the-quote NMLOs that execute 

immediately, IOC orders, and off-exchange orders. Furthermore, MIDAS data include some order types 

that were excluded from Rule 605 prior to these amendments but that are not possible to distinguish in 

MIDAS data, such as short sale orders, as well as some order types that are excluded from Rule 605 data 

both prior to and after these amendments, such as orders with special handling requests. Second, in order to 

identify the NBBO at the time of order receipt, this dataset uses timestamps assigned to orders by MIDAS, 

which may differ from the order submission times at the exchange. The magnitude of this difference is 

typically a few hundred microseconds, and thus in this context the effects of this difference are expected to 

be minor. Lastly, there are some orders in MIDAS for which no corresponding execution or cancellation 

message can be identified; these orders are discarded from the dataset. Relative to the Proposing Release, 

this dataset has been updated to account for a more recent time period, and also reflects several corrections; 

see Proposing Release, 88 FR 3786 at 3842, n.634 (Jan. 20, 2023). First, the data has been corrected to 

include orders associated with more than one order cancellation message, which were inadvertently 

excluded from the data in the Proposing Release and may have undercounted orders. Second, the dataset 

excludes several groups of orders that were included in the Proposing Release. Orders received during the 

first five minutes of the trading day (2.4% of orders) are excluded to avoid including orders received before 

there is a valid non-crossed quote following the opening at the primary market center, which are not 

defined as covered orders under amended Rule 605; see amended Rule 600(b)(27). Orders received when 

the NBBO is locked or crossed (1.6% of orders) are also discarded to simplify the analysis. See 2001 

FAQs, Question 7, for staff statements regarding covered orders received when the NBBO is locked or 

crossed. The exclusion of orders received during the first five minutes of the trading day and orders 

received when the NBBO is locked or crossed is similar to what is done in academic literature; see, e.g. 

Hagströmer, infra note 1244. Lastly, we exclude orders associated with more than one order submission 

message (1.6% of orders). These represent orders that are modified after their submission. Identifying and 

assigning an outcome to each iteration of a modified order would be complex using MIDAS, so we drop 

these orders to simplify the analysis. See 2001 FAQs, Question 23, for staff statements regarding modified 

orders. As will be discussed in more detail in reference to each analysis using this MIDAS dataset below, 

these changes to the MIDAS dataset did not affect the Commission’s conclusions from the analyses using 

MIDAS data relative to the Proposing Release.  



308 

Figure 61131 shows that odd-lot orders make up a significant percentage of orders (13.81%), 

although these orders are only a small percentage of total submitted share volume (0.68%).1132 

 

1131  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3843 (Figure 5) (Jan. 20, 

2023), where Figure 5 presents the same analysis using data from Mar. 2022 (see Proposing Release, 88 FR 

3786 at 3842, n.634 (Jan. 20, 2023), for data description). The analysis in the Proposing Release similarly 

found that odd-lot orders made up a significant percentage of orders (18.2%), though only a small 

percentage of total submitted share volume (2.8%). Therefore, changes to the MIDAS dataset did not affect 

the Commission’s conclusions from this analysis relative to the Proposing Release, namely that odd-lot 

orders made up a significant percentage of orders, though only a small percentage of total submitted share 

volume. 

1132  These data include information only about NMLOs, and therefore information about the sizes of market 

orders and marketable limit orders is not available.  



309 

Figure 6: Distribution of NMLOs across Order Size Buckets, Mar. 2023 

  

This figure plots the percentage of NMLOs that can be categorized into the preexisting Rule 605 order size categories, using 

order submission data from MIDAS. Percentages are calculated as the number of orders (resp. shares) within a given order size 

category summed across all stocks and days in the sample, divided by the total number of orders (resp. shares) summed across all 

stocks and days. See supra note 1130 for dataset description. 

Market commentators have attributed this rise in odd-lot trading to a variety of factors. 

For example, an increase in the number of high-priced stocks caused order sizes to decrease in 

these stocks, where trading in larger order sizes is more expensive.1133 In this vein, one 

commenter to the Proposing Release stated that “the fact that many issuers have moved away 

from stock splits and allowed their stock prices generally to increase” has contributed to the 

increase in odd-lot orders.1134 

 

1133  See, e.g., Odd Facts About Odd Lots, supra note 1127. 

1134  See Virtu Letter II at 4. 



310 

Another factor is a rise in algorithmic trading, which chops orders into many smaller 

orders. Broker-dealers that handle institutional orders often make use of odd-lot orders because 

of trading algorithms that split larger parent orders into smaller child orders to reduce the market 

impact of their trades.1135 High frequency traders also use inside the spread odd-lot orders as a 

means of probing for hidden liquidity or detecting forthcoming order flow. Academic papers 

have found evidence that high frequency traders and other institutional investors make up a 

substantial fraction of odd-lot trades.1136 Another potential reason for the increase in odd-lot 

trading is the increasing presence of trading by individual investors, who tend to use smaller 

order sizes.1137 All-in-all, by not capturing information related to these orders, preexisting Rule 

605 reports have been missing information about potentially important segments of order flow 

from both individual and institutional investors. 

(b) Orders Less Than a Share 

Due to the exclusion of fractional orders that are smaller than one share from Rule 605 

prior to these amendments,1138 information about an increasingly important segment of 

individual investor order flow has been missing from Rule 605 reports. Similar to the increase in 

odd-lots, one reason for the increase in the use of fractional shares is the increasing presence of 

 

1135  See infra section IX.C.4.a)(1)(b), discussing the practice of broker-dealers handling institutional parent 

orders as not held orders and splitting them up into child orders. 

1136  See, e.g., Hardy Johnson et al., Are All Odd-lots the Same? Odd-lot Transactions By Order Submission and 

Trader Type, 79 J. BANKING & FIN. 1 (2017); Maureen O’Hara et al., What’s Not There: Odd lots and 

Market Data, 69 J. FIN. 2199 (2014). 

1137  See, e.g., Bartlett et al. (2022), supra note 33; Matthew Healey, An In-Depth View Into Odd Lots, Chi. Bd. 

Options Exch. (Oct. 2021), available at https://www.cboe.com/insights/posts/an-in-depth-view-into-odd-

lots/. Similarly, one commenter stated that “advances in technology that have dramatically expanded the 

number of participants in the market” is one reason for the increase in odd-lot orders. See Virtu Letter II at 

7. 

1138  Orders greater than one share can also be fractional. If the fractional order is for more than just a single 

share (e.g., 2.5 shares), the broker-dealer may internalize the fractional component (0.5 shares) and reroute 

the whole component (2 shares) to a market center for execution. 



311 

trading by individual investors, who tend to use smaller order sizes.1139 The past few years have 

seen increasing attention paid to fractional shares, as more and more retail brokers are offering 

this functionality.1140 The Commission understands that there are at least two different ways that 

retail brokers handle fractional trades: first, they rely on their clearing firm, which will often 

“round up” the fractional part of the order and deposit the residual in an internal “fractional 

inventory account”; and second, they execute fractional trades against their own inventory.1141 

An estimation of the percentage of orders that were excluded from preexisting Rule 605 

reporting requirements because they are smaller than one share is difficult, as these orders are 

executed off-exchange and therefore not included in public datasets. However, an analysis using 

data from CAT1142 confirms that levels of fractional trading are mostly the result of individual 

 

1139  See, e.g., Kevin L. Matthews, What Are Fractional Shares and How Do They Work?, BUS. INSIDER (Sept. 

21, 2022), available at https://www.businessinsider.com/personal-finance/fractional-shares. 

1140  See, e.g., Rick Steves, Fractional Shares: Experts Weight in Amid Exploding Retail Trading Volumes, FIN. 

FEEDS (June 7, 2021, 8:25 a.m. UTC), available at https://financefeeds.com/fractional-shares-experts-

weigh-in-amid-exploding-retail-trading-volumes/, which shows that trading volume increased substantially 

(in one case, reported as more than 1,400%, year over year) for brokers after they introduced the use of 

fractional shares. 

1141  See, e.g., Robert P. Bartlett et al., A Fractional Solution to a Stock Market Mystery (working paper Nov. 

17, 2023), available at https://ssrn.com/abstract=4167890 (retrieved from SSRN Elsevier database). As 

fractional shares fell below the smallest order size category in Rule 605 prior to these amendments, a 

broker-dealer that currently exclusively executes fractional shares would be a market center, but was not 

required to file Rule 605 reports. 

1142  This dataset contains CAT records capturing introducing and trading activity in Aug. 2023, including 

fractional NMS orders that were eventually executed on- and off-exchange. As individual fractional orders 

are often aggregated into a single representative order before routing and execution, the Commission 

looked at the information specific to the originating customer orders (designated as MENO orders events in 

CAT) that were eventually executed, and, separately, examined the information specific to the executions 

of the orders (designated as MEOT for off-exchange or EX and EOT for on-exchange events in CAT) that 

could be linked to the fractional MENOs either directly or via a representative order. 



312 

investor trading:1143 in August 2023, there were 54.7 million orders for less than one share that 

eventually received an execution, the majority (65.3%) of which were submitted by accounts 

attributed to “Individual Customers.”1144 While these fractional orders represented only a small 

part (around 3.3%) of total executed orders, they represented a much higher percentage (16.4%) 

of executions received by individual account holders.1145 Therefore, by not capturing information 

related to these orders, Rule 605 reports have been missing information about an important 

segment of individual investor trades.1146 The Commission estimates that there are 20 market 

 

1143  The CAT data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Proposing Release, 88 FR 3786 at 3844 (Jan. 20, 2023). The analysis in the Proposing Release 

found that, as of Mar. 2022, orders from individual customers accounted for 92% of all fractional orders 

(both orders less than a share and orders with fractional components). This number was 70% in Aug. 2023 

(65% for fractional orders less than one share). Further analysis reveals that this difference can mostly be 

attributed to an increase in fractional shares from institutional investor accounts, rather than a decrease in 

fractional shares from individual investor accounts. This highlights that fractional trading may be an 

increasingly important segment of institutional order flow as well. However, these differences due to 

updates to the data did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that fractional orders for less than one share are an important segment of order flow. 

1144  CAT account type definitions are available in Appendix G to the CAT Reporting Technical Specifications 

for Industry Members, under the field name “accountHolderType.” See CAT REPORTING TECH. 

SPECIFICATIONS FOR INDUS. MEMBERS VERSION 4.0.0 R20 app. G (CAT NMS PLAN PARTICIPANTS 2023) 

(July 31, 2023), available at https://catnmsplan.com/sites/default/files/2023-

09/09.01.2023_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r20_CLEAN.pdf. 

Account types represent the beneficial owner of the account for which an order was received or originated, 

or to which the shares or contracts are allocated. Possible types are: Institutional Customer, Employee 

Account, Foreign, Individual Customer, Market Making, Firm Agency Average Price Account, Other 

Proprietary, and Error Account. An Institutional Customer account is defined by FINRA Rule 4512(c) as a 

bank, savings and loan association, insurance company, registered investment company, investment 

adviser, or any other person with total assets of at least $50 million. An Individual Customer account means 

an account that does not meet the definition of an “institution” and is also not a proprietary account. 

Therefore, the CAT account type “Individual Customer” may not be limited to individual investors because 

it includes natural persons as well as corporate entities that do not meet the definitions for other account 

types.  

1145  In terms of notional volume, executed fractional orders, including orders for less than one share and orders 

greater than one share with a fractional component, make up around 0.003% of total executed dollar 

volume and 1.2% of executed dollar volume attributed to individual account holders. Furthermore, 

executed fractional orders for less than one share made up about 7.06 million shares, which is only about 

0.001% of total executed share volume.  

1146  One commenter used a sample of TAQ data to show that “25% of reported trades are for one share, which 

includes fractional trades for less than one share,” and stated that “[t]hus, under current disclosure 

requirements, retail traders are unable to evaluate market center execution quality for a majority of their 

trades.” Professor Schwarz et al. Letter at 4. 



313 

centers1147 that exclusively execute fractional orders less than one share and were not required to 

file Rule 605 reports prior to these amendments due to these orders falling below the smallest 

order size category in preexisting Rule 605. 

(c) Larger-Sized Orders 

Due to the exclusion of orders sized larger than 10,000 shares from preexisting Rule 

605,1148 information about another important segment of order flow has been missing from Rule 

605 reporting requirements.1149 The Commission understands that practices have evolved such 

that most broker-dealers that service institutional investors use SORs to break up these 

customers’ large parent orders into smaller-sized child orders.1150 As shown in Figure 7,1151 

which plots the number of shares associated with trades that are for 10,000 or more shares as a 

percent of total executed shares,1152 the rate of larger-sized trades declined from more than 25% 

in late 2003 to 12.8% as of March 2023. This decline is likely at least partly due to the increased 

 

1147  See infra note 1659 for further discussion of this estimate. 

1148  See supra note 9 and corresponding discussion describing the exemptive relief provided by the Commission 

in 2001 for orders with a size of 10,000 shares or greater. 

1149  This was supported by a commenter. See Virtu Letter II at 9. 

1150  See infra section IX.C.4.a)(1)(b) further discussing the practice of broker-dealers handling institutional 

parent orders as not held orders and splitting them up into child orders. 

1151  The TAQ data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Proposing Release, 88 FR 3786 at 3844 (Figure 6) (Jan. 20, 2023), which presents the same 

analysis for the time period Sept. 2003 to Mar. 2022. Between Mar. 2022 and Mar. 2023, there is a small 

overall increase in the rate of large-sized trades. Therefore, updates to the TAQ dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that larger-sized 

orders of 10,000 have been increasing since August 2011. 

1152  This analysis uses data from intraday TAQ Consolidated Trade files for the period from Sept. 2003 to Mar. 

2023 for the entire universe of TAQ securities. Plotted is the monthly number of shares associated with 

trades that are for 10,000 shares or more, divided by the total number of executed shares. The data are 

limited to trades with sales conditions indicating regular trades, including regular trades with no associated 

conditions, automatic executions, intermarket sweep orders, and odd-lot trades. See NYSE, DAILY TAQ 

CLIENT SPECIFICATIONS (May 20, 2020), available at 

https://www.nyse.com/publicdocs/nyse/data/Daily_TAQ_Client_Spec_v3.3.pdf. 



314 

use of SORs,1153 though other market changes such as the overall increase in stock prices may 

also play a part. However, the rate of larger-sized trades has been increasing since August 2011, 

when the rate of larger-sized trades was around 6.7%. 

 

1153  See, e.g., M. O’Hara, High Frequency Market Microstructure, 116 J. FIN. ECON. 257 (2015).  



315 

Figure 7: Larger-Sized Trades as a Percent of Total Executed Shares, Sep. 2003 to Mar. 

2023 

  

This figure plots the monthly number of executed shares associated with trades that are for 10,000 shares or more, summed 

across all stocks and days in the sample, divided by the total number of executed shares across all stocks and days, using data 

from TAQ. See supra note 1152 for dataset description. 

 Furthermore, larger-sized orders make up a non-negligible percent of order flow. Figure 

6,1154 which plots the distribution of NMLO sizes in order submission data from MIDAS for the 

month of Mar. 2023, shows that while NMLOs of 10,000 or more shares made up only 0.27% of 

order flow in terms of number of orders, they made up around 8.5% of order flow in terms of 

 

1154  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons discussed in supra note 1131. See Figure 5 in the Proposing Release, 88 FR 3843 (Jan. 20, 2023). 

The analysis in the Proposing Release similarly found that larger-sized orders of 10,000 or more shares 

make up a small percent of order flow in terms of orders (2.5%), but a non-negligible percent of order flow 

in terms of share volume (7.75%). Therefore, changes to the MIDAS dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that larger-sized 

orders of 10,000 or more shares make up a small percent of order flow in terms of number of orders, but a 

non-negligible percent of order flow in terms of share volume.  



316 

share volume.1155 However, some, or possibly most, of these larger-sized orders may be not held 

to the market, and so would not be required to be included in Rule 605 reports even without the 

exemptive relief.1156  

(2) Orders Submitted with Stop Prices 

The exclusion of orders with stop prices from the definition of “covered order” prior to 

these amendments has resulted in the exclusion of orders that are likely relevant for investors 

from preexisting Rule 605 reports. A stop order, also referred to as a stop-loss order, is an order 

to buy or sell a stock once the price of the stock reaches the specified price, known as the stop 

price. When the stop price is reached, a stop order becomes a market order, or a limit order in the 

case of so-called stop limit orders.1157 The treatment of stop orders varies across broker-dealers 

and market centers.1158 At the same time, the execution prices of stop orders are highly sensitive 

to handling and execution practices, as these orders are more likely to execute when the stock 

 

1155  This result supports the statement of one commenter, that “while orders greater than 9,999 shares may 

comprise a relatively small number of total orders, when viewed through the lens of total shares, they 

comprise a meaningful amount of the total share volume.” Virtu Letter II at 9.  

1156  See supra note 1003 and accompanying text discussing broker-dealers’ requirements under Rule 606(b)(3) 

to provide individualized reports of execution quality upon request for not held orders. 

1157  See, e.g., SEC, Types of Orders, INVESTOR.GOV, available at https://www.investor.gov/introduction-

investing/investing-basics/how-stock-markets-work/types-orders and the definitions of stop order and stop 

limit order in FINRA Rule 5350(a), available at https://www.finra.org/rules-guidance/rulebooks/finra-

rules/5350. The stop price can be the last sale price, or a quotation in the case of stop on quote or stop limit 

on quote orders. The stop price may also be permitted to increase or decrease by a predetermined amount or 

formula in the case of trailing stop and trailing stop limit orders. 

1158  For example, one broker-dealer stated that some of the market centers to which it routes orders may impose 

price limits to prevent stop orders from being triggered by potentially erroneous trades, and that these price 

limits vary by market center. See Trading FAQs: Order Types, FIDELITY, available at 

https://www.fidelity.com/trading/faqs-order-types. Another brokerage firm states that, depending on the 

market center to which a stop limit order is presented, a stop limit order can be activated as a limit order 

using either a transaction or quotation as the triggering event. See Best Execution of Equity Securities, 

UBS (Jan. 2023), available at https://www.ubs.com/content/dam/static/wmamericas/bestexecution.pdf.  



317 

price is in decline and any delay in execution will result in a larger loss (or smaller gain) for the 

investor.1159 

The Commission understands that stop orders resting on national securities exchanges 

have been uncommon, and the vast majority of stop orders are handled by broker-dealers.1160 

Some national securities exchanges have eliminated this order type from their rule book.1161 

Furthermore, the use of stop orders has typically been associated with individual investors,1162 

who may be less likely to have the resources to actively monitor their orders, and thus use stop 

orders to try to protect a gain or to limit potential losses of a currently held position.1163 Table 

 

1159  See, e.g., Stop Orders: Factors to Consider During Volatile Markets, FINRA: INVESTOR INSIGHTS (June 28, 

2016), available at https://www.finra.org/investors/insights/stop-orders-factors-consider-during-volatile-

markets; see also FIF Letter at 9, stating that “[a] stop order is often triggered under market conditions that 

reflect a market moving adverse to the order. For example, the triggering of a buy stop limit order would 

reflect a rising market, which could be detrimental to the execution quality for that order.” 

1160  See, e.g., Memorandum from SEC, Div. of Trading and Mkts. to Equity Market Structure Advisory 

Committee (Jan. 26, 2016), available at https://www.sec.gov/spotlight/equity-market-structure/issues-

affecting-customers-emsac-012616.pdf (citing NYSE Order Type Usage Chart illustrating that stop orders, 

along with good-til-canceled, agency cross and manual orders, accounted for only 0.19% of total matched 

volume for Q3 2015 and Q4 2015) (“SEC Division of Trading and Markets Memorandum”); see also How 

to Survive the Markets Without Stop-Loss Orders, NASDAQ (Dec. 2, 2015, 10:58 a.m. EST), available at 

https://www.nasdaq.com/articles/how-survive-markets-without-stop-loss-orders-2015-12-02, stating that 

stop orders represent around 2% of all orders placed on national securities exchanges. 

1161  See, e.g., Securities Exchange Act Release No. 76649 (Dec. 15, 2015), 80 FR 79365 (Dec. 21, 2015) (SR-

NYSE-2015-60) (“NYSE Notice”); Securities Exchange Act Release No. 76655 (Dec. 15, 2015), 80 FR 

79382 (Dec. 21, 2015) (SR-NYSEMKT-2015-103).  

1162  See, e.g., Annie Massa & Sam Mamudi, BlackRock Calls for Halting Stock Market to Avoid Volatility, 

BLOOMBERG BUS. (Oct. 7, 2015), available at http://www.bloomberg.com/news/articles/2015-10-

07/blackrock-calls-for-halting-the-stock-market-to-avoid-volatility (citing industry concerns with “the 

widespread use of stop orders by retail investors”). 

1163  See, e.g., SEC Division of Trading and Markets Memorandum, supra note 1160. Meanwhile, professional 

or institutional investors are more likely to have the resources to be able to actively monitor their orders, 

and are therefore less likely to use stop orders. See, e.g., How to Survive the Markets Without Stop-Loss 

Orders, supra note 1160.  



318 

31164 breaks down a sample of stop loss order volume by account type and stop loss order type 

using CAT data for Mar. 2023.1165 The data confirm that the use of stop orders by institutional 

investors is very rare (only 0.25% of market and 0.0011% of limit orders are submitted with stop 

prices), while their use is relatively more common for individual investors, particularly for 

market orders, around 4.91% of which are submitted with stop prices.1166 The data also confirm 

that, while most stop orders are triggered by the last sale price (“Stop/Stop Limit”), there is also 

nontrivial order flow associated with other trigger events as well, such as the quotation (“Stop on 

Quote/Stop Limit on Quote”).1167 

 

1164  The CAT data used in this analysis have been updated from the Proposing Release for a more recent time 

period. See Table 4 of the Proposing Release, 88 FR 3786 at 3845 (Jan. 20, 2023). The results of the 

analysis in the Proposing Release are similar to those presented here, except that the analysis in the 

Proposing Release found that 49.4% of institutional stop/stop limit orders were market orders and 37.8% 

were limit orders in Mar. 2022; the results in Table 3 for Mar. 2023 show a reverse pattern, in which the 

majority of institutional stop/stop limit orders are limit (63.4%) and relatively fewer are market orders. A 

closer inspection of the data revealed that this reversal is driven by the order volume of several market 

participants. The analysis in the Proposing Release similarly found that a significant percentage of 

institutional stop orders are limit orders. Therefore, the updates to the dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that a significant 

percentage of institutional stop orders have limit prices, as discussed in note 1166 infra. 

1165  This analysis uses data from CAT for all NMS stocks for the period of Mar. 2023 that originated either 

from Institutional Customer or from Individual Customer accounts. Stop orders are identified using the 

reporting requirements for stop orders in the CAT Reporting Technical Specifications for Industry 

Members. See CAT REPORTING TECH. SPECIFICATIONS FOR INDUS. MEMBERS VERSION 4.0.0 r18 (Dec. 16, 

2022), available at https://www.catnmsplan.com/sites/default/files/2022-

12/12.16.2022_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r18_CLEAN.pdf.  

1166  One commenter stated that “a material percentage of stop orders have a limit price and a material 

percentage of stop orders do not have a limit price.” FIF Letter II at 2. Table 4 in the Proposing Release 

showed that, as of Mar. 2022, 0.0003% of institutional and 0.03% of individual limit orders consisted of 

orders with stop prices. At the same time, stop orders with limit prices made up 38.7% of institutional stop 

orders, and 12.4% of individual stop orders. See Proposing Release, 88 FR 3786 at 3845 (Jan. 20, 2023). 

Table 3 shows similar numbers for Mar. 2023, with 0.0011% of institutional and 0.02% of individual limit 

orders consisting of orders with stop prices, and 63.9% of institutional and 11.0% of individual stop orders 

consisting of stop orders with limit prices. These numbers show that, while stop orders with limit prices are 

generally a small percentage of total orders, they constitute a significant percentage of orders with stop 

prices, particularly for institutional investors.  

1167  See, e.g., FIF Letter II at 2, confirming “that a material percentage of stop orders are triggered based on a 

change in the NBBO (in most cases, but not always, the opposite-side quote) and a material percentage of 

stop orders are triggered based on a change in the last sale price.” 



319 

Table 3: Stop Order Volume by Account and Order Types, Mar. 2023 

 Types of Stop Orders (% of Total Stop Orders) 

Investor and 

Order Type 

Orders with 

Stop Prices 

(% of Total 

Orders) 

Stop / Stop 

Limit 

Stop on 

Quote / Stop 

Limit on 

Quote 

Trailing Stop 

/ Trailing 

Stop Limit 

Total 

Institutional      

Market 0.25% 31.4% 0.2% 4.5% 36.1% 

Limit 0.0011% 63.4% 0.2% 0.2% 63.9% 

Individual      

Market  4.91% 70.0% 8.7% 10.3% 89.0% 

Limit 0.02% 9.1% 1.5% 0.4% 11.0% 

This table shows the percentage of orders that are submitted with stop prices (as a percentage of total orders) using a sample 

of CAT data for all NMS stocks from Mar. 2023. Percentages are calculated as the number of orders submitted with stop 

prices summed across all stocks and days in the sample, divided by the total number of submitted orders summed across all 

stocks and days. These percentages are broken down into whether these orders were submitted by institutional or individual 

customer accounts, and whether the orders are market or limit orders submitted with stop prices. Also shown is a breakdown 

of stop order submission volume according to six common types of stop orders. See supra note 1165 for information on the 

dataset and identification of stop orders. 

(3) Non-Exempt Short Sale Orders 

Prior to these amendments, Commission staff had taken the position that staff would view 

all non-exempt short sale orders as special handling orders.1168 As a result, these orders have not 

been included in prior Rule 605 statistics, which has resulted in the exclusion of a large portion 

of orders that are likely relevant for market participants. 

Non-exempt short sale orders are orders that are subject to price restrictions under Rule 

201 of Regulation SHO,1169 which contains a short sale circuit breaker that, when triggered by a 

price decline of 10% or more from a covered security’s prior closing price, imposes a restriction 

on the price at which the covered security may be sold short (i.e., must be above the current 

national best bid). Once triggered, the price restriction will apply to short sale orders in that 

security for the remainder of the day and the following day, unless the short sale order is “short 

 

1168  See 2013 FAQs. 

1169  See supra note 299 for more information about Rule 201 of Regulation SHO. 



320 

exempt.”1170 Since a non-exempt short sale that is subject to a price restriction is only allowed to 

take place at least one tick above the NBB, these could be “orders to be executed on a particular 

type of tick or bid,” which would exclude them from the definition of “covered order.”1171 The 

exclusion of tick-sensitive orders from preexisting Rule 605 reporting requirements was 

designed so that these orders did not skew execution quality statistics, as the prevention of these 

orders from executing at the best bid would likely lead to lower execution quality statistics (e.g., 

negative price improvement and higher effective spreads) as compared to other orders.  

In the years since Rule 201’s adoption, it has become clear that Rule 201 price test 

restrictions are not often triggered. Between April 2015 and November 2023, a Rule 201 trigger 

event only occurred on 1.8% of trading days for an average stock.1172 Around 15.4% of Rule 201 

triggers occur the day after a previous trigger event, and around 45.4% occur within a week after 

a previous trigger event. These statistics imply that Rule 201 triggers tend to be relatively rare, 

and clustered around a few isolated events. This has resulted in a significant portion of non-

exempt short sale orders being excluded from prior Rule 605 statistics when Rule 201 was not 

triggered, at which point a price test restriction was not in effect and their exclusion would not 

have skewed execution quality statistics.  

 

1170  “Short exempt” orders include certain short sale orders from market makers and short sales priced above 

the current national best bid at the time of submission. See 17 CFR 242.201(c) and (d). 

1171  See prior 17 CFR 242.600(b)(22). 

1172  This analysis looked at the percentage of trading days that experienced a Rule 201 trigger event for the 

period Apr. 2015 and Nov. 2023 for all listed stocks on NYSE or NASDAQ exchanges and then averaged 

across stocks. The Commission restricted its sample to common stocks identified in CRSP (share code 10 

or 11), from CRSP 1925 US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2022). The 

Commission also excluded financial stocks (SIC code 6000-6999), as financial stocks may have different 

properties than other types of stocks, including characteristics related to short selling (e.g., Markus K. 

Brunnermeier & Martin Oehmke, Predatory Short Selling, 18 REV. FIN. 2153 (2014)). Rule 201 circuit 

breaker data retrieved from ftp://ftp.nyxdata.com/NYSEGroupSSRCircuitBreakers/ and 

ftp://ftp.nasdaqtrader.com/SymbolDirectory/shorthalts/. A similar analysis was included in the Proposing 

Release and found substantially similar results. See Proposing Release, 88 FR 3786 at 3846 (Jan. 20, 2023).321 

(4) Orders Submitted Pre-Opening/Post-Closing 

When Rule 605 was first adopted, the Commission explained the decision to exclude 

orders submitted outside of regular trading hours by stating that there are substantial differences 

in the nature of the market between regular trading hours and after-hours, and therefore orders 

executed at these times should not be blended together.1173 However, the preexisting exclusion of 

all orders submitted outside of regular market hours from the definition of “covered order,”1174 in 

addition to excluding orders that execute outside of regular hours, also extended to orders that, 

while submitted outside of regular market hours, are only eligible to execute during regular 

market hours. While these orders represent only a small portion of order flow, they represent a 

relatively high concentration of orders from individual investors. Therefore, the exclusion of all 

orders submitted outside of regular trading hours from Rule 605 prior to these amendments may 

have led to the exclusion of an important segment of individual investor orders. 

When Rule 605 was first adopted, after-hours markets were still mostly the purview of 

institutional investors, but a growing number of broker-dealers had recently begun providing 

their retail customers with the ability to have their orders directed to electronic communication 

networks (ECNs) after the major markets close for the day. The growth in the availability of 

after-hours trading for individual investors raised concerns over, and heightened awareness of, 

the differences in execution quality for after-hours trades, which tend to be much riskier due to 

lower liquidity levels and higher volatility in after-hours markets.1175 

 

1173  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000). 

1174  See prior 17 CFR 242.600(b)(22), (77). 

1175  See, e.g., SEC, Div. of Mkt. Regul., Special Study: Electronic Communication Networks and After-Hours 

Trading (June 2000), available at https://www.sec.gov/news/studies/ecnafter.htm.  



322 

Along with an increase in access to after-hours trading, the late 1990s and early 2000s 

saw an increase in the prevalence of online brokerages, in which individual investors in 

particular were given newfound access to order entry systems. Early research into the rise of 

online brokerages describes a shift from a system in which retail brokers “communicate buy/sell 

recommendations to clients over the telephone” (presumably during regular working hours), to a 

system in which individual investors have “round-the-clock access to trading systems and 

account information.”1176 Logically, as investors make use of the “round-the-clock” access 

offered by online brokerages, the number of orders submitted outside of regular market hours has 

likely increased over the preceding decades. However, not all orders submitted after hours are 

eligible to trade in after-hours markets, which continues to be the case even in today’s market. 

For example, some broker-dealers’ platforms allow customers to submit orders at any time, but 

unless the customer requests to trade during extended hours and the security is eligible to trade as 

such, the order will only be executed during regular market hours.1177 Since these orders are not 

intended, and in many cases are not eligible, to execute outside of regular trading hours, these 

orders may not be subject to the same concerns that drove the Commission to exclude orders 

submitted outside of trading hours from Rule 605 reporting requirements in the Rule 11Ac1-5 

Adopting Release. 

 

1176  Jennifer Wu et al., Online Trading: An Internet Revolution, 4 Sloan Sch. of Mgmt. Mass. Inst. of Tech. 

Rsch. Notes (1999). 

1177  See, e.g., Extended Hours Overview, CHARLES SCHWAB, available at 

https://www.schwab.com/public/schwab/nn/qq/about_extended_hours_trading.html (2023); Extended-

Hours Trading, ROBINHOOD, available at https://robinhood.com/us/en/support/articles/extendedhours-

trading/ (last visited Jan. 29, 2024, 1:21 p.m.).  



323 

To estimate the amount of orders that are submitted outside of regular trading hours, data 

from the Tick Size Pilot B.I Market Quality dataset1178 were analyzed to break order volume 

down into different trading sessions according to when the order was eligible to trade.1179 The 

Commission considered only those orders that have an effective time during regular market 

hours to be eligible for Rule 605 reporting, and excluded orders that were otherwise excluded 

from preexisting Rule 605 reporting requirements, i.e., because they are an excluded order type 

or size. The Commission found that a small fraction of orders are effective outside of regular 

market hours (1.3%), while the vast majority of orders (98.7%) are effective during regular 

market hours.  

At least some of these orders, while submitted outside of regular market hours, execute 

during regular trading hours, e.g., because they are NMLOs that are only executable during 

regular trading hours.1180 In order to estimate the extent to which this occurs, a sample of 400 

 

1178  See supra note 1115 for dataset description. This analysis was included in the Proposing Release; see 

Proposing Release, 88 FR 3786 at 3846 (Jan. 20, 2023). 

1179  These trading sessions include (1) regular hours only; (2) extended hours only; (3) both regular and 

extended hours with an effective time during regular market hours; and (4) both regular and extended hours 

with an order effective time during extended hours. See Tick Size Pilot FAQs, Q4.11, supra note 1116. 

1180  Most retail brokers do not permit market orders during extended hours trading. See, e.g., Extended Hours 

Overview and Extended-Hours Trading, supra note 1177. 



324 

stocks1181 using CAT data from Q1 20231182 was analyzed to examine how the submission 

volume of executable NMLOs submitted outside of regular trading hours1183 compares to the full 

 

1181  This sample of stocks was constructed using data as of market close on Dec. 30, 2022, using the same 

methodology as in the Proposing Release. Market capitalization and price information were collected from 

the Center for Research in Security Prices (CRSP), and stocks with volume less than 1,000 shares, stocks 

with a closing price of less than $2, and dual-class shares were excluded. For each of the four market 

capitalization groups (less than or equal to $100 million, greater than $100 million and less than or equal to 

$1 billion, greater than $1 billion and less than or equal to $10 billion, greater than $10 billion), stocks were 

sorted by price and assigned to four equally-sized buckets. Within each sorted price bucket, 25 stocks were 

chosen at evenly spaced intervals, yielding 100 stocks per group for a total of 400 stocks. As a hypothetical 

example, from a price-sorted bucket with 50 stocks every second stock would be chosen to get 25 total 

stocks. From this initial sample of 400 stocks, four stocks were replaced due to being delisted during the 

Q1 2023 analysis period, and one stock was replaced due to abnormally high volume. 

1182  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1181 for information 

about how the 400-stock sample was selected. The CAT data consist of all orders eligible to trade during 

regular hours during Q1 2023 that were received for the 400 stocks at four types of reporting entities: 1) 

Exchanges, 2) Wholesalers, 3) Alternative Trading Systems (ATSs) and (4) Broker-Dealers. We excluded 

multi-day orders, orders received when the NBBO was locked or crossed, and all orders with handling 

instructions, with the exception of intermarket sweep orders (ISOs) for on-exchange orders, and with the 

exception of orders with handling codes CASH, DIR, DISQ, DNR, DNRT, RSV, and STP, for broker-

dealer and off-exchange orders. Certain on-exchange TIF codes are also excluded, including Fill or Kill, 

Good For Seconds, At the Close, At the Open, Auction or Kill, and Auction Only Order. For more 

information on order handling codes in CAT, see CAT REPORTING TECH. SPECIFICATIONS FOR INDUS. 

MEMBERS VERSION 4.0.0 r18 (Dec. 16, 2022), available at 

https://www.catnmsplan.com/sites/default/files/2022-

12/12.16.2022_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r18_CLEAN.pdf. 

We also exclude a small percentage of orders that had more shares traded than the original order size in its 

CAT lifecycle. We also excluded orders that had order modifications (3.4% of orders). For ATSs, we 

additionally excluded ATS-specific order types that were determined to not be eligible for Rule 605 

reporting. For Broker-Dealer order originations, we excluded orders received from the following account 

holder types: Employee Account, Market Making, Other Proprietary, and Error Account of the Firm. For 

both of the Broker-Dealer and Wholesaler route acceptances, we kept order acceptances if the CAT 

Reporter ID associated with the CRD is not an ATS. Execution times and effective spreads are measured 

relative to the time of order receipt by the market entity. Orders received in off trading hours were 

benchmarked to the first non-locked and crossed quote in the stocks’ listing market on the next trading day. 

For simplicity and without loss of generality, the analysis considers only NMLOs that are priced at the 

quote or better, i.e., NMLOs that are immediately executable upon order receipt. Limit orders are classified 

as marketable, at-the-quote, below-the-midpoint, at-the-midpoint, or beyond-the-midpoint, based on the 

distance of their limit price from the NBBO or NBBO midpoint at the time of order receipt. 

1183  The definition of marketability for the purposes of this analysis for pre-open orders is determined using the 

NBBO at the time that primary listing market has disseminated its first firm, uncrossed quotations in the 

security, such that orders to be executed prior to this time opening price are excluded. See supra section 

III.A.1.b) for more information about defining the marketability of orders submitted outside of regular 

market hours. 



325 

sample of executable NMLO submission volume.1184 This analysis confirms that pre-open orders 

make up a small percentage of order volume, representing around 1.3% of total submitted shares 

(0.4% of total submitted orders). However, further analysis reveals that these orders contain a 

higher concentration of orders associated with Individual Customer accounts. Specifically, for 

those pre-open orders that could be identified as originating from either individual or 

institutional customer accounts,1185 81.8% of these pre-open orders (82.6% of pre-open shares) 

originated from individual customer accounts. In comparison, individual customer accounts were 

responsible for just 1.5% of orders (1.7% of shares) of total individual and institutional customer 

account originations.  

This is consistent with the idea that at least some of this order flow represents orders that 

are submitted by individual investors outside of market hours, i.e., via online brokerage accounts, 

but not necessarily with the intention to engage in after-hours trading.  

c) Required Information 

In addition to decreasing the coverage of Rule 605, subsequent market changes since the 

initial adoption of Rule 605 may have also decreased the relevance of some of the metrics 

required to be reported by preexisting Rule 605 reporting entities. This section will discuss how 

 

1184  The CAT data used in this analysis have been updated since the Proposing Release for a more recent time 

period and to include the full sample of executable NMLOs described in note 1182 supra. A similar 

analysis in the Proposing Release used CAT data for a sample of 390 stocks from Mar. 2021 to compare 

NMLOs submitted outside of regular trading hours that were designated as only eligible to trade during 

regular trading hours to the volumes and characteristics of NMLOs submitted during a sample time window 

from 9:40 a.m. to 10:40 a.m. See Proposing Release, 88 FR 3786 at 3847 (Jan. 20, 2023). These updates to 

the data and methodology did not affect the Commission’s conclusions from this analysis relative to the 

Proposing Release, namely that pre-open orders represent a small percentage of order flow, contain a high 

concentration of individual investor orders, and likely have some differences in execution profiles as 

compared to orders submitted during regular market hours. 

1185  As the account type (i.e., individual or institutional) data field is only available upon order origination and 

is not transferred to the executing market center, the Commission was not able to differentiate individual 

investors in the CAT data for exchanges. 



326 

market changes may have affected, or will likely affect in the near future, aspects of several such 

metrics, including the definition of round lots for order size categories, the granularity of metrics 

related to time-to-execution, and the use of a five-minute time horizon for realized spreads. 

(1) Order Size Categories 

Preexisting Rule 605 defined order size categories in terms of numbers of shares. Given 

that share prices and thus the notional value of orders can differ dramatically, defining a size 

category in terms of number of shares has disadvantages.1186 Figure 1 shows that the vast 

majority of orders are for a notional value of less than $100,000, and Figure 2 shows that this is 

the case for stocks across all different price levels. This implies that, for a $500 stock in which a 

$100,000 order is equivalent to an order of only 200 shares, nearly all covered orders were 

clustered within preexisting Rule 605’s smallest order size category of 100 to 499 shares.1187 

Clustering all covered orders into a single category would have limited market participants’ 

ability to use these categories to compare across orders of different sizes in such higher-priced 

stocks. Furthermore, combined with the exclusion of orders for less than 100 shares, defining 

order sizes in terms of number of shares led to the exclusion of many orders in higher-priced 

stocks. For example, a 99-share odd-lot in a $500 stock already has a notional value of $49,500, 

which is greater than the notional value of around 93% all orders according to Figure 1. 

 

1186  See Virtu Letter II at 5, stating that “Rule 605’s approach to bucketing orders solely by share quantity 

yields skewed comparisons because it fails to take into account the notional value of orders.”  

1187  See prior 17 CFR 242.605(a)(1); see also supra note 1121 and corresponding text for a definition of the 

order size categories included in Rule 605 reporting requirements prior to these amendments. Consider also 

that a 400-share order in a $500 stock would already be considered a large “block” order according to some 

Regulation NMS rules. See, e.g., Rule 606(a)(1) of Regulation NMS (requiring reports on the routing of 

customer orders) and prior Rule 600(b)(25) of Regulation NMS (defining “customer order” to exclude an 

order with a market value of $200,000 or more); 17 CFR 242.604(b)(6) (providing an exception for orders 

of block size from required limit order display) and prior Rule 600(b)(12) of Regulation NMS (defining 

“block size” as, in part, an order for a quantity of stock having a market value of at least $200,000). 

Therefore, in reports under preexisting Rule 605, all non-block covered orders in such a stock were 

grouped in the smallest order size category. 



327 

Similarly, one industry analyst stated that the definition of order size categories in terms of 

number of shares, together with the exclusion of orders of less than 100 shares under preexisting 

Rule 605,1188 has led to the exclusion of more orders with low dollar values as the average stock 

price increases.1189  

Lastly, the Commission’s 2020 adoption of the MDI Rules included a new definition of 

“round lot” that would have caused some round lots to be excluded from reporting requirements, 

absent an update to Rule 605’s order size categories.1190 Specifically, the order size categories as 

defined under preexisting Rule 605, which excluded orders with fewer than 100 shares, would 

have excluded a portion of round lots for stocks with prices greater than $250.1191  

(2) Non-Marketable Limit Order Categories 

As a result of the categorization of NMLOs under preexisting Rule 605, execution quality 

statistics for some NMLOs may have included orders whose executions are more likely to 

 

1188  See supra section IX.C.3.b)(1)(a) for a discussion of the exclusion of orders that are less than 100 shares 

from preexisting Rule 605 reporting requirements. 

1189  See Phil Mackintosh, Modern Retail Needs Modern Rules, NASDAQ (May 27, 2021, 11:54 a.m. EDT), 

available at https://www.nasdaq.com/articles/modern-retail-needs-modern-rules-2021-05-27/. 

1190  See supra note 1016 for a definition of these tiers. 

1191  In addition, even prior to the implementation of the MDI Rules, a small number of NMS stocks have a 

round lot size smaller than 100. Until the round lot definition adopted pursuant to the MDI Rules is 

implemented, round lots continue to be defined in exchange rules. See MDI Adopting Release, 85 FR 

16726 at 16738 (Mar. 24, 2020). For most NMS stocks, a round lot is defined as 100 shares. According to 

TAQ Data, as of Mar. 2023, 11 stocks had a round lot size other than 100. Nine stocks had a round lot of 10 

and two stocks had a round lot of one. 



328 

depend on their limit prices and price movements in the market, and excluded orders whose 

executions are more likely to depend on their handling by the market center.1192 

Given that the aim of Rule 605 is to enable investors to compare and evaluate execution 

quality among different market centers,1193 Rule 605 reports are designed to include only orders 

that provide a basis for meaningful comparisons across measures of execution quality.1194 

Depending on their characteristics, execution quality statistics for some NMLOs may be less 

meaningful because their executions depend more on the order’s limit price and price movement 

in the market than on handling by the market center. In preexisting Rule 605, the exclusion of 

NMLOs with limit prices more than $0.10 outside the NBBO (“away-from-the-quote” NMLOs) 

from reporting requirements1195 was intended to eliminate NMLOs with less meaningful 

execution quality statistic.1196 The “near-the-quote” limit order category, consisting of NMLOs 

that were outside the NBBO by no more than 10 cents, was meant to include limit orders that are 

 

1192  The execution quality of NMLOs is relevant for both individual and institutional investors. Studies have 

shown that both institutional and individual investors likely make use of NMLOs. One academic study, 

using data on retail orders between 2003 and 2007 from two OTC market centers, estimated that NMLOs 

made up around 39% of individual investor order flow. See Eric K. Kelley & Paul C. Tetlock, How Wise 

are Crowds? Insights from Retail Orders and Stock Returns, 68 J. FIN. 1229 (2013). Other academic papers 

suggest that NMLO usage by institutional investors may also be high. See, e.g., Amber Anand et al., 

Empirical Evidence on the Evolution of Liquidity: Choice of Market Versus Limit Orders by Informed and 

Uninformed Traders, 8 J. FIN. MKT. 288 (2005); Ron Kaniel & Hong Liu, So What Orders Do Informed 

Traders Use?, 79 J. BUS. 1867 (2006). 

1193  See supra note 13. 

1194  See, e.g., Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000), stating that Rule 11Ac1-5 

“contains several conditions and exclusions that are intended to limit its scope to those orders that provide a 

basis for meaningful and comparable statistical measures of execution quality.” 

1195  See prior 17 CFR 242.600(b)(14), (37); prior 17 CFR 242.605(a)(1).  

1196  See, e.g., Disclosure of Order Routing and Execution Practices (Proposing Release), 65 FR 48406 at 48414 

(Aug. 8, 2000), stating that “Commission preliminarily believes that the rule's statistical measures (e.g., fill 

rates and speed of execution) for [limit orders with limit prices that are more than $0.10 outside the 

consolidated BBO at the time of order receipt] may be less meaningful because they would be more 

dependent on the extent to which the orders’ limit prices were outside the consolidated BBO (and 

movements in market prices) than on their handling by a market center.” 



329 

submitted away from the NBBO, but that still have a relative likelihood of being executed (hence 

the maximum distance requirement from the NBBO).1197  

However, the likelihood of execution of a NMLO greatly depends on the movement of 

the NBBO, such that even an order submitted within 10 cents of the NBBO may never receive an 

opportunity to be executed if that order never touches the NBBO (e.g., if prices were to move 

away from that order immediately after submission), and an order that is submitted further than 

10 cents may indeed eventually execute if prices move towards the order. Figure 81198 presents 

data on the fill rates of NMLO orders,1199 broken down by NMLO type, including away-from-

the-quote, near-the-quote, and at-the-quote NMLOs, along with several categories of inside-the-

quote NMLOs depending on their distance from the midpoint (below-the-midpoint, at-the-

 

1197  In preexisting Rule 605, the categorization of a NMLO as a “near-the-quote” NMLO was based on the 

NBBO as of the time of order receipt. See prior 17 CFR 242.600(b)(37). 

1198  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3849 (fig. 8) (Jan. 20, 2023). 

The fill rates in the analysis in the Proposing Release are somewhat higher – beyond-the-midpoint (5.07%), 

at-the-midpoint (4.96%), below-the-midpoint (2.66%), at-the-quote (2.89%), near-the-quote (0.61%), and 

away-from-the-quote (0.18%) – compared to those in the updated analysis in Figure 8. However, it remains 

the case that near-the-quote and away-from-the-quote NMLOs have similarly low fill rates compared to 

other types of NMLOs. Therefore, changes to the MIDAS dataset did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that the exclusion of away-from-

the-quote NMLOs and the inclusion of near-the-quote NMLOs under preexisting Rule 605 was based on a 

threshold that does not optimally differentiate between orders that do and do not have a meaningful chance 

to execute. 

1199  Due to the exclusion of orders with more than one submission message from the MIDAS dataset as 

described in supra note 1130, an analysis using this data may overestimate fill rates. This is because many 

of the orders associated with more than one submission message are so-called “cancel/replace” orders, in 

which an existing order is cancelled and replaced with a modified order, such as an order with a different 

price. The exclusion of these orders will thus tend to exclude more cancellations than executions, leading to 

higher fill rates. An alternate analysis, rather than dropping order ids (“oids”) with multiple submission 

messages, summed submission volume by stock-day-exchange-oid and assigned to this volume the price at 

the time of first submission. The fill rates resulting from this alternative analysis differ from those in Figure 

8 by less than 0.01 percentage points; thus, the Commission’s conclusions from this analysis are not 

affected by the exclusion of orders with multiple submission messages. 



330 

midpoint, and beyond-the-midpoint),1200 using a sample of MIDAS NMLO submission data.1201 

The figure shows that near-the-quote and away-from-the-quote NMLOs appear very similar in 

terms of fill rates (0.27% and 0.02%, respectively), particularly compared to other types of 

NMLOs (e.g., inside-the-quote NMLOs have an average fill rate of around 0.36% to 3.57%). The 

fact that near-the-quote and away-from-the-quote NMLOs have similar fill rates is consistent 

with the possibility that the exclusion of NMLOs priced more than 10 cents away from the 

NBBO under preexisting Rule 605 was based on a threshold that does not optimally differentiate 

between orders that have a meaningful chance to execute. Meanwhile, orders that never have a 

meaningful opportunity to execute (e.g., because they never touch the NBBO) may have been 

included in Rule 605 statistics prior to these amendments.  

 

1200  These categories of NMLOs are defined as follows. “Beyond-the-midpoint” NMLOs consist of, for sell 

orders, NMLOs with limit prices lower than the midpoint but higher than the NBB, and, for buy orders, 

NMLOs with limit prices higher than the midpoint but lower than the NBO. “At-the-midpoint” NMLOs 

consist of NMLOs with limit prices equal to the NBBO midpoint. “Below-the-midpoint” NMLOs consist 

of, for sell orders, NMLOs with limit prices higher than the midpoint but less than the NBO and, for buy 

orders, NMLOs with limit prices lower than the midpoint but higher than the NBB. “At-the-quote” NMLOs 

consist of, for sell orders, NMLOs with limit prices equal to the NBO and, for buy orders, NMLOs with 

limit prices equal to the NBB. “Near-the-quote” NMLOs consist of, for sell orders, NMLOs with limit 

prices worse (i.e., higher) than the NBO by no more than $0.10 and, for buy orders, NMLOs with limit 

prices worse (i.e., lower) than the NBB by no more than $0.10. “Away-from-the-quote” NMLOs consist of, 

for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by more than $0.10 and, for buy 

orders, NMLOs with limit prices worse (i.e., lower) than the NBB by more than $0.10. 

1201  The distribution of orders into various NMLO categories may change following the implementation of the 

MDI Rules. Specifically, the NBBO is anticipated to narrow for stocks priced above $250 as a result of the 

new definition of round lots, which will likely decrease the number of inside-the-quote NMLOs and 

increase the number of quotes at or outside of the quotes for these stocks. See supra section IX.C.1.c)(2). 

However, it is not clear how a change in the distribution of orders into various NMLO categories will affect 

the average fill rates of these NMLO categories.  



331 

Figure 8: Fill Rates of NMLOs, Mar. 2023 

 

This figure plots the fill rates of order flow that can be categorized into various NMLO categories, using order submission data 

from MIDAS. Fill rates are calculated as the number of shares executed of a given NMLO type, summed across all stocks and 

days in the sample, divided by the number of shares submitted of a given NMLO type, summed across all stocks and days. See 

supra note 1130 for a description of the dataset and supra note 1200 for definitions of the NMLO categories. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. See supra note 1201 and section IX.C.1.c)(2). 

To get an idea of the extent to which these orders were included in Rule 605 statistics 

prior to these amendments, Figure 91202 breaks down the sample of MIDAS NMLO submission 

data1203 into NMLO types.1204 According to Figure 8, more than 99% of near-the-quote NMLOs 

do not execute, which, according to Figure 9 represents around 29.3% of total submission 

 

1202  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3848 (fig. 7) (Jan. 20, 2023). 

The share volumes in the Proposing Release are similar for beyond-the-midpoint (2.9%), at-the-midpoint 

(1.2%), below-the-midpoint (2.9%), at-the-quote (33.3%), near-the-quote (35.8%), and away-from-the-

quote (23.8%) NMLOS. Therefore, changes to the MIDAS dataset did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that near-the-quote NMLOs 

represent around a third of total submission volume. 

1203  See supra note 1130 for a description of the dataset. 

1204  Results may be different following the implementation of the MDI Rules. See supra note 1201 and section 

VII.C.1.d)(2) for further discussion.  



332 

volume.1205 While it is possible that some of these orders did not execute because of their 

handling by the market center, it is unlikely that this is the case for all of them, and likely that 

some of the lack of fills was the result of other factors, such as price movements or cancellations 

by the submitter.1206 

 

1205  These numbers are the same as those in the Proposing Release. See Proposing Release, 88 FR 3786 at 3848 

(Jan. 20, 2023). 

1206  See infra section IX.E.2.b) for a discussion of how NMLO orders that are cancelled quickly after 

submission may impact fill rates. 



333 

Figure 9: Order Submission Share Volume by NMLO Type, Mar. 2023 

 

This figure plots the percentage of share volume that can be categorized into various NMLO categories, using order submission 

data from MIDAS. See supra note 1130 for a description of the dataset and supra note 1200 for definitions of the NMLO 

categories. Percentages are calculated as the number of submitted shares within a given NMLO category summed across all 

stocks and days in the sample, divided by the total number of submitted shares summed across all stocks and days. This analysis 

uses data from prior to the implementation of the MDI Rules and results may be different following the implementation of the 

MDI Rules. See supra note 1201 and section IX.C.1.c)(2). 

Furthermore, the fact that the threshold for inclusion in preexisting Rule 605 reports was 

based on nominal terms (i.e., 10 cents) means that NMLO coverage varied depending on the 

stock price: high-price stocks with smaller relative tick sizes would have had less NMLO 

coverage, since 10 cents represents a relatively tighter band around the NBBO when considered 



334 

as a percentage of stock price.1207 This is shown in Figure 10,1208 which breaks down the NMLO 

submission volumes in Figure 9 by both order type and average share prices. The figure shows 

that away-from-the-quote NMLOs represent 35.5% of total NMLO share volume for the group 

of stocks with the highest share prices, but only 15.0% for the group of stocks with the lowest 

share prices. Given the positive fill rates for away-from-the-quote NMLOs from Figure 8, this 

implies that a higher portion of executed away-from-the-quote NMLOs have been excluded from 

preexisting Rule 605 reports for high-priced stocks. Excluding large portions of relevant NMLOs 

results in less reliable market quality measures; this may especially be the case for high-priced 

stocks, thus making comparisons between market centers less reliable for these stocks.  

 

1207  Results may be different following the implementation of the MDI Rules. Specifically, NMLO coverage 

for stocks priced above $250 may decrease even further, as the narrowing of the NBBO for these stocks 

will result in even tighter price bands. See supra section IX.C.1.c)(2) for further discussion. 

1208  The MIDAS data used in analysis has been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3850 (fig. 9) (Jan. 20, 2023). 

The Proposing Release similarly found that away-from-the-quote NMLOs represent a higher percentage 

(24.4%) of total NMLO share volumes for the group of stocks with the highest share prices as compared to 

the group of stocks with the lowest share prices (8.4%). Therefore, changes to the MIDAS dataset did not 

affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely that a 

higher portion of executed away-from-the-quote NMLOs in high-priced stocks were excluded from 

preexisting Rule 605 reports. 



335 

Figure 10: Order Submission Share Volume by NMLO Type and Stock Price Quartiles, 

Mar. 2023 

 

This figure plots the percent of submitted shares that can be categorized into various NMLO categories, using order submission 

data from MIDAS. Stocks are split into quartiles based on average stock prices. Percentages are calculated as the number of 

submitted shares within a given order type category, summed across all stocks within a given market capitalization group and all 

days in the sample, divided by the total number of submitted shares summed across all stocks within a given market 

capitalization group and all days in the sample. See supra note 1130 for a description of the dataset and supra note 1200 for 

definitions of the NMLO categories. This analysis uses data from prior to the implementation of the MDI Rules and results may 

be different following the implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). 

Preexisting Rule 605 also required execution quality information for NMLOs to be 

measured relative to the time of order receipt. As will be shown in Figure 12 below, NMLOs that 

are submitted further away from the NBBO tend to take longer from the time of order receipt to 

execute than those submitted closer to the NBBO, as the NBBO has a further distance to move 

before it reaches the order’s limit price. This requirement thus may have made it difficult to 

compare the execution times of market centers that handle NMLOs with varying distances from 

the NBBO. 



336 

(3) Midpoint-or-Better NMLOs 

Prior to these amendments, Rule 605 reports required the separate reporting of execution 

quality information for inside-the-quote NMLOs. However, the Commission understands that 

some inside-the-quote limit orders may have different execution quality characteristics than other 

types of NMLOs, including other inside-the-quote NMLOs, and that this may vary across market 

centers. In particular, similarly to market and marketable limit orders, some at-the-midpoint and 

beyond-the-midpoint limit orders (collectively, “midpoint-or-better” orders) are submitted by 

traders with the intention of executing immediately, in this case against hidden or odd-lot inside-

the-quote liquidity. However, because they are not a marketable order type (i.e., they do not fully 

cross the spread), preexisting Rule 605 did not require certain statistics that are appropriate for 

marketable orders, such as effective spreads, to be reported for inside-the-quote NMLOs.1209 

Furthermore, some market centers, such as some wholesalers, treat “beyond-the-midpoint” limit 

orders (i.e., NMLOs that are priced more aggressively than the midpoint) like marketable limit 

orders and will offer price improvement to these orders.  

Confirming that there are differences between certain types of inside-the-quote NMLOs, 

Table 41210 presents results from an analysis of the execution quality of different order types, 

 

1209  For market and marketable limit orders, the effective spread captures how much more than the stock’s 

estimated value a trader has to pay for the immediate execution of its order. See infra section IX.C.3.c)(6). 

1210  The CAT data used in this analysis have been updated since the Proposing Release for a more recent time 

period, as well as to include a larger sample of reporting entities (both wholesalers and exchanges/ATSs). 

Consistent with requiring time-to-execution buckets in Rule 605 reports rather than time-to-execution 

statistics (see supra section III.B.3), the methodology has also been updated to capture execution speeds as 

the percent of executed shares that are executed in under one millisecond, rather than mean and median 

execution times. See Proposing Release, 88 FR 3786 at 3850 (tbl. 5) (Jan. 20, 2023). The results in the 

Proposing Release similarly show that beyond-the-midpoint NMLOs executed by wholesalers tend to have 

faster time-executions and higher fill rates than other types of inside-the-quote NMLOs. Therefore, these 

updates did not affect the Commission’s conclusions from this analysis relative to the Proposing Release, 

namely that beyond-the-midpoint orders have different execution characteristics than other types of inside-

the-quote NMLOs. See infra note 1213 for further discussion comparing the results from the Proposing 

Release to those in Table 4. 



337 

including market, marketable limit, and various types of inside-the-quote NMLOs, along with at-

the-quote NMLOs. The analysis uses a sample of orders from CAT data for the period of Q1 

2023.1211 First, the high percentage of beyond-the-midpoint and at-the-midpoint NMLO share 

volume that is submitted with IOC designations as compared to below-the-midpoint and at-the-

quote NMLOs confirms that these orders are often submitted with the intention of executing 

immediately.1212 Furthermore, the results show that there are differences between the execution 

characteristics of midpoint-or-better NMLOs as compared to NMLOs that are below the 

midpoint or at the quote. For example, for wholesalers, there is a notable difference in the fill 

rates of midpoint-or-better NMLOs (9.8% to 10%%) as compared to NMLOs below the 

midpoint (3.7% to 4.4%). Similarly, while around 70-77% of on-exchange midpoint-or-better 

NMLOs execute in less than a millisecond, this number drops to around 28.6% for below-the-

midpoint NMLOs, and 9.3% for at-the-quote NMLOs.1213 This analysis suggests that midpoint or 

better orders have a sufficiently different execution profile from other NMLOs to warrant 

different reporting requirements. 

 

1211  This analysis uses CAT data for a sample of 400 stocks. See supra note 1182 for a description of the 

dataset. In order to focus on NMLOs that will be included in Rule 605 reports as amended, the analysis 

includes only NMLOs that are immediately executable upon entry, i.e., NMLOs that are submitted at or 

better than the quote. 

1212  This dataset is from prior to the implementation of the MDI Rules and the distribution of orders into 

various NMLO categories, including at-and-beyond-the-midpoint orders, may change following the 

implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). However, it is not clear 

how a change in the distribution of orders into various NMLO categories will affect the average fill rates 

and time-to-execution of these NMLO categories.  

1213 The analysis in the Proposing Release additionally looked at the percentage of price-improved orders 

across different order types executed by wholesalers and found that beyond-the-midpoint orders are offered 

price improvement by wholesalers more often than other inside-the-quote NMLOs. See Table 5 in the 

Proposing Release, 88 FR 3786 at 3850 (Jan. 20, 2023). However, as stated by a commenter, at least some 

of a NMLO’s price improvement will be driven by its limit price, which is outside the control of the market 

center. See Schwab Letter at 32. The Commission agrees with the commenter and therefore focuses this 

analysis on time-to-execution and fill rates.  



338 

Table 4: Execution Quality Characteristics Across Different Order Types,  

Q1 2023 

Exchanges & ATSs 

IOC Volume (% Of 

Share Volume) 
Fill Rate (%) 

Executions Under 1 

Millisecond (%) 

Market 22.3% 84.2% 48.9% 

Marketable Limit 92.6% 14.1% 97.1% 

Beyond-the-Midpoint 35.8% 0.3% 76.9% 

At-the-Midpoint 37.9% 2.2% 70.4% 

Below-the-Midpoint 4.7% 0.1% 28.6% 

At-the-Quote 13.3% 0.9% 9.3% 

Wholesalers 

IOC Volume (% Of 

Share Volume) 
Fill Rate (%) 

Executions Under 1 

Millisecond (%) 

Market 0.2% 94.8% 11.1% 

Marketable Limit 62.9% 39.1% 20.2% 

Beyond-the-Midpoint 90.8% 10.0% 18.9% 

At-the-Midpoint 84.2% 9.8% 12.6% 

Below-the-Midpoint 65.3% 3.7% 5.8% 

At-the-Quote 67.0% 4.4% 11.7% 

This table shows execution quality metrics for different order types using CAT data during the period of Q1 2023, along with the percentage 

of shares that are submitted with IOC designations (calculated as the number of shares submitted with an IOC designation summed across all 

stocks and days in the sample, as a percentage of the total number of submitted shares summed across all stocks and days). Also presented are 

fill rates (calculated as the number of shares executed, summed across all stocks and days in the sample, divided by the number of shares 

submitted, summed across all stocks and days in the sample.), and percentage of executed orders that execute in less than one millisecond 
(calculated as the number of shares executed in less than one millisecond summed across all stocks and days, as a percentage of the total 

number of executed orders summed across all stocks and days). Results are presented separately for Wholesalers and for Exchanges and 

ATSs. Large block orders (i.e., orders greater than $200,000) are excluded from this analysis. See supra note 1211 for dataset description and 
supra note 1200 for definitions of the NMLO categories. As discussed in supra note 1182, this analysis excludes some orders, including orders 

with certain handling codes and ATS-specific order types that were determined to not be eligible for Rule 605 reporting. This analysis uses 

data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI Rules. See 

supra note 1212 and section IX.C.1.c)(2).  

(4) Time-to-Execution 

Prior to these amendments, Rule 605 required the reporting of time-to-execution 

information in two ways. First, for market and marketable limit orders, reporting entities were 

required to report the share-weighted average time-to-execution for orders executed with price 

improvement, at the quote, and with price dis-improvement, calculated based on timestamps 



339 

recorded in seconds. Second, for all orders, reporting entities were required to report the number 

of shares executed within certain predefined time-to-execution categories or buckets.1214  

First, calculating average time-to-execution statistics using timestamps recorded in terms 

of seconds does not reflect changes in market speeds. Figure 111215 uses data from the SEC’s 

MIDAS analytics tool1216 to plot the percentage of on-exchange NMLOs that, conditional on 

being executed,1217 are fully executed within one second or less from the time of submission 

between Q4 2012 and Q1 2023. The figure shows that this percentage has increased over time 

across different market capitalization groups, and that in Q1 2023 nearly half (48.0%) of 

executed NMLOs are executed in less than one second in large market cap stocks. Therefore, 

while timestamps expressed in seconds may have been appropriate for the markets when Rule 

605 was first adopted, they are likely to miss variation in time-to-execution across market centers 

in today’s markets.1218 

 

1214  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (detailing time-to-execution buckets of 0 to 9 seconds, 10 

to 29 seconds, 30 to 59 seconds, 60 to 299 seconds, and 5 to 30 minutes after the time of order receipt). 

1215  The data used in this analysis have been updated since the Proposing Release to include a more recent time 

period. See Proposing Release, 88 FR 3786 at 3851 (fig. 10) (Jan. 20, 2023), which presents the same 

analysis for Q4 2012 through Q1 2022. The percentage of NMLOs executed within one second has 

decreased slightly since Q1 2022. However, these differences due to updates to the dataset did not affect 

the Commission’s conclusions from this analysis relative to the Proposing Release, namely that the 

percentage of NMLOs executed within one second has generally increased over time. 

1216  See Conditional Cancel and Trade Distributions (Dec. 2023), SEC, available at 

https://www.sec.gov/marketstructure/downloads.html). If the order is not fully executed, it is treated as 

canceled at the close. See Quote Life Report Methodology, SEC, available at 

https://www.sec.gov/marketstructure/quote-life-report-methodology (last visited Jan. 30, 2024, 3 p.m.). 

1217  I.e., Figure 8 plots the number of fully executed NMLOs executed within one second relative to the total 

number of fully executed on-exchange NMLOs. In contrast, Figure 6 plots the number of executed NMLO 

shares divided by the total number of submitted NMLO shares. 

1218  See, e.g., Better Markets Letter at 3, stating that “there have been significant developments in trading since 

Rule 605 was adopted. It is now done electronically with automated systems and the speeds have increased 

exponentially, measured in milli or microseconds, not mere seconds;” and FIF Letter at 17, stating that 

“market centers, in particular, typically record trading events with greater precision than milliseconds.” 



340 

Figure 11: Percentage of NMLOs Executed Within One Second, Q4 2012 to Q1 2023 

 

This figure plots the percentage of NMLOs that, conditional on being executed on a national securities exchange, are executed 

within one second or less from the time of submission between Q4 2012 and Q1 2023 using data from the SEC’s MIDAS 

analytics tool. See supra note 1216 for dataset description. 

Second, given that many orders are executed on a sub-second basis, the time-to-execution 

buckets prescribed by preexisting Rule 605 are not able to fully capture variations in execution 

times across order types.1219 To illustrate this, Figure 121220 groups on-exchange NMLO 

 

1219  See supra note 1214 for a definition of these time-to-execution categories. 

1220  The MIDAS data used in this analysis has been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3852 (fig. 11) (Jan. 20, 2023). 

The distributions of orders across time-to-execution buckets for different NMLO categories are similar in 

the Proposing Release: for inside-the-quote NMLOs, 84.2% to 85.7% of orders were grouped in the 

shortest time-to-execution bucket (from 0 to less than 10 seconds), depending on the distance to the 

midpoint, while the category corresponding to the longest time-to-execution bucket (5 to 30 minutes) has 

only 1.1% to 1.3% of executions. Therefore, changes to the MIDAS dataset did not affect the 

Commission’s conclusions from this analysis relative to the Proposing Release, namely that the time-to-

execution categories in preexisting Rule 605 likely did not fully capture variations in the execution times of 

orders across reporting entities.341 

executions collected from MIDAS for the period of Mar. 20231221 into time-to-execution buckets 

that correspond to those defined in preexisting Rule 605. The figure shows that, while away-

from-the-quote and near-the-quote NMLOs are relatively evenly distributed across the time-to-

execution categories, these categories do not capture much differentiation for other NMLO types, 

particularly for those that take place inside the quote. For inside-the-quote NMLOs, 66.6% to 

86.9% of orders are grouped in the shortest time-to-execution bucket (from 0 to less than 10 

seconds), depending on the distance to the midpoint, while the category corresponding to the 

longest time-to-execution bucket defined by preexisting Rule 605 (5 to 30 minutes) has 0.4% to 

0.6% of inside-the-quote NMLO executions. Therefore, these time-to-execution categories likely 

did not fully capture variations in the execution times of these orders across reporting entities. 

 

1221  See supra note 1130 for data description. This dataset includes only NMLOs submitted to exchanges that 

do not immediately execute and are subsequently posted to the limit order book. The results of this analysis 

may not reflect the execution quality of inside-the-quote NMLOs that execute immediately, e.g., against 

hidden liquidity on the limit order book. Time-to-execution is calculated as the time for order receipt to the 

first time that one or more of the order’s shares are executed. Furthermore, this dataset is from prior to the 

implementation of the MDI Rules and the distribution of orders into various NMLO categories may change 

following the implementation of the MDI Rules. See supra note 1207 and section IX.C.1.c)(2). However, it 

is not clear how a change in the distribution of orders into various NMLO categories will affect the average 

time-to-execution of these NMLO categories. 



342 

Figure 12: Distribution of NMLO Execution Times, Mar. 2023 

 

This figure plots the distribution of executed shares across different time-to-execution categories, for different categories of 

NMLOs, using data from MIDAS. Percentages are calculated as the number of shares in a given order type category that 

executed within a given time category, summed across all stocks and days in the sample, divided by the total number of executed 

shares within a given order type category, summed across all stocks and days in the sample. Execution times are calculated as the 

time of order receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the time of executability) to the first time that 

one or more of the order’s shares are executed. See supra note 1130 for dataset description and supra note 1200 for definitions of 

the NMLO categories. This analysis uses data from prior to the implementation of the MDI Rules and results may be different 

following the implementation of the MDI Rules. See supra note 1221 and section IX.C.1.c)(2). 

MIDAS data include only orders and quotes that are posted on national securities 

exchanges’ limit order books and trades that are executed against those orders,1222 and as such it 

is not possible to view the submission times (and thus calculate the time-to-execution of) market 

and marketable limit orders using MIDAS data. As a result, the above analysis is only able to 

consider the time-to-execution of on-exchange NMLOs. In order to estimate the time-to-

execution of both on- and off-exchange orders, including market and marketable limit orders, the 

Commission used the Tick Size Pilot B.I Market Quality data from April 2016 until March 

 

1222  See supra note 1130. MIDAS data include information about off-exchange trade executions, but not 

information about any off-exchange order submissions, so it is also not possible to use MIDAS data to 

calculate the time-to-execution of off-exchange orders. 



343 

2019.1223 Figure 131224 shows the distribution of time-to-execution statistics for market and 

marketable limit orders, along with the three categories of non-marketable limit orders required 

in Rule 605 reports prior to these amendments (i.e., inside-the-quote, at-the-quote, and near-the-

quote). Note that the time-to-execution categories defined in the Tick Size Pilot dataset are more 

granular than those in preexisting Rule 605.  

 

1223  See supra note 1115 for data description. As the Tick Size Pilot only collected data for small cap stocks, 

these execution times are not necessarily representative of all stocks. For example, larger market cap stocks 

are typically more liquid and likely execute faster. Also, as this is an older dataset (Apr. 2016 until Mar. 

2019), it may be that market speeds have changed since this time. However, as it is likely that market 

speeds have only gotten faster since this time period, it could represent a lower bound on execution times 

and therefore still give an idea of how relevant the preexisting Rule 605 time-to-execution buckets are for 

market and marketable limit orders. Lastly, this dataset also includes off-exchange orders, while the 

MIDAS data include only on-exchange orders, which could result in different execution times between the 

two datasets. Furthermore, this dataset is from prior to the implementation of the MDI Rules and the 

distribution of orders into various NMLO categories may change following the implementation of the MDI 

Rules. See supra note 1207 and section IX.C.1.c)(2). However, it is not clear how a change in the 

distribution of orders into various NMLO categories will affect the average time-to-execution of these 

NMLO categories. 

1224  The same figure can be found in the proposing release. See Proposing Release, 88 FR 3786 at 3853 (Figure 

12) (Jan. 20, 2023). 



344 

Figure 13: Distribution of Order Execution Times, Apr. 2016 to Mar. 2019 

 

This figure plots the distribution of execution times across different time-to-execution categories, for market orders, marketable 

limit orders, and different categories of NMLOs. Percentages are calculated as the number of shares in a given order type category that 

executed within a given time category, summed across all stocks and days in the sample, divided by the total number of executed shares within a 

given order type category, summed across all stocks and days in the sample. See supra note 1124 for dataset description and supra note 1197 for 

definitions of the NMLO categories. See supra note 1115 for dataset description and supra note 1200 for definitions of the NMLO categories. 

This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1223 and section IX.C.1.c)(2). 

Echoing the results using MIDAS data in Figure 12, Figure 13 shows that, for at-the-

quote and near-the-quote limit orders, executions are reasonably well distributed across the 

different time-to-execution buckets and there is positive volume in the longer time-to-execution 

buckets that are included in both preexisting Rule 605 and the Tick Size Pilot categorizations (30 

to 59 seconds, 60 to 299 seconds, and 5 to 30 minutes). However, similar to the results for 

inside-the-quote NMLOs, for market and marketable limit orders, execution times are mostly 

bunched up at the faster end of their time buckets; in fact, the vast majority of these orders are 

executed in under one second, falling within the shortest preexisting Rule 605 category of shares 

executed from 0 to 9 seconds. Likewise, the longer time-to-execution buckets that are included in 

both preexisting Rule 605 and the Tick Size Pilot categorizations are virtually empty. Therefore, 

as with inside-the-quote NMLOs, preexisting Rule 605 time-to-execution categories were 



345 

missing information about potential differences across reporting entities in terms of the execution 

times of the market and marketable limit orders that they handle, which has limited the 

usefulness of time-to-execution information for investors.1225 

(5) Realized Spreads 

Because of the increase in the speed at which markets operate,1226 as well as the diversity 

of size and liquidity characteristics across stocks, the requirement in preexisting Rule 605 to use 

a single five-minute benchmark to calculate realized spreads1227 may have limited the ability of 

market participants to use this measure to control for adverse selection risk when evaluating 

execution quality metrics, such as realized spreads.  

Realized spreads are calculated by comparing an order’s transaction price to the NBBO 

midpoint (i.e., an estimate of the average expected trade price) at some later time interval. 

Realized spreads can be decomposed into the difference between the effective spread, which 

captures how much a trader has to pay for (and thus how much a liquidity provider earns from) 

the immediate execution of an order, and the movement in market prices some time interval after 

 

1225  Academic literature suggests that time-to-execution information would be especially useful for institutional 

investors with short-lived private information, who profit from trading against other, slower institutions. 

See, e.g., Ohad Kadan et al., Trading in the Presence of Short-Lived Private Information: Evidence from 

Analyst Recommendation Changes, 53 J. FIN. QUANTITATIVE ANALYSIS 1509 (2018). Time-to-execution 

information would also benefit institutions that engage in market making, as one study shows these 

institutions are likely to rely on speed to reduce their exposure to adverse selection and to relax their 

inventory constraints. See Jonathan Brogaard et al., Trading Fast and Slow: Colocation and Liquidity, 28 

REV. FIN. STUD. 3407 (2015). 

1226  See supra section IX.C.3.c)(4) for a discussion of evidence of increased market trading speeds.  

1227  See prior 17 CFR 242.600(b)(9). Prior to these amendments, for buy orders, realized spread was double the 

amount of difference between the execution price and the midpoint of the NBBO five minutes after the 

time of order execution. For sell orders, realized spread was double the amount of difference between the 

midpoint of the NBBO five minutes after the time of order execution and the execution price.  



346 

a trade (i.e., price impact).1228 Liquidity providers face adverse selection risk when they 

accumulate inventory, for example, by providing liquidity to more informed traders, because of 

the risk of market prices moving away from market makers before they can unwind their 

positions.1229 Thus, price impact can be thought of as a measure of adverse selection. Liquidity 

providers will generally set effective spreads to compensate for this adverse selection risk. 

Realized spreads, as the residual between the effective spread and price impact, can thus be 

thought of as the portion of the spread that liquidity providers earn in excess of adverse 

selection.1230 Because of their inverse relationship with price impact, smaller (or even negative) 

realized spreads reflect that liquidity providers are earning less of the spread from their liquidity 

 

1228  Denoting by pt the price of a trade, dt the direction of the trade, mt the midpoint at the time of trade, and 

mt+1 at the midpoint at time t+1 following a trade, the realized spread can be calculated as (effective spread 

– price impact) = 2*dt*(pt – mt) – 2* dt *(mt+1 – mt) =  2* dt *( pt – mt+1). In preexisting Rule 605, realized 

spreads were required to be measured using the price at the time of order execution, and effective spreads 

were required to be measured using the midpoint price at the time of order receipt. To the extent that there 

were significant differences in the time of order receipt and the time of order execution, the decomposition 

of realized spreads in preexisting Rule 605 reports into effective spreads and price impact was not exact. 

The decomposition of realized spreads into effective spreads and price impact will continue to not be exact 

in the amended rule; see infra note 1484 for further discussion.  

1229  For example, if a liquidity provider provides liquidity to an informed trader, who is selling its shares 

because it knows that the share price is about to drop, the market maker will accumulate a long position in 

the stock. If the market maker were to immediately try to unwind this position in the market, the share price 

may have already dropped as a result of the realization of the informed trader’s information, and the market 

maker will have to sell at a lower price than what it paid for the shares. 

1230  See, e.g., Conrad and Wahal, supra note 544, at 240, stating that the realized spread “can be thought of as 

the residual profit to liquidity providers.” Realized spreads do not measure the actual trading profits that 

liquidity providers earn from supplying liquidity. In order to estimate the trading profits that liquidity 

providers earn, we would need to know at what times and prices the liquidity provider executed the 

offsetting position for a trade in which it supplied liquidity (e.g., the price at which the liquidity provider 

later sold shares that it bought when it was supplying liquidity). If liquidity providers offset their positions 

at a price and time that is different from the NBBO midpoint at the time lag used to compute the realized 

spread measure, then the realized spread measure is an imprecise proxy for the profits liquidity providers 

earn supplying liquidity. Differences in inventory holding periods of different liquidity providers could also 

create differences in the trading profits that liquidity providers earn that would not be captured in the 

realized spread measure if it is estimated over the same time horizon for all liquidity providers. See 

Lingyan Yang & Ariel Lohr, The Profitability of Liquidity Provision (working paper Feb. 18, 2022), 

available at https://ssrn.com/abstract=4033802 (retrieved from SSRN Elsevier database). Additionally, 

realized spread metrics do not take into account any transaction rebates or fees, including PFOF, that a 

liquidity provider might earn or pay, which would also affect the profits they earn when supplying 

liquidity.  



347 

provision, which is usually a reflection of order flow with greater adverse selection risk. 

Therefore, all else being equal, if a market center reports favorable execution quality measures 

but a low or negative realized spread, this would reflect that the market center is still providing 

liquidity even during less favorable conditions.  

Several commenters stated that realized spread is an imperfect proxy for revenue from 

liquidity provision.1231 The Commission does not claim that the realized spread is a measure of a 

firm’s overall profitability.1232 The Commission stated in the Proposing Release and reiterates 

here that, to the extent realized spreads capture adverse selection costs faced by liquidity 

providers, they provide a measure of the potential profitability of trading for liquidity 

providers.1233 In addition, the usefulness of realized spreads as a control variable for adverse 

selection does not depend on their being a measure of profitability.1234  

Realized spreads vary significantly with the chosen time horizon. An academic study 

shows that realized spreads will generally decrease as the time horizon over which they are 

calculated is lengthened, highlighting that realized spreads are highly dependent on the time 

horizon over which they are calculated.1235 The same study also finds that different time horizons 

 

1231  See, e.g., Rule 605 Citadel Letter at 8-9, stating that “the Commission’s assertion that realized spread can 

serve as a proxy for liquidity provider profitability has been thoroughly discredited, including by academic 

research” and Virtu Letter II at 12, stating that “there is a risk that such measurements are improperly used 

… as a proxy for liquidity providers’ profitability.” See also Conrad and Wahal, supra note 544, at 247. 

1232  For example, realized spreads do not account for other costs that liquidity providers may incur, such as 

fixed costs for setting up their trading infrastructure and costs for connecting to trading venues and 

receiving market data. See supra section III.B.4.a)(2) for further discussion. See also supra note 1230. 

1233  See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). 

1234  See, e.g., infra note 1506, discussing commenter support for the usefulness of realized spreads as a measure 

of order flow characteristics. 

1235  See Conrad and Wahal, supra note 544.  



348 

may be appropriate for different stocks, depending on the stock’s market capitalization.1236 One 

way to interpret the decline in realized spreads as the time horizon increases is to consider that 

information is incorporated into market prices incrementally; a longer time horizon thus means 

that more of the price impact has been realized. The profitability of a market making strategy 

increases with the speed at which market makers are able to turn over their inventory before 

adverse movements in prices.  

In order to examine how realized spreads vary with the chosen time horizon, the 

Commission analyzed realized spreads calculated over time horizons ranging from 10 

milliseconds to five minutes,1237 as well as how they differ based on market capitalization size, 

using TAQ data from Q1 2023 for a sample of 400 stocks from four different market 

capitalization groups (less than $100 million, $100 million to $1 billion, $1 billion to $10 billion, 

and over $10 billion).1238 Following the academic literature, results are presented separately for 

different market capitalization groups as a proxy for different liquidity variables, with high 

market capitalization correlating highly with higher liquidity.1239 The results are presented in 

 

1236  See id. Specifically, the authors recommend a horizon of no more than 15 seconds for large stocks and 60 

seconds for small stocks. 

1237  While the analysis of realized spreads in the Proposing Release considered only six time horizons (1 

second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 minutes), this analysis considers an additional 

four time horizons (10 milliseconds, 50 milliseconds, 100 milliseconds, and 500 milliseconds) in response 

to a commenter who recommended that realized spreads be calculated using shorter time frames 

(specifically, 50 milliseconds and 100 milliseconds). See Healthy Markets Letter at 17; see also Figure 13 

in the Proposing Release, 88 FR 3786 at 3854 (Jan. 20, 2023). 

1238  This analysis uses data from intraday TAQ Consolidated Trade files for the period of Q1 2023 for a sample 

of 400 stocks. See supra note 1129 for a description of how the sample of stocks was selected. 

1239 See, e.g., Conrad and Wahal, supra note 544, at 242: “We display many of our results separately for small- 

and large-capitalization stocks because size is so strongly correlated with liquidity variables.” 



349 

Figure 141240 and show that realized spreads tend to decrease as the time horizon increases. One 

exception is the five-minute time horizon for the largest market capitalization group, for which 

realized spread begins to increase. This may be driven by the addition of noise at this longer time 

horizon for large-cap stocks.1241  

Figure 14 also shows that, except for the largest market capitalization group, realized 

spreads tend to decline as market capitalization size increases.1242 Echoing results from the 

academic literature, the persistence of these systematic differences in realized spreads across 

market capitalization sizes implies that a time horizon that may be ideal for large cap stocks may 

not be appropriate for small cap stocks.1243  

 

1240  The TAQ data used in this analysis have been updated since the Proposing Release to account for a more 

recent time period. In addition, the methodology has been updated to include additional time horizons. See 

Proposing Release, 88 FR 3786 at 3815 (fig. 1) (Jan. 20, 2023), which presents a similar analysis that uses 

data from Feb. 2021 (see Proposing Release, 88 FR 3786 at 3854, n.706 (Jan. 20, 2023), for data 

description), and includes six time horizons (1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 

minutes); see supra note 1237. As the sample was from a different time period, the magnitudes of realized 

spreads are slightly different from those in the sample from Q1 2023. However, the updates to the dataset 

did not affect the Commission’s conclusions from this analysis relative to the Proposing Release, namely 

that realized spreads tend to decrease, for each market capitalization group, as the time horizon increases.  

1241  Conrad and Wahal also find a slight increase in realized spreads at longer time intervals. See Conrad and 

Wahal, supra note 544, figs. 1, 2. 

1242  Using data from Feb. 2021, an analysis in the Proposing Release further found that this pattern of declining 

realized spreads across increasing time horizon also held across different market centers. See Proposing 

Release, 88 FR 3786 at 3854 (fig. 13) (Jan. 20, 2023). An analysis using the updated sample of data 

described in note 1238 supra confirms that this pattern across market centers holds in Q1 2023 as well. 

1243  See, e.g., results from Conrad and Wahal, discussed in note 1236. The Commission’s analysis uses data 

from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. Specifically, the NBBO midpoint in stocks priced higher than $250 may 

be different under the MDI Rules than it was during out sample period, resulting in changes in the estimates 

for statistics calculated using the NBBO midpoint, such as realized spreads. While specific numbers might 

change, the Commission does not expect the relative variation in realized spreads across different time 

horizons to change as a result of the implementation of MDI. See supra section IX.C.1.c)(2) for further 

discussion. 



350 

Figure 14: Average Realized Spreads by Market Capitalization and Time Horizon, Q1 2023 

 

This figure plots the share-weighted average realized spread using different time horizons, across four different market 

capitalization groups (less than $100 million, $100 million to $1 billion, $1 billion to $10 billion, and over $10 billion), using 

data from TAQ. See supra note 1238 for dataset description. Measures are winsorized at the 5% and 95% level. Measures 

grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. 

This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1243 and section IX.C.1.c)(2). 

(6) Effective Spreads 

Prior to these amendments, reporting entities were not required to include information 

about the effective spreads of NMLOs in Rule 605 reports, including the effective spreads of 

midpoint-or-better NMLOs. The effective spread is calculated by comparing the trade execution 

price to the midpoint of the prevailing NBBO at the time of order receipt, which is used as an 

estimate of the stock’s value.1244 For market and marketable limit orders, the effective spread 

 

1244  See, e.g., Bjorn Hagströmer, Bias in the Effective Bid-Ask Spread, 142 J. FIN. ECON. 314 (2021); see infra 

section IX.E.3.c)(3) discussing potential issues with using the midpoint to calculate effective spreads. 



351 

captures how much more than the stock’s estimated value a trader has to pay for the immediate 

execution of its order. Like market and marketable limit orders, some at-the-midpoint and 

beyond-the-midpoint limit orders are submitted by traders with the intention of executing 

immediately, in this case against hidden or odd-lot inside-the-quote liquidity.1245 Therefore, for 

midpoint-or-better orders, effective spreads contain information that may also otherwise be 

useful to investors. 

(7) Notional Spreads (Effective and Realized) 

The fact that reports under preexisting Rule 605 contained information on average 

realized and average effective spreads only in terms of dollar amounts, and not in terms of 

percentages, made it difficult for market participants to account for differences in share prices 

when comparing across market centers.1246 While spreads in notional terms can be useful for 

participants because they can reflect a cost of (or benefit to) trading in terms that are easy to 

interpret, it is also the case that, since the effective spread is a per-share cost, the real costs to 

investors captured by the effective spread can be very different, depending on the stock price.1247 

All else being equal, spread measures tend to be higher in dollar terms for higher-priced stocks. 

 

1245  See supra section IX.C.3.c)(5) for further discussion. 

1246  In theory, market participants could also control for differences in share prices by matching up stock-level 

information from Rule 605 reports to, e.g., information on the stock’s average stock price from that month. 

However, this would require market participants who wish to control for differently priced stocks to go 

through the extra step of gathering and matching stock price information to Rule 605 data, which may be an 

unreasonable expectation, particularly for individual investors with limited resources. Furthermore, while a 

monthly average might well capture the prevailing stock price for any given execution for a stock with low 

price volatility, it might not be a good representation of the prevailing stock price for executions in stocks 

with high price volatility. 

1247  To illustrate, consider an investor that wants to acquire a $10,000 position in a $250 stock with an effective 

spread of $0.01; the investor will have to pay about $0.40 to purchase 40 shares of the stock. Now consider 

an investor who wants to acquire a $10,000 position in a $2.50 stock with an effective spread of $0.01; the 

investor would have to pay around $4.00 to acquire 400 shares. In other words, even though the dollar 

effective spread was the same, it was 10 times more expensive for the investor to accumulate a position 

worth the same dollar amount in the lower-priced stock.  



352 

As different reporting entities handle and/or transact in different mixes of stocks, this may have 

made it difficult for market participants who may want to compare reporting entities’ overall 

price performance or their performance for baskets of stocks to aggregate across effective 

spreads.1248  

Also, measuring spreads in absolute terms may lead to comparisons across reporting 

entities that do not account for potential differences in the timing of order flow, particularly for 

stocks whose prices vary significantly over the course of the monthly reporting period. For 

example, say that a stock’s price increased dramatically over the course of a month from $2.50 to 

$250 and that, by chance, Market Center A executed more order flow for that stock at the 

beginning of the month, while Market Center B executed more order flow for that stock at the 

end of the month. In its Rule 605 report for that month, Market Center A showed an average 

effective spread of $0.01, while Market Center B showed an average effective spread of $0.10. 

Measured in dollar terms, Market Center B would seem to have offered worse execution prices 

than Market Center A, since it is associated with higher effective spreads. However, relative to 

the stock price, Market Center B would actually have offered the better prices (a percentage 

effective spread of 0.04%) compared to Market Center A (a percentage effective spread of 

 

1248  While the main purpose of Rule 605 is to facilitate comparisons across reporting entities on the basis of 

execution quality within a particular security, the Commission understands that access to aggregated 

information is useful for market participants. The amendment that requires reporting entities to prepare 

summary reports that aggregate execution quality information for S&P 500 stocks, along with all NMS 

stocks, will give market participants access to aggregate effective spreads for one commonly used basket of 

stocks. Meanwhile, per-stock percentage spread information will enhance market participants’ ability to 

aggregate effective spread information across baskets of stocks other than the S&P 500. 



353 

0.4%).1249 This illustrates that a market center’s spread measures may be higher in dollar terms, 

but not necessarily because it offered worse execution performance; instead, these differences in 

spread measures may simply reflect changes in the stock’s dollar price and the timing of market 

center’s order flow. 

(8) Price and Size Improvement  

The measure of price improvement required by preexisting Rule 605 may not have 

always succeeded in capturing price improvement relative to the best available prices. Prior to 

these amendments, market centers were required to report price improvement only as the 

difference between the trade price and the NBBO. However, in cases where odd-lot volume is 

available at prices better than the NBBO, price improvement measured relative to the NBBO will 

not reflect the best available displayed prices.1250 This may have limited market participants’ 

ability to compare these measures of price improvement across market centers. For example, if a 

market center internalizes an order with $0.05 of price improvement relative to the NBBO, but 

meaningful odd-lot liquidity is available on another market center at prices that are $0.10 better 

than the NBBO, the market center would have posted a price improvement measure of $0.05, 

even though the investor could have received a better price if the market center had routed the 

order to execute against the available odd-lot liquidity available elsewhere instead of 

 

1249  To illustrate how the percentage effective spread can reflect different costs in real terms, consider if one 

customer acquired a $10,000 stake in the stock at the beginning of the month (i.e., $10,000/$2.50 = 4,000 

shares); a per-share effective spread of $0.01 means that the customer’s cost of acquiring the position 

would have been $40. Meanwhile, another customer acquired a $10,000 stake at the end of the month (i.e., 

$10,000/$250 = 40 shares); a per-share effective spread of $0.10 means that the customer’s cost would 

have been only $4. 

1250  See, e.g., Bartlett et al. (2022), supra note 33, who found that odd-lots offer better prices than the NBBO 

18% of the time for bids and 16% of the time for offers. The authors found that this percentage increases 

monotonically in the stock price, for example, for bid prices, increasing from 5% for the group of lowest-

price stocks in their sample, to 42% for the group of highest-priced stocks.  



354 

internalizing the order. As a result, in some cases, measures of price improvement in preexisting 

Rule 605 may not have accurately reflected the amount of price improvement offered by some 

market centers.1251 

Information about price improvement is different from information about whether orders 

received an execution of more than the displayed size at the quote, i.e., “size improvement.” The 

price improvement metrics required by preexisting Rule 605 do not necessarily capture a market 

center’s ability to fill orders beyond the liquidity available at the NBBO.1252 For example, 

consider a situation in which the market is $10.05 x $10.10 with 100 consolidated shares 

available at the NBO of $10.10 and 100 consolidated shares available at the next best ask price 

of $10.15. Say that a trader submits a marketable buy order for 200 shares to a market center, 

which fills the entire order at the best ask price of $10.10. The market center’s Rule 605 statistics 

would reveal a price improvement metric of $0 for this order, despite the fact that the trader 

saved money by avoiding having to walk the book, which would have resulted in a total price of 

(100 * $10.10) + (100 * $10.15) = $2,025. As a result of the market center’s ability to offer this 

“size improvement,” the trader saved an average of $10.125 - $10.10 = $0.025 per share. This 

information about execution quality would not be reflected in the market center’s price 

 

1251  One commenter stated that measures of price improvement in preexisting Rule 605 were incomplete 

because they did not include liquidity from odd-lot quotes at prices better than the NBBO. See Virtu Letter 

II at 7. 

1252  One commenter similarly stated that “price improvement figures reported under current Rule 605 

substantially understate the benefits to retail investors provided by the current market structure.” Virtu 

Letter II at 10; see also Robinhood Letter at 47, stating that the “absence [of size improvement information] 

in Current Rule 605 reports means that execution quality is significantly undercounted.” An analysis of 

data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset reveals that nearly 7% of 

orders had sizes greater than the liquidity available at the NBBO between Apr. 2016 and Mar. 2019; see 

infra note 1545 for data description. This analysis uses data from prior to the implementation of the MDI 

Rules and results may be different following the implementation of the MDI Rules. Specifically, the MDI 

Rules could result in a smaller number of shares at the NBBO for stocks in higher-priced round lot tiers, 

increasing the number of orders with sizes greater than the NBBO; see supra section IX.C.1.c)(2) for 

further discussion. 



355 

improvement statistics. The handling of orders that exceed available NBBO depth may not be a 

rare occurrence: One academic study found that, in a proprietary database consisting of orders 

handled by wholesalers, over 52% of the total shares executed in their data were from orders 

seeking to trade more shares than are available at the NBBO and that, of these trades, 83.61% 

received size improvement from wholesalers.1253  

As the Commission stated in the Rule 11Ac1-5 Adopting Release, the average effective 

spread captures some information about size improvement.1254 The effective spread is calculated 

by comparing the trade execution price with the midpoint of the NBBO, rather than with the 

NBBO itself. In this way, it captures the full range of available liquidity at a market center and 

not merely the displayed orders that determine the NBBO. The effective spread will be larger for 

orders that are larger than liquidity available at the NBBO and are required to walk the book. 

Therefore, generally speaking, a market center that offers greater size improvement will tend to 

have a lower average effective spread (i.e., these measures will be negatively correlated).1255 

 

1253  See Robert H. Battalio & Robert H. Jennings, Wholesaler Execution Quality (working paper Dec. 18, 

2023), available at https://ssrn.com/abstract=4304124 (retrieved from SSRN Elsevier database) (“Battalio 

& Jennings”). As a result, the authors estimate that incorporating information about size improvement into 

Rule 605 price improvement statistics would more than double estimates of price improvement for 

internalized orders. See Battalio & Jennings at 4. A previous version of this study was referenced by 

several commenters in support of the inclusion of size improvement information in Rule 605 reports (see, 

e.g., Citadel Letter at 11); as well as in general support of updates to Rule 605 (see, e.g., McHenry et al. 

Letter at 2; SIFMA Letter II at 20); see also Virtu Petition at 3, stating that approximately 45% of shares 

(and 54% of the value traded) filled by Virtu in 2020 were from orders that outsized the NBBO, and that 

industry-wide retail investors received approximately $7 billion in size improvement in 2020. 

1254  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75425 (Dec. 1, 2000). 

1255  For example, assume that a trader submits a marketable buy order for 100 shares to a $10.05 x $10.10 

market with 100 consolidated shares available at the NBO of $10.10 and 100 consolidated shares available 

at the next best ask price of $10.15. In this case, the effective spread would be 2 * ($10.10 – $10.075) = 

 

 

 



356 

However, as this measure contains information about both size and price, it may be difficult to 

disentangle information about size improvement from information about price improvement 

when interpreting average effective spreads.1256 Therefore, investors that particularly value the 

ability of market centers to offer size improvement, such as investors trading in larger order 

sizes, would not have been able to use the metrics contained in reports under preexisting Rule 

605 to easily discern which market center would have better handled their order according to this 

dimension of execution quality.1257 

(9) IOCs 

Under preexisting Rule 605 requirements, grouping IOCs together with other orders may 

have skewed the execution quality metrics of reporting entities that handle a large number of 

 

$0.05, reflecting that the trader had to pay an average of $0.05 more per share than the NBBO midpoint. 

Now consider the situation in which the trader instead submits a marketable buy order for 200 shares to a 

market center (“Market Center A”) that walks the order up the book. In this case the effective spread will 

be twice as high, 2 * ($10.125 – $10.075) = $0.10. This higher effective spread reflects the need for Market 

Center A to use volume beyond the best quote to fill the order. If, on the other hand, instead of walking the 

200-share order up the book, a market center (“Market Center B”) fills the entire buy order at the current 

NBO of $10.10; the effective spread would only be $0.05. The ability of Market Center B to execute an 

order for more than the displayed size at the quote is therefore reflected in an effective spread that is lower 

than that of Market Center A. 

1256  To illustrate, consider the example in supra note 1255, but, instead of 200 shares, the trader’s order was for 

100 shares and Market Center A executed the order with an average price dis-improvement of $0.025; the 

effective spread for Market Center A would similarly be $0.10. Furthermore, consider a situation in which 

the market is wider at $10.12 x $10.02 and Market Center B executes the 100-share order with an average 

price improvement of $0.025 per share, while Market Center A executes it without any price improvement. 

Both of these cases would lead to the same effective spreads (an effective spread of $0.10 for Market 

Center A, and an effective spread of $0.05 for Market Center B) as the above-described scenario in which 

Market Center B offered size improvement and Market Center A did not, but for situations in which the 

order size is less than or equal to the displayed size at the quote. 

1257  Compare the example of Market Center B offering size improvement to a 200-share order in note 1255, 

supra, to the example of Market Center B offering price improvement to a 100-share order in note 1256, 

supra. A trader that tends to submit 200-share orders would want to know a market center’s ability to offer 

the first scenario, while a trader that tends to submit 100-share orders would want to know the market 

center’s ability to offer the second scenario. However, in both examples the Rule 605 report would show an 

effective spread statistic of $0.05 for orders in the order size category of 100-499 shares, which means that 

these traders would not be able to use this statistic to discern a market center’s execution quality according 

to the dimension of execution quality that they find most valuable.  



357 

IOCs,1258 which may have hindered market participants’ ability to accurately compare execution 

quality across reporting entities. 

In an analysis in the Proposing Release, the Commission found that including IOCs along 

with other types of market and marketable limit orders may skew the execution quality of these 

other order types, particularly since IOCs make up more than 90% of market and marketable 

share volume.1259 In addition, several commenters stated that grouping non-marketable IOCs 

together with other non-marketable limit orders could skew execution quality statistics for these 

orders, since non-marketable IOCs also have different execution profiles.1260 To test the concern 

raised by these commenters, the Commission uses a sample of CAT data for 400 stocks for the 

period of Q3 2023 to refine its analysis of IOC orders to include non-marketable order types in 

addition to marketable order types.1261 The results are presented in Table 5,1262 and show that 

IOCs are a significant percentage of order flow across multiple different order types, including a 

large percentage of marketable limit order shares (92.6% for exchanges and ATSs, and 62.9% 

for wholesalers), as well as beyond-the-midpoint and at-the-midpoint shares (for exchanges and 

 

1258  See, e.g., Rule 605 Citadel Letter at 7, stating that “[a]t the moment, depending on the structure of the 

broker-dealer, these IOC orders [executed on SDPs] may be aggregated with retail orders for reporting 

purposes, even though the execution profile is very different and could negatively skew a wholesale broker-

dealer’s execution quality metrics.” 

1259  See Proposing Release, 88 FR 3786 at 3857 (tbl. 6) (Jan. 20, 2023). The analysis in the Proposing Release 

was based on the Tick Size Pilot B.II Market and Marketable Limit Order dataset. This dataset includes 

information only about market and marketable limit orders, and furthermore collected data only for small 

cap stocks.  

1260  See, e.g., FIF Letter at 13. 

1261  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1181 for information 

about how the 400-stock sample was selected and supra note 1182 for more information about the CAT 

data.  

1262  This analysis uses data from prior to the implementation of the MDI Rules and results may be different 

following the implementation of the MDI Rules. However, it is not clear how a change in the distribution 

of orders into various NMLO categories will affect the average fill rates of these NMLO categories. See 

supra section IX.C.1.c)(2). 



358 

ATSs, 35.8% and 37.9%, and, for wholesalers, 90.8% and 84.2%, respectively). This reflects that 

IOC orders are a significant component of order flow across both marketable and non-

marketable order types. In addition, IOCs indeed may have different execution quality, as, with 

the exception of market orders on exchanges and ATSs, a higher percentage of IOC orders 

execute in under one millisecond as compared to non-IOC orders. Furthermore, at wholesalers, 

IOC orders tend to have higher effective spreads and lower fill rates than non-IOC orders. This 

result supports the Commission’s understanding that IOC orders received by wholesalers are 

typically institutional orders that are pinged in the wholesalers’ SDPs to see if any contra-side 

volume is available,1263 and that commingling SDP activity with other market center activity 

under preexisting Rule 605 requirements may have obscured differences in execution quality or 

distorted the general execution quality metrics for the market center.1264 Similarly, grouping 

together IOC orders along with other types of market and marketable orders could have imposed 

a significant skew on execution quality metrics, particularly since IOCs make up a significant 

percentage of order flow. This may have impacted market centers’ incentives to achieve better 

execution quality for these orders prior to these amendments.1265 

 

 

1263  See, e.g., Rule 605 Citadel Letter at 7, stating that “[m]any wholesale broker-dealers execute immediate-or-

cancel (‘IOC’) orders for non-retail investors (including pension plans, insurance companies, and other 

asset managers), particularly through the use of a single-dealer platform (‘SDP’).” 

1264  See supra section IX.C.3.a)(2) for further discussion of commingling SDP activity with other market center 

activity. 

1265  For example, if, prior to these amendments, a market center’s Rule 605 reports revealed low fill rates for 

market orders simply because it handled a large amount of marketable IOCs, it may not have been 

incentivized to improve its fill rates for other types of market orders since the higher fill rates of these 

orders would be obscured by the low fill rates of marketable IOCs. 



359 

Table 5: Immediate-Or-Cancel (IOC) Share Volume and Execution Quality,  

Q1 2023 

Exchanges 
and ATSs 

Volume 
(% Of 
Total 
Share 

Volume
) 

IOC 
Volume 

(% Of 
Share 

Volume
) 

Fill 
Rate 
(%) 

(IOC
) 

Fill 
Rate 
(%) 

(non
-IOC) 

Execution
s Under 1 

ms (%) 
(IOC) 

Execution
s Under 1 

ms (%) 
(non-IOC) 

Effectiv
e 

Spread 
($) 

(IOC) 

Effectiv
e 

Spread 
($) 

(non-
IOC) 

Market <0.01% 22.3% 47.1% 94.9% 22.5% 52.6% $0.0483 $0.0641 

Marketable 
Limit 

10.3% 92.6% 14.3% 11.6% 98.1% 80.5% $0.0487 $0.0362 

Beyond-the-
Midpoint 

2.2% 35.8% 0.6% 0.1% 78.2% 73.5% $0.0165 $0.0581 

At-the-
Midpoint 

2.0% 37.9% 2.9% 1.8% 98.1% 43.5% -$0.0014 -$0.0004 

Below-the-
Midpoint 

49.6% 4.7% 0.4% 0.1% 95.0% 16.5% -$0.0954 -$0.1277 

At-the-Quote 35.9% 13.3% 0.2% 1.0% 89.1% 6.5% -$0.0291 -$0.0513 

Wholesaler
s 

Volume 
(% Of 
Total 
Share 

Volume
) 

IOC 
Volume 

(% Of 
Share 

Volume
) 

Fill 
Rate 
(%) 

(IOC
) 

Fill 
Rate 
(%) 

(non
-IOC) 

Execution
s Under 1 

ms (%) 
(IOC) 

Execution
s Under 1 

ms (%)  
(non-IOC) 

Effectiv
e 

Spread 
($) 

(IOC) 

Effectiv
e 

Spread 
($) 

(non-
IOC) 

Market 28.1% 0.2% 31.7% 94.9% 85.4% 11.0% $0.0438 $0.0344 

Marketable 
Limit 

26.9% 62.9% 18.3% 74.3% 49.3% 8.1% $0.0420 $0.0319 

Beyond-the-
Midpoint 

3.2% 90.8% 4.2% 66.8% 29.0% 12.6% $0.1066 $0.0682 

At-the-
Midpoint 

2.3% 84.2% 2.3% 50.2% 35.5% 7.0% -$0.0010 -$0.0005 

Below-the-
Midpoint 

6.9% 65.3% 1.5% 7.7% 12.6% 3.3% -$0.1867 -$0.1175 

At-the-Quote 32.6% 67.0% 0.9% 11.4% 73.4% 1.6% -$0.0213 -$0.0354 

This table shows the breakdown of the percentage of share volume across market, marketable limit, and three categories of 

non-marketable limit (beyond-the-midpoint, at-the-midpoint, below-the-midpoint, and at-the-quote) orders as percentages of 

order flow in terms of share volume, as well as the percentage of share volume of these order types that are submitted with 

IOC instructions. Also presented are fill rates (calculated as the number of shares executed, summed across all stocks and days 

in the sample, divided by the number of shares submitted, summed across all stocks and days in the sample), the percentage of 

executed orders that execute in less than one millisecond (calculated as the number of shares executed in less than one 

millisecond summed across all stocks and days, as a percentage of the total number of executed orders summed across all 

stocks and days), and share-weighted effective spreads (calculated as two times the signed difference between the midpoint 

and the execution price). Share weights are calculated as the number of executed shares in an order divided by the total 

number of executed shares summed across stocks and all days in the sample. These metrics are calculated and presented 

separately for IOC and non-IOC orders, and for Wholesalers and for Exchanges/ATSs. The results are obtained using a 

sample of CAT data for 400 stocks for Q1 2023. See supra note 1261 for data description and supra note 1200 for definitions 

of the NMLO categories. As discussed in supra note 1182, this analysis excludes some orders, including orders with certain 

handling codes and ATS-specific order types that were determined to not be eligible for Rule 605 reporting. This analysis uses 

data from prior to the implementation of the MDI Rules and specific numbers reported may be different following the 

implementation of the MDI Rules. See supra note 1262 and section IX.C.1.c)(2). 



360 

(10) Riskless Principal Orders 

The preexisting Rule 605 reporting requirements for riskless principal transactions1266 has 

led to the duplicative reporting of these orders and has created uncertainty about how many 

orders are internalized by off-exchange market centers, particularly wholesalers.  

In a riskless principal transaction, a market center routes a principal order to a second 

market center, typically an exchange or ATS, in order to fulfill a customer order; upon execution 

at the second market center, the first market center executes the customer transaction on the same 

terms as it received from the principal execution at the second market center. Both prior to and 

after these amendments, the second (executing) market center in this example will be required to 

report this transaction as having been executed at the market center under Rule 605(a)(1)(i)(D). 

However, prior to these amendments, the first (routing) market center will also report the riskless 

principal transaction under prior Rule 605(a)(1)(i)(D), rather under Rule 605(a)(1)(i)(E) 

(cumulative number of shares of covered orders executed at any other venue)1267  

Particularly in the case of riskless principal transactions that are handled by wholesalers, 

grouping transactions that are handled on a riskless principal basis together with other orders 

 

1266  In effecting riskless principal transactions, a market center submits a principal order to another market 

center in order to fulfill a customer order. Upon execution at the away market center, the receiving market 

center executes the customer transaction on the same terms as the principal execution. See Securities 

Exchange Act Release No. 47364 (Feb. 13, 2003), 68 FR 8686 at 8690, n.33 (Feb. 24, 2003) (generally 

describing riskless principal transactions “as trades in which, after receiving an order to buy (or sell) from a 

customer, the broker-dealer purchases (or sells) the security from (or to) another person in a 

contemporaneous offsetting transaction”). 

1267  See supra note 684 and accompanying text. In contrast, for the purposes of SIP reporting, the away market 

center is required to report the principal transaction to the tape, while the receiving market center would 

post a non-tape (regulatory or clearing-only) report to reflect the offsetting riskless customer transaction. 

When the initial leg of the transaction takes place on and is reported through an exchange, members are 

instructed not to report the customer transaction for public dissemination purposes, as that would result in 

double (tape) reporting of the same transaction. See Trade Reporting Frequently Asked Questions, answers 

to Questions 302.2 and 302.4, FINRA, available at https://www.finra.org/filing-reporting/market-

transparency-reporting/trade-reporting-faq (last updated 2024).361 

executed at the market center under prior Rule 605(a)(1)(i)(D) has obscured information about 

the extent to which wholesalers internalize orders. Wholesalers primarily choose between two 

options to execute the individual investor orders that they handle: they either internalize orders 

by executing orders against their own inventory, or they execute orders on a riskless principal 

basis.1268 While wholesalers’ internalized orders are not exposed to competition from other 

interested parties quoting on external market centers, their riskless principal executions expose 

individual investor orders to trading interest from market participants other than the wholesaler, 

which has potential implications for differences in execution quality between these two order 

types. Prior to these amendments to Rule 605, both types of orders would be categorized together 

as orders executed at the market center under prior Rule 605(a)(1)(i)(D), so market participants 

would not be able to tell from Rule 605 reports whether a wholesaler internalizes the majority of 

its individual investor order flow, or executes the majority as riskless principal. Thus, key 

information that would be useful for investors (particularly individual investors, whose orders 

are overwhelmingly handled by wholesalers1269) when interpreting and comparing information 

about wholesalers’ execution quality has not been available from Rule 605 reports. 

d) Accessibility of Rule 605 Reports 

Rule 605 requires market centers to post their monthly reports on an internet website that 

is free of charge and readily accessible to the public.1270 In order to collect a complete or mostly 

 

1268  See infra section IX.C.4.b) for further discussion of the market for trading services, which includes 

wholesalers. 

1269  See, e.g., Proposing Release, 88 FR 3786 at 3839, n.614 (Jan. 20, 2023), describing a Commission analysis 

of Rule 606 reports that showed that, in Q1 2022, a sample of 46 retail broker-dealers routed 87.3% of 

orders in S&P 500 stocks and 87.9% of orders in non-S&P 500 stocks to wholesalers, as compared to 9.1% 

and 8.5%, respectively, to national securities exchanges. 

1270  See prior 17 CFR 242.605(a)(2) (requiring market centers to make their Rule 605 reports “available for 

downloading from an Internet Web site that is free and readily accessible to the public….”). 



362 

complete set of Rule 605 reports to, for example, select the reporting entity offering the best 

execution quality in a given stock, a market participant may incur search costs.1271 The process 

of collecting Rule 605 reports may be simplified by the NMS Plan’s requirement that each 

market center must designate a single Participant to act as the market center’s Designated 

Participant, who is tasked with maintaining a comprehensive list of the hyperlinks provided by 

its market centers.1272 Furthermore, certain reporting entities’ use of third-party vendors to 

prepare and/or collect Rule 605 reports may also simplify the process of collecting Rule 605 

reports, as these vendors typically maintain a centralized repository of the reports that they 

handle.1273 There is no system or requirement, and the Commission is not adopting such a 

requirement, for the centralized posting of Rule 605 reports.1274 

Rule 605 reports are designed to be machine readable, rather than human readable. While 

machine-readable data are useful for facilitating further processing and analysis, they are not 

easily consumable by market participants who do not have the access to necessary software or 

programming skills. Prior to these amendments, this may have limited the accessibility of Rule 

 

1271  One commenter stated that the current system for accessing Rule 605 reports is difficult. See BlackRock 

Letter at 4, stating that “[c]urrently, accessing Rule 605 reports can be an onerous and time-consuming 

process for investors because it is widely dispersed across numerous market center websites where reports 

can be difficult to locate and retrieve.” 

1272  See Section VIII of the Rule 605 NMS Plan. For a description of “Designated Participant” as defined in the 

Plan, see supra note 869. 

1273  See, e.g., Disclosure of SEC – Required Order Execution Information, S&P GLOBAL, available at 

https://vrs.vista-one-solutions.com/sec605rule.aspx (last visited Jan. 30, 2024, 4:22 p.m.).  

1274  In May 2023, FINRA requested comment on whether to require its members to provide Rule 605 reports to 

FINRA for centralized publication. See FINRA Regulatory Notice 23-10 (May 31, 2023) (“Regulatory 

Notice”). FINRA stated in the Regulatory Notice that the proposed requirement to provide Rule 605 reports 

to FINRA would supplement, not replace, firm’s current obligations under Rule 605. See Regulatory 

Notice at 3. Comments received on FINRA Regulatory Notice 23-10 are available at 

https://www.finra.org/rules-guidance/notices/23-10#comments.  



363 

605 reports, particularly for those individual investors who may be less likely to have access to 

these resources.1275  

4. Markets for Brokerage and Trading Services for NMS Stocks under 

Preexisting Rule 605 Disclosure Requirements 

a) Brokerage Services for NMS Stocks 

(1) Current Structure of the Market for Brokerage Services 

Based on information from broker-dealers’ FOCUS Report Form X-17A-5 Schedule II, 

there were 3,494 registered broker-dealers as of Q2 2023.1276 A portion of these broker-dealers 

focus their business on individual and/or institutional investors in the market for NMS stocks.1277 

These include both carrying broker-dealers, who maintain custody of customer funds and 

securities, and introducing broker-dealers, who accept customer orders and introduce their 

customers to a carrying broker-dealer that will hold the customers’ securities and cash.1278 The 

Commission estimates that there are approximately 153 broker-dealers that carry at least one 

 

1275  See supra section IX.C.2 for further discussion. 

1276  The Proposing Release, which used information from broker-dealers’ FOCUS Report Form X-17A-5 

Schedule II as of Q2 2022, found that there were 3,498 registered broker-dealers. See Proposing Release, 

88 FR 3786 at 3858 (Jan. 20, 2023).  

1277  Some broker-dealers service only the accounts of other brokers, which are excluded from the definition of 

customers. See supra note 89 for a definition of “customer.”  

1278  See supra note 98 for a description of introducing and carrying broker-dealers. Some firms operate a hybrid 

introducing/carrying broker-dealer by introducing on a fully disclosed basis to a carrying broker-dealer 

those customers that trade securities for which the broker-dealer is not prepared to provide a full range of 

services. See, e.g., Securities Exchange Act Release No. 70073 (Aug. 21, 2013), 78 FR 51910 at 51911, 

51949, and 51968 (Aug. 21, 2013). 



364 

customer trading in NMS stocks,1279 and 1,092 broker-dealers that introduce at least one 

customer trading in NMS stocks.1280 

The high level of fragmentation of NMS stock trading1281 means that broker-dealers have 

a variety of choices for order routing and execution, and the venue that a broker-dealer chooses 

may have a tangible effect on the execution quality of an order. A broker-dealer has a legal duty 

to seek best execution of customer orders. The duty of best execution predates the Federal 

securities laws and is derived from an implied representation that a broker-dealer makes to its 

customers.1282 The duty is established from “common law agency obligations of undivided 

loyalty and reasonable care that an agent owes to [its] principal.”1283 This obligation requires that 

a “broker-dealer seek to obtain for its customer orders the most favorable terms reasonably 

available under the circumstances.”1284 

The Commission understands that the structure of the market for brokerage services can 

broadly be separated into two distinct markets – brokerage services for individual investors on 

 

1279  This number is based on the number of broker-dealers that report carrying at least one customer on their 

2022 FOCUS Schedule I reports. The Proposing Release found the same number using 2021 FOCUS 

Schedule I reports. See Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1280  This number is based on estimates using broker-dealers FDIDs identified in CAT data for NMS stocks 

during the 2022 calendar year. See infra note 1743 for a discussion of the data and methodology for 

identifying introducing broker-dealers. The Proposing Release, using CAT data for the 2021 calendar year, 

found that 1,110 broker-dealers introduced at least one customer trading in NMS stocks and options. See 

Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1281  See infra section IX.C.4.b)(1) for a breakdown of trading in NMS stocks across various types of trading 

venues. 

1282  See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir.), cert. denied, 

525 U.S. 811 (1998). 

1283  See id. 

1284  See id.; see also Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12, 

1996) (“Order Execution Obligations Adopting Release”). A Report of the Special Study of Securities 

Markets stated that “[t]he integrity of the industry can be maintained only if the fundamental principle that 

a customer should at all times get the best available price which can reasonably be obtained for him is 

followed.” SEC Report of the Special Study of Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess. 

Pt. II, 624 (1963) (“Special Study”).  



365 

the one hand, and brokerage services for institutional investors on the other – that differ 

somewhat in terms of their market structure. 

(a) Brokerage Services for Individual Investors 

As of the end of 2022, there were approximately 1,006 registered broker-dealers that 

originated orders on behalf of individual investors in the market for NMS stocks.1285 Unlike 

institutional investors, individual investors generally use a single broker to handle their orders. 

Retail brokers can broadly be divided into “discount” brokers and “full-service” brokers.1286 

Competition among discount brokers for the business of individual investors in particular has 

recently resulted in many new entrants and a decline in commissions to zero or near zero.1287 

Instead of commissions on certain transactions, these discount brokers earn revenue through 

other means, including, among other products and services, interest on margin accounts and from 

lending securities, as well as broker-wholesaler arrangements involving PFOF paid by the 

wholesaler to the retail broker. Discount broker-dealers can distinguish themselves by the 

 

1285  This number is estimated using the CAT data described infra in note 1743. Individual investor accounts are 

identified in CAT as accounts belonging to the “Individual Customer” account type, defined as accounts 

that do not meet the definition of “institution” in FINRA Rule 4512(c) and are also not proprietary 

accounts. See supra note 1144 for more information about account types in CAT. A similar analysis in the 

Proposing Release found that there were 1,037 registered broker-dealers that originated individual customer 

account orders in the market for NMS stocks at the end of 2021. See Proposing Release, 88 FR 3786 at 

3859 (Jan. 20, 2023). 

1286  There is not necessarily a precise delineation between full-service and discount brokers. Discount brokers 

generally provide execution-only services, typically at a reduced or zero commission rate. Full-service 

brokers (as they are commonly called) typically charge commissions in exchange for a package of services, 

including execution, incidental investment advice, and custody. See, e.g., Interpretive Rule Under the 

Advisers Act Affecting Broker-Dealers, Advisers Act Release No. 2652 (Sept. 24, 2007), 72 FR 55126 at 

55127, n.2, 55129, n.20 (Sept. 28, 2007). 

1287  See, e.g., Samuel Adams & Connor Kasten, Retail Order Execution Quality Under Zero Commissions 

(working paper Jan. 7, 2021), available at https://ssrn.com/abstract=3779474 (retrieved from SSRN 

Elsevier database), describing how “on October 1st, 2019, Charles Schwab announced that they would cut 

commissions from $4.95 per trade to zero on all retail trades starting on October 7th. Within hours, TD 

Ameritrade followed by announcing they would cut commissions to zero from $6.95 beginning on October 

3rd. By January 3rd, Vanguard, Fidelity, and E*TRADE had joined the trend in offering free equity trades 

for retail investors.” 



366 

accessibility and functionality of their trading platform, which can be geared towards less 

experienced or more sophisticated investors, and by providing more extensive customer service 

as well as tools for research and education on financial markets.  

Investors may incur switching costs when changing broker-dealers, such as the cost of 

withdrawing or transferring funds and potential administrative fees. Switching broker-dealers 

could also involve time delays resulting in lost investment opportunities or revenues and other 

opportunity costs.1288 Furthermore, some customers that rely on broker-dealers’ non-execution-

related services, such as providing recommendations, holding customers’ funds and securities 

and/or providing analyst research, may find it more costly to switch broker-dealers, as these 

services would be more difficult to transfer across broker-dealers. However, the Commission 

understands that some broker-dealers, including some that cater to individual investors, will 

compensate new customers for transfer fees that their outgoing broker-dealer may charge them, 

which will result in lower (or even zero) switching costs.1289  

(b) Brokerage Services for Institutional Investors 

As of the end of 2022, there were approximately 837 registered broker-dealers that 

originated institutional orders in the market for NMS stocks.1290 One feature that distinguishes 

 

1288  See, e.g., Understanding the Brokerage Account Transfer Process, FINRA, available at 

https://www.finra.org/investors/learn-to-invest/brokerage-accounts/understanding-brokerage-account-

transfer-process (last visited Jan. 30, 2024, 4:30 p.m.).  

1289  See, e.g., Chad Morris, ACAT Fee: Account Transfer Fee in 2024, BROKERAGE-REVIEW.COM, available at 

https://www.brokerage-review.com/discountbroker/acat-account-transfer-fees.aspx (last updated Nov. 16, 

2023) (providing a list of fees for different brokers). 

1290  This number is estimated using the CAT data described in infra note 1743. Institutional investor accounts 

are identified in CAT as accounts belonging to the “Institutional Customer” account type, defined as 

accounts that meet the definition in FINRA Rule 4512(c). See supra note 1144 for more information about 

account types in CAT. A similar analysis in the Proposing Release found that there were 909 registered 

broker-dealers that originated institutional customer account orders in the market for NMS stocks at the end 

of 2021. See Proposing Release, 88 FR 3786 at 3859 (Jan. 20, 2023). 



367 

the market for institutional brokerage services is that a significant portion of institutional investor 

orders are generally “not held” orders.1291 A broker-dealer has time and price discretion in 

executing a not held order, and institutional investors in particular rely on such discretion for 

various reasons including minimizing price impact.1292 Due to the large size of institutional 

trading interests, broker-dealers will often split orders when handling their orders, often through 

the use of SORs. Specifically, a broker-dealer or its SOR will split up a “parent” order into 

multiple “child” orders, with the goal of executing the child orders in a way that achieves the 

best execution for the parent order.1293 For example, a broker-dealer might not execute a child 

order at the best price, if doing so could result in a larger price impact and increases the overall 

cost of working a parent order. For this reason, most institutional parent orders are handled by 

broker-dealers on a not held basis, which would exclude these orders from Rule 605 execution 

quality disclosure requirements.1294 However, since 2018, broker-dealers are required by Rule 

606(b)(3) to provide individualized reports of execution quality of not held orders upon 

request.1295 

 

1291  See supra note 1002 discussing an analysis showing that institutional investors are more likely than 

individual investors to use not held orders. 

1292  See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58343 (Nov. 19, 2018). Meanwhile, a broker-

dealer must attempt to execute a held order immediately, which typically better suits individual investors 

who seek immediate executions and rely less on broker-dealer order handling discretion. 

1293  See Tyler Beason & Sunil Wahal, The Anatomy of Trading Algorithms (working paper Jan. 21, 

2021), available at https://ssrn.com/abstract=3497001 (retrieved from SSRN Elsevier database) (“Beason & 

Wahal”). 

1294 Some child orders may be held orders and thus will be required to be included in Rule 605 reports. See 

supra note 4 (discussing held and not held orders).  

1295  See supra note 1003 and accompanying text discussing broker-dealer requirements under Rule 606(b)(3) to 

provide individualized reports of execution quality upon request for not held orders. 



368 

The Commission understands that some investors, particularly some institutional 

investors, are likely to use multiple broker-dealers,1296 which could lead to lower switching costs. 

For example, a customer that is unhappy with one broker-dealer could use one of its other 

broker-dealers to handle those orders, providing that this does not raise other costs.  

(2) Competition among Broker-Dealers on the Basis of 

Execution Quality 

Broker-dealers compete with one another along a variety of dimensions,1297 including the 

execution quality that they offer, and make their execution quality known in a variety of ways. 

For example, at least one broker-dealer published execution quality reports using the FIF 

template,1298 and furthermore some broker-dealers disclose their own execution quality metrics 

on their websites.1299 Broker-dealers may seek to improve their competitive position on the basis 

of execution quality by, for example, investing in the speed and quality of their routing 

technology. Broker-dealers may also compete on the basis of execution quality by reevaluating 

their routing strategies to increase the extent to which they route orders to the market centers 

offering better execution quality. 

When making routing decisions, some broker-dealers may face conflicts of interest that 

arise when their interests are not aligned with their customers’ interest in receiving better 

 

1296  For example, one academic paper finds that institutional investors tend to break up larger orders and spread 

them out across multiple broker-dealers, as a strategy to avoid information leakage. See, e.g., Munhee Han 

& Sanghyun (Hugh) Kim, Splitting and Shuffling: Institutional Trading Motives and Order Submissions 

Across Brokers (working paper Sept. 30, 2020), available at https://ssrn.com/abstract=3429452 (retrieved 

from SSRN Elsevier database). 

1297  For example, broker-dealers may compete by charging lower commissions for trading, or by offering a 

wider range of services or functionalities, such as trading in additional asset classes such as options. 

1298  See supra note 973. 

1299  See id. for examples. 



369 

execution quality.1300 These conflicts of interest could result, for example, from broker-dealer 

affiliations with market centers. Some broker-dealers operate or are otherwise affiliated with 

ATSs, which may present a possible conflict of interest relative to their customers’ interests if 

these broker-dealers give preference to routing orders to their own ATSs, where they typically 

pay lower transaction fees, even if their customer would have received better execution quality if 

the order were routed to another trading venue. One academic study found that certain broker-

dealers that route more orders to their affiliated ATSs are associated with lower execution 

quality.1301 Similarly, the presence of liquidity fees and rebates at some market centers may 

incentivize broker-dealers to make routing decisions based on where they can receive the highest 

rebate (or pay the lowest fee), rather than where they can receive better execution quality on 

behalf of their customer.1302 For example, a recent research paper analyzed the relationship 

between maker-taker fee schedules and order routing, and found a negative relation between take 

fees and limit order execution quality.1303 Another potential conflict of interest, particularly with 

regard to individual investor order flow, includes the receipt of PFOF, which may result in 

 

1300  See supra section IX.C.3.a)(1). 

1301  See Amber Anand et al., Institutional Order Handling and Broker-Affiliated Trading Venues, 34 REV. FIN. 

STUDIES 3364 (2021). 

1302  See, e.g., Robert H. Battalio et al., Can Brokers Have It All? On the Relation Between Make-Take Fees and 

Limit Order Execution Quality, 71 J. FIN. 2193 (2016). 

1303  See id. The authors “document a strong negative relation between take fees and several measures of limit 

order execution quality. Based on this evidence, [they] conclude that the decision of some national 

brokerages to route all nonmarketable limit orders to a single exchange paying the highest rebate is not 

consistent with the broker’s responsibility to obtain best execution for customers.” 



370 

broker-dealers routing orders to wholesalers as a result of the terms of the PFOF 

arrangements.1304 

If information asymmetries, such as those resulting from insufficient public information 

about broker-dealer execution quality,1305 prevent investors from observing differences in 

execution quality across broker-dealers, this limits the extent to which broker-dealers need to 

compete on the basis of execution quality.  

b) Trading Services for NMS Stocks 

(1) Current Structure of the Market for Trading Services 

Trading services for NMS stocks are highly fragmented among different types of market 

centers.1306 Table 61307 shows that in Q1 of 2023, NMS stocks were traded on 16 national 

securities exchanges and off-exchange at 33 NMS Stock ATSs and at 228 other FINRA 

members, including 6 wholesalers that internalize the majority of individual investor marketable 

 

1304  The study by Schwarz et al. (2023), supra note 1064, does not find a relationship between the amount of 

PFOF a retail broker receives and the amount of price improvement its customers’ orders receive. 

However, the authors stated that the variation in the magnitude of price improvement they saw across retail 

brokers was significantly greater than the amount of PFOF the retail broker received, which could indicate 

their sample was not large enough to observe a statistically significant effect. Lynch (2022) reports a broker 

deriving high PFOF revenues provides small price improvements to customer orders, while a broker 

deriving low PFOF revenue offers large price improvement. See supra note 1064. 

1305  See supra section IX.C.3.a)(1) discussing broker-dealers’ execution quality reporting requirements prior to 

these amendments to Rule 605. 

1306  Some academic studies attribute the highly fragmented nature of this market to implementation of 

Regulation NMS. See, e.g., Maureen O’Hara & Mao Ye, Is Market Fragmentation Harming Market 

Quality?, 100 J. FIN. ECON. 459 (2011); Amy Kwan et al., Trading Rules, Competition for Order Flow and 

Market Fragmentation, 115 J. FIN. ECON. 330 (2015). 

1307  The data used in this analysis have been updated from the Proposing Release for a more recent time period. 

See Proposing Release, 88 FR 3786 at 3861 (tbl. 7) (Jan. 20, 2023), which presents the same statistics for 

Q1 2022. They are comparable to those for Q1 2023. Therefore, changes to the MIDAS dataset did not 

affect the Commission’s conclusions from this analysis. 



371 

orders.1308 During Q1 of 2023, an average of over 11.7 billion shares ($522 billion notional) were 

traded daily in NMS stocks.1309 National securities exchanges executed approximately 56% of 

total share volume in NMS stocks (59% of total notional volume), while off-exchange market 

centers executed approximately 44% of total share volume (41% of total notional volume).1310 

The majority of off-exchange volume is executed by wholesalers, who execute over one quarter 

of total share volume (26.9%) and about 61% of off-exchange volume. Some OTC market 

makers, such as wholesalers, operate SDPs through which they execute institutional orders in 

NMS stocks against their own inventory.1311 SDPs accounted for approximately 4% of total 

trading volume in Q1 2023.1312 As of June 2023, the Commission estimates that there are 

currently 228 market centers to which Rule 605 applies.1313 

 

1308  See Concept Release on Equity Market Structure, 75 FR 3594 at 3598-3600 (Jan. 21, 2010) (for a 

discussion of the types of trading centers); see also Form ATS-N Filings and Information (Modified Jan. 

18, 2024), available at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm. These wholesalers 

were determined based on marketable order routing information from retail broker Rule 606(a)(1) reports. 

1309  Average daily share and notional trading volume in NMS stocks are based on CBOE Market Volume Data 

on monthly share volume executed on each exchange available at: 

https://cboe.com/us/equities/market_statistics/historical_market_volume/. 

1310  This analysis uses data from prior to the implementation of the MDI Rules. The implementation of the MDI 

Rules may result in a change in the flow of orders across trading venues, which may result in numbers that 

are different from those reported here. However, the Commission is uncertain of the magnitude of these 

effects. See supra section IX.C.1.c)(2) for further discussion.  

1311  See Rosenblatt Securities, US Equity Trading Venue Guide (2023). Wholesalers and OTC market makers 

can execute orders themselves or route orders to be executed on other venues. An SDP always acts as the 

counterparty to any trade that occurs on the SDP. See, e.g., Where Do Stocks Trade?, FINRA (Dec. 3, 

2021), available at https://www.finra.org/investors/insights/where-do-stocks-trade. 

1312  See Rosenblatt Securities, US Equity Trading Venue Guide (2023). 

1313  See supra section VIII.C for a discussion of this estimate. Some market centers may not be required to 

prepare Rule 605 reports, for example, if they do not handle any covered orders.  



372 

Table 6: NMS Stock Traded Share Volume Percentage by Market Center Type 

Market Center Type Venue Count 

Share Volume 

(% of Total 

Volume) 

Off-Exchange 

Share Volume 

(% of Total 

Off-Exchange) 

NMS Stock ATSs 33 10.7% 24.2% 

National Securities Exchanges 16 55.9%  - 

Wholesalers 6 26.9% 60.9% 

Other FINRA Members 222 6.6% 15.0% 

This table reports the percentage of all NMS stock executed share volume and the percentage of NMS stock share 

volume executed off-exchange for different types of market centers for Q1 2023, including the number of venues in each 

market center category. Exchange share volume and total market volume are based on CBOE Market Volume Data on 

monthly share volume executed on each exchange available at: 

https://cboe.com/us/equities/market_statistics/historical_market_volume/. NMS Stock ATS, wholesaler and FINRA 

member share volume are based on monthly data from FINRA OTC (Non-ATS) Transparency Data Monthly Statistics, 

available at: https://otctransparency.finra.org/otctransparency/OtcData; and FINRA ATS Transparency Data Monthly 

Statistics, available at: https://otctransparency.finra.org/otctransparency/AtsBlocksDownload. This analysis uses data 

from prior to the implementation of the MDI Rules and specific numbers reported may be different following the 

implementation of the MDI Rules. See supra note 1310 and section IX.C.1.c)(2). 

Market centers’ primary customers are the broker-dealers that route their own orders or 

their customers’ orders for execution at the trading venue, and market centers compete with each 

other for their members’ customers’ flow on a number of dimensions, including execution 

quality. Broker-dealers may face switching costs from changing the primary trading venues to 

which they route orders. For example, the extent to which broker-dealers may have arrangements 

to route orders to specific market centers could hamper their ability to switch trading venues.1314 

Incentives related to the common practice across national securities exchanges of setting fee and 

 

1314  In addition, one commenter stated that switching costs for broker-dealers “could be for the time and cost of 

monitoring, limits imposed on maximum or minimum market share, technology limitations, and so forth.” 

Huang et al. Letter at 7.  



373 

rebate schedules where specific tiers are determined by execution volume1315 may also make it 

difficult for broker-dealers to transfer order flow between market centers,1316 particularly intra-

month as exchange volume-based transaction pricing is assessed on a monthly basis. Volume-

based tiering gives broker-dealers an incentive to concentrate orders on a given exchange, not 

because that exchange may offer the best execution quality but because doing so can allow a 

broker-dealer to execute sufficient volume on the exchange to qualify for a better tier and receive 

a lower fee or higher rebate. In addition, for national securities exchanges, upfront connectivity 

fees associated with establishing a connection to a new exchange could also discourage 

switching.  

While national securities exchanges cater to a broader spectrum of investors, ATSs and 

OTC market makers, including wholesalers, tend to focus more on providing trading services 

either for institutional or for individual investor order flow. For example, an analysis of retail 

brokers’ routing practices showed that a group of six wholesalers handled more than 87% of the 

customer orders of retail brokers in Q1 2022.1317 Meanwhile, SDPs are mainly used for the 

 

1315  Some national securities exchanges typically currently use volume calculated on a monthly basis to 

determine the applicable threshold or tier rate. See, e.g., fee schedules of NASDAQ PSX (Adopted Feb. 3, 

2020), available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Equity%207 (as of July 

2022) (calculating fees based on “average daily volume during the month”); and Cboe EDGA, EDGA 

Equities Fee Schedules (Effective Jan. 2, 2024), available at 

https://www.cboe.com/us/equities/membership/fee_schedule/edga/ (as of Apr. 1, 2022) (calculating fees 

based on “average daily volume” and “daily volume” on a monthly basis). 

1316  The Commission recently proposed to prohibit national securities exchanges from offering volume-based 

transaction pricing in connection with the execution of agency-related orders in certain stocks. See 

Securities Exchange Act Release No. 98766, 88 FR 76282 (Nov. 6, 2023) (Volume-Based Exchange 

Transaction Pricing for NMS Stocks). 

1317  See Proposing Release, 88 FR 3786 at 3861, n.772 (Jan. 20, 2023) and accompanying text. 



374 

execution of institutional orders, to potentially reduce the order’s price impact and avoid 

triggering significant reactions by other market participants.1318  

(2) Competition between Trading Venues on the Basis of 

Execution Quality 

Trading venues compete with one another on the basis of the execution quality that they 

offer, as well as on the basis of other potential factors.1319 As discussed above, Rule 605 reports 

have been a useful proxy that investors and their broker-dealers can use to assess and compare 

the execution quality that they can expect to receive across market centers,1320 and there is 

evidence that broker-dealers factor in information about the execution quality of market centers 

from Rule 605 reports when making their order routing decisions. One academic study attributes 

a significant decline in effective and quoted spreads following the implementation of Rule 605 to 

an increase in competition among market centers, which improved the execution quality that they 

offered in order to attract more order flow.1321 Market centers may seek to improve their 

competitive position on the basis of execution quality by, for example, investing in the speed and 

quality of their execution technology. 

 

1318  See, e.g., Yashar H. Barardehi, et al., Internalized Retail Order Imbalances and Institutional Liquidity 

Demand (working paper revised Jan. 2, 2023), available at https://ssrn.com/abstract=3966059 (retrieved 

from SSRN Elsevier database). 

1319  For example, national securities exchanges may adjust fees and rebates to incentivize broker-dealers to 

route more order flow to them. The use of liquidity rebates has also allowed national securities exchanges 

to compete with each other and with off-exchange market centers for order flow. Specifically, to the extent 

that the liquidity rebates facilitate more competitive quotes by liquidity providers (which may or may not 

occur for stocks that are neither tick-constrained nor thinly traded, but rather are priced at a level where a 

rebate of approximately $0.0030 could influence a displayed quote), these rebates can make it more 

expensive to offer price improvement over the displayed NBBO. See Transaction Fee Pilot for NMS 

Stocks, 84 FR 5202 at 5255 (Feb. 20, 2019).  

1320  See supra section IX.C.2. 

1321  See Zhao & Chung, supra note 16. 



375 

As discussed above, if information asymmetries, such as those resulting from insufficient 

public information about broker-dealer execution quality, prevent investors from observing 

differences in execution quality across broker-dealers, this limits the extent to which broker-

dealers need to compete on the basis of execution quality.1322 Market centers have less of an 

incentive to compete and innovate on execution quality to the extent that broker-dealers route 

orders for reasons other than execution quality. Market centers also have less of an incentive to 

compete on the basis of execution quality to the extent that broker-dealers and other market 

participants are less able to use Rule 605 reports to compare execution quality across market 

centers, for example, as a result of erosions to the information content of Rule 605 statistics due 

to changes in market conditions,1323 or to the extent that Rule 605 does not include some relevant 

order sizes or types.1324 

D. Economic Effects 

The amendments expanding and modifying the reporting requirements under Rule 605 

will result in numerous beneficial economic effects. These economic effects will mainly derive 

from improvements in the transparency of execution quality of broker-dealers and market 

centers, which will promote competition among these reporting entities on the basis of execution 

quality. These amendments to Rule 605 will also result in initial and ongoing compliance costs to 

reporting entities.  

 

1322  See supra section IX.C.2.a). 

1323  For example, market centers may be less incentivized to compete on the basis of execution speed to the 

extent that, as a result of rapid increases in the speed of trading, market participants are less able to use 

time-to-execution measures from Rule 605 reports to compare across market centers. See supra section 

IX.C.3.c)(4) for further discussion. 

1324  For example, market centers may be less likely to compete on the basis of execution quality for orders of 

less than 100 shares, since these orders were previously not required to be included in Rule 605 reports. See 

supra section IX.C.3.b)(1)(a) for further discussion. 



376 

This section measures the economic effects of these amendments to Rule 605 relative to a 

regulatory baseline that includes the implementation of the MDI Rules1325 and reflects the 

Commission’s assessment of the anticipated economic effects, including potentially 

countervailing or confounding economic effects from the MDI Rules.1326 However, given that 

the MDI Rules have not yet been implemented, they have not affected market practice and 

therefore data required for a quantitative analysis of the economic effects that includes the effects 

of the MDI Rules is not available. It is possible that the economic effects relative to the baseline 

can be different once the MDI Rules are implemented. Where implementation of the above-

described MDI Rules may affect certain numbers, the description of the economic effects below 

notes those effects.  

1. Benefits 

These amendments to Rule 605 will promote increased transparency of order execution 

quality, particularly for larger broker-dealers who were not required to disclose execution quality 

information under preexisting Rule 605, but also for all reporting entities, whose execution 

quality information will be more relevant and easier to access because of improvements to 

existing Rule 605 disclosure requirements. 

This increased transparency, together with increased competition resulting from this 

transparency, will result in improvements in execution quality, for several reasons. First, 

investors and their broker-dealers will be able to make better informed decisions about where to 

route their orders to achieve better quality execution. Second, these amendments are expected to 

 

1325  See supra section IX.C.1.c)(2). 

1326  See supra section IX.C.1.c)(2) for a discussion of the Commission’s anticipated economic effects of the 

MDI Rules as stated in the MDI Adopting Release. 



377 

increase the extent to which broker-dealers compete on the basis of execution quality in order to 

attract and retain customers, as well as the extent to which market centers must compete on the 

basis of execution quality to attract and retain order flow.1327 The Commission expects that this 

increase in competition will lead to improvements in execution quality as a result of 

improvements to broker-dealer routing practices and improvements to market centers’ execution 

practices. These economic mechanisms will lead to improvements to overall levels of execution 

quality, as well as improvements to particular components of execution quality, such as 

execution prices, execution speeds, size improvement, and fill rates.1328  

The following sections will discuss the expected benefits of these amendments for 

transparency, competition, and execution quality, including those expected from expanding the 

scope of reporting entities, modernizing the required information, and improving accessibility. 

The Commission acknowledges that there may be limitations to these benefits and discusses 

these below, though none will significantly reduce the benefits of the amended rule.  

 

1327  Several commenters stated that enhancing Rule 605 reporting requirements would generally lead to 

increased competition on the basis of execution quality. See, e.g., Better Markets Letter at 1-2; NASAA 

Letter at 5; Fidelity Letter at 7; Healthy Markets Letter at 5; see also infra note 1330 and corresponding text 

for additional statements from commenters on the impact of the expansion of Rule 605 reporting 

requirements to include larger broker-dealers on competition among broker-dealers. 

1328  As discussed in the Proposing Release, the magnitude of improvements in order execution quality that 

individual and institutional investors experience under the amended rule may be lower after the MDI Rules 

are implemented, relative to the pre-implementation baseline. The availability of faster consolidated market 

data with more data on odd-lot information and depth of book information from competing consolidators 

could result in improved execution quality for customers’ orders, if their broker-dealers currently utilize 

SIP data and switch to consuming the expanded consolidated market data. However, there is uncertainty 

with respect to how the benefits of the amended rule will be changed. Specifically, there is uncertainty 

regarding the magnitude of price improvement that wholesalers will provide to retail investors when the 

MDI Rules are implemented, as well as uncertainty regarding how the NBBO midpoint will change for 

stocks with prices above $250 when the MDI Rules are implemented. These amendments to Rule 605 will 

still lead to improvements in individual and institutional investor order execution quality, as well as 

improvements in price discovery, relative to a baseline in which the MDI Rules are implemented. See 

Proposing Release, 88 FR 3786 at 3872 (Jan. 20, 2023). 



378 

a) Expanding the Scope of Reporting Entities  

(1) Expanding Requirements for Larger Broker-Dealers 

As a primary effect, the adopted amendment expanding the scope of Rule 605 reporting 

entities to include larger broker-dealers1329 will increase transparency into the differences in 

execution quality achieved by these broker-dealers when they route customer orders to execution 

venues.1330 This increase in transparency will increase the extent to which both broker-dealers 

and market centers compete on the basis of execution quality, which will result in improvements 

in execution quality. 

First, as a result of the adopted amendment, customers of larger broker dealers, along 

with other market participants, will no longer need to make inferences about their broker-dealers’ 

execution quality based on routing information from Rule 606 data combined with market 

centers’ execution quality information from Rule 605 data, but will instead have access to direct 

information about the aggregate execution quality achieved by their broker-dealers.1331 

Customers will then be able to use this information to compare across broker-dealers and select 

 

1329  See supra section II.A for further discussion of the amendments related to the expansion of Rule 605 

reporting entities to include larger broker-dealers.  

1330  These effects will principally accrue to larger broker-dealers, who will be required to prepare Rule 605 

reports, but may spill over to effect smaller broker-dealers as well. See discussion in infra section 

IX.D.1.d)(1). Several commenters stated that expanding the scope of Rule 605 reporting requirements to 

include larger broker-dealers will benefit transparency. See, e.g., Nasdaq Letter at 43. One commenter, 

while generally agreeing that expanding the scope to broker-dealers will improve transparency, described 

the importance of “enabl[ing] retail brokers to provide background information contextualizing how their 

obligations are different from those of wholesalers or other market centers that currently report under Rule 

605.” Virtu Letter II at 3-4. As stated in the Proposing Release and repeated infra this section, while 

differences in certain statistics for broker-dealers as compared to market centers may be more reflective of 

differences in business models rather than effectiveness in achieving execution quality, the Commission 

understands that these differences are well-known and are taken into account by market participants when 

evaluating execution quality statistics. See Proposing Release, 88 FR 3786 at 3800 (Jan. 20, 2023). 

1331  This effect will be enhanced by the requirement that broker-dealers publish Rule 605 reports for their 

broker-dealer activities separately from activities related to the market center(s) that they may operate, 

which will allow investors to access execution quality information that is exclusively related to the firm’s 

broker-dealer operations. See supra section II.A.2.b) for further discussion. 



379 

those broker-dealers offering better execution quality. Furthermore, combined with information 

about broker-dealers’ payment relationships with execution venues in quarterly reports prepared 

pursuant to Rule 606(a)(1), information about the aggregate execution quality obtained by larger 

broker-dealers that are in the business of routing customer orders will give market participants 

and other interested parties access to key information that will facilitate their ability to evaluate 

how these payment relationships may affect execution quality. The flow of customers to the 

broker-dealers that provide better execution quality will improve the execution quality of 

customers that route their orders to those broker-dealers. 

This increase in market participants’ ability to compare execution quality across broker-

dealers will increase the extent to which broker-dealers compete on the basis of execution quality 

when making their order routing decisions.1332 Broker-dealers will increase their competitive 

position with respect to execution quality by investing in or otherwise adjusting their routing 

practices to increase the extent to which they route orders to the market centers offering better 

execution quality and limit the extent to which they route orders for other potential reasons.1333 

For example, broker-dealers that face conflicts of interest that arise when their interests are not 

aligned with their customers’ interests may be better incentivized to manage these conflicts as a 

result of an increase in their need to compete on the basis of execution quality.1334 Specifically, 

to the extent that broker-dealers lose customer order flow as a result of their offering lower 

 

1332  Several commenters stated that expanding the scope of Rule 605 reporting requirements to include larger 

broker-dealers would increase competition among broker-dealers. See, e.g., Fidelity Letter at 7-8; Rule 605 

Citadel Letter at 4; CCMR Letter at 14-15; NASAA Letter at 6. 

1333  The magnitude of the improvements in order routing practices under the final rule may be lower when the 

MDI Rules are implemented. See supra note 1328. 

1334  See supra section IX.C.3.a)(1) for a discussion of potential conflicts of interest in broker-dealer routing 

decisions. 



380 

execution quality, these broker-dealers are expected to base more of their routing decisions on 

the execution quality of market centers, rather than on which market centers are more likely to 

benefit them (e.g., because of higher PFOF or lower access fees). This is expected to promote the 

flow of orders to market centers that provide better execution quality. The flow of orders to those 

market centers offering better execution quality may also result in further improvements in 

execution quality for those customers, as liquidity externalities and the consolidation of orders 

onto high-quality market centers will increase the liquidity of these venues.1335  

These amendments will require larger broker-dealers to report the same execution quality 

information as market centers, including information about execution prices, execution speeds, 

and fill rates,1336 as well as, under these amendments, information about size improvement.1337 

By requiring larger brokers-dealers to report stock-by-stock order execution information in a 

uniform manner, these amendments will make it possible for market participants and other 

interested parties to make their own determinations about how to group stocks or orders when 

comparing execution quality across broker-dealers. By allowing market participants and other 

interested parties to conduct their own analysis based on alternative categorizations of the 

underlying data, requiring larger broker-dealers to produce more detailed execution quality data 

will also help ameliorate potential concerns about overly general statistics as well as the specific 

categorization of orders and selection of metrics in the newly required summary reports.  

 

1335  However, liquidity externalities may have adverse effects on the competition among market centers if they 

result in the exit of some market centers. See infra section IX.D.1.d)(4) for a discussion. 

1336  See supra section IX.C.1.a) for a discussion of the economic significance of the execution quality 

information currently required by Rule 605 to be disclosed by market centers.  

1337  See final 17 CFR 242.605(a)(1)(ii)(R) and (S) and discussion in supra section III.B.4.e).381 

The Commission is mindful that Rule 605’s execution quality reports contain a large 

volume of statistical data, and, as a result, it may be difficult for individual investors to review 

and digest the reports. Should certain market participants not have the means to directly analyze 

the detailed statistics,1338 independent analysts, consultants, broker-dealers, the financial press, 

and market centers likely will continue to respond to the needs of investors by analyzing the 

disclosures and producing more digestible information using the data.1339 Furthermore, requiring 

larger broker-dealers, along with market centers, to prepare summary reports with aggregated 

execution quality information,1340 in addition to the more detailed Rule 605 reports, will furnish 

more direct access to useful data for some market participants.  

The adopted amendment requiring larger broker-dealers to report both the number of 

shares executed at the receiving broker-dealer and the number of shares executed at any other 

venue1341 will help ensure that Rule 605 reports capture the execution quality of all orders that 

larger broker-dealers receive for execution as part of their customer-facing broker-dealer 

function. The majority of executions resulting from a firm’s broker-dealer operations will likely 

be categorized as away-executed shares in the Rule 605 reports associated with its broker-dealer 

 

1338  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000) (stating that most individual 

investors likely would not obtain and digest the reports themselves); see also discussion infra section 

IX.D.1.b)(3). 

1339  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press. One commenter stated that 

“even though a certain percentage of retail investors may not read the Rule 605 reports, they will still 

benefit indirectly as the enhanced disclosure will . . . facilitate use by third-party researchers and 

academics, who in turn can extract information from the reports and use it to expose issues and problems 

with today’s order routing and execution practices.” Better Markets Letter at 9-10.  

1340  See final 17 CFR 242.605(a)(2).  

1341  See final 17 CFR 242.605(a)(1)(i)(E) and (F). As discussed herein, the Commission is amending the rule to 

also cover the number of shares executed at the receiving broker or dealer.  



382 

operations.1342 While these shares will not be categorized as being directly executed by the 

broker-dealer, it is likely that market participants understand that execution quality can depend 

significantly on the broker-dealers’ order handling and routing practices.  

Several commenters did not support expanding the scope of Rule 605 reporting entities to 

include larger broker-dealers.1343 One commenter disagreed that the expansion of scope would 

increase competition among broker-dealers, because “[d]ifferences in execution quality could be 

the result of a myriad of factors, including the customers the two different brokers serve and the 

equities the customers trade.”1344 This commenter stated that “if differences in reported 

execution quality statistics are reflective of different business models rather than actual 

differences in execution quality… producing Rule 605 statistics (particularly in the summary 

reports most likely to be used by retail investors) without accounting for different broker-dealer 

business models could lead investors to make incorrect decisions regarding broker-dealer 

selection.”1345  

 

1342  To the extent that a broker-dealer also acts as a market center, any executions that it handles will be 

required to be published in the Rule 605 report(s) that it files in its capacity as a market center. See supra 

section II.A.2.b) for further discussion. 

1343  See, e.g., Schwab Letter II at 34-35; Schwab Letter III at 2; and SIFMA Letter II at 30. One commenter did 

not support expanding the scope of Rule 605 to include larger broker-dealers because it instead supported 

expanding the reporting requirements under Rule 606 to included broker-dealer execution quality 

information. See Robinhood Letter at 39; see infra section IX.E.5.b) for a discussion of this as a reasonable 

alternative.  

1344  See SIFMA Letter II at 30. 

1345  See SIFMA Letter II at 30; see also Schwab Letter II at 35, stating that “[i]f differences in E/Q are a result 

of different business models employed across firms rather than actual differences in E/Q among 

comparable business models, providing this information in a way that appears to be—but is not—an 

apples-to-apples comparison would create investor confusion rather than provide useful information on 

which to base decisions,” and Cambridge Letter at 7, stating that requiring larger retail broker-dealers to 

produce execution quality reports “is likely to lead to misaligned, misleading comparisons between totally 

different entities.”  



383 

First, the Commission agrees that, as a result of different business models, a particular 

broker-dealer’s order flow may be made up of a different mixture of securities, order types, and 

order sizes, which may impact or constrain that broker-dealer’s overall execution quality 

level.1346 For example, Figure 15, which uses a sample of CAT data from Q1 20231347 to break 

down broker-dealer order flow into different order types, shows that broker-dealers indeed 

handle a variety of order types, including both marketable and non-marketable orders, for both 

their individual and institutional investor customers.1348 

 

1346  See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023); see also supra note 984 for an example of how 

differences in order flow characteristics may impact inferences about execution quality.  

1347  See supra note 1182 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and results may be different following the implementation of the MDI Rules. See supra section 

IX.C.1.c)(2). 

1348  This CAT data used in this analysis have been updated from the Proposing Release for a longer and more 

recent time period, as well as to include a larger sample of broker-dealers. The methodology has also been 

updated to include only those NMLOs that are immediately executable upon receipt (i.e., NMLOs priced at 

the quote or better). The analysis in the Proposing Release used a week of CAT data from Jan. 2022 to 

break down orders from 58 retail broker-dealers into different order types and similarly showed that broker-

dealers indeed handle a variety of order types, including both marketable and non-marketable orders, for 

both their individual and institutional investor customers. See Proposing Release, 88 FR 3786 at 3863 (fig. 

14) (Jan. 20, 2023). The distribution of order flows across order types is somewhat different in the analysis 

in the Proposing Release, including a much lower rate of market orders, particularly for individual 

customer accounts. This is likely because of the difference in order flow characteristics between the 58 

retail broker-dealers in the Proposing Release sample, and the larger sample of 85 broker-dealers with 

100,000 or more customer in the present analysis. These changes did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that broker-dealers indeed handle 

a variety of order types, including both marketable and non-marketable orders, for both their individual and 

institutional investor customers. 



384 

Figure 15: Broker-Dealer Order Volume by Order Type, Q1 2023 

 

 

This figure shows the distribution of customer order flow, in terms of the percentage of the total number of submitted orders, across different 

order types for both individual and institutional customer accounts, using a sample of CAT data for 400 stocks for Q1 2023. Percentages are 
calculated as the number of orders originated by given account type and within a given order type category handled by broker-dealers, summed 

across all stocks and days in the sample, divided by the total number of orders originated by a given account type handled by broker dealers, 

summed across all stocks and days See supra note 1182 for dataset description and supra note 1200 for definitions of the NMLO categories. This 
analysis uses data from prior to the implementation of the MDI Rules and results may be different following the implementation of the MDI 
Rules. See supra section IX.C.1.c)(2). 

However, under these amendments, larger broker-dealers will be required to categorize 

the execution quality information required by Rule 605 by individual security, different types of 

orders, and different order sizes. Larger broker-dealers will also be required to report realized 

spread, which is a measure of adverse selection.1349 Giving market participants access to this 

information in Rule 605 reports will help ensure that they are able to control for these differences 

in order flow characteristics and make apples-to-apples comparisons when assessing and 

 

1349  See supra note 1229 and corresponding text for a discussion of realized spreads as a measure of adverse 

selection risk. 



385 

comparing execution quality information across broker-dealers.1350 Furthermore, customers that 

primarily rely on broker-dealers’ summary reports will also be able to use information from the 

summary reports to control for differences in broker-dealer order flow in terms of order sizes, 

average stock price and realized spreads.1351 Second, to the extent that customers value and 

emphasize execution quality when deciding among broker-dealers, a decision to switch broker-

dealers based on execution quality information as contained in Rule 605 reports will not be an 

“incorrect” one as stated by a commenter.1352 Customers will continue to be able to evaluate their 

broker-dealers across a range of services, including those other than execution quality, such as 

commissions or user-friendliness,1353 though they will be better able to factor execution quality 

into their decisions.1354  

One commenter stated that “it is not apparent that [requiring larger brokers to report on 

order execution quality] would improve retail execution quality, as the retail broker market is 

highly competitive.”1355 The commenter went on to state that “to the extent that there are 

unexploited opportunities to improve execution quality for retail investors, as the Commission 

has claimed in its release, empowering investors to compare execution quality across retail 

 

1350  That some of the information contained in the summary execution quality report will be useful for 

controlling for differences across differences in order flow characteristics of broker-dealer was supported 

by comment. See, e.g., comments in support of including average notional order size and average realized 

spreads in the summary reports, discussed in notes 1592-1593 infra. 

1351  See supra section IV.B.1.b) for a discussion of the statistics that will be required to be reported in Rule 605 

summary execution quality reports.  

1352  See SIFMA Letter II at 30. 

1353  See supra section IX.C.4.a)(1) for further discussion of the additional services offered by broker-dealers. 

1354  At the same time, the Commission acknowledges that the expected benefits from the amendments to Rule 

605, such as increased competition among broker-dealers, may be lessened to the extent that there are 

dimensions of execution quality not captured by Rule 605 reports which drive order handling decisions. 

See infra section IX.D.1.d)(5) for a discussion.  

1355  See Virtu Letter II at 57.  



386 

brokers (and consequently to switch brokers based on this information) could be the most 

efficient and effective way to address concerns about execution quality.” Routing decisions 

affect the execution quality that broker-dealer customers’ orders receive, leading to significant 

variations in execution quality across broker-dealers, and studies have documented a large 

variation in retail broker-dealer execution quality, even for identical orders.1356 Another 

commenter stated that recent academic findings “emphasize the need for further price execution 

disclosure at the broker level.”1357 

One commenter stated that, absent investor education on how to interpret Rule 605 

summary reports, “investors may misinterpret the data and make suboptimal decisions as a 

result.”1358 The amended rule does not preclude larger broker-dealers from disclosing additional 

information concerning their order execution practices that they believe would provide useful 

context concerning the quality of their services on their websites or through other means of 

communication.1359 For example, individual broker-dealers can provide their own educational 

resources directly to their customers and other market participants. The commenter also 

referenced a statement from the Commission in the Proposing Release that “differences in 

certain statistics for broker-dealers as compared to market centers may be more reflective of 

differences in business models rather than effectiveness in achieving execution quality for 

covered orders because of differences in order handling practices,” and disagreed with the 

Commission that “differences are well-known and are taken into account by market participants 

 

1356  See supra note 1064 and corresponding text for a discussion. 

1357  See Huang et al. Letter at 1 (attaching Xing Huang, Philippe Jorion, Jeongmin Lee & Christopher Schwarz, 

Who Is Minding the Store? Order Routing and Competition in Retail Trade Execution (Nov. 19, 2023)). 

1358  See SIFMA Letter II at 30. 

1359  See supra note 137 and corresponding text for further discussion. 



387 

when evaluating execution quality statistics.”1360 These statements from the Commission in the 

Proposing Release were made in specific reference to market participants’ use of Rule 605 

reports to make a hypothetical comparison between a market center and a broker-dealer, and not 

to their ability to compare broker-dealers with one another. Notwithstanding the commenter’s 

interpretation of the Commission’s statements in the Proposing Release, the Commission agrees 

with the commenter that differences between broker-dealer business models may not be ex ante 

well-known to market participants. However, for the reasons described above, market 

participants will be able to use the information in Rule 605 reports and the Rule 605 summary 

reports to account for differences in broker-dealer order flow, and broker-dealers are not 

precluded from separately providing their customers with information that can be used to 

contextualize the information in the Rule 605 reports. 

Meanwhile, it is unlikely that market participants will use information in Rule 605 reports 

to compare broker-dealers to market centers. Information about the execution quality of these 

two types of reporting entities is useful to different market participants for fundamentally 

different purposes. In terms of the principal-agent relationship described in the Market Failure 

section,1361 information about execution quality for broker-dealers will be used to address 

different information asymmetries than information about execution quality for market centers. 

Broker-dealers’ Rule 605 reports will be most likely used by broker-dealers’ customers to 

 

1360  See SIFMA Letter II at 29-30, citing the Proposing Release, 88 FR 3786 at 3800 (Jan. 20, 2023); see also 

Schwab Letter at 34, referencing the same statement in the Proposing Release to support its statement that, 

“[i]f differences in E/Q are a result of different business models employed across firms rather than actual 

differences in E/Q among comparable business models, providing this information in a way that appears to 

be—but is not—an apples-to-apples comparison would create investor confusion rather than provide useful 

information on which to base decisions.” 

1361  See supra section IX.B. 



388 

compare execution quality across broker-dealers to address information asymmetries that exists 

between broker-dealers and their customers. In contrast, market centers’ Rule 605 reports will 

continue to be more useful for broker-dealers to compare execution quality across market centers 

to address the information asymmetries that exist between broker-dealers and the market centers 

to which they route their customers’ orders. 

(2) Specifying and Expanding Requirements for Market 

Centers 

In addition to expanding the scope of Rule 605 reporting entities to include larger broker-

dealers, these amendments promote greater transparency by specifying that broker-dealers post 

separate Rule 605 reports for their ATSs1362 and requiring that market centers operating SDPs 

post separate reports for each market center.1363 By requiring firms that operate multiple market 

centers to report separately for each market center, the final rule will prohibit the commingling of 

multiple reporting entities’ information, which, to the extent that it occurred prior to the final 

rule, may have added noise to or skewed Rule 605 reports. For example, requiring market centers 

that operate SDPs to report statistics separately for each line of business will increase the 

transparency of the operating market centers’ fill rates, by eliminating downward skew 

associated with the inclusion of “pinging” orders submitted to the SDP.1364 Reducing the skew of 

Rule 605 statistics will allow market participants to better assess differences in execution quality 

 

1362  See final 17 CFR 242.605(a)(1).  

1363  See id.; see also supra section II.C. 

1364  See supra section IX.C.3.a)(2) for a discussion of why the commingling of wholesaler and SDP orders for 

the purposes of Rule 605 reporting prior to these amendments would have effected a downward skew on 

the fill rates derived from the wholesalers’ Rule 605 reports. 



389 

across different types of market centers, helping to enhance market centers’ incentive to compete 

on the basis of execution quality to attract orders. 

One commenter stated that “certain Rule 605 metrics,” such as fill rates, “may be unduly 

impacted by differences in SDP business models,” such as whether they send out indications of 

interest or solely receive IOCs.1365 First, as amended, Rule 605 reports will add an IOC order 

type category,1366 which will allow market participants to differentiate between SDPs that 

receive more or fewer IOCs, which should address the commenter’s specific concern. More 

generally, and as stated by another commenter, users of SDPs tend to be sophisticated 

entities.1367 As a result, it is likely that users of SDPs are knowledgeable about the differences in 

various SDP business models and the relationship of those differences to variations in execution 

quality statistics across SDPs. Lastly, the commenter’s statement that there may be systematic 

differences between some SDP business models also applies to systematic differences between 

SDPs and market centers with other business models, and the relationship between these 

business models and execution quality is obscured to the extent that the execution quality 

information from these different execution venues is commingled. Requiring separate reporting 

for SDPs will provide market participants with transparency regarding the relationship between 

SDP business models and execution quality. 

Another commenter stated that, because “users of SDPs are all sophisticated entities 

capable of carrying out their own execution quality measurements and, in fact, do carry out these 

measurements on their own,” requiring separate reporting “imposes an additional cost on SDPs 

 

1365  See Rule 605 Citadel Letter at 7. 

1366  See supra section III.B.2.c)(2). 

1367  See Virtu Letter II at 12. 



390 

without any clear benefit.”1368 As stated in the Market Failure section, even for those market 

participants that have access to alternative sources of information about the execution quality of 

their orders, this information is typically highly individualized and nonpublic, and thus cannot be 

used to evaluate the execution quality of market centers with which the market participants do 

not do business.1369 Furthermore, as stated in the Proposing Release, in addition to allowing users 

of SDPs to separately view the execution quality of SDPs, requiring wholesalers to report their 

SDP executions separate from their other executions will benefit the non-SDP user customers, 

the majority of which are individual investors.1370  

b) Modifications to Rule 605 Disclosure Requirements 

As a result of the amendments expanding and modernizing Rule 605 disclosure 

requirements, the metrics used for the required Rule 605 disclosures will be more informative 

about execution quality, which will increase transparency into the differences in execution 

quality achieved by reporting entities. This increase in informativeness and transparency will 

enhance the benefits of expanding the scope of reporting entities, including the expansion to 

larger broker-dealers.1371 In addition, as a result of the increase in transparency with respect to 

market center execution quality, broker-dealers will have the opportunity to be better informed 

when making their routing decisions. The flow of orders to those market centers that provide 

better execution quality will improve the execution quality of those broker-dealers (and their 

customers) that route their orders to these higher-quality market centers, and is expected to also 

 

1368  See Virtu Letter II at 12-13. 

1369  See supra note 1094 and corresponding text.  

1370  See Proposing Release, 88 FR 3786 at 3864 (Jan. 20, 2023). 

1371  See supra section IX.D.1.a) for a discussion of the benefits of expanding the scope of reporting entities 

under these amendments. 



391 

increase the extent to which market centers must improve their execution practices in order to 

better compete with other market centers to attract customer order flow.1372 Execution quality is 

expected to improve as a result. 

These benefits will stem from modifications aimed at clarifying and expanding the scope 

of Rule 605 reporting entities, modernizing the information required to be reported under Rule 

605 and improving the accessibility of the information contained in Rule 605 reports. 

(1) Expanding the Definition of Covered Orders 

The amendments expanding the definition of “covered order” to include additional order 

types will increase transparency about the execution quality that reporting entities achieve for 

these additional order types, including orders submitted with stop prices, non-exempt short sale 

orders, and orders submitted outside of regular trading hours.  

(a) Orders Submitted Pre-Opening/Post-Closing 

First, the adopted amendment expanding the definition of “covered order” to include 

NMLOs submitted outside of regular trading hours that become executable during regular 

trading hours1373 will lead to a more complete picture of reporting entities’ execution 

characteristics. While an analysis using CAT data shows that pre-open/post-close orders that are 

executable during regular hours are likely only a small portion of total order flow, these orders 

represent a relatively higher percentage of order flow associated with individual customer 

 

1372  The magnitude of the improvements in execution practices may be lower when the MDI Rules are 

implemented, because the availability of faster consolidated market data with more data on odd-lot 

information and depth of book information from competing consolidators could result in more informed 

customer order routing by broker-dealers that switch to consuming the expanded consolidated market data, 

which could separately increase the flow of orders to trading venues offering better execution quality. See 

supra section IX.C.1.c)(2) for further discussion. However, these amendments are expected to lead to 

improvements in execution practices over and above the improvements that might result from the 

implementation of the MDI Rules. 

1373  See final 17 CFR 242.600(b)(27); see also supra section III.A.1.b). 



392 

accounts.1374 Individual investors will be able to make more informed decisions when choosing a 

broker-dealer, if these orders are included in broker-dealers’ execution quality disclosures. 

Likewise, broker-dealers will be able to make more informed decisions about where to route 

NMLOs submitted outside of regular trading hours, knowing that these orders are being factored 

into a market center’s overall statistics.  

While several commenters supported the inclusion of NMLOs submitted outside of 

regular trading hours into Rule 605 reports,1375 one commenter stated that the inclusion of these 

orders would “likely skew the statistics”1376 and “lead to difficult comparisons between brokers” 

because “the first quote after opening is wide and not representative of the quote when the 

primary exchange opens.”1377 The commenter’s specific concern will be addressed by the 

adopted amendment specifying that orders that are received during regular market hours but 

execute before the primary listing market has disseminated its first firm, uncrossed quotations 

will be treated in the same manner as any other order received pre-open or post-close.1378 More 

generally, while some NMLOs submitted outside of market hours likely have characteristics that 

differ from those submitted during regular hours,1379 these NMLOs make up only a very small 

 

1374  See analysis described in supra section IX.C.3.b)(4). 

1375  See, e.g., Nasdaq Letter at 43-44; Virtu Letter II at 5. 

1376  See Schwab Letter at 32.  

1377  See Schwab Letter II at 7. 

1378  See discussion in supra section III.A.1.b). Specifically, any order that executes during this intervening time 

period will be excluded from Rule 605 reports; any NMLO (including an order submitted with a stop price) 

will not be considered executable until after the first firm, uncrossed quotations in the security are 

disseminated by the primary listing market; and any determination of whether a limit order received prior 

to or during that period is a marketable limit order, a beyond-the-midpoint limit order, or an NMLO will 

not occur until after the first firm, uncrossed quotations in the security are disseminated by the primary 

listing market. 

1379 For example, an analysis of the sample of CAT data described in note 1182 supra showed that pre-open 

executable NMLOs have somewhat lower fill rates than the full sample of executable NMLOs (0.18% vs. 

0.42%). 



393 

percentage of order volume, representing only around 1.3% of total submitted share volume.1380 

Therefore, it is unlikely that the inclusion of these orders along with other order types will 

significantly skew execution quality statistics. 

(b) Orders Submitted with Stop Prices 

Second, the adopted amendment removing the exclusion of orders with stop prices from 

the definition of “covered order”1381 will increase transparency about the execution quality of 

this type of order.1382 This will be particularly beneficial, as the handling of stop orders can vary 

significantly across broker-dealers and across the market centers to which they route, and the 

execution prices of stop orders are highly sensitive to handling and execution practices.1383 As 

broker-dealers will be incentivized to improve their handling of stop orders, they will be able to 

use information about the execution quality of stop orders achieved by market centers to route 

stop orders to those market centers with the practices and abilities that allow them to achieve 

higher execution quality for these orders.1384 

The amendment to include stop orders within separate order type categories rather than 

grouping them together with other order types1385 also will prohibit them from skewing the 

execution quality of other orders downwards, since stop orders are more likely to execute in 

 

1380  See supra note 1182 and corresponding text for more information about this analysis. 

1381  See final 17 CFR 242.600(b)(27) (eliminating the express carve out of orders submitted with stop prices 

from the definition of “covered order”); see also supra section III.A.2.b). 

1382  Several commenters generally agreed that the inclusion of information about stop orders in Rule 605 

reports will make the data more useful and complete. See, e.g., Nasdaq Letter at 44; Virtu Letter II at 5; and 

SIFMA AMG Letter at 6. 

1383  See supra note 1158 and accompanying text for a discussion of differential treatment of stop orders.  

1384  As discussed in supra section IX.C.3.b)(2), the Commission understands that the handling of stop orders 

can vary significantly across market centers. 

1385  See final 17 CFR 242.600(b)(19) (defining “categorized by order type” to include a category for 

“executable orders submitted with stop prices”) (emphasis added); see also discussion in supra section 

III.A.2.b). 



394 

adverse market conditions.1386 In addition, including separate categories for executable market 

orders submitted with stop prices, executable stop marketable limit orders, and executable stop 

NMLOs will help market participants distinguish between orders with different execution 

profiles. For example, the risk of large losses is particularly acute for stop orders that use market 

orders, which represent the majority of stop orders submitted by individual investors according 

to Table 3, as the execution price an investor receives for this market order can deviate 

significantly from the stop price in a fast-moving market where prices change rapidly.1387 As a 

result, the execution quality of these orders is highly sensitive to handling and execution 

practices, such that market participants will benefit from transparency regarding reporting 

entities’ handling of these orders. 

One commenter stated that the inclusion of stop orders “will create increased complexity 

with little benefit for the individual investor,” and that therefore “the Commission should 

consider excluding stop orders from the report entirely.”1388 The Commission disagrees that there 

will be little benefit for individual investors from the inclusion of stop orders in Rule 605 reports. 

As shown in Table 3, individual account holders are more likely than institutional account 

holders to submit stop orders (i.e., 4.91% of individual account holders’ market orders are 

submitted with stop prices vs. 0.25% of those of institutional account holders). Therefore, 

information about the execution quality of stop orders will be particularly useful for individual 

 

1386  See supra note 1159 and corresponding text for further discussion. 

1387  See, e.g., SEC Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders (July 13, 2017), available at 

https://www.sec.gov/oiea/investor-alerts-bulletins/ib_stoporders.html. This risk can be attenuated with the 

use of stop limit orders, which sets a minimum price at which the stop order can be executed. However, the 

limit price may prevent the stop limit order from executing if the stock price falls below the limit price 

before the stop limit order can execute. 

1388  See Schwab Letter II at 5. 



395 

investors, who can use this information to identify and direct stop orders to those broker-dealers 

with the practices and abilities that allow them to achieve higher execution quality for these 

orders. Such information is especially useful given that stop orders are more likely to execute in 

adverse market conditions. 

(c) Non-Exempt Short Sale Orders 

The Commission is adopting its position that non-exempt short sales orders will not be 

considered special handling orders unless a price test restriction is in effect for the security.1389 

This will lead to a more complete picture of reporting entities’ execution characteristics, as short 

sales make up a large portion of trades and by implication are likely also a significant component 

of order flow.1390 An analysis of short volume data found that, between Aug. 2009 and Mar. 

2023, short selling was an average of 39.6% of trading volume for non-financial common 

stocks.1391 To the extent that the proportion of short selling trade volume is comparable to the 

 

1389  See supra section III.A.3.b). 

1390  Several commenters supported including short sales in Rule 605 reports. See, e.g., Nasdaq Letter at 43; 

Virtu Letter II at 5.  

1391  Short volume data are collected from CBOE Group (CBOE BYX Exchange, CBOE BZX Exchange, CBOE 

EDGA Exchange, CBOE EDGX Exchange), FINRA (FNYX, FNSQ, FNQC), NASDAQ Group (Nasdaq 

BX, Nasdaq PSX and Nasdaq Stock Market), and NYSE Group (New York Stock Exchange, NYSE Arca, 

NYSE American, NYSE Chicago, and NYSE National). See 

https://www.cboe.com/us/equities/market_statistics/short_sale/ (last visited Apr. 2023) (CBOE data, which 

became available for purchase at https://datashop.cboe.com/us-equity-short-volume-and-trades on June 1, 

2023); https://www.finra.org/finra-data/browse-catalog/short-sale-volume-data (FINRA data); 

https://nasdaqtrader.com/Trader.aspx?id=shortsale (NASDAQ data); ftp://ftp.nyxdata.com/ (NYSE data). 

Common stocks include those with a CRSP share code of 10 or 11. Financial stocks (SIC code 6000-6999) 

and stocks that do not have an active trading status in CRSP (trade status = A) are excluded. CRSP share 

codes, SIC codes, trading statuses, and daily trading volumes are derived based on data from CRSP 1925 

US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2023). The daily level of short selling 

is calculated for each stock as the daily number of shares sold short divided by the daily trading volume, 

 

 

 



396 

proportion of short selling order volume, these data points show that short selling is prevalent in 

equity markets. Therefore, the inclusion of non-exempt short sale orders will result in reporting 

entities’ execution quality statistics reflecting more relevant orders for individual and 

institutional investors, who both engage in short selling. While the costs to maintain margin 

accounts and borrow stocks may prevent some individual investors from participating in the 

short sale market, one academic working paper found that, between January 2010 and December 

2016, 6.36% of all off-exchange short selling1392 could be attributed to retail traders, and 10.92% 

of retail trading was made up of short sales.1393 Meanwhile, evidence suggests that short selling 

by institutional investors is largely the purview of hedge funds,1394 which are estimated to make 

 

averaged across stocks, and finally averaged across all days in the sample (Aug. 3, 2009 to Mar. 31, 2023). 

This number matches that of other studies. For example, Figure F.1 in the Congressional Study on Short 

Sale Reporting shows that the level of short selling as a percentage of trading volume grew from 2007 to 

close to 50% by 2013. See Short Sale Position and Transaction Reporting (June 5, 2014), available at 

https://www.sec.gov/files/short-sale-position-and-transaction-reporting%2C0.pdf. The Proposing Release 

stated that short selling was an average of 47.3% of trading volume for non-financial common stocks 

between Aug. 2009 and Feb. 2021. See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). This is 

higher than the estimate above partially because, while the analysis in the Proposing Release included in 

the denominator only trading volume of those trading venues from which the Commission collected short 

volume data, the analysis above includes in the denominator all trading volume from CRSP in order to 

provide a more conservative estimate of short selling volume. Regardless of the methodology, both 

numbers reflect that short sales are a significant percentage of total trading volume. 

1392  One academic paper found that short selling by individual investors made up a much smaller percentage of 

overall shorting volume on NYSE (1% to 2%). The authors attribute the low number of on-exchange retail 

shorting to brokerage routing decisions. See Ekkehart Boehmer et al., Which Shorts are Informed?, 63 J. 

FIN. 491 (2008). 

1393  See Ekkehart Boehmer & Wanshan Song, Smart Retail Traders, Short Sellers, and Stock Returns (working 

paper Oct. 23, 2020) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723096 (retrieved 

from SSRN Elsevier database).  

1394  See Peter Molk & Frank Partnoy, Institutional Investors as Short Sellers?, 99 B.U. L. REV. 837, 839 (2019). 

Molk and Partnoy’s paper “identif[ies] the regulatory and other barriers that keep key categories of 

institutions[, specifically, mutual funds, insurance companies, banks, sovereign wealth funds, endowments, 

and foundations,] from acquiring significant short positions.” Id. at 843. In addition, a Division of 

Economic and Risk Analysis White Paper survey of all mutual fund Form N-SAR filings in 2014 found 

that “[w]hile 64% of all funds were allowed to engage in short selling, only 5% of all funds actually did 

so.” Daniel Deli et al., Use Of Derivatives By Registered Investment Companies, SEC (2015), available at 

https://www.sec.gov/files/derivatives12-2015.pdf.  



397 

up around 85% of the short selling market.1395 One academic paper finds that short sellers’ 

choice of trading venue is highly dependent on its market design and that short sellers prefer 

trading venues that offer high execution speeds over those that offer low trading costs.1396 

Another academic study shows that wholesalers frequently offer price improvement to short 

sales and that including short sales in estimates of price improvement increases the total dollar 

value of net price improvement provided by more than 6%.1397 Therefore, including information 

about the execution quality that reporting entities achieve for non-exempt short sale orders into 

Rule 605 disclosures will be relevant for a variety of investors who engage in short selling.  

(2) Modernizing the Required Information 

(a) Categorization by Order Size and Type 

By enabling investors to make better apples-to-apples comparisons across reporting 

entities with potentially different order flow,1398 the amendments expanding and modernizing 

order size and order type categories are expected to enhance competition among reporting 

entities on the basis of execution quality, resulting in improvements in execution quality for 

investors.1399 Furthermore, for a specific order size or type, as order flow accumulates to the 

 

1395  See Yawen Jiao et al., Short Selling Meets Hedge Fund 13F: An Anatomy of Informed Demand, 122 J. FIN. 

ECON. 544 (2016) (citing a 2009 report from Goldman Sachs). 

1396  See Adam V. Reed et al., Shorting in Broad Daylight: Short Sales and Venue Choice, 55 J. FIN. 

QUANTITATIVE ANALYSIS 2246 (Nov. 2020). 

1397  See Battalio & Jennings, supra note 1253. 

1398  See supra note 984 for an example of how differences in order flow characteristics may impact inferences 

about execution quality. 

1399  The importance of being able to make apples-to-apples comparisons of execution quality in Rule 605 

reports was referenced by some commenters. See, e.g., SIFMA Letter II at 30, stating that “Rule 605 data 

can present differently among firms with different customer bases and correspondingly different types of 

order flow,” and Schwab Letter at 35, stating that “providing [E/Q] information in a way that appears to 

be—but is not—an apples-to-apples comparison would create investor confusion rather than provide useful 

information on which to base decisions.” 



398 

reporting entities offering the highest execution quality for these sizes and types of orders, this 

will in turn translate into improved execution quality for investors who have orders of these sizes 

and use these types of orders. For example, as a result of the adopted amendment expanding the 

order size categories to include information about odd-lots, market participants will have 

improved access to information about a market center’s offering of price improvement and 

timely execution of odd-lots. The expected improvement in both the price and speed at which 

odd-lot orders are executed will benefit for both institutional and individual investors.1400  

(i) Order Size Categories 

The amendments modernizing the order size categories are expected to make Rule 605 

reports more relevant by showing more meaningful differentiation in execution quality across 

different order sizes. This will allow consumers of Rule 605 reports to control for potential 

differences in order sizes across different reporting entities, while also increasing the extent to 

which reporting entities compete on the basis of execution quality across order sizes. 

First, the amendments defining order size categories in terms of notional values1401 will 

increase transparency regarding distribution of order sizes that a reporting entity handles, 

particularly for higher-priced stocks.1402 Continuing the example from section IX.C.3.b)(1)(a), 

for a $500 stock, all orders for $100,000 (i.e., 200 shares) or less will no longer be grouped into a 

 

1400  See supra section IX.C.3.b)(1)(a) for a discussion of the use of odd-lots by both individual and institutional 

investors. 

1401  See final 17 CFR 242.600(b)(18).  

1402  Several commenters agreed that a change from order size buckets defined in terms of share counts to 

notional order size buckets would be beneficial. See, e.g., Fidelity Letter at 9; Rule 605 Citadel Letter at 6; 

Schwab Letter at 33; Nasdaq Letter at 45-46; and Angel Letter at 2. Many of these commenters compared 

the benefits of notional order size buckets to those of order size buckets defined in terms of number of 

round lots, as was proposed. See infra section IX.E.3.a)(1) for a discussion of these comments in the 

context of the Commission’s consideration of a reasonable alternative that would define order size buckets 

in terms of number of round lots. 



399 

single order size category (100 to 499 shares1403) or, if they are for less than 100 shares, excluded 

altogether from reporting requirements.1404 Instead, these orders will be distributed across a 

number of order size buckets.1405 To include larger-sized orders into Rule 605 reporting 

requirements while remaining consistent with Regulation NMS rules that exclude orders or 

trades that are sized above $200,000,1406 these orders will be grouped into a separate category. 

This will facilitate market participants’ ability to use these categories to compare across orders of 

different sizes in higher-priced stocks, while controlling for potential differences in the treatment 

of larger-sized orders. As a result, market participants will be better able to take into account 

potential differences in the distribution of order sizes that reporting entities typically handle for a 

given stock when comparing execution quality metrics across reporting entities, making these 

metrics more informative for making apples-to-apples comparisons of execution quality across 

reporting entities.  

Figure 16 shows the distribution of orders across the adopted notional size buckets for 

stocks with different price levels, using a sample of CAT data for 400 stocks for Q1 2023.1407 

The results show that while, as expected, orders for lower-priced stocks tend to cluster in the 

 

1403  See prior 17 CFR 242.605(a)(1); see also supra note 1121 and corresponding text for a definition of the 

order size categories included in prior Rule 605 reporting requirements. 

1404  In addition, even prior to the implementation of the MDI Rules, a small number of NMS stocks have a 

round lot size smaller than 100. See supra note 1191. 

1405  These order size categories include (i) less than $250; (ii) $250 to less than $1,000; (iii) $1,000 to less than 

$5,000; (iv) $5,000 to less than $10,000; (v) $10,000 to less than $20,000; (vi) $20,000 to less than 

$50,000; and (vii) $50,000 to less than $200,000. An additional order size category includes orders for 

(viii) $200,000 or more. The order size categories provide additional differentiation for orders of less than a 

share, odd-lot orders, and orders of at least a round lot.  

1406  See, e.g., the examples discussed in supra note 1187. 

1407  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This analysis uses data from prior to the implementation of the MDI Rules and results may be 

different following the implementation of the MDI Rules. See supra section IX.C.1.c)(2).  



400 

smaller size buckets and orders for higher-priced stocks tend to cluster in the larger size buckets, 

in aggregate order flow appears reasonably well-distributed across the various order size buckets. 

Two exceptions are the smallest size bucket (orders for less than $250) and the largest size 

bucket (orders for $200,000 or more), both of which have little order flow. However, while there 

is relatively little order flow associated with the smallest notional size bucket (orders for less 

than $250), a further look at the data shows that a large portion of these orders are likely 

associated with individual investors.  

Figure 17 shows the distribution across the notional order size buckets of orders 

associated with individual customer accounts as compared to those from institutional customer 

accounts,1408 and shows that nearly 14.9% of orders from individual customer accounts are for 

less than $250. Therefore, including a separate order size category for these small-sized orders 

will be particularly beneficial for individual investors. Meanwhile, for the largest order size 

bucket, grouping these orders together and separately from other orders is consistent with 

Regulation NMS rules that exclude block orders or trades, which may result in different 

execution profiles for these orders.1409 Furthermore, while these orders make up a small 

percentage of orders, they make up a significant percentage of share volume.1410  

 

1408  See supra note 1144 for a definition of account types in CAT. 

1409  See supra note 1187 for examples. 

1410  Specifically, an analysis of the CAT data in supra note 1211 finds that orders priced $200,000 or higher 

make up 18.0% of order flow in terms of share volume.401 

Figure 16: Distribution of Orders Across Notional Order Size Buckets for Different Stock 

Price Groups, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for different stock price groups. Percentages are 

calculated as the number of orders in a given order size bucket across all stocks within a given stock price group, summed across 

all days in the sample, divided by the total number of orders within a stock price group, summed across all days in the sample. 

The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description. This analysis uses data from 

prior to the implementation of the MDI Rules and specific numbers reported may be different following the implementation of 

the MDI Rules. See supra note 1407 and section IX.C.1.c)(2). 

 



402 

Figure 17: Distribution of Orders Across Notional Order Size Buckets for Different 

Customer Account Types, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for different stock price groups. Percentages are 

calculated as the number of orders in a given order size bucket that originated from a given account type, summed across all 

stocks and days in the sample, divided by the total number of orders originating from a given account type, summed across all 

days in the sample. The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description. This 

analysis uses data from prior to the implementation of the MDI Rules and specific numbers reported may be different following 

the implementation of the MDI Rules. See supra note 1407 and section IX.C.1.c)(2). 

Second, as a result of the new order size categories, amended Rule 605 reports will 

contain information about some orders that were missing from preexisting Rule 605 reports, 

including orders less than a share, orders less than 100 shares, and larger-sized orders of 10,000 

or more shares.1411 The new order size categories will also help ensure that round lots for stocks 

with prices greater than $250 are not excluded from Rule 605 reports following the 

 

1411  Because final Rule 605 reports will not define order size buckets in terms of share numbers, these orders 

will be distributed across the notional order size buckets described in note 1405 supra, according to their 

respective notional values. 



403 

implementation of the MDI Rules.1412 Analyses showed that the inclusion of odd-lot orders into 

Rule 605 reporting requirements will include up to an additional 16.9% of NMLOs (0.99% of 

NMLO share volume),1413 and the inclusion of fractional shares will include up to an additional 

16.4% of executions received by individual investors into Rule 605 reports.1414 In addition, 

expanding Rule 605 coverage to include larger-sized orders1415 will include up to an additional 

30% of NMLO share volume,1416 which will likely mostly be relevant for institutional investors, 

to the extent that some of these orders may not be split into smaller child orders.1417 Including 

these order sizes within the scope of Rule 605 will help ensure that market participants are able 

to compare the execution quality of these orders across reporting entities,1418 which will 

encourage reporting entities to compete for these orders on the basis of execution quality.  

Commenters generally supported the inclusion of odd-lots,1419 fractional shares,1420 and 

larger-sized orders1421 into Rule 605 reporting requirements. However, one commenter did not 

 

1412  See supra note 1190-1191 and corresponding text for further discussion. 

1413  See Figure 6, in supra section IX.C.3.b)(1)(a). As discussed in this section, odd-lots are submitted by both 

individual and institutional investors.  

1414  See analysis in supra section IX.C.3.b)(1)(b). 

1415  See final 17 CFR 242.600(b)(18). Furthermore, see supra section III.B.1.b) for a discussion of the 

Commission’s decision to rescind the exemptive relief for orders of 10,000 or more shares and include 

these orders within the scope of Rule 605 reports. 

1416  See analysis in supra section IX.C.3.b)(1)(c). 

1417  The benefits of including larger-sized orders may be limited if most large institutional orders are not held 

orders and will thus be excluded from Rule 605 reporting requirements, and/or are broken up into smaller 

child orders that are likely to be smaller and have already been included in Rule 605 reporting requirements 

prior to these amendments. See supra sections IX.C.1.b) and IX.C.4.a)(1)(b). 

1418  For example, one academic study found that odd-lot orders often receive price improvement from 

wholesalers, and that incorporating information about price improvement received by odd-lots would 

increase dollar estimates of price improvement by 9.6%, even after adjusting the NBBO to incorporate the 

best displayed price. See Battalio & Jennings, supra note 1253, at 17.  

1419  See, e.g., SIFMA Letter at 25; SIFMA AMG Letter at 6; and Nasdaq Letter at 44.  

1420  See, e.g., Professor Schwarz et al. Letter at 4. 

1421  See, e.g., Virtu Letter II at 9. 



404 

support the inclusion of fractional shares, stating that, “[g]iven the de minimis quantity of shares 

. . . this information is of limited value to investors.”1422 While the Commission agrees that, as a 

percentage of shares, fractional shares represent a small part of order flow,1423 it disagrees that 

this means that information about these orders is of limited value to investors. Fractional orders 

less than a share represent a relatively high percentage (16.4%) of executions received by 

individual account holders in terms of number of trades.1424 Furthermore, the execution quality 

received by fractional orders less than a share may be very different from that of full-share 

orders, which increases the relevance of execution quality metrics for these types of orders.1425 

Another commenter suggested that notional order size buckets be “capped at block size” so as to 

“ensur[e] that statistics cover most retail trades.”1426 As discussed in the Baseline, while 

institutional investors likely have alternative sources of information about the execution quality 

of their orders, Rule 605 reports are likely still useful for institutional investors, for example, to 

assess the execution quality of the broker-dealers with which they do not currently do business, 

or to assess the execution quality of market centers to which their broker-dealers do not currently 

route orders.1427 Therefore, information about larger-sized orders will be useful for consumers of 

Rule 605 reports.  

 

1422  See SIFMA Letter at 31. 

1423  See supra note 1145, showing that executed fractional orders for less than one share made up about 0.001% 

of total executed share volume.  

1424  See supra note 1145 and corresponding text. 

1425  See, e.g., infra note 1434 and corresponding text for evidence of differences in execution quality for 

fractional orders less than a share. 

1426  See Nasdaq Letter at 44. This commenter also suggested increasing the block size threshold to $400,000. 

1427  See supra section IX.C.2.c) for a discussion of the current usage of Rule 605 reports by institutional 

investors. 



405 

Third, to further facilitate the comparison of execution quality across similar orders, these 

amendments will require information within each notional order size category to be separated 

according to whether the orders were odd-lots, round-lots, or fractional orders less than one 

share. Requiring information to be reported separately for round-lot orders and odd-lot orders 

within each notional order size category addresses a potential issue with notional order size 

buckets, namely, that while such categories remain in the spirit of distinguishing between 

“small” and “large” orders, they no longer produce a meaningful distinction between orders that 

may or may not be at quotes protected under Rule 611.1428 Figure 18 shows the distribution of 

round lots and odd-lots across the notional order size buckets using the sample of CAT data 

described above.1429 As expected, odd-lots tend to be clustered in the smaller notional size 

buckets, while round lots are clustered in the larger size buckets. However, the results show that 

most notional buckets will contain a mix of both round-lot and odd-lot orders, which supports the 

benefit of including separate information for each lot type within each notional size bucket.1430  

 

1428  This issue was discussed as one of the potential disadvantages of using notional order size buckets in the 

Proposing Release. See Proposing Release, 88 FR 3786 at 3891 (Jan. 20, 2023). 

1429  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This analysis uses data from prior to the implementation of the MDI Rules and results may be 

different following the implementation of the MDI Rules. See supra section IX.C.1.c)(2) and infra note 

1430.  

1430  Within a given notional order size bucket, the distribution of orders across round-lot and odd-lot categories 

may change following the implementation of the MDI Rules, particularly for those stocks whose round-lot 

size will be reduced. See supra section IX.C.1.c)(2). However, the distribution of orders across notional 

order size buckets will not be directly affected, as the notional size of an order is irrespective of its 

categorization as a round-lot or odd-lot. See also supra note 375 for further discussion of the interaction 

between the round lot definition under MDI and the order size categories under these amendments.  



406 

Figure 18: Distribution of Odd-Lot and Round Lot Orders Across Notional Order Size 

Buckets, Q1 2023 

 

This figure shows the distribution of orders across notional order size buckets for odd-lots and round lots. Percentages are 

calculated as the number of orders in a given order size bucket for a given lot type, summed across all stocks and days in the 

sample, divided by the total number of orders for a given lot type, summed across all stocks and days. The analysis uses a sample 

of CAT data for 400 stocks. See supra note 1211 for dataset description. This analysis uses data from prior to the implementation 

of the MDI Rules and specific numbers reported may be different following the implementation of the MDI Rules. See supra note 

1407 and section IX.C.1.c)(2). 

Including separate execution quality information for fractional orders less than one share 

will provide greater insight into an important segment of individual investor order flow.1431 This 

is particularly important given that the execution quality of orders for less than one share may 

vary across broker-dealers, who have different ways to handle these orders, such as internalizing 

such orders or aggregating them together for the purpose of rerouting to market centers.1432 It is 

 

1431  Fractional orders less than a share represent a relatively high percentage (16.4%) of executions received by 

individual account holders in terms of number of trades. See supra note 1145 and corresponding text. 

1432  See supra section IX.C.3.b)(1)(b) for further discussion. 



407 

likely that the vast majority of fractional orders for less than one share will be captured within 

the smallest order size bucket; however, to the extent that there is fractional volume in other 

order size buckets, market participants will benefit from being able to differentiate fractional 

volume within these buckets. An analysis of CAT data1433 found that, while 99.7% of fractional 

orders for less than one share are for $250 or less, four out of the eight notional size buckets 

contained at least one fractional order for less than a share.  

One commenter stated that, based on their trading experience, “fractional market orders 

also receive widely different price improvement across brokers,” and that “full share price 

improvement statistics are not informative for the execution quality of our fractional trades.”1434 

This implies that information about how well a reporting entity executes full-share orders is not 

necessarily useful for inferring how well that reporting entity will perform when executing a 

fractional order. The Commission agrees with the commenter that “these results justify the need 

for fractional trades to have their own category in the Rule 605 disclosures,”1435 because these 

orders are especially likely to benefit from an increase in competition among reporting entities 

on the basis of execution quality. 

Lastly, requiring order size categories under Rule 605 to include information about 

fractional orders less than one share1436 will expand the number of reporting entities to include an 

 

1433  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. 

1434  See Professor Schwarz et al. Letter at 4. Specifically, the commenter found that E/Q ranged from 0.127 to 

0.915 for fractional trades and ranged from 0.056 and 0.624 for full-share trades. See Professor Schwarz et 

al. Letter, Table 2. The commenter does not state whether these statistics include only fractional trades less 

than one share, or all trades that have fractional components. 

1435  See Professor Schwarz et al. Letter at 4. 

1436  See final 17 CFR 242.600(b)(18).  



408 

estimated 20 market centers1437 that exclusively execute fractional orders less than one share. 

Prior to these amendments, these market centers were not required to file Rule 605 reports due to 

their orders falling below the smallest order size category in preexisting Rule 605. This will 

increase transparency about the execution quality achieved by these market centers.1438 

(ii) Order Type Categories 

The amendments to Rule 605 modifying the order type categories required by Rule 605,  

including modifications to the coverage of NMLOs, and separate order type categories for 

marketable, midpoint-or-better, and other non-marketable IOCs, will improve the relevance of 

the information in Rule 605 reports regarding execution quality across different order types. This 

will facilitate comparisons and competition among reporting centers on the basis of execution 

quality for these orders. 

The amendment modifying Rule 605’s coverage of NMLOs so that reporting entities are 

required to disclose execution quality information only for those NMLOs that become 

executable1439 (i.e., eventually touch the NBBO) will facilitate comparisons between reporting 

entities, by ensuring that the execution quality statistics for NMLOs more meaningfully capture a 

market center’s performance in handling NMLOs, rather than reflecting market conditions 

potentially outside of the market center’s control, such as movements of the NBBO. This will be 

 

1437  See infra note 1659 for further discussion of this estimate. 

1438  One commenter stated that, because much of today’s market infrastructure does not yet support fractional 

share trading (including that “FINRA does not currently have a mechanism to report fractional share 

trades”), “the costs to fully modify [the reporting] infrastructure would be high compared to the minimal 

benefit of including fractional share reporting.” SIFMA Letter at 31; see infra note 1673 and corresponding 

text for a discussion of and the Commission’s response to this commenter.  

1439  See final 17 CFR 242.600(b)(39) (defining “executable”) and final 17 CFR 242.600(b)(19) (defining 

“categorized by order type” to include categories for “executable orders submitted with stop prices” and 

“executable non-marketable limit orders”) (emphasis added); see also supra sections III.A.2.b) and 

III.B.2.a)(2).  



409 

achieved because Rule 605 reports will more accurately exclude NMLOs that do not receive a 

meaningful opportunity to execute, for example, because the price moved away from the order 

and/or the order was cancelled before its limit price was reached, while including those NMLOs 

that investors could expect to have a reasonable chance of executing.1440  

This is evident from an analysis comparing the fill rates of all near-the-quote and away-

from-the-quote NMLOs to the fill rates of executable NMLOs, calculated using the sample of 

MIDAS data.1441 Results are presented in Figure 19.1442 While the fill rates of all near-the-quote 

and away-from-the-quote NMLOs are very low (0.27% and 0.02%, respectively), the fill rates of 

 

1440  Several commenters generally supported a new requirement to report information about executable 

NMLOs. See, e.g., Rule 605 Citadel Letter at 11; Nasdaq Letter at 44; SIFMA AMG Letter at 6; and 

SIFMA Letter at 25. 

1441  See supra note 1130 for a description of the dataset. The Commission found that only a small percentage of 

NMLOs eventually touch the NBBO: only 13.7% of near-the-quote NMLOs and 0.92% of away-from-the-

quote NMLOs were executable during their lifespan. This analysis uses data from prior to the 

implementation of the MDI Rules and results may be different following the implementation of the MDI 

Rules. However, it is not clear how a change in the distribution of orders into various NMLO categories 

will affect the average fill rates of these NMLO categories. See supra section IX.C.1.c)(2). Also, by 

definition, all at-the-quote and inside-the-quote NMLOs are executable because they have a limit price 

equal to or better than the NBBO, and so the fill rates of executable at-the-quote and inside-the-quote 

NMLOs would be identical to those for at-the-quote and inside-the-quote NMLOs presented in Figure 9 

supra. 

1442  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3867 (Figure 15), 3842, n.634 

(Jan. 20, 2023) (for data description). Results from Figure 19 are similar to those in Figure 15 in the 

Proposing Release after taking into account these updates and corrections. As discussed in supra note 1199, 

the analysis may overestimate fill rates due to the exclusion of orders with multiple submission messages. 

However, even in the alternative analysis without this exclusion described in supra note 1199, fill rates for 

executable away from-the-quote NMLOs are still comparatively high, at 10.5%. While this alternative 

analysis, by assigning to the total submitted volume the price at the time of submission, tended to 

overestimate the number of executable NMLOs, it is unclear that this would systematically overestimate fill 

rates for executable NMLOs, as fill rates are calculated as the sum of executed shares divided by the sum of 

submitted shares and are thus indifferent to the distribution of shares across multiple submissions. For 

example, consider that a NMLO that consists of four separate submissions of 100 shares each, 100 shares 

of which execute, will have the same fill rate as an order for 400 shares, 100 shares of which executes 

(25%). Therefore, the Commission considers 10.5% to be an approximate lower bound for the fill rate of 

executable away-from-the-quote NMLOs. The results from both analyses show that many executable away-

from-the-quote NMLOs have a meaningful opportunity to execute and many do. Therefore, changes to the 

MIDAS dataset did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that removing near-the-quote NMLOs that are not executable results in a set of NMLOs 

with a more meaningful opportunity to execute, and that there are benefits to including executable away-

from-the-quote NMLOs and to excluding near-the-quote NMLOs that are never executable. 



410 

executable near-the-quote and away-from-the-quote NMLOs are much higher, and also very 

different from one another. In fact, at 32.5%, the average fill rate of executable away-from-the-

quote NMLOs is relatively high, and actually higher than the average fill rate of executable near-

the-quote orders (2.71%).1443 This reflects that even away-from-the-quote orders are likely to 

execute if prices move in a direction such that they have a meaningful opportunity to execute. 

Therefore, the execution quality statistics resulting from the amendments to Rule 605 better 

reflect a market center’s performance in handling NMLOs, by including NMLOs with a 

meaningful opportunity to execute and excluding NMLOs without a meaningful opportunity to 

execute. 

 

1443  This is likely because executable near-the-quote NMLOs are more likely than away-from-the-quote 

NMLOs to be cancelled after their limit prices are reached but before they execute. This could be the case, 

for example, because near-the-quote orders are more likely to be submitted by market participants such as 

market makers, who are more likely to actively monitor their limit orders and may cancel them to adjust 

them for changes in the market. Examining the distribution of cancellations of these orders reveals that a 

higher percentage of executable near-the-quote NMLOs are cancelled within a short period of time, as 

compared to executable away-from-the-quote NMLOs. Specifically, 14.2% of executable near-the-quote 

NMLO shares are cancelled within 100 milliseconds, vs. 7.7% of executable away-from-the-quote 

NMLOs, and that 36.7% of executable near-the-quote NMLO shares are cancelled within 1 second, vs. 

13.9% of executable away-from-the-quote NMLOs. A similar analysis in the Proposing Release looked at 

the distribution of the cancellations of all (i.e., both executable and non-executable) away-from-the-quote 

and near-the-quote NMLOs, and similarly found that a larger percentage of near-the-quote NMLOs have 

execution times below 100 milliseconds. See Proposing Release, 88 FR 3786 at 3867, n.841 (Jan. 20, 

2023). To the extent that near-the-quote NMLOs are submitted by traders that are more likely to cancel 

these orders before they are executed, this could explain why executable near-the-quote NMLOs have 

lower fill rates than executable away-from-the-quote NMLOs. 



411 

Figure 19: Fill Rates of Executable Away-from-the-Quote and Near-the-Quote NMLOs, 

Mar. 2023 

 

This figure plots the fill rates of away-from-the-quote and near-the-quote NMLOs, using order submission data from MIDAS. 

See supra note 1130 for a description of the dataset. Fill rates are calculated as the number of shares executed of a given order 

type, summed across all stocks and days in the sample, as a percentage of the number of shares submitted of a given order type, 

summed across all stocks and days. Plotted are the fill rates for all away-from-the-quote and near-the-quote NMLOs, along with 

only those away-from-the-quote and near-the-quote NMLOs that eventually touch the NBBO (i.e., become executable). See 

supra note 1200 for definitions of these NMLO categories. This analysis uses data from prior to the implementation of the MDI 

Rules and results may be different following the implementation of the MDI Rules. See supra note 1442 and section IX.C.1.c)(2). 

The adopted amendment to include a separate order type category for midpoint-or-better 

orders1444 will increase transparency on how reporting entities handle these types of orders (e.g., 

whether or not they offer these orders price improvement) and reduce the extent to which 

including information about these orders along with other types of NMLOs may skew the 

execution quality statistics of other types of NMLOs. Several commenters stated that the 

 

1444  See final 17 CFR 242.600(b)(19) (defining “categorized by order type” to include a category for midpoint-

or-better limit orders); see also supra section III.B.2.b)(2). 



412 

proposed amendment should not create a separate category for beyond-the-midpoint limit orders, 

since it is not a large category of orders.1445 One commenter additionally stated that the order 

category “will become de minimis with the Market Data Infrastructure (“MDI”) round lot 

definitions.”1446 The Commission confirms that, while the adopted amendment to include both 

at-the-midpoint and beyond-the-midpoint orders into the new category will increase the size of 

the category, this category will still remain a relatively small percent of total orders.1447 The 

Commission also acknowledges that the NBBO is anticipated to narrow for stocks priced above 

$250 as a result of the new definition of round lots, which would likely decrease the number of 

inside-the-quote NMLOs and increase the number of quotes at or outside of the quotes for these 

stocks.1448 However, since some market centers treat these NMLOs more like marketable limit 

orders in certain contexts, it will be beneficial for market participants who use these orders as 

part of their trading strategies to have separate information about the execution quality of these 

orders,1449 and thus the Commission has included them in the amended rule.  

First, the high percentage of midpoint-or-better NMLOs submitted with IOC designations 

shown in Table 4 implies that a significant portion of these orders have the expectation of 

 

1445  See, e.g., FIF Letter at 13; Schwab Letter II at 6; and Schwab Letter at 32. 

1446  See Schwab Letter II at 6. 

1447  As shown in Table 5, increasing the scope of this category to include at-the-midpoint NMLOs in addition 

to beyond-the-midpoint NMLOs will increase its size from 2.1% to 3.9% of shares submitted to exchanges 

at ATSs, and from 3.2% to 5.5% to shares submitted to wholesalers. 

1448  See supra section VII.C.1.d)(2) for further discussion. An analysis of the CAT data sample described in 

note 1182 supra shows that, in the quartile of stocks with the lowest quoted spreads (an average quoted 

spread of around $0.026), midpoint-or-better orders still compromise a non-negligible percent of order 

flow, representing 5.15% of submitted orders (4.32% of submitted shares). This is compared to the quartile 

with the highest quoted spreads (an average quoted spread of $20.28), where midpoint-or-better orders are 

9.66% of submitted orders (8.62% of submitted shares). Therefore, it is likely that midpoint-or-better 

orders will be a non-negligible percent of order flow, even if spreads narrow after the implementation of 

MDI. 

1449  See also supra section III.B.4.a)(2) for further discussion. 



413 

executing immediately, for example, against hidden or odd-lot liquidity inside of the spread. 

Therefore, these orders are likely to have different execution profiles than other types of 

NMLOs, such as faster time-to-execution. Furthermore, the Commission understands that 

different reporting entities treat beyond-the-midpoint NMLOs differently from other types of 

NMLOs, and that as a result beyond-the-midpoint NMLOs have systematically different 

execution quality characteristics than other types of NMLOs. For example, beyond-the-midpoint 

limit orders may be offered price improvement at some market centers, such as wholesalers, so 

the execution quality of these orders will be highly dependent on which type of market center to 

which the broker-dealer routes such orders.1450 Requiring reporting entities to report execution 

quality statistics separately for midpoint-or-better orders will reveal differences in reporting 

entities’ handling of these types of order. 

Lastly, the adopted amendment assigns marketable, midpoint-or-better, and other non-

marketable IOCs to separate order type categories so that they no longer will be commingled 

with other order types.1451 This will increase transparency about the execution quality that 

reporting entities achieve both for IOCs and for other order types.1452 Supporting the idea that 

IOCs tend to have different execution quality profiles than other orders, an analysis showed that 

IOCs on average have faster execution times and higher effective spreads than other orders, and 

 

1450  See Table 4, showing both beyond-the-midpoint and at-the-midpoint orders tend to have higher fill rates 

and faster execution time relative to other types of NMLOs. 

1451  To implement this change, the Commission is modifying the definition of “categorized by order type” to 

add midpoint-or-better limit orders that are immediate-or-cancel and executable non-marketable limit 

orders that are immediate-or-cancel, as well as to exclude IOCs from the order types for midpoint-or-better 

limit orders and executable NMLOs. See final 17 CFR 242.600(b)(19). 

1452  Commenters agreed that the separate reporting of IOC orders would make Rule 605 data more useful. See, 

e.g., SIFMA AMG Letter at 6; SIFMA Letter at 25. 



414 

that fill rates vary across market centers and according to order characteristics such as size.1453 

Information about the execution quality of IOCs will allow broker-dealers handling these types 

of orders to be able to better assess which market center on average offers better execution 

quality to these types of orders. These broker-dealers can thus make more informed decisions 

about where to route these orders. Furthermore, due to their different execution profiles, 

removing IOCs from other order categories will cause the execution quality metrics for other 

types of orders to more accurately reflect reporting entities’ handling of other types of orders. 1454 

The effect on the execution quality metrics of other types of orders will likely be significant, as 

an analysis of IOCs found that they make up more than 90% of marketable limit and midpoint-

or-better share volume.1455  

(b) Timestamp Conventions and Time-to-Execution 

Several of these amendments will increase the relevance of time-to-execution information 

in Rule 605 reports, which in turn will improve market participants’ ability to compare time-to-

execution across reporting entities. For those investors that value fast executions, this is expected 

to lead to improved execution times, as investors will be better able to identify and route orders 

to reporting entities offering faster execution speeds. 

First, the adopted amendment increasing the granularity of the timestamp conventions 

used for the time of order receipt and time of order execution from seconds to milliseconds, as 

 

1453  For example, exchanges and ATSs tend to have higher fill rates for IOC marketable limit orders (14.3%) 

than non-IOC marketable limit orders (11.6%), the opposite is true for wholesalers (18.3% compared to 

74.3%). See Table 5 in supra section IX.C.3.c)(9).  

1454  See supra note 1265 and accompanying text for an example of how commingling IOCs with other order 

types can lower marker centers’ incentives to improve execution quality for other marketable orders. 

1455  See Table 5 in supra section IX.C.3.c)(9) and corresponding discussion. 



415 

well as requiring millisecond granularity for the time of executability,1456 will make the time-to-

execution statistics in Rule 605 more informative about the execution speeds achieved by a 

reporting entity.1457 These statistics include the average share-weighted time-to-execution of 

shares executed with positive price improvement, without price improvement and with negative 

price improvement. Given that execution speeds measured in seconds are likely to miss much of 

the variation in execution times across reporting entities in today’s markets, particularly for 

market and marketable orders,1458 adding granularity to the timestamps used to calculate the 

time-to-execution speed measures included in Rule 605 reports will benefit market participants 

in their efforts to compare execution times across reporting entities.1459  

One commenter, while generally recognizing benefits of smaller increments for time to 

execution statistics, stated that “the more granular a timestamp needs to be, the more subject it is 

to variances across reporting entities,” and that this has “the potential to distort statistics.”1460 

The commenter stated that such distortions derive from different practices around when to mark 

order receipt and from different geographic latencies in the receipt of market data, such as SIP 

data and exchange proprietary data feeds, used to assign quotation information to an event 

according to its timestamp. However, evidence suggests that geographic latencies, which may 

account for the majority of latency differences associated with the SIP data, are currently below a 

 

1456  See final 17 CFR 242.600(b)(39), (102), and (103). 

1457  One commenter stated that more granular time-to-execution statistics would allow for more meaningful 

points of comparison. See Better Markets Letter at 8.  

1458  See supra section IX.C.3.c)(4) for a discussion of how the granularity of the time-to-execution categories 

previously defined in Rule 605 has lost relevance over time. 

1459  One commenter stated that the minimum granularity of milliseconds is “the best approach at this time,” 

stating that it is “consistent with the Consolidated Audit Trail, which requires firms to report all order 

events with a minimum granularity of milliseconds.” FIF Letter at 17. 

1460  See Robinhood Letter at 47. 



416 

millisecond.1461 Therefore, the distortions related to latencies are likely to be smaller than the 

timestamp granularity. Furthermore, it is likely that distortions may actually be reduced under 

these amendments. Under preexisting Rule 605, though many market centers timestamp to the 

millisecond or lower, market centers only had to look at timestamps at the second level, and 

match each order with the NBBO within that second. Matching to the second when there are 

multiple quotes per second can create distortions. Under preexisting Rule 605, when there are 

multiple quotes within a second, the market center would have needed to use a neutral method to 

assign the NBBO to an order. Of course, prior to these amendments, some market centers could 

have chosen to match to the millisecond as its neutral method. Under the final rule, reporting 

entities will be required to match to the millisecond. With latencies of under a millisecond and 

even with multiple quotes per millisecond, the distortions should be lower when matching to a 

millisecond than when matching to a second. In particular, the NBBO that is matched to a 

particular order is more likely to be closer to the actual time of order receipt. 

Second, the amendments increasing the granularity of time-to-execution buckets1462 will 

increase the relevance of the time-to-execution information in Rule 605, as the categories prior to 

 

1461  See, e.g., Letter from Patrick Sexton, EVP, General Counsel Corporate Secretary, Cboe Global Markets, 

Inc. on the MDI Proposal, (May 26, 2020) (stating that “geographic latency accounts for the vast majority 

of the latency experienced by the SIPs today,” and referencing geographic latency of around 416 

microseconds between Carteret, NJ and Secaucus, NJ); see also Letter to Brent J. Fields, Secretary, 

Commission, from Michael Blaugrund, Head of Transactions, New York Stock Exchange (Oct. 24, 2018) 

(stating that, as “processing time approaches zero, it is clear that the time required for trade and quote data 

to travel from Participant datacenter -> SIP datacenter -> Recipient datacenter, or `geographic latency,’ is a 

larger portion of the total latency.”). In addition, see MDI Adopting Release, 86 FR 18596 at 18732 (Apr. 

9, 2021), stating that “[t]he record in this rulemaking suggests that the geographic latency of SIP data may 

be up to a millisecond.” 

1462  See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (detailing time-to-execution buckets of 0 to 9 seconds, 10 

to 29 seconds, 30 to 59 seconds, 60 to 299 seconds and 5 to 30 minutes after the time of order receipt). 

These will be replaced by the following buckets: less than 100 microseconds; 100 microseconds to less 

than 1 millisecond; 1 millisecond to less than 10 milliseconds; 10 milliseconds to less than1 second; 1 

second to less than 10 seconds; 10 seconds to less than 30 seconds; 30 seconds to less than 5 minutes; and 5 

minutes or more. See supra section III.B.3.b) and final 17 CFR 242.605(a)(1)(i)(G) through (N). 



417 

these amendments have not been granular enough with respect to variations in execution times 

across reporting entities. One commenter stated that the inclusion of updated time-to-execution 

buckets in amended Rule 605 reports would provide greater granularity.1463 

Figure 20 plots the distribution of share volume across the adopted time-to-execution 

buckets, using a sample of CAT data for 400 stocks for the period of Q1 2023.1464 Since whether 

an order is submitted with an IOC designation can have a significant effect on its execution,1465 

results are presented separately for IOC and non-IOC orders. The results show that non-IOC 

shares are reasonably well distributed across the various buckets. While the majority of IOC 

orders (91.1%) are clustered in the shortest time bucket, some IOC volume is also distributed 

across longer time buckets. This shows that these time-to-execution buckets will also allow 

market participants to separate out IOC orders that are outliers in terms of time-to-execution. 

 

1463  See Healthy Markets Letter at 17. Specifically, the commenter stated that, “[b]y creating buckets for 

timestamp, rather than average time to execution [as proposed], the reports would provide much greater 

granularity while still allowing a user of the data to recreate average time to execution.”  See the Proposing 

Release, 88 FR 3786 at 3812-3813 (Jan. 20, 2023), for a discussion of the proposed amendment to replace 

time-to-execution buckets with time-to-execution statistics; see also infra section IX.E.3.b)(1) for further 

discussion of adopting time-to-execution statistics as proposed as a reasonable alternative. 

1464  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. 

1465  See, e.g., the results in Table 5. 



418 

Figure 20: Distribution of Shares Across Time-to-Execution Buckets by IOC Type, Q1 

2023 

 

This figure shows the distribution of executed shares across time-to-execution buckets for IOC vs. non-IOC orders. Percentages 

are calculated as the number of shares that executed within a particular time horizon for a given IOC type, summed across all 

stocks and days in the sample, divided by the total number of executed shares for a given IOC type, summed across all stocks and 

days. Execution times are calculated as the time of order receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the 

time of executability) to the first time that one or more of the order’s shares are executed. The analysis uses a sample of CAT 

data for 400 stocks. See supra note 1211 for dataset description.  

 Figure 21 also plots the distribution of share volume across the adopted time-to-execution 

buckets, this time breaking the result down by order type.1466 The results show that the time-to-

execution buckets are also able to capture variation in execution times across different order 

 

1466  This analysis uses CAT data for 400 stocks for the period Q1 2023. See supra note 1211 for dataset 

description. This dataset is from prior to the implementation of the MDI Rules and the distribution of 

orders into various NMLO categories may change following the implementation of the MDI Rules. See 

supra note 1204 and section IX.C.1.c)(2). However, it is not clear how a change in the distribution of orders 

into various NMLO categories will affect the average time-to-execution of these NMLO categories. 



419 

types, with most market and marketable limit orders clustered at the faster time buckets, and 

most at-the-quote NMLOs clustered in the longer time buckets.  

Figure 21: Distribution of Shares Across Time-to-Execution Buckets by Order Type, Q1 

2023 

 

This figure shows the distribution of executed shares across time-to-execution buckets for different order types. Percentages are 

calculated as the number of shares that executed within a particular time horizon for a given order type, summed across all stocks 

and days in the sample, divided by the total number of executed shares for a given order type, summed across all stocks and days. 

The analysis uses a sample of CAT data for 400 stocks. See supra note 1211 for dataset description and supra note 1200 for 

definitions of the NMLO categories. Execution times are calculated as the time of order receipt (which, for at- and inside-the-

quote NMLOs, is equivalent to the time of executability) to the first time that one or more of the order’s shares are executed. This 

analysis uses data from prior to the implementation of the MDI Rules and results may be different following the implementation 

of the MDI Rules. See supra note 1466 and section IX.C.1.c)(2). 

The amendments requiring time-to-execution information to be reported for all order 

types will help ensure that all order types benefit from increased transparency.1467 However, 

 

1467  One commenter supported the inclusion of time-to-execution information for all order types. See Nasdaq 

Letter at 45: “We concur with the SEC that requiring average time-to-execution for all order types . . . 

would offer more consequential information.” 



420 

commenters stated that, because marketable limit orders that exceed the consolidated quote size 

may be only partially executed or take longer to execute, time-to-execution information for this 

order type “would be difficult to interpret”1468 and “would be impacted by factors that do not 

reflect a true comparison of the execution performance across firms.”1469 The Commission 

recognizes that execution times will be longer for marketable limit orders that do not fully 

execute and are partially posted to the limit order book, and that this may in some cases be the 

result of factors that are not directly within a reporting entity’s control, such as the size of the 

order. However, other information contained in Rule 605 reports, such as information about 

order size, will allow consumers of Rule 605 data to control for such factors, which will facilitate 

consumers’ ability to interpret time-to-execution information for marketable limit orders and to 

make apples-to-apples comparisons across reporting entities.1470  

Finally, these amendments will require NMLO execution times to be measured from the 

time that the order becomes executable rather than from the time of order receipt.1471 This will 

help ensure that this metric is more likely to capture the portions of execution speed that are 

within a reporting entity’s control, rather than dependent on market conditions.1472  

 

1468  See Rule 605 Citadel Letter at 10. 

1469  See FIF Letter II at 3. Specifically, the commenter stated “that firms that receive marketable orders that are 

larger relative to the opposite-side displayed NBBO quantity would show a longer time to execution as 

compared with firms that receive marketable orders that are smaller relative to the opposite-side displayed 

NBBO quantity.” FIF Letter II at 3. Similarly, another commenter stated that “the execution speed metric 

for marketable limit orders should be limited to the size available at the best protected quote at the far 

touch. This will ensure that orders larger than the quoted size that take out the best price and then are 

reflected for the balance don't skew statistics.” Schwab Letter II at 32. 

1470  See supra section III.B.3.b) for further discussion. 

1471  See final 17 CFR 242.605(a)(1)(i)(G) through (N).  

1472  For example, even if a limit order is placed $0.05 away from the quote, if the market moves away and only 

25 minutes later returns to a price level where the limit order executes, the time to execution for that order 

from the time of order receipt is less reflective of execution quality than of prevailing market conditions.421 

For those investors that value fast executions, these amendments are expected to lead to 

improved execution times, as the increased transparency around reporting entities’ execution 

times will increase these investors’ ability to identify and route orders to reporting entities 

offering faster execution speeds.1473 The Commission expects these benefits to mainly accrue to 

investors that value faster executions, as these investors (and their broker-dealers) will benefit 

from an improved ability to compare execution speeds across trading venues and route their 

orders accordingly. However, to the extent that changes in order flow will result in an increase in 

market centers’ incentives to offer faster executions, e.g., by investing in faster trading 

technology, this may result in a market-wide increase in trading speeds for all investors. 

One individual investor stated that focusing on the speed of execution only benefits high-

frequency traders, and that the commenter is more concerned as a retail investor with getting a 

fair price for their trades than with the speed of execution.1474 The Commission recognizes that 

different investors benefit from faster execution times for different reasons, and that some 

investors will not always benefit from faster execution under all circumstances.1475 However, 

individual investors will benefit from faster executions in circumstances where the faster 

execution of their orders results in better prices. For example, time-to-execution is an important 

metric for market orders submitted with stop prices, which an analysis finds constitute 4.91% of 

market orders submitted by individual investors.1476 Since these orders tend to be triggered 

during volatile markets, any delay in execution can result in worse price if prices are increasing 

 

1473  See supra section IX.C.3.c)(4) for a discussion of current executions speeds. 

1474  See Gillmore Letter. 

1475  See, e.g., Ekkehart Boehmer, Dimensions of Execution Quality: Recent Evidence for US Equity Markets, 

78 J. FIN. ECON. 553 (2005) (“Boehmer (2005)”), which documents a negative relationship between 

execution speed and price.  

1476  See Table 3 in supra section IX.C.3.b)(2). 



422 

(for buy orders) or decreasing (for sell orders). For IOCs, a faster routing time reduces the 

chance of another order stepping in and removing liquidity before the order gets a chance to 

execute, thus increasing the order’s probability of execution.1477 

For institutional investors, the benefits of fast execution may be different.1478 Institutional 

investors, who often need to trade large positions, may care more about reducing the price 

impact of their order rather than executing the order quickly.1479 However, the academic 

literature suggests that institutional investors with short-lived private information may benefit 

from faster execution times, as they are able to profit from trading against other, slower 

institutions.1480 On the same note, faster execution times benefit slower institutional investors by 

reducing their exposure to adverse selection as much as possible.1481 Institutional investors may 

also care about the execution speed of their child orders.1482 

 

1477  See, e.g., Matteo Aquilina et al., Quantifying the High-Frequency Trading “Arms Race,” 137 Q. J. ECON. 

493 (2021) (“Aquilina et al.”), who find that traders with failed attempts to trade or cancel orders, such as 

submitters of IOC orders that fail to execute, lose about half a tick as a result of the failure. While the per-

trade cost is small, the cost of these failures adds up to around $5 billion annually in global equity markets.  

1478  While institutional investors are likely to have access to alternative sources of more granular information 

about execution speeds, such as reports obtained through TCA, the information on execution quality that is 

individually collected by institutional investors is typically nonpublic and highly individualized, and 

therefore limited to the execution quality obtained from broker-dealers with which the institutional 

investors currently do business. Since Rule 605 reports are public, institutional investors can use these 

reports to assess the execution quality of the broker-dealers and market centers with which they do not 

currently do business. See supra section IX.C.2.c) for further discussion. 

1479  See supra section IX.C.4.a)(1)(b) for a discussion of the handling of institutional orders by broker-dealers 

as not held orders. 

1480  See, e.g., Kadan et al., supra note 1225. 

1481  See, e.g., Brogaard et al., supra note 1225.  

1482  See, e.g., Beason and Wahal at 17, who examine the time-to-fill of algorithmic child orders, and find that 

the time-to-execution and time-to-cancellation of these orders “indicate a clear price-time tradeoff in the 

data.”  



423 

(c) Execution Quality Metrics 

The amendments to Rule 605 will improve the relevance of the information contained in 

Rule 605 reports by increasing the granularity of time-to-execution buckets; modifying the 

calculations of average realized spreads; expanding existing requirements to report average 

effective spreads to midpoint-or-better orders; adding additional metrics such as percentage 

realized and effective spreads, effective over quoted spreads, and size improvement; and 

modifying the categorization of riskless principal trades. 

(i) Realized Spread 

The adopted amendment modifying the time horizon used to calculate the realized spread 

from a single horizon of five minutes to a range of horizons between 50 milliseconds and 5 

minutes1483 will increase the relevance and usability of this measure. One of the uses of realized 

spread is to derive a measure of price impact of the order flow,1484 which, depending on the 

horizon of the liquidity provider, can measure the adverse selection risk that the liquidity 

 

1483  See final 17 CFR 242.605(a)(1)(i)(O) through (X); see also supra section III.B.4.a)(2). 

1484  See supra note 1228, describing how realized spreads can be decomposed into the difference between the 

effective spread and price impact. As discussed in note 1228, supra, differences between the times at which 

realized spreads and effective spreads are measured can cause this decomposition to be inexact. After the 

implementation of these amendments, the realized spread will continue to be measured using the price at 

the time of order execution, while effective spreads will be measured using the midpoint price at the time of 

order receipt (or order executability, in the case of midpoint-or-better orders). To the extent that there are 

significant differences in the time of order receipt (or executability) and the time of order execution, the 

decomposition of realized spreads in the amended Rule 605 reports into effective spreads and price impact 

will continue to not be exact. This effect is likely to vary depending on the order type. For example, Figure 

21 shows that 37.5% of marketable limit orders are executed within 10 milliseconds after order receipt, 

while only 7.2% of at-the-quote NMLOs are executed within 10 milliseconds after order executability 

(which, for these orders, is the same as the time of order receipt). Therefore, for example, this effect is 

expected to be greater for at-the-quote NMLOs than for marketable limit orders. 



424 

provider faces.1485 Adverse selection risk of order flow can vary over time and across stocks and 

entities. Therefore, realized spreads provide context for other measures of execution quality. The 

preexisting requirement to use a single five-minute time horizon to calculate realized spreads for 

the purposes of Rule 605 disclosures has likely limited market participants’ ability to use realized 

spreads to control for adverse selection, particularly for larger and more liquid stocks.1486 

Selecting an appropriate time horizon to calculate the realized spread must strike a 

balance between too short, which could fail to incorporate the realization of the price impact, and 

too long, which could include additional noise1487 or the cumulative impact of subsequent market 

changes which are unrelated to the order’s execution quality. 

Referencing the Commission’s analysis of realized spread time horizons in the Proposing 

Release, one commenter stated that “the Commission has not appropriately analyzed inventory 

turnover, which is necessary to convey relevant meaning to the analysis.”1488 The Commission 

 

1485  See supra note 1229 and accompanying text for a discussion of price impact as a measure of the adverse 

selection risk faced by liquidity providers. In some cases, market participants will be able to use the data in 

amended Rule 605 reports to estimate price impact using effective and realized spreads. These estimates of 

price impact measures may be subject to the time asynchronies, and, as described in supra note 1484, the 

extent to which these asynchronies lead to inexact measures of price impact is likely to vary along with the 

order type. In addition, because the effective spread is required to be reported only for market and 

marketable order types as well as midpoint-or-better orders, the ability of market participants to estimate 

price impact will only be possible for these order types. See supra section III.B.4.b)(2) for further 

discussion. However, for those order types for which effective spreads are not available, or for which the 

time asynchronies are expected to lead to inexact measures of price impact, market participants will still be 

able to use the fact that amended Rule 605 reports will contain a broad range of realized spread time 

horizons to gain insights into adverse selection risk. Specifically, since price impact will increase as the 

time horizon increases (see supra note 1235 for further discussion), while the effective spread remains 

constant, examining how realized spreads change as the time horizon increases will give market 

participants insight into the rate at which the price impact, and therefore adverse selection risk, increases as 

the time horizon increases. Market participants could use this information to determine, for example, 

whether adverse selection risk increases at a rapid pace as the time horizon increase, which could signal 

more adverse market conditions. 

1486  A number of academic studies argue that the five-minute horizon is too long for a high-frequency 

environment. See, e.g., O’Hara 2015; O’Hara et al.; Conrad and Wahal, supra note 544. 

1487 The term “noise” is used throughout in the statistical sense and refers to unexplained or unrelated 

variability in observations that degrades the efficiency of computed statistics or estimators. 

1488  See SIFMA Letter at 32. 



425 

acknowledges that an ideal measurement horizon would be one that aligns with the amount of 

time an average liquidity provider holds onto the inventory positions established from providing 

liquidity. As discussed in the Proposing Release, the amount of time an average liquidity 

provider holds onto the inventory positions established from providing liquidity is not easily 

observable.1489 Instead, the Commission’s analysis of realized spreads in the Proposing 

Release1490 was based on the theoretically motivated and empirically observed decline in realized 

spreads over increasing time horizons, similar to the academic literature.1491 

Table 71492 replicates this analysis using an updated sample of TAQ data for 400 stocks 

for the period of Q1 2023,1493 and shows that the cumulative decline in realized spread captured 

at different time horizons varies by market capitalization. Approximately 90% of the cumulative 

 

1489  See Proposing Release, 88 FR 3786 at 3854 (Jan. 20, 2023). For example, while it would be theoretically 

possible to use CAT data to estimate market maker turnover, it would not be possible to estimate inventory 

levels, as starting inventory levels accumulated prior to the availability of CAT data are not observable.  

1490  See Table 1 of the Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023). 

1491  See Conrad and Wahal, supra note 544. As described in supra note 1235, one way to interpret the decline in 

realized spread is as a function of the realization of price impact. An optimal time horizon would be one 

that is long enough to capture most of the realization of price impact, but not long enough to incorporate 

noise.  

1492  The TAQ data used in this analysis have been updated since the Proposing Release to account for a more 

recent time period. In addition, the methodology has been updated to include additional time horizons. See 

Proposing Release, 88 FR 3786 at 3815 (fig. 1) (Jan. 20, 2023), which presents a similar analysis that uses 

data from Feb. 2021 (see Proposing Release, 88 FR 3786 at 3854, n.706 (Jan. 20, 2023), for data 

description), and includes six time horizons (1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 

minutes); see supra note 1237. Also, while Table 1 of the Proposing Release similarly presented the 

additional (i.e., non-cumulative) variation at each time interval, for clarity, the analysis in Table 7 presents 

the cumulative decline in average realized spreads at each time horizon. However, despite these updates, 

this analysis continues to show that time horizons of 15 seconds and one minute capture most of the 

realized spread information for larger stocks, for the two smaller-stock groups, a sizeable proportion of the 

overall decline does not occur until the 5-minute horizon. 

1493  See supra note 1238 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and the specific numbers may be different following the implementation of the MDI Rules. In 

particular, for certain stocks, the NBBO midpoint may change, though the Commission is uncertain of the 

direction of this effect. This may impact statistics that are based on these values, including realized spreads. 

See supra section IX.C.1.c)(2)IX.C.1.c)(2). While specific numbers might change, the Commission does 

not expect the relative variation in realized spreads across different time horizons to change as a result of 

the implementation of the MDI Rules. 



426 

decline in realized spread is captured by the 15-second horizon for the largest market 

capitalization group, compared to only about 50% for the smaller market capitalization groups. 

At the one-minute horizon, approximately 75% of the realized spread is captured for the smaller 

market capitalization groups. This echoes the results from the Proposing Release,1494 and also 

supports results from the academic literature, as one paper similarly recommends a shorter time 

horizon for large stocks and a longer time horizon for small stocks.1495  

Table 7: Cumulative Decline in Average Realized Spread, by Time Horizon 

  

  

Horizon 

Market Capitalization 

Group 

10ms-

5min($) 

50ms 1sec 15sec 1min 5min 

<$100 million 0.015 10.8% 15.7% 51.2% 77.4% 100.0% 

$100 million - $1 billion 0.014 8.1% 22.5% 51.7% 74.4% 100.0% 

$1 billion - $10 billion 0.018 8.3% 32.7% 67.6% 89.2% 100.0% 

>$10 billion 0.020 11.5% 45.3% 89.5% 105.8% 100.0% 

In order to examine the rate at which realized spreads decline across increasing time horizons, this table presents the difference between dollar 

realized spreads calculated using a 10-millisecond time horizon and realized spreads calculated using a five-minute time horizon, along with the 
cumulative percentage of this difference that realized at various intermediate time horizons (50 milliseconds, 1 second, 15 seconds, 1 minute, and 

5 minutes), using data from TAQ. Results are presented for stocks across different market capitalization groups. Measures grouped by size 

quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. See supra note 1238 for dataset 
description. This analysis uses data from prior to the implementation of the MDI Rules and numbers may be different following the 

implementation of the MDI Rules. See supra note 1493 and supra section IX.C.1.c)(2). 

Echoing the Commission’s statements in the Proposing Release, Table 7 also shows that, 

for smaller stocks, a sizeable proportion of the overall decline in realized spreads (around 23-

26%) does not occur until the five-minute horizon. Therefore, retaining the five-minute horizon 

 

1494  See Table 1 of the Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023).  

1495  See Conrad and Wahal, supra note 544. 



427 

will be useful in capturing additional information about realized spreads, particularly for the 

smallest stocks.1496  

Other commenters similarly stated that the Commission did not provide a basis for its 

selection of realized spread time horizons.1497 In response to commenters and to add robustness 

to its analysis, the Commission has expanded its analysis of optimal realized spread time 

horizons in this Adopting Release to include two additional empirical approaches. 

First, as described in section IX.C.3.c)(5), realized spreads can be decomposed into 

effective spreads and price impact. Price impact is designed to measure the change in a stock’s 

fundamental value following a trade; if a market maker is trading against a more informed trader, 

price impact will capture the adverse price movement for the market maker resulting from the 

incorporation of the informed trader’s private information into prices.1498 If the time horizon is 

too short, this change in the fundamental value will not yet be fully realized, and thus the 

measure of price impact (and thus the measure of realized spreads) will be deficient. On the other 

hand, if the time horizon is too long, measures of price impact and realized spread will 

incorporate too much noise. Therefore, an ideal time horizon for calculating the realized spread 

would be one that incorporates the lowest amount of noise into the measurement of the price 

 

1496  In the Proposing Release, the Commission stated that “requiring an additional specification of realized 

spreads would entail adding another data item, which would also increase the complexity of Rule 605 

reports.” Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). For this reason, the Commission is 

requiring only two of the five realized spread horizons to be included in the Summary Reports (see supra 

section IV.B.1.b). However, for the full Rule 605 reports, the Commission agrees with a commenter that 

the detailed Rule 605 reports are “intended to be machine-readable, not human-readable,” and that 

“[a]dding rows and columns to the Rule 605 report, within reason, would not materially increase the costs 

of processing these reports and storing the relevant data.” FIF Letter at 16.  

1497  See, e.g., Virtu Letter II at 14, stating that “it is unclear what the basis is for bluntly measuring realized 

spreads at 15 seconds and one minute;” and SIFMA Letter at 32, stating that “The Commission also has not 

provided a rational basis for its method of calibrating the realized spread time frames (i.e., 15 seconds and 

one minute).” 

1498  See supra note 1229 for an example. 



428 

impact component of realized spreads. To examine how the noise evolves over different time 

horizons, the Commission used the sample of TAQ data described above to examine the 

noisiness of measurements of price impact at different time intervals for different market 

capitalization groups,1499 measuring noise using the coefficient of variation (ratio of the standard 

deviation to the mean). The results are presented in Figure 22, which shows that the coefficient 

of variation of price impact decreases as the time horizon increases for smaller stocks, but 

increases as the time horizon increases for larger stocks. In other words, the time horizon that 

minimizes noise and best captures the inventory risk of liquidity providers varies depending on 

the market capitalization and liquidity of the stock. As a result, including multiple time horizons 

for realized spreads will make this measure more relevant across a wider range of stocks. 

 

1499  Following the academic literature, results are presented separately for different market capitalization groups 

as a proxy for different liquidity variables, with high market capitalization correlating closely with higher 

liquidity. See supra note 1239 and corresponding text. 



429 

Figure 22: Coefficient of Variation of Price Impact Measures Across Time Horizons and 

Market Capitalization, Q1 2023 

 

This figure plots coefficient of variation of price impact estimates across various time horizons, measuring the coefficient of variation as the ratio 

of the standard deviation of price impact measures within a time horizon to the mean measure of price impact. Price impact is measured as twice 
the signed different between the midpoint five minutes after an order’s execution minus the midpoint at an order’s time of execution. The 

measures are calculated using TAQ data for a sample of 400 stocks. Results are presented for stocks across different market capitalization groups. 

Measures grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each size quartile. See 
supra note 1493 for dataset description. This analysis uses data from prior to the implementation of the MDI Rules and results may be different 
following the implementation of the MDI Rules. See supra note 1493 and section IX.C.1.c)(2). 

Second, as an additional method for measuring the time horizon that minimizes the noise 

embedded in the price impact component of realized spread measures, the Commission used the 

sample TAQ data described above1500 to estimate the signal-to-noise ratio in price impact 

 

1500  See supra note 1238 for dataset description. 



430 

estimates using an Ordinary Least Squares (OLS) regression.1501 The regression is estimated 

separately for each time interval considered.1502 Subsequently, for each time interval, the signal-

to-noise ratio is measured as the ratio of the variation in price impact that is explained by the 

explanatory variables of the regression (the “signal”) to the standard deviation of the residual 

from the regression, i.e., the variation in price impact that is uncorrelated with the explanatory 

variables (the “noise”).1503 A higher signal-to-noise ratio corresponds to a more informative 

measure of price impact, and therefore a more informative measure of realized spread.1504  

Figure 23 presents these ratios over all the time intervals for four market capitalization 

groups and shows clear differences between smaller and larger stocks. First, it is clear from the 

figure that larger, more liquid stocks have more informative measures of price impact than 

smaller, less liquid stocks. Second, for the two smaller stock groups, the results show a small but 

steady increase in the signal-to-noise ratio as the time horizon increases, implying that realized 

spread measures are becoming more informative as the noise in the price impact component 

decreases. This result supports including a longer time horizon, i.e., 5 minutes, which maximizes 

 

1501  We regress price impact on explanatory variables identified as key drivers of price impact. Specifically, we 

include the (inverse of) trade price, logarithms of market capitalization and total trade volume, intra-day 

volatility and order imbalance, as well as the (logarithm of) share volume of retail trades and order 

imbalance of retail trades. These variables are similar to those in, e.g., A. Anand, P. Irvine et al., 

Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Costs, 25 REV. FIN. 

STUDS. 557 (2012) and G.W. Eaton et al., Measuring Institutional Trading Costs and the Implications for 

Finance Research: The Case of Tick Size Reductions, 139 J. FIN. ECON. 832 (2021). The regression is 

estimated using daily estimates at the stock level. 

1502  These time intervals are constructed using the following time horizons: 10 milliseconds, 50 milliseconds, 

100 milliseconds, 500 milliseconds, 1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 minutes.  

1503  The underlying assumption is that the systematic variation in price impact is fully explained by the 

explanatory variables described in note 1501, supra. It is possible that there are variables, not included in 

the regression and not sufficiently correlated with the included variables, that are systematically driving the 

variation in price impact. These variables would be captured in the regression residual, which would inflate 

the estimate of the noise. However, to the extent that the effects of these omitted variables are relatively 

constant across time horizons, this should not drive the patterns in the signal-to-noise ratios across time 

horizons observed in Figure 19 infra. 

1504  See, e.g., G.P. Swann, Is Precise Econometrics An Illusion?, 50 J. ECON. EDUC. 343-355 (2019). 



431 

the signal-to-noise ratio for these stocks.1505 Meanwhile, the largest stock group shows a 

different pattern: for these stocks, the signal-to-noise ratio is largely decreasing in the time 

horizon, meaning that realized spreads are less informative at longer intervals. This result 

supports including a shorter time horizon, i.e., 10 or 50 milliseconds. The fact that the analysis 

for the smallest market capitalization stocks supports the inclusion of the longest time horizon 

examined, while the analysis for the largest market capitalization group points to the inclusion of 

the shortest time horizon examined, supports the inclusion of multiple time horizons across a 

broad range. 

 

1505  Figure 23 also shows a slight and temporary increase in the signal-to-noise ratio between 1 to 10 seconds 

for the largest market capitalization group, which could imply that a 1-second horizon is as informative as a 

10 or 50 millisecond horizon. However, Figure 18 shows a monotonic increase in noise as the time horizon 

increases for the largest market capitalization group, implying that a shorter time horizon is always less 

noisy than a longer time horizon for these stocks. For this reason, there is additional value in including a 

time horizon that is shorter than one second.  



432 

Figure 23: Signal-to-Noise Ratios in Price Impact Measures by Market Capitalization and 

Time Horizon, Q1 2023 

 
This figure plots the estimated signal-to-noise ratios for different market capitalization groups over different time intervals. The signals and 
noises are estimated using the predicted values and residuals form regression analyses where price impacts are regressed on security and 

transaction characteristics. Signals are measured with the variation in the predicted values of price impacts while noises are measured using 

the variation in residuals. The analysis used data from TAQ, see supra note 1023 for dataset description. Measures are winsorized at the 5% 
and 95% level. Measures grouped by size quartile were calculated on a stock-day basis, then averaged by stock, then averaged within each 

size quartile. This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the 

implementation of the MDI Rules. See supra note 1025 and section IX.C.1.d)(2). 

 



433 

While some commenters supported the usefulness of realized spreads as a measure of 

order flow characteristics,1506 several commenters opposed the inclusion of realized spread 

statistics in amended Rule 605 reports.1507 One commenter stated that they “[do] not believe a 

one-size-fits-all metric can work” because “market participants all have different views as to 

what time period(s) is appropriate to measure realized spread, and this can also vary based on the 

specific symbol and type of order flow involved.”1508 The Commission agrees, and this is why 

the Commission is adopting a range of realized spread metrics, each with a different time 

horizon, such that consumers of Rule 605 reports will be able to use different realized spread 

according to their potentially different needs or preferences. Another commenter stated realized 

spreads “become largely useless when attempting to compare different types of order flow or 

market centers,” such as between on-exchange and off-exchange trading.1509 While the 

commenter did not clarify why realized spreads are not able to be used to compare different 

types of order flow, offering market participants a range of time horizons will help market 

participants control for differences in order flow and market conditions, as they will be able to 

choose the time horizons that best suit their needs and the reporting entities’ mix of stocks in 

 

1506  These commenters discussed the usefulness of realized spreads within the context of advocating for their 

inclusion in Rule 605 summary reports. In particular, one commenter stated that, when combined with 

effective spread statistics to calculate price impact, realized spreads “provide better transparency regarding 

the distinct characteristics of order flow among brokers.” Schwab Letter II at 3. Another commenter stated 

that “the impact of…order flow characteristics [such as whether orders are classified by market participants 

as more or less informed or the size of orders relative to a stock’s average daily value] can be measured, at 

least in part, through statistics such as realized spread and price impact.” FIF Letter at 31-32. 

1507  See, e.g., SIFMA Letter at 32; Virtu Letter at 12; Rule 605 Citadel Letter at 8. In addition, one commenter 

stated that they “do not believe realized spread is a key execution quality metric for retail investors.” 

Robinhood at 46. The Commission agrees that realized spread is not a measure of execution quality. As 

stated in the Proposing Release and elsewhere in this release, realized spreads are useful for allowing 

market participants to control for differences in adverse selection risk across different market centers. See, 

e.g., Proposing Release, 88 FR 3786 at 3853, n.701 (Jan. 20, 2023) and corresponding text.  

1508  See SIFMA Letter at 32. 

1509  See Citadel Letter at 8. 



434 

terms of size and liquidity. Offering a range of realized spread time horizons is also consistent 

with industry practice among market participants, who often use “mark-out curves” to compare 

across a range of time horizons, including at time horizons less than one second.1510 In addition, 

the Commission understands that the one-second time horizon is often used in industry,1511 and 

so including the one-second horizon in Rule 605 reports will help bring reported realized spreads 

in line with industry practice. 

(ii) Effective Spread 

The adopted amendment to require reporting entities to include information about 

average effective spreads for midpoint-or-better NMLOs,1512 in addition to market and 

marketable limit order types, will increase transparency about the availability of favorable 

executions for these types of orders.  

 

1510  See, e.g., Bringing the Power of Signal V6 to D-Limit, IEX (Oct. 31, 2023), available at 

https://www.iex.io/article/bringing-the-power-of-signal-v6-to-d-limit (looking at mark-outs ranging from 1 

millisecond to 1 minute); What Markouts Are and Why They Don’t Always Matter, supra note 551 

(looking at mark-outs ranging from 0 milliseconds to 1 minute); Securities Exchange Act Release No. 

98625 (Sept. 28, 2023), 88 FR 68711 at 68713 (Oct. 4, 2023) (SR-IEX-2023-10) (looking at mark-outs 

ranging from 1 millisecond to 1 second); The Midpoint Extended Life Order (M-ELO): M-ELO Holding 

Period, NASDAQ (Feb. 13, 2020, 3:57 P.M. EST), available at https://www.nasdaq.com/articles/the-

midpoint-extended-life-order-m-elo%3A-m-elo-holding-period-2020-02-13 (looking at mark-outs ranging 

from 0 milliseconds to 1 minute); MatchIt ATS Monthly Execution Metrics, VIRTU, available at 

https://www.virtu.com/about/transparency/ (last visited Feb. 1, 2024, 1:34 P.M.) (looking at mark-outs 

ranging from 500 milliseconds to 1 minute); and How Periodic Auctions Enhance Trading in Europe and 

the U.S., CBOE (Sept. 13, 2023), available at https://www.cboe.com/insights/posts/how-periodic-auctions-

enhance-trading-in-europe-and-the-u-s/ (looking at mark-outs ranging from 0 milliseconds to 1 second). 

1511  See, e.g., All-in Economics to Trade Are What Matters Most, supra note 551; PROOF’S PUBLIC-FACING 

TCA: LATEST RESULTS OVER ONE YEAR OF DATA, PROOFTRADING (Mar. 23, 2023), available at 

https://prooftrading.com/docs/tca-202303.pdf; and Securities Exchange Act Release No. 81484 (Sept. 28, 

2023), 88 FR 68711 at 68713 (Oct. 4, 2023) (SR-IEX-2023-10); Sean Spector & Tori Dewey, Minimum 

Quantities Part I: Adverse Selection, IEX (Nov. 11, 2020), available at 

https://www.iex.io/article/minimum-quantities-part-i-adverse-selection; and Diana Kafkes et al., Applying 

Artificial Intelligence & Reinforcement Learning Methods Towards Improving Execution Outcomes 

(working paper Oct. 10, 2022), available at https://ssrn.com/abstract=4243985 (retrieved from SSRN 

Elsevier database). 

1512  See final 17 CFR 242.605(a)(1)(ii)(B); see also supra section III.B.4.b)(2). 



435 

For midpoint-or-better NMLOs, the high percentage of these orders submitted with IOC 

designations shown in Table 4 implies that a significant portion of these orders have the 

expectation of executing immediately, for example, against hidden or odd-lot liquidity inside of 

the spread. By definition, midpoint-or-better NMLOs will have an effective spread that is either 

zero (if at-the-midpoint) or positive (if beyond-the-midpoint), reflecting that the more aggressive 

of these orders are paying a higher percentage of the spread for this immediacy.1513 If a market 

center is offering lower effective spreads for midpoint-or-better NMLOs on average, that means 

that the market center is able to execute these orders closer to the midpoint, e.g., because the 

market center has liquidity available within the spread, or, in the case of wholesalers, the market 

center is willing to offer price improvement to beyond-the-midpoint orders and execute them at 

the midpoint. Therefore, information about effective spreads for midpoint-or-better NMLOs will 

allow traders that use these orders as part of their trading strategies (and their broker-dealers) to 

make comparisons across market centers based on the profitability of these strategies.  

One commenter disagreed that price improvement information for beyond-the-midpoint 

orders will be useful for comparing across market centers because some of the price 

improvement of these orders is driven by the order’s limit price, which is controlled by the 

 

1513  By contrast, NMLOs that are priced worse than the midpoint will tend to have negative effective spreads 

(i.e., a gain). The Commission proposed including effective spreads for all NMLOs, and stated that 

effective spreads for NMLOs can be negative. Further, the Commission characterized the effective spread 

for NMLOs as a measure of “how much customers can expect to be compensated for providing liquidity.” 

Proposing Release, 88 FR 3786 at 3869 (Jan. 20, 2023). One commenter stated that “[t]he effective spread 

is not widely accepted as a meaningful measure of execution quality for NMLOs,” and that “[f]or orders 

submitted outside of the NBBO, the metric essentially amounts to negative one times the quoted spread at 

the moment the order becomes executable.” Virtu Letter at 14. The Commission agrees that this is the case. 

Furthermore, this will also be the case for orders submitted at the NBBO as well. Thus, for these orders, 

effective spread is a less meaningful measure of execution quality than for midpoint-or-better NMLOs, and 

thus is not adopting a requirement for effective spreads to be reported for NMLOs submitted at or below 

the NBBO.  



436 

investor, and not the market center.1514 The Commission agrees with the commenter that some of 

the price improvement for midpoint-or-better NMLOs, including the average effective spread, 

will be driven by the average limit prices of these orders received by a market center.1515 This 

may make it so that a reporting entity that consistently handles more aggressively priced 

midpoint-or-better NMLOs reflects higher effective spreads on average. However, the 

Commission disagrees that this will make it so that these measures will not be comparable across 

reporting entities. To the extent that a market center is able to improve upon a midpoint-or-better 

order’s limit price by, e.g., offering better-priced liquidity within the spread and/or by offering 

the order price improvement, this will be reflected in and result in a better effective spread 

measure for that market center.  

One commenter stated that “the effective spread is not widely accepted as a meaningful 

measure of execution quality for NMLOs,” and “does not measure a dimension of execution 

quality that is likely to differ across market centers” because “the NBBO midpoint at the moment 

the NBBO first touches the limit price…mechanically must be the same on every market 

center.”1516 The commenter also states that “[f]or orders submitted outside of the NBBO, the 

metric essentially amounts to negative one times the quoted spread at the moment the order 

becomes executable.”1517 The Commission agrees that the distance between a NMLO’s limit 

price and the NBBO will be the same across any market center, and also agrees that effective 

 

1514  See Schwab Letter at 32. 

1515  This is true of all inside-the-quote NMLOs that are posted to the limit order book. For these orders, since 

the effective spread is measured using the midpoint as of the time of order executability (see final 17 CFR 

242.600(b)(8)), the effective spread will simply be equal to the signed difference between the limit price 

and the midpoint at the time of executability, which, for inside-the-quote NMLOs, will be equivalent to the 

time of order submission.  

1516  See Virtu Letter II at 14.  

1517  See Virtu Letter II at 14. 



437 

spreads may not be a meaningful measure of execution quality for NMLOs submitted outside of 

the NBBO for the reason referenced by the commenter. However, since midpoint-or-better 

NMLOs are able to transact at prices better than their limit prices (e.g., if there is liquidity 

available inside the quote), effective spreads for midpoint-or-better NMLOs will differ according 

to a market centers’ ability to offer inside-the-quote liquidity or to execute beyond-the-midpoint 

orders at the midpoint. Therefore, while the Commission agrees with the commenter that 

effective spreads may not be a meaningful measure of execution quality NMLOs submitted at or 

outside of the NBBO, there are benefits to including information about effective spreads 

narrowly for midpoint-or-better NMLOs. 

(iii) Percentage Spreads (Effective and Realized) 

The adopted amendment requiring reporting entities to report average effective spreads 

and average realized spreads in percentage terms,1518 in addition to the preexisting requirement to 

report them in dollar terms,1519 will allow market participants to evaluate and compare the actual 

per-share dollar premium paid (or amount earned) captured by the spread, and use average 

percentage measures to compare aggregate spreads across broker-dealers that handle different 

mixes of stocks and/or stocks with significant price volatility.1520 Since average spread measures 

represent a per-share cost, the real costs to (or premiums earned by) investors captured by 

average spread measures can be very different, depending on the stock price.1521 Percentage 

 

1518  See final 17 CFR 242.605(a)(1)(i)(P), (R), (T), (V), and (X).  

1519  See prior 17 CFR 242.605(a)(1)(i)(K) and (a)(1)(ii)(A). 

1520  This was supported by a commenter, who stated that “percentage-based spread measures would provide 

additional information at the individual stock level where there is a significant price change during a 

month.” Better Markets Letter at 9. 

1521  See supra note 1247 and accompanying text for an example showing that the total cost of accumulating the 

same position in terms of dollar value in two stocks with the same per-share dollar effective spread can 

differ significantly in terms of total transaction costs if one stock is priced much lower than the other. 



438 

average spread measures, on the other hand, will better account for these differences in stock 

prices.1522 As different reporting entities handle and/or transact in different mixes of stocks with 

varying prices, including information about average percentage spreads will make it possible for 

market participants who want to compare reporting entities’ overall spread measures or their 

spread measures for baskets of stocks to aggregate average spreads for a variety of stocks with 

varying prices.1523 This will facilitate a more apples-to-apples comparison of both average 

effective and average realized spreads across reporting entities. Requiring information on the 

average percentage effective spread in addition to the average effective spread will facilitate 

more apples-to-apples comparisons of execution prices across reporting entities, permitting 

greater competition and resulting in lower effective spreads, i.e., better execution prices. 

(iv) Effective Over Quoted Spread (E/Q) 

The adopted amendment requiring reporting entities to include information on effective 

over quoted spreads1524 will increase market participants’ access to information about price 

improvement. The Commission understands that the effective over quoted spread (E/Q) is a 

 

1522  See example in supra note 1247. While the $250 stock and the $2.50 stock would have the same average 

effective spread, the average percentage effective spreads of these stocks would be 0.004% and 0.4%, 

respectively, which indicates that investors would face higher costs from accumulating a position in the 

$2.50 stock than they would from accumulating an equal-value position in the $250 stock. 

1523 While the main purpose of Rule 605 is to facilitate comparisons across reporting entities on the basis of 

execution quality within a particular security, the Commission understands that access to aggregated 

information is useful for market participants. The adopted amendment to require reporting entities to 

prepare summary reports that aggregate execution quality information for S&P 500 stocks, along with all 

NMS stocks, will give market participants access to aggregate effective spreads for one commonly used 

basket of stocks. Meanwhile, per-stock percentage spread information will enhance market participant’s 

ability to aggregate effective spread information across baskets of stocks other than the S&P 500. 

1524  See final 17 CFR 242.605(a)(1)(ii)(D); see also supra section III.B.4.d)(2). 



439 

measure often used in industry practice.1525 Therefore, including this measure will improve upon 

the accessibility of price improvement information contained in Rule 605 reports by making 

more readily available a measure that is already used and well understood by industry 

participants.1526 This is expected to result in increased competition on the basis of execution 

prices, which is expected to result in improved execution prices. 

Consistent with commenters’ suggestions,1527 the Commission is adopting a spread-

weighted average E/Q statistic, which is equivalent to the average effective spread divided by the 

average quoted spread, expressed as a percentage.1528 As stated by commenters, a key benefit of 

spread-weighted average E/Q statistics is that this method of weighting avoids the possibility that 

a market center could improve its E/Q statistics simply by reallocating its price improvement 

away from wide-spread stocks and to stocks with narrower spreads.1529 To see this, consider a 

market center that executes 100-share trades in two stocks with very different spreads: Stock A 

with a quoted spread of $0.02, and Stock B with a quoted spread of $1.00. The market center 

offers both trades $0.01 of price improvement per share. Using a weighting scheme other than 

 

1525  See, e.g., About Us: Brokerage Built for You, VANGUARD, available at 

https://investor.vanguard.com/about-us/brokerage-order-execution-quality (last visited Feb. 1, 2024, 1:41 

P.M.). This was also confirmed by one commenter; see Schwab Letter at 3, stating that E/Q is a “very 

common metric used within the industry to judge execution quality.”  

1526  Several commenters supported the idea that E/Q is a useful measure of price improvement. See, e.g., Better 

Markets Letter at 9; Vanguard Letter at 4; Schwab Letter at 31.  

1527  See, e.g., FIF Letter at 23-24; Rule 605 Citadel Letter at 5; Schwab Letter at 31; and Schwab Letter II at 4. 

1528  To see this, consider that the formula for calculating the spread-weighted average E/Q in the case of two 

trades of size s1 and s2 with per-share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2, 

would be [s1Q1/(s1Q1 + s2Q2) × (s1E1/s1Q1)] + [s2Q2/(s1Q1 + s2Q2) × (s2E2/s2Q2)]. This simplifies to (s1E1 + 

s2E2)/(s1Q1 + s2Q2), which is equivalent to the average effective spread divided by the average quoted 

spread. This result holds irrespective of the number of trades. 

1529  See, e.g., FIF Letter at 23-24; Rule 605 Citadel Letter at 5; Schwab Letter at 31; and Schwab Letter II at 4.  



440 

spread-weighting, such as share-weighting,1530 the market center’s average E/Q would be 0.5 * 

($0.00/$0.02) + 0.5 * ($0.98/$1.00) = 49%. The market center could lower its average E/Q by 

simply reallocating the $0.01 of price improvement it offered to Stock B to Stock A; in this case, 

its average E/Q would be 0.5 * (-$0.02/$0.02) + 0.5 * ($1.00/$1.00) = 0%.1531 This illustrates 

that share-weighting would allow a market center to improve its E/Q substantially by 

reallocating price improvement from wide-spread stocks to narrow-spread stocks, even though 

the dollar amount of price improvement that it offered to market participants did not change. 

With spread-weighting, however, the market center’s E/Q after offering $0.01 to each stock 

would be 94.2%; after the reallocation of price improvement from Stock B to Stock A, the 

spread-weighted average E/Q would also be 94.2%.1532 In other words, the market center will not 

be able to improve its E/Q simply by reallocating its dollar price improvement among stocks 

with different spreads. This will lead to a more accurate measure of execution quality that is 

better able to facilitate comparisons of E/Q across market centers.  

Several commenters suggested that Rule 605 reports not include E/Q and leave it to users 

of the report to calculate E/Q from other statistics.1533 In the Proposing Release, the Commission 

stated that, while E/Q can already be calculated from data that are already required by 

 

1530  The formula for calculating the share-weighted average E/Q in the case of two trades of sizes s1 and s2, with 

per-share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2, would be [s1/(s1 + s2) × 

(E1/Q1)] + [s2/(s1 + s2) × (E2/Q2)]. 

1531  A lower E/Q corresponds to a better execution quality, as the trader whose order is being executed is 

paying a smaller percentage of the spread. 

1532  See supra note 1528 for the formula for calculating spread-weighted E/Q in the case of two trades. 

1533  See FIF Letter at 20-21 (stating that for marketable order types, it is not necessary to include E/Q in the 

detailed reports required by Rule 605(a)(1) because E/Q can be derived from other data that are already 

included and these data, specifically, are found in the price improvement, price dis-improvement, and 

effective spread statistics); Schwab Letter at 31 (suggesting that the reports include effective and quoted 

spread and then allow individuals to compute E/Q).441 

preexisting Rule 605,1534 calculating a share-weighted monthly average E/Q as the ratio of 

average effective spread to average quoted spread produces a noisier E/Q measure than one 

calculated on a per transaction basis.1535 The Commission made this statement in reference to the 

use of this ratio as an approximation of a share-weighted measure of E/Q, as was proposed. For 

spread-weighted measures of E/Q, the formula for aggregating per-transaction measures of E/Q 

simplifies to precisely the ratio of average effective spreads to average quoted spreads.1536 

Therefore, this issue of the usage of existing Rule 605 data producing a “noisy” approximation of 

E/Q is not relevant to the adopted amendment. Nevertheless, requiring a separate field for E/Q 

will increase the ability of market participants to access and utilize E/Q.1537 Furthermore, the 

Commission agrees with a commenter that adding rows and columns to the Rule 605 report will 

not substantially increase the costs to data users of processing these reports and storing the 

relevant data.1538 The added rows and columns will be part of the same machine-readable file 

using the same pipe-delimited ASCII format as the existing rows and columns, so data users will 

not incur any costs associated with converting between formats in order to store and use the 

newly reported information. Therefore, the marginal cost to data users of including E/Q as an 

 

1534  See Proposing Release, 88 FR 3786 at 3817, n.399 (Jan. 20, 2023): “[Share-weighted] average quoted 

spread can be derived on a per symbol basis by adding average effective spread and double the amount of 

total average per share price improvement or dis-improvement (i.e., amount of price improvement times 

price improved share count, less amount of price dis-improvement times price dis-improved share count, 

divided by total number of executed shares).” 

1535  To see this, consider a market center that, in a given month, executes two orders of sizes s1 and s2, with per-

share effective spreads E1 and E2 and per-share quoted spreads Q1 and Q2. The formula for the share-

weighted average E/Q is given in supra note 1530. Approximating the share-weighted average E/Q from 

share-weighted average effective and quoted spreads would yield [s1/(s1 Q1 + s2 Q2) × E1] + [s2/(s1 Q1 + s2 

Q2) × E2]. 

1536  See supra note 1528 for the formula for calculating spread-weighted E/Q in the case of two trades. 

1537  See supra section III.B.4.d)(2) for further discussion. 

1538  See supra note 1496 and corresponding text for further discussion.  



442 

additional column should be minimal. Because of the amended rule requiring the reporting of 

average quoted spread,1539 market participants will also be able to compare the spread-weighted 

average E/Q column directly to the columns containing average quoted spreads and average 

effective spreads.1540  

(v) Size Improvement 

The adopted amendment expanding Rule 605 reporting requirements to include measures 

of size improvement will provide market participants with more information about an additional 

dimension of execution quality that has not been not fully captured by preexisting Rule 605 

statistics.1541 We expect this to be beneficial for evaluating execution of larger-sized orders, as 

these orders are the most likely to exceed the liquidity available at the best quotes and are 

therefore in a position to benefit the most from size improvement.  

The adopted amendment will require reporting entities to report, for executions of 

covered shares, a benchmark metric calculated as the consolidated reference quote size, capped 

at the size of the order at the time of order receipt (or order executability in the case of 

 

1539  See final 17 CFR 242.605(a)(1)(ii)(A). 

1540  See, e.g., Professor Spatt et al. Letter, stating that “quoted spreads, for example, are critical for 

understanding and weighting both effective spreads and EFQ ratios.” 

1541  This was also supported by one commenter, who stated that “[i]ncluding size improvement metrics will 

provide market participants with important information about an additional dimension of execution quality 

that is not currently captured by current Rule 605 statistics.” Rule 605 Citadel Letter at 11. Another 

commenter stated that, along with other enhancements, the inclusion of the size improvement metric would 

“improve order execution information available for market participants to make trading and order routing 

decisions…” SIFMA Letter II at 25.  



443 

marketable stop orders and midpoint-or-better orders) (“order size benchmark”).1542 Subtracting 

the order size benchmark from number of submitted shares yields “outsized share count” – a 

measure of the opportunity to provide size improvement.1543 In response to a commenter, Rule 

605 reports as amended will also include a size improvement metric that will measure the level 

of size improvement in those instances in which the order presents an opportunity for size 

improvement (the “size improved outsized shares”).1544 Dividing size-improved outsized shares 

by outsized share count yields the number of shares that receive size improvement (on orders in 

 

1542  See final 17 CFR 242.605(a)(1)(ii)(R). As discussed in supra section III.B.4.e)(2), this metric is designed to 

capture whether the depth available at the best market prices is sufficient to fully execute against a given 

order, or whether the order would need to walk the book to fully execute. Since size improvement is 

measured using NBBO depth at the time of order receipt, a marketable limit order that partially executes, is 

posted to the limit order book, and then fully executes later, will be reflected in size improvement statistics. 

For example, assume that a market center receives a 500-share marketable limit order when there are 300 

shares available at the NBBO. The market center executes 300 of the 500 shares against the available depth 

and posts the remaining 200 shares to the limit order book, which becomes the new NBBO. A market order 

subsequently executes against those 200 shares. Since size improvement is based on order receipt time, the 

market center would record an order size benchmark of 300, 500 shares executed at the NBBO or better, 

and thus a size-improved outsized share count of 200 shares. 

1543  Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. Continuing the example 

from supra note 1557, while both Market Centers A and B would show a size improvement share count of 

0, Market Center A will show an outsized share count of 500–500=0, while Market Center B will show an 

outsized share count of 500–300=200.  

1544  See final 17 CFR 242.605(a)(1)(ii)(S), requiring the reporting of “the sum of, for each execution of a 

covered order, the greater of: the total number of shares executed with price improvement plus the total 

number of shares executed at the quote minus the order size benchmark, or zero.” The “total number of 

shares executed with price improvement plus the total number of shares executed at the quote minus the 

order size benchmark” (“net size improvement”) will only be a strictly positive number for those orders 

that are both eligible to receive size improve and receive size improvement, and thus is equivalent to a 

measure of shares that are eligible to and that received size improvement. To see this, consider that an order 

(“Order A”) whose size is less than the available NBBO depth will have a net size improvement of 0, an 

order (“Order B”) that is not executed despite available depth (or is executed as prices worse than the 

NBBO) will have a negative net size improvement, and an order (“Order C”) whose size exceeds the 

available NBBO depth by 300 shares and receives price improvement on those 300 shares will have a net 

size improvement of 300 shares. Capping the net size improvement for these three orders at zero and then 

summing then would only capture the net size improvement for that order that was eligible to receive size 

improvement and that received size improvement, i.e. 0 + 0 + 300 shares. A substantively similar measure 

(“the number (or percentage) of shares within the outsized orders that received size improvement (i.e., were 

executed at or better than the NBBO price, in excess of the amount of aggregate displayed liquidity at the 

NBBO)”) was suggested by a commenter. See Virtu Letter at 10. To the extent that the metric suggested by 

the commenter could capture size dis-improvement (i.e., negative values of net size improvement), this 

metric may not be equivalent to the size improved outsized share count. 



444 

which size improvement is possible) as a fraction of the number of shares for which there is an 

opportunity to provide size improvement.  

If information about size improvement were already captured by preexisting Rule 605 

statistics, the addition of the order size benchmark and information about size improved outsized 

shares would not increase transparency. To examine the extent to which size improvement 

measures calculated using these metrics will contain information that is different from measures 

required by preexisting Rule 605, data from the Tick Size Pilot B.II Market and Marketable 

Limit Order dataset1545 were analyzed to calculate the average correlation1546 between price 

improvement, effective spreads, and the size improved outsized shares divided by the outsized 

 

1545  See Tick Size Pilot Plan, supra note 1115. This dataset contains information for approximately 2,400 small 

cap stocks for a period from Apr. 2016 to Mar. 2019. Orders with special handling codes are discarded, as 

are orders marked as short sales (“SS”). As the Tick Size Pilot collected data only for small cap stocks, 

these execution times are not necessarily representative of all stocks. The Commission limited this analysis 

to a randomly selected sample of 100 stocks and for the time period of Mar. 2019. This dataset was then 

merged with MIDAS data to obtain the consolidated depth available at the NBBO at the time of the market 

and marketable limit order submissions, along with data on odd-lots and consolidated volume at prices 

outside of the NBBO. This analysis uses data from prior to the implementation of the MDI Rules and the 

specific numbers may be different following the implementation of the MDI Rules. In particular, for certain 

stocks, the NBBO quoted spread is expected to narrow, the liquidity available at the NBBO may decrease, 

and the NBBO midpoint may change, though the Commission is uncertain of the direction of this effect. 

This may impact statistics that are based on these values, including measures of price and size improvement 

and effective spreads. See supra section IX.C.1.c)(2). However, it is unclear whether or how these effects 

would impact the correlations between these measures documented in this analysis. 

1546  Correlation is calculated using the Pearson correlation coefficient, which measures the linear correlation 

between two sets of data, ranging from -1 to 1, with -1 representing perfect negative correlation and 1 

representing perfect positive correlation. To construct a measure of average correlation, the Pearson 

correlation coefficient is first calculated for each pair of execution quality metrics, for each market center-

stock combination. Then value-weighted average correlation coefficient across all stocks for each market 

center is constructed, using dollar volume as weights. The resulting correlation coefficients are then 

averaged across market centers using an equal-weighted average. 



445 

share count (“outsized size improvement rate”).1547 As national securities exchanges and off-

exchange market centers differ in the extent to which they can offer size and price improvement, 

the Commission performed this analysis separately for these two different types of market 

centers. 

Results are presented in Table 81548 and show that, for both national securities exchanges 

and off-exchange market centers, effective spreads are modestly (negatively) correlated with 

price improvement, confirming that effective spreads contain some of the same information as 

price improvement measures. However, this correlation is nearly zero for the outsized size 

improvement rate, implying that effective spreads are a poor measure of size improvement.  

 

1547  See final 17 CFR 242.605(a)(1)(ii)(S), requiring the reporting of the greater of the net size improvement 

rate and zero. See also supra note 1544. The size improved outsized shares are divided by the outsized 

share count to control for differences in size improvement opportunities at different market centers. For 

example, if Market Centers A and B both have 200,000 size improved outsized share counts, but Market 

Center A has an outsized share count of 800,000, and Market Center B has an outsized share count of 

1,800,000, Market Center A will be offering a higher rate of size improvement since it had fewer 

opportunities to provide size improvement. To capture this, the size improved outsized share count is 

divided by the outsized share count, such that Market Center A will have an outsized size improvement rate 

of 200,000/800,000 = 25% and Exchange B will have an outsized size improvement rate of 

200,000/1,800,000 = 11%. This difference recognizes that Exchange A and Exchange B provided size 

improvement to the same number of shares, but Exchange A gave size improvement to a larger percentage 

of its orders for which there was an opportunity to provide size improvement.  

1548  This analysis has been updated from the Proposing Release; see Proposing Release, 88 FR 3786 at 3871 

(Jan. 20, 2023). In the Proposing Release, the measure of size improvement used in the analysis was 

constructed as the net size improvement divided by the order size benchmark. In response to commenters, 

the measure of size improvement used in the analysis in Table 8 has been updated in two ways. First, the 

size improvement measure has been updated to include outsized share count in the denominator, rather than 

the order size benchmark. As pointed out by commenters, since the order size benchmark contains 

information about the volumes of orders that do not have an opportunity to receive size improvement, 

dividing size improvement metrics by this number will dilute measures of size improvement. See supra 

note 1555 and corresponding text for further discussion. Second, the size improvement measure has been 

updated to use the size improved outsized share count in the numerator, rather than net size improvement. 

This is because net size improvement contains information about size dis-improvement, which can be 

negative even for orders that do not have an opportunity to receive size improvement. See supra note 1544 

for further discussion. Using the size improved outsized share count focuses the analysis on those orders 

that are eligible to receive size improvement and receive size improvement. The Commission is amending 

Rule 605 to include the size improved outsized share count in response to a commenter, who suggested a 

similar measure. See Virtu Letter at 10; see also supra note 1544. However, both size improvement 

measures lead to similar average correlations, and thus these changes did not affect the Commission’s 

conclusions from this analysis relative to the Proposing Release, namely that price improvement and size 

improvement each convey different information about execution quality. 



446 

Table 8: Average Correlation between Measures of Price and Size Improvement 

Variables National 

Securities 

Exchanges 

Off-Exchange 

Market Centers 

Price Improvement and Effective Spreads -0.257 -0.205 

Outsized Size Improvement Rate and Effective Spreads -0.001 0.026 

Price Improvement and Outsized Size Improvement 

Rate 
0.024 0.022 

This table presents correlations between three measures of price improvement and size improvement: price improvement, 

calculated as the signed difference between the execution price and the NBBO; the effective spread, calculated as twice the 

signed difference between the execution price and the NBBO midpoint; and the outsized size improvement rate, calculated as 

size improved outsized shares divided by the outsized share count (see supra note 1547 and accompanying text for a detailed 

description of the latter two measures). This analysis uses data from the Tick Size Pilot B.II Market and Marketable Limit 

Order dataset. See supra note 1545 for dataset description and supra note 1546 for methodology. To construct a measure of 

average correlation, the Pearson correlation coefficient is first calculated for each pair of execution quality metrics, for each 

market center-stock combination. Then value-weighted average correlation coefficient across all stocks for each market center 

is constructed, using dollar volume as weights. The resulting correlation coefficients are then averaged across market centers 

using an equal-weighted average. This analysis uses data from prior to the implementation of the MDI Rules and results may 

be different following the implementation of the MDI Rules. See supra note 1545 and section IX.C.1.c)(2). 

The correlation between price improvement and the outsized size improvement rate is 

comparatively low. The fact that price improvement and size improvement metrics are not 

strongly correlated implies that each of these measures to some degree conveys different 

information about execution quality. Therefore, including the order size benchmark and size 

improved outsized shares into Rule 605 reporting requirements will provide market participants 

with more information about an additional dimension of execution quality that was not fully 

captured by Rule 605 statistics prior to these amendments. 

The Commission expects that these amendments will improve execution quality in terms 

of size improvement by increasing the extent to which market centers and broker-dealers 

compete with one another on the basis of their ability to offer size improvement. In order to 

attract broker-dealer order flow, market centers will be incentivized to compete on the basis of 

size improvement, for example by executing orders against their own inventory at or better than 

the NBBO, or offering additional incentives to attract hidden liquidity priced at or better than the 

NBBO. Investors that particularly value the ability of reporting entities to offer size 

improvement, such as investors trading in larger order sizes, will be able to use this metric to 



447 

discern which reporting entity might offer better size improvement to their orders, which will 

allow them to make better routing decisions and obtain increased size improvement as a 

result.1549 As a result, competition on the basis of size improvement among reporting entities is 

expected to increase in order to attract these customers and their orders. 

One commenter stated that “[to] accurately identify size improvement not only would 

proprietary depth of book feeds be required, the statistic would be misleading as it would not 

reflect…top of book across public quotes, nor would it reflect hidden or mid-point priced orders 

which are extremely prevalent in today’s market if sole reliance was on the SIP.”1550 The 

Commission acknowledges that the adopted measures of size improvement in some cases will 

not be as informative as a measure that incorporates full depth-of-book information.1551 The 

Commission also acknowledges that it might not reflect top of book across public quotes,1552 or 

reflect hidden liquidity. However, the adopted measures will not be misleading as stated by the 

commenter,1553 but will be useful for investors for the reasons given above. For example, size 

improvement statistics for exchanges will account for hidden liquidity, and therefore, by 

 

1549  See supra note 1257 for an example of how a size improvement measure might be useful for a trader when 

deciding between different market centers.  

1550  See Healthy Markets Letter at 18. 

1551  See infra sections IX.E.3.d)(1) and IX.E.3.d)(2) for a discussion of two reasonable alternatives related to 

including dollar size improvement relative to full depth-of-book in amended Rule 605 reports. 

1552  For example, if Exchange A's top-of-book is quoting $10.00-$10.01 and sets the NBBO, and Exchange B’s 

top-of-book is quoting $9.99-$10.02, the adopted size improvement measures will only include volume 

quoting at $10.00-$10.01. Depth quoted at $9.99-$10.02, while protected, will not be incorporated into the 

adopted size improvement metrics. See 17 CFR 242.600(b)(70) for the definition of a protected bid and 

protected offer. 

1553  See Healthy Markets Letter at 18. 



448 

comparing size improvement across exchange and off-exchange market centers, investors could 

account for the effects of hidden liquidity.1554 

One commenter stated that the proposed size improvement benchmark metric “is not a 

useful measure of the actual size improvement,” because the benchmark measure will “include 

all orders in the calculation, even when there is no opportunity to provide size improvement,” 

which “dilutes the amount and obfuscates the value of size improvement provided when the need 

for size improvement actually exists.”1555 The commenter suggested that the Commission 

consider requiring the reporting of several additional metrics that are “not affected by orders in 

which there was no need to provide size improvement.”1556 

The Commission agrees that whether there was an opportunity to provide size 

improvement is an important aspect of an analysis of size improvement.1557 The Commission is 

adopting a metric (the size-improved outsized shares) that is substantively similar to the 

commenter’s suggested metric, namely the number of shares within outsized orders that receive 

 

1554  Since information about hidden liquidity is not publicly available, even a size improvement measure that 

incorporate full depth-of-book information would not incorporate information about hidden liquidity. The 

Commission acknowledges that, to the extent that including measures of size improvement in Rule 605 

reports incentivizes hidden liquidity at the cost of displayed orders, this represents a potential cost of the 

amendments, though the Commission does not believe that this scenario is likely. See infra section 

IX.D.2.b)(3) for a full discussion. 

1555  See Virtu Letter at 10.  

1556  See Virtu Letter at 10.  

1557  To see this, consider two market centers, A and B, that both receive a market sell order for 500 shares. 

When Market Center A receives the order, there are 600 shares available at the NBB, and Market Center A 

executes the entire 500-share order at the NBB. Meanwhile, while Market Center B receives the order, 

there are 300 shares available at the NBB. Market Center B executes 300 of the 500 shares at the NBB, and 

the remaining 200 shares walk the book. Both market centers would similarly show a size improvement 

share count of 0. However, this would not capture the fact that Market Center A never had the opportunity 

to provide size improvement (because the NBB depth was sufficient to fill the order), and Market Center B 

did not provide size improvement, though it had the opportunity to do so.  



449 

size improvement.1558 The Commission observes further that the opportunity to provide size 

improvement can be calculated using a combination of two metrics that will be available in the 

amended reports: number of submitted shares and benchmark order size. Subtracting the order 

size benchmark from number of submitted shares yields “outsized share count” – a measure of 

the opportunity to provide size improvement.1559 Because the benchmark order size is capped at 

the order size, and thus will be equal to zero for orders sized below available NBBO depth, the 

outsized share count will be the same number regardless of whether it includes all orders or only 

all outsized orders. Dividing size-improved outsized shares by outsized share count yields the 

number of shares that receive size improvement (on orders in which size improvement is 

possible) as a fraction of the number of shares for which there is an opportunity to provide size 

improvement. It is thus a measure of size improvement diluted by orders for which there were no 

opportunities to provide size improvement. 

Another commenter was critical of the benefits of the proposed size improvement 

measure because “it would indicate only whether and the number of shares for which size 

improvement was achieved,” and “it would not indicate whether and to what extent such size 

improvement increased the amount of price improvement.”1560 The Commission acknowledges 

that the measures of size improvement included in the amended rule will measure size 

improvement in terms of numbers of shares, and not in terms of a dollar value of price 

 

1558  See Virtu Letter at 10, stating “the number (or percentage) of shares within the outsized orders that 

received size improvement (i.e., were executed at or better than the NBBO price, in excess of the amount of 

aggregate displayed liquidity at the NBBO).” This measure is substantively similar to the measure of size 

improved outsized shares included in the amended rule. See final 17 CFR 242.605(a)(1)(ii)(S). 

1559  Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. Continuing the example 

from supra note 1557, while both Market Centers A and B will show a size improvement share count of 0, 

Market Center A will show an outsized share count of 500–500=0, while Market Center B will show an 

outsized share count of 500–300=200.  

1560  See CCMR Letter at 12.  



450 

improvement resulting from size improvement. The Commission considered but is not adopting 

several alternatives that would measure size improvement in terms of a dollar amount of price 

improvement.1561 Market participants will be able to assess some information about price 

improvement from the price improvement statistics included in the amended reports, though 

these measures of price improvement will not consider prices and depth beyond those at or inside 

of the NBBO.1562 

(vi) Riskless Principal Trades 

The adopted amendment requiring that market centers include riskless principal trades in 

the category of trades executed away from the market center1563 will increase transparency about 

internalization by wholesalers, as information on the extent to which wholesalers internalize 

order flow has been obscured by the preexisting Rule 605 requirement to include riskless 

principal trades into the category of trades executed at, rather than away from, the market 

center.1564 Market participants will be more informed about potential differences in execution 

quality between wholesalers that largely internalize order flow as compared to those whose 

orders are subject to competition from other interested parties quoting on external market 

centers.  

One commenter stated that the statement in the Proposing Release that “execution quality 

statistics would be more informative to market participants”1565 as a result of the re-classification 

 

1561  See infra sections IX.E.3.d)(1) and IX.E.3.d)(2). 

1562  This includes, for example, price improvement relative to the NBBO, price improvement relative to the 

best displayed price, and the effective spread. See final 17 CFR 242.605(a)(ii)(B), (F), and (M).  

1563  See final 17 CFR 242.605(a)(1)(i)(F).  

1564  See supra section IX.C.3.c)(10) for a discussion of how classifying riskless principal trades in the category 

of executions taking place at the market center may have obscured the extent to which wholesalers 

internalize order flow prior to these amendments. 

1565  See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). 



451 

of riskless principal trades was “misleading,” because “[t]he execution quality metrics reported 

under Rule 605 correctly take into account all orders routed to a wholesale broker-dealer 

(irrespective of where execution occurs)” and “[t]his would not change under the Proposal.”1566 

The Commission agrees that the calculation of execution quality metrics takes into account both 

executions at and away from the reporting center, and that this will not change after the re-

classification of riskless principal trades. However, as the Commission stated in the Proposing 

Release, requiring the separate reporting of riskless principal transactions from executions at the 

market center will be useful “when interpreting and comparing information about wholesalers’ 

execution quality.”1567 For example, if market participants observe a persistent difference in 

execution quality between wholesalers that largely internalize order flow and wholesalers that 

execute most on a riskless principal basis, they may surmise that this difference in execution 

quality is driven at least in part by the levels of internalization. In this way, execution quality 

statistics will be more informative. 

(vii) Price Improvement  

The amendment to Rule 605 requiring, for marketable order types (i.e., market, 

marketable limit, and marketable IOC orders), as well as for midpoint-or-better limit orders, 

reporting entities to disclose price improvement statistics using the best available displayed price 

as the benchmark1568 will give market participants access to price improvement information 

relative to a benchmark price that more accurately reflects liquidity available in the market. For 

example, if a market center internalizes an order with $0.05 of price improvement relative to the 

 

1566  See Rule 605 Citadel Letter at 10. 

1567  See Proposing Release, 88 FR 3786 at 3858 (Jan. 20, 2023). 

1568  See final 17 CFR 242.600(b)(14) (defining the “best available displayed price”) and 242.605(a)(1)(ii)(M) 

through (Q); see also supra section III.B.4.g)(2) for further discussion of these amendments. 



452 

NBBO, but odd-lots are available on another market center at prices that are $0.10 better than the 

NBBO, this measure will reflect a price dis-improvement of $0.05. This will indicate that the 

investor could have received a better price if the market center had routed the order to execute 

against the available odd-lot liquidity. Thus, market participants (including broker-dealers) will 

be able to identify those market centers that execute orders at prices better than the best available 

displayed price, taking into account all available displayed liquidity.1569 This will promote 

incentives for reporting entities to seek out or offer price improvement relative to the best 

displayed price, taking into account all available displayed liquidity (including odd-lots). 

Continuing the previous example, a market center internalizing an order will not be able to post a 

positive price improvement metric when a better-priced odd-lot was available at another market 

center.1570 Instead, the market center may be incentivized to increase its offering of price 

improvement from $0.05 above the NBBO to $0.15 above the NBBO (i.e., $0.05 above the best 

displayed price), in order to maintain the same level of price improvement in its Rule 605 report.  

Multiple commenters supported including a measure of price improvement relative to the 

best displayed price.1571 However, several commenters stated that the measure would be 

“misleading,” particularly because it does not account for the size available at the best displayed 

price.1572 The Commission recognizes that an odd-lot price that is better than the NBBO may not 

 

1569  If only the NBBO is used as the benchmark for the adopted price improvement statistic relative to the best 

available displayed price, because, for example, odd-lots inside the NBBO are not available or because 

information about the best odd-lot orders available in the market inside the NBBO is not or is not yet 

available in consolidated market data, then these additional price improvement statistics will be the same as 

the price improvement statistics currently included in Rule 605 and will not have significant economic 

effects. See supra note 719. 

1570  One academic study found that incorporating information about the best odd-lot price into the NBBO for 

the purposes of calculating price improvement decreased estimates of price improvement by 2.44 

percentage points. See Battalio & Jennings, supra note 1253, at 17. 

1571  See, e.g., Better Markets Letter at 9; Angel Letter at 3. 

1572  See, e.g., SIFMA Letter at 32; Schwab Letter II at 6; Rule 605 Citadel Letter at 6; Robinhood Letter at 47.  



453 

reflect sufficient quantity to execute certain orders, particularly larger-sized orders, and, as a 

result, price improvement relative to the best displayed price will be more relevant in some cases 

and for some orders than for others.1573 However, the Commission disagrees that this will result 

in the measure being misleading. First, since orders will be grouped in notional order size 

buckets and broken out separately into fractional, odd-lot, and round lot orders, Rule 605 reports 

will present the price improvement statistics related to best available displayed price in a format 

that will make it possible to focus in on those smaller-sized orders for which the measure is most 

informative.1574 Second, in cases where the depth available at the best displayed price is 

insufficient to fill all or most orders, such that executions relative to the best displayed price 

reflect price dis-improvement, this will be similarly true for all reporting entities. If the reporting 

entity does execute against the depth that is available, and/or otherwise achieves price 

improvement for its handled orders, the reporting entity may still reflect a negative value for 

price improvement relative to the best displayed price, but less negative than that of a reporting 

entity that did not offer any price improvement. Thus, to the extent that Rule 605 reports will 

primarily be used by market participants to compare execution quality across market centers and 

across broker-dealers, a measure of price improvement relative to the best displayed price will 

not be misleading and will still allow market participants to identify reporting entities offering 

 

1573  For example, price improvement relative to the best displayed price will typically always be relevant for 

fractional orders less than one share, and may often be relevant for odd-lots, since it is more likely that odd-

lot volume would equal or exceed depth at the best displayed price. Price improvement relative to the best 

displayed price may also be relevant for round lots if aggregated odd-lot volume across market centers is 

sufficient to fill the order, if there is hidden liquidity available at the best displayed price, or if market 

centers such as wholesalers take the best displayed price into account when actively offering price 

improvement when executing orders against its own inventory. 

1574  See supra section III.B.4.g)(2) for further discussion. 



454 

better execution quality, in terms of which reporting entity has offered a lower amount of price 

dis-improvement relative to the best displayed price (i.e., a less negative number).1575 

Other commenters stated that including two sets of price improvement metrics using two 

different reference points would be confusing for retail investors,1576 and that including price 

improvement relative to the best displayed price would “add unnecessary complexity to the 

report.”1577 The Commission is mindful that an increase in the complexity of Rule 605 reports 

may make it difficult for individual investors to review and digest the detailed reports. However, 

it is also important that market participants have access to a variety of detailed execution quality 

information to meet their various purposes. Statistics on price improvement relative to the best 

available displayed price will provide a useful data point for market participants to consider, in 

addition to statistics on price improvement relative to the NBBO.1578 Furthermore, it is likely that 

many individual investors will not face this issue as the Commission expects that many will 

exclusively make use of Rule 605 summary reports, which will only include one measure of 

price improvement, i.e., price improvement relative to the NBBO.1579 

 

1575  For example, consider an extreme case in which the volume available at the best displayed price is only one 

share. Unless it is a fractional order, in all likelihood a market center will not be able to execute sufficient 

volume at the best displayed price, and thus would always reflect dis-improvement relative to the best 

displayed price (unless it was able to achieve price improvement via other means). For example, assuming 

that the best displayed price is $0.01 better than the NBBO, for a market center that was able to execute a 

100-share order against that 1 share, its share-weighted average price dis-improvement relative to the best 

displayed price would be -$0.009, compared to -$0.01 for a market center that executed an entire 100-share 

order at the NBBO.  

1576  See Robinhood Letter at 47. Similarly, another commenter stated that “an odd-lot NBBO creates 

ambiguity.” Data Boiler Letter at 28. 

1577  See Schwab Letter II at 6. 

1578  See supra section III.B.4.g)(2) for further discussion.  

1579  See supra section III.B.4.g)(2) for further discussion.  



455 

Commenters were also critical of the inclusion of price improvement information for 

non-marketable limit orders, because “price improvement is only a relevant statistic for 

marketable group orders”1580 and because, for beyond-the-midpoint orders, “the fact that the 

limit order’s price between the midpoint and far touch (exclusive) is a variable controlled by the 

individual investor—and is responsible for some of its ‘price improvement.’”1581 The 

Commission agrees that some of the price improvement associated with non-marketable limit 

orders will be driven by the order’s limit price, which is outside of a reporting entities’ control. 

In Rule 605 as amended, price improvement will be required to be reported only for one 

particular type of non-marketable limit order, i.e., midpoint-or-better NMLOs. These NMLOs in 

particular can execute at prices better than their limit price, particularly if they have a significant 

likelihood to immediately execute against hidden or odd-lot liquidity inside the spread.1582 

Therefore, it is not always the case that price improvement statistics for non-marketable limit 

order will be a function of the order’s limit price alone, but will also reflect a reporting entities’ 

ability to offer inside-the-quote liquidity that is priced better than the order’s limit price. This 

will particularly be the case for midpoint-or-better NMLOs. Therefore, price improvement 

statistics for this order type will benefit consumers of Rule 605 reports. 

(viii) Relative Fill Rates 

The adopted amendment requiring reporting entities to report the number of shares that 

executed regular way at prices that could have filled an executable NMLO while the order was in 

 

1580  See FIF Letter at 21. 

1581  See Schwab Letter II at 7. Though the commenter only mentioned the importance of an order’s limit price 

in the context of price improvement for beyond-the-midpoint orders, the Commission recognizes that the 

same could be said for other types of non-marketable limit orders. 

1582  See, e.g., results from Table 4, showing that a larger percentage of these orders are submitted with IOC 

designations. 



456 

force will promote transparency regarding differences in the execution probabilities of NMLOs 

between reporting entities. This will increase the ability of investors and their broker-dealers to 

route orders to those reporting entities with higher fill rates of executable NMLOs (including 

limit orders submitted with stop prices and at-and-beyond-the-midpoint NMLOs). Market 

participants will have access to information about the extent to which a NMLO did not execute 

or executed after a large number of shares executed elsewhere in the market, despite the fact that 

the NMLO was executable. In order to attract this order flow, reporting entities will need to 

improve their ability to achieve executions for executable NMLOs. Market centers can achieve 

higher fill rates for NMLOs, for example, by reducing access fees to encourage more marketable 

orders to execute against resting NMLOs, or by discouraging excessive submissions and 

cancellations of NMLOs, for example by instituting or raising excessive messaging fees.1583 

Broker-dealers can achieve higher fill rates for NMLOs by improving their order routing 

methods and by routing orders to market centers that achieve higher fill rates for NMLOs. 

Reporting entities will be required to report the cumulative number of shares both across all 

market centers, as well as only across national securities exchanges. The Commission agrees 

with a commenter that information about the cumulative number of shares executed regular way 

on national securities exchanges will be useful for market participants because it will exclude 

liquidity that potentially was not accessible to a reporting entity.1584 

 

1583  See, e.g., Price List – Trading Connectivity, NASDAQ, available at 

https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2 (last visited Feb. 1, 2024, 3:52 P.M.), which 

describes how one market center charges its members a penalty for exceeding a certain “Weighted Order-

to-Trade Ratio.” 

1584  See FIF Letter at 22. For example, there are difference in fair access rules between national securities 

exchanges and other trading venues, such as ATSs. 



457 

Furthermore, the adopted amendment requiring the reporting of the number of orders that 

received either a complete or partial fill will provide important additional information about the 

nature of a market center or broker-dealer’s NMLO and stop order executions—e.g., whether a 

high executed cumulative count represents, on average, larger execution sizes or a higher count 

of orders receiving executions.1585 

(3) Improvements to Accessibility 

Execution quality will also increase as a result of the adopted amendment requiring 

reporting entities to prepare human-readable summary reports,1586 as market participants will be 

better able to use information from Rule 605 reports to compare execution quality across 

reporting entities and competition among reporting entities on the basis of execution quality will 

increase as a result. The data generated under Rule 605 are complex, and the raw data may be 

difficult for some market participants to interpret and aggregate. Specifically individual 

investors, who may be less likely to have access to the resources to retrieve and process the raw 

data in Rule 605 reports, will be better able to access information from Rule 605 reports to 

compare execution quality across larger broker-dealers, which will increase the extent to which 

these broker-dealers will need to compete on the basis of execution quality to attract and retain 

these customers.  

 

1585  For example, say that a reporting entity discloses in its Rule 605 reports that it received 100 orders sized 

100 round lots or greater in a stock with a 100-share round lot, and that these orders had a cumulative 

number of shares of 1,000,000, and furthermore that it executed 990,000 of those shares. Information on 

the number of complete or partial fills would help to clarify whether the reporting entity, e.g., executed 99 

orders of 10,000 shares each, or a single order of 990,000 shares. 

1586  See final 17 CFR 242.605(a)(2).  



458 

The usefulness of summary reports particularly for individual investors was supported by 

several commenters.1587 However, other commenters stated that summary reports could be 

misleading if they do not allow investors to control for potential differences in reporting entities’ 

order flow characteristics when assessing execution quality.1588 The Commission agrees that 

differences in execution quality can be driven by differences between reporting entities other 

than differences in their skills at handling and/or executing orders, such as differences in the 

characteristics of their order flow,1589 and thus recognizes that it is important to strike a balance 

between sufficient aggregation of orders to produce statistics that are meaningful and sufficient 

differentiation of orders to facilitate fair comparisons of execution quality across reporting 

entities.1590 The statistics required in the summary reports will strike this balance. First, market 

participants will be able to control for the average order sizes handled by a particular market 

center in several ways. For example, the summary reports will allow market participants to 

examine execution quality statistics separately for different notional order size buckets,1591 as 

well as to control for the average notional order size within each order size bucket.1592 Second, 

information about realized spreads will allow market participants to control for differences in 

 

1587  See, e.g., Vanguard Letter at 4; Nasdaq Letter at 46; Fidelity Letter at 1; NASAA Letter at 6.  

1588  See, e.g., Virtu Letter at 6; Rule 605 Citadel Letter at 4. Another commenter, while agreeing with the 

Commission’s intent of “enhanced disclosure,” was critical of the summary report as proposed, stating that 

it “fails to allow for an apples-to-apples comparison, which directly subverts the Commission’s stated 

goals.” Schwab Letter at 31.  

1589  See supra note 984 for an example of how differences in order flow characteristics can impact inferences 

about execution quality. 

1590  See, e.g., Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000). 

1591  See final 17 CFR 242.605(a)(2).  

1592  See final 17 CFR 242.605(a)(2)(ii). The inclusion of average notional order size in the summary reports 

was suggested by a commenter, who stated that, “since a broker’s average order size can impact its average 

execution quality metrics, providing this transparency to users of the Summary Report will mitigate the 

potential for misinterpretation of the data and better inform individual investors when they compare 

brokers.” Schwab Letter II at 3. 



459 

reporting entities’ order handling practices during times of market stress or high adverse 

selection.1593  

In a change from the proposal, the amended rules require the use of CSV and PDF 

formats for the summary report, rather than XML and PDF formats as proposed.1594 One 

commenter recommended the use of CSV rather than XML for the summary reports, stating that 

CSV “would allow investors to compare summary data across firms more readily.”1595 Like 

XML and PDF, CSV is an “open standard,” a term that is generally applied to technological 

specifications that are widely available to the public, royalty-free, at no cost. Many investors and 

other members of the public may find a CSV file format preferable to an XML file format 

because the data can be more readily viewed and analyzed in widely used spreadsheet 

applications. Replacing the proposed XML format requirement with a CSV format requirement 

will likely facilitate use of the summary reports, thereby heightening the transparency benefits 

that the summary reports will create.1596 

Unlike the CSV format, the PDF format is generally meant for a human reader rather than 

for a machine reader. Requiring market centers and broker-dealers to post a PDF version of the 

summary report will allow an individual human reader to open and read a summary report 

without having to download the data into a spreadsheet or other analytical program. This will 

 

1593  As suggested by commenters, information about average realized spreads may also allow market 

participants to control for potential differences in order flow characteristics. See, e.g., FIF Letter at 32; 

Schwab Letter II at 3. One commenter specifically mentioned the extent to which market participants 

classify order flow as informed and the size of an order relative to the ADV of a stock as examples of such 

order characteristics. See FIF Letter at 32. 

1594  See final 17 CFR 242.605(a)(2). 

1595  See FIF letter at 5, 32. 

1596  The efficiency of processing and analyzing summary reports may further increase if a third-party 

determined to provide a centralized location from which market participants can retrieve all summary 

reports. See, e.g., Regulatory Notice. 



460 

make the information in the summary reports accessible to a broader range of individual users. In 

addition, because PDF documents are presented consistently across websites, operating systems, 

and applications, the PDF requirement will provide individual human readers with more 

comparable summary reports and facilitate their understanding of the reported summary 

execution statistics.  

Requiring market centers to post summary reports in two formats (PDF and CSV) will 

permit market participants to use the summary reports for a variety of different purposes. For 

example, a retail investor could use the PDF version of a market center’s latest summary report 

to easily identify the percentage of shares executed at the quote or better at that market center. 

By contrast, a broker-dealer assessing its own order routing practices could download the CSV 

versions of 10 different market centers’ summary reports in each of the preceding 12 months, 

and identify which of those market centers had consistent month-to-month increases in 

percentage of shares executed at the quote over that period. 

c) Other Benefits from Increased Competition 

To the extent that these amendments to Rule 605 increase incentives for reporting entities 

to compete in areas other than improved execution quality, customers may benefit from 

improvements that are not directly related to execution quality, such as lower fees, higher 

rebates, new products or functionalities, or better customer service. Improvements in areas other 

than execution quality because of the increase in competition among reporting entities may be 

either complementary to or a substitute for improvements in execution quality. Investors are 

more likely to see an overall benefit from these amendments to the extent that these 

improvements are complementary. Furthermore, to the extent that these amendments increase 

competition in related markets, market participants may benefit from lower costs and/or461 

improved quality in these markets. For example, the quality of TCA reports may improve if their 

publishers need to offer better products to compete with the publicly available data under Rule 

605. 

d) Potential Limitations to Benefits 

There are certain factors, however, that could limit the benefits of these amendments for 

transparency and competition, which could limit the effectiveness of these amendments in 

improving execution quality. 

(1) Effect on Smaller Broker-Dealers 

The expanded scope of Rule 605 includes only larger broker-dealers. Hence, investors, as 

they gain transparency into the execution at these larger broker-dealers, may route more 

transactions to these broker-dealers at the expense of smaller broker-dealers who are not 

included in the scope of Rule 605. That said, smaller broker-dealers may gain a competitive 

advantage relative to larger broker-dealers, as they will not incur the compliance costs of 

preparing Rule 605 reports. Also, increased levels of competition among larger broker-dealers 

may spill over to affect smaller broker-dealers, as their customers may expect more transparency, 

and smaller broker-dealers will continue to be able to publish ad hoc execution quality reports 

that focus on execution quality metrics in which they perform well.1597 Altogether, the 

cumulative effects on smaller broker-dealers, who handle only a fraction of all customer 

accounts and a minority of orders,1598 and whose customers may be more likely to be 

 

1597  These information asymmetries are described in more detail in supra section IX.C.1.a). 

1598  See infra section IX.E.1.a) for a discussion of an analysis showing that broker-dealers with 100,000 

customers or greater handled 59.5% of customer orders and 98.3% of customer accounts identified in the 

data sample. If these smaller broker-dealers attract enough customers such that they represent a more 

significant fraction of orders, it is likely they will also subsequently fall above the customer account 

threshold and be required to begin publishing Rule 605 reports.  



462 

institutional investors (who have alternative sources of information about their broker-dealers’ 

execution quality)1599 are likely to be small, and limiting the scope of Rule 605 to larger broker-

dealers is designed to achieve the competitive effects discussed in prior sections.1600  

One commenter stated that smaller broker-dealers could be disadvantaged by not being 

required to prepare Rule 605 reports, which could lead to the “further concentration and 

funneling of customer order flow among a small portion of broker-dealers.” The commenter 

stated that “[p]roviding execution quality reports constitute a significant advantage…and could 

be a tipping point in their decision to part away with their current broker-dealer.”1601 As 

discussed above, it is also possible that smaller broker-dealers may gain a competitive advantage 

in the form of lower costs because of not having to prepare Rule 605 reports. To the extent the 

smaller broker-dealers are disadvantaged by not making Rule 605 reports available, there is 

nothing that precludes them from preparing and publishing reports that comply with Rule 605 

requirements.1602 However, the Commission acknowledges that it is possible that, because of 

these amendments, smaller broker-dealers that are unable,1603 or choose not, to offer the same 

levels of transparency as larger broker-dealers may lose customers to larger broker-dealers for 

which better execution quality information is available, which may cause some smaller broker-

 

1599  See discussion infra section IX.E.1.a). 

1600  See supra section IX.D.1.a)(1) for a discussion of the effects of the amendments expanding the scope of 

reporting entities to include larger broker-dealers on competition among broker-dealers on the basis of 

execution quality. 

1601  See Letter from JT at 1-2. 

1602  The costs for smaller broker-dealers to prepare execution quality reports may not be the same as the costs 

for larger broker-dealers. See infra section IX.D.2.b)(2) for further discussion. 

1603  For example, if investors make use of third-party summaries of Rule 605 reports, these summaries may not 

incorporate execution quality information outside of “official” Rule 605 reports. In that way, smaller 

broker-dealers may be unable to offer the same level of transparency even if they prepare an execution 

quality report containing all of the information and according to the exact specifications of Rule 605.  



463 

dealers to exit the market.1604 The Commission is unable to quantify the likelihood that a 

brokerage firm will cease operating because of an inability to compete with the transparency 

offered by larger broker-dealers, and commenters did not provide data that would support such 

an analysis. Even if some smaller broker-dealers were to exit, the Commission does not believe 

this will significantly impact competition in the market for brokerage services because the 

market is served by a large number of broker-dealers.1605 The Commission recognizes that 

smaller broker-dealers may have unique business models that are not currently offered by 

competitors, but other broker-dealers, including new entrants, could create similar business 

models if demand is adequate. 

One commenter stated that excluding smaller broker-dealers from reporting requirements 

means that “only 6.7% of broker-dealers” would be subject to reporting requirements, and 

“[c]ustomers who use smaller broker-dealers are just as entitled to information about how their 

orders are or may be handled as customers who use larger broker-dealers.”1606 The Commission 

agrees that lowering the threshold would be beneficial if more broker-dealer customers are able 

to benefit from the adopted modifications to reporting entities; however, an analysis shows that a 

customer account threshold of 100,000 customer accounts includes more than 98% customer 

accounts, and that those customers whose accounts are not included are more likely to be 

institutional investors, who have alternative sources of information about their broker-dealers’ 

execution quality.1607  

 

1604  This was also acknowledged in the Proposing Release. See Proposing Release, 88 FR 3786 at 3876 (Jan. 

20, 2023). 

1605  See supra section IX.C.4.a)(1) for a discussion of the current structure of the market for brokerage services. 

1606  See Robinhood Letter at 45. 

1607  See discussion infra section IX.E.1.a). 



464 

The same commenter also stated that limiting the Rule 605 reporting requirements to 

larger broker-dealers would “create an information gap about new entrants to the retail broker-

dealer space where there may be a greater need to see data about execution quality.”1608 As stated 

above, it is possible that an increase in competition among larger broker-dealers on the basis of 

execution quality may spill over to affect smaller broker-dealers, as their customers may expect 

more transparency;1609 this could be true of new entrants to the market for brokerage services as 

well. If this occurs, then customers of new entrants may also benefit from increased 

transparency. However, absent the standardized reporting standards under Rule 605, new 

entrants may be able to publish ad hoc execution quality reports that focus on execution quality 

metrics in which they perform well, and thus it is possible that these customers may continue to 

face some information asymmetries.1610 As described above, this is expected to be a minority of 

customers.1611 

(2) Switching Costs 

The effects of these amendments to Rule 605 on competition among reporting entities 

may be limited if investors incur high costs to switch between broker-dealers, and/or if broker-

dealers incur costs to switch between market centers in response to information about execution 

quality. To the extent that competition among reporting entities on the basis of execution quality 

 

1608  See Robinhood Letter at 45. 

1609  See also Proposing Release, 88 FR 3786 at 3876 (Jan. 20, 2023).  

1610  These information asymmetries are described in more detail in supra section IX.C.1.a). 

1611  See supra note 1599 and corresponding text. 



465 

is limited, this could limit the extent to which execution quality will improve as a result of these 

amendments. 1612 

First, if the costs for customers to switch broker-dealers are significant,1613 this will limit 

the extent to which Rule 605 promotes competition among broker-dealers on the basis of 

execution quality. However, switching costs for both individual and institutional investors may 

be limited. For example, institutional investors are likely to have multiple broker-dealers, which 

facilitates the transfer of business to better-performing broker-dealers, and, for individual 

investors, transferring between retail brokers may be less costly, for example, because some 

retail brokers will compensate new customers for transfer fees that their outgoing broker-dealer 

may charge them.1614  

Second, the presence of switching costs that broker-dealers incur from changing the 

primary trading venues to which they route orders1615 may limit the effects of these amendments 

on competition among market centers. However, the Commission expects this to be less of an 

issue for the larger broker-dealers that will be required to produce Rule 605 reports,1616 as these 

 

1612  The effect of switching costs on competition may also depend on the variability of reporting entities’ 

execution quality over time. For example, if the execution quality of any given reporting entity varies 

significantly over time, customers of those reporting entities may find it optimal to switch between 

reporting entities with some frequency, which would increase their overall switching costs. On the other 

hand, if the execution quality of reporting entities is relatively constant over time, the number of times that 

a customer will optimally want to switch between reporting entities will likely be more limited, and in this 

case switching costs may be a relatively small and/or short-term friction. 

1613  See supra section IX.C.4.a)(1) for a discussion of costs related to switching broker-dealers. 

1614  See supra note 1289 for an example. 

1615  See supra section IX.C.4.b)(2) for discussions of costs broker-dealers may face when switching trading 

venues. 

1616  The competitive effects of these amendments will principally accrue to larger broker-dealers, who will be 

required to prepare Rule 605 reports, and thus will be the most likely to be incentivized to switch market-

centers as a result of additional information about market center execution quality. However, these effects 

may spill over to smaller broker-dealers as well per the discussion in supra section IX.D.2.b)(2). For these 

smaller broker-dealers, switching costs may be more binding. 



466 

broker-dealers will likely face lower switching costs. For example, larger broker-dealers are 

likely already connected to multiple national securities exchanges. They are experienced with 

routing order flow across a larger variety of market centers and/or have sufficient bargaining 

power to renegotiate any agreements that they might have with individual market centers. 

(3) Limited Usage and Search Costs 

The benefits of these amendments to Rule 605 for transparency, competition, and 

execution quality may be limited if market participants are not likely to make use of the 

additional information available under these amendments, e.g., because this information is 

difficult to access or is not useful to market participants due to the availability of other sources of 

information about execution quality.  

For example, investors currently have access to information about the execution quality 

achieved by their broker-dealers for their not held orders,1617 which in certain circumstances may 

be more relevant for institutional investors than aggregate information about the execution 

quality of broker-dealers’ held orders1618 and may lead to a low usage rate by institutional 

investors of larger broker-dealers’ Rule 605 reports. This could limit the benefits of these 

amendments for competition in the market for institutional brokerage services. However, to the 

extent that institutional investors’ alternative sources of execution quality information do not 

contain information about all of their relevant orders, and/or cannot be easily used to compare 

across broker-dealers with which an investor does not do business,1619 these amendments will 

likely impact competition for institutional brokerage services as well.  

 

1617 See supra note 1003 and accompanying text discussing broker-dealers’ requirements under Rule 606(b)(3) 

to provide individualized reports of execution quality upon request for not held orders. 

1618  See supra section IX.C.4.a)(1)(b) for a discussion of institutional investors’ usage of not held orders. 

1619  See discussion in supra section IX.C.2.c).  



467 

Furthermore, the volume and complexity of data produced by Rule 605 reports (i.e., both 

the number of rows and columns of Rule 605 reports) will increase as a result of the amendments 

modifying the coverage of orders and expanding the information required by Rule 605.1620 As 

stated by some commenters,1621 both of these factors may make the evaluation of the raw data in 

Rule 605 reports costlier. One commenter stated that “[f]urther transparency that generates costs, 

but if not used by customers, is a waste of resources and ultimately would create costs without 

any real benefits.”1622 The Commission disagrees that the amended rule will result in costs 

without any benefits. The amended rule will result in numerous benefits described above. 

Furthermore, the increase in complexity of Rule 605 reports is not likely to significantly reduce 

the benefits of the amended rule. The Commission agrees with a commenter’s statement that, 

since they are designed to be machine-readable, increasing the number of rows in Rule 605 

reports is not likely to significantly increase market participants’ cost to process and interpret 

these reports.1623 Market participants that currently have the resources to process and analyze the 

raw data contained in Rule 605 reports are likely to have the resources to process and analyze the 

additional data elements. To the extent that some investors may not have access to the resources 

 

1620  For example, dividing each notional order size bucket up into further categories to capture lot type will 

increase the complexity of Rule 605 reports by increasing the number of rows. 

1621  See, e.g., Robinhood Letter at 41-42, stating that “the volume and complexity of Rule 605 reports would 

only increase if Proposed Rule 605 were adopted because more market participants, more orders, and more 

statistics would be included in the reporting, making them even harder to read;” Data Boiler Letter, stating 

that the proposed statistics were “overly complicated for the average investors to digest;” Tastytrade Letter 

at 4, stating that “under the new proposal by the Commission, 605 reports would expand to thirty-seven 

columns wide and forty-two rows deep. That will result in 1,554 data points per ticker on a universe of 

approximately 10,000 NMS traded products.”  

1622  See Tastytrade Letter at 5. 

1623  See, e.g., FIF Letter at 16, stating that “[a]dding rows and columns to the Rule 605 report, within reason, 

would not materially increase the costs of processing these reports and storing the relevant data,” and that 

“[the Rule 605 report] is intended to be machine-readable, not human-readable.” 



468 

to directly analyze the raw Rule 605 data as a result of its increase in complexity,1624 the 

Commission expects that independent analysts, consultants, broker-dealers, the financial press, 

academics, and market centers will continue to respond to the needs of investors by analyzing the 

disclosures and producing more digestible information using the data.1625 This was supported by 

one commenter, who stated that “even though a certain percentage of retail investors may not 

read the Rule 605 reports, they will still benefit indirectly as the enhanced disclosure will 

promote competition, improve regulatory oversight, and facilitate use by third-party researchers 

and academics.”1626  

The benefits of these amendments to Rule 605 for transparency, competition, and 

execution quality may also be limited by the presence of search costs. These amendments are 

expected to increase the number of Rule 605 reporting entities from 228 to 343.1627 Market 

participants that demand a complete or mostly complete set of Rule 605 reports will need to 

search through and download reports from a greater number of websites, which will increase 

their search costs.1628 If, in order to avoid this increase in search costs, market participants do not 

incorporate execution quality information from the additional reporting entities into their search 

or analysis of Rule 605 reports, this will limit the benefits of the expansion of Rule 605 reporting 

entities.  

 

1624  See supra section IX.C.2.b) for a discussion of the difficulties that individual investors may face when 

accessing Rule 605 reports. 

1625  See, e.g., supra notes 1076-1077, describing the use of Rule 605 data in academic literature, in comment 

letters related to Commission and SRO rulemaking, and the financial press. 

1626  See Better Markets Letter at 9-10. 

1627  See supra section VIII.C for a description of these estimates. 

1628  See supra section IX.C.3.d) for a discussion of the search costs associated with collecting information from 

Rule 605 reports. 



469 

(4) Liquidity Externalities 

The effects of these amendments to Rule 605 on competition among market centers may 

be limited by the development of liquidity externalities, or the consolidation of liquidity on a few 

dominant market centers.1629 Under such circumstances, while the consolidation of liquidity on 

market centers offering superior execution quality may benefit market participants in the short 

run,1630 it may also lead to barriers to entry in the market for trading services, as new entrants 

may have a harder time attracting sufficient liquidity away from established liquidity centers. 

This could also lead to consolidation or exit by smaller market centers. This could have the effect 

of reducing competition in the market for trading services. The Commission is unable to quantify 

the likelihood that some smaller market centers will cease operating, and commenters did not 

provide data to support such an analysis.  

(5) Dimensions of Execution Quality Not Captured by Rule 

605 Reports 

The expected benefits from these amendments to Rule 605 may be lessened to the extent 

that there are dimensions of execution quality not captured by Rule 605 reports which drive 

order handling decisions. For example, the ability of customers and/or traders to remain 

 

1629  For theoretical discussions of liquidity externalities, see Marco Pagano, Trading Volume and Asset 

Liquidity, 104 Q. J. ECON. 255 (1989); Ananth Madhavan, Consolidation, Fragmentation, and the 

Disclosure of Trading Information, 8 REV. FIN. STUD. 579 (1995). 

1630  There is a large body of academic literature that examines the benefits to traders from the consolidation of 

liquidity. See, e.g., H. Mendelson, Consolidation, Fragmentation, and Market Performance, 22 J. FIN. AND 

QUANTITATIVE ANALYSIS 189 (1987), in which the author finds that “fragmentation reduces the expected 

quantity traded, increases the price variance faced by individual traders, and reduces the expected gains 

from trade.” See also Pagano, supra note 1629, in which the author finds that the concentration of liquidity 

is generally more efficient than fragmentation, and Madhavan, supra note 1629, in which the author finds 

that “fragmentation results in higher price volatility and violations of price efficiency.” At the same time, 

there is also a large body of literature examining the competitive benefits of fragmentation; see, e.g., T. 

Hendershott & H. Mendelson, Crossing Networks and Dealer Markets: Competition and Performance, 55 J. 

FIN. 2071 (2000); B. Boehmer & E. Boehmer, Trading Your Neighbor’s ETFs: Competition or 

Fragmentation?, 27 J. BANKING & FIN. 1667 (2003). 



470 

anonymous or limit information leakage may not be a dimension that is easily discernible from 

looking at Rule 605 data, though it is a feature of execution quality that may be valued by some 

investors.1631  

Furthermore, the extent to which the reported statistics are perceived as an insufficiently 

timely proxy for a reporting entities’ ability to secure favorable executions may dampen the 

benefits of these amendments for execution quality. This may happen if, for example, future 

market developments render the monthly reporting requirement too infrequent to be useful. 

In this vein, one commenter stated that policymakers should not “prescribe or endorse 

certain statistical benchmarks,” because “other shopping comparisons emphasize different 

aspects, such as customer service,”1632 and that “one group may prefer one set of benchmarks 

that make their brands look better.”1633 This commenter instead stated that, “[i]f any constituent 

including the regulators want to have comprehensive metrics produced, let’s have the vendors 

compete for their business.”1634 The Commission agrees with the commenter that different 

market participants may have preferences for different aspects of execution quality, and 

 

1631  See, e.g., Carole Comerton-Forde & Kar Mei Tang, Anonymity, Liquidity and Fragmentation, 12 J. FIN. 

MKT. 337 (2009), who found evidence of a migration in order flow from the non-anonymous New Zealand 

Exchange (NZX) to the Australian Stock Exchange after the latter increased anonymity by removing broker 

identifiers from the central limit order book. 

1632  See Data Boiler Letter II at 1. Another commenter similarly stated that the use of the summary reports to 

compare across broker-dealers could be misleading if they do not account for “other aspects of the services 

that brokers provide or offer, including fees, interest rates, commissions, ease of use, customer service, 

accessibility, tools, and educational resources.” Virtu Letter at 11. 

1633  See Data Boiler Letter II at 1. This commenter also stated that they did not support the prescription or 

endorsement of statistical benchmarks because “[s]ome benchmarks use the average rather than the median 

(tail risk).” The Commission agrees that statistics calculated using the median rather than the mean is often 

preferred when dealing with data that contain extreme outliers, such as some of the data being collected 

under Rule 605 (such as time-to-execution). However, as stated by another commenter, medians are 

problematic in that they cannot be aggregated across rows. See FIF Letter at 21-22; see also infra section 

IX.E.3.b)(1) for further discussion. 

1634  See Data Boiler Letter II at 1. 



471 

acknowledges that not all of these aspects may be included in Rule 605 reports as amended. The 

Commission also acknowledges that, to the extent that this causes market participants to focus on 

some dimensions of execution quality to the detriment of others, these amendments may reduce 

execution quality along certain dimensions that may be relevant to some investors.1635 The 

Commission also recognizes that the different reporting entities may also have a preference for 

those benchmarks that make them look the most favorable.1636 However, rather than being 

exacerbated by the “prescription” of standardized metrics, having a standardized set of execution 

quality metrics will alleviate this concern by requiring the disclosure of metrics that market 

participants are able to compare across reporting entities using the same set of metrics. It is 

unlikely that a set of standardized metrics will result from a competitive environment, for the 

reasons described in the Market Failures section.1637  

e) Interacting Benefits of the Final Rule and the MDI Rules  

The Commission received a comment stating that the MDI Rules, once implemented, 

could have positive interacting effects with the final Rule 605 amendments.1638 The Commission 

anticipates that the additional information contained in consolidated market data once the MDI 

Rules are implemented will allow more informed order routing decisions. This in turn will help 

facilitate best execution, which will reduce transaction costs and increase execution quality.1639 

 

1635  See infra section IX.D.2.b)(3) for further discussion. 

1636  See supra section IX.B for further discussion. 

1637  See supra note 976 and corresponding text. 

1638  See Robinhood Letter at 39 (“The SEC contemplates that amending Rule 605 could improve execution 

quality, including by improving execution prices, execution speeds, size improvement, and fill rates. . . 

These potential benefits are likely enhanced when combined with the anticipated effects of the pending 

MDI Rules and our recommended changes regarding the Tick Size Proposal. . . the MDI Rules, by 

adjusting round lot sizes and enhancing the information displayed on the consolidated market data feeds, 

are expected to increase competition and encourage price improvement”); id. at 40. 

1639  See section IX.C.1.c)(2), infra, discussing benefits and costs based on implementation assumptions. 



472 

However, given that the MDI Rules have not yet been implemented, data that will be required for 

a quantitative analysis of a baseline that includes the effects of the MDI Rules, and of the 

benefits of the final Rule 605 amendments with new baseline assumptions, are not available. 

Instead, the Commission has included assumptions about the effect of the MDI Rules in its 

baseline and has analyzed the benefits and costs relative to this baseline.1640  

2. Costs 

As discussed in detail below, the Commission recognizes that these amendments to Rule 

605 will result in initial and ongoing compliance costs to reporting entities. The Commission 

quantifies the costs where possible and provides qualitative discussion when quantifying costs is 

not feasible. Most of the compliance costs related to these amendments to Rule 605 involve a 

collection of information, and these costs are discussed above in relation to the expected burdens 

under the Paperwork Reduction Act, with those estimates being used in the economic analysis 

below.1641 

a) Compliance Costs 

The majority of costs related to these amendments to Rule 605 will be in the form of 

compliance costs, including both initial and ongoing. Table 9 provides a summary of the 

estimated change in compliances costs1642 resulting from these amendments. The majority of 

both initial and ongoing compliance costs will be related to expanding the scope of reporting 

entities. However, a significant portion of initial compliance costs will also result from the 

 

1640  See id. 

1641  See supra section VIII for a discussion of how these amendments will create burdens under the PRA. 

1642  The discussion in section VIII.D considers the total expected ongoing compliance costs for all reporting 

entities, both new respondents and prior respondents. To focus on the costs that will directly follow from 

these amendments, this section focuses on the expected change in ongoing costs, which excludes the 

portions of ongoing costs that prior respondents incurred prior to these amendments. 



473 

amendments modifying the coverage of orders and information required by Rule 605, as market 

centers that were required to prepare Rule 605 reports (“prior reporters”) will need to update 

their systems, and additionally some new market centers trading in fractional shares will be 

required to report. Lastly, compliance costs resulting from the amendment requiring reporting 

entities to prepare summary execution quality reports will mostly be ongoing. 

Table 9: Estimated Aggregate Compliance Costs, by Cost Category 

Cost Category 
Initial Aggregate 

Compliance Costs 

Ongoing Aggregate 

Compliance Costs 

Expanding the Scope of Reporting 

Entities 
$3.8 million $4.9 million 

Modifications to Information Required $3.6 million $5.3 million 

Proposed Summary Execution Quality 

Reports 
$1.8 million $1.1 million 

Total $9.3 million $11.3 million 

This table presents estimates of the compliance costs related the to three broad categories of the amendments to Rule 605 

(expanding the scope of reporting entities, modifications to the coverage of orders and information required, and requiring the 

preparation of summary reports). Numbers are based on the estimated number of respondents and PRA costs in sections 

VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision. Further breakdowns of 

these estimates are presented in Tables 10, 11, and 12. 

Table 9 further breaks aggregate compliance costs down into three separate categories – 

costs related to the expansion of reporting entities, costs related to modifications to information 

required, and costs related to the preparation of summary execution quality reports.  

Estimates for the costs in each of these categories depend on a number of factors, including 

wages, inflation, and firm size, and the Commission acknowledges that the aggregate costs 

presented may be underestimated to the extent that wages and/or inflation are higher than those 

used in the estimation. Meanwhile, costs in each of these categories may also be overestimated if 

reporting entities are able to more cost-effectively contract with third-party vendors to prepare 



474 

their reports.1643 Due to their ability to leverage their technical expertise and potential economies 

of scale, third-party vendors may be able to prepare Rule 605 reports for a lower cost than if each 

individual reporting entity prepares its own report, and could pass these lower costs on to their 

customers, resulting in lower compliance costs. However, the Commission is unable to know the 

percentage of entities that made use of third-party vendors to prepare their Rule 605 reports prior 

to these amendments, nor the percentage of entities that will make use of third-party vendors 

following these amendments. Therefore, the Commission is basing its compliance cost estimates 

on the highest of its estimated costs to prepare of Rule 605 reports in order to be conservative, 

which is equivalent to the cost of in-house preparation of Rule 605 reports ($51,648 per 

respondent per year).1644  

(1) Compliance Costs Related to Expanding the Scope of Rule 

605 Reporting Entities 

As a result of the amendments expanding the scope of Rule 605 reporting entities, market 

centers and broker-dealers that were not required to publish Rule 605 reports prior to these 

amendments will incur initial costs to prepare and post Rule 605 reports for the first time, which 

may include developing any policies and procedures that may be needed to do so, and ongoing 

costs to continue to prepare them each month. Larger broker-dealers will incur initial and 

ongoing compliance costs as a result of the amendment expanding the scope of Rule 605 

reporting entities to include larger broker-dealers. Similarly, the amendments requiring reporting 

 

1643  The Commission estimates that, while preparing in-house reports will result in an annualized ongoing cost 

of $51,648 per respondent, contracting with a third party to prepare Rule 605 of their behalf will result in 

an annualized ongoing cost of between $36,000 and $42,000 per respondent. See supra note 957 and 

corresponding text. The Commission uses the higher estimate of in-house reporting in the present analysis 

to obtain a more conservative estimate of potential costs. 

1644  See supra note 1643. 



475 

entities to prepare separate reports for their SDPs will result in market centers that, prior to these 

amendments, were not required to prepare Rule 605 reports facing initial and ongoing 

compliance costs. The Commission estimates that 85 broker-dealers, along with 10 SDPs 

operated by broker-dealers,1645 will be required to start publishing Rule 605 reports as a result of 

the amendment expanding the scope of Rule 605 reporting entities.1646 Table 10 breaks down the 

initial and ongoing compliance costs associated with these two types of reporting entities. 

Table 10: Estimated Aggregate Compliance Costs Related to Proposed Expansion of Rule 

605 Reporting Entities 

 Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing 

Aggregate 

Compliance Costs 

Broker-Dealers 85a $3.4 million b $4.4 million c 

SDPs 10d $0.4 million d $0.5 million c 

Total 95 $3.8 million $4.9 million 

This table presents estimates of the compliance costs related to the amendments to Rule 605 expanding the scope of reporting 

entities. Numbers are based on the estimated number of respondents and PRA costs in sections VIII.C and VIII.D supra and 

have been rounded to the nearest tenth of million to avoid false precision.  
a The number of new broker-dealer respondents is estimated using data from 2022 FOCUS Report Form X-17A-5 Schedule I 

filings and CAT, according to the procedure described in detail in infra note 1743.  
b The estimate of initial compliance costs to new reporters is based on the monetized initial burden in supra note 955 for new 

respondents, assuming that these respondents will incur 100 initial burden hours at an average hourly cost of ($40,150/100 

hours) = $401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to new reporters is based on the monetized annual burden in supra note 952 for 

new respondents, assuming that these respondents will incur 11 ongoing burden hours per month at an average hourly cost of 

($51,648/(11 hours * 12 months)) = $391.00 per respondent per hour. 
d The Commission does not have knowledge of the number of SDPs in operation and therefore has chosen a conservative 

estimate of 10 SDPs operated by broker-dealers.  

New reporters will face one-time, initial compliance costs to prepare Rule 605 reports for 

the first time, which may include costs to develop and implement procedures. It is likely that the 

 

1645  See infra section IX.E.1.a) for a discussion of the estimated number of larger broker-dealers (i.e., broker-

dealers that introduce or carry customers above a threshold number of customer accounts), that will be 

required to prepare execution quality reports pursuant to final Rule 605, defining the customer account 

threshold as 100,000 customer accounts. 

1646  In addition, the Commission estimates that 20 market centers that trade exclusively in fractional shares will 

be required to prepare Rule 605 reports for the first time. See infra section IX.D.2.a)(2) for a discussion of 

the expected compliance costs for these reporting entities.  



476 

majority of these costs will relate to the development of systems to obtain, store and process the 

data required for Rule 605 reports. 

Larger broker-dealers that generally or exclusively route orders away will need to obtain 

information, such as the time of order execution and execution price, from trade confirmations 

provided by the execution venue. In addition, both broker-dealers and market centers will need to 

match their order information to historical price and depth information available via the 

exclusive SIPs or, following the implementation of the MDI Rules, competing consolidators,1647 

to determine the NBBO (and/or best displayed) quote and size at the time of order receipt (or 

executability) and at the time of order execution, and use this data to calculate the required 

statistics.1648 These new reporters likely retained most, if not all, of the underlying raw data 

necessary to generate these reports in electronic format prior to these amendments, or obtained 

this information from publicly available data sources, and calculated similar measures to those 

that will be required under Rule 605 for their own internal purposes prior to these 

amendments.1649 However, as a result of the amendments, new reporters may have to acquire or 

develop data specialists and/or programmers to the extent that the information required by Rule 

605 is different or more complex than the information that the new reporters typically process, 

and/or acquire legal specialists to help ensure compliance with Rule 605. 

 

1647  See supra section IX.C.1.c)(2) for a discussion of the unimplemented MDI Rules. 

1648  For example, a broker-dealer that routes an order away for execution will receive time of order execution 

and execution price as part of the trade confirmation provided by the execution venue. The broker-dealer 

can then use historical price information available via the exclusive SIPs to determine the NBBO at the 

time of order receipt and at the time of order execution, the number of shares displayed at the NBBO, and 

the best available displayed price, if such price is being disseminated, and use this data to calculate the 

required execution quality statistics. With respect to NMLOs, the broker-dealer can also use this historical 

price information available via the exclusive SIPs to determine when the order became executable, based 

on when the NBBO first reached the order’s limit price. 

1649  For example, broker-dealers may calculate similar measures as part of their Best Execution Committees’ 

periodic review. See supra note 1100 and accompanying text. 



477 

One commenter stated that requiring larger broker-dealers to newly prepare Rule 605 

reports will be costly because “[t]his is not a type of report that broker-dealers that are not also 

market centers generally prepare.”1650 Another commenter stated that the broad scope of the 

proposed inclusion of larger retail broker-dealers will impose significant costs.1651 The 

Commission acknowledges that many larger broker-dealers will not have previous experience 

with preparing Rule 605 reports, and for that reason has allocated estimates of initial compliance 

costs to first-time reporters, including broker-dealers, that are higher than those allocated to prior 

reporters.1652  

These compliance costs related to expanding the scope of Rule 605 reporting entities may 

be under- or overestimated to the extent that larger broker-dealers, which are assumed to have 

the same ongoing compliance costs as market centers and the same initial and ongoing 

compliance costs as SDPs operated by broker-dealers, may experience higher or lower initial 

and/or ongoing costs than other types of reporting entities. For example, larger broker-dealers 

may incur higher initial costs to the extent that they did not obtain transaction information, such 

as the time of order execution and execution price, from trade confirmations provided by 

execution venues prior to these amendments, and therefore will need to develop the procedures 

for doing so. Broker-dealers may also face higher ongoing costs as compared to market centers 

that mostly execute the shares that they receive, if collecting information for trades executed at 

 

1650  See Robinhood Letter at 42. The commenter suggested that, rather than Rule 605 reports, broker-dealers 

should be required to submit expanded Rule 606 reports that contain information about execution quality. 

See infra section IX.E.5.b) for a discussion and the Commission’s response to this alternative.  

1651  See Cambridge Letter at 7. 

1652  Specifically, while the analysis in Table 9 assigns first-time respondents, such as larger broker-dealers, a 

per-respondent initial compliance cost of $40,150, the analysis in Table 10 assigns preexisting reporting 

entities, who have experience with preparing Rule 605 reports, a much lower initial per-respondent cost of 

$20,075.  



478 

away market centers is costlier than analyzing in-house trade information, e.g., because it results 

in delays in processing the trade information. On the other hand, larger broker-dealers may incur 

lower initial costs if they are more likely than market centers to have calculated similar measures 

as part of their Best Execution Committees’ periodic review prior to these amendments.1653 In 

addition, the Commission does not believe that there will be significant additional costs to 

collecting information for trades executed at away market centers, as given the monthly reporting 

frequency of Rule 605 reports, broker-dealers should have sufficient time to collect and process 

the information. Since it is not possible to determine whether larger broker-dealers will face 

higher or lower compliance costs than market centers, the Commission is conservatively 

estimating that broker-dealers will incur the same compliance costs as other types of reporting 

entities. 

Furthermore, many of the larger broker-dealers that will be newly included in the scope 

of reporting requirements have experience with filing Rule 605 reports prior to these 

amendments; e.g., because they operate an ATS, engage in market making, or are otherwise 

affiliated with market centers that filed Rule 605 reports prior to these amendments.1654 

Likewise, broker-dealers that operate SDPs could also have lower initial costs to the extent that 

these SDPs qualified as market centers that were required to publish Rule 605 reports prior to 

 

1653  See supra section IX.C.2.d); see, e.g., Virtu Letter at 11, stating that “many retail brokers already monitor 

execution quality on these and other order types excluded under current Rule 605 when measuring the 

execution quality provided by market centers.” 

1654  For example, based on larger broker-dealers’ answers in their Q4 2022 FOCUS Report Form X-17A-5 

Schedules I and II, the Commission estimates that 28 out of the 85 broker-dealers identified as introducing 

or carrying at least 100,000 customer accounts also engage in OTC or specialist market making activities. 

Specifically, 16 of these larger broker-dealers answered “Yes” to item 8075 of Schedule I, asking whether a 

respondent is registered as a specialist on a national securities exchange in equity securities, 19 of them 

reported non-missing gains or losses from OTC market making in exchange listed equity securities in item 

3943 of Schedule II, while 7 of them reported both OTC and specialist equity market maker activities. An 

analysis in the Proposing Release of Q4 2021 FOCUS Report Form X-17A-5 Schedules I and II found 

similar results. See Proposing Release, 88 FR 3786 at 3880, n.968 (Jan. 20, 2023). 



479 

these amendments. In both cases, these reporting entities can leverage this experience to prepare 

the reports for these additional lines of businesses more cost effectively. 

One commenter stated that “many broker-dealers outsource reporting,” and that “bringing 

that reporting in-house would be a substantial cost.”1655 The amended rule does not preclude 

larger broker-dealers from outsourcing the preparation of its Rule 605 reports by contracting 

with third parties. Broker-dealers that are scoped into Rule 605 reporting requirements will be 

able to continue to use third parties to prepare their execution quality metrics, to the same extent 

that they found it optimal to do so prior to these amendments. 

(2) Compliance Costs Related to Modifications to the 

Coverage of Orders and Information Required by Rule 605 

Reports 

As a result of the amendments modernizing and expanding the coverage of orders and 

information required by Rule 605 reports, reporting entities will incur initial compliance costs 

and additional ongoing compliance costs.1656 First, the estimated 228 prior reporters1657 will incur 

initial costs to update their systems to collect and store new information and to calculate 

modernized and additional metrics, as well as a potential increase in ongoing costs as a result of 

additional data that will need to be collected and stored.1658 Second, the adopted amendment 

 

1655  See TastyTrade Letter at 5. 

1656  This analysis compares the costs that will accrue to new reporting entities, including larger broker-dealers 

and SDPs, to a baseline world in which these entities do not have to publish Rule 605 reports. As such, this 

section does not consider the cost of the amendments modifying the coverage and information required by 

Rule 605 to apply to first-time reporting entities, as these entities instead will face the costs of initially 

developing systems to prepare Rule 695 reports (rather than, e.g., modifying existing systems). 

1657  See supra note 942 and accompanying text for a discussion of this estimate. 

1658  One commenter stated that “[a]dding rows and columns to the Rule 605 report, within reason, would not 

materially increase the costs of processing these reports and storing the relevant data.” FIF Letter at 16. If 

so, then this could be a mitigating factor to the Commission’s estimates of the increase in current reporting 

entities’ compliance costs.  



480 

expanding the coverage of order sizes included in Rule 605 to include orders for less than one 

share will result in an additional estimated 20 market centers that trade exclusively in fractional 

shares to be required to begin filing Rule 605 reports.1659 Third, the 16 national securities 

exchanges and 1 national securities association will be required to amend the Rule 605 NMS 

Plan to account for the new data fields required to be reported. Table 11 breaks down the 

associated initial and ongoing compliance costs. 

 

1659  Using a sample of CAT from Mar. 2022, the Commission identified 19 firm MPIDs that executed 

fractional shares during the sample time period that did not have a corresponding Rule 605 report; this was 

rounded up to 20 to be conservative. A similar analysis using a more recent sample of CAT data found 19 

firms that exclusively executed fractional shares for at least one month during calendar year 2023; 

however, an estimate of 20 firms has been maintained to be conservative. Based on FOCUS data from 

calendar year 2022, these firms are relatively large, with an average net capital of $1.75 billion, which is 

similar to the average net capital of all larger broker-dealers that meet the customer account threshold of at 

least 100,000 customer accounts ($1.6 billion). In fact, the Commission estimates that 15 of these market 

centers that exclusively execute fractional shares are also larger broker-dealers that meet the customer 

account threshold. This implies that there may be 5 broker-dealers that will be newly required to produce 

Rule 605 reports related to their activity as market centers as a result of trading in fractional shares, that 

will not be larger broker-dealers and thus will not need to produce Rule 605 reports related to their broker-

dealer activities. See supra section II.A.2.b) for a discussion of the requirement that larger broker-dealers 

that are also market centers produce separate reports pertaining to each function. However, the Commission 

believes this to be an upper bound, as several of these identified broker-dealers either engage in trading of 

non-fractional orders in some months (likely odd lots), or have greater than 100,000 customers in some 

months. Similar numbers were found using 2021 FOCUS data in the Proposing Release; Proposing 

Release, 88 FR 3786 at 3880, n.971 (Jan. 20, 2023). To the extent that a market center that exclusively 

executes fractional shares is also a broker-dealer that meets or exceeds the customer account threshold, then 

this reporting entity will be required to file separate Rule 605 reports pertaining to each function. See supra 

section II.A.2.b).481 

Table 11: Estimated Aggregate Compliance Costs Related to Amendments Modifying the 

Information Required by Rule 605 

  

Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing 

Aggregate 

Compliance 

Costs 

Costs to Prior Reporters 228 a $2.7 million b $4.3 million c 

Costs to Market Centers Trading 

Fractional Shares 
20 d $0.8 million e $1.0 million f 

Cost to NMS Plan Participants to 

Update Data Fields 
17 g $0.06 million h $0 i 

Total 265 $3.6 million $5.3 million 

This table presents estimates of the compliance costs related to the amendments to Rule 605 modifying the coverage of orders 

and information required by Rule 605 reports. Numbers are based on the estimated number of respondents and PRA costs in 

sections VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision.  
a The number of prior respondents includes 16 national securities exchanges, 1 securities association, 33 ATSs (based on the 

number of effective Form ATS-N filings), and an estimated 91 OTC market makers and 87 exchange market makers (based 

on firms’ responses on their 2022 FOCUS Report Form X-17A-5 Schedules I and II).  
b The estimate of initial compliance costs to prior reporters is based on the monetized initial burden in supra note 951 for prior 

respondents, assuming that these respondents will incur 30 initial burden hours as a result of the amendments at an average 

hourly cost of ($20,075/50 hours) =$401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to prior reporters is based on the monetized annual burden in supra note 952. It is 

assumed that the cost increase associated with the amendments for preexisting respondents is equivalent to four additional 

ongoing burden hours per month (24 per year) at an average hourly cost of ($51,648/(11 hours *12 months))=$391.00 per 

respondent per hour. 
d The Commission estimates that 20 firms will newly be required to file Rule 605 reports as a result of the inclusion of 

fractional orders less than one share. See supra note 1659. 
e The estimate of initial compliance costs to new respondents (in this case, market centers that will newly be required to 

prepare Rule 605 reports as a result of trading fractional shares) is based on the monetized initial burden in supra note 955 for 

new respondents, assuming that these respondents will incur 100 initial burden hours at an average hourly cost of 

($40,150/100 hours) =$401.50 per respondent per hour. 
f The estimate of ongoing compliance costs to market centers that will newly be required to prepare Rule 605 reports as a 

result of trading fractional shares is based on is based on the monetized annual burden in supra note 952 for new respondents, 

assuming that these respondents will incur 11 ongoing burden hours per month at an average hourly cost of ($51,648/(11 

hours * 12 months)) = $391.00 per respondent per hour. 
g The number of NMS plan participants includes 16 national securities exchanges and 1 securities association. 
h The estimate that the monetized initial burden for preparing and filing an amendment to the NMS Plan will include 

approximately $43,605 in aggregate internal costs per participants as well as an aggregate external cost of $19,550 resulting 

from outsourced legal work. See supra section VIII.D. 
i The Commission estimates that the costs related to updating data fields will be a one-time cost, and thus will not incur any 

additional ongoing compliance costs. 

As a result of these amendments, prior reporters will incur initial compliance costs to 

update their systems to collect and store new information.1660 For example, prior reporters will 

need to expand their data collection systems to include additional order types, such as stop 



482 

orders, short sale orders, and orders submitted outside of regular trading hours, and will need to 

update their systems to reclassify certain orders, such as IOCs, riskless principal orders, and 

midpoint-or-better NMLOs, into new or different order type categories. Similarly, prior reporters 

will need to expand their data collection systems to incorporate additional order sizes, including 

odd-lots, fractional orders, and larger-sized orders.  

Prior reporters will also incur initial compliance costs to update their data processing 

software to generate modernized and additional metrics. For example, prior reporters will need to 

update their methodologies for calculating realized spread to include additional measures, and 

will need to develop programs (i.e., code) to calculate newly required metrics, such as E/Q. 

Some of the metrics will involve matching trade information to data elements that were not 

required by Rule 605 prior to these amendments but that can be obtained from public data 

sources, such as the best displayed price for calculating price improvement relative to the best 

displayed price,1661 and the number of shares displayed at the NBBO for calculating the 

benchmark measure related to size improvement.1662 As stated by a commenter, the Consolidated 

Audit Trail currently requires firms to report order events with at least a millisecond 

 

1660  The Commission assumes that the majority of reporting entities’ initial burden hours under the PRA will be 

spent updating current systems as a result of the many changes to Rule 605, and thus estimates that 30 of 

the 50 initial burden hours estimated for prior reporters and described in supra note 951 will be allocated to 

compliance with the amendments modifying the information contained in Rule 605.  

1661  See supra section III.B.4.g)(2) for a discussion of the data required to calculate this measure. Under MDI 

Rules, competing consolidators are not required to offer products that include all core data items, and 

therefore some competing consolidators may offer products that do not contain all information that will be 

required for calculating Rule 605 statistics, such as odd-lot information for the purposes of calculating the 

best displayed price. However, as discussed in section IX.C.1.c)(2) supra, the Commission believes that for 

competitive reasons at least one competing consolidator will offer a data product that contains all core 

market data items. To the extent that a reporting entity would have subscribed to a cheaper data product if 

not for these amendments to Rule 605, the need to subscribe to a more expensive data product represents an 

additional cost of complying with Rule 605 as amended. 

1662  See supra section III.B.4.e)(2) for a discussion of the data required to calculate this measure. 



483 

granularity.1663 Thus, it is likely that the cost to prior reporters of updating their systems to record 

timestamps in terms of milliseconds rather than seconds will be minimal.1664  

After prior reporters update their systems to reflect the amendments, it is likely that 

changes to their ongoing costs will be limited, as the process for generating and publishing Rule 

605 reports will largely be unchanged.1665 This is because most reporting entities retained most, 

if not all, of the underlying raw data necessary to generate the additional data elements prior to 

these amendments, or are easily able to obtain this information from publicly available data 

sources. Furthermore, once reporting entities have developed the necessary programs to calculate 

the required metrics, there is limited additional effort that needs to be made beyond what prior 

reporters are already doing, such as monitoring and debugging these statistical programs.  

One commenter stated that some of the amendments will impose additional costs on 

reporting entities as a result of an increase in the complexity of the calculations.1666 Another 

commenter stated that they believe that the estimated annual costs associated with the Proposed 

Rule 605 were underestimated, because they “neglect[ed] to take into account dedicated staff 

time needed for data reconciliation and validation and other ongoing compliance costs.” These 

commenters did not provide the Commission with data regarding what an appropriate estimate of 

the annual compliance burden would be. However, the Commission recognizes that there may be 

 

1663  See FIF Letter at 17. 

1664  The commenter also stated that many market centers typically already record events with even greater 

precision. See FIF Letter at 17, stating that “[m]arket centers, in particular, typically record trading events 

with greater precision than milliseconds.” 

1665  One exception is the adopted amendment requiring reporting entities to prepare summary reports 

summarizing key information from their Rule 605 reports. The Commission assumes that current reporters 

will face additional ongoing costs as a result of this amendment, and discuss these costs in infra section 

IX.D.2.a)(3). 

1666  See, e.g., BlackRock Letter at 4. 



484 

some additional ongoing costs to the extent that some metrics introduced under these 

amendments may require more data storage or more complex calculations, such that the cost of 

preparing monthly Rule 605 reports may increase. Therefore, in response to these commenters, 

the Commission has increased its allocation of additional ongoing costs to account for additional 

costs of maintaining programmers and systems analysts for the ongoing technical support of 

Rule 605 reports.1667 

 As a result of the adopted amendment expanding the scope of Rule 605 to include 

information about orders for less than one share, the Commission estimates that some broker-

dealers that exclusively execute fractional shares, and therefore, prior to these amendments, were 

not required to file Rule 605 reports in their capacity as a market center due to fractional shares 

falling below the smallest order size category in Rule 605 prior to these amendments, will be 

required to begin publishing Rule 605 reports. The Commission is assuming that these broker-

dealers will incur similar initial and ongoing costs as those discussed above for larger broker-

dealers and SDPs. These compliance costs may be over- or underestimated if broker-dealers that 

exclusively execute fractional shares have different characteristics (e.g., fewer customers) than 

the larger broker-dealers that will be included because of the expanded scope of reporting 

entities. However, these firms are relatively large, with an average net capital similar to that of 

all larger broker-dealers that meet the customer account threshold of at least 100,000 customer 

 

1667  Specifically, three additional ongoing monthly burden hours per respondent have been allocated to prior 

reporters to account for the need to maintain a technical staff, such as programmer(s) and systems 

analyst(s), in addition to the one additional hour in the Proposing Release. See footnote to Table 10; see 

also Proposing Release, 88 FR 3786 at 3881, n.976 (Jan. 20, 2023); see also supra note 954 and 

corresponding text for further discussion of the Commission’s adjustment of its burden estimates in 

response to commenters. This additional allocation of three ongoing monthly burden hours is similar to the 

technology-related burdens in other rules; see, e.g., Securities Exchange Act Release No. 98738 (Oct. 13, 

2023), 88 FR 75100 (PRA Table 1) (Nov. 1, 2023) (allocating an additional 2 hours of work by a 

programmer for the purposes of preparing reports using a structured XML-based data language). 



485 

accounts, and an estimated 15 of these market centers are also larger broker-dealers that meet the 

customer account threshold.1668 

One commenter stated that the requirement for market centers that exclusively engage in 

fractional trading to comply with Rule 605 “would harm smaller broker-dealers by creating a 

barrier to entry to support fractional share programs.”1669 The Commission acknowledges that, to 

the extent that a smaller broker-dealer intends to begin executing fractional shares internally, it 

will need to incur the initial and ongoing costs associated with complying with Rule 605. 

However, these compliance costs are not large enough such that this is likely, as compliance 

costs are estimated to be a small fraction of broker-dealer revenues, even for broker-dealers with 

fewer than 100,000 customers.1670 Furthermore, as previously discussed, an analysis of firm 

MPIDs that exclusively execute fractional shares found that these firms tend to be relatively 

large, and that the majority of them will also meet the customer account threshold.1671 Thus, 

there are likely barriers to entry for smaller broker-dealers to offer fractional programs that exist 

apart from these amendments.1672 Therefore, the Commission does not believe that the 

 

1668  See supra note 1659. 

1669  See SIFMA Letter at 31. 

1670  For example, data on broker-dealers’ median monthly revenues from FOCUS Report Form X-17A-5 

Schedule II from Q4 2022 show that the estimated monthly compliance cost will represent 0.02% of the 

monthly revenues of broker-dealers with 100,000 customers or less, and 0.002% of the monthly revenues 

of broker-dealers with 100,000 customers or more. An analysis in the Proposing Release of FOCUS Report 

Form X-17A-5 Schedule II from Q4 2021 found similar results. See Proposing Release, 88 FR 3786 at 

3882, n.981 (Jan. 20, 2023).  

1671  See supra note 1659 for further discussion of this analysis. 

1672  Smaller introducing broker-dealers (with under 100,000 customers) could still offer their customers 

fractional share trading without having to prepare Rule 605 reports if their clearing broker executes the 

fractional share trades. If an introducing broker’s fractional share orders are executed by their clearing 

broker, then the clearing broker will have to prepare a Rule 605 report as a market center if it meets the 

definition of an “OTC market maker” and receives “covered orders” for execution in such capacity. See 

supra note 170 and accompanying text for further discussion on the preparation of Rule 605 reports with 

respect to fractional share orders. 



486 

requirement for market centers that exclusively engage in fractional trading to comply with Rule 

605 will significantly increase barriers to entry for fractional share programs. 

In addition, according to this commenter, because “much of today’s market infrastructure 

does not yet support fractional share trading,” (including that “FINRA does not currently have a 

mechanism to report fractional share trades”), “the costs to fully modify this infrastructure would 

be high compared to the minimal benefit of including fractional share reporting.”1673 The 

Commission acknowledges that prior reporters will incur a cost associated with expanding their 

data collection systems to incorporate additional order sizes, including odd-lots, fractional 

orders, and larger-sized orders, and has accounted for this in its estimates of compliance 

costs.1674 The Commission disagrees with the commenter that the benefits of including fractional 

share reporting will be minimal, particularly considering that fractional shares are a significant 

percentage of orders associated with individual accounts,1675 and because there is a significant 

amount of variation in the execution quality received by these orders.1676 

Lastly, the Commission estimates that the 16 national securities exchanges and 1 national 

securities association will incur a one-time initial cost to amend the NMS Plan to account for the 

new data fields required to be reported. The Commission estimates that this will mostly consist 

of legal time to develop and draft the amendments to the NMS Plan. 

 

1673  See SIFMA Letter at 31. 

1674  This was also acknowledged in the Proposing Release. See, e.g., Proposing Release 88 FR 3786 at 3881 

(Jan. 20, 2023), stating that “current reporters would need to expand their data collection systems to 

incorporate additional order sizes, including odd-lots, fractional orders, and larger-sized orders.” 

1675  Fractional orders less than a share represent a relatively high fraction (16.4%) of executions received by 

individual account holders in terms of number of trades. See supra note 1145 and corresponding text. 

1676  See, e.g., Professor Schwarz et al. Letter at 4, describing an analysis showing that E/Q received by 

fractional trades ranged between 0.127 to 0.915, as compared to 0.056 and 0.624 for full-share trades. See 

Professor Schwarz et al. Letter, Table 2. The commenter does not state whether these statistics include only 

fractional trades less than one share, or all trades that have a fractional components. 



487 

(3) Compliance Costs Related to Summary Execution Quality 

Reports 

The estimated 228 prior reporters1677 will face additional initial and ongoing compliance 

cost as a result of the adopted amendment requiring reporting entities to prepare summary reports 

summarizing key information from their Rule 605 reports.1678 Table 12 breaks down the initial 

and ongoing compliance costs associated with this amendment. 

Table 12: Estimated Aggregate Compliance Costs Related to Amendment Requiring 

Summary Execution Quality Reports 

  Number of 

Respondents 

Initial Aggregate 

Compliance Costs 

Ongoing Aggregate 

Compliance Costs 

Costs to Prepare 

Summary 

Execution Quality 

Reports 

228 a $1.8 million b $1.1 million c 

This table presents estimates of the compliance costs related to the amendment to Rule 605 requiring Rule 605 reporting 

entities to prepare summary execution quality reports. Numbers are based on the estimated number of respondents and PRA 

costs in sections VIII.C and VIII.D supra and have been rounded to the nearest tenth of million to avoid false precision. 
a The number of preexisting respondents includes 16 national securities exchanges, 1 securities association, 33 ATSs (based on 

the number of effective Form ATS-N filings), and an estimated 91 OTC market makers and 87 exchange market makers 

(based on firms’ responses on their 2022 FOCUS Report Form X-17A-5 Schedules I and II). 
b The estimate of initial compliance costs to preexisting respondents is based on the monetized initial burden in supra note 951 

for preexisting respondents, assuming that these respondents will incur 20 initial burden hours as a result of the amendments 

at an average hourly cost of ($20,075/50 hours)=$401.50 per respondent per hour. 
c The estimate of ongoing compliance costs to new reporters is based on the monetized annual burden in supra note 952 for 

new respondents, assuming that these respondents will incur 1 additional ongoing burden hours per month (12 per year) at an 

average hourly cost of ($51,648/(1 hours * 12 months)) = $391.00 per respondent per hour. 

The Commission estimates that these costs will not comprise the majority of overall costs 

to comply with Rule 605 reporting requirements, because Rule 605 summary reports contain 

only a small subset of the information published in the fuller Rule 605 reports. However, there 

 

1677  This section does not consider the cost of these amendments to those reporting entities that will begin 

publishing Rule 605 reports as a result of the amendments expanding the scope of Rule 605 reporting 

entities. See explanation in supra note 1656. 

1678  The Commission estimates that a significant portion of reporting entities’ initial burden hours under the 

PRA will be allocated to updating current systems to prepare summary reports, which will entail both a 

new format and a new level of information aggregation as compared to prior Rule 605, and thus estimates 

that 20 of the 50 initial burden hours estimated for prior reporters and described in supra note 951 will be 

allocated to compliance with the amendments modifying the information contained in Rule 605. 



488 

may be incremental costs in structuring these summary reports using a custom CSV schema and 

providing these reports in a human-readable format using a PDF renderer.1679 Many broker-

dealers already have experience structuring their data using machine-readable schemas and 

rendering them using a PDF renderer. For example, the Commission requires broker-dealers to 

submit quarterly and customer-specific order handling reports required under Rule 606 using an 

XML schema and associated PDF renderer.1680  

(4) Implications of Compliance Costs for Competition 

While the primary competitive effect of these amendments to Rule 605 will be to increase 

competition among reporting entities on the basis of execution quality,1681 it is possible that these 

amendments will have a negative impact on competition if the associated compliance costs 

described above prevent the entry of new reporting entities or cause some entities to leave the 

market.1682  

 

1679  For example, a single letter “a” results in a PDF file of 7,706 bytes vs. a TXT file of 1 byte. See, e.g., File 

Size, U.S. Pat. & Trademark Off., available at https://www.uspto.gov/patents/apply/applying-online/file-

size. However, the lower information content of the summary file PDFs and CSVs likely results in lower 

file sizes despite the larger per-pixel storage requirements. 

1680  17 CFR 242.606(a)(1) and (b)(3). The Commission does not expect that the process of using a CSV schema 

for preparing Rule 605 summary reports will vary significantly from that of using an XML schema for 

preparing Rule 606 reports because, in each instance, the reporting entity must encode the required 

disclosures in machine-readable format (whether the simpler CSV format or the more complex XML 

format) according to a fixed set of rules and relationships (i.e., a schema) created and maintained by the 

Commission, and post the resulting machine-readable document alongside a rendered PDF version on the 

entity’s public website. 

1681  See supra section IX.D.1 for a discussion of the effects of these amendments on competition among 

reporting entities on the basis of execution quality. 

1682  For example, one commenter stated that the compliance costs associated with the reporting of fractional 

shares would represent a significant barrier to entry to the creation of fractional share programs by smaller 

broker-dealers. See SIFMA Letter at 31. However, based on the Commission’s analysis, fractional share 

programs are more likely to be offered by larger broker-dealers who would fall within the customer account 

threshold, so the Commission does not expect this to represent an additional significant barrier to entry 

beyond those that already exist. See supra note 1659 and corresponding text for further discussion and 

response to this commenter. 



489 

The Commission is unable to quantify the likelihood that either a trading venue or a 

brokerage firm will cease operating as a result of the compliance costs associated with these 

amendments. While the Commission does not believe that these compliance costs are large 

enough such that this will be likely,1683 the Commission recognizes this possibility depends in 

part on whether the compliance costs associated with Rule 605 are likely to be fixed or variable. 

If Rule 605 compliance costs represent a fixed cost, these costs could represent a significant 

portion of a smaller reporting entity’s revenue, such that the reporting entity may become 

unprofitable if subjected to these costs.1684 This may impact competition among reporting 

entities, for example, by causing some reporting entities to leave the market, or preventing the 

entry of new ones. It may also result in broker-dealers avoiding taking on more than 100,000 

customers, to avoid crossing the customer account threshold such that they need to begin 

complying with Rule 605 reporting requirements. 

On the other hand, if Rule 605 compliance costs are variable, then the scalability of 

compliance costs means that smaller reporting entities will incur lower compliance costs related 

to execution quality reports, which will mitigate some of these concerns. Rule 605 compliance 

costs may be variable, e.g., because smaller reporting entities handle lower order volumes and 

therefore will require less data storage and less complexity when calculating the metrics required 

by these amendments.  

 

1683  For example, data on broker-dealers’ median monthly revenues from FOCUS Report Form X-17A-5 

Schedule II from Q4 2022 show that the estimated monthly compliance cost will represent 0.03% of the 

monthly revenues of broker-dealers with 100,000 customers or less, and 0.003% of the monthly revenues 

of broker-dealers with 100,000 customers or more. 

1684 The Commission does not believe that these compliance costs are large enough such that this is likely. See 

supra note 1683, describing how the compliance costs are likely to be a small percentage of broker-dealers’ 

monthly revenue. 



490 

Furthermore, even if compliance costs are fixed from the perspective of reporting entities 

(which will be the case, e.g., if variable costs such as data storage are dominated by fixed costs 

such as costs for compliance and data personnel), they may be lower if reporting entities make 

use of third-party vendors, who can leverage economies of scale to spread fixed costs across the 

potentially many reporting entities that they service, to prepare Rule 605 reports on their behalf. 

Therefore, to the extent that reporting entities make use of third-party vendors to prepare their 

Rule 605 reports, and these vendors charge reporting entities variable report preparation fees 

(e.g., based on the amount of data), this could lead to data vendors charging lower prices to 

prepare the Rule 605 reports of smaller reporting entities. This could also reduce the burdens of 

compliance costs for smaller reporting entities. 

However, even if some smaller reporting entities were to exit, the Commission does not 

believe this would significantly impact competition in either the market for brokerage services or 

the market for trading services, because both markets are served by a large number of 

competitors.1685 The Commission recognizes that smaller reporting entities may have unique 

business models that are not currently offered by competitors, but a competitor could create 

similar business models if demand were adequate. 

(5) Implementation Costs from Overlapping Compliance 

Periods 

Some commenters stated that proposed Rule 605 and another recently adopted rule, the 

Settlement Cycle Adopting Release, would have interacting effects. Commenters stated that 

implementing the rules together would impact industry resources, or that the rules had uncertain 

 

1685  See supra section IX.C.4.a)(1) for a discussion of the structure of the market for brokerage services, and 

supra section IX.C.4.b)(1) for a discussion of the structure of the market for trading services. 



491 

interacting effects.1686 The Commission acknowledges that the effects of any final rule may be 

impacted by recently adopted rules that precede it. Accordingly, each economic analysis in each 

adopting release considers an updated economic baseline that incorporates any new regulatory 

requirements, including compliance costs, at the time of each adoption, and considers the 

incremental new benefits and incremental new costs over those already resulting from the 

preceding rules. In some cases, resource limitations can lead to higher compliance costs when the 

compliance period of the rule being considered overlaps with the compliance period of other 

rules. In determining compliance periods, the Commission considers the benefits of the rules as 

well as the costs of delayed compliance periods and potential overlapping compliance periods.  

The Commission acknowledges that there are compliance dates for certain requirements 

of the Settlement Cycle Adopting Release that overlap in time with the amended rule, which may 

impose costs on resource-constrained entities affected by multiple rules.1687 The broker-dealers 

with compliance obligations under the Settlement Cycle Adopting Release will incur one-time 

costs in connection with a May 2024 compliance date for the Settlement Cycle Adopting 

 

1686  See supra note 1051 (citing comments). 

1687  See section VII (compliance dates for the Rule 605 amendments); supra note 1050 (compliance dates for 

the Settlement Cycle Adopting Release).  



492 

Release,1688 while the compliance period for the Rule 605 amendments for these broker-dealers 

culminates in the fall of 2025.1689  

While the Commission received comments on the interaction of the MDI Rules and the 

final amendments to Rule 605, the commenters did not specifically address costs associated with 

overlapping compliance periods.1690 The Commission outlined a phased transition plan for the 

implementation of the MDI Rules.1691 Based on the times provided in the transition plan for 

implementation of the MDI Rules, the Commission estimated that the full implementation of the 

MDI Rules will be at least two years after the Commission’s approval of the plan amendment(s) 

required by Rule 614(e).1692  

The Operating Committees of the CTA/CQ Plan and UTP Plan filed the MDI Plan 

Amendments on November 5, 2021.1693 The Commission disapproved the proposed amendments 

on September 21, 2022.1694 As a result, the participants to the effective national market system 

plan(s) will need to develop and file new proposed amendments as required by Rule 614(e), 

 

1688  See Settlement Cycle Adopting Release, 88 FR 13872 at 13918, section VII (compliance date) (Mar. 6, 

2023). The Commission estimated that broker-dealers serving institutional investors will incur initial 

compliance costs under Rule 15c6-1 to configure their trading systems, update reference data, and update 

trade confirmation/affirmation systems, documentation, cashiering and asset servicing functions, as 

applicable; but will have minimal ongoing direct compliance costs after the initial transition to a T+1 

standard settlement cycle; and those also serving retail investors will face additional one-time compliance 

costs after the initial transition for client education and customer service. See id. at 13937-38, section 

VIII.C.5. Broker-dealers which adopt policies and procedures related to allocation, confirmation, and 

affirmation of transactions, instead of entering into or modify existing written agreements with relevant 

parties, will additionally incur initial costs to create policies and procedures, and ongoing costs related to 

monitoring, compliance, and documentation obligations under Rule 15c6-2. See id. at 13938-39. 

1689  The final rule has an effective date 60 days after its date of publication in the Federal Register and a 

compliance date 18 months after the effective date. See section VII, supra. 

1690  See supra notes 1006, 1638; infra note 1725 (citing comments).  

1691  See MDI Adopting Release, 86 FR 18596 at 18699-18701 (Apr. 9, 2021).  

1692  See supra note 1022. 

1693  See supra note 1023. 

1694  See supra note 1024. 



493 

before the implementation period prescribed by the phased transition plan can commence. The 

Commission therefore believes that the length of time affected market participants will have to 

come into compliance with both the MDI Rules and these amendments, and the likelihood of 

limited overlap in compliance periods, will mitigate compliance costs.  

b) Other Potential Costs 

Some market participants may incur costs other than compliance costs as a result of these 

amendments to Rule 605. Many of these costs are difficult to quantify, especially as the practices 

of market participants are expected to evolve and may change due to the information on 

execution quality that is required to be reported under these amendments to Rules 605. 

Therefore, much of the following discussion is qualitative in nature. 

(1) Costs to Reporting Entities of Improvements to Execution 

Quality 

In addition to compliance costs, these amendments could result in costs to some reporting 

entities based on how market participants adjust their behavior in response to increased 

transparency and competition on the basis of execution quality.1695 

First, increased transparency and competition on the basis of execution quality, and 

subsequent scrutiny by customers and other market participants, might make broker-dealers less 

likely to route orders based on payment relationships and/or fees and rebates. While this will 

likely benefit customers in the form of better execution quality, if broker-dealers were to reduce 

the order flow sent to wholesalers who pay for it, the broker-dealers will receive less payment for 

such order flow and might make up for the lost payments by, for example, by raising brokerage 

 

1695  The costs to reporting entities associated with increased transparency and competition on the basis of 

execution quality will likely represent a transfer from these reporting entities to other market participants. 



494 

commissions or other fees on customers. The same outcome might occur if broker-dealers were 

to route orders to trading centers with lower rebates and higher fees. Broker-dealers may make 

up for lost payments or revenues at the expense of customers in other ways as well, for example, 

by reducing the quality of some bundled services or paying a lower interest rate on deposit 

accounts. 

Second, increased competition on the basis of execution quality may result in costs to 

reporting entities to the extent that they need to update or improve their routing or execution 

systems in order to remain competitive. If the reporting entity is executing an order, an 

improvement in execution systems will correspond to a direct improvement in execution quality 

for its customers (that is, the cost is a transfer from the reporting entity to its customers). If the 

reporting entity is routing the order, then the cost of improved routing will also benefit the 

customer in terms of superior execution (the cost is, in part, a transfer). The reporting entity may 

pass some of the costs of improved routing on to its customers, reducing the benefit from 

improved execution quality relative to what it might otherwise have been. If the cost to the 

reporting entity from improvements to routing is sufficiently high, and if this cost cannot be 

passed on to customers, then on net, there may be costs from improved execution practices.  

It is possible that the capital expenditure associated with upgrading their order routing 

and execution systems may be such that some reporting entities will no longer remain 

profitable.1696 The Commission is unable to estimate the number of reporting entities that may 

leave the market as a result of no longer being able to compete with other reporting entities on 

the basis of execution quality because the Commission does not know how market participants 

 

1696  See, e.g., ModernIR Letter at 3, stating that expanding Rule 605 disclosures “will drive yet more broker-

dealers from the market.” 



495 

will adjust their order flow based on the updated information in the amended 605 reports. The 

Commission acknowledges that if some reporting entities offering lower execution quality exit 

the market then their customers may incur costs to switch to other reporting entities.1697 

However, these customers’ order execution quality may improve if they switch to reporting 

entities that offer better execution quality. 

If reporting entities offering worse execution quality exit the market, the Commission 

does not believe that it will have an adverse effect on competition, either in the market for 

brokerage services or in the market for trading services. Both markets are served by a large 

number of competitors and if a reporting entity were to exit for this reason, these markets will be 

served by more efficient firms that are better able to offer execution quality to customers in line 

with their industry peers. 

(2) Costs for Smaller Broker-Dealers 

These amendments to Rule 605 may entail additional costs if smaller broker-dealers that 

are not subject to Rule 605 reporting requirements under the final rule face competitive pressure 

to provide customers with more information and execution quality, and incur initial and ongoing 

costs to voluntarily provide customers with execution quality reports.1698 The costs for smaller 

broker-dealers to prepare execution quality reports may not be the same as the costs for larger 

broker-dealers. Smaller-broker dealers may lack the technical expertise and compliance 

 

1697  These costs will vary based on the reporting entity that exited the market and the services the individual 

customers received from the reporting entity and other entities. For example if a customer used multiple 

reporting entities that offered similar services, then the costs to the customer of one of these reporting 

exiting the market may be smaller than for a customer that used only one reporting entity that exited the 

market. The Commission is unable to quantify these costs because it is unable to estimate the entities that 

will exit the market. 

1698  See infra section IX.D.1.d)(1) for a discussion of the impact of these amendments on smaller broker-

dealers. 



496 

experience of larger broker-dealers, which will tend to lead to higher costs; however, smaller 

broker-dealers may also have lower costs if their lower order volume and customer account 

numbers lead to less complexity when calculating the metrics required in the reports. 

(3) Costs due to Incentives from Reporting of Execution 

Quality 

The Commission acknowledges that, to the extent that these amendments to Rule 605 fail 

to capture relevant dimensions of execution quality or cause market participants to focus on 

some dimensions of execution quality to the detriment of others, these amendments may reduce 

execution quality along certain dimensions that are relevant to some investors. The nature of 

execution quality as a multi-faceted concept has been a focus of academic papers, which have 

stated that execution quality is composed of multiple aspects or dimensions, including price and 

speed, among others.1699 As stated by the Commission in the Rule 11Ac1-5 Adopting Release, 

different investors may have different concerns and priorities related to execution of their 

orders.1700 If these amendments tend to favor certain dimensions of execution quality while 

excluding or neglecting others, there is a possibility that certain investor groups may be 

advantaged by these amendments to the disadvantage of other investor groups. 

For example, if size improvement becomes a major driver of order flow, national 

securities exchanges may try to incentivize hidden liquidity and broker-dealers may route orders 

to venues with higher expected hidden orders, as size improvement measures mechanically 

 

1699  See, e.g., Robert Battalio et al., All Else Equal?: A Multidimensional Analysis of Retail, Market Order 

Execution Quality, 6 J. FIN. MKT. 143 (2003); Boehmer (2005); Emiliano S. Pagnotta & Thomas Philippon, 

Competing on Speed, 86 ECONOMETRICA 1067 (2018). 

1700  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75432 (Dec. 1, 2000).  



497 

benefit from a greater degree of hidden volume.1701 It is possible that incentivizing hidden 

liquidity at the cost of displayed orders may negatively impact market quality by obscuring 

trading interest, making order books look thinner than they actually are. This scenario is unlikely 

for two reasons. First, exchanges are unlikely to incentivize hidden liquidity because they have 

economic incentives to promote displayed liquidity over hidden liquidity.1702 Second, market 

centers may not specifically focus on promoting hidden liquidity to improve size improvement 

metrics because Rule 605 reports also require information, such as time-to-execution, that show 

other dimensions of execution quality that could be negatively affected by increases in hidden 

liquidity. 

One commenter stated that, because of the expansion of Rule 605 reporting requirements 

to include larger broker-dealers, “brokers could become less willing to accept difficult orders, or 

orders under challenging market conditions, in an attempt to maintain favorable summary 

statistics.”1703 To the extent that this occurs and results in delayed executions or a lack of fill, this 

could lower some market participants’ execution quality. However, broker-dealers will continue 

to have competitive reasons to accept these orders, as customers whose orders are consistently 

rejected by a broker-dealer may find it advantageous to switch to another broker-dealer. 

Furthermore, broker-dealers’ incentives to engage in this behavior will be limited by the fact that 

consumers of Rule 605 reports will be able to control for differences in several characteristics of 

 

1701  For example, if two exchanges have 200 shares available at the NBO but one exchange is hiding a portion 

of this interest, a market order to purchase 200 shares would record size improvement on the venue with 

hidden liquidity but would not on the other venue. 

1702  For example, exchanges earn market data revenue from the SIPs based on their trading activity and the 

proportion of time their displayed quotes are at the NBBO. The SIP market data revenue allocation formula 

is summarized at, e.g., UTP PLAN PARTICIPANTS, SUMMARY OF MARKET DATA REVENUE ALLOCATION 

FORMULA, available at http://www.utpplan.com/DOC/Revenue_Allocation_Formula.pdf (last accessed Jan. 

11, 2024). 

1703  See Virtu Letter at 13. 



498 

broker-dealers’ order flow, including stock mix, order size, and realized spreads. Therefore, 

market participants will be able to observe whether a broker-dealer’s reported execution quality 

statistics are less favorable because they tend to handle more difficult orders, such as larger 

orders, those in less liquid stocks, or those with higher adverse selection.1704  

Several commenters stated that execution quality could worsen for some market 

participants if the amendments result in changes in order flow as more difficult-to-handle order 

flow shifts to broker-dealers that previously had easier-to-handle orders.1705 It is possible that the 

information contained in the amended Rule 605 reports could cause more difficult-to-handle 

order flow to shift to broker-dealers that have easier-to-handle orders, but it is uncertain what 

effects this would have on the execution quality of the easier-to-handle orders of the existing 

customers of these broker dealers. To the extent that such shifts in order flow occur, there is 

sufficient detail in Rule 605 reports to allow for customers to account for changes in order flow 

characteristics brought about by the amendments to Rule 605 when assessing execution quality. 

 

1704  See supra note 1485 for how information about adverse selection can be inferred from measures of realized 

spreads in amended Rule 605 reports.  

1705  See SIFMA Letter II at 30, stating that “the Commission does not account for any potential negative effects 

on execution quality caused by the shifting of order flow itself.” The commenter gives an example of 

customers that shift their order flow from one broker-dealer (“Firm A”) to another (“Firm B”) because of 

“perceived better execution quality at Firm B.” In this case, the commenter states that “the customers of 

Firm B are unlikely to receive better execution quality, and may receive worse execution quality,” because 

“Firm B would now receive all of the order flow from Firm A that received less favorable execution 

quality.” Instead, the customers of Firm B “may lose some of that execution quality in relative terms if the 

flow from Firm A improves its execution quality.” The commenter also stated that “the flow from Firm A 

may not receive any improvement as the reason for their lower execution quality could be that some 

broker-dealers simply have more adverse order selection.” Another commenter similarly stated that “[t]he 

Proposed Rule may lead to changes in the equilibrium mix of customer types at each broker, in ways that 

can result in positive or negative externalities for other investors at each broker,” offering as an example 

that, “[i]f the Proposed Rule induces retail investors with more costly to service orders to move to brokers 

that previously had less costly to service orders, it could cause execution quality to worsen at the broker 

with previously less costly to service orders.” Virtu Letter at 9. See also Virtu Letter at 37, stating that the 

proposed amendments to Rule 605 “may change the equilibrium mix of the brokers used by their 

customers, in ways that can result in positive or negative externalities for other investors…If the rule 

induces informed traders to move to brokers that previously had uninformed traders, it could cause 

execution quality to worsen at that broker.” 



499 

For example, assume that the customers of Firm A disproportionately submit larger orders, 

which are typically harder to execute than smaller orders,1706 and then view from Rule 605 

reports that Firm B offers better execution quality for larger orders than Firm A, and then switch 

to using Firm B. It could be the case that, in aggregate, Firm B’s execution quality statistics 

decline, because that broker-dealer is now handling more orders that are difficult to execute. 

However, because both the detailed Rule 605 reports and the summary reports contain 

disaggregated information by notional order size, market participants will be able to account for 

this order flow characteristic when assessing that broker-dealer’s execution quality from its 

summary report.1707 Furthermore, it is not necessarily the case that, just because a broker-dealer 

is handling more of a particular type of order flow that may be harder to execute, the broker-

dealer will offer these orders worse execution quality. In fact, to the extent that broker-dealers 

may benefit from liquidity externalities or economics of scale because of handling more of this 

order flow, the opposite may happen instead.1708  

One commenter stated that, to the extent that “perceived differences in execution quality” 

result in the consolidation of order flow among a smaller number of firms, this could result in a 

reduction in competition and harm overall execution quality.1709 The Commission is unable to 

quantify the likelihood that a trading venue or a brokerage firm will cease operating because of 

 

1706  See supra note 984 for a discussion of why larger orders are typically more difficult to execute. This 

example also could apply to other differences in order flow characteristics that make execution more 

difficult, such as higher adverse selection as measured by the realized spread. 

1707  To the extent that order flow shifts such that the aggregate order flow characteristics are similar across 

broker-dealers, the execution quality information contained in the final Rule 605 reports will still 

incentivize broker-dealers to compete to on the basis of execution quality. 

1708  See supra section IX.D.1.d)(4) for a discussion of how liquidity externalities can improve execution quality 

under certain circumstances but may not always be beneficial. 

1709  See SIFMA Letter at 30. 



500 

the consolidation of order flow and the subsequent effect that this will have on competition and 

execution quality. However, based on the academic literature, it may be the case that the 

consolidation of order flow actually improves execution quality as a result of liquidity 

externalities.1710 

(4) Costs to Update Best Execution Methodologies 

As a result of these amendments to Rule 605, financial service providers that are subject 

to best execution obligations1711 will likely reevaluate their best execution methodologies to take 

into account the availability of new statistics and other information that may be relevant to their 

decision making.1712 This may impose a cost only to the extent that broker-dealers and/or 

investment advisers choose to build the required statistics into their best execution 

methodologies. These amendments do not, however, address and therefore do not change the 

existing legal standards that govern financial service providers’ best execution obligations.1713 

(5) Other Costs 

One commenter stated that the enhanced reporting requirements under Rule 605 would 

result in “giving away vast amounts of information to free riders,” which would result in 

vulnerabilities.1714 The same commenter expressed a similar concern that the more detailed order 

execution information would “enhance certain constituents’ ability to model the market,” who 

then “could use sophisticated algorithms to craft out order flow.”1715 The commenter did not 

 

1710  See supra section IX.D.1.d)(4) for a discussion of how liquidity externalities can improve execution quality 

under certain circumstances but may not always be beneficial. 

1711  See supra note 1099 and accompanying text. 

1712  This statement was supported by one commenter. See Decimus Letter at 2. 

1713  See supra note 1099. 

1714  See Data Boiler Letter at 5. 

1715  See Data Boiler Letter II at 1.501 

further specify how the increase in information would increase vulnerabilities or how the more 

detailed information could be utilized for algorithmic trading. Given the low frequency of Rule 

605 reports (i.e., once per month), and high level of aggregation of these reports (i.e., not order-

by-order, but aggregated across order sizes and types), the risk of market participants using Rule 

605 reports to, e.g., infer information about other participants’ trading strategies is likely to be 

low, particularly because only larger broker-dealers, who introduce or carry a large number of 

customer accounts and thus whose order flow is less traceable to any one customer account, will 

be required to report under amended Rule 605 requirements.1716 

The amendment expanding the set of Rule 605 reporting entities to include larger broker-

dealers could impose a cost on broker-dealer customers if those broker-dealers that voluntarily 

provided their customers with execution quality reports prior to these amendments stop 

providing these reports, which potentially contain more or different information than what these 

amendments require.1717 This scenario is not very likely because customers could still request 

additional information or customized reports from their broker-dealers and broker-dealers may 

be incentivized to satisfy such requests, to the extent they did so prior to these amendments, to 

retain their customers.1718 

 

1716  See infra section IX.E.1.a) for a discussion of information leakage as an indirect cost of a reasonable 

alternative requiring these smaller broker-dealers to publish Rule 605 reports. 

1717  These reports could include, for example, public reports prepared according to the FIF Template (see supra 

note 973), or private ad hoc reports the broker-dealers prepare for their customers (see discussion in section 

IX.C.2.c), supra).  

1718  See, e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 at 58403 (Nov. 19, 2018), which discusses a 

similar potential cost and further states that the willingness of broker-dealers to provide such customized 

reports to customers and the level of detail in such a report might depend on the business relationship 

between the broker-dealer and the customer, such as whether the customer does a large amount of business 

with the broker-dealer.  



502 

As another potential cost, the amendments to Rule 605 may render the preexisting Rule 

605 data less useful and reduce the ability of researchers to perform statistical analyses. Some 

Rule 605 metrics will lose comparability before and after the new reporting requirements are 

implemented, so that in some cases there will be two shorter data sets rather than one longer one, 

leading to reduced statistical power.1719 This cost will apply for studies done over a limited 

period, as over time the new data will accumulate. The changes will also impact market 

participants’ ability to compare certain categories in the reports before and after the 

amendment.1720 The ability to examine the effect of changes in order execution quality close in 

time to the implementation of the adopted amendments to Rule 605 will be limited because the 

Rule 605 data available to analyze the change will differ before and after the implementation of 

the amendments.1721 The ability to aggregate across different order categories (e.g., notional 

buckets) mitigates this cost in that aggregated metrics can be compared across preexisting and 

 

1719  For example, time-to-execution metrics for some NMLOs will not be comparable, because preexisting Rule 

605 required time-to-execution for NMLOs to be measured based on the time of order receipt, while Rule 

605 as amended will require time-to-execution metrics for NMLOs to be measured based on the time the 

order becomes executable. For NMLOs submitted at or inside the NBBO, the time of order receipt is 

equivalent to the time of order executability. However, for NMLOs submitted outside the quote, there may 

be a difference between the time of order receipt and the time of order executability. Therefore, this change 

may impair the ability to compare the time-to-execution metrics of near-the-quote limits orders in prior 

Rule 605 reports to that of non-marketable limit orders in the amended Rule 605 reports. 

1720  For example, the amendments changing the order size categories from share-based to notional-based will 

affect market participants’ ability to compare these categories before and after the amendments. 

Furthermore, while IOC orders were not broken out separately and thus were distributed across various 

order type categories in preexisting Rule 605, IOC orders will be categorized separately into marketable 

and non-marketable IOC categories under amended Rule 605. This will likely affect the comparability of 

order type categories that had a high percentage of IOC orders prior to these amendments. The amended 

Rule 605 reports will also include non-exempt short sales and some orders submitted pre-opening/post-

closing, which were not included in preexisting Rule 605.  

1721  This pertains to changes in execution quality resulting from, for example, regulatory changes. See, e.g., 

Letter from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, 

Citadel Securities (Mar. 31, 2023) at 29 re Minimum Pricing Increments Proposing Release, available at 

https://www.sec.gov/comments/s7-30-22/s73022-20164212-334052.pdf. 



503 

amended Rule 605.1722 At the same time, there are some differences in the scope of Rule 605, 

even taking the ability to aggregate into account.1723 Finally, this cost may also be mitigated by 

the existence of other data that provides relevant information on execution quality.1724 

The Commission received comments stating that the round lot definition in the MDI 

Rules, once implemented, could reduce the benefits of the amendments to Rule 605; or that the 

amendments to Rule 605 could add to the cost of consolidated market data, an effect that could 

be compounded by the implemented MDI rules.1725 The baseline against which the benefits and 

costs are measured incorporates the potential effects of the MDI Rules, however, given that the 

MDI Rules have not yet been implemented, data that will be required for a quantitative analysis 

of a baseline that includes the effects of the MDI Rules, and of the cost of the final Rule 605 

 

1722  For example, the effective spread for market and marketable limit orders reported for individual stocks may 

be comparable after aggregating across different order size categories. More specifically, the effective 

spread can be computed for the combination of market and marketable limit orders in an individual stock in 

preexisting Rule 605 data by aggregated across all pre-existing order size categories for market and 

marketable limit orders. This will be compared with the effective spread for aggregated market, marketable 

limit, and marketable IOC orders in amended Rule 605 data, which will be computed by aggregating across 

all order size categories that remain for these order types after excluding order notional size categories with 

fractional and odd-lot components and notional size categories for which the notional value of the order 

will be equivalent to an order share size of 10,000 shares or greater.  

1723  For example, the amendments to Rule 605 expand its scope to include non-exempt short sales and some 

orders submitted outside of market hours. Since these orders will not be in separate order type categories, it 

will not be possible to exclude them from amended Rule 605 reports for the purposes of comparison to 

preexisting Rule 605 reports. 

1724  See IEX Letter at 3 (“There are myriad sources of information that both regulators and market participants 

draw on to consider how orders are handled and how markets compete with and compare to each other.”) 

1725  See Schwab Letter II at 32, 34 (“The 605(a)(1) report’s beyond-the-midpoint limit order category adds 

unnecessary complexity, as it is not a large category today, and will become de minimis with the Market 

Data Infrastructure (‘MDI’) round lot definitions . . . Further, when the MDI’s new round lot definitions 

take effect, the percent of the time ‘best available price’ differs from the NBBO will be even smaller”); 

Fidelity Letter at 4: (“[W]e anticipate market data costs will increase in several areas under the Proposals. 

Market data is a critical element of the equity markets, but the SEC has not yet required the self-regulatory 

organizations (‘SROs’) to re-submit a proposal setting fees for the data content underlying consolidated 

market data offerings pursuant to the Commission’s Market Data Infrastructure Rules (‘MDIR’) nor acted 

on simple governance reforms to help curtail market data costs”). 



504 

amendments with new baseline assumptions, is not available.1726 In further response to the 

comments, the new round lot definition is not expected to reduce the benefits of the amendments 

to Rule 605 because Rule 605 report metrics are at the individual stock level; since the new 

round lot definition will affect only stocks with prices of $250 or greater, the vast majority of 

stocks will not be affected by it.1727 Likewise, the amendments to Rule 605 will not alter the 

contents or requirements of consolidated market data, so the final rule is not expected to affect 

the cost of consolidated market data. 

3. Economic Effects on Efficiency, Competition, and Capital Formation 

a) Efficiency 

The Commission believes that these amendments to Rule 605 will improve the efficiency 

of analyzing Rule 605 reports, which will result in improved price efficiency. Improved 

transparency is expected to result in an increase in competition, which, in turn, is expected to 

improve order execution quality and price efficiency. Investors are expected to benefit from 

improved execution quality as a result of these amendments, such that these investors will also 

likely benefit from lower transaction costs. Transaction costs reflect a friction in the trading 

process that limits the ability of prices to fully reflect a stock’s underlying value.1728 Such friction 

makes it more costly to trade and makes investing less efficient, and limits the ability of 

arbitrageurs or informed investors to push prices to their underlying values. Thus, transaction 

costs make prices less efficient. These amendments to Rule 605 are expected to improve order 

 

1726  See section IX.C.1.c)(2), infra, discussing benefits and costs based on implementation assumptions. 

1727  See id. 

1728  See Hans R. Stoll, Friction, 55 J. FIN. 1479 (2000). 



505 

execution quality and reduce transaction costs. This, in turn, will reduce financial friction and 

improve price efficiency. 

b) Competition 

As previously discussed in the benefits section of this economic analysis, the 

Commission believes that these amendments to Rule 605 will facilitate competition on the basis 

of execution quality in the markets for brokerage services and trading services.1729 These 

amendments may also have additional effects on competition, such as increasing the extent to 

which Rule 605 reporting entities compete within other quality areas (such as rebates and 

transaction fees), and increasing competition in related markets (such as the market for TCA).  

(1) Competition in Other Areas 

 An increase in the extent to which Rule 605 reporting entities compete on the basis of 

execution quality as a result of these amendments may also spill over to increase incentives to 

compete along other lines, i.e., reduce fees or increase rebates (including PFOF), or offer new 

products or functionalities to attract customers.  

First, national securities exchanges may be incentivized to increase rebates or lower fees 

as a result of these amendments. Exchanges compete on the basis of fees and rebates to 

incentivize broker-dealers to route more order flow to them.1730 If an exchange offers the same 

execution quality as another reporting entity, an exchange may be incentivized to lower its 

transaction fees or raise its rebates in order to increase its competitive position in attracting more 

 

1729  See supra section IX.D.1 for a detailed discussion of the effects of the amendments on competition in these 

markets on the basis of execution quality. 

1730  See supra section IX.C.4.b)(2) for a discussion of competition between national securities exchanges on the 

basis of fees and rebates. 



506 

customers or order flow.1731 To the extent that this occurs and to the extent that the resulting 

lower fees or higher rebates will be passed on to investors, this could be beneficial for investors.  

Reporting entities may also be incentivized to innovate to offer new products in order to 

compete. For example, some broker-dealers may be incentivized to differentiate themselves by 

offering new functionalities that appeal to customers, such as the ability to trade on margin; to 

trade in additional asset classes, such as options; or to trade fractional shares.1732  

(2) Competition in Related Markets 

These amendments to Rule 605 can have an impact on markets other than brokerage and 

trading services, such as the market for TCA. For example, suppose that a customer chooses to 

no longer purchase TCA once the amended Rule 605 reports become available, because the 

customer decides that the information contained in the reports is sufficient. If fewer customers 

purchase TCA, this will have a negative impact on the market for third-party providers of TCA 

as well as third-party data vendors, because of a reduction in the demand for their services. 

Further, the quality of TCA provided by third parties may decrease because third-party providers 

of TCA may have fewer resources for the development and maintenance of their product 

offerings and because with fewer customers, third-party providers may have less data to use to 

build their models. At the same time, the quality of TCA reports may also improve if their 

publishers need to offer better products in order to compete with the publicly available data, 

 

1731  Another possibility is that a reporting entity that offers inferior execution quality may try to compete on the 

basis of lower fees or higher rebates instead of improving its execution quality. To the extent that this 

occurs, this may limit the extent to which competition will lead to improved execution quality for the 

customers of these reporting entities. However, these customers will still benefit from the lower fees or 

higher rebates. 

1732  See, e.g., supra note 1140, describing how trading volume increased substantially for brokers after they 

introduced the use of fractional shares. 



507 

and/or use the expanded information available under the final rule to offer new or better 

products. 

(3) Interacting Rule Effects 

In addition, as stated above, some commenters requested the Commission consider 

interactions between the economic effects of the proposed rule and other recent Commission 

rules.1733 As discussed above, the Commission acknowledges that overlapping compliance 

periods may in some cases increase costs.1734 This may be particularly true for smaller entities 

with more limited compliance resources.1735 This effect can negatively impact competition 

because these entities may be less able to absorb or pass on these additional costs, making it 

more difficult for them to remain in business or compete. However, the rules highlighted by 

commenters have compliance dates that do not significantly overlap with the expected industry 

compliance dates of the amendments to Rule 605, and therefore we do not expect these effects 

on competition to be significant.1736 We acknowledge that to the extent such overlap (in scope or 

timing) occurs, there could be costs which could affect competition, but we do not expect these 

costs to be significant. 

c) Capital Formation 

These amendments to Rule 605 might promote capital formation by improving price 

efficiency. As discussed above, these amendments are expected to improve order execution 

 

1733  See supra section IX.C.1.d). 

1734  See supra section IX.D.2.a)(5). 

1735  See supra section IX.D.2.a)(4) (discussing generally the competitive effect of fixed and variable 

compliance costs on smaller reporting entities). This issue may be mitigated by the fact that Rule 605 

reporting requirements will only apply to larger broker-dealers. In addition, the Commission has estimated 

that, of the firms that will be impacted by the amendments, only one exchange market maker is a “small 

entity” within the meaning of the Regulatory Flexibility Act. See infra section X. 

1736  See supra section IX.D.2.a)(5). 



508 

quality and reduce transaction costs, which is expected to improve price efficiency, and to reduce 

financial friction and promote investors’ ability to trade. Financial friction in the form of higher 

transaction costs can limit trading activity, and thereby hinder the efficient adjustment of prices 

and limit the ability of prices to reflect fundamental values. Less efficient prices can result in 

some issuers experiencing a cost of capital that is higher or lower than if their prices fully 

reflected underlying values, as a result of the market’s incomplete information about the value of 

the issuer. This, in turn, may limit efficient allocation of capital and capital formation. Under 

these amendments, improved price efficiency is expected to cause firms’ stock prices to reflect 

their underlying values more accurately, which can improve capital allocation and promote 

capital formation. 

E. Reasonable Alternatives 

1. Reasonable Alternative Modifications to Reporting Entities 

a) Different customer account thresholds for differentiating larger 

broker-dealers 

The Commission considered alternatives to the adopted amendment, which requires 

larger broker-dealers1737 to prepare execution quality reports pursuant to Rule 605 and excludes 

broker-dealers that introduce or carry less than a threshold number of customer accounts, 

defining the customer account threshold as 100,000 customer accounts.1738 Lowering this 

threshold would increase the total costs of the proposed amendments, as more broker-dealers 

would be subject to the costs of preparing Rule 605 reports; however, lowering the threshold 

might also be beneficial if more broker-dealer customers are able to benefit from the proposed 

 

1737  See supra note 61 defining the term “larger broker-dealers.”  

1738  See supra section II.A.2.a) discussing the adopted customer account threshold. 



509 

modifications to reporting entities.1739 On the other hand, raising the customer account threshold 

would lower the total costs of the proposal, but might result in fewer broker-dealer customers 

benefiting from the proposed modifications to reporting entities.1740 

In order to examine the number of broker-dealers that would be subject to Rule 605 

reporting requirements under the final rule at different customer account thresholds, it is first 

necessary to estimate the number of customers both for carrying and for introducing broker-

dealers.1741 To estimate the number of carrying broker-dealers’ customers, the Commission used 

data from broker-dealers’ 2022 FOCUS Report Form X-17A-5 Schedule I, which asks 

respondents whether they carry their own public customer accounts, along with the number of 

carrying broker-dealers’ public customer accounts.1742 To estimate the number of introducing 

broker-dealers’ customers, the Commission used data from CAT during the calendar year 2022 

on the number of unique customer accounts whose order originations are associated with broker-

dealers that do not identify as carrying their own public customer accounts in FOCUS Report 

 

1739  See supra section IX.D.1.d)(1) for a discussion of the extent to which excluding smaller-brokers dealers 

(i.e., those broker-dealers with customer accounts numbers below the customer account threshold) limits 

the benefits of the enhanced reporting requirements on competition for customer order flow. 

1740  While one commenter supported the 100,000 customer account threshold (see Nasdaq Letter at 43), and 

several commenters supported expanding reporting requirements to all broker-dealers (see infra section 

IX.E.1.b), the Commission did not receive comments supporting alternative customer account thresholds.  

1741  See supra note 98 and accompanying text for a definition of carrying and introducing broker-dealers.  

1742  Specifically, item 8080 asks for information on “respondent’s total number of public customer accounts,” 

but only broker-dealers that are carrying firms are required to answer this question, so information on 

introducing broker-dealers’ customers is not included. 



510 

Form X-17A-5 Schedule I.1743 The resulting customer numbers are then used to estimate the 

number of both carrying and introducing broker-dealers that would be subject to the reporting 

requirements of Rule 605 as proposed, using various definitions of the customer account 

threshold. The estimated costs of these amendments from the various definitions of the customer 

account thresholds are then calculated using the estimated initial and ongoing costs for new Rule 

605 filers.1744 

Lowering the customer account threshold might be beneficial if more broker-dealer 

customer accountholders are able to benefit from the enhanced reporting requirements. To 

 

1743  Customer accounts are identified in CAT as accounts belonging to either the “Institutional Customer” 

account type, defined as accounts that meet the definition in FINRA Rule 4512(c), or the “Individual 

Customer” account holder type, defined as accounts that do not meet the definition in FINRA Rule 4512(c) 

and are also not a proprietary account. See supra note 1144 for more information about account types in 

CAT. Broker-dealers are identified according to their FDID as defined in section 1.1 of the CAT NMS 

Plan. Introducing broker-dealers are identified as those broker-dealers that originate orders from customer 

accounts in the CAT dataset and do not identify as carrying their own public customer accounts in FOCUS 

Report Form X-17A-5 Schedule I. However, a customer account is only observed in this dataset if it 

actually originated orders during the sample period from Jan. to Dec. 2022. Therefore, to the extent that 

there are customer accounts that did not originate orders during this period, these accounts would be 

missing from our sample. In order to adjust for these missing accounts, an adjustment factor was 

constructed based on the assumption that, for carrying broker-dealers identified in both FOCUS and CAT, 

the number of customer accounts associated with the broker-dealer in CAT represents some percentage of 

that broker-dealer’s total customer base available from FOCUS (i.e., those customer accounts that actually 

originated orders during 2022). Dividing the number of accounts from CAT by the number of customer 

accounts from FOCUS reveals that, on average, around 26.6% of these broker-dealers’ customer accounts 

traded during 2022. Observed customer numbers from CAT are then scaled up using the adjustment factor 

of 1/0.266 to estimate the total number of customers for each broker-dealer (both carrying and introducing). 

In order to ensure that this estimate of customer account numbers is as conservative as possible, if a broker-

dealer is observed in both datasets, the number of customers for that broker-dealer is taken as the higher of 

its customer account number reported in FOCUS and the adjusted number of customers estimated from 

CAT. This method may underestimate the total number of customers to the extent that carrying broker-

dealers identified in FOCUS introduce customers that they do not carry (see supra note 1278 discussing 

hybrid carrying/introducing broker-dealers), and/or that introducing broker-dealers would have a higher or 

lower adjustment factor than carrying broker-dealers. This method may also underestimate or overestimate 

any particular broker-dealer’s total number of customers to the extent that a larger or smaller portion of the 

broker-dealer’s customer base originated orders during the sample period than the number implied by the 

adjustment factor. Lastly, this method may underestimate the number of customer accounts to the extent 

that some broker-dealers introduce customer accounts on an omnibus basis, which pools together the 

accounts of potentially multiple underlying customers but would only be recorded as a single account in 

CAT. 

1744  See supra section VIII.D for a description of these costs. This analysis assumes the same costs for both 

larger and smaller broker-dealers. 



511 

estimate the benefits of different customer account thresholds, the Commission calculated the 

cumulative number of customer accounts (expressed as a percentage of all identified carrying 

and introducing broker-dealer customer accounts) associated with broker-dealers that will be 

subject to the amended reporting requirements of Rule 605 according to various definitions of 

the customer account threshold. Additionally, using estimates of the number of orders that 

originate from institutional or individual accounts at broker-dealers as identified in CAT,1745 the 

Commission calculated the cumulative percentage of customer order originations associated with 

broker-dealers that would be included under the various thresholds.1746 

Table 131747 presents the estimated number of broker-dealers (both carrying and 

introducing) that would be subject to Rule 605 reporting requirements according to different 

 

1745  This is estimated as the total number of order originations associated with a broker-dealer’s institutional 

and individual customer accounts identified in CAT during calendar year 2022. See supra note 1743 for 

more information about how these accounts are identified. 

1746  Some of these order originations are likely to be excluded from Rule 605 reporting requirements to the 

extent that they belong to an order type or size group that is not subject to Rule 605.  

1747  This analysis has been updated since the Proposing Release in several ways. First, to measure the scope of 

broker-dealer customer activity that would be included in Rule 605 reports according to different 

definitions of the customer account threshold, the Proposing Release used data from broker-dealers’ 2021 

FOCUS Report Form X-17A-5 Schedule I and CAT data from calendar year 2021. The updated analysis in 

Table 13 below uses more recently available data from calendar year 2022. See supra note 1743 for further 

discussion; see also Proposing Release, 88 FR 3786 at 3885, n.1008 (Jan. 20, 2023). The customer account 

thresholds have also been updated since the Proposing Release to provide additional granularity on the 

costs and percentage of customers that would be covered by extending the rule to cover broker-dealers with 

between 250,000 and 500,000 customer accounts. Finally, the Proposing Release included a statistic, 

labeled “Customer Transactions Included,” that was calculated by taking the higher of the number of 

broker-dealer’s customer transactions as reported in FOCUS or the number of order originations from the 

broker-dealer’s institutional and individual customer accounts observed in CAT and then summing across 

broker-dealers. The Proposing Release describes the methodology as using the number of transactions 

observed in CAT, although order data was actually used. See Proposing Release, 88 FR 3786 at 3886, 

n.1010, 3887 (tbl.13) (Jan. 20, 2023). Upon further review, the Commission believes that order originations 

are the appropriate way to assess changes in the scope of Rule 605 as the threshold changes. This is 

 

 

 



512 

customer account thresholds, the resulting estimated costs, and the resulting estimated benefits in 

terms of the cumulative percentage of included customer accounts and orders. The table shows 

that increasing the customer account threshold from 100,000 to 250,000 would reduce both the 

initial and ongoing costs of the amendments by around 41.7%,1748 but would also result in lower 

coverage. In particular, coverage of customer order originations would drop by 55.7 percentage 

points.  

Meanwhile, reducing the customer account threshold from 100,000 to 10,000 would 

increase the coverage of customer order originations by an additional 21.0 percentage points. 

However, it would significantly increase both the initial and ongoing compliance costs, which 

would increase by approximately 187%.1749 The Commission also understands that accounts of 

broker-dealers with fewer customers are more likely to belong to institutional traders,1750 who are 

likely to have access to alternative information about the execution quality achieved by their 

broker-dealers and/or are likely to make use of not held orders that are excluded from Rule 605 

reporting requirements, and would therefore be less likely to depend on Rule 605 reports for 

 

because Rule 605 requires the reporting of all covered orders, regardless of whether they result in a 

transaction; see, e.g., final Rule 605(a), requiring reporting entities to prepare “a report on the covered 

orders in NMS stocks that it received for execution…” (emphasis added). In the updated Table 13, we 

therefore continue to use the total number of order originations associated with a broker-dealer’s 

institutional and individual customer accounts observed in CAT. As FOCUS does not include information 

on order originations, we have not included it in updated Table 13. Therefore, changes to the data and 

methodology did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release; namely, the updated data analysis continues to support a 100,000-customer threshold. 

1748  Increasing the customer account threshold from 100,000 to 250,000 would reduce the initial compliance 

costs from $3,412,750 to $2,409,000 and the ongoing compliance costs from $4,390,080 to $3,098,880. 

1749  Reducing the customer account threshold from 100,000 to 10,000 would increase the initial compliance 

costs from $3,412,750 to $9,796,600 and the ongoing compliance costs from $4,390,080 to $12,602,112. 

1750  For example, data from CAT order originations reveals that broker-dealers with less than 100,000 

customers have a higher percentage of institutional accounts on average than broker-dealers with 100,000 

or more customer accounts. 



513 

information about their broker-dealers’ execution quality.1751 Therefore, lowering the customer 

account threshold to include these customers might not be particularly beneficial, especially 

when compared to the substantial increase in compliance costs. 

Table 13: Cost-Benefit Analysis of Different Customer Account Thresholds Defining 

“Larger Broker-Dealers” 

Customer Account 

Threshold Number of Broker Dealers Estimated Compliance Costs 
CAT Order 

Originations 

Included (%) 

Customer 

Accounts 

Included 

 Carrying Introducing Total Initial Ongoing   

500,000 28 16 44 $1,766,600 $2,272,512 4.80% 95.80% 

250,000 35 25 60 $2,409,000 $3,098,880 4.80% 97.20% 

100,000 46 39 85 $3,412,750 $4,390,080 60.50% 98.30% 

10,000 74 170 244 $9,796,600 $12,602,112 81.50% 99.70% 

1,000 104 498 602 $24,170,300 $31,092,096 84.70% 100.00% 

100 130 847 977 $39,226,550 $50,460,096 93.90% 100.00% 

10 142 1025 1167 $46,855,050 $60,273,216 94.00% 100.00% 

1 153 1092 1245 $49,986,750 $64,301,760 100.00% 100.00% 

This table presents the estimated number of broker-dealers that would be subject to Rule 605 reporting requirements according 

to different definitions of the customer account threshold. The number of customer accounts are estimated from 2022 FOCUS 

Report Form X-17A-5 Schedule I and CAT data for the calendar year 2022, using the methodology described in supra note 

1743. CAT order originations are the total number of order originations from institutional or individual accounts associated 

with a broker-dealer, summed across all stocks and days in the sample. See supra note 1743 for further details on 

methodology. Compliance costs are estimated using the per-respondent costs from section VIII.D. 
 

An indirect cost of requiring these smaller broker-dealers to publish Rule 605 reports is 

an increased risk of information leakage. To the extent that a broker-dealer serves multiple 

institutional investors and/or these institutional investors exclusively use not held orders, it might 

be difficult to identify the orders of a particular customer in the amended Rule 605 reports. 

However, a smaller broker-dealer might have only a few institutional investor customers that 

represent the majority of its business and this might be known to other market participants. In 

this case, it might be possible to learn from Rule 605 reports some information about the 

customer’s order flow that is handled by the specific broker-dealer. This information will only 

 

1751  See supra section IX.C.2.c) for a discussion of institutional investors’ access to alternative sources of 

execution quality other than Rule 605 reports. 



514 

pertain to historical order flow and will only include a possibly limited subset of the customer’s 

orders that are held orders, but could nevertheless provide information about the general 

characteristics of the customer’s order flow, which might be useful to other market participants. 

Such a potential outcome could put smaller broker-dealers (that is, those with a small set of 

customers or handling a relatively small number of institutional orders) at a competitive 

disadvantage relative to larger broker-dealers, as institutional investors might avoid using smaller 

broker-dealers to avoid possible disclosure that could be traced back to the customer.  

b) Require all broker-dealers to prepare Rule 605 reports 

Another alternative to the adopted amendment to require larger broker-dealers to prepare 

execution quality reports pursuant to Rule 605 is to require all broker-dealers to prepare such 

reports, excluding broker-dealers with de minimis order flow. Several commenters supported this 

alternative.1752 

Expanding reporting requirements to all broker-dealers, subject to a de minimis 

threshold, would greatly increase the scope of these amendments, as there were 3,494 registered 

broker-dealers as of Q2 2023.1753 However, only around a third (specifically, 1,245) of these 

broker-dealers introduced or carried at least one individual and/or institutional investor in the 

market for NMS stocks within the sample time period.1754 The Commission is mindful of the 

additional costs that broad expansion of the rule to all broker-dealers would entail, relative to the 

 

1752  See, e.g., Robinhood Letter at 44; Angel Letter at 3. 

1753  See supra section IX.C.4.a)(1). In addition, based on Q2 2021 data, the Commission stated in the Proposing 

Release that there were 3,498 registered broker-dealers with only around a third (specifically, 1,267) of 

these broker dealers introducing or carrying at least one individual and/or institutional investor in the 

market for NMS stocks within the sample time period. See Proposing Release, 88 FR 3786 at 3887 (Jan. 

20, 2023). These numbers are comparable to the ones in this adopting release. 

1754  See analysis in supra Table 13 for estimated number of broker-dealers that introduce or carry at least one 

customer account. 



515 

likely limited benefits of expanding reporting requirements to a substantial number of broker-

dealers that do not directly handle, and thus have less discretion over the execution quality of, 

individual and institutional investors’ orders. Therefore, it is likely that the increase in cost that 

would accompany a requirement for all broker-dealers to prepare Rule 605 reports, subject to a 

de minimis threshold, would not be justified by the corresponding benefit, and that limiting 

reporting obligations to broker-dealers that handle customer orders will focus the associated 

implementation costs on those broker-dealers for which the availability of more specific 

execution quality statistics would provide a greater benefit. One commenter stated that only 

6.7% of broker-dealers that carry or introduce at least one customer account would be required to 

prepare Rule 605 reports.1755 However, as discussed above, these broker-dealers, while a 

relatively small percentage of broker-dealers, are responsible for the vast majority (more than 

98%) of customer accounts, as well as a significant percentage (59.5%) of customer order 

flow.1756  

c) Defining the threshold for differentiating larger broker-dealers 

using number of customer transactions rather than number of 

customer accounts. 

The Commission also considered defining the threshold for differentiating larger broker-

dealers using number of customer transactions rather than number of customer accounts. An 

approach requiring that broker-dealers handling above a threshold level of customer transactions 

publish Rule 605 reports would likely capture an overall larger number of customer orders. 

However, it would also be subject to a number of issues that would limit the benefits of this 

 

1755  See Robinhood Letter at 44. 

1756  See Table 13 and corresponding discussion. 



516 

approach. The Commission did not receive comment on this alternative, which was also in the 

Proposing Release.1757 

First, this approach would likely exclude from reporting requirements broker-dealers that 

have a large number of relatively inactive customer accounts, and include broker-dealers that 

have a small number of accounts associated with large amounts of trading volume. While the 

former are likely to be accounts belonging to individual investors, the latter are very likely to be 

institutional accounts. Institutional investors are likely to have access to alternative information 

about the execution quality achieved by their broker-dealers and/or are likely to make use of not 

held orders that are excluded from Rule 605 reporting requirements, and would therefore be less 

likely to depend on Rule 605 reports for information about their broker-dealers’ execution 

quality.1758 Meanwhile, individual investors have fewer alternatives to Rule 605 for information 

about the execution quality achieved by their broker-dealers.1759 Therefore, while expanding 

overall coverage, defining the threshold using the number of customer transactions would be less 

likely to target the types of orders that might be most useful for consumers of Rule 605 reports. 

Second, defining the threshold using the number of customer transactions might result in 

a less stable classification of broker-dealers into those that are and are not subject to Rule 605 

requirements, as there is likely to be more month-to-month variation in transaction numbers 

resulting from changes in market conditions, as compared to number of customer accounts.1760 

 

1757  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 

1758  See section IX.C.2.c) for a discussion of institutional investors’ access to alternative sources of execution 

quality information other than Rule 605 reports. 

1759  See section IX.C.2.b) for a discussion of individual investors’ usage of Rule 605 reports. 

1760  This possibility is somewhat limited by the adopted amendment requiring a broker or dealer that equals or 

exceeds the customer account threshold to provide reports for at least three calendar months. See supra 

section II.A.2. 



517 

This could potentially be disruptive to broker-dealers, who would have to coordinate compliance 

with Rule 605 during some periods but not others and interfere with customers’ or market 

participants’ ability to look at a broker-dealer’s execution quality over time by analyzing 

historical data. Furthermore, the dependence of transaction volumes on market conditions might 

result in broker-dealers being newly defined as “larger broker-dealers” subject to reporting 

requirements, even though their size relative to other broker-dealers did not change. For 

example, a period of sustained market volatility resulting in overall increases in market activity 

levels might trigger the need for many or even most broker-dealers to file Rule 605 reports, even 

if the broker-dealer’s relative portion of order flow (as a percentage of total broker-dealer 

customer order flow) did not change.1761 This would increase the total compliance costs 

associated with the amendments to Rule 605. 

Lastly, the number of customer accounts is likely less costly for broker-dealers to 

calculate and track compared to the number of transactions associated with customer accounts. 

Given that around 88.1% of customer-carrying broker-dealers reported the actual number of their 

customer transactions (rather than an estimated number) on their FOCUS Report Form X-17A-5 

Schedule I in 2022,1762 the extent to which broker-dealers would be able or choose to track the 

number of transactions associated with their customer accounts is unclear.  

 

1761  This possibility would be somewhat limited by the adopted amendment requiring broker-dealers to publish 

Rule 605 reports only after a three-month initial grace period. See supra section II.A.2. 

1762  This number was calculated by dividing the number of broker-dealers that answered “yes” to items I8084 

(“Respondent carries its own public customer accounts”) and I8105 (“Actual number of respondent’s 

public customer transactions”) and that reported at least one customer transaction, by the total number of 

 

 

 



518 

2. Reasonable Alternative Modifications to Scope of Covered Orders 

a) Explicitly include ISO orders with limit prices inferior to the 

NBBO.  

Both prior to and after these amendments, marketable Intermarket Sweep Orders 

(“ISOs”) with a limit price inferior to the NBBO, i.e., an ISO with a limit price less than the 

national best bid for sell orders or higher than the national best offer for buy orders, may be 

viewed as being subject to special handling, which will exclude them from Rule 605 reports.1763 

The Commission considered an alternative to explicitly include these orders within the scope of 

covered orders, either aggregated with other order types or as a separate order type category. The 

Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1764 

ISOs make up a large percentage of on-exchange trade volume; one academic working 

paper found that, between January 2019 and April 2021, ISOs accounted for 48% of on-

 

broker-dealers that answered “yes” to item I8084 and reported at least one customer transaction. See supra 

note 1746 for a description of FOCUS Report Form X-17A-5 Schedule I. The Proposing Release included a 

similar analysis using 2021 FOCUS Report Form X-17A-5 Schedule I that looked that customer-carrying 

broker dealers that reported the actual number of respondent’s public customer transactions, but did not 

control for whether the respondent reported at least one customer transaction (i.e., it additionally includes 

broker-dealers that reported no transactions during the calendar year). Using 2022 FOCUS Report Form X-

17A-5 Schedule I, this number is 47.7%, which is similar to the number from the Proposing Release. See 

Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). The Commission has adjusted its methodology to 

control for the number of broker-dealers that report at least one customer transaction in order to achieve a 

more conservative estimate of broker-dealers that will face costs from updating their systems to record 

transaction information. It is unlikely that broker-dealers that report actual transaction numbers of zero, to 

the extent that they continue to not handle any transactions, will need to update their systems in this way 

for the purposes of tracking customer transactions. While these methodologies produce different numbers, 

they both support the idea that the extent to which broker-dealers will be able or choose to track the number 

of transactions associated with their customer accounts is unclear. 

1763  See supra note 4, discussing the exclusion of orders for which the customer requests special handling from 

the definition of “covered orders.” See also 2013 FAQs, answer to Question 1.  

1764  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 



519 

exchange trade volume.1765 In order to estimate the volume of ISOs that are excluded from Rule 

605 reporting requirements as a result of the exclusion of ISOs with inferior limit prices, an 

analysis was performed using data on ISO marketable limit orders from the Tick Size Pilot B.II 

Market and Marketable Limit Order dataset.1766 Table 131767 shows that ISO orders with limit 

prices inferior to the NBBO make up 4.9% of ISO buy orders (6.3% of buy share volume), and 

4.7% of ISO sell orders (9.0% of ISO sell volume). Therefore, it could be the case that these 

orders make up a small but non-negligible percent of order flow.1768 

 

1765  See Ariel Lohr, Sweep Orders and the Costs of Market Fragmentation (Sept. 18, 2021), available at 

https://ssrn.com/abstract=3926296 (retrieved from SSRN Elsevier database). 

1766  See supra note 1545 for dataset description. For the analysis of ISO orders, the Commission limited this 

analysis to a randomly selected sample of 100 stocks and for the time period of Mar. 2019. This analysis 

uses data from prior to the implementation of the MDI Rules and specific numbers may differ following the 

implementation of the MDI Rules. In particular, for stocks with prices over $250, quoted spreads and price 

improvement statistics are expected to narrow because they will be measured against a narrower NBBO. 

The effects on effective spread, price impact, and realized spread statistics in these stocks is uncertain, 

because they are measured against the NBBO midpoint, and the Commission is uncertain how this will be 

affected. See supra section IX.C.1.c)(2). However, the Commission does not anticipate that the existence of 

a negative relation between the retail brokers' adverse selection risk and the execution quality that they 

receive from wholesalers described here would be affected by the implementation of the MDI Rules. 

1767  The same table can be found in the Proposing Release. See Table 14 in the Proposing Release, 88 FR 3786 

at 3888 (Jan. 20, 2023). 

1768  As the Tick Size Pilot covered only small-cap stocks (i.e., NMS common stocks that have a market 

capitalization of $3 billion or less, a closing price of at least $2.00, and a consolidated average daily volume 

of one million shares or less), ISO volumes and properties may be different for mid- or large-cap stocks. 

Furthermore, as the Tick Size Pilot data are based on self-reported data by trading centers, there is the 

possibility that the data may be subject to certain errors or omissions. 



520 

Table 14: Marketable Intermarket Sweep Orders by Price Relative to NBBO, Mar. 2019 

Percent of Orders ISO Buy Orders ISO Sell Orders 

Price Equal to the NBBO 95.1% 95.2% 

Price Worse Than NBBO 4.9% 4.7% 

Price Better Than NBBO 0.05% 0.06% 

Percent of Share Volume ISO Buy Orders ISO Sell Orders 

Price Equal to the NBBO 93.5% 90.1% 

Price Worse Than NBBO 6.3% 9.0% 

Price Better Than NBBO 0.2% 0.9% 

This table shows the percentage of ISO marketable limit orders with limit prices inferior to the NBBO, equal to the NBBO, 

and better than the NBBO, using a randomly selected sample of 100 stocks from the Tick Size Pilot B.II Market and 

Marketable Limit Order dataset and for the time period of Mar. 2019. Percentages are calculated as the number of shares 

(resp. orders) submitted with an ISO designation and within a given price type (i.e., priced equal to, worse than, or better than 

the NBBO), divided by the total number of shares (resp. orders) submitted with an ISO designation. Results are calculated and 

presented separately for buy and sell orders. See supra note 1545 for dataset description. The numbers reported here, in 

particular those related to the NBBO, may change once the amendments in the MDI Adopting Release are implemented. See 

supra note 1766 and section IX.C.1.c)(2). 

However, there are questions as to whether ISOs with inferior limit prices would be 

comparable to other marketable limit orders. When the limit price of an ISO is inferior to the 

NBBO at time of order receipt, the customer is effectively instructing the trading center that it 

can execute the order at a price inferior to the NBBO. If the order executes, any adverse effects 

that this inferior limit price has on the order’s execution quality metrics (e.g., a negative price 

improvement, or a higher effective spread) would be a result of the customer’s instructions, 

rather than the market center or broker-dealer’s discretion. As a result, these orders are likely to 

skew execution quality metrics downwards if included with other order types, which would harm 

market participants’ ability to use these metrics to accurately compare reporting entities.  

One alternative could be to explicitly include ISOs with inferior limit prices as a separate 

order type category in Rule 605 reports. However, the instruction that a market center should 

execute an ISO order at a price inferior to the NBBO, even when other market centers are 

displaying liquidity at better prices, limits broker-dealers’ discretion over the execution price of 

these orders. Thus, market participants might only benefit from this information to the extent that 

market centers or broker-dealers still have some discretion over some dimension of the order’s521 

execution quality such that this information would be useful in comparing metrics across 

reporting entities.1769  

b) Exclude orders that are cancelled quickly after submission. 

Limit orders that are canceled within a very short amount of time after submission are 

likely driven by trading strategies (for example, high frequency trading1770 and “pinging”) that 

are not intended to provide liquidity, and therefore might have limited information about the 

execution quality of a particular market center. Excluding quickly cancelled orders from the 

definition of “covered order” might allow fill rates (i.e., number of shares executed at or away 

from the market center, divided by number of covered shares) to better capture the execution 

probability of resting orders that are given a minimum opportunity to be executed, leading to a 

more meaningful ranking of Rule 605 reporting entities. At the same time, excluding cancelled 

orders also might entail losing important information if these cancellations capture information 

about orders that did not or could not receive a fill, rather than trading strategies. The 

Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1771 

In order to examine how the presence of quickly cancelled orders might impact fill rates 

and subsequently impact the ranking of market centers, the Commission first examined data on 

cancellation and execution times of executable NMLOs from MIDAS during the month of 

 

1769  For example, the willingness of traders to accept prices worse than the NBBO could help illuminate the 

premium paid by traders to quickly trade in a fragmented trading environment, which could differ across 

market centers. 

1770  The Concept Release on Equity Market Structure states that “the submission of numerous orders that are 

cancelled shortly after submission” is a primary characteristic of high-frequency traders. See 75 FR 3594 at 

3606 (Jan. 21, 2010). 

1771  See Proposing Release, 88 FR 3786 at 3888 (Jan. 20, 2023). 



522 

March 2023.1772 Figure 241773 plots the conditional distribution of cancellation and execution 

times,1774 and shows that cancellation times tend to be shorter than execution times: while the 

largest percentage (30.5%) of cancelled executable NMLOs are cancelled between 1 and 100 

milliseconds after submission, the largest percentage (46.4%) of executable NMLOs that 

received execution are not executed until between 1 and 30 seconds after submission. In fact, 

while 70.6% of cancelled orders are cancelled in less than 1 second, only 34.2% of executions 

happen within the same time frame. This imbalance implies that many orders may be cancelled 

before they are given a reasonable opportunity to execute.  

 

1772  See supra note 1130 for data description. This analysis does not include IOC NMLOs, which are not 

captured in MIDAS metrics. As discussed in supra section IX.C.3.c)(9), these orders may have contributed 

to low fill rates in reports under preexisting Rule 605. Execution times and cancellations times are 

calculated from the time of order receipt to the first time that one or more of the order’s shares are 

executed, or the first time that one or more of the order’s shares are cancelled, respectively. 

1773  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons discussed in supra note 1130. See Proposing Release, 88 FR 3786 at 3890 (Figure 16), 3842, n.634 

(Jan. 20, 2023) (for data description). The numbers in the Proposing Release are similar: while the largest 

percentage (29.8%) of cancelled executable NMLOs are cancelled between 1 and 100 milliseconds after 

submission, the largest percentage (44.8%) of executable NMLOs that received execution are not executed 

until between 1 and 30 seconds after submission; and that while 75% of cancelled orders are cancelled in 

less than 1 second, only 41.1% of executions happen within the same time frame. Therefore, changes to the 

MIDAS dataset did not affect the Commission’s conclusions from this analysis relative to the Proposing 

Release, namely that many orders may be cancelled before they are given a reasonable opportunity to 

execute. 

1774  The conditional distribution examines the percentage of cancelled (executed) orders that are cancelled 

(executed) within the defined time thresholds, and not the percentage of all orders that are cancelled or 

executed within the defined thresholds. Therefore, the cancellation (execution) percentages plotted in the 

Figure should sum up to 100%. 



523 

Figure 24: Distribution of Execution and Cancellation Times for Executable NMLOs,  

Mar. 2023 

 

This figure plots the distribution of execution and cancellation times across various time categories, using data from MIDAS. See 

supra note 1130 for data description. Percentages are calculated as the number of shares that executed (resp. cancelled) within a 

particular time horizon, summed across all stocks and days in the sample, divided by the total number of executed (resp. 

cancelled) shares, summed across all stocks and days. Execution times and cancellation times are calculated as the time of order 

receipt to the first time that one or more of the order’s shares are executed, or the first time that one or more of the order’s shares 

are cancelled, respectively.  

Therefore, it might be the case that excluding orders cancelled below some minimum 

threshold might lead to more informative fill rates. However, one question might be how to 

determine this threshold. For example, if the intent is to exclude cancellations that are part of 

high-frequency trading strategies such as pinging, it might be useful to keep in mind that 

estimates of human reaction time range from between one second and several hundred 

milliseconds, setting an upper bound for what might be considered high-frequency trading.1775 

Meanwhile, one recent academic paper found that high frequency trading strategies operate in 

 

1775  See, e.g., Neil Johnson et al., Abrupt Rise of New Machine Ecology Beyond Human Response Time, 3 SCI. 

REPS. 1 (2013); Albert Menkveld & Marius A. Zoican, Need for Speed? Exchange Latency and Liquidity, 

REV. FIN. STUD. 1188 (2017). 



524 

approximately 5 to 10 microseconds.1776 This would imply that a useful range for determining an 

appropriate threshold might be between approximately a few microseconds and one second. 

Figure 251777 plots the fill rates1778 of executable NMLOs that result from excluding orders that 

are cancelled below a variety of minimum time thresholds, showing that fill rates increase and 

approach 100% as more and more cancelled orders are excluded from the calculation of the fill 

rate. Importantly, fill rates do not change much when orders cancelled in less than 100 

microseconds, increasing by less than 0.1%. Fill rates increase when orders cancelled in less than 

1 second are excluded, but still remain on the lower side at 4.55%. This implies that the impact 

of excluding quickly cancelled orders on fill rates might be limited.1779  

 

1776  See Aquilina et al. 

1777  The MIDAS data used in this analysis have been updated and corrected since the Proposing Release for the 

reasons described in supra note 1130. See Proposing Release, 88 FR 3786 at 3891 (fig. 17), 3842, n.634 

(Jan. 20, 2023) (for data description). The analysis in the Proposing Release found similar results: fill rates 

increase and approach 100% as more and more cancelled orders are excluded from the calculation of the 

fill rate, and do not change much when orders cancelled in less than 100 microseconds (only increasing by 

0.2%). Fill rates increase when orders cancelled in less than 1 second are excluded, but still remain on the 

lower side at 11.5%. Therefore, changes to the MIDAS dataset did not affect the Commission’s conclusions 

from this analysis relative to the Proposing Release, namely that the impact of excluding quickly cancelled 

orders on fill rates might be limited. 

1778  As discussed in supra note 1199, the analysis may overestimate fill rates due to the exclusion of orders with 

multiple submission messages. In the alternative analysis without this exclusion described in supra note 

1199, fill rates differ from those in Figure 25 by less than 1 percentage point. While this alternative 

analysis, by assigning to the total submitted volume the price at the time of submission, tended to 

overestimate the number of executable NMLOs, it is unclear that this would systematically overestimate fill 

rates for executable NMLOs as discussed in supra note 1442. Therefore, the Commission’s conclusions 

from this analysis are not affected by the exclusion of orders with multiple submission messages. 

1779  This sample contains a mixture of stocks in terms of share price and market capitalization, and these 

numbers are likely to look different for individual stocks according to their market capitalization and 

liquidity characteristics. 



525 

Figure 25: Effect of Excluding Quickly Cancelled Orders on Fill Rates for Executable 

NMLOs, Mar. 2023 

 

This figure plots the fill rates of executable NMLOs that result from excluding orders that are cancelled below a variety of 

minimum time thresholds using data from MIDAS. See supra note 1130 for data description. Cancellations times are calculated 

as the time of order receipt to the first time that one or more of the order’s shares are cancelled. Fill rates are calculated as the 

number of shares that execute summed across all stocks and days in the sample, divided by the number of submitted shares 

excluding shares that are canceled within a given time frame, summed across all stocks and days. 

The benefit of excluding quickly cancelled orders is also likely to be limited if excluding 

these orders systemically increases fill rates across all reporting entities and does not necessarily 

lead to a change in ranking between reporting entities. To explore this possibility, the 

Commission limited the sample to the five largest market centers in terms of execution volume, 

to examine how the rankings between these market centers changes in terms of their fill rates for 

executable NMLOs resulting from changes to the threshold below which to exclude cancelled 

orders. Then it examined changes to their fill rate rankings for executable NMLOs as the 

threshold below which to exclude cancelled orders increased. The Commission found that 

market centers’ rankings did not change until cancellations below one second were excluded, 

when the market centers ranked first and third switched places. As for reasons described above 

one second represents a maximum bound on a reasonable threshold for excluding cancellations, 



526 

this again implies that the benefits of excluding quickly cancelled orders on fill rates might be 

limited. 

c) Include NMLOs submitted outside of regular trading hours as a 

separate order category.  

These amendments to Rule 605 will require NMLOs submitted outside of regular trading 

hours to be included in Rule 605 reports if they become executable during regular trading hours. 

The Commission considered whether it would be useful to include these orders as a separate 

order type category in Rule 605 reports. If NMLO orders submitted outside of regular trading 

hours have characteristics that are fundamentally different from other types of orders and have 

sufficient volume, their inclusion along with other orders could skew execution quality statistics. 

Pre-open orders likely have characteristics that differ from orders submitted during regular 

hours.1780 However, these pre-open orders make up only a very small percentage of order 

volume.1781 Therefore, it is unlikely that the inclusion of these orders along with other order 

types would significantly skew execution quality statistics, and including them as a separate 

order type category would likely only increase the complexity and size of Rule 605 report files. 

The Commission did not receive comment on this alternative, which was also in the Proposing 

Release.1782 

 

1780 See supra section IX.C.3.b)(4) for an analysis showing that orders submitted pre-open are more likely to be 

more individual customer accounts as compared to orders submitted during regular opening hours. 

1781  See supra section IX.C.3.b)(4) for an analysis. 

1782  See Proposing Release, 88 FR 3786 at 3891 (Jan. 20, 2023). 



527 

3. Reasonable Alternative Modifications to Required Information 

a) Reasonable Alternative Order Size Categories 

(1) Defining order sizes based on number of round lots rather 

than notional categories. 

Instead of redefining order size categories according to notional values, the Commission 

considered an alternative that defined categories based on the number of round lots.1783 This 

approach has several advantages. First, similar to defining categories based on notional values as 

in these amendments, categories based on number of round lots might make it easier to compare 

execution quality metrics across market centers that trade in differently priced stocks. Pre-

controlling for the stock price would thus eliminate the need for users of Rule 605 to go through 

the extra step of collecting and controlling for stock price information before being able to 

meaningfully compare market centers using Rule 605 data. However, according to the MDI 

Rules, round lots are based on the previous month’s trading price.1784 Furthermore, as stated by 

several commenters, the MDI round lot categories are wide and therefore contain a wide range of 

stocks in terms of price, and as such, order size categories based on round lot denominations 

might not meet the objective of grouping orders with similar notional values.1785 Therefore, 

unlike categories based on round lots, categories based on notional values include a more 

granular categorization of order sizes, and also incorporate information about changing stock 

prices in real time, thereby better grouping together similarly sized orders. 

 

1783  One commenter supported this alternative. See Better Markets Letter at 6. 

1784 See supra note 1015 and accompanying text. A commenter stated that one issue with defining order size 

categories in terms of round lots would be that the definitions would not be based on real-time data. See 

Rule 605 Citadel Letter at 6. 

1785  See, e.g., FIF Letter at 14; SIFMA Letter at 32; Rule 605 Citadel Letter at 6; Schwab Letter at 33. 



528 

(2) Require separate information for orders larger than one 

share with a fractional component 

The Commission considered an alternative in which, in addition to odd-lots, round lots, 

and fractional orders less than one share, reporting entities would also be required to report 

separate execution quality information for round lots with a fractional component, and odd-lots 

with a fractional component. This was suggested by a commenter, who stated that “when a round 

lot or odd-lot order has a fractional share component, this could, in some cases, impact the time 

to execution and the execution price.”1786 The Commission agrees that, similarly to fractional 

orders less than a share, handling practices regarding orders greater than one share with 

fractional components may vary across broker-dealers and market centers1787 and, to the extent 

that this is the case, this might have an impact on execution quality. However, an analysis of 

CAT data from 2023 for 400 stocks1788 shows that odd-lots with fractional components and 

round lots with fractional components only make up a small percentage of order flow (0.003% 

and 0.0008%, respectively). Furthermore, in contrast to fractional orders less than a share, the 

Commission did not find execution quality to systematically vary significantly between odd-lots 

and rounds lots with fractional components and their counterparts without fractional components. 

Specifically, Figure 26 shows the share-weighted average time-to-execution of fractional orders 

less than a share, and orders greater than a share both with and without fractional components. In 

order to focus on order flow that is most likely to contain fractional components, this analysis 

focuses on orders originating from individual customer accounts at broker-dealers. The results 

 

1786  See FIF Letter at 15. 

1787  See supra section IX.C.3.b)(1)(b) for further discussion for differences in handling practices for fractional 

shares. 

1788  See supra note 1211 for dataset description. 



529 

show that, while fractional orders less than a share have much longer execution times, the 

execution times of odd-lot and round lot orders with fractional components do not appear to be 

systematically longer than those without fractional components. Therefore, the Commission does 

not believe that there would be a significant benefit to including separate execution quality 

information for these types of orders. 



530 

Figure 26: Time-to-Execution of Fractional Orders, Q1 2023 

 

 

This figure plots the share-weighted average time-to-execution of fractional orders less than a share, odd-lots, odd-lots with a 

fractional component, round lots, and round lots with a fractional component. Execution times are calculated as the time of order 

receipt (which, for at- and inside-the-quote NMLOs, is equivalent to the time of executability) to the first time that one or more of 

the order’s shares are executed. Share weights are calculated as the number of executed shares in an order divided by the total 

number of executed shares summed across stocks and all days in the sample. This analysis uses CAT data for a sample of 400 

stocks. See supra note 1211 for data description. 

b) Reasonable Alternative Time-to-Execution Statistics 

(1) Replace time-to-execution buckets with time-to-execution 

statistics. 

In the Proposing Release, the Commission proposed eliminating time-to-execution 

buckets and instead requiring reporting entities to report additional time-to-execution 

statistics,1789 specifically, the median and 99th percentile of time-to-execution statistics.1790 

The Commission continues to believe that requiring time-to-execution statistics as 

proposed would provide market participants with useful information about the distribution of 



531 

time-to-execution for a given stock, order size, and order type combination (i.e., a given “row” in 

a Rule 605 report). However, the Commission acknowledges that, as stated by a commenter, one 

issue with point estimates of distribution information, such as the median and 99th percentile, is 

that they would not allow for an aggregation across rows.1791 The commenter instead suggested 

including two measures of the share-weighted average time-to-execution – one adjusted for 

outliers, and one not adjusted for outliers.1792  

The Commission understands that consumers of Rule 605 reports benefit from the ability 

to aggregate information across various order types and sizes (i.e., rows) of Rule 605 reports1793 

and therefore agrees that the inability to aggregate across median and 99th percentile time-to-

execution measures represents a disadvantage to including these measures. However, requiring 

time-to-execution buckets will allow market participants to recreate average time-to-

execution1794 in a way that is more straightforward than the method suggested by the 

commenter.1795 

(2) Calculate time-to-execution based on time of order route 

The Commission also considered an alternative in which, rather than calculating order 

execution times from the time of order receipt, broker-dealers would calculate the execution time 

 

1791  See FIF Letter at 21, stating that “market participants and other firms analyzing Rule 605 data cannot 

aggregate [median and 99th percentile] across different symbols and order type categories.” 

1792  See FIF Letter at 22. 

1793  See, e.g., id. 

1794  See, e.g., Healthy Markets Letter at 17, stating that “[b]y creating buckets for timestamp, rather than 

average time to execution, the reports would provide much greater granularity while still allowing a user of 

the data to recreate average time to execution.” 

1795  Furthermore, the commenter’s suggested alternative of a time-to-execution average adjusted for outliers 

would result in the same issue as with median and 99th percentile – i.e., it would not be possible to 

aggregate these measures across rows as the identified outliers in the aggregated group could be different 

from those identified within each individual pre-aggregate group.  



532 

from the time of order route, i.e., a time after the broker-dealer has performed internal risk 

controls and decided to accept the order. This alternative was suggested by several commenters, 

who stated that current order management systems may not generate a timestamp for when risk 

controls have been applied and it would be costly to generate such markers,1796 and that using 

order receipt time could create a perverse incentive for firms to diminish time spent on necessary 

reviews in an effort to improve execution speed statistics.1797 The Commission disagrees that the 

use of order receipt time will incentivize broker-dealers to circumvent their risk controls. Broker-

dealers are subject to other regulatory requirements, including the Commission’s market access 

rule, that will continue to apply.1798 Furthermore, broker-dealers likely have other incentives to 

perform these risk controls, such as reputational and business concerns. Furthermore, to the 

extent that the requirement to use order receipt time requires broker-dealers to update their 

management systems to generate such a timestamp, such costs are included in the cost estimates 

for first-time Rule 605 reporters as described in section IX.D.2.a)(1). On the other hand, there are 

greater benefits associated with using time of order receipt rather than time of order route. This 

timestamp method is more relevant to customers because it will show how the broker-dealer 

handled the order from the time the broker-dealer received it.1799  

 

1796  See FIF Letter at 19. 

1797  See Schwab Letter II at 33; Schwab Letter III at 5; FIF Letter II at 9. 

1798  See supra note 185 and corresponding text.  

1799  See supra section II.A.2.c) for further discussion. One commenter supported the use of receipt time rather 

than route time for broker-dealers; see Healthy Markets Letter at 16. 



533 

c) Reasonable Alternative Spread Measures 

(1) Use different clock time horizons to calculate realized 

spread. 

The adopted amendments to Rule 605 will require the realized spread to be calculated at 

a range of time horizons between 50 milliseconds and 5 minutes. This represents an expansion to 

what was proposed, that the realized spread be calculated at two time horizons (15 seconds and 

one minute).1800 The Commission also considered alternative approaches, such as including a 

smaller set of time horizons.1801  

In the Proposing Release, the Commission acknowledged that “requiring an additional 

specification of realized spreads would entail adding another data item, which would also 

increase the complexity of Rule 605 reports.”1802 However, upon further review, the Commission 

agrees with a commenter that the detailed Rule 605 reports are “intended to be machine-

readable, not human-readable,” and that “[a]dding rows and columns to the Rule 605 report, 

within reason, would not materially increase the costs of processing these reports and storing the 

relevant data.”1803 Furthermore, a lower number of time horizons would reduce the benefits from 

including a wide range of realized spread time horizons, as discussion in section 

IX.D.1.b)(2)(c)(i). 

 

1800  See Proposing Release, 88 FR 3786 at 3814-3816 (Jan. 20, 2023); see also supra section III.B.4.a)(1). 

1801  Specifically, in the Proposing Release, the Commission proposed including two realized spread time 

horizons, 15 seconds and one minute. See Proposing Release, 88 FR 3786 at 3815 (Jan. 20, 2023). 

1802  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

1803  See FIF Letter at 16. 



534 

One commenter suggested replacing the five-minute time horizon with “short timeframes 

to include 50ms, 100ms.”1804 Some of the results from the Commission’s analysis of realized 

spreads in section IX.D.1.b)(2)(c)(i) support the inclusion of very short time horizons, 

particularly for the largest stocks, and as discussed above the Commission is including a 50-

millisecond time horizon.1805 However, other analyses show that including longer time horizons 

will be beneficial for smaller stocks.1806 Therefore, as discussed above, it will be beneficial to 

include a wide range of time horizons between 50 milliseconds and 5 minutes.  

(2) Use trade time horizons to calculate realized spread. 

The Commission also considered whether the time horizon used to calculate realized 

spreads should be measured in terms of “trade time,” rather than “clock time.” The Commission 

did not receive comment on this alternative, which was also in the Proposing Release.1807 An 

ideal measurement horizon for realized spreads would be one that aligns with the amount of time 

an average liquidity provider holds onto the inventory positions established from providing 

liquidity. This horizon varies according to characteristics that impact liquidity providers’ ability 

to turn over their positions, including stock liquidity;1808 however, this time horizon also varies 

over time, as overall market conditions change. The use of a fixed time horizon could therefore 

make it so that the ability of realized spread measures to capture information about adverse 

selection varies over time. 

 

1804  See Healthy Markets Letter at 17. 

1805  See, e.g., the results in Figure 19 and surrounding discussion. 

1806  See, e.g., the results in Figure 18 and Table 6 and surrounding discussion. 

1807  See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 

1808  See supra note 1239 and the results in Figure 14 and surrounding discussion. 



535 

 Instead of setting a fixed “clock time” horizon, volume or “trade time” measures changes 

between the “the initial trade to the ith trade thereafter,”1809 and therefore allows for a time 

horizon that is flexible to different levels across stocks, and also over different time periods. In 

other words, while prices may update under liquid conditions in a few seconds or less, during 

very illiquid conditions several minutes may go by without a trade. Measuring time in terms of 

number of trades allows for the horizon to match these different speed “regimes” and might 

result in realized spread calculations that are more consistently relevant.1810 

However, the Commission is mindful of the additional computational resources that 

would be required if trade time were required to calculate realized spreads, as this would require 

reporting entities to match their execution information both to information on the NBBO, as 

would be necessary under the proposed clock time horizons, but additionally historical trade 

information from the exclusive SIPs.1811 More computationally intensive metrics would likely 

increase reporting entities’ compliance costs. Therefore, the adopted amendment to include 

multiple fixed time horizons will allow for sufficient flexibility in capturing realized spread 

information for stocks and/or time periods with different liquidity characteristics without 

increasing the computational resources required to calculate this measure. 

 

1809  See Conrad and Wahal, supra note 544, at 241. 

1810  For this reason, some academic studies use trade time instead of clock time when calculating metrics; see, 

e.g., David Easley, Marcos M. Lopez De Prado & Maureen O’Hara, Flow Toxicity and Liquidity in a High-

Frequency World, 25 REV. FIN. STUD. 1457 (2012). 

1811  See supra note 1009. 



536 

(3) Use weighted midpoint to calculate effective and realized 

spread. 

Under the adopted amendments, Rule 600(b)(8) defines effective spreads as, for buy 

orders, double the amount of difference between the execution price and the midpoint of the 

national best bid and national best offer at the time of order receipt and, for sell orders, as double 

the amount of difference between the midpoint of the national best bid and national best offer at 

the time of order receipt and the execution price. For midpoint-or-better limit orders, the time of 

executability is used rather than the time of order receipt.1812 The Commission is further adopting 

a definition of the average percentage effective spread, which will be equal to the average 

effective spread for order executions, divided by the midpoint for order executions.1813 However, 

an academic study1814 found that measuring the effective spread relative to the midpoint 

overestimates effective spreads by an average of 13%-18%, and that the bias can vary across 

stocks, trading venues, and investor groups. The paper instead suggests measuring effective 

spreads relative to a weighted midpoint, which factors in the depth available at the best bid and 

ask price, in order to reduce this bias.1815  

The presence of bias in effective spreads in Rule 605 reports would impact market 

participants’ ability to use this metric to make comparisons across reporting entities, particularly 

if the bias leads to a systematic over- or under-estimation of spreads for a particular entity or 

group of entities. However, there are benefits and costs to the use of the midpoint compared to 

 

1812  See final 17 CFR 242.600(b)(8). 

1813  See final 17 CFR 242.600(b)(10). 

1814  See Bias in the Effective Bid-Ask Spread, supra note 1244. 

1815  The weighted midpoint is calculated using the following formula: weighted midpoint = ((bid price × 

quantity at the ask price) + (ask price × quantity at the bid price))/(quantity at the ask price + quantity at the 

bid price). See id. 



537 

the weighted midpoint for calculating effective spreads. On the one hand, the midpoint requires 

only data on the best available bid and ask price. Calculating the weighted midpoint on the other 

hand would require that reporting entities additionally collect data on the depth available at the 

NBBO.1816 Furthermore, the midpoint may be easier to compute and interpret, as it is more 

familiar to market participants than the weighted midpoint. The Commission did not receive 

comment on this alternative, which was also in the Proposing Release.1817 

d) Reasonable Alternative Size Improvement Measures 

(1) Dollar size improvement calculated using proprietary full 

depth-of-book data. 

The Commission considered alternative measures of size improvement, including 

requiring a measure of dollar size improvement that would capture the dollar savings that an 

investor receives from size improvement offered by a reporting entity, taking into account the 

depth of book quotes and odd-lot quotes available from all exchanges’ proprietary depth-of-book 

data feeds. The measures of dollar size improvement considered include both RPI and a modified 

RPI measure that would account for the fact that order sizes may exceed the consolidated depth 

available across all order levels. 

First, as suggested by a petitioner, the Commission considered requiring the reporting of 

RPI, which would be calculated as the signed difference between the value-weighted average 

price (“VWAP”) of the transaction, and a reference price calculated as the VWAP that the trader 

would have gotten from walking a consolidated limit order book consisting of displayed liquidity 

 

1816  This may not be a significant cost, as reporting entities are required to collect information on NBBO depth 

for computing the size improvement measures under the adopted amendments. See supra section 

III.B.4.e)(2). 

1817  See Proposing Release, 88 FR 3786 at 3893 (Jan. 20, 2023). 



538 

from all national securities exchanges, taking into account both odd-lots and depth available at 

prices outside of the NBBO.1818 In other words, it calculates how much money a trader saved by 

the market center executing their trade at a particular price, rather than having their order walk 

the consolidated limit order book.1819 Because prices worsen deeper in the book, this measure 

could contain more information than combining price improvement with the size improvement 

metrics described in section IX.D.1.b)(2)(c)(v). Further, because the execution price is measured 

relative to depth of book as opposed to midpoint, this measure could contain information beyond 

effective spread. 

In addition to RPI, the Commission also considered a modified RPI measure that would 

account for the fact that order sizes may exceed the consolidated depth available across all order 

levels.1820 This alternative would account for this possibility by truncating the calculation of 

dollar size improvement at the consolidated depth of book size, and separately requiring the 

reporting of the number of shares executed in excess of consolidated depth of book size. 

Specifically, this alternative would consist of the following three data elements: (1) The share-

weighted average of, for each order, the signed difference between the value-weighted average 

price (“VWAP”) that the trader would have gotten from walking a consolidated limit order book 

 

1818  See supra section III.B.4.e)(2) for further discussion of the RPI measure.  

1819  There can be variation in the information contained in different national securities exchanges’ proprietary 

depth-of-book data feeds. For example, some exchange depth-of-book products may offer information on 

order messages while others may offer aggregate information on the shares available at different price 

levels. Additionally, it is also possible that some national securities exchanges may not offer depth-of-book 

data feeds. It may be difficult to compare RPI across reporting entities if different entities used different 

depth-of-book feeds containing different information to compute the metric.  

1820  To see why this matters for a measure of dollar size improvement, consider an example where a wholesaler 

internalizes a sell order for 10,000 shares at the NBB, while there are only 6,000 shares available across all 

bid prices in the consolidated book. The hypothetical price that the trader would have gotten for the 4,000 

shares in excess of the consolidated book depth is not defined, and thus it is unclear how the RPI reference 

price (i.e., the VWAP that the trader would have gotten from walking a consolidated limit order book 

consisting of displayed liquidity from all national securities exchanges) should be calculated. 



539 

consisting of the depth available from consolidated proprietary depth-of-book data, and the 

midpoint (“reference spread”); (2) The share-weighted average of, for each order, the signed 

difference between the VWAP that the trader actually received on their order and the midpoint. 

If the number of executed shares exceeded the depth available from consolidated proprietary 

depth-of-book data, the VWAP should only be calculated for those executed shares that are not 

in excess of this sum (“truncated effective spread”); (3) The sum of, for each order, the number 

of shares executed in excess of the depth available from consolidated proprietary depth-of-book 

data (“shares executed in excess of consolidated depth-of-book”). With this information, market 

participants would be able to compare the truncated effective spread to the reference spread to 

determine the dollar size improvement that they received for their order (capped at the 

consolidated depth-of-book size). Market participants would also be able to use the shares 

executed in excess of consolidated depth-of-book for two purposes. First, market participants 

would be able to get a sense of the number of executed shares that are not included in the 

truncated effective spread and reference benchmark measures, which would help contextualize 

the informativeness of these measures. Second, in combination with information about total 

executed shares and share-weighted average effective spread in Rule 605 reports, market 

participants could use this measure to back out the per share effective spread paid for shares 

executed in excess of consolidated depth-of-book.1821  

 

1821  To see this, consider that the average effective spread (EffSpr) can be calculated as the weighted average 

between the truncated effective spread (EffSprtrunc) and the effective spread paid for shares in excess of 

consolidated depth-of-book (EffSprexcess). By defining by stotal the total number of executed shares, sexcess the 

shares executed in excess of consolidated depth-of-book, one can calculate the number of shares available 

from the consolidated depth-of-book at strunc=stotal-sexcess. The effective spread paid for shares in excess of 

consolidated depth-of-book EffSprexcess could then be derived from the following relationship: 

EffSpr=(strunc/stotal) * EffSprtrunc + (sexcess/stotal) * EffSprexcess.  



540 

Dollar size improvement metrics differ from the size improvement metrics in the adopted 

amendments in several ways. First, in the adopted amendments, both the order size benchmark 

and the size improved outsized shares1822 are reported in terms of numbers of shares, and as such 

do not ascribe a dollar value to the size improvement received by traders. Therefore, while 

market participants can use these metrics to calculate the rate of size improvement offered by a 

reporting entity (e.g., by calculating the outsized size improvement rate1823), they do not allow 

market participants to associate this rate with a particular cost savings.1824 Second, while the size 

improvement metrics included in the adopted amendments consider only displayed depth 

available at the NBBO, the alternative dollar size improvement metrics would incorporate 

information about the consolidated depth and prices available across all order book levels.  

Requiring the reporting of dollar size improvement in Rule 605 reports could result in 

additional benefits for market participants relative to the adopted amendments. Because it 

incorporates information across all order book levels, a measure of dollar size improvement 

(such as RPI) may be more informative than measures calculated only using information about 

depth at the best displayed prices. In order to compare the extent to which RPI and the adopted 

size improvement metrics contain similar information about size improvement, the Commission 

 

1822  See supra section III.B.4.e)(2) for more information about these metrics. 

1823  See supra note 1547 and corresponding text for information about how the outsized size improvement rate 

is calculated. 

1824  Rule 605 as amended will allow for market participants to calculate some information about their cost 

savings. First, the measures of price improvement in final Rule 605(a)(1)(ii)(F) and (O) will allow market 

participants to calculate their savings relative to, respectively, the NBBO and best displayed price. 

However, this measure will be incomplete for orders that execute with size improvement. Second, the 

average effective spread in final Rule 605(a)(1)(ii)(B) will allow market participants to calculate their 

savings relative to the midpoint. However, this measure does not take into consideration the prices or depth 

available at different order books levels.541 

used data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset1825 to 

calculate the average correlation1826 between these measures. Similar to the analysis in Table 8 

examining whether price improvement and size improvement measures contain different 

information, the Commission also calculated the average correlation between RPI, price 

improvement and effective spreads to confirm that RPI contains different information than the 

metrics that are already included in Rule 605 reporting requirements. As in Table 8, the analysis 

is performed separately for national securities exchanges and off-exchange market centers.  

Results are presented in Table 15 and show that RPI and price improvement have a 

correlation of around 0.4 for both national securities exchanges and off-exchange market centers, 

implying that these measures contain some (but not all) of the same information about execution 

quality.1827 Similarly, there is moderate negative correlation between RPI and effective spreads, 

implying that these measures are also somewhat overlapping in terms of their information about 

execution quality for both types of market centers. The analysis shows a low level of correlation 

between RPI and the outsized size improvement rate for exchanges (6.4%) and for off-exchange 

market centers (14.1%). This implies that the adopted size improvement measure may be missing 

some information about size improvement that would be contained in a measure of dollar size 

improvement, such as RPI. 

 

1825  See supra note 1545 for dataset description. This analysis uses data from prior to the implementation of the 

MDI Rules and the specific numbers may be different following the implementation of the MDI Rules. 

However, it is unclear whether or how these effects will impact the correlations between these measures 

documented in this analysis. See supra section IX.C.1.c)(2).  

1826  See supra note 1546 for a description of how average correlations are calculated. 

1827  This analysis has been updated from the Proposing Release for the reasons described in supra note 1548. 

See Proposing Release, 88 FR 3786 (tbl. 15) (Jan. 20, 2023). The Proposing Release found higher 

correlation between RPI and the proposed measure of size improvement (18.4% for exchanges and 22.7% 

for off-exchange market centers). Therefore, relative to the Proposing Release, the analysis in Table 15 is 

more indicative of the adopted size improvement measure missing some information about size 

improvement that would be contained in a measure of dollar size improvement, such as RPI.  



542 

Table 15: Average Correlation between Measures of Price and Size Improvement 

Variables National Securities 

Exchanges 

Off-Exchange Market 

Centers 

RPI and Price Improvement 0.421 0.372 

RPI and Effective Spreads -0.113 -0.138 

RPI and Outsized Size Improvement Rate 0.064 0.141 

This table presents correlations between three measures of price improvement and size improvement: price improvement, 

calculated as the signed difference between the execution price and the NBBO, the effective spread, calculated as twice the 

signed difference between the execution price and the NBBO midpoint, and the outsized size improvement rate. This analysis 

uses data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset. See supra note 1545 for dataset 

description and supra note 1546 for methodology. To construct a measure of average correlation, the Pearson correlation 

coefficient is first calculated for each pair of execution quality metrics, for each market center-stock combination. Then value-

weighted average correlation coefficient across all stocks for each market center is constructed, using dollar volume as 

weights. The resulting correlation coefficients are then averaged across market centers using an equal-weighted average. This 

analysis uses data from prior to the implementation of the MDI Rules and specific numbers may be different following the 

implementation of the MDI Rules. See supra note 1825 and section IX.C.1.c)(2). 

Reporting RPI or the modified version of RPI would require depth-of-book information. 

In the Proposing Release, the Commission stated that it was not clear that the cost of requiring 

reporting entities to have access to the full set of consolidated depth information would justify 

the benefits of RPI. One commenter disagreed with this conclusion and stated that “[t]he SEC 

does not however quantify these costs or benefits.”1828 However, the Commission observed in 

the Proposing Release that one market center estimated its costs related to subscribing to depth 

of book data feeds for 11 national securities exchanges to be between $51,480 and $226,320 per 

exchange per year.1829 The Commission otherwise qualitatively analyzed the costs and benefits 

of this alternative.1830 Another commenter stated that “many brokers utilize vendors to produce 

 

1828  See CCMR Letter at 16. 

1829  See Proposing Release, 88 FR 3786 at 3818, n.414 (Jan. 20, 2023). 

1830  See id.  



543 

Rule 605 reports and these vendors are capable of handling depth-of-book data.”1831 The 

Commission acknowledges these to be potential cost reductions to reporting RPI to the extent 

that multiple market centers use vendors that subscribe to depth-of-book data and vendors pass 

along the resultant cost savings to market participants. It is also the case that the data may be 

available at lower cost if not purchased in real time, though the cost may still be substantial.1832 

To mitigate the costs of calculating dollar size improvement using full depth-of-book 

data, the Commission considered a second alternative that would add a field (or fields) to Rule 

605 reports for a dollar size improvement measure (or measures), but allow reporting entities that 

subscribe to the full set of proprietary data feeds to voluntarily report this measure.1833 This 

approach would standardize the disclosure for those entities that choose to report. And only those 

reporting entities that decide to voluntarily report would incur additional costs, which may be 

minimal to the extent they already subscribe to proprietary depth-of book products. However, 

reporting entities could voluntarily provide this same information on their websites, alongside 

their Rule 605 reports, without the Commission amending the Rule 605 reports to add this field, 

and the information benefits of reporting this information as part of the Rule 605 reports versus 

reporting the information separately, in the same format but a different file, is not clear. The 

Commission acknowledges, however, that there may be a benefit to investors and to market 

 

1831  Virtu Letter II at 12-13. The commenter also states that more market centers would need to purchase depth 

of book data should the Commission adopt the Minimum Pricing Proposal; see Minimum Pricing 

Increments Proposing Release, 87 FR 80266 (Dec. 29, 2022). This Proposal has not been adopted and thus 

is not considered as either part of the baseline or a cost mitigant here. See supra note 981. 

1832  See, e.g., Price List – U.S. Equities, the Nasdaq Stock Market, NASDAQ, available at 

https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv (last visited Feb. 2, 2024, 2:11 P.M.); and 

Historical Proprietary Market Data Pricing, NYSE (Jan. 2024), available at 

https://www.nyse.com/publicdocs/nyse/data/NYSE_Historical_Market_Data_Pricing.pdf. 

1833  This alternative was also discussed in the Proposing Release. See Proposing Release, 88 FR 3786 at 3893 

(Jan. 20, 2023). 



544 

participants, wishing to signal execution quality, to have these statistics as part of their Rule 605 

reports. The Commission may evaluate the issues raised after the implementation of the MDI 

Rules. 

(2) Dollar size improvement calculated using MDI depth-of-

book data. 

The Commission also considered an alternative that would require all Rule 605 reporting 

entities to report information that is similar to the petitioner’s measure of RPI described above 

but adapted to require this information only to be reported relative to the odd-lot, aggregate 

quotation size, and depth-of-book information that will be available from competing 

consolidators following the implementation of the MDI Rules.1834 Since consolidated market 

data under MDI includes only five levels of depth-of-book data,1835 under this alternative, the 

required size improvement information would be truncated at the sum of displayed liquidity 

available of shares available from odd-lot information,1836 aggregate quotation size,1837 and 

depth-of-book data.1838 Similarly to the measure described in section IX.E.3(d)(1), this would 

also have the effect of excluding from the measure shares that are executed in excess of 

consolidated depth of book size, for which RPI is not defined.  

 

1834  See supra section IX.C.1.c)(2). One commenter stated that a size improvement measure should not be 

included within Rule 605 until such a time when the public data feed contains more information regarding 

the depth of quotations. See Healthy Markets Letter at 18. 

1835  See MDI Adopting Release, 86 FR 18596 at 18625 (Apr. 9, 2021). MDI requires all national securities 

exchanges to make market data feeds containing their odd-lot information and depth-of-book data available 

to competing consolidators and self-aggregators, which would ensure that all exchanges provide the 

information needed to calculate this measure.  

1836  See final 17 CFR 242.600(b)(69)(ii). 

1837  See 17 CFR 242.600(b)(3). 

1838  See final 17 CFR 242.600(b)(31). 



545 

Specifically, this alternative would consist of the following three data elements: (1) The 

share-weighted average of, for each order, the signed difference between the value-weighted 

average price (“VWAP”) that the trader would have gotten from walking a consolidated limit 

order book consisting of the depth available from odd-lot information, aggregate quotation size, 

and depth-of-book data (“reference spread”); (2) The share-weighted average of, for each order, 

the signed difference between the VWAP that the trader actually received on their order and the 

midpoint. If the number of executed shares exceeds the depth available from odd-lot information, 

aggregate quotation size, and depth-of-book data, the VWAP should only be calculated for those 

executed shares that are not in excess of this sum (“truncated effective spread”); (3) The sum of, 

for each order, the number of shares executed in excess of the depth available from odd-lot 

information, aggregate quotation size, and depth-of-book data (“shares executed in excess of 

consolidated depth-of-book”).  

Requiring the reporting of dollar size improvement calculated using data available from 

competing consolidators could result in some additional costs, as reporting entities (following the 

implementation of MDI rules) would be required to obtain depth-of-book data from competing 

consolidators in order to calculate these measures.1839 To the extent that these reporting entities 

would have purchased a less expensive data product that does not include depth-of-book 

information absent this requirement, this would result in additional costs for market participants. 

However, this alternative could result in additional benefits for market participants relative to the 

adopted amendments. Because it would incorporate information across multiple order book 

levels, it may be more informative than measures calculated using information only about depth 

 

1839 To the extent competing consolidators make it available, reporting entities could compute the metrics using 

historical depth-of-data, which could have a lower price than real-time depth of book. 



546 

at the best displayed prices. As such, it would have some of the same benefits as the alternative 

in section IX.E.3(d)(1), though it would not have all of these benefits as the measure would only 

incorporate information from a subset of order book levels. It would be likely to come at lower 

cost compared to the alternative above.1840 Though the Commission is not adopting this 

alternative, the Commission will continue to evaluate the issues raised to determine if any further 

action is appropriate following the implementation of MDI. 

(3) Other measures of size improvement 

As an alternative to the adopted size improvement metrics, one commenter suggested 

including three metrics related to size improvement: “(1) the number of orders for which the 

order size exceeded the available shares displayed on the relevant side of the NBBO (‘outsized 

orders’); (2) the total number of shares executed as part of these outsized orders; and (3) the 

number (or percentage) of shares within the outsized orders that received size improvement (i.e., 

were executed at or better than the NBBO price, in excess of the amount of aggregate displayed 

liquidity at the NBBO).”1841 The commenter stated that, compared to the proposed size 

improvement metrics, “[t]hese metrics would be more informative as they are not affected by 

orders in which there was not a need to provide size improvement.”1842 

The Commission agrees with the commenter that “the number (or percentage) of shares 

within the outsized orders that received size improvement (i.e., were executed at or better than 

the NBBO price, in excess of the amount of aggregate displayed liquidity at the NBBO)” would 

 

1840  Also, unlike the alternative in section IX.E.3(d)(1), this alternative would not require the Commission to 

identify which proprietary depth-of-book data products would be needed to calculate the measure, since the 

measure would be calculated based on depth-of-book data as defined in core data under the MDI rule. 

1841  See Virtu Letter at 10. 

1842  See id. 



547 

be useful for market participants, and is adopting the “size improvement outsized shares,” which 

is substantively equivalent to the commenter’s third suggested metric.1843 However, the 

information provided by the other two metrics suggested by the commenter would not be as 

informative as similar information included in the amendments. 

The suggested metric, “the number of orders for which the order size exceeded the 

available shares displayed on the relevant side of the NBBO (‘outsized orders’)”, is similar to the 

outsized share count in the adopted amendments but less informative because it is based on the 

number of orders.1844 As most other metrics required by Rule 605 are recorded in terms of 

number of shares, rather than number of orders,1845 market participants would not have been able 

to compare the suggested measure to the other measures in Rule 605 reports.  

The suggested metric, “the total number of shares executed as part of these outsized 

orders”, is similar to the outsized share count in the adopted amendments, but less informative 

because it would not control for size improvement opportunities. While the commenter did not 

specify why this metric would be informative to market participants regarding size improvement, 

one possible use would be to assess the number of shares within outsized orders that execute 

with size improvement, as a percentage of total executed shares within outsized orders, as a way 

to calculate a size improvement “rate.” For example, if the metrics would reveal that 200 shares 

 

1843  See supra section III.B.4.e)(2) for further discussion of the “size improvement outsized shares.” 

1844  As discussed in section IX.D.1.b)(2)(c)(v), by comparing the adopted order size benchmark to the total 

number of submitted shares, market participants will be able calculate the number of shares that were 

submitted in excess of the available shares displayed on the relevant side of the NBBO (“outsized share 

count”). Outsized Share Count = Number of Submitted Shares – Order Size Benchmark. See supra note 

1543.  

1845  For example, the metrics required by final Rule 605(a)(1)(i)(C) through (N); (a)(1)(ii)(E), (H), (J), (M), 

(O), (P), (R), and (S); (a)(1)(iii)(B) and (C) are required to be reported in terms of number of shares. In 

contrast, final Rule 605(a)(1)(i)(A) and (a)(1)(iii)(A) are the only statistics required to be reported in terms 

of number of orders. 



548 

executed as part of outsized orders, and 100 shares of outsized orders received size improvement, 

a market participant could infer that 50% of shares executed as part of outsized orders were 

executed with size improvement. However, this rate metric would not be able to distinguish 

between different size improvement opportunities in cases of different levels of available depth, 

and thus would lead to an inaccurate comparison across market centers.  

To see this, consider Market A, which fully executes a 500-share order at the NBBO 

while there were only 200 shares of available NBBO depth. The metrics suggested by the 

commenter would reveal the following information: (1) one outsized order, (2) 500 shares 

executed as part of outsized orders, and (3) 300 shares of outsized orders that received size 

improvement. Compare this to Market Center B, which fully executes a 500-share order at the 

NBBO while there were 400 shares of available NBBO depth. The metrics suggested by the 

commenter would reveal the following information: (1) one outsized order, (2) 500 shares 

executed as part of outsized orders, and (3) 100 shares of outsized orders that received size 

improvement. While Market Center B would reveal a “worse” rate of only 20% of executed 

outsized shares receiving size improvement (compared to Market Center A’s 60%), this would 

not take into account that Market Center B had fewer “opportunities” to provide size 

improvement (in terms of the number of shares that were eligible to receive size improvement), 

due to the higher available depth. In other words, comparing the number of shares executed with 

size improvement to the number of executed shares in outsized orders would not result in a 

measure that takes into account the number of shares that were eligible to receive size 

improvement. Instead, a more informative assessment of size improvement is to compare (1) the 

number of shares within outsized orders that received size improvement to (2) the number of 

shares that were eligible to receive size improvement. The first metric is equivalent to the size 



549 

improved outsized share count, which the Commission is adopting.1846 The second metric is 

equivalent to the “outsized share count”, which can also be calculated from metrics included in 

the adopted amendments, i.e., by subtracting the order size benchmark from the number of 

submitted shares.1847  

In sum, because a size improvement rate calculated relative to “the total number of shares 

executed as part of these outsized orders” would not control for size improvement opportunity, 

and because a measure of submitted volume that exceed available depth expressed in terms of 

number of orders would not allow market participants to compare this measure to most other 

Rule 605 measures, the Commission does not believe that the metrics suggested by the 

commenter would be more informative than those included in these amendments. Furthermore, 

the Commission disagrees that the metrics suggested by the commenter “would be more 

informative as they are not affected by orders in which there was not a need to provide size 

improvement.”1848 While it is true that the metrics suggested by the commenter “are not affected 

by orders in which there was not a need to provide size improvement,” as discussed in section 

IX.D.1.b)(2)(c)(v), the adopted size improvement metrics also allow market participants to net 

out the effect of shares for which there were no size improvement opportunities from an analysis 

of size improvement, i.e., by subtracting the order size benchmark from the number of submitted 

shares to get the outsized share count.  

 

1846  See final 17 CFR 242.605(a)(1)(ii)(S). 

1847  See supra note 1844. 

1848  See Virtu Letter at 10. 



550 

4. Reasonable Alternative Modifications to Accessibility  

a) Require a System for the Centralized Posting of Rule 605 Reports 

Instead of or in addition to having market centers and larger broker-dealers post Rule 605 

reports on their websites, the Commission considered requiring market centers to submit Rule 

605 reports to a centralized electronic system, which would have then made these reports 

available to market participants. Multiple commenters supported the centralized posting of Rule 

605 reports, stating that such centralization would “facilitate accessibility”1849 and ultimately 

“increase transparency”1850 and “promot[e] competition”1851 leading to “improvements in 

execution quality.”1852 By contrast, one commenter opposed centralized filing of Rule 605 

reports because the resulting ease of access would give too much information to “free riders” 

who would “use market modeling for mischief.”1853 We do not agree that increasing accessibility 

to Rule 605 reports would be detrimental to markets. As discussed in further detail below, 

centralized posting of Rule 605 reports would likely have better enabled market participants to 

access, evaluate, and compare the reports of multiple (or even the complete set of) reporting 

entities. However, because implementing such centralization would have entailed costs and 

uncertainties as well as potential time delays in implementation, the Commission did not adopt 

this alternative.1854 

 

1849  See Fidelity Letter at 8; see also Nasdaq Letter at 46; BlackRock Letter at 4; J.T. Letter; HMA Letter at 16. 

1850  See BlackRock Letter at 4; see also J.T. Letter. 

1851  See BlackRock Letter at 4; see also Nasdaq Letter at 46. 

1852  See Nasdaq Letter at 46.  

1853  See Data Boiler Letter I at 27-28; see also supra section IX.D.2.b)(5) for further discussion of the cost of 

free riding as a potential cost of the amendments to Rule 605. 

1854  See supra section V.B.2.a) for further discussion. 



551 

Market participants may face search costs when collecting existing Rule 605 reports in 

order to compare execution quality across reporting entities, in particular when collecting Rule 

605 reports for multiple entities and across longer time periods.1855 Such search costs will 

increase under the adopted amendments, which expand the number of reporting entities from 228 

to 343, including 85 broker-dealers that introduce or carry 100,000 or more customer 

accounts.1856 Compared to the adopted amendments, which maintain the requirement for market 

centers to post Rule 605 reports on their individual websites, creating a centralized electronic 

system would have lowered these search costs by making it easier for market participants to 

locate, collect and aggregate data from multiple Rule 605 reports in order to compare reporting 

entities, because all reports would have been available at a single central location. Compared to 

the adopted amendments, this reduction in search costs and resulting increase in accessibility 

would have enabled investors to use Rule 605 reports to compare execution quality across larger 

broker-dealers more efficiently. This might have increased the extent to which broker-dealers 

would need to compete on the basis of execution quality. 

Likewise, compared to the adopted amendments, a centralized electronic system would 

have better enabled broker-dealers to use Rule 605 reports to compare execution quality across 

 

1855  For example, in order to collect a complete or mostly complete set of Rule 605 reports to select the 

reporting entity offering the best execution quality in a given stock, a market participant will need to 

perform the following tasks, for each reporting entity: first, search the internet for the website(s) of the 

reporting entity; second, find the area of the reporting entity’s website(s) that links to its Rule 605 report; 

and third, find the correct link and download the appropriate report (or multiple reports, if the information 

for multiple months is desired). The process of collecting Rule 605 reports may be simplified by the NMS 

Plan’s requirement that each market center must designate a single Participant to act as the market center’s 

Designated Participant, and by the use of third-party vendors. See supra section IX.C.3.d) for a discussion; 

see also supra section IX.D.1.d)(3) for a discussion of how these search costs may increase as a result of an 

increase in the number of Rule 605 reporting entities under the adopted amendments. 

1856  See supra section VIII.C for a discussion of the estimated number of reporting entities under the adopted 

amendments; see also supra section IX.D.1.d)(3) for a discussion of how the increase in reporting entities 

under the adopted amendments may increase search costs for some market participants.  



552 

market centers, and thus might have increased competition among market centers on the basis of 

execution quality in order to attract order flow.1857 Also, unlike the individual website posting 

requirement under the amended rule, a centralized electronic system could have enabled 

programmatic checks for appropriate standardization, formatting, and completeness before 

posting, and thus could have reduced processing costs for users compared to the amendments.  

While the Commission agrees with commenters that centralizing Rule 605 reports would 

have created these benefits, the Commission also recognizes that requiring such centralization 

would impose uncertainties and costs related to implementation. As discussed above, 

commenters did not have a consensus view on how to accomplish centralization.1858 One 

commenter recommended having FINRA maintain a public database for Rule 605 reports,1859 

another recommended the Commission post all Rule 605 reports on a single page on the 

Commission’s website,1860 and another recommended working out the details of a central 

repository through the Rule 605 NMS Plan.1861  

The entity or entities responsible for administering the Rule 605 centralized electronic 

system would have incurred costs to create and maintain a system (including any compliance, 

programmatic formatting, completeness, and/or consistency checks that the system would run on 

the reports before dissemination). Administering entities could have passed these costs on to 

reporting entities in the form of filing fees, and/or to consumers of Rule 605 reports in the form 

 

1857  Several commenters agreed that centralization would promote the benefits of Rule 605 for competition. 

See, e.g., Blackrock Letter at 4; Nasdaq Letter at 46; J.T. Letter at 7. 

1858  See supra section V.B.2.a. 

1859  See Healthy Markets Letter at 16. 

1860  See Fidelity Letter at 8. 

1861  See Angel Letter at 3. 



553 

of access fees. If potential consumers of Rule 605 reports decided not to access the reports 

because of these access fees, this would have represented a cost in the form of reduced 

accessibility of Rule 605 reports.1862 Furthermore, to the extent that the centralized electronic 

system would have included programmatic formatting, completeness, and/or consistency checks 

on Rule 605 reports before accepting them, reporting entities would also have incurred costs to 

resolve any issues detected by such checks.1863  

The Commission specifically considered two options for how to implement the 

centralized electronic system: using the existing Rule 605 NMS Plan and the Commission’s 

EDGAR system.  

One commenter supported a requirement that procedures established pursuant to the 

NMS Plan provide for the creation and maintenance of a centralized electronic system to serve as 

a repository for Rule 605 reports.1864 As discussed above, the creation of a centralized electronic 

system would generally have resulted in additional economic benefits as compared to the 

adopted amendments by further promoting transparency and competition, and by reducing 

market participants’ search costs through the availability of all Rule 605 reports at a single 

location. However, as the NMS Plan would have been tasked with designing and implementing 

the centralized electronic system, the Commission would ex ante be uncertain as to the specific 

functionality, ease of access, and extent of user fees that such a centralized electronic system 

 

1862  However, maintaining the current requirement for reporting entities to post a free version of the report on 

their websites would have mitigated this cost by requiring that Rule 605 reports would continue to be freely 

available. 

1863  Reporting entities would likely have been most efficiently situated to remedy any identified issues in their 

own reports before posting (as opposed to having system administrators or report users remedy such 

issues). 

1864  See Angel Letter at 3. 



554 

would have provided. Likewise, the accessibility and timeliness of centralized Rule 605 

information would have depended on how the NMS Plan would develop the functionality for 

distributing or making the Rule 605 reports public. Thus, adopting this alternative would have 

introduced a level of uncertainty as to the access and use of Rule 605 reports. 

The Commission also considered requiring reporting entities to disclose Rule 605 

information directly to the Commission through the Commission’s EDGAR system, with the 

Commission subsequently making the information publicly available on EDGAR.1865 However, 

two commenters opposed this alternative, characterizing EDGAR technology as “outdated” and 

“inadequate for the task.”1866 Unlike an NMS Plan requirement, an EDGAR requirement would 

not have involved any costs to NMS Plan participants of creating and maintaining an electronic 

system for Rule 605 reports, and, as EDGAR does not charge any reporting or access fees, would 

not have involved the cost to reporting entities of paying reporting fees or the cost to consumers 

of Rule 605 reports of paying access fees. However, an EDGAR alternative would have 

increased certain reporting entities’ compliance costs relative to the adopted amendments, as any 

reporting entities that do not already submit documents to the Commission via EDGAR would 

have incurred a one-time burden of submitting a notarized Form ID application to obtain 

EDGAR access codes, a burden that does not apply under the adopted amendments.1867 EDGAR 

 

1865  EDGAR functionality would allow consumers of Rule 605 to search for specific reports or all reports for a 

given month. However, consumers wishing to combine reports for analysis would need to pull each report 

separately. 

1866  See FIF Letter at 33; Healthy Markets Letter at 16. 

1867  See 17 CFR 232.10; Section 3 of the EDGAR Filer Manual (Volume I) version 41 (Dec. 2022). Any 

market centers, brokers, and dealers that already submit documents on EDGAR would not incur this 

burden. For example, some broker-dealers choose to file the annual audit reports required by Form X-17A-

5 Part III on EDGAR rather than via paper, and would thus already have the required access and procedures 

in place to submit Rule 605 Reports to EDGAR. See section 8.2.19 of the EDGAR Filer Manual (Volume 

II) version 68 (Dec. 2023). 



555 

functionality would also have allowed for programmatic checks for appropriate standardization, 

formatting, and completeness of Rule 605 reports before dissemination, and while such checks 

would have improved the quality of Rule 605 data and thus benefited users of Rule 605 data, 

they would also have imposed upon reporting entities the additional burden of resolving any 

detected issues and submitting a corrected report before dissemination.  

Because the centralization of Rule 605 disclosures, whether through an NMS Plan, 

EDGAR, or some other means, would have introduced implementation costs and uncertainties as 

well as implementation time delays compared to the adopted amendments, the Commission did 

not adopt a requirement for centralized posting of Rule 605 reports. 

b) Modify Format Requirements for Rule 605 Reports  

Rule 605 requires reports to be made available to the public in a uniform, readily 

accessible, and usable electronic format through procedures established by the NMS plan 

participants,1868 and the governing NMS Plan specifies that Rule 605 reports must be provided in 

pipe-delimited ASCII, which is a machine-readable electronic format.1869 This has not changed 

under the adopted amendments. The Commission considered an alternative that would have 

required the detailed Rule 605 reports to be provided using an expanded version of the existing 

XML schema for Rule 606 reports.1870 This alternative would have allowed the data on detailed 

Rule 605 reports to be used interchangeably with the data in Rule 606 reports, thus facilitating 

 

1868  See prior 17 CFR 242.605(a)(2); final 17 CFR 242.605(a)(3). 

1869  See Rule 605 NMS Plan at 2 (“Section V . . . provides that market center files must be in standard, pipe-

delimited ASCII format”); see also supra note 135 and accompanying text. Even in the absence of an 

effective NMS plan, reports must be prepared “in a consistent, usable, and machine-readable electronic 

format.” Prior 17 CFR 242.605(a)(2); final 17 CFR 242.605(a)(4). 

1870  See 17 CFR 242.606(b)(3), requiring reports to be made available “using the most recent versions of the 

XML schema and the associated PDF renderer as published on the Commission’s website.” See also Order 

Routing and Handling Data Technical Specification, SEC (Feb. 25, 2022), available at 

https://www.sec.gov/files/order_handling_data_technical_specification-2022-02-25.pdf. 



556 

the usage of Rule 605 data together with Rule 606 data, in line with the Commission’s original 

intent for the rules.1871 In addition, the use of XML rather than pipe-delimited ASCII would have 

facilitated the use of more complex data error checks (such as checks on elements in nested 

structures).  

On the other hand, this alternative would have required reporting entities to establish 

technical systems to format the reports using the expanded XML schema and render them using 

the PDF renderer, thus imposing additional compliance costs relative to the adopted 

amendments. Furthermore, because Rule 605 reports consist solely of a series of discrete 

numeric values, and do not contain elements in nested structures, the sophisticated validations 

that XML enables would not have provided significant benefits for Rule 605 reports. In addition, 

because the nature of the Rule 606 data (which include narrative discussions) differs from the 

nature of the Rule 605 data (which are limited to a discrete set of numerical statistics), and 

because the population of entities that report Rule 606 data (broker-dealers) does not coincide 

with the population of entities that will report Rule 605 data (market centers and larger broker-

dealers), the benefits to be realized from interchangeable usage of Rule 605 and Rule 606 data 

would not have been significant. 

In a change from the proposal, the adopted amendments require market centers to publish 

summary reports in CSV and PDF formats. One commenter recommended this approach, stating 

CSV (or another format that can be copied into a spreadsheet program) “would allow investors to 

compare summary data across firms more readily.”1872 We could alternatively have adopted the 

proposed requirement for market centers to publish summary reports in XML and PDF formats. 

 

1871  See Rule 11Ac1-5 Adopting Release, 65 FR 75414 at 75414 (Dec. 1, 2000). 

1872  See FIF Letter at 6. 



557 

Compared to CSV, XML can accommodate a wider variety of content structures, such as a series 

of multiple differently laid out tables or tables accompanied by textual footnotes. XML also 

enables more sophisticated validations than CSV does, such as validations on multiple nested 

elements. However, summary reports do not contain multiple differently laid out tables, textual 

footnotes, or nested elements, so these capabilities of XML are not relevant to summary reports. 

Instead, the Commission agrees with the commenter that using CSV rather than XML for the 

summary reports will allow investors to analyze summary report data more readily, and that this 

increased usability is more relevant to summary report data than the broader technical coverage 

that XML provides. The amended rules therefore replace the proposed XML requirement for 

summary reports with a CSV requirement. 

5. Other Reasonable Alternatives 

a) Releasing Aggregated CAT Data 

As an alternative to the adopted amendments, the Commission considered using CAT 

data to have either the Commission or the CAT Plan Processor1873 provide execution quality 

information to the public at monthly intervals – or more frequently. This alternative would 

effectively eliminate the need for Rule 605 reports.  

This approach would have lower compliance costs for reporting entities than the adopted 

amendments, as it would not require reporting entities to prepare Rule 605 reports. Another 

benefit of this alternative with regard to the adopted amendments is that the data in this 

 

1873  As set forth in the CAT NMS Plan, the Plan Processor is required to develop and, with the prior approval of 

the Operating Committee, implement policies, procedures, and control structures related to the CAT 

System that are consistent with 17 CFR 242.613(e)(4), and Appendix C and Appendix D of the CAT NMS 

Plan. See Joint Industry Plan; Order Approving the National Market System Plan Governing the 

Consolidated Audit Trail, SEC (Nov. 15, 2016), n.136, available at 

https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf. 



558 

alternative could be more comprehensive in terms of the breadth of broker-dealers whose 

execution quality information could be aggregated and published, because the Commission could 

publish aggregated data on execution quality from all broker-dealers instead of just those that 

meet the customer account threshold. As a result, the data would be more comprehensive, 

resulting in even greater benefits from transparency.1874 

Numerous commenters supported this alternative, stating that requiring CAT to produce 

Rule 605 reports would increase efficiency and reduce the burdens and costs associated with 

preparing Rule 605 reports,1875 and would result in more consistent and standardized 

reporting.1876 

However, there are several drawbacks to this alternative relative to the adopted 

amendments. First, it would take some time before CAT data could be used to produce execution 

quality reports. The Commission continues to believe that it would be a major undertaking for 

the Plan Processor to build out and adapt systems to collect, process, and publish this 

information. This might result in a delay in market participants’ access to information about 

execution quality, which would delay the benefits of the adopted rule. Second, costs associated 

with the Plan Processor would also increase because of increased requirements for processing 

power for the aggregation of CAT data if such computations could not be performed with 

existing resources (without reducing other functionality). Any costs incurred by the Plan 

Processor would be passed along to Plan Participants and Industry Members, which could result 

 

1874  See supra section IX.E.1.b) for a discussion of increased transparency from expanding reporting 

requirements to include all broker-dealers. 

1875  See, e.g., SIFMA Letter II at 25; Blackrock Letter at 3-4; State Street Letter at 2; Angel Letter at 3. 

1876  See, e.g., FIF Letter at 32; SIFMA Letter II at 25; State Street Letter at 2; Angel Letter at 3; Tastytrade 

Letter at 4 and 6. 



559 

in larger costs to some reporting entities.1877 Lastly, another drawback to this alternative is that 

releasing CAT data to the public could increase security risks. CAT contains highly sensitive 

information and creating a process that would release portions of the data, even if aggregated, 

could present risks.  

b) Expand Rule 606 Reporting Requirements 

The Commission also considered an alternative suggested by a commenter in which, 

rather than requiring larger broker-dealers to prepare Rule 605 reports, broker-dealers would be 

required to submit expanded Rule 606 reports1878 with additional information about the execution 

quality of their orders.1879 While this might result in some lower compliance costs as a result of 

broker-dealers’ existing experience with preparing and filing Rule 606 reports, many of the costs 

associated with the initial reporting of execution quality information, such as building out 

systems to collect data and calculate metrics, would still be incurred by broker-dealers regardless 

of whether those metrics are reported via Rule 606 or Rule 605 reports.1880 Furthermore, since 

Rule 606 reports are both more aggregated and less frequent than Rule 605 reports, the benefits 

of this alternative in terms of increased transparency would be substantially lower than those of 

the adopted amendments.1881 

 

1877  Some reporting entities, on the other hand, may incur lower costs if they pay a smaller proportion of CAT 

costs. 

1878  See supra section IX.C.1.b) for a discussion of broker-dealer reporting requirements under Rule 606. 

1879  See Robinhood Letter at 42, stating that “...the SEC should require broker-dealers that already publish Rule 

606 reports (which we expect would include all of the broker-dealers that would be subject to Proposed 

Rule 605, among others) to add execution quality statistics to their Rule 606 reports.” 

1880  See supra section IX.D.2.a)(1) for further discussion of these costs. 

1881  Rule 605 reports would be more transparent because they are published each month and provide execution 

quality for individual stocks. In contrast, Rule 606 reports under this alternative would be published 

quarterly and would report aggregated execution quality metrics for S&P 500 and non-S&P 500 stocks for 

each market center included in the broker-dealer’s Rule 606 report.  



560 

X. Regulatory Flexibility Act Certification  

The RFA1882 requires Federal agencies, in promulgating rules, to consider the impact of 

those rules on small entities. Section 603(a)1883 of the Administrative Procedure Act,1884 as 

amended by the RFA, generally requires the Commission to undertake a regulatory flexibility 

analysis of all proposed rules, or proposed rule amendments, to determine the impact of such 

rulemaking on “small entities.”1885 Section 605(b) of the RFA states that this requirement shall 

not apply to any proposed rule or proposed rule amendment which, if adopted, would not have a 

significant economic impact on a substantial number of small entities.1886 

In the Proposing Release, the Commission certified that the proposed amendments to 

Rules 600 and 605 would not have a significant economic impact on a substantial number of 

small entities for purposes of the RFA.1887 The Commission solicited comments about whether 

the proposed rules would have a significant economic impact on a substantial number of small 

entities, and, if so, what would be the nature of any impact on small entities.1888 No commenters 

 

1882  5 U.S.C. 601 et seq. 

1883  5 U.S.C. 603(a). 

1884  5 U.S.C. 551 et seq. 

1885  Although section 601(b) of the RFA defines the term “small entity,” the statute permits agencies to 

formulate their own definitions. The Commission adopted definitions for the term “small entity” for 

purposes of Commission rulemaking in accordance with the RFA. Those definitions, as relevant to this 

proposed rulemaking, are set forth in 17 CFR 240.0–10. 

1886  See 5 U.S.C. 605(b). 

1887  See Proposing Release, 88 FR 3786 at 3901 (Jan. 20, 2023). 

1888  See id.561 

responded to these requests with feedback on the economic impact of the proposed rules on 

small entities.1889  

As adopted, the amendments to Rules 600 and 605 apply to market centers – which 

includes any exchange market maker, OTC market maker, ATS, national securities exchange 

registered with the Commission under section 6 of the Exchange Act, or national securities 

association registered with the Commission under section 15A of the Exchange Act – and certain 

brokers or dealers that are not a market center.1890 

None of the exchanges registered under section 6 that will be subject to the proposed 

amendments are “small entities” for purposes of the RFA.1891 There is only one national 

securities association, and it is not a small entity as defined by 13 CFR 121.201.1892 

A broker-dealer is considered a small entity for purposes of Regulatory Flexibility Act if: 

(1) it had total capital of less than $500,000 on the date in the prior fiscal year as of which its 

 

1889  One commenter stated, in connection with the Proposing Release and multiple other Commission 

proposals, that the Commission should provide “a reasonable, workable, and staggered schedule for public 

comment on the adoption and implementation of the proposals, considering their overlapping nature, 

significant compliance and operational burdens, and if they may be insurmountable for smaller or emerging 

firms.” McHenry et al. letter at 2. The Commission has considered the potential effects of the Rule on 

smaller broker-dealers and the interactions of the final rule with certain other Commission rules. See supra 

section IX.D.1.d)(1) for a discussion of the potential effects of the amendments on smaller broker-dealers. 

See supra sections IX.C.1.d) and IX.D.2.a)(5) for a discussion of the interactions of the final rule with 

certain other Commission rules. 

1890  A broker or dealer that is not a market center will not be subject to the requirements unless it reaches or 

exceeds the customer account threshold. See supra section II.A.2.a). 

1891  See 17 CFR 240.0–10(e). The regulation at 17 CFR 240.0–10(e) states that the term “small business,” when 

referring to an exchange, means any exchange that has been exempted from the reporting requirements of 

17 CFR 242.601 (“Rule 601” of Regulation NMS), and is not affiliated with any person (other than a 

natural person) that is not a small business or small organization as defined in 17 CFR 240.0-10. The 

exchanges subject to this proposed rulemaking do not satisfy this standard. See also Securities Exchange 

Act Release Nos. 82873 (Mar. 14, 2018), 83 FR 13008, 13074 (Mar. 26, 2018) (File No. S7–05–18) 

(Transaction Fee Pilot for NMS Stocks Proposed Rule); 55341 (May 8, 2001), 72 FR 9412, 9419 (May 16, 

2007) (File No. S7–06–07) (Proposed Rule Changes of Self-Regulatory Organizations Proposing Release). 

1892  See, e.g., Securities Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 at 18808 & n.2549 

(Apr. 9, 2021). 



562 

audited financial statements were prepared, or, if not required to prepare such statements, it had 

total capital of less than $500,000 on the last business day of the preceding fiscal year; and (2) it 

is not affiliated with any person (other than a natural person) that is not a small entity. Applying 

this standard, the Commission estimates that, of the firms that will be impacted by the 

amendments, only one exchange market maker, no OTC market makers, no larger broker-

dealers, and no ATSs are small entities.1893 Because the Commission estimates that not more 

than one small entity will be required to comply with the rule changes, the Commission certifies 

that the amendments to Rule 605 will not have a significant economic impact on a substantial 

number of small entities for purposes of the RFA. 

XI. Other Matters 

If any of the provisions of these rules, or the application thereof to any person or 

circumstance, is held to be invalid, such invalidity shall not affect other provisions or application 

of such provisions to other persons or circumstances that can be given effect without the invalid 

provision or application. 

Pursuant to the Congressional Review Act,1894 the Office of Information and Regulatory 

Affairs has designated these rules as a “major rule”, as defined by 5 U.S.C. 804(2). 

Statutory Authority  

Pursuant to the Exchange Act and particularly sections 3(b), 5, 6, 11A, 15, 17, 19, 23(a), 

24, and 36 thereof, 15 U.S.C. 78c, 78e, 78f, 78k–1, 78o, 78q, 78s, 78w(a), 78x, and 78mm, the 

 

1893  These estimates are based on the FYE 2022 FOCUS Reports received by the Commission from exchange 

market makers, OTC market makers, larger broker-dealers, and ATSs that would be subject to the changes 

proposed to 17 CFR 242.600 and 242.605. 

1894  5 U.S.C. 801 et seq. 



563 

Commission is amending parts 240 and 242 of chapter II of title 17 of the Code of Federal 

Regulations.  

List of Subjects in 17 CFR Parts 240 and 242 

 Brokers, Confidential business information, Fraud, Reporting and recordkeeping 

requirements, Securities. 

For the reasons stated in the preamble, the Commission is amending title 17, chapter II of 

the Code of Federal Regulations: 

PART 240–GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT 

OF 1934 

1. The general authority citation for part 240 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j–4, 78k, 78k-1, 78l, 78m, 78n, 

78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 

80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 

U.S.C. 5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. 

L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. 

* * * * * 

§ 240.3a51-1 [Amended] 

2. Amend § 240.3a51-1 by, in paragraph (a) introductory text, removing the text “§ 

242.600(b)(55)” and adding in its place “§ 242.600(b)(65)”. 

§ 240.13h-1 [Amended] 

3. Amend § 240.13h-1 by, in paragraph (a)(5), removing the text “§ 242.600(b)(54)” and 

adding in its place “§ 242.600(b)(64)”. 



564 

PART 242–REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 

MARGIN REQUIREMENTS FOR SECURITY FUTURES  

4. The authority for part 242 continues to read as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78c–4, 78g(c)(2), 78i(a), 78j, 78k-

1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-

23, 80a-29, 80a-37, and 8343. 

§242.105 [Amended] 

5. Amend § 242.105 by: 

a. In paragraph (b)(1)(i)(C), removing the text “§ 242.600(b)(30)” and adding in its place 

“§ 242.600(b)(35))”; and 

b. In paragraph (b)(1)(ii), removing the text “§ 242.600(b)(77)” and adding in its place “§ 

242.600(b)(88)”. 

§ 242.201 [Amended] 

6. Amend § 242.201 by: 

a. In paragraph (a)(1), removing the text “§ 242.600(b)(55)” and adding in its place “§ 

242.600(b)(65)”; 

b. In paragraph (a)(2), removing the text “§ 242.600(b)(30)” and adding in its place “§ 

242.600(b)(35)”; 

c. In paragraph (a)(3), removing the text “§ 242.600(b)(68)” and adding in its place “§ 

242.600(b)(79)”; 

d. In paragraph (a)(4), removing the text “§ 242.600(b)(50)” and adding in its place “§ 

242.600(b)(60)”; 



565 

e. In paragraph (a)(5), removing the text “§ 242.600(b)(58)” and adding in its place “§ 

242.600(b)(68)”; 

f. In paragraph (a)(6), removing the text “§ 242.600(b)(67)” and adding in its place “§ 

242.600(b)(78)”; 

g. In paragraph (a)(7), removing the text “§ 242.600(b)(77)” and adding in its place “§ 

242.600(b)(88)”; and 

h. In paragraph (a)(9), removing the text “§ 242.600(b)(95)” and adding in its place “§ 

242.600(b)(106)”. 

§ 242.204 [Amended] 

7. Amend § 242.204 by, in paragraph (g)(2), removing the text “§ 242.600(b)(77) (Rule 

600(b)(77) of Regulation NMS)” and adding in its place “§ 242.600(b)(88) (Rule 600(b)(88) of 

Regulation NMS)”. 

 8. Amend § 242.600 by revising and republishing paragraph (b) to read as follows:§ 

242.600  NMS security designation and definitions. 

* * * * * 

(b) * * *  

(1) Actionable indication of interest means any indication of interest that explicitly or 

implicitly conveys all of the following information with respect to any order available at the 

venue sending the indication of interest:  

(i) Symbol;  

(ii) Side (buy or sell);  

(iii) A price that is equal to or better than the national best bid for buy orders and the 

national best offer for sell orders; and  



566 

(iv) A size that is at least equal to one round lot.  

(2) Administrative data means administrative, control, and other technical messages made 

available by national securities exchanges and national securities associations pursuant to the 

effective national market system plan or plans required under § 242.603(b) or the technical 

specifications thereto as of April 9, 2021.  

(3) Aggregate quotation size means the sum of the quotation sizes of all responsible 

brokers or dealers who have communicated on any national securities exchange bids or offers for 

an NMS security at the same price.  

(4) Alternative trading system has the meaning provided in § 242.300(a).  

(5) Auction information means all information specified by national securities exchange 

rules or effective national market system plans that is generated by a national securities exchange 

leading up to and during auctions, including opening, reopening, and closing auctions, and 

publicly disseminated during the time periods and at the time intervals provided in such rules and 

plans.  

(6) Automated quotation means a quotation displayed by a trading center that:  

(i) Permits an incoming order to be marked as immediate-or-cancel;  

(ii) Immediately and automatically executes an order marked as immediate-or-cancel 

against the displayed quotation up to its full size;  

(iii) Immediately and automatically cancels any unexecuted portion of an order marked as 

immediate-or-cancel without routing the order elsewhere;  

(iv) Immediately and automatically transmits a response to the sender of an order marked 

as immediate-or-cancel indicating the action taken with respect to such order; and  



567 

(v) Immediately and automatically displays information that updates the displayed 

quotation to reflect any change to its material terms.  

(7) Automated trading center means a trading center that:  

(i) Has implemented such systems, procedures, and rules as are necessary to render it 

capable of displaying quotations that meet the requirements for an automated quotation set forth 

in paragraph (b)(6) of this section;  

(ii) Identifies all quotations other than automated quotations as manual quotations;  

(iii) Immediately identifies its quotations as manual quotations whenever it has reason to 

believe that it is not capable of displaying automated quotations; and  

(iv) Has adopted reasonable standards limiting when its quotations change from 

automated quotations to manual quotations, and vice versa, to specifically defined circumstances 

that promote fair and efficient access to its automated quotations and are consistent with the 

maintenance of fair and orderly markets. 

(8) Average effective spread means the share-weighted average of effective spreads for 

order executions calculated, for buy orders, as double the amount of difference between the 

execution price and the midpoint of the national best bid and national best offer at the time of 

order receipt and, for sell orders, as double the amount of difference between the midpoint of the 

national best bid and national best offer at the time of order receipt and the execution price. For 

order executions of midpoint-or-better limit orders, average effective spread shall be calculated 

from the time such orders first become executable rather than the time of order receipt. 

(9) Average midpoint means the share-weighted average of the midpoint of the national 

best bid and national best offer at the time of order receipt or, for non-marketable limit orders, 



568 

midpoint-or-better limit orders, and orders submitted with stop prices, at the time such orders 

first become executable. 

(10) Average percentage effective spread means the average effective spread for order 

executions divided by the average midpoint for order executions. 

(11) Average percentage realized spread means the average realized spread for order 

executions divided by the average midpoint for order executions. 

(12) Average quoted spread means the share-weighted average of the difference between 

the national best offer and the national best bid at the time of order receipt or, for order 

executions of midpoint-or-better limit orders, the difference between the national best offer and 

the national best bid at the time such orders first become executable. 

(13) Average realized spread means the share-weighted average of realized spreads for 

order executions calculated, for buy orders, as double the amount of difference between the 

execution price and the midpoint of the national best bid and national best offer at a specified 

interval after the time of order execution and, for sell orders, as double the amount of difference 

between the midpoint and the national best bid and national best offer at a specified interval after 

the time of order execution and the execution price; provided, however, that the midpoint of the 

final national best bid and national best offer disseminated for regular trading hours shall be used 

to calculate a realized spread if it is disseminated less than that specified interval after the time of 

order execution. 

(14) Best available displayed price means, with respect to an order to buy, the lower of: 

the national best offer at the time of order receipt or the price of the best odd-lot order to sell at 

the time of order receipt as disseminated pursuant to an effective transaction reporting plan or 

effective national market system plan; and, with respect to an order to sell, the higher of: the 



569 

national best bid at the time of order receipt or the price of the best odd-lot order to buy at the 

time of order receipt as disseminated pursuant to an effective transaction reporting plan or 

effective national market system plan. With respect to a midpoint-or-better limit order, the best 

available displayed price shall be determined at the time such order becomes executable rather 

than the time of order receipt. 

(15) Best bid and best offer mean the highest priced bid and the lowest priced offer.  

(16) Bid or offer means the bid price or the offer price communicated by a member of a 

national securities exchange or member of a national securities association to any broker or 

dealer, or to any customer, at which it is willing to buy or sell one or more round lots of an NMS 

security, as either principal or agent, but shall not include indications of interest.  

(17) Block size with respect to an order means it is:  

(i) Of at least 10,000 shares; or  

(ii) For a quantity of stock having a market value of at least $200,000.  

(18) Categorized by order size means dividing orders into separate categories for the 

following sizes:  

(i) Less than $250 and less than a share; 

(ii) Less than $250 and odd-lot; 

(iii) Less than $250 and at least a round lot; 

(iv) $250 to less than $1,000 and less than a share; 

(v) $250 to less than $1,000 and odd-lot; 

(vi) $250 to less than $1,000 and at least a round lot; 

(vii) $1,000 to less than $5,000 and less than a share; 

(viii) $1,000 to less than $5,000 and odd-lot; 



570 

(ix) $1,000 to less than $5,000 and at least a round lot; 

(x) $5,000 to less than $10,000 and less than a share; 

(xi) $5,000 to less than $10,000 and odd-lot; 

(xii) $5,000 to less than $10,000 and at least a round lot; 

(xiii) $10,000 to less than $20,000 and less than a share; 

(xiv) $10,000 to less than $20,000 and odd-lot; 

(xv) $10,000 to less than $20,000 and at least a round lot; 

(xvi) $20,000 to less than $50,000 and less than a share; 

(xvii) $20,000 to less than $50,000 and odd-lot; 

(xviii) $20,000 to less than $50,000 and at least a round lot; 

(xix) $50,000 to less than $200,000 and less than a share; 

(xx) $50,000 to less than $200,000 and odd-lot; 

(xxi) $50,000 to less than $200,000 and at least a round lot; 

(xxii) $200,000 or more and less than a share; 

(xxiii) $200,000 or more and odd-lot; and 

(xxiv) $200,000 or more and at least a round lot. 

(19) Categorized by order type means dividing orders into separate categories for market 

orders, marketable limit orders (excluding immediate-or-cancel orders), marketable immediate-

or-cancel orders, midpoint-or-better limit orders (excluding immediate-or-cancel orders), 

midpoint-or-better limit orders that are immediate-or-cancel, executable non-marketable limit 

orders (excluding orders submitted with stop prices, midpoint-or-better limit orders, and 

immediate-or-cancel orders), executable non-marketable orders that are immediate-or-cancel, 



571 

executable market orders submitted with stop prices, executable stop marketable limit orders, 

and executable stop non-marketable limit orders. 

(20) Categorized by security means dividing orders into separate categories for each 

NMS stock that is included in a report.  

(21) Competing consolidator means a securities information processor required to be 

registered pursuant to § 242.614 (Rule 614) or a national securities exchange or national 

securities association that receives information with respect to quotations for and transactions in 

NMS stocks and generates a consolidated market data product for dissemination to any person.  

(22) Consolidated display means:  

(i) The prices, sizes, and market identifications of the national best bid and national best 

offer for a security; and  

(ii) Consolidated last sale information for a security.  

(23) Consolidated last sale information means the price, volume, and market 

identification of the most recent transaction report for a security that is disseminated pursuant to 

an effective national market system plan.  

(24) Consolidated market data means the following data, consolidated across all national 

securities exchanges and national securities associations:  

(i) Core data;  

(ii) Regulatory data;  

(iii) Administrative data;  

(iv) Self-regulatory organization-specific program data; and  



572 

(v) Additional regulatory, administrative, or self-regulatory organization-specific 

program data elements defined as such pursuant to the effective national market system plan or 

plans required under § 242.603(b).  

(25) Consolidated market data product means any data product developed by a 

competing consolidator that contains consolidated market data or data components of 

consolidated market data. For purposes of this paragraph (b)(25), data components of 

consolidated market data include the enumerated elements, and any subcomponent of the 

enumerated elements, of consolidated market data in paragraph (b)(24) of this section. All 

consolidated market data products must reflect data consolidated across all national securities 

exchanges and national securities associations.  

(26) Core data means:  

(i) The following information with respect to quotations for, and transactions in, NMS 

stocks:  

(A) Quotation sizes;  

(B) Aggregate quotation sizes;  

(C) Best bid and best offer;  

(D) National best bid and national best offer;  

(E) Protected bid and protected offer;  

(F) Transaction reports;  

(G) Last sale data;  

(H) Odd-lot information;  

(I) Depth of book data; and  

(J) Auction information.  



573 

(ii) For purposes of the calculation and dissemination of core data by competing 

consolidators, as defined in paragraph (b)(21) of this section, and the calculation of core data by 

self-aggregators, as defined in paragraph (b)(94) of this section, the best bid and best offer, 

national best bid and national best offer, protected bid and protected offer, and depth of book 

data shall include odd-lots that when aggregated are equal to or greater than a round lot; such 

aggregation shall occur across multiple prices and shall be disseminated at the least aggressive 

price of all such aggregated odd-lots.  

(iii) Competing consolidators shall represent the quotation sizes of the following data 

elements, if disseminated in a consolidated market data product as defined in paragraph (b)(25) 

of this section, as the number of shares rounded down to the nearest multiple of a round lot: The 

best bid and best offer, national best bid and national best offer, protected bid and protected 

offer, depth of book data, and auction information.  

(iv) Competing consolidators shall attribute the following data elements, if disseminated 

in a consolidated market data product as defined in paragraph (b)(25) of this section, to the 

national securities exchange or national securities association that is the source of each such data 

element: Best bid and best offer, national best bid and national best offer, protected bid and 

protected offer, transaction reports, last sale data, odd-lot information, depth of book data, and 

auction information. 

(27) Covered order means any market order or any limit order (including immediate-or-

cancel orders) received by a market center, broker, or dealer during regular trading hours at a 

time when a national best bid and national best offer is being disseminated and after the primary 

listing market has disseminated its first firm, uncrossed quotations in the security, and, if 

executed, is executed during regular trading hours; or any non-marketable limit order (including 



574 

an order submitted with a stop price) received by a market center, broker, or dealer outside of 

regular trading hours, or at a time before the primary listing market has disseminated its first 

firm, uncrossed quotations in the security, or at a time when a national best bid and national best 

offer is not being disseminated and, if executed, is executed during regular trading hours. 

Covered order shall exclude any order for which the customer requests special handling for 

execution, including, but not limited to, orders to be executed at a market opening price or a 

market closing price, orders to be executed only at their full size, orders to be executed on a 

particular type of tick or bid, orders submitted on a “not held” basis, orders for other than regular 

settlement, and orders to be executed at prices unrelated to the market price of the security at the 

time of execution. 

(28) Customer means any person that is not a broker or dealer.  

(29) Customer limit order means an order to buy or sell an NMS stock at a specified price 

that is not for the account of either a broker or dealer; provided, however, that the term customer 

limit order shall include an order transmitted by a broker or dealer on behalf of a customer.  

(30) Customer order means an order to buy or sell an NMS security that is not for the 

account of a broker or dealer, but shall not include any order for a quantity of a security having a 

market value of at least $50,000 for an NMS security that is an option contract and a market 

value of at least $200,000 for any other NMS security.  

(31) Depth of book data means all quotation sizes at each national securities exchange 

and on a facility of a national securities association at each of the next five prices at which there 

is a bid that is lower than the national best bid and offer that is higher than the national best offer. 

For these five prices, the aggregate size available at each price, if any, at each national securities 

exchange and national securities association shall be attributed to such exchange or association.  



575 

(32) Directed order means an order from a customer that the customer specifically 

instructed the broker or dealer to route to a particular venue for execution.  

(33) Dynamic market monitoring device means any service provided by a vendor on an 

interrogation device or other display that:  

(i) Permits real-time monitoring, on a dynamic basis, of transaction reports, last sale data, 

or quotations with respect to a particular security; and  

(ii) Displays the most recent transaction report, last sale data, or quotation with respect to 

that security until such report, data, or quotation has been superseded or supplemented by the 

display of a new transaction report, last sale data, or quotation reflecting the next reported 

transaction or quotation in that security.  

(34) Effective national market system plan means any national market system plan 

approved by the Commission (either temporarily or on a permanent basis) pursuant to § 242.608.  

(35) Effective transaction reporting plan means any transaction reporting plan approved 

by the Commission pursuant to § 242.601.  

(36) Electronic communications network means, for the purposes of § 242.602(b)(5), any 

electronic system that widely disseminates to third parties orders entered therein by an exchange 

market maker or OTC market maker, and permits such orders to be executed against in whole or 

in part; except that the term electronic communications network shall not include:  

(i) Any system that crosses multiple orders at one or more specified times at a single 

price set by the system (by algorithm or by any derivative pricing mechanism) and does not 

allow orders to be crossed or executed against directly by participants outside of such times; or  



576 

(ii) Any system operated by, or on behalf of, an OTC market maker or exchange market 

maker that executes customer orders primarily against the account of such market maker as 

principal, other than riskless principal.  

(37) Exchange market maker means any member of a national securities exchange that is 

registered as a specialist or market maker pursuant to the rules of such exchange.  

(38) Exchange-traded security means any NMS security or class of NMS securities listed 

and registered, or admitted to unlisted trading privileges, on a national securities exchange; 

provided, however, that securities not listed on any national securities exchange that are traded 

pursuant to unlisted trading privileges are excluded. 

(39) Executable means, for any non-marketable buy order (excluding orders submitted 

with stop prices), that the limit price is equal to or greater than the national best bid during 

regular trading hours and after the primary listing market has disseminated its first firm, 

uncrossed quotations in the security, and, for any non-marketable sell order (excluding orders 

submitted with stop prices), that the limit price is equal to or less than the national best offer 

during regular trading hours and after the primary listing market has disseminated its first firm, 

uncrossed quotations in the security. Executable means, for any order submitted with a stop 

price, that the stop price has been triggered during regular trading hours and after the primary 

listing market has disseminated its first firm, uncrossed quotations in the security. The time an 

order becomes executable shall be measured in increments of a millisecond or finer. 

(40) Executable stop marketable limit order means, for buy orders, orders submitted with 

stop prices that have limit prices that are equal to or greater than the national best offer at the 

time such orders become executable, and, for sell orders, orders submitted with stop prices that 



577 

have limit prices that are equal to or less than the national best bid at the time such orders 

become executable.  

(41) Executable stop non-marketable limit order means, for buy orders, orders submitted 

with stop prices that have limit prices that are less than the national best offer at the time such 

orders become executable, and, for sell orders, orders submitted with stop prices that have limit 

prices that are greater than the national best bid at the time such orders become executable.  

(42) Executed at the quote means, for buy orders, execution at a price equal to the 

national best offer at the time of order receipt and, for sell orders, execution at a price equal to 

the national best bid at the time of order receipt. 

(43) Executed outside the best available displayed price means, for buy orders, execution 

at a price higher than the best available displayed price; and, for sell orders, execution at a price 

lower than the best available displayed price. 

(44) Executed outside the quote means, for buy orders, execution at a price higher than 

the national best offer at the time of order receipt and, for sell orders, execution at a price lower 

than the national best bid at the time of order receipt.  

(45) Executed with price improvement means, for buy orders, execution at a price lower 

than the national best offer at the time of order receipt and, for sell orders, execution at a price 

higher than the national best bid at the time of order receipt. 

(46) Executed with price improvement relative to the best available displayed price 

means, for buy orders, execution at a price lower the best available displayed price and, for sell 

orders, execution at a price higher than the best available displayed price. 

(47) Intermarket sweep order means a limit order for an NMS stock that meets the 

following requirements:  



578 

(i) When routed to a trading center, the limit order is identified as an intermarket sweep 

order; and  

(ii) Simultaneously with the routing of the limit order identified as an intermarket sweep 

order, one or more additional limit orders, as necessary, are routed to execute against the full 

displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of 

any protected offer, in the case of a limit order to buy, for the NMS stock with a price that is 

superior to the limit price of the limit order identified as an intermarket sweep order. These 

additional routed orders also must be marked as intermarket sweep orders.  

(48) Interrogation device means any securities information retrieval system capable of 

displaying transaction reports, last sale data, or quotations upon inquiry, on a current basis on a 

terminal or other device.  

(49) Joint self-regulatory organization plan means a plan as to which two or more self-

regulatory organizations, acting jointly, are sponsors.  

(50) Last sale data means any price or volume data associated with a transaction.  

(51) Listed equity security means any equity security listed and registered, or admitted to 

unlisted trading privileges, on a national securities exchange.  

(52) Listed option means any option traded on a registered national securities exchange or 

automated facility of a national securities association.  

(53) Make publicly available means posting on an Internet website that is free and readily 

accessible to the public, furnishing a written copy to customers on request without charge, and 

notifying customers at least annually in writing that a written copy will be furnished on request.  

(54) Manual quotation means any quotation other than an automated quotation.  



579 

(55) Market center means any exchange market maker, OTC market maker, alternative 

trading system, national securities exchange, or national securities association. 

(56) Marketable limit order means, with respect to an order received at a time when a 

national best bid and national best offer is being disseminated and after the primary listing 

market has disseminated its first firm, uncrossed quotations in the security, any buy order with a 

limit price equal to or greater than the national best offer at the time of order receipt, or any sell 

order with a limit price equal to or less than the national best bid at the time of order receipt, and, 

with respect to an order received at a time when a national best bid and national best offer is not 

being disseminated, any buy order with a limit price equal to or greater than the national best 

offer at the time that the national best offer is first disseminated during regular trading hours after 

the time of order receipt, or any sell order with a limit price equal to or less than the national best 

bid time at the time that the national best bid is first disseminated during regular trading hours 

after the time of order receipt. For orders received at a time when the national best bid and 

national best offer is being disseminated but the primary listing market has not disseminated its 

first firm, uncrossed quotations in the security, whether an order is a marketable limit order shall 

be determined from the time that the primary listing market disseminates its first firm, uncrossed 

quotations in the security. 

(57) Midpoint-or-better limit order means, with respect to an order received at a time 

when a national best bid and national best offer is being disseminated and the primary listing 

market has disseminated its first firm, uncrossed quotations in the security, any non-marketable 

buy order with a limit price that is equal to or higher than the midpoint of the national best bid 

and national best offer at the time of order receipt and any non-marketable sell order with a limit 

price that is equal to or lower than the midpoint of the national best bid and national best offer at 



580 

the time of order receipt, and, with respect to an order received at a time when a national best bid 

and national best offer is not being disseminated, any non-marketable buy order with a limit 

price that is equal to or higher than the midpoint of the national best bid and national best offer at 

the time that the national best bid and national best offer is first disseminated after the time of 

order receipt, or any non-marketable sell order with a limit price that is equal to or lower than the 

midpoint of the national best bid and national best offer at the time that the national best bid and 

national best offer is first disseminated after the time of order receipt. For orders received at a 

time when the national best bid and national best offer is being disseminated but the primary 

listing market has not disseminated its first firm, uncrossed quotations in the security, whether an 

order is a midpoint-or-better limit order shall be determined from the time that the primary 

listing market disseminates its first firm, uncrossed quotations in the security. 

(58) Moving ticker means any continuous real-time moving display of transaction reports 

or last sale data (other than a dynamic market monitoring device) provided on an interrogation or 

other display device.  

(59) Nasdaq security means any registered security listed on The Nasdaq Stock Market, 

Inc.  

(60) National best bid and national best offer means, with respect to quotations for an 

NMS stock, the best bid and best offer for such stock that are calculated and disseminated on a 

current and continuing basis by a competing consolidator or calculated by a self-aggregator and, 

for NMS securities other than NMS stocks, the best bid and best offer for such security that are 

calculated and disseminated on a current and continuing basis by a plan processor pursuant to an 

effective national market system plan; provided, that in the event two or more market centers 

transmit to the plan processor, a competing consolidator or a self-aggregator identical bids or581 

offers for an NMS security, the best bid or best offer (as the case may be) shall be determined by 

ranking all such identical bids or offers (as the case may be) first by size (giving the highest 

ranking to the bid or offer associated with the largest size), and then by time (giving the highest 

ranking to the bid or offer received first in time).  

(61) National market system plan means any joint self-regulatory organization plan in 

connection with:  

(i) The planning, development, operation or regulation of a national market system (or a 

subsystem thereof) or one or more facilities thereof; or  

(ii) The development and implementation of procedures and/or facilities designed to 

achieve compliance by self-regulatory organizations and their members with any section of this 

Regulation NMS and part 240, subpart A, of this chapter promulgated pursuant to section 11A of 

the Act (15 U.S.C. 78k–1).  

(62) National securities association means any association of brokers and dealers 

registered pursuant to section 15A of the Act (15 U.S.C. 78o-3).  

(63) National securities exchange means any exchange registered pursuant to section 6 of 

the Act (15 U.S.C. 78f).  

(64) NMS security means any security or class of securities for which transaction reports 

are collected, processed, and made available pursuant to an effective transaction reporting plan, 

or an effective national market system plan for reporting transactions in listed options.  

(65) NMS stock means any NMS security other than an option.  

(66) Non-directed order means any order from a customer other than a directed order.  

(67) Non-marketable limit order means any limit order other than a marketable limit 

order.  



582 

(68) Odd-lot means an order for the purchase or sale of an NMS stock in an amount less 

than a round lot.  

(69) Odd-lot information means:  

(i) Odd-lot transaction data disseminated pursuant to the effective national market system 

plan or plans required under § 242.603(b) as of April 9, 2021; and  

(ii) Odd-lots at a price greater than or equal to the national best bid and less than or equal 

to the national best offer, aggregated at each price level at each national securities exchange and 

national securities association.  

(70) Options class means all of the put option or call option series overlying a security, as 

defined in section 3(a)(10) of the Act (15 U.S.C. 78c(a)(10)).  

(71) Options series means the contracts in an options class that have the same unit of 

trade, expiration date, and exercise price, and other terms or conditions. 

(72) Order size benchmark means the number of shares of the full displayed size of all 

protected bids at the same price as the national best bid at the time of order receipt, in the case of 

a market or limit order to sell, or the full displayed size of all protected offers at the same price 

as the national best offer at the time of order receipt, in the case of a market or limit order to buy. 

For midpoint-or-better limit orders, the full displayed size should be measured at the time the 

order becomes executable rather than the time of order receipt. For each order, the share count 

shall be capped at the order size. 

(73) Orders providing liquidity means orders that were executed against after resting at a 

trading center.  

(74) Orders removing liquidity means orders that executed against resting trading interest 

at a trading center.  



583 

(75) OTC market maker means any dealer that holds itself out as being willing to buy 

from and sell to its customers, or others, in the United States, an NMS stock for its own account 

on a regular or continuous basis otherwise than on a national securities exchange in amounts of 

less than block size.  

(76) Participants, when used in connection with a national market system plan, means 

any self-regulatory organization which has agreed to act in accordance with the terms of the plan 

but which is not a signatory of such plan.  

(77) Payment for order flow has the meaning provided in § 240.10b–10 of this chapter.  

(78) Plan processor means any self-regulatory organization or securities information 

processor acting as an exclusive processor in connection with the development, implementation 

and/or operation of any facility contemplated by an effective national market system plan.  

(79) Primary listing exchange means, for each NMS stock, the national securities 

exchange identified as the primary listing exchange in the effective national market system plan 

or plans required under § 242.603(b).  

(80) Profit-sharing relationship means any ownership or other type of affiliation under 

which the broker or dealer, directly or indirectly, may share in any profits that may be derived 

from the execution of non-directed orders.  

(81) Protected bid or protected offer means a quotation in an NMS stock that:  

(i) Is displayed by an automated trading center;  

(ii) Is disseminated pursuant to an effective national market system plan; and  

(iii) Is an automated quotation that is the best bid or best offer of a national securities 

exchange, or the best bid or best offer of a national securities association.  

(82) Protected quotation means a protected bid or a protected offer.  



584 

(83) Published aggregate quotation size means the aggregate quotation size calculated by 

a national securities exchange and displayed by a vendor on a terminal or other display device at 

the time an order is presented for execution to a responsible broker or dealer.  

(84) Published bid and published offer means the bid or offer of a responsible broker or 

dealer for an NMS security communicated by it to its national securities exchange or association 

pursuant to § 242.602 and displayed by a vendor on a terminal or other display device at the time 

an order is presented for execution to such responsible broker or dealer.  

(85) Published quotation size means the quotation size of a responsible broker or dealer 

communicated by it to its national securities exchange or association pursuant to § 242.602 and 

displayed by a vendor on a terminal or other display device at the time an order is presented for 

execution to such responsible broker or dealer.  

(86) Quotation means a bid or an offer.  

(87) Quotation size, when used with respect to a responsible broker's or dealer's bid or 

offer for an NMS security, means:  

(i) The number of shares (or units of trading) of that security which such responsible 

broker or dealer has specified, for purposes of dissemination to vendors, that it is willing to buy 

at the bid price or sell at the offer price comprising its bid or offer, as either principal or agent; or  

(ii) In the event such responsible broker or dealer has not so specified, a normal unit of 

trading for that NMS security.  

(88) Regular trading hours means the time between 9:30 a.m. and 4 p.m. Eastern Time, 

or such other time as is set forth in the procedures established pursuant to § 242.605(a)(3).  

(89) Regulatory data means:  



585 

(i) Information required to be collected or calculated by the primary listing exchange for 

an NMS stock and provided to competing consolidators and self-aggregators pursuant to the 

effective national market system plan or plans required under § 242.603(b), including, at a 

minimum:  

(A) Information regarding Short Sale Circuit Breakers pursuant to § 242.201;  

(B) Information regarding Price Bands required pursuant to the Plan to Address 

Extraordinary Market Volatility (LULD Plan);  

(C) Information relating to regulatory halts or trading pauses (news 

dissemination/pending, LULD, Market-Wide Circuit Breakers) and reopenings or resumptions;  

(D) The official opening and closing prices of the primary listing exchange; and  

(E) An indicator of the applicable round lot size.  

(ii) Information required to be collected or calculated by the national securities exchange 

or national securities association on which an NMS stock is traded and provided to competing 

consolidators and self-aggregators pursuant to the effective national market system plan or plans 

required under § 242.603(b), including, at a minimum:  

(A) Whenever such national securities exchange or national securities association 

receives a bid (offer) below (above) an NMS stock's lower (upper) LULD price band, an 

appropriate regulatory data flag identifying the bid (offer) as non-executable; and  

(B) Other regulatory messages including subpenny execution and trade-though exempt 

indicators.  

(iii) For purposes of paragraph (b)(89)(i)(C) of this section, the primary listing exchange 

that has the largest proportion of companies included in the S&P 500 Index shall monitor the 

S&P 500 Index throughout the trading day, determine whether a Level 1, Level 2, or Level 3 



586 

decline, as defined in self-regulatory organization rules related to Market-Wide Circuit Breakers, 

has occurred, and immediately inform the other primary listing exchanges of all such declines.  

(90) Responsible broker or dealer means:  

(i) When used with respect to bids or offers communicated on a national securities 

exchange, any member of such national securities exchange who communicates to another 

member on such national securities exchange, at the location (or locations) or through the facility 

or facilities designated by such national securities exchange for trading in an NMS security a bid 

or offer for such NMS security, as either principal or agent; provided, however, that, in the event 

two or more members of a national securities exchange have communicated on or through such 

national securities exchange bids or offers for an NMS security at the same price, each such 

member shall be considered a responsible broker or dealer for that bid or offer, subject to the 

rules of priority and precedence then in effect on that national securities exchange; and further 

provided, that for a bid or offer which is transmitted from one member of a national securities 

exchange to another member who undertakes to represent such bid or offer on such national 

securities exchange as agent, only the last member who undertakes to represent such bid or offer 

as agent shall be considered the responsible broker or dealer for that bid or offer; and  

(ii) When used with respect to bids and offers communicated by a member of an 

association to a broker or dealer or a customer, the member communicating the bid or offer 

(regardless of whether such bid or offer is for its own account or on behalf of another person).  

(91) Revised bid or offer means a market maker's bid or offer which supersedes its 

published bid or published offer.  

(92) Revised quotation size means a market maker's quotation size which supersedes its 

published quotation size.  



587 

(93) Round lot means:  

(i) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $250.00 or less per share, an order for the purchase or sale of an 

NMS stock of 100 shares;  

(ii) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $250.01 to $1,000.00 per share, an order for the purchase or sale of 

an NMS stock of 40 shares;  

(iii) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $1,000.01 to $10,000.00 per share, an order for the purchase or 

sale of an NMS stock of 10 shares;  

(iv) For any NMS stock for which the prior calendar month's average closing price on the 

primary listing exchange was $10,000.01 or more per share, an order for the purchase or sale of 

an NMS stock of 1 share; and  

(v) For any NMS stock for which the prior calendar month's average closing price is not 

available, an order for the purchase or sale of an NMS stock of 100 shares.  

(94) Self-aggregator means a broker, dealer, national securities exchange, national 

securities association, or investment adviser registered with the Commission that receives 

information with respect to quotations for and transactions in NMS stocks, including all data 

necessary to generate consolidated market data, and generates consolidated market data solely 

for internal use. A self-aggregator may make consolidated market data available to its affiliates 

that are registered with the Commission for their internal use. Except as provided in the 

preceding sentence, a self-aggregator may not disseminate or otherwise make available 



588 

consolidated market data, or components of consolidated market data, as provided in paragraph 

(b)(25) of this section, to any person.  

(95) Self-regulatory organization means any national securities exchange or national 

securities association.  

(96) Self-regulatory organization-specific program data means:  

(i) Information related to retail liquidity programs specified by the rules of national 

securities exchanges and disseminated pursuant to the effective national market system plan or 

plans required under § 242.603(b) as of April 9, 2021; and  

(ii) Other self-regulatory organization-specific information with respect to quotations for 

or transactions in NMS stocks as specified by the effective national market system plan or plans 

required under § 242.603(b).  

(97) Specified persons, when used in connection with any notification required to be 

provided pursuant to § 242.602(a)(3) and any election (or withdrawal thereof) permitted under § 

242.602(a)(5), means:  

(i) Each vendor;  

(ii) Each plan processor; and  

(iii) The processor for the Options Price Reporting Authority (in the case of a notification 

for a subject security which is a class of securities underlying options admitted to trading on any 

national securities exchange).  

(98) Sponsor, when used in connection with a national market system plan, means any 

self-regulatory organization which is a signatory to such plan and has agreed to act in accordance 

with the terms of the plan.  



589 

(99) SRO display-only facility means a facility operated by or on behalf of a national 

securities exchange or national securities association that displays quotations in a security, but 

does not execute orders against such quotations or present orders to members for execution.  

(100) SRO trading facility means a facility operated by or on behalf of a national 

securities exchange or a national securities association that executes orders in a security or 

presents orders to members for execution.  

(101) Subject security means:  

(i) With respect to a national securities exchange:  

(A) Any exchange-traded security other than a security for which the executed volume of 

such exchange, during the most recent calendar quarter, comprised one percent or less of the 

aggregate trading volume for such security as reported pursuant to an effective transaction 

reporting plan or effective national market system plan; and  

(B) Any other NMS security for which such exchange has in effect an election, pursuant 

to § 242.602(a)(5)(i), to collect, process, and make available to a vendor bids, offers, quotation 

sizes, and aggregate quotation sizes communicated on such exchange; and  

(ii) With respect to a member of a national securities association:  

(A) Any exchange-traded security for which such member acts in the capacity of an OTC 

market maker unless the executed volume of such member, during the most recent calendar 

quarter, comprised one percent or less of the aggregate trading volume for such security as 

reported pursuant to an effective transaction reporting plan or effective national market system 

plan; and  

(B) Any other NMS security for which such member acts in the capacity of an OTC 

market maker and has in effect an election, pursuant to § 242.602(a)(5)(ii), to communicate to its 



590 

association bids, offers, and quotation sizes for the purpose of making such bids, offers, and 

quotation sizes available to a vendor. 

(102) Time of order execution means the time (at a minimum to the millisecond) that an 

order was executed at any venue. 

(103) Time of order receipt means the time (at a minimum to the millisecond) that an 

order was received by a market center for execution, or in the case of a broker or dealer that is 

not acting as a market center, the time (at a minimum to the millisecond) that an order was 

received by the broker or dealer for execution. 

(104) Time of the transaction has the meaning provided in § 240.10b–10 of this chapter.  

(105) Trade-through means the purchase or sale of an NMS stock during regular trading 

hours, either as principal or agent, at a price that is lower than a protected bid or higher than a 

protected offer.  

(106) Trading center means a national securities exchange or national securities 

association that operates an SRO trading facility, an alternative trading system, an exchange 

market maker, an OTC market maker, or any other broker or dealer that executes orders 

internally by trading as principal or crossing orders as agent.  

(107) Trading rotation means, with respect to an options class, the time period on a 

national securities exchange during which:  

(i) Opening, re-opening, or closing transactions in options series in such options class are 

not yet completed; and  

(ii) Continuous trading has not yet commenced or has not yet ended for the day in options 

series in such options class.  



591 

(108) Transaction report means a report containing the price and volume associated with 

a transaction involving the purchase or sale of one or more round lots of a security.  

(109) Transaction reporting association means any person authorized to implement or 

administer any transaction reporting plan on behalf of persons acting jointly under § 242.601(a).  

(110) Transaction reporting plan means any plan for collecting, processing, making 

available or disseminating transaction reports with respect to transactions in securities filed with 

the Commission pursuant to, and meeting the requirements of, § 242.601.  

(111) Vendor means any securities information processor engaged in the business of 

disseminating transaction reports, last sale data, or quotations with respect to NMS securities to 

brokers, dealers, or investors on a real-time or other current and continuing basis, whether 

through an electronic communications network, moving ticker, or interrogation device. 

§ 242.602 [Amended] 

9. Amend § 242.602 by, in paragraphs (a)(5)(i) and (ii), removing the text “§ 

242.600(b)(90)” and adding in its place “§ 242.600(b)(101)”. 

 10. Amend § 242.605 by revising the introductory text and paragraph (a) to read as 

follows: 

§ 242.605  Disclosure of order execution information. 

This section requires market centers, brokers, and dealers to make available standardized, 

monthly reports of statistical information concerning their order executions. This information is 

presented in accordance with uniform standards that are based on broad assumptions about order 

execution and routing practices. The information will provide a starting point to promote 

visibility and competition on the part of market centers and broker-dealers, particularly on the 

factors of execution price and speed. The disclosures required by this section do not encompass 



592 

all of the factors that may be important to investors in evaluating the order routing services of a 

broker-dealer. In addition, any particular market center, broker, or dealer’s statistics will 

encompass varying types of orders routed by different broker-dealers on behalf of customers 

with a wide range of objectives. Accordingly, the statistical information required by this section 

alone does not create a reliable basis to address whether any particular broker-dealer failed to 

obtain the most favorable terms reasonably available under the circumstances for customer 

orders. 

(a) Monthly electronic reports by market centers, brokers, and dealers. (1) Every market 

center, broker, or dealer shall make available for each calendar month, in accordance with the 

procedures established pursuant to paragraph (a)(3) of this section, a report on the covered orders 

in NMS stocks that it received for execution from any person or that it received for execution in 

a prior calendar month but which remained open. Any OTC market maker that provides a trading 

system for only a single dealer to solely buy and sell securities against all other persons entering 

orders in that system shall produce a separate report pertaining only to covered orders entered in 

such trading system. Alternative trading systems (as defined in §242.300(a)) shall prepare reports 

separately from their broker-dealer operators to the extent such entities are required to prepare 

reports. Each report shall be in electronic form; shall be categorized by security, order type, and 

order size; and shall include the following columns of information: 

(i) For market orders, marketable limit orders, marketable immediate-or-cancel orders, 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable non-marketable limit orders, executable non-marketable limit orders that are 

immediate-or-cancel, executable market orders submitted with stop prices, executable stop 

marketable limit orders, and executable stop non-marketable limit orders:  



593 

(A) The number of covered orders;  

(B) The cumulative notional value of covered orders; 

(C) The cumulative number of shares of covered orders;  

(D) The cumulative number of shares of covered orders cancelled prior to execution;  

(E) The cumulative number of shares of covered orders executed at the receiving market 

center, broker, or dealer (excluding shares that the market center, broker, or dealer executes on a 

riskless principal basis);  

(F) The cumulative number of shares of covered orders executed at any other venue;  

(G) The cumulative number of shares of covered orders executed less than 100 

microseconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(H) The cumulative number of shares of covered orders executed from 100 microseconds 

to less than 1 millisecond after the time of order receipt; or, for non-marketable limit orders or 

orders submitted with stop prices, after the time the order becomes executable ; 

(I) The cumulative number of shares of covered orders executed from 1 millisecond to 

less than 10 milliseconds after the time of order receipt; or, for non-marketable limit orders or 

orders submitted with stop prices, after the time the order becomes executable; 

(J) The cumulative number of shares of covered orders executed from 10 milliseconds to 

less than 1 second after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(K) The cumulative number of shares of covered orders executed from 1 second to less 

than 10 seconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 



594 

(L) The cumulative number of shares of covered orders executed from 10 seconds to less 

than 30 seconds after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(M) The cumulative number of shares of covered orders executed from 30 seconds to less 

than 5 minutes after the time of order receipt; or, for non-marketable limit orders or orders 

submitted with stop prices, after the time the order becomes executable; 

(N) The cumulative number of shares of covered orders executed 5 minutes or more after 

the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, 

after the time the order becomes executable; 

(O) For executions of covered orders, the average realized spread as calculated 50 

milliseconds after the time of execution; 

(P) For executions of covered orders, the average percentage realized spread as calculated 

50 milliseconds after the time of execution; 

(Q) For executions of covered orders, the average realized spread as calculated 1 second 

after the time of execution; 

(R) For executions of covered orders, the average percentage realized spread as 

calculated 1 second after the time of execution; 

(S) For executions of covered orders, the average realized spread as calculated 15 

seconds after the time of execution; 

(T) For executions of covered orders, the average percentage realized spread as 

calculated 15 seconds after the time of execution; 

(U) For executions of covered orders, the average realized spread as calculated 1 minute 

after the time of execution; 



595 

(V) For executions of covered orders, the average percentage realized spread as 

calculated 1 minute after the time of execution; 

(W) For executions of covered orders, the average realized spread as calculated 5 minutes 

after the time of execution;  

(X) For executions of covered orders, the average percentage realized spread as 

calculated 5 minutes after the time of execution;   

(Y) For executions of covered orders, the average midpoint; and 

(ii) For market orders, marketable limit orders, marketable immediate-or-cancel orders, 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable market orders submitted with stop prices, and executable stop marketable limit 

orders: 

(A) For executions of covered orders, the average quoted spread; 

(B) For executions of covered orders, the average effective spread; 

(C) For executions of covered orders, the average percentage effective spread; 

(D) For executions of covered orders, the average effective divided by the average quoted 

spread, expressed as a percentage; 

(E) The cumulative number of shares of covered orders executed with price 

improvement; 

(F) For shares executed with price improvement, the share-weighted average amount per 

share that prices were improved; 

(G) For shares executed with price improvement, the share-weighted average period from 

the time of order receipt to the time of order execution, expressed in increments of a millisecond 

or finer, or, in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are 



596 

immediate-or-cancel, executable market orders submitted with stop prices, and executable stop 

marketable limit orders, from the time such orders first become executable to the time of order 

execution, expressed in increments of a millisecond or finer; 

(H) The cumulative number of shares of covered orders executed at the quote; 

(I) For shares executed at the quote, the share-weighted average period from the time of 

order receipt to the time of order execution, expressed in increments of a millisecond or finer, or, 

in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-

or-cancel, executable market orders submitted with stop prices, and executable stop marketable 

limit orders, from the time such orders first become executable to the time of order execution, 

expressed in increments of a millisecond or finer; 

(J) The cumulative number of shares of covered orders executed outside the quote; 

(K) For shares executed outside the quote, the share-weighted average amount per share 

that prices were outside the quote; 

(L) For shares executed outside the quote, the share-weighted average period from the 

time of order receipt, expressed in increments of a millisecond or finer, or, in the case of 

midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, 

executable market orders submitted with stop prices, and executable stop marketable limit 

orders, from the time such orders first become executable to the time of order execution, 

expressed in increments of a millisecond or finer; 

(M) The cumulative number of shares of covered orders executed with price 

improvement relative to the best available displayed price;  



597 

(N) For shares executed with price improvement relative to the best available displayed 

price, the share-weighted average amount per share that prices were improved as compared to 

the best available displayed price; 

(O) The cumulative number of shares of covered orders executed at the best available 

displayed price;  

(P) The cumulative number of shares of covered orders executed outside the best 

available displayed price;  

(Q) For shares executed outside the best available displayed price, the share-weighted 

average amount per share that prices were outside the best available displayed price; 

(R) For executions of covered orders, the cumulative number of shares of the order size 

benchmark; 

(S) The sum of, for each execution of a covered order, the greater of: the total number of 

shares executed with price improvement plus the total number of shares executed at the quote 

minus the order size benchmark, or zero; and 

(iii) For midpoint-or-better limit orders, midpoint-or-better limit orders that are 

immediate-or-cancel, executable non-marketable limit orders, executable non-marketable limit 

orders that are immediate-or-cancel, and executable stop non-marketable limit orders:  

(A) The number of covered orders that received either a complete or partial fill;  

(B) The cumulative number of shares executed regular way at prices that could have 

filled the order while the order was in force, as reported pursuant to an effective transaction 

reporting plan or effective national market system plan. For each order, the share count shall be 

capped at the order size;  



598 

(C) The cumulative number of shares executed regular way on any national securities 

exchange at prices that could have filled the order while the order was in force, as reported 

pursuant to an effective transaction reporting plan or effective national market system plan. For 

each order, the share count shall be capped at the order size; and 

(D) For shares executed, the share-weighted average period from the time the order 

becomes executable to the time of order execution expressed in increments of a millisecond or 

finer. 

(2) Every market center, broker, or dealer shall make publicly available for each calendar 

month a report providing summary statistics on all covered orders that are market and marketable 

limit orders that it received for execution from any person. Such report shall be made available 

as an electronic file using the most recent version of the schema for comma separated values 

format (CSV) and the associated PDF renderer as published on the Commission’s website for all 

reports required by this paragraph (a)(2). Such report shall include a section for NMS stocks that 

are included in the S&P 500 Index as of the first day of that month and a section for other NMS 

stocks. Each section shall be categorized by order type (market orders or marketable limit orders) 

and order size (less than $250, $250 to less than $1,000, $1,000 to less than $5,000, $5,000 to 

less than $10,000, $10,000 to less than $20,000, $20,000 to less than $50,000, $50,000 to less 

than $200,000, $200,000 or more, and all order sizes combined, excluding orders with a notional 

value of $200,000 or more), and shall include the following columns of information: 

(i) The average order size in shares; 

(ii) The average notional order size; 

(iii) For executions of covered orders, the average midpoint; 



599 

(iv) For executions of covered orders, the percentage of shares executed at the quote or 

better; 

(v) For executions of covered orders, the percentage of shares that received price 

improvement; 

(vi) For executions of covered orders, the share-weighted average percentage price 

improvement, calculated as the cumulative amount that prices were improved less the cumulative 

amount that prices were executed outside the quote divided by sum of the average midpoint 

times the number of shares executed; 

(vii) For executions of covered orders, the average percentage effective spread; 

(viii) For executions of covered orders, the average percentage quoted spread, calculated 

as the average quoted spread divided by the average midpoint for such orders; 

(ix) For executions of covered orders, the average effective spread divided by the average 

quoted spread, expressed as a percentage;  

(x) For executions of covered orders, the average percentage realized spread as calculated 

15 seconds after the time of execution;  

(xi) For executions of covered orders, the average percentage realized spread as 

calculated 1 minute after the time of execution; and  

(xii) For executions of covered orders, the share-weighted average execution speed, in 

milliseconds. 

(3) Every national securities exchange on which NMS stocks are traded and each national 

securities association shall act jointly in establishing procedures for market centers, brokers, and 

dealers to follow in making available to the public the reports required by this section in a 

uniform, readily accessible, and usable electronic form. 



600 

(4) In the event there is no effective national market system plan establishing such 

procedures, market centers, brokers, and dealers shall prepare their reports in a consistent, 

usable, and machine-readable electronic format, in accordance with the requirements in 

paragraph (a)(1) of this section, and make such reports available for downloading from an 

internet website that is free and readily accessible to the public.  

(5) Every market center, broker, or dealer shall keep the reports required by paragraphs 

(a)(1) and (2) of this section posted on an internet website that is free and readily accessible to 

the public for a period of three years from the initial date of posting on the internet website. 

(6) A market center, broker, or dealer shall make available the reports required by 

paragraphs (a)(1) and (2) of this section within one month after the end of the month addressed 

in the reports. 

(7) A broker or dealer that is not a market center shall not be subject to the requirements 

of this section unless that broker or dealer introduces or carries 100,000 or more customer 

accounts through which transactions are effected for the purchase or sale of NMS stocks (the 

“customer account threshold” for purposes of this paragraph). For purposes of this section, a 

broker or dealer that utilizes an omnibus clearing arrangement with respect to any of its 

underlying customer accounts shall be considered to carry such underlying customer accounts 

when calculating the number of customer accounts that it introduces or carries. Any broker or 

dealer that meets or exceeds this customer account threshold and is also a market center shall 

produce separate reports pertaining to each function. A broker or dealer that meets or exceeds the 

customer account threshold shall be required to produce reports pursuant to this section for at 

least three calendar months (“Reporting Period”). The Reporting Period shall begin the first 

calendar day of the next calendar month after the broker or dealer met or exceeded the customer601 

account threshold, unless it is the first time the broker or dealer has met or exceeded the 

customer account threshold, in which case the Reporting Period shall begin the first calendar day 

four calendar months later. If, at any time after a broker or dealer has been required to produce 

reports pursuant to this section for at least a Reporting Period, a broker or dealer falls below the 

customer account threshold, the broker or dealer shall not be required to produce a report 

pursuant to this paragraph (a)(7) for the next calendar month. 

* * * * * 

§ 242.611 [Amended] 

 11. Amend § 242.611 by, in paragraph (c), removing the text “§ 242.600(b)(38)” and 

adding in its place “§ 242.600(b)(47)”. 

§ 242.614 [Amended] 

12. Amend § 242.614 by, in paragraphs (d)(1) through (3), removing the text “§ 

242.600(b)(20)” and adding in its place “§ 242.600(b)(25)”. 

§ 242.1000 [Amended] 

13. Amend § 242.1000, in the definition Plan processor, by removing the text “§ 

242.600(b)(67)” and adding in its place “§ 242.600(b)(78)”. 

By the Commission. 

Dated: March 6, 2024. 

 

 

Sherry R. Haywood, 

Assistant Secretary.