SEC Rule 606 Update

** Editor's Note: Below is the article as published on November 4, 2019. Some of this information has changed since then. Please reach out to us at info@abelnoser.com to learn more about the latest updates.

Here are some thoughts on the 606 timeline (including some not so obvious implications):

 

606(b)(1) Customer-Facing Report

The data collection requirement for 606(b)(1) began on October 1st for reporting the first week of November. A broker’s clients can request their 606(b)(1) as early as November 1st, though brokers have until November 7th to comply with their client’s request.

 

When fully implemented, brokers will need to make available 606(b)(1) reports to clients on a monthly basis. The report needs to include six months of historical data covering the entirety of a client’s trading activity including equities and options.  We suspect an increase in clients requesting the 606(b)(1) as part of an initial effort to take advantage of the new transparency of the rule.

 

The 606(b)(1) report is fairly simple because it lacks the summary level and detail routing level of  the 606(b)(3).  When fully implemented, the (b)(1) report should provide six months of historical look-back.  As the default report for clients not meeting the de minimis hurdle for the more detailed 606(b)(3), we expect this to be the most common report sent by brokers to their clients.

 

606(a)(1) Public-Facing Report

One of the biggest changes to the SEC Rule 606 is in the public facing report which now has a data collection start of January 1, 2020, for posting no later than April 30, 2020.

 

This report must contain both a summary-level and a detailed venue analysis section made up of 14 distinct data points.  One of the major developments in the scope of this rule is that it includes orders, not just executions.  There is also a new focus on payment for order flow.  Eight of the 14 columns in the public facing report pertain to the “Net Payment Paid/Received” for each of the venues reported.  Further clarification on how these net payments were obtained is required via a “Material Aspects” disclosure section.

 

606(b)(3) – Detailed-Customer Facing Report

In terms of implementation, the 606(b)(3) report has generated the most scrutiny, resulting in the most confusion (as to how, and when). Like the (b)(1) report, 606(b)(3) is a customer facing report to be provided monthly on demand from the broker’s clients.  While much more detailed than the (b)(1), a client’s ability to request the report is subject to two de minimis hurdles.  If eligible for the report, the client should receive a summary level report plus a detailed synopsis of their orders and fills, by venue, across 22 distinct data points.

 

Six of the 22 columns in (b)(3) concern execution relative to the spread: mid-point, near-touch & far-touch. An additional seven columns are similar in nature to the public report and relate to payment for order flow.

 

As of this writing, 606(b)(3) data collection requirement begins on January 1, 2020 for the first report on February 15th (due the 26th at the latest). Note that this is only for orders and executions a broker controls and routes directly. Orders passing through a separate broker’s technology are not required for data collection until April 1st, with reports due May 26th at the latest.

 

The compliance date, is now behind us. This means brokers need to archive required 606 data. It also means that customers can request client specific reports on Nov 1st with a deadline for the broker providing the data no later than Nov 7th.

 

Details of note:

 

• 606(b)1 revised de minimis considerations have effectively eliminated previous exemptions at the broker level
• Fee/rebate data is to be taken from broker's actual invoices (not projected/estimated) and must include any commissions an introducing broker pays to an executing broker/venue
• Brokers to provide six months of data back from most recently completed data, then fill in as more becomes available – meaning intra period updates are necessary

 

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Abel Noser's Rule 605/606 Offering Includes:

 

• 605 market center reporting
• Online posting of 606(a)(1) reports
• On-demand or scheduled 606(b)(3) routing reports
• 606(b)(1) exemption reports
• TCA-generated contextual data to show order handling, best execution, and fee/rebate evaluation
• Easy-to-use analytics interface
• Unparalleled client services team to help manage the process

 

Visit our dedicated SEC Rule 606 Services page >

 

 

Abel Noser has been helping firms understand, measure, and monitor their trade data for decades.  As the regulatory hurdles of best execution grow in complexity, we stand ready to help firms embrace their regulatory responsibilities and implement the processes required, from the trading desk to the compliance office.  Abel Noser’s peer benchmarks empower our clients with the tools and context needed to define and monitor best execution.

 

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