Disclosure of Order Execution Information

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 242
[Release No. 34–96493; File No. S7–29–22] RIN 3235–AN22 Disclosure of Order Execution Information AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) is proposing to amend existing requirements under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) to update the disclosure required for order executions in national market system (‘‘NMS’’) stocks. First, the Commission is proposing to expand the scope of reporting entities subject to the 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 Commission is proposing to 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 Commission is proposing modifications to 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. As
part of the changes to these categories,
the Commission is proposing to capture execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the Commission is proposing to 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 Commission is also proposing to eliminate 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. In order to better reflect the speed of the marketplace, the Commission is proposing 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 both 15 seconds and one minute. Finally, the Commission is proposing to enhance the accessibility of the required reports by requiring all reporting entities to make a summary report available. DATES: Comments should be received on or before March 31, 2023. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s internet
  comment form (http://www.sec.gov/ rules/submitcomments.htm); or
• Send an email to rule-comments@
  sec.gov. Please include File Number S7– 29–22 on the subject line. Paper Comments
• Send paper comments to Secretary,
  Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number S7–29–22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission’s website (http:// www.sec.gov/rules/proposed.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s Public Reference Room. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any materials will be made available on the Commission’s website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  Kathleen Gross, Senior Special Counsel, Lauren Yates, Senior Special Counsel, Christopher Chow, Special Counsel, or David Michehl, Special Counsel, at (202) 551–5500, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 17 CFR 242.600 of Regulation National Market System (‘‘Regulation NMS’’) under the Exchange Act (‘‘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 of Regulation NMS under the
  Exchange Act (‘‘Rule 605’’ or ‘‘Rule’’) as proposed to be amended; as well as amendments to Rule 605.
  Table of Contents
  I. Introduction
  II. Current Reporting of Execution Quality
  Statistics
  A. Adoption of Rule 11Ac1–5 B. Scope and Content of Rule 605

1. Scope
2. Required Information
3. Procedures for Making Reports Available
   to the Public
   C. Other Relevant Rules
   D. Overview of Need for Modernization E. EMSAC Recommendations, Petition for Rulemaking, and Other Comments
   III. Proposed Modifications to Reporting
   Entities
   A. Larger Broker-Dealers
   B. Qualified Auction Mechanisms
   C. ATSs and Single-Dealer Platforms
   IV. Proposed Modifications to Scope of
   Orders Covered and Required Information A. Covered Order
4. Orders Submitted Pre-Opening/Post￾Closing
5. Stop Orders
6. Non-Exempt Short Sale Orders
   B. Required Information
7. Categorization by Order Size
8. Categorization by Order Type
9. Timestamp Conventions
10. Changes to Information Required for All
    Types of Orders
11. Additional Required Information for
    Market, Marketable Limit, Marketable IOC, and Beyond-the-Midpoint Limit Orders
12. Additional Required Information for
    Executable NMLOs, Executable Stop Orders, and Beyond-the-Midpoint Limit Orders
    V. Proposed Summary Execution Quality
    Reports
    VI. Paperwork Reduction Act
    A. Summary of Collection of Information B. Proposed Use of Information
    C. Respondents
    D. Total PRA Burdens
    E. Request for Comment
    VII. Economic Analysis
    A. Introduction
    B. Market Failure
    C. Baseline
13. Regulatory Baseline
14. Current Rule 605 Disclosure
    Requirements
15. Markets for Brokerage and Trading
    Services for NMS Stocks Under Current Rule 605 Disclosure Requirements D. Economic Effects
16. Benefits
17. Costs

1Throughout the release, the term ‘‘larger broker￾dealer’’ refers to a broker-dealer that meets or exceeds the ‘‘customer account threshold,’’ as defined in proposed Rule 605(a)(7). See also infra
section III.A (discussing proposed Rule 605(a)(7)).
2 15 U.S.C. 78k–1.
3See 15 U.S.C. 78k–1(a)(1)(C).
4See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594, 3597 (Jan. 21, 2010) (‘‘Concept Release on Equity Market Structure’’). 5See Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414, 75416 (Dec. 1, 2000) (Disclosure of Order Execution and Routing Practices) (‘‘Adopting Release’’). 6See id. at 75415. 7See id. at 75416. 8See id. 9 Id. 10See id. at 75414. 11 In 2018, the Commission amended Rule 600, 605, and 606 of Regulation NMS (‘‘the 2018 Rule 606 Amendments’’). The 2018 Rule 606 Amendments modified Rule 605 to require that the public order execution quality reports be kept publicly available for a period of three years. See Securities Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) (‘‘2018 Rule 606 Amendments Release’’). 12For example, since the adoption of the Rule in 2000, the Commission has periodically revised certain of its NMS rules, including the adoption of Regulation NMS in 2005. See, e.g., Securities Exchange Act Release Nos. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’); and 90610 (Dec. 9, 2020), 86 FR 18596 (Apr. 9, 2021) (‘‘MDI Adopting Release’’). 13For example, in January 2005, the New York Stock Exchange Inc. (‘‘NYSE’’) executed approximately 79.1% of the consolidated share volume in its listed stocks, compared to 25.1% in October 2009. See Concept Release on Equity Market Structure, 75 FR 3594 (Jan. 21, 2010) at 3595. 14As used in this release, the term ‘‘individual investor’’ will refer to natural persons that trade relatively infrequently for their own or closely related accounts. 15See, e.g., Caitlin McCabe, ‘‘New Army of Individual Investors Flexes Its Muscle,’’ The Wall Street Journal (Dec. 30, 2020), available at https:// www.wsj.com/articles/new-army-of-individual￾investors-flexes-its-muscle-11609329600. 16See MDI Adopting Release, 86 FR at 18606–07 (citing Securities Exchange Act Release No. 88216 (Feb. 14, 2020), 85 FR 16726, 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’’)). 17See Securities Exchange Act Release No. 42450 (Feb. 23, 2000), 65 FR 10577, 10585 (Feb. 28, 2000) (‘‘Fragmentation Release’’). 18 15 U.S.C. 78k–1.
3. Economic Effects on Efficiency,
Competition, and Capital Formation E. Reasonable Alternatives

1. Reasonable Alternative Modifications to
   Reporting Entities
2. Reasonable Alternative Modifications to
   Scope of Covered Orders
3. Reasonable Alternative Modifications to
   Required Information
4. Reasonable Alternative Modifications to
   Accessibility
5. Other Reasonable Alternatives
   F. Request for Comment
   VIII. Consideration of Impact on the
   Economy
   IX. Initial Regulatory Flexibility Analysis
   Statutory Authority and Text of Proposed Rule
   I. Introduction
   The Commission is proposing to update the requirements to disclose order execution information under Rule
6. Currently, market centers that
   execute investor orders are required to make monthly disclosures of basic information concerning their quality of executions. The required disclosures have provided significant insight into execution quality at different market centers; however, both the scope and the content of Rule 605 reports have not kept pace with technological and market developments. The proposal would require broker-dealers with a larger number of customers (‘‘larger broker￾dealers’’) 1 to prepare execution quality reports, would capture execution quality information for more order types and sizes, and would require time-based metrics to be recorded at a more granular level that reflects current market speed. By providing more relevant and accessible metrics, the proposal would 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 national market system objectives.2 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.3 These objectives guide the Commission as it seeks to ensure market structure rules keep pace with continually changing economic conditions and technological advancements. However, these objectives, in particular the goal of promoting opportunities for the most willing seller to meet the most willing buyer (i.e., order interaction) and the goal of promoting competition among markets, can be difficult to reconcile.4 The Rule, along with 17 CFR 242.606 (‘‘Rule 606’’) of Regulation NMS, was adopted in 2000 and together these rules required the public disclosure of execution quality and order routing practices.5 In adopting these rules, the Commission recognized the importance of vigorous competition among buyers and sellers in an individual security.6 However, the Commission also recognized the importance of competition among market centers, which entails some fragmentation of order flow.7 Such competition has benefits to investors including the development of innovative trading services, lower fees, and faster executions.8 The Commission characterized the rules as a ‘‘minimum step necessary to address fragmentation’’ 9 and stated that by making visible the execution quality of the securities markets, the rules are intended to spur more vigorous competition among market participants to provide the best possible prices for investor orders.10 Although the Rule has provided visibility into execution quality at different market centers, the content of the disclosures required by the Rule has not been substantively updated since the Rule was adopted in
   2000.11 Changed equity market conditions and technological advancements have eroded the utility of the Rule. The speed and nature of trading have changed dramatically as a result of technological improvements and the markets’ response to the changing regulatory landscape.12 Trading has moved from being concentrated on a given security’s listing exchange 13 to being spread across a highly fragmented market where national securities exchanges, alternative trading systems (‘‘ATSs’’), single-dealer platforms (‘‘SDPs’’), off￾exchange market makers, and others compete for order flow. Orders may be matched, routed, or cancelled in microseconds and market information is transmitted nearly instantaneously. At the same time, individual investor 14 participation in the equity markets has increased.15 Further, the average share prices of certain stocks have continued to increase over time.16 The Commission continues to believe that facilitating the ability of the public to compare and evaluate execution quality among different market centers is an effective means of reconciling the need to promote both vigorous price competition and fair competition among market centers. Providing increased visibility into the execution quality of larger broker-dealers would similarly encourage competition among market participants. It is the Commission’s task continually to monitor market conditions and competitive forces and to evaluate whether the structure of the national market system as it evolves is achieving its Exchange Act objectives.17
   Section 11A of the Exchange Act 18
   grants the Commission authority to promulgate rules necessary or appropriate to assure the fairness and usefulness of information on securities

19 15 U.S.C. 78k–1(c)(1)(B).
20 15 U.S.C. 78k–1(c)(1)(E).
21See Concept Release on Equity Market Structure, 75 FR 3594 (Jan. 20, 2010) at 3597. 22See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75416. For clarity, when this release
discusses the adoption of Rule 605, it is referring to the Adopting Release, supra note 5. 23See id. at 75414. 24See id. at 75419. Although it is difficult to isolate the effects of the Rule 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, Robert Jennings & Li Wei, 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’’). 25See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75418, 75419. 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 infra notes 545–547 and accompanying text. 26See 17 CFR 242.605. 27 ‘‘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 17 CFR 242.600(b)(32). 28 ‘‘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 17 CFR 242.600(b)(64). 29 ‘‘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 17 CFR 242.600(b)(4) (stating that ‘‘alternative trading system’’ has the meaning provided in 17 CFR 242.300(a)). 30 ‘‘National securities exchange’’ means any exchange registered pursuant to section 6 of the Exchange Act. See 17 CFR 242.600(b)(53). 31See 17 CFR 242.600(b)(46). ‘‘National securities association’’ means any association of brokers and dealers registered pursuant to section 15A of the Exchange Act. See 17 CFR 242.600(b)(52). 32See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421.
33See id.
34See, e.g., 17 CFR 242.605(a) (monthly electronic reports by market centers). In some instances, broker-dealers accept orders from customers for execution and execute a small portion of their order flow internally (e.g., fractional share orders), and therefore would fall within the definition of ‘‘market center’’ in Rule 600(b)(46) with respect to the portion of their order flow for which they hold themselves out as being willing to buy or sell for their own account on a regular or continuous basis. However, if, for example, they only act as a market center for orders smaller than 100 shares, then these market centers would not be required to prepare Rule 605 reports currently because the portion of their order flow for which they act as a market center would include only orders that fall below the smallest order size category (i.e., 100 to 499 shares). See 17 CFR 242.600(b)(defining ‘‘categorized by order size’’); 17 CFR 242.605)(a)(1) (stating that a market center’s monthly report ‘‘shall be categorized by security, order type, and order size’’). 35See 17 CFR 242.600(b)(22). transactions 19 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.20 Through the proposed updates to Rule 605, the Commission seeks to promote increased transparency of order execution quality, increase the information available to investors, and help to promote competition among market centers and broker-dealers, while ameliorating the potentially adverse effects of fragmentation on efficiency, price transparency, best execution of investor orders, and order interaction.21
II. Current Reporting of Execution
Quality Statistics
A. Adoption of Rule 11Ac1–5 When the Commission adopted Rule 11Ac1–5, which was later re-designated as Rule 605, in 2000, there was little publicly available information to enable investors to compare and evaluate execution quality among different market centers.22 The Commission proposed and adopted Rule 11Ac1–5 together with Rule 11Ac1–6, which was later re-designated as Rule 606, requiring broker-dealers to disclose the identity of market centers to which they route orders on behalf of customers. When adopting these rules, the Commission stated that, taken together, they should significantly improve the opportunity for investors to evaluate what happens to their orders after they submit them to a broker-dealer for execution.23 The Commission reasoned that 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.24 Rule 11Ac1–5 was intended to remedy an absence of public information 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.25 B. Scope and Content of Rule 605

1. Scope
   Currently, Rule 605 requires market centers to make available, on a monthly basis, standardized information concerning execution quality for covered orders in NMS stocks that they received for execution. Market centers must provide specified measures of execution quality, including effective spread, average amount of price improvement, number of shares executed, and speed of execution.26 (a) Market Centers Regulation NMS defines the term ‘‘market center’’ to mean any exchange market maker,27 OTC market maker,28 ATS,29 national securities exchange,30 or national securities association.31 This definition was intended to cover entities that hold themselves out as willing to accept and execute orders in NMS securities.32 Further, a market center must report on orders that it ‘‘received for execution from any person,’’ which was intended to assign the disclosure obligation to an entity that controls whether and when an order will be executed.33 In many instances, broker-dealers accept orders from customers for execution and then route these customer orders to various execution venues, but do not execute customer orders directly. These broker-dealers generally do not fall within the definition of ‘‘market center’’ and therefore fall outside of the scope of Rule 605’s reporting requirements.34 (b) Covered Orders The covered order definition is limited by several conditions and exclusions in order to include those orders that provide a basis for meaningful and comparable statistical measures of execution quality. A ‘‘covered order’’ is 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 the national best bid and national best offer is being disseminated, and, if executed, is executed during regular trading hours.35 This definition serves two purposes: (1) because the nature and execution quality for regular and after￾hours trading differs, it avoids blending statistics for orders executed after-hours with those executed during the regular

36See id. 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 (Nov. 19, 2018) at 58340. As a general matter, if a customer submits an order for an NMS stock to its broker-dealer, whether it be for a fractional share, whole shares, or whole shares with a fractional share component, and the customer reasonably expects its broker-dealer to attempt to execute such order immediately, then the broker-dealer generally should categorize the order as a held order. 37See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421.
38See 17 CFR 242.605(a)(1).
39See id. ‘‘Categorized by order type’’ refers to categorization by whether an order is a market order, a marketable limit order, an inside-the-quote limit order, an at-the-quote limit order, or a near￾the-quote limit order. See 17 CFR 242.600(b)(14). 40See 17 CFR 242.605(a)(1). The current size categories are: 100 to 499 shares; 500 to 1999 shares; 2000 to 4999 shares, and 5000 or greater shares. See 17 CFR 242.600(b)(11). On June 22, 2001, the Commission granted exemptive relief to any order with a size of 10,000 shares or greater, 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, dated June 22, 2001 (‘‘Large Order Exemptive Letter’’). 41See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75417. For instance, a user could analyze
execution quality for a group of securities and by size and order type. 42See 17 CFR 242.605(a)(1)(i). 43See 17 CFR 242.605(a)(1)(ii). 44See 17 CFR 242.600(b)(91), (92). 45See Securities Exchange Act Release No. 43084 (July 28, 2000), 65 FR 48406, 48414 (Aug. 8, 2000) (File No. S7–16–00) (Disclosure of Order Execution and Routing Practices) (‘‘Proposing Release’’) (stating that the Commission preliminarily believed that the rule’s statistical measures (e.g., fill rates and speed of execution) for this type of order 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). 46See 17 CFR 242.605(a)(2) and Securities and Exchange Commission File No. 4–518 (National Market System Plan Establishing Procedures Under Rule 605 of Regulation NMS) (‘‘Rule 605 NMS Plan’’ or ‘‘Plan’’). See also Securities Exchange Act Release No. 44177 (Apr. 12, 2001), 66 FR 19814 (Apr. 17, 2001) (order approving the Plan). 47Currently, the parties to the Plan are the 16 registered national securities exchanges trading NMS stocks and 1 national securities association (the ‘‘Participants’’). Although not all market centers are Participants, the Participants are required to enforce compliance with the terms of the Plan by their members and person associated with their members. See 17 CFR 242.608(c). Market centers that are not Participants must make arrangements with a Participant to act as their ‘‘Designated Participant.’’ See Plan at IV. 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 Plan at IV, VIII(c). 48See Plan at n.3. 49See id. at 2 (‘‘Section V . . . provides that market center files must be in standard, pipe￾delimited ASCII format’’). 50A ‘‘non-directed order’’ means any order from a customer other than a directed order. See 17 CFR 242.600(b)(56). 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 17 CFR 242.600(b)(27). 51See 17 CFR 242.606(a)(1)(ii) (stating that each
section in the required report shall include the
identity of the ten venues to which the largest number of total non-directed orders for the section were routed for execution and of any venue to which five percent or more of non-directed orders were routed). 52See 17 CFR 242.606(a)(1)(iii). trading day; and (2) because many of the statistical measures included in the rule rely on the availability of the national best bid and offer (‘‘NBBO’’) at the time of order receipt, it excludes orders for which execution quality metrics could not be calculated. Covered orders do not include any orders for which the customer requests special handling, which include, but are not limited to, market on open and market on close orders, stop orders, all or none orders, and ‘‘not held’’ orders.36 The Commission reasoned that special handling instructions could skew general execution quality measures.37
2. Required Information
Rule 605 reports contain a number of execution quality metrics for covered orders, including statistics for all NMLOs with limit prices within ten cents of the NBBO at the time of order receipt as well as separate statistics for market orders and marketable limit orders. Under the Rule, the information is categorized by (1) individual security,38 (2) one of five order types,39 and (3) one of four order sizes.40 These categories provide users flexibility in determining how to summarize and analyze the information.41 Within each of the three categories, the reports are required to include statistics about the total number of orders submitted as well as 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.42 For market and marketable limit orders, the reports also must include average effective spread; number of shares executed better than the quote, at the quote, or outside the quote; average time to execution when executed better than the quote, at the quote, or outside the quote; as well as average dollar amount per share that orders were executed better than the quote or outside the quote.43 In addition, time of order execution and time of order receipt are required to be measured to the nearest second.44 The categorization by order type does not currently include away-from-the￾quote NMLOs, i.e., those orders with a limit price more than ten cents away from the NBBO. In proposing to exclude these orders in 2000, the Commission indicated that the execution quality statistics for these types of orders may be less meaningful because execution of these types of orders may be more dependent on the extent to which the orders’ limit prices were outside the consolidated best bid and offer (‘‘BBO’’) and price movement in the market than on their handling by the market center.45
3. Procedures for Making Reports
Available to the Public
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.46 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.47 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.48 In addition, formatting for Rule 605 data is governed by the Plan. 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.49
C. Other Relevant Rules
Rule 606 reports address order handling information and Rule 606’s reporting requirements differ for held orders versus not held orders. With respect to held orders, Rule 606(a)(1) requires broker-dealers to produce quarterly public reports regarding their routing of non-directed orders 50 in NMS stocks that are submitted on a held basis. These reports must identify certain regularly-used venues to which the broker-dealer routed non-directed orders for execution and provide data on the percentage of orders routed to each venue.51 These reports also must provide information, for each venue identified, about the payment relationship between the broker-dealer and the venue, including any payments made by a venue to a broker-dealer for the right to trade with its customer order flow (i.e., payment for order flow or ‘‘PFOF’’) or rebates,52 and a description of the material aspects of the broker￾dealer’s relationship with the venue and the terms of arrangements that may influence a broker-dealer’s order routing

53See 17 CFR 242.606(a)(1)(iv).
54See 17 CFR 242.606(b)(1).
55See supra note 23 and accompanying text. 56See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) 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). 57See 17 CFR 240.606(b)(3). 58See 17 CFR 240.606(b)(3). 59See 17 CFR 240.606(b)(3)(ii). 60See generally 2018 Rule 606 Amendments Release. 61See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58372. 62See id. 63See id. The Commission also considered but did not adopt an aspect of the proposal that would have required broker-dealers to make publicly available a report that would have aggregated Rule 606(b)(3) order handling information pertaining to not held orders. See id. at 58369–70. The Commission stated that its decision stemmed from fundamental differences between held order flow and not held order flow, because held orders are typically non-directed orders with no specific order-handling instructions for the broker-dealer. See id. at 58371 (stating that held order flow is handled similarly by broker-dealers—held orders are generally small orders that are internalized or sent to OTC market makers if marketable or fully executed on a single trading center if not marketable). The Commission further stated that, by contrast, 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. See id. Therefore, the Commission concluded that the disparate behavior of customers when using not held orders limited the potential ability for customers and broker￾dealers to use aggregated Rule 606(b)(3) order handling information to better understand broker￾dealers’ routing behavior or compare broker-dealers’ order routing performance. See id. 64See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58373. 65See id. In comparison, with respect to the addition of customer-specific order-handling disclosures in Rule 606(b)(3), the Commission stated that these disclosures are particularly suited to customers that submit not held NMS stock orders because the disclosures set forth detailed order handling information that is useful in evaluating how broker-dealers exercise the discretion attendant to not held orders and, in the process, carry out their best execution obligations and manage the potential for information leakage and conflicts of interest. See id. at 58344. As part of the 2018 Rule 606 Amendments, the
Commission added Rule 606(b)(3) to require broker-dealers to make detailed, customer-specific order handling disclosures available to institutional customers, in particular, who previously were not entitled to disclosures under the rule for their order flow, or were entitled to disclosures that had become inadequate in a highly automated and more complex market. See id. 66See id. at 58379. See also EMSAC III at 2–3 (suggesting that the Commission modify the enhancements to Rule 606 to include, among other things, execution quality statistics by routing destination). 67See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58379. 68See id. 69See, e.g., Regulation NMS Adopting Release, 70 FR at 37537; 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 is separately proposing a rule concerning broker-dealers’ duty of best execution. See Securities Exchange Act Release No. 96496 (Dec. 14, 2022) (File No. S7–32–22) (Regulation Best Execution). The Commission encourages commenters to review that proposal to determine whether it might affect their comments on this proposing release. decision.53 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 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.54 For orders submitted on a held basis, the reports required by Rule 606 do not contain any execution quality information. However, a customer of a reporting broker-dealer may access the execution quality reports produced pursuant to Rule 605 by each venue identified as a routing destination in the broker-dealer’s Rule 606 reports, to the extent that venue is a market center.55 In contrast, Rule 606 requires broker￾dealers to produce reports that provide detail regarding execution quality in connection with not held orders, which are typically used by institutional investors.56 Specifically, Rule 606(b)(3) requires broker-dealers to produce reports pertaining to order routing 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.57 These customer￾specific reports generally must include detailed information, by venue, including metrics pertaining to the broker-dealer’s routing of the customer’s orders and the execution of such orders.58 In particular, the venue-by￾venue order execution information must include aggregated 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.59 Current Rule 606 reflects significant changes that were made in the 2018 Rule 606 Amendments.60 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.61 The Commission stated that the more prevalent use of financial inducements to attract order flow from broker-dealers that handle retail investor orders created new, and in many cases significant, potential conflicts of interests for these broker￾dealers.62 Further, the Commission stated that enhanced public disclosures for held orders should focus on providing more detailed information regarding these financial inducements, as opposed to the different information geared towards not held orders from customers that is set forth in Rule 606(b)(3).63 Therefore, the Commission adopted enhanced public disclosures 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.64 The Commission stated that this enhancement would allow customers to better assess the nature and quality of broker-dealers’ order handling services, including the potential for broker-dealer conflicts of interest, and would also benefit customers to the extent that broker-dealers were spurred to compete further by providing enhanced order routing services and better execution quality.65 At the time of the 2018 Rule 606 Amendments, the Commission considered suggestions from the Equity Market Structure Advisory Committee (‘‘EMSAC’’) and other commenters that the Commission include more or different execution quality statistics in the required disclosures.66 But the Commission stated that the limited modifications to Rule 606(a) that it was adopting 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.67 However, the Commission noted 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.68 Separately, each broker-dealer has a legal duty to seek to obtain best execution of customer orders.69 The

70See Regulation NMS Adopting Release, 70 FR 37496 (Jun. 29, 2005) at 37538 (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. 71See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75420. 72See id. 73See 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 564–565 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. 74See Securities and Exchange Commission, Annual Report for fiscal year 2000, at 38 available at https://www.sec.gov/pdf/annrep00/ar00full.pdf. 75See Securities Exchange Act Release No. 78309 (July 13, 2016), 81 FR 49432, 49436 (July 27, 2016) (‘‘Rule 606 Proposing Release’’); Fragmentation Release, 65 FR 10577 (Feb. 28, 2000) at 10579–80. 76See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75415 (stating that in September 2000, for
example, 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 (Jan. 21, 2010) at 3595 (stating that in January 2005, NYSE executed approximately 79.1% of the consolidated share volume in its listed stocks, as compared to 25.1% in October 2009). In addition, NYSE-listed stocks were traded primarily on the floor of the NYSE in a manual fashion until October 2006, at which time NYSE began to offer fully automated access to its displayed quotations. See Concept Release on Equity Market Structure, 75 FR 3594 (Jan. 21, 2010) 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 (Feb. 28, 2000) at 10580. 77See 17 CFR 242.600(b)(89) (defining ‘‘SRO trading facility’’ as, among other things, a facility operated by a national securities exchange that executes orders in a security). 78An ‘‘NMS Stock ATS’’ as used in this release is an ATS that has filed an effective Form ATS–N with the Commission. 79The 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. 80See 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 17 CFR 242.600(b)(95) (defining ‘‘trading center’’). 81See infra note 766 and accompanying text;
Table 7.
82See infra note 767 and accompanying text;
Table 7.
83See infra Table 7.
84See infra note 768 and accompanying text. 85There are six wholesalers that internalize the majority of individual investors’ marketable orders. See infra note 766 and accompanying text. 86See infra note 608 and accompanying text. 87Analysis of Consolidated Audit Trail (‘‘CAT’’) data from the first five months of 2022 found that wholesalers provide different execution quality to different retail brokers, and in particular that broker-dealers with higher adverse selection risk systematically receive higher effective spreads and lower price improvement than broker-dealers with lower adverse selection risk. See infra notes 609– 613 and accompanying text; Table 3. For further discussion of differences in execution quality across broker-dealers, see infra section VII.C.1.a). 88See infra section VII.C.3.a)(2). See also 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58372 (stating that financial inducements to attract order flow from broker￾dealers that handle retail investor orders have become more prevalent and for some broker-dealers such inducements may be a significant source of revenue); supra note 62 and accompanying text (stating that these financial inducements have created new, and in many cases significant, potential conflicts of interest for these broker￾dealers). duty of best execution requires broker￾dealers to execute customers’ trades at the most favorable terms reasonably available under the circumstances.70 When adopting Rule 605 and Rule 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.71 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.72 As the Commission stated, any such conclusions would require a more in￾depth analysis of the broker-dealer’s order routing practices than will be available from the disclosures required by the rules.73 D. Overview of Need for Modernization The U.S. equity markets have evolved significantly since the Commission adopted the Rule in 2000. For instance, the equities markets have become increasingly fragmented, as both the market shares of individual national securities exchanges became less concentrated and an increased percentage of order flow moved off￾exchange. In 2000, there were 9 registered national securities exchanges and one registered national securities association.74 A large proportion of the order flow in listed equity securities was routed to a few, mostly manual, trading centers,75 and the primary listing exchanges retained a high percentage of the order flow for exchange-listed equities.76 In contrast, trading in the U.S. equity markets today is highly automated and spread 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 SRO trading facilities; 77 (2) ATSs that trade NMS stocks (‘‘NMS Stock ATSs’’); 78 (3) exchange market makers; (4) wholesalers; 79 and (5) any other broker￾dealer that executes orders internally by trading as principal or crossing orders as agent.80 In the first quarter of 2022, NMS stocks were traded on 16 national securities exchanges, and off-exchange at 32 NMS Stock ATSs and at over 230 other FINRA members.81 National securities exchanges executed approximately 60% of NMS share volume.82 The majority of off-exchange volume was executed by wholesalers, who executed almost one quarter of total volume (23.9%) and about 60% of off-exchange volume.83 Some OTC market makers, such as wholesalers, operate SDPs through which they execute institutional orders in NMS stocks against their own inventory.84 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.85 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. Moreover, it is generally more profitable for liquidity providers such as wholesalers to execute against orders with lower adverse selection risk because of the reduced risk that prices will move against the liquidity provider.86 Wholesalers may provide different execution quality to different broker-dealers, depending on factors including the level of adverse selection risk of their order flow.87 Some retail brokers may face conflicts of interest when making order routing decisions, including whether to route to a particular wholesaler.88 For example, broker-dealers could 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

89See infra notes 759–762 and accompanying text. 90See supra note 16. 91See MDI Adopting Release, 85 FR 18612 (Apr. 2, 2020) at 18616 (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). Analysis using the NYSE Trade and Quote database (obtained via Wharton Research Data Services (WRDS) (‘‘TAQ data’’ or ‘‘NYSE TAQ data’’) found that odd-lots increased from around 15% of trades in January 2014 to more than 55% of trades in March 2022. An analysis of data from the SEC’s MIDAS analytics tool available at https:// www.sec.gov/marketstructure/datavis. html#.YoPskqjMKUk shows that, in Q1 2022, odd￾lots made up 81.2% of on-exchange trades (40% of volume) for stocks in the highest price decile and 25% of on-exchange trades (2.72% 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. 92Analysis using CAT data for executed orders in March 2022 found that an estimated 46.63 million originating orders with a fractional share component were eventually executed on- or off￾exchange. This represents approximately 2% of all executed orders and 14% of executed orders from individual accounts. Generally, accounts classified as ‘‘individual’’ in CAT are attributed to natural persons. See also infra note 647 and accompanying text. 93See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18729. 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 (Feb. 1, 2022), available at SSRN: https://ssrn.com/ abstract=4027099 (‘‘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 January 2019 to January 2022). 94See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18613 n.202 (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). 95For 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 and June 2022
(34%, 39%) as compared to 2019 and 2020 (26%, 29%). 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 and June 2022 (26%, 29%) compared to 2019 and 2020 (20%, 23%). See SEC market structure analytics data, available at https://www.sec.gov/ marketstructure/midas.html. 96See supra notes 91–92. See also infra notes 619–622 and accompanying text (estimating, based on analysis of Tick Size Pilot data, coverage of current Rule 605 reporting requirements). 97Analysis comparing one market center’s volume (NYSE) to TAQ data shows that an estimated 50% of shares executed during regular market hours were included in Rule 605 reports as of February 2021, and shows that this number has been on a slightly downward trend since around mid-2012. See infra section VII.C.2.b) and infra
Figure 3.
98Analysis of data from the SEC’s MIDAS analytics tool shows that the percent of on￾exchange NMLOs that are fully executed within one millisecond (as a percentage of all fully executed on-exchange NMLOs) has increased from 2.1% in Q1 2012 to 10.3% in Q1 2022 for small cap stocks, and from 5.9% in Q1 2012 to 15.7% in Q1 2022 for large cap stocks. Further, in Q1 2022 more than half (51.6%) of NMLOs executed in less than one second in large market cap stocks. See dataset ‘‘Conditional Cancel and Trade Distribution,’’ available at https://www.sec.gov/marketstructure/ downloads.html. See also infra note 692 and accompanying text. 99See 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. 100See, e.g., Letter from Christopher Nagy, CEO, and Dave Lauer, President, KOR Group LLC (Apr. 4, 2014) (‘‘KOR Group I’’); Letter from Citigroup Global Markets Inc. and its affiliates re Concept Release on Equity Market Structure (Release No. 34–61358; File No. S7–02–10) (Aug. 7, 2014) (‘‘Citigroup Letter’’); Letter from Consumer Federation of America re File Number S7–02–10, Comments on Concept Release on Equity Market Structure (Sept. 9, 2014) (‘‘Consumer Federation I’’); Letter from BlackRock, Inc. re Equity Market Structure Recommendations; Concept Release on Equity Market Structure, File No. S7–02–10; Regulation Systems Compliance and Integrity, File No. S7–01–13; and Equity Market Structure Review (Sept. 12, 2014) (‘‘BlackRock Letter’’); Letter from Financial Information Forum re Rule 605/606 Enhancements from a Retail Perspective (Oct. 22,
2014) (‘‘FIF I’’); Letter from Securities Industry and
Financial Markets Association re Recommendations for Equity Market Structure Reforms (Oct. 24, 2014) (‘‘SIFMA Letter’’); Healthy Markets Proposal re SEC Rule 605/606 Reform (referenced in Aug. 2, 2016 statement of Christopher Nagy before the EMSAC) (‘‘Healthy Markets II’’) at 2; Letter from Healthy Markets re Notice of Meeting of Equity Market Structure Advisory Committee Meeting (File No. 265–29); List of Rules to be Reviewed Pursuant to the Regulatory Flexibility Act (File No. S7–21–16); Concept Release on Equity Market Structure (File No. S7–02–10) (Apr. 3, 2017) (‘‘Healthy Markets III’’); Letter from Healthy Markets re Potential Reforms Regarding the Provision of Market Data, Concept Release on Equity Market Structure (Rel. No. 34–61358; File No. S7–02–10), and Market Data and Market Access Roundtable (Rel. No. 4–729) (Jan. 3, 2020) (‘‘Healthy Markets IV’’). Comments on the Commission’s 2010 Concept Release on Equity Market Structure are available at https:// www.sec.gov/comments/s7-02-10/s70210.shtml. As with various other comments referenced herein, including, without limitation, comments received in connection with the Concept Release, the comments were not provided with reference to the proposals discussed in this release. 101See, e.g., Letter from James J. Angel, Ph.D., CFA, Georgetown University re Disclosure of Order Handling Information, File S7–14–16 (Aug. 26,
2016) (‘‘Angel Letter’’); Letter from Consumer
Federation of America re File Number S7–14–16, Disclosure of Order Handling Information (Sept. 26,
2016) (‘‘Consumer Federation II’’); Letter from
Fidelity Investments re Disclosure of Order Handling Information; File No. S7–14–16 (Sept. 26,
2016) (‘‘Fidelity Letter’’); Letter from Financial
Information Forum re Release No. 34–78309; File their individual investor customers (PFOF).89 The Commission is concerned that variations in execution quality across broker-dealers may be difficult to assess using current Rule 605 and Rule 606 reports. In particular, broker-dealers that route customer orders externally, rather than executing customer orders internally, are not required to prepare Rule 605 reports because they do not meet the definition of market center. Customers of a broker-dealer can use Rule 606 reports to identify market centers to which the broker-dealer routes, and then access those market centers’ Rule 605 reports to review the execution quality that the market center provides to all orders that the market center received for execution. However, to the extent that the market center may provide different execution quality to orders based on different order routing arrangements with different broker￾dealers, current Rule 605 and 606 do not require reports that provide investors with a way to assess these differences. In addition, developments in trading, including the increased speed of trading, further necessitate proposing updates to the Rule. Average stock prices have continued to increase over time,90 and odd-lots 91 and fractional shares 92 continue to trade with increasing frequency. Similarly, odd-lot quotes in higher-priced stocks continue to offer prices that are frequently better than the round lot NBBO for these stocks,93 and this better-priced odd-lot liquidity is distributed across multiple price levels.94 In addition, odd-lot rates have increased among lower priced stocks.95 Because current Rule 605 size categories exclude orders smaller than 100 shares, a significant proportion of market activity is currently excluded.96 An analysis of Rule 605 data shows that Rule 605 coverage has likely declined in the decades since the initial adoption of Rule 605.97 Further, because order size categories are tied to the number of shares, the categories may group orders of very different notional values, which may complicate comparisons of aggregate execution quality. Finally, the speed of the market has increased exponentially since 2000,98 rendering the Rule’s current one-second timestamp conventions less meaningful. E. EMSAC Recommendations, Petition for Rulemaking, and Other Comments The EMSAC99 as well as commenters responding to the Commission’s Concept Release on Equity Market Structure 100 and to the 2018 Rule 606 Amendments,101 have recommended

No. S7–14–16; Disclosure of Order Handling Information (Sept. 26, 2016) (‘‘FIF II’’); Letter from Financial Services Roundtable re Disclosure of Order Handling Information Proposal [File No. S7– 14–16] (Sept. 26, 2016) (‘‘Financial Services Roundtable Letter’’); Letter from Healthy Markets Association re Disclosure of Order Handling Information (S7–14–16) (Sept. 26, 2016) (‘‘Healthy Markets I’’); Letter from IHS Markit re Disclosure of Order Handling Information; Proposed Rule, Release No. 34–78309; File No. S7–14–16 (Sept. 26,
2016) (‘‘IHS Markit Letter’’). Comments receiving in
connection with the 2018 Rule 606 Amendments are available at https://www.sec.gov/comments/s7- 14-16/s71416.htm. 102Letter from Virtu Financial re Petition for Rulemaking to Amend SEC Rule 605 (Sept. 20,
2021) (‘‘Virtu Petition’’) at 2, available at https://
www.sec.gov/rules/petitions/2021/petn4-775.pdf. 103See EMSAC III at 2; IHS Markit Letter at 2; Healthy Markets II at 2. 104EMSAC III at 2 (adopting recommendations of the Customer Issues Subcommittee). 105See id. 106See id. 107See EMSAC I at 0103:23–0104:7 (Frank Hatheway, NASDAQ). 108See id. at 0104:7–12 (Frank Hatheway, NASDAQ). 109See id. at 0094:6–0100:12 (Bill Alpert, Barron’s). 110 Id. at 0096:12–15 (Bill Alpert, Barron’s). See also id. at 0097:3–8 (Bill Alpert, Barron’s) (stating that ‘‘the only effective, objective way to use the available disclosures was to score each broker with a weighted sum of their order flow fractions from the routing reports and then weight those with the effective over quoted measures of the market makers that they were sending their orders to’’); 0096:25–0097:3 (stating that some brokers voluntarily disclose execution quality information, but they use different information and so the information is not comparable). 111See EMSAC I at 0097:14–22 (Bill Alpert, Barron’s). See also id. at 0096:18–22 (Bill Alpert, Barron’s) (stating that ‘‘almost every broker’’ claimed that the execution quality that it received at a particular market maker was above average). This panelist also argued, based on the introduction of voluntary disclosures regarding price improvement for odd-lot orders by a few brokers and market makers, that disclosure improves behavior. See id. at 0098:6–0099:9 (Bill Alpert, Barron’s) (stating the price improvement on odd-lot orders improved within a year after voluntary disclosures started). See also id. at 0132:6–11 (Brad Katsuyama, IEX) (stating that improving disclosures leads to improved performance). 112See id. at 0136:24–0137:7 (Manisha Kimmel, Thomson Reuters). But see id. at 0102:22–0103:2) (Frank Hatheway, NASDAQ) (‘‘While individual retail investors generally don’t review 605 statistics themselves, . . . the existence of the reports appears to provide precisely the form of discipline that the Commission envisioned when it adopted Rule 605 and 606.’’). 113See EMSAC I at 0137:7–10 (Manisha Kimmel, Thomson Reuters). See also Statement of Christopher Nagy, Healthy Markets Association, at 6 (suggesting that the Commission mandate reporting of some execution quality statistics for retail orders); Healthy Markets I at 5–6 (recommending that the Commission modify Rule 606 to include select execution quality statistics from Rule 605 for each identified routing destination). 114EMSAC II at 0065:1–16 (Brad Katsuyama, IEX). But see id. at 0064:18–24 (Jamil Nazarali, Citadel) (stating that his firm’s retail broker clients expressed concerns with the recommendation that Rule 606 include the execution quality of the market makers that they route to, because there is a lot of important criteria that goes into routing and the reports could be misleading). 115See Angel Letter at 3 (recommending that brokers should be required to provide execution quality statistics by providing information on individual trade
confirmations and displaying summary statistics on their websites); Fidelity Letter at 7–8 (recommending that the Commission require brokers to make publicly available certain execution quality statistics); Healthy Markets I at 7, 11 (recommending that execution quality metrics should be provided to retail customers); IHS Markit Letter at 2 (recommending that all brokers that receive client orders and subsequently route orders on behalf of the client should provide information on the execution quality received at each venue). See also Consumer Federation II at 10; Financial Services Roundtable Letter at 4–5. 116See Fidelity Letter at 7–8. For additional discussion about this voluntary effort to provide aggregated execution quality statistics, see infra notes 450–451 and accompanying text. See also Consumer Federation II at 10 (stating that voluntary disclosures by several market participants show that such disclosures are possible, and undercut arguments that doing so is too costly or burdensome). that the Commission amend Rule 605 to modernize the Rule and increase the usefulness of available execution quality disclosures. In addition, one broker￾dealer petitioned the Commission to make ‘‘modest rule amendments’’ to Rule 605 and further stated that ‘‘[i]mproving these metrics is essential for a market participant to quantitatively and qualitatively assess whether any particular broker-dealer obtained the most favorable terms under the circumstances for customer orders.’’ 102 The EMSAC and commenters generally support expanding the Rule’s scope beyond market centers.103 In particular, in November 2016, the EMSAC recommended that the Commission ‘‘[e]xpand the scope of Rule 605 by requiring every broker￾dealer to report with an exemption for broker[-]dealers with de minimis order flow, aligning the scope of Rule 605 reporting with Rule 606.’’ 104 The EMSAC’s recommendation acknowledged that there would be compliance and implementation costs associated with this expansion, but stated that the use of third-party vendors may mitigate some of these concerns.105 Further, the EMSAC’s recommendation stated that having all broker-dealers provide Rule 605 data would create an opportunity for market participants, academics, and the press to evaluate these statistics in a consistent manner.106 When the EMSAC met to consider this recommendation, panelists provided some explanation of the gaps in current execution quality disclosures. One panelist stated that the current reporting regime ‘‘miss[es] important information about the overall execution quality of a covered order’’ because Rule 605 reports only pertain to order routing handled by market centers.107 This panelist explained that orders are handled by smart order routers that may not be located within a market center, and the Rule 605 data does not capture price slippage or delays that may occur as these orders are received by multiple non-executing market centers or broker￾dealers.108 Another panelist
described the difficulties that he encountered when trying to compare the execution quality of brokers using data available under the existing rules.109 According to the panelist, he ‘‘had to make very rough inferences about the brokers’ executions because of the gaps in the disclosure requirements.’’ 110 Moreover, this panelist stated that one fundamental problem with making these inferences was that a market maker’s average execution quality across all of its orders received from brokers may be better or worse than its execution quality with respect to a particular broker’s order flow.111 One EMSAC committee member acknowledged that retail brokerage firms did not favor the recommendation to expand Rule 605 reporting to broker￾dealers, and stated that these firms would argue that aggregate statistics are more important for retail investors, who they claim are not going to look at the Rule 605 reports.112 This committee member stated that the counter￾argument to this position is that if everyone is preparing Rule 605 reports, it would be possible to do various types of aggregation using that data.113 When the EMSAC met later to approve the recommendation, one committee member stated that the goal is to make data publicly available so that ‘‘experts can help people make better decisions’’ and that different groups would turn the data into usable reports, so it is not necessary to scale back the disclosures for the consumer.114 When the Commission solicited comment on the 2018 Rule 606 Amendments, several commenters recommended that the Commission expand the required reporting of execution quality statistics to better cover retail investors.115 One commenter stated that the type of standardized execution statistics that several firms voluntarily publish on a quarterly basis measure the quality of trade executions on retail investor orders in exchange-listed stocks and help investors evaluate their particular retail brokerage firm.116 Another commenter stated that there is a ‘‘fundamental flaw’’ in the logic of Rule 605 and Rule 606 because ‘‘[t]he structure of the rules implicitly assumes

117Angel Letter at 3.
118See id. However, this commenter also stated that the Rule 605 data on execution quality is too raw for most investors to interpret. See id. at 2. See also Consumer Federation II at 10 (stating that the only way to assess whether customers are being best served by their broker-dealer’s routing decisions is by requiring execution quality statistics); Financial Services Roundtable Letter at 4–5 (stating that currently Rule 605 reports require investors to draw an inference that they will achieve the same performance as the average order sent to that venue, and additional data would help an investor compare the execution quality that various broker￾dealers obtain at a particular execution venue). 119See Consumer Federation II at 10. See also IHS Markit Letter at 29–30 (stating that large retail routing brokers use private, internal versions of Rule 605 reports to calculate execution quality metrics for different market centers, leading to significant improvement in execution quality statistics for covered orders, and that voluntary reporting of execution quality metrics has also improved execution quality). 120See Letter from Thomas Peterffy, Chairman, Interactive Brokers Group (Aug. 1, 2014), at 3 (‘‘Interactive Brokers Letter’’), available at https:// www.interactivebrokers.com/download/execution_ stats_comment_letter.pdf (‘‘Payment for order flow has often been justified by its advocates based on the claim that the receipt of such payments allows brokers to keep commissions low and does not affect execution quality (or if it does, such costs are passed back to customers in the form of lower commissions). . . . [T]he current Rule 605 and 606 statistics published by market centers and brokers . . . do not provide a basis for regulators to judge these claims, or for customers to judge their broker’s performance.’’). 121 Interactive Brokers Letter at 3. 122See Letter from Financial Information Forum re Request for Comment—FIF Rule 605 Modernization Recommendations (Jan. 30, 2019) (‘‘FIF III’’), available at https://www.sec.gov/ comments/s7-02-10/s70210-5002077-182848.pdf; EMSAC III; IHS Markit Letter; Healthy Markets II; FIF Letter I; KOR Group I. 123See Virtu Petition at 5. 124 Id. 125See FIF II at 11–12. 126See EMSAC III at 2; FIF III at 4; Healthy Markets II at 3; IHS Markit Letter at 9–10, 34. 127See Virtu Petition at 5. 128See Healthy Markets II at 4. 129See FIF III at 4. 130See ‘‘Would 605 Work Better in Dollars?’’, Phil Mackintosh, Chief Economist and Senior Vice President, Nasdaq (Sept. 16, 2021), available at:
https://www.nasdaq.com/articles/would-605-work￾better-in-dollars-2021-09-16. 131See id. The market participant stated that ‘‘a lower [than $500,000] notional cap makes sense too, given the small sizes of retail orders, especially when we consider the limits of the typical depth of book to fill covered orders.’’ Id. 132See id. 133See KOR Group I at 2, FIF I at 2. 134See EMSAC I at 0099:25–0100:3, 0106:14–25; EMSAC III at 2; Healthy Markets II at 3; BlackRock Letter at 3; Citi Letter at 8; Consumer Federation II at 6. 135See, e.g., Citigroup Letter at 8 (suggesting in connection with the Concept Release on Equity Market Structure that a simplified execution quality report geared towards retail investors should contain a simple chart or graph showing how often a customer’s trades are executed at the NBBO or better, how fast the trade is done, and whether the customer received enhanced liquidity); SIFMA Letter at 12 (stating in providing recommendations for equity market structure reforms that regulators should direct broker-dealers to provide public reports of order routing and execution quality metrics that are geared towards retail investors, and these reports should include relevant information in a uniform format that is easy to understand). 136See Citigroup Letter at 8. 137See EMSAC I at 0137:4–7 (Manisha Kimmel, Thomson Reuters). See also id. at 0137:7–10 (‘‘The counter argument to that is, if everybody is doing the 605 [reports], then you could have all sorts of aggregation based on that . . .’’). that execution quality is solely a function of the market center and that the brokerage firm has no impact on execution quality.’’ 117 According to this commenter, execution quality is a product of both the broker’s skill and the quality of the market center’s execution, and therefore requiring brokers to show where they route orders does not provide retail investors with useful information about the actual execution quality that their orders receive.118 Another commenter stated that even though most retail investors may not use the disclosures directly, disclosures provide indirect benefits by promoting competition and by facilitating use by third-party analysts and academic researchers that provide an in-depth review of the disclosures.119 One market participant, in a letter recommending that the Commission require broker-dealers to publish monthly cost of execution statistics, stated that Rule 605 and Rule 606 statistics published by market centers and broker-dealers do not provide a means for customers to judge how their brokers have performed with respect to keeping commissions low without adversely affecting execution quality.120 This commenter further remarked that matching a broker’s routing statistics up with a receiving market center’s execution quality statistics is ‘‘essentially impossible.’’ 121 Commenters have also suggested various ways to expand or modify the definition of covered order, including broadening its scope to capture
additional order types.122 In particular, the petitioner for rulemaking recommended including short sales, stop orders, and pre-market orders in Rule 605 reports.123 The petitioner stated that these order types are ‘‘critical to a complete assessment of execution quality,’’ and stated that many retail brokers include these orders when measuring the execution quality provided by market centers.124 A commenter to the 2018 Rule 606 Amendments also recommended including orders submitted prior to the market open in Rule 605 reports and stated that the marketable or non￾marketable characteristics of such orders cannot be determined under the current framework.125 The EMSAC and commenters have also suggested bringing smaller and larger order sizes within scope.126 The petitioner stated that bucketing orders solely by numbers of shares is skewing comparisons.127 Another commenter, responding to the Commission’s Concept Release on Equity Market Structure, recommended the following order size buckets: one share to 99 shares; 100 shares up to 9,999 shares, divided into 100 share increments; 10,000 shares to 24,999 shares; greater than 25,000 shares.128 One commenter that offered recommendations to modify Rule 605 suggested including a $500,000 notional cap on all share size buckets.129 Another market participant expressed support for that cap or a different one.130 The market participant suggested that a cap of $200,000, consistent with the definition of ‘‘block size’’ in 17 CFR 242.600(b)(12)(ii), would make sense, but noted that benchmark has not changed with inflation.131 The market participant also stated that the use of notional buckets in the ‘‘categorized by order size’’ definition would account for fractional share and odd-lot orders.132 Commenters have also raised concerns about the current provisions in the Rule for timestamps, especially given the speed of today’s marketplace.133 Others have also suggested modifications to improve the accessibility and standardizations of reports, including centralizing report creation and requiring summary statistics.134 In several contexts in which the Commission has received general feedback on equity market structure, commenters have suggested that the Commission require a simplified execution quality report, particularly for retail investors.135 One commenter on the Concept Release on Equity Market Structure stated that if the Commission’s goal was for execution quality statistics to make the markets more transparent for retail investors, the commenter did not believe that was occurring, and the average retail investor might benefit more from a simplified version of the report.136 One EMSAC committee member stated that some retail firms have argued that aggregate statistics are more important for the retail investor, and that retail investors are not going to look at Rule 605 reports.137 This EMSAC committee member further stated that an issue with aggregation is what to include in the aggregate statistics,
and depending on a firm’s business model, the firm may want to

138See id. at 0137:11–16 (Manisha Kimmel, Thomson Reuters). 139See EMSAC III at 2; FIF II at 13. See also EMSAC I at 0139:20–0140:11 (Gary Stone) (stating that individual investors need the Commission to provide the data, because they cannot rely on vendors that will charge for that service); EMSAC I at 0105:20–0106:7 (Frank Hatheway, NASDAQ) (stating that before replacing these existing offerings by data vendors of data visualization tools for Rule 605 and 606 data, the Commission may want to consider alternatives for making the data widely available and accessible); EMSAC I at 0140:12–15 (Bill Alpert, Barron’s) (stating that it would be salutary to have competition between vendors, the Commission, and the press to develop easier to use tools and better presentations). 140 ‘‘Customer’’ means any person that is not a broker or dealer. See 17 CFR 242.600(b)(23). 141See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75414.
142See supra notes 50–55 and accompanying text. 143See supra notes 108–110 and accompanying text (discussing an EMSAC panelist’s observations after trying to infer execution quality based on available data that one ‘‘fundamental problem’’ with making these inferences was that a market maker’s execution quality may vary according to each broker’s order flow). See also supra note 87 and accompanying text. 144See supra notes 107–111, 115–118, and 120– 121 and accompanying text. 145The Commission preliminarily believes that many institutional customers regularly conduct, directly or through a third-party vendor, transaction cost analysis of their orders to assess execution quality against various benchmarks, but this information is not publicly available. The Commission believes that some institutional investors may currently use aggregated statistics or summaries of Rule 605 reports prepared by third parties, who make these reports available for a fee. See infra section VII.C.1.(c)(2). 146See supra note 33 and accompanying text (citing Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421).
147When adopting Rule 605, the Commission stated that from the perspective of the customer who submitted the order, the fact that a market center chooses to route the order away ‘‘does not reduce the customer’s interest in a fast execution that reflects the consolidated BBO’’ that is ‘‘as close to the time of order submission as possible,’’ and that, consequently, in evaluating the quality of order routing and execution, it is important for customers to know how the market center handles ‘‘all orders that it receives, not just those it chooses to execute.’’ Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75423. 148See supra note 9 and accompanying text. 149See supra notes 74–84 and accompanying text. 150See supra notes 88–89 and accompanying text. 151See supra notes 50–52 and accompanying text. As discussed above (supra section II.D), Rule 606 requires broker-dealers to identify and report data according to execution venue, rather than by market center. Not all execution venues reflected on Rule 606 reports will necessarily fall within Regulation NMS’s definition of ‘‘market center.’’ See, e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58365 (stating that the Commission’s reference to ‘‘venues’’ for purposes of Rule 606(b)(3) is meant to refer to external liquidity providers to which the broker-dealer may send actionable indications of interest (‘‘IOIs’’), and that this category of market participants likely would Continued put in different things.138 Separately, the EMSAC, as well as a commenter to the 2018 Rule 606 Amendments, recommended that the Commission incorporate Rule 605 and 606 data into the Commission’s data visualization tool.139
III. Proposed Modifications to
Reporting Entities
A. Larger Broker-Dealers
Rule 605 of Regulation NMS requires market centers, such as national securities exchanges, OTC market makers, and ATSs, to produce publicly available, monthly execution quality reports. However, broker-dealers are not included within the scope of Rule 605’s reporting requirements unless they are market centers. Although Rule 606 requires broker-dealers to identify the venues, including market centers, to which they route customer orders for execution, customers of those broker￾dealers do not have access to comprehensive information about execution quality. For example, to the extent that a market center’s execution quality differs for orders received from one broker-dealer versus another broker￾dealer, that difference would not be apparent from currently available execution quality statistics. The Commission is proposing to expand the scope of entities that must prepare Rule 605 reports to include larger broker-dealers, which have a customer-facing line of business. As proposed, Rule 605 would include broker-dealers as reporting entities, in addition to market centers, but exclude from that expanded requirement broker￾dealers that do not introduce or carry at least 100,000 customer 140 accounts. This expansion of the scope of Rule 605 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. Further, limiting these reporting obligations to broker￾dealers that have a larger number of customers would focus the associated implementation costs on those broker￾dealers for which the availability of more specific execution quality statistics would provide a greater benefit. Rule 605 and Rule 606 operate together to allow investors to evaluate what happens to their orders after investors submit their orders to a broker-dealer for execution.141 In the current regulatory environment, customers that submit held orders (in many cases, individual investors) have a limited ability to assess the execution quality that their broker-dealers are providing. A customer of a broker-dealer can use a broker-dealer’s Rule 606 reports to identify certain regularly-used venues to which the broker-dealer routes orders for execution. However, with respect to held orders, these Rule 606 reports are not required to include any detailed execution quality information.142 Moreover, Rule 605 reports prepared by market centers commingle orders from all broker￾dealers that send covered order flow to the reporting market center. Yet a market center may provide different execution quality to customers of different broker-dealers, and in some cases this difference may be substantial.143 Therefore, a customer of that broker-dealer must make an inference about the execution quality achieved by that particular broker￾dealer at a market center based on a Rule 605 report that covers all orders
received by the market center, even though that inference may not be accurate.144 Due to this gap in the reporting requirements, variations in execution quality provided by a market center to a particular broker-dealer submitting the order are not observable by market participants and other interested parties using publicly available execution quality reports.145 When requiring each market center to report on all orders that it received for execution, the Commission intended to assign the disclosure obligation to the entity that would control whether and when the order would be executed.146 The Commission required market centers to include in their Rule 605 reports those orders that they routed to another venue for execution, thereby recognizing that market centers’ decisions about whether and how to route orders can affect execution quality.147 Likewise, broker￾dealers that route customer orders make decisions that affect the execution quality that their customers’ orders receive. In addition, while the Commission adopted Rule 605 in 2000 as a ‘‘minimum step necessary to address fragmentation,’’ 148 the equities markets have grown even more fragmented since that time.149 Broker-dealers have many choices about where to route customer orders for execution. But broker-dealers may face conflicts of interest when discussing arrangements regarding the outsourcing of customer order flow, including those that involve PFOF, and making routing decisions.150 With respect to orders submitted on a held basis, broker-dealers must include information about their payment relationships with execution venues in quarterly reports prepared pursuant to Rule 606(a)(1).151 Without information

include market centers as defined in Rule 600(b)(38), but may not be limited to such market centers). 152See generally supra section II.E. 153Among the commenters that raised concerns about the lack of available information regarding the execution broker-dealers provide to their customers’ orders, one commenter stated that there is a ‘‘fundamental flaw’’ in the logic of Rule 605 and Rule 606 because these rules assume that execution quality is solely the function of the market center, but instead execution quality is a product of a combination of the broker’s skill and the quality of the market center’s execution. See supra notes 117– 118 and accompanying text. The proposal would address this concern by requiring larger broker￾dealers to produce execution quality reports, rather than leaving market participants and other interested parties to rely solely on the execution quality reports produced by the market centers to which a particular broker-dealer routes orders. 154See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75414 n.1, 75417 (citing 15 U.S.C. 78k–1).
155See proposed Rules 605 (introductory paragraph), 605(a) (caption), 605(a)(1), 605(a)(1)(i)(D), 605(a)(3), 605(a)(4), 605(a)(5), and 605(a)(6). 156 17 CFR 242.600(b)(22). The Commission is proposing to renumber the definition of ‘‘covered order’’ as proposed Rule 600(b)(30). 157See proposed Rule 600(b)(30). 158See supra section II.B.3. 159The 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 current Rule 605(a)(1). See Plan generally and
section VI(a) of the Plan. Under current Rule
605(a)(2), every national securities exchange trading NMS stocks and each national securities association is required to act jointly in establishing procedures for market centers to follow in making the reports required by Rule 605(a)(1) available to the public in a uniform, readily accessible, and usable electronic form. See 17 CFR 242.605(a)(2). The proposal would add brokers and dealers to the scope of entities to be covered by the Plan’s procedures and renumber Rule 605(a)(2) as Rule 605(a)(3). See proposed Rule 605(a)(3). The Plan would also need to be updated to accommodate any new data elements in the order and format of fields. 160See 17 CFR 242.608(c). See also supra note 47 (describing Participants and Designated Participants under the Plan). 161See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75419. See also id. (stating that after this
basic information is disclosed by all market centers in a uniform manner, market participants and other interested parties will be able to determine the most appropriate classes of stocks and orders to use in comparing execution quality across market centers). 162See, e.g., supra note 113 and accompanying text. 163See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75419, text accompanying n.27 (stating that
most individual investors likely would not obtain and digest the reports themselves). See also supra note 112 and accompanying text (EMSAC committee member stating that retail investors will not look at the Rule 605 reports); note 118 (commenter stating that Rule 605 data is too raw for most investors to interpret); note 119 and accompanying text (commenter stating that most retail investors may not use the disclosures directly). 164See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75419. See also supra notes 106, 114, 116
and accompanying text; infra notes 544–546 and accompanying text. 165See infra section V. about the execution quality that broker￾dealers in the business of routing customer orders obtain for those orders, market participants and other interested parties lack key information that would facilitate their ability to evaluate how these payment relationships may affect execution quality. Recognizing these and other concerns, the EMSAC and other commenters in multiple contexts have suggested that the Commission expand the scope of Rule 605 to require reporting by broker-dealers.152 Consequently, the Commission is now proposing to require larger broker￾dealers to prepare and publish execution quality reports pursuant to Rule 605, through the proposed revisions to Rule 605 and the addition of proposed Rule 605(a)(7). This expansion of the scope of reporting entities would increase transparency into the differences in execution quality achieved by broker-dealers when they route customer orders to execution venues, and thereby would make the execution quality statistics more useful to market participants and other interested parties.153 This change would increase competition among broker￾dealers that accept customer orders for execution by providing information that market participants can use to evaluate and compare broker-dealers’ execution quality. This could lead to faster executions, better price improvement, and a shift in order flow to those broker￾dealers offering the best execution quality for their customers. This would further the national market system objectives set forth in section 11A(a)(1) of the Exchange Act, including the efficient execution of securities transactions, fair competition among market participants, the public availability of information on securities transactions, and the best execution of investor orders.154 Specifically, the Commission is proposing to amend Rule 605 to apply the reporting requirements contained therein to brokers and dealers, in addition to market centers. Where current Rule 605 refers to ‘‘market centers,’’ the Commission is proposing to insert references to ‘‘brokers’’ and ‘‘dealers.’’ 155 The proposed expansion of Rule 605’s reporting requirements to cover broker-dealers would also affect Rule 600 of Regulation NMS. Specifically, the definition of ‘‘covered order’’ in Rule 600(b)(22) refers to ‘‘any market order or any limit order (including immediate-or-cancel orders) received by a market center.’’ 156 The Commission is proposing to amend this provision to refer to orders ‘‘received by a market center, broker, or dealer.’’ 157 Further, as noted above, the Plan establishes procedures for market centers to follow in making available to the public the monthly reports required by the Rule.158 Because of the proposed amendments to the Rule, the existing Plan would no longer comply with proposed Rule 605(a)(3) and thus would need to be updated in order to incorporate references to broker-dealers subject to
the Rule.159 As is currently the case for market centers that are not Participants, the Participants would be required to enforce compliance with the terms of the Plan by their members and person associated with their members.160 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. The Commission considered the volume of execution quality statistics that would be produced when adopting Rule 605, and stated that the large volume of statistics reflects a deliberate decision by the Commission to avoid the dangers of overly general statistics that could hide significant differences in execution quality.161 By requiring brokers-dealers to report stock-by-stock order execution information in a uniform manner, the proposal would 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.162 Further, to the extent that certain market participants may not have the means to directly analyze the detailed statistics,163 the Commission expects that independent analysts, consultants, broker-dealers, the financial press, and market centers will respond to the needs of investors by analyzing the disclosures and producing more digestible information using the data, as the Commission anticipated when approving the predecessor to Rule 605 and has observed since that time.164 As discussed further below, the Commission also is proposing 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.165 Requiring broker-dealers to produce more detailed execution quality data would help ameliorate potential concerns about overly general statistics, or about the specific categorization of orders and selection of metrics in the summary reports, by allowing market participants and other interested parties to conduct their own analysis based on

166 In addition, as discussed further below, proposed Rule 605(a)(7) states that 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. 167See infra section VII.D.2 for a discussion of the costs of the proposed amendments to Rule 605. As discussed further below, broker-dealers that were previously not required to publish Rule 605 reports would incur initial costs to develop the policies and procedures to post Rule 605 reports for the first time, and all broker-dealers would face ongoing costs to continue to prepare them each month. Other potential costs include a potential for less transparency or lower execution quality, and the costs to update best execution methodology. See also infra section VII.E.1.(a) for a discussion about the potential costs of imposing Rule 605’s reporting requirements on broker-dealers with a smaller number of customer accounts. 168See infra Table 13 for cost-benefit analysis of different customer account thresholds defining ‘‘larger broker-dealer’’ and infra note 1008 and accompanying text for methodology. For example, approximately 45 broker-dealers introduce or carry more than 500,000 customer accounts and these broker-dealers together handle over 96% of customer accounts. Further, approximately 235 broker-dealers introduce or carry more than 10,000 customer accounts and these broker-dealers together handle over 99% of customer accounts. See infra Table 13. 169See infra note 1011 and accompanying text;
Table 13. See also infra section VII.E.1.(a) for
further discussion of alternative customer account thresholds. 170See infra section VII.E.1.(c) for further discussion about using a threshold based on the number of customer transactions. 171See supra notes 104–106 and accompanying text. 172See infra note 1011 and accompanying text and Table 13 (showing that, for example, adjusting the customer account threshold from 100,000 customer accounts to 10,000 customer accounts would increase the estimated costs from approximately $5 million to approximately $13.9 million). 173See proposed Rule 605(a)(7). 174An 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, 56978 (Dec. 2, 1992) (Net Capital Rule). 175Some broker-dealers utilize an ‘‘omnibus clearing arrangement,’’ where the clearing firm maintains one account for all of 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 Continued alternative categorizations of the underlying data. Proposed Rule 605(a)(7) states 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’’).166 The Commission is mindful of the additional costs that broad expansion of the rule to broker-dealers would entail. The relative benefit of having a broker￾dealer prepare Rule 605 reports increases when the broker-dealer has more customers. The Commission is proposing a minimum reporting threshold of 100,000 customers to balance the benefits of having broker￾dealers produce execution quality statistics with the costs of implementation and continued reporting.167 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.168 Utilizing a 100,000 customer account threshold 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 a smaller number of customer accounts. Although utilizing a lower customer account threshold, such as 10,000 customer accounts, would result in capturing substantially more transactions, the lower customer account threshold would result in capturing only marginally more customer accounts. This implies that the additional customer coverage would result from a small number of accounts that trade in large volumes. Therefore, the additional coverage may not be as beneficial because many of the additional customer accounts that would be included with a lower threshold likely belong to institutional traders that have access to alternative execution quality information and also are likely to use not held orders, which are not included in Rule 605 reports.169 The Commission considered using the volume of broker-dealers’ customer transactions, rather than the number of their customer accounts, for purposes of establishing a reporting threshold. Although establishing a reporting threshold using the number of customer transactions would likely capture a larger number of customer orders than the proposed customer account threshold, this approach would likely exclude broker-dealers that have a larger number of relatively inactive customer accounts and include broker-dealers that have a small number of customer accounts associated with large amounts of trading volume. In each respect, the reporting threshold would be less likely to capture individual investor orders and more likely to capture institutional investor orders, and therefore the threshold would be less likely to target the types of orders that may be most useful for consumers of Rule 605 reports. In addition, utilizing a threshold based on the number of customer transactions may result in a less stable set of broker-dealers that are subject to Rule 605’s reporting requirements, because transaction volume is more likely than customer account numbers to vary significantly from month to month based on market conditions. Further, the number of their customer accounts is likely less costly for broker-dealers to calculate and track as compared to the volume of transactions associated with their customer accounts.170 The Commission also considered EMSAC’s recommendation to expand the scope of Rule 605 to cover all broker-dealers, which contemplated excluding only broker-dealers with de minimis order flow.171 The Commission is preliminarily concerned that subjecting a significantly larger number of broker-dealers to Rule 605’s reporting requirements would substantially increase the costs of the proposal and that the increase in cost that would accompany the use of a de minimis threshold would not be justified by the corresponding benefit.172 This concern about requiring smaller broker-dealers to prepare Rule 605 reports is present with any de minimis threshold, whether based on order flow as the EMSAC suggested or on some other measure
such as number of customer accounts. The proposed customer account threshold would require brokers-dealers to include in their calculations the public customer accounts that they introduce, as well as the customer accounts that they carry.173 Rule 605 reports that reflect orders received from customer accounts that a broker-dealer introduces or carries would provide useful information to market participants because both introducing and carrying broker-dealers make decisions about where to route those orders and it would be helpful for customers to be able to evaluate the execution quality received as a result of those decisions.174 An introducing broker-dealer may choose to utilize an omnibus clearing arrangement and not disclose certain information about its underlying customer accounts to the clearing firm.175 In such circumstances,

relevant data as to each customer. See id. at 56978 n.16. 176See proposed Rule 605(a)(7). For example, an introducing broker-dealer that utilizes an omnibus clearing arrangement for 100,000 customer accounts and separately carries 50,000 customer accounts would be considered, for purposes of proposed Rule 605, to carry 150,000 customer accounts. In contrast, a broker-dealer who introduces, on a fully￾disclosed basis, 125,000 customer accounts would be considered, for purposes of proposed Rule 605, to introduce 125,000 customer accounts. In both cases, the introducing broker-dealers would exceed the proposed customer account threshold. 177See 17 CFR 242.605(a)(1). 178See 17 CFR 242.600(b)(46). The Commission is proposing to renumber the definition of ‘‘market center’’ as proposed Rule 600(b)(56). 179See supra note 28. See also Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 48290, 48318–19 (Sept. 12, 1996) (Order Execution Obligations) (stating that dealers that internalize customer order flow in particular stocks by holding themselves out to customers as willing to buy and sell on an ongoing basis would fall within the definition of ‘‘OTC market maker’’ as defined in the predecessor to Rule 602 of Regulation NMS, even though they may not hold themselves out to all other market participants, and that dealers that hold themselves out to particular firms as willing to receive customer order flow, and execute those orders on a regular or continuous basis, also would fall within the definition of an OTC market maker); id. at 48319 (stating that broker-dealers will not be considered to be holding themselves out as regularly or continuously willing to buy or sell a security if they occasionally execute a trade as principal to accommodate a customer’s request, and that, in response to the suggestion of some commenters, the Commission has modified the proposed amendment to the definition of ‘‘OTC market maker’’ to make clear that more than an isolated transaction is necessary before a dealer is designated an OTC market maker). 180See 17 CFR 242.605(a)(1). We note that the staff has provided their views on a way that a firm might determine the scope of covered orders for which it acts as a market center, see 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 Rule applies to broker-dealers insofar as they act as a ‘market center’ with respect to orders received from other persons. Consequently, for orders in securities for which Firm X does not act as an OTC market maker, Firm X would not be acting as a market center in those securities and therefore need not report on orders in those securities that it receives as an agent and routes elsewhere for execution. Conversely, the orders that Firm X receives from any person in the 500 securities in which it acts as an OTC market maker (and therefore is a market center) generally
must be included in Firm X’s monthly reports, even if Firm X ultimately routes some of the orders to other market centers for execution.’’). Staff reports, Investor Bulletins, and other staff documents (including 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 statements, they have no legal force or effect, do not alter or amend applicable law, and create no new or additional obligations for any person. 181See supra notes 143–144 and accompanying text. 182For certain firms regarding certain symbols, order types, or order sizes, the group of orders for which the firm acts as a larger broker-dealer may overlap completely with the group of orders for which the firm acts as a market center. However, broker-dealer firms are structured in myriad different ways, and the degree of overlap among reports might not remain stable over time; therefore, requiring firms to produce reports according to the orders for which they act as a market center and the orders for which they act as a broker-dealer would help keep the reports consistent with firms’ lines of business. because the clearing broker may not have access to information about how many customer accounts a particular omnibus account represents, the proposal specifies that when an omnibus clearing arrangement is used the underlying customer accounts would be required to be counted as accounts carried by the introducing broker-dealer rather than by the clearing broker. Therefore, 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.176 Requiring both introducing broker￾dealers and carrying broker-dealers to prepare Rule 605 reports might result, in some instances, in the same underlying order being reflected on multiple broker-dealers’ Rule 605 reports. However, Rule 605 does not require reports that reflect execution quality on an order-by-order basis and the separate reports would provide different views of execution quality specific to the group of orders handled by each broker-dealer. Moreover, the current structure of Rule 605 already contemplates that certain orders may be reflected on more than one report, in the case of orders that are received by one market center and then routed to another market center for execution.177 Proposed Rule 605(a)(7) states 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. Therefore, a broker￾dealer that meets or exceeds the customer account threshold and is also a market center would be required to produce one report that includes all of the covered
orders in NMS stocks that it received for execution when acting as a market center and a separate report that includes all of the covered orders in NMS stocks that it received for execution when acting as a broker￾dealer. Requiring a firm to produce separate reports pertaining to its market center function and its broker-dealer function would 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. This aspect of the proposal would not change how a firm should determine when it is acting as a market center, as that term is defined in Rule 600(b)(46).178 In particular, some firms that are larger broker-dealers also act as OTC market makers, which are a type of market center. Currently, to the extent that a dealer 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, that dealer is defined as an OTC market maker.179 For example, if a broker-dealer executes certain types of orders internally (e.g., fractional share orders, small-sized orders, or orders in particular symbols), that broker-dealer may be acting as an OTC market maker, and thus a market center, for those specific types of orders. Moreover, Rule 605 requires that any report pertaining to a market center include all covered orders that it received for execution from any person, whether executed at the market center or at any other venue.180 As is the case under Rule 605 currently for market centers that route orders away, under the proposal, the fact that a larger broker-dealer has routed certain covered orders away for execution would not alone be the basis on which to determine that it did not act as a market center with respect to those orders.181 For a larger broker-dealer that is also a market center, the report pertaining to its broker-dealer function would cover all orders that the broker-dealer received for execution as part of its customer￾facing line of business, whether executed internally or routed away. An order would need to be reflected on both the report regarding the firm’s market center function and the report regarding its broker-dealer function, if the broker-dealer received the order from a customer and also acts as a market center for that type of order. Each report would provide a different view of the firm’s execution quality based on a different aspect of its business, and because reports reflect orders grouped by symbol, order type, and size, would reflect different execution quality metrics to the extent that the group of orders covered by the different reports did not overlap completely.182 As proposed, pursuant to Rule 605(a)(7), a broker-dealer would be excluded from Rule 605’s reporting requirements only with respect to its customer-facing
broker-dealer function (as opposed to its function as market center, if applicable) as long as the

183See proposed Rule 605(a)(7).
184See id.
185When discussing the 2018 amendments to Rule 605(a)(2) that required market centers to keep Rule 605(a) reports posted on a public website for a period of three years, the Commission stated that it expected customers and the public to use the historical information to compare information from the same time period. See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58380 (also stating that, with respect to market centers voluntarily posting Rule 605(a) reports that were created prior to the amended rule’s effectiveness, making historical data available to customers and the public could be useful to customers or market participants seeking to analyze such data). 186See proposed Rule 605(a)(7). After the three calendar month grace period, the Reporting Period would 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 described above, a broker-dealer that meets or exceeds the customer account threshold would be required to produce Rule 605 reports for at least a Reporting Period. See supra notes 183–184 and accompanying text. Therefore, a broker-dealer that crosses the customer account threshold for the first time would be 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. 187See 17 CFR 242.606(b)(4). 188See, e.g., 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). 189See 17 CFR 242.600(b)(92). See also Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75423 (‘‘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.’’). The Commission is proposing to renumber the definition of ‘‘time of order receipt’’ as proposed Rule 600(b)(109). 190When adopting Rule 605, the Commission stated that a market center will use the time and consolidated BBO at the time it received the order, rather than the time and consolidated BBO when the venue to which an order was forwarded received the order, to calculate the required statistics. See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75423. The Commission stated that a market center should be held accountable for all orders that it receives for execution and should not be given an opportunity to exclude difficult orders by routing them to other venues, and that from the customer’s perspective the fact that a market center chooses to route the order elsewhere does not reduce the customer’s interest in a fast execution that reflects the consolidated BBO as close to the time of order submission as possible. See id. This same reasoning applies to orders that a broker￾dealer receives and then routes to
another venue for execution, and supports measuring the time of order receipt from the time that the broker-dealer receives the order. number of customer accounts that it introduces or carries continues to be less than the customer account threshold. A broker-dealer would no longer be excluded from Rule 605 once and as long as it meets or exceeds the customer account threshold; however, a broker-dealer that meets or exceeds the customer account threshold for the first time would have a grace period before being required to comply with Rule 605’s reporting requirements, as described further below. Proposed Rule 605(a)(7) states 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’’). The Reporting Period would 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 has met or exceeded the customer account threshold.183 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 would not be required to produce a report pursuant to this paragraph for the next calendar month.184 The Reporting Period would start on the first day of the next calendar month after the customer account threshold has been crossed because this timing would align with Rule 605’s monthly reporting period and avoid requiring broker-dealers to produce a report that covers a partial month, which would be less comparable with the monthly reports of other broker-dealers. Moreover, brokers￾dealers that may at times fall below the customer account threshold would be required to produce reports pursuant to Rule 605 for at least three calendar months, because this minimum reporting period would help ensure a period of continuity in reporting. If instead a broker-dealer could fluctuate in and out of being required to comply with the reporting requirements from month-to-month, it would potentially be disruptive to the broker-dealer to have to coordinate compliance with the Rule on some months but not others and could interfere with customers’ or market participants’ ability to look at a broker-dealer’s execution quality over time by analyzing historical data.185 The Commission is proposing that, the first time a broker or dealer has met or exceeded the customer account threshold, there would be a grace period of three calendar months before the Reporting Period begins and the broker or dealer must comply with the reporting requirements of Rule 605.186 A limited three-month grace period is appropriate because it would provide a broker-dealer that crosses the customer account threshold for the first time with a period of time in which to come into compliance with Rule
605’s reporting requirements. The three-month grace period would afford a broker-dealer adequate time to develop the systems and processes and organize the resources necessary to generate the reports pursuant to Rule 605, while still requiring the broker-dealer to begin reporting without an overly long delay. At the same time, should a broker-dealer subsequently fall below the customer reporting threshold, the Commission preliminarily believes that the broker￾dealer should already have the necessary systems and processes in place and therefore a grace period would not be necessary if that broker￾dealer again meets or exceeds the customer account threshold and becomes subject to Rule 605’s requirements. The Commission notes that Rule 606 similarly provides for a three-month grace period for brokers or dealers subject to Rule 606(b)(3)’s reporting requirements for the first time only.187 Rule 605 requires that reporting entities calculate certain statistics based on the time of order receipt.188 Moreover, Regulation NMS defines ‘‘time of order receipt’’ based on the time an order was received by a market center for execution.189 In conjunction with the proposed expansion of Rule 605 to cover larger broker-dealers, it is necessary to modify this definition to specify how broker-dealers that are not acting as market centers would be required to calculate ‘‘time of order receipt.’’ The Commission has considered requiring broker-dealers to calculate the ‘‘time of order receipt’’ based on the time that the broker-dealer received the order or on the time that the broker-dealer transmitted the order to a market center for execution. Measuring ‘‘time of order receipt’’ based on when a broker-dealer received the order would provide a view of how that broker-dealer handled that order from the time the order was within its control, rather than limiting that view to what happened after the broker-dealer sent the order to a particular market center for execution. In this way, calculating execution quality statistics based on the time that a broker-dealer received the order could provide information about whether a broker￾dealer’s delay in sending the order to a market center for execution may have affected the execution quality obtained for that order, because the execution quality statistics would be measured based on the prevailing market prices at that time.190 Accordingly, the Commission is proposing 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

191See 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. 192See 17 CFR 242.605(a)(1)(i)(D) and (E). As discussed herein, the Commission is proposing to modify Rule 605(a)(1)(i)(D) to also cover the number of shares executed at the receiving broker or dealer. See supra note 155 and accompanying text. 193See supra note 34 and accompanying text. 194 If a broker-dealer does not execute any covered orders internally, then that broker-dealer’s Rule 605 report would not reflect any shares executed at the receiving broker-dealer. For discussion of what orders broker-dealers that are market centers would include in their reports pertaining to their market center function, see supra notes 178–180 and accompanying text. 195See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18598–99 (describing that the exclusive SIPS, among other things, disseminate core data, which currently consists 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). 196With respect to NMLOs, the broker-dealer could 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. center, the time of order receipt is the time that the order was received by the broker or dealer for execution.191 The Commission is mindful that some of Rule 605’s execution quality statistics may as a general matter differ for the larger broker-dealers, as compared to market centers, to the extent that some of these larger broker-dealers generally or exclusively route orders away. However, it is appropriate for broker￾dealers to report on the same execution quality statistics as market centers because the reported statistics can be understood in the context of the specific reporting entity, and the detailed execution quality statistics would allow customers and other market participants to parse the differences among the statistics for each reporting entity. For example, Rule 605 requires statistics for the number of shares executed at the receiving market center and the number of shares executed at any other venue.192 As discussed above, broker￾dealers that generally route the orders that they receive to other venues for execution, and thereby would report these shares as being executed at another venue, may execute certain portions of their order flow internally (e.g., fractional
shares).193 While the Commission considered whether or not broker-dealers should be required to provide execution quality statistics for both shares executed at the receiving broker-dealer and shares executed at any other venue, the Commission decided to propose to keep both of these statistics in the Rule 605 reporting requirements for broker-dealers so as to capture all orders that broker-dealers receive for execution as part of their customer-facing broker-dealer function.194 Further, 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. The Commission understands that these differences are well-known and are taken into account by market participants when evaluating execution quality statistics. For example, broker￾dealers that route customer orders may have consistently longer time to executions as compared to market centers for similar orders, because of the time it takes to route these orders, but this difference is well understood by market participants. The Commission is also mindful that, for orders routed to other venues for execution, broker-dealers may not have all of the information needed to calculate the proposed statistics at the time of order execution. However, these broker-dealers should be able to obtain the needed information in time to prepare the required reports. Broker￾dealers would need to calculate their execution quality statistics, or engage a vendor to calculate the statistics on their behalf, on a monthly basis. At the time that the broker-dealer or its vendor would need to calculate the execution quality statistics, the broker-dealer would have received any needed information about the order’s execution from the execution venue and be able to obtain any needed historical price information from publicly available data sources, such as the exclusive plan processors (‘‘exclusive SIPs’’).195 For example, a broker-dealer that routed an order away for execution would receive time of order execution and execution price as part of the trade confirmation provided by the execution venue. The broker-dealer could 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.196 Request for Comment The Commission seeks comment generally on the proposed expansion of Rule 605 reporting requirements to include larger broker-dealers that meet or exceed the customer account threshold, as well as the other proposed changes to Rule 605 and Rule 600(b) discussed above. In particular, the Commission solicits comment on the following:

1. Should Rule 605 be expanded to
   apply to broker-dealers? Why or why not? Do commenters agree that it would be useful for customers of certain broker-dealers to be able to access execution quality statistics that are specific to those broker-dealers, rather than needing to rely on the execution quality statistics reported by the market centers to which the broker-dealers route? Do commenters agree that market centers may provide different execution quality to orders based on the routing broker-dealer? Please explain and provide data.
2. Do commenters agree that it would
   be useful for broker-dealers that are also market centers to produce separate reports pertaining to each function? Why or why not? Do commenters agree that broker-dealers that are also market centers should be required to include in the report pertaining to their market center function all covered orders for which they act as a market center, including as an OTC market maker, rather than only those covered orders executed at the market center? Do commenters agree that broker-dealers that are also market centers should be required to include in the report pertaining to their broker-dealer function all of the covered orders in NMS stocks that they received for execution from any customer, rather than only those orders that do not pertain to their market center function (i.e., those orders for which they do not act as a market center)? Would broker￾dealers that are also market centers encounter any specific difficulties when determining which orders to include in each report? Please explain.
3. Is a numerical customer account
   threshold the proper criterion for determining whether a broker-dealer should be subject to the Rule 605 reporting requirements? If so, is 100,000 or more customer accounts the appropriate amount? Why or why not? If not, should be it higher or lower (e.g., 500,000 or more customer accounts or 10,000 or more customer accounts)? If so, by what amount? Is it appropriate to consider both the number of customer accounts that the broker-dealer carries and the number of customer accounts

197For a full description and discussion of the order competition rule proposal, see Securities Exchange Act Release No. 96495 (Dec. 14, 2022) (File No. S7–31–22) (Order Competition Rule) (‘‘Order Competition Rule Proposal’’); proposed Rule 615. 198See Order Competition Rule Proposal; proposed Rule 600(b)(87) (defining ‘‘restricted competition trading center’’); proposed Rule 600(b)(91) (defining ‘‘segmented order’’); proposed Rule 615(a) (describing the order competition requirement). 199See Order Competition Rule Proposal; proposed Rule 600(b)(64) (defining ‘‘open competition trading center’’). 200See Order Competition Rule Proposal; proposed Rule 600(b)(81) (defining ‘‘qualified auction’’); proposed Rule 615(c) (setting forth requirements for operation of a qualified auction). 201As discussed further below, the Commission is proposing to eliminate the separate reporting categories for inside-the-quote limit orders, at-the￾quote limit orders, and near-the-quote limit orders, and create new reporting categories for executable NMLOs and beyond-the-midpoint limit orders. See infra sections IV.B.2.(a) and IV.B.2.(b). While, as proposed, orders submitted to qualified auctions may in many instances be classified as beyond-the￾midpoint limit orders, this reclassification would not resolve the Commission’s concern about blending execution quality statistics for orders executed in qualified auctions with orders executed outside of these auctions. that the broker-dealer introduces? Why or why not? Do commenters believe that it would be more useful to consider the trading volume, either based on share volume or notional volume, or both, of a broker-dealer’s customers when setting the reporting threshold? Why are why not? Please explain and provide data to support your argument. Are there alternative approaches that the Commission should adopt in expanding Rule 605’s reporting requirements to broker-dealers? If so, please explain the approach in detail, including the benefits and costs of the approach.
4. Should the Commission require all
broker-dealers to report pursuant to Rule 605 irrespective of the number of customer accounts that the broker￾dealer carries or introduces? Or should such a requirement be subject to a de minimis exclusion? Why or why not? If so, what would be an appropriate de minimis exclusion? Please explain and provide data, if possible.
5. Is three months an appropriate
timeframe to use for the Reporting Period, i.e., the minimum length of time for which a broker-dealer would need to comply with Rule 605’s reporting requirements once its number of customer accounts meets or exceeds the customer account threshold? Would a shorter or longer time period (e.g., one, two or six months) be more appropriate? If so, by what amount? Does whether or not a broker-dealer uses or could use an outside vendor to prepare reports pursuant to Rule 605 affect this answer? Please explain.
6. Is three months an appropriate
grace period from Rule 605’s reporting requirements for a broker-dealer that has met or exceeded the customer account threshold for the first time? Would a shorter or longer time period be more appropriate (e.g., one month, two months, or six months)? Do commenters agree that a grace period would not be necessary for broker-dealers that have previously equaled or exceeded the customer account threshold, but subsequently have fallen below the threshold and stopped reporting and then need to restart reporting? If not, what grace period do commenters think would be appropriate? Would one month be sufficient in this context? Are there any other circumstances in which a broker-dealer that has met or exceeded the customer account threshold would need an additional grace period from Rule 605’s reporting requirements? Please explain.
7. Should a broker-dealer that is not
a market center be required to calculate time of order receipt based on when that broker-dealer received the order? Why or why not? Would it be more useful to customers or other market participants for a broker-dealer that generally routes customer orders to calculate time of order receipt based on when that broker￾dealer sent the order to a market center for execution? Please explain and provide data, if possible.
8. Should broker-dealers be required
to produce all of the detailed execution quality statistics set forth in Rule 605? Why or why not? Do commenters agree that broker-dealers’ customers and other market participants would be able to interpret differences in these execution quality statistics among reporting entities that may be attributable to the context of their different types of business? Do commenters believe that there are any additional execution quality statistics that would be useful to require of broker-dealers? Please explain and provide data, if possible.
9. Would it be difficult for broker￾dealers to obtain any of the information
needed to calculate the Rule 605 statistics? Why or why not? If so, which statistics in particular? Would broker￾dealers have some or all of the information needed to calculate their Rule 605 statistics already, including to meet their obligations to assess whether they are providing best execution for these orders? Do commenters agree that broker-dealers would be able to obtain needed information from the execution venues to which they routed the orders or publicly available sources? Should the Commission exclude certain proposed execution quality statistics that are specific to certain order types, such as executable NMLOs? Why or why not? Please explain. B. Qualified Auction Mechanisms Separately, the Commission is proposing 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 other type of trading center that restricts order-by-order competition.197 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 meets certain requirements and is operated by an open competition trading center.198 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.199 A ‘‘qualified auction’’ would be an auction operated by an open competition trading center pursuant to specified requirements that are designed to achieve competition.200 If the Commission adopts the Order Competition Rule Proposal and a national securities exchange or NMS Stock ATS that serves as an open competition trading center is required to prepare execution quality reports under current Rule 605, that national securities exchange or NMS Stock ATS would be required to include covered orders that it received for execution in a qualified auction within its blended executing quality statistics, which also would include trading activity outside of the qualified auctions.201 The Commission is concerned that there may be differences in execution quality for orders executed within proposed qualified auctions, as compared to other orders executed by market centers outside of these qualified auctions, that would not be apparent in blended execution quality statistics. For example, orders submitted to a qualified auction may be more or less likely to receive price improvement, and may have systematically different fill rates, as compared to similar orders executed in other trading mechanisms. In addition, the Order Competition Rule Proposal would propose both a minimum and maximum time period for

202See Order Competition Rule Proposal; proposed Rule 615(c)(2). 203See proposed Rule 605(a)(1). 204 If a larger broker-dealer is also a market center and its market center operates a qualified auction mechanism, that aspect of the market center would be subject to the separate reporting requirement. 205For example, currently Rule 605 does not require market centers to distinguish among covered orders routed to particular types of away market centers. Instead, a market center’s execution quality statistics are blended statistics pertaining to all covered orders that the market center received for execution, with the limited exception of the statistics for cumulative number of shares of covered orders executed at the receiving market center and at any other venue. See 17 CFR 242.605(a)(1). 206See 17 CFR 242.606(a)(1). For example, if a broker-dealer operates an ATS and that ATS has qualified auctions and a continuous order book, the broker-dealer’s Rule 606 report would be required to disclose information about orders that were routed to the ATS’s qualified auctions separately from orders that were sent directly to the ATS’s continuous order book. 207Retail liquidity programs are programs for retail orders seeking liquidity that allow market participants to supply liquidity to such retail orders by submitting undisplayed orders priced at least $0.001 better than the exchange’s protected best bid or offer. Each program results from a Commission approval of a proposed rule change made on Form 19b–4 combined with a conditional exemption, pursuant to section 36 of the Exchange Act, from 17 CFR 242.612 (the ‘‘Sub-Penny Rule’’) to enable the exchange to accept and rank (but not display) the sub-penny orders. See, e.g., Securities Exchange Act Release Nos. 85160 (Feb. 15, 2019), 84 FR 5754 (Feb. 22, 2019) (SR–NYSE–2018–28) (approving the NYSE retail liquidity program on a permanent basis and granting the exchange a limited exemption from the Sub-Penny Rule to operate the program); 86194 (June 25, 2019), 84 FR 31385 (July 1, 2019) (SR–BX–2019–011) (approving Nasdaq BX, Inc.’s retail price improvement program on a permanent basis and granting the exchange a limited exemption from the Sub-Penny Rule to operate the program). 208See Order Competition Rule Proposal. The Commission discusses a number of alternatives in the Order Competition Rule Proposal. See id. To the extent that any retail liquidity program is retained, separate execution quality statistics specific to orders submitted to those programs may be useful to investors. the qualified auction.202 Therefore, the time to execution statistics for orders submitted to a qualified auction may be systematically different from the time to execution statistics of other orders executed at a market center. Further, if a market center receives covered orders for execution in a qualified auction, then that market center would not have discretion about whether to submit these orders into a qualified auction and
therefore the distinction between orders executed by the market center within and outside of a qualified auction would not reflect any decision-making on the
part of the market center. Thus, it would
be more useful for market participants to be able to review execution quality statistics that are specific to covered orders submitted to a qualified auction. Accordingly, the Commission is proposing to amend Rule 605(a)(1) to state that market centers that operate a qualified auction must prepare a separate report pursuant to Rule 605 pertaining only to covered orders that the market center receives for execution in a qualified auction.203 This proposed requirement for separate reports is limited to market centers that operate proposed qualified auctions, and would not extend to market centers or broker￾dealers that route orders away for execution in a qualified auction. Therefore, a market center or broker￾dealer that routes covered orders to an open competition trading center for execution within a proposed qualified auction would not be required to separately report on or otherwise distinguish orders routed to qualified auctions from other types of orders routed away for execution in its Rule 605 reports.204 In this way, the proposal would follow current Rule 605’s focus on the overall execution quality that the reporting entity provided to all covered orders that it received for execution.205 Having market centers and broker￾dealers report on the execution quality provided to orders, regardless of where they are executed, would inform market participants and other observers about overall execution quality that the market center or broker-dealer is able to obtain, including when the market center or broker-dealer decides whether and where to route orders to receive such executions. Further, distinctions between whether an order was routed to a qualified auction or not may depend on the characteristics of the order, such as whether it is a segmented order, rather than the performance of the market center or broker-dealer that routed the order. As such, it would be of more limited utility to have a market center or broker-dealer that routes orders to a qualified auction to produce a separate Rule 605 report specific to such orders. Although market centers and broker￾dealers would not be required to produce a separate Rule 605 report pertaining to orders that they route to a qualified auction, Rule 606 requires routing broker-dealers to disclose certain regularly-used execution venues to which they route orders, and a report prepared by a broker-dealer pursuant to Rule 606 would be required to indicate that orders were routed to a particular qualified auction.206 A customer of a broker-dealer could then analyze whether and to what extent the broker￾dealer routes to a particular market center’s qualified auctions (using reports prepared pursuant to Rule 606), and evaluate the execution quality provided by that market center’s qualified auctions (using reports prepared pursuant to Rule 605). The Commission considered extending the proposed requirement for separate Rule 605 reports beyond proposed qualified auctions to include orders submitted to
any trading mechanism that seeks to provide liquidity to the orders of individual investors. For example, several national securities exchanges operate retail liquidity programs.207 However, in the Order Competition Rule Proposal the Commission is proposing a prohibition on certain facilities that are limited, in whole or in part, to the execution of segmented orders and this prohibition would apply to many of the retail liquidity programs currently operated by national securities exchanges.208 Request for Comment The Commission seeks comment on the proposal to require a market center that operates a qualified auction to prepare a separate report under Rule 605 for covered orders that were submitted to a qualified auction if the Order Competition Rule Proposal is adopted. In particular, the Commission solicits comment on the following:
10. Should market centers that
operate a proposed qualified auction be required to prepare a separate Rule 605 report for covered orders that are submitted to their qualified auctions? Why or why not? Do commenters agree with limiting this separate reporting requirement to market centers that operate a proposed qualified auction, and not to either broker-dealers that are not market centers or market centers that do not operate a qualified auction? Please explain.
11. Should this separate reporting
requirement be limited to a trading mechanism that meets the proposed requirements for a ‘‘qualified auction’’? Would it be more useful if a market center prepared a separate report for covered orders submitted to any trading mechanism that seeks to provide liquidity to the orders of individual investors (e.g., a national securities exchange’s retail liquidity program), whether or not that trading mechanism operates a ‘‘qualified auction’’?
12. Do commenters believe that there
are any additional execution quality statistics that would be useful to require of a market center that operates a proposed qualified auction to facilitate comparison among different qualified auctions? For example, would it be useful for a market center that operates a proposed qualified auction to provide data on any price improvement provided in the qualified auction as

209See 17 CFR 242.605(a)(1) (requiring ‘‘every’’ market center to produce a report). See also Plan, at n.1 (‘‘An entity that acts as a market maker in different trading venues (e.g., as specialist on an exchange and as an OTC market maker) would be considered as a separate market center under the Rule for each of those 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 Plan, see supra note 47. 210See 17 CFR 242.301(b)(1). 17 CFR 242.301 through 17 CFR 242.304 is generally known as ‘‘Regulation ATS.’’ 211See, e.g., Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38768, 38771 (Aug. 7,
2018) (Regulation of NMS Stock Alternative
Trading Systems) (stating that ATSs that trade NMS stocks are increasingly operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to operation of their ATS, and that, for instance, the broker-dealer operator of an NMS Stock ATS may also operate an OTC market making desk or principal trading desk, or may have other business units that actively trade NMS stocks on a principal or agency basis in the ATS or at other trading centers). 212See Healthy Markets II at 2. See also Healthy Markets III at 4 (recommending that the Commission modernize and mandate Rule 605 disclosure for all NMS ATS operators separate and distinct from any affiliated broker-dealer). Additionally, a commenter to the Concept Release on Equity Market Structure recommended that the Commission require all ATSs and dark pools to report under Rule 605. See KOR Group I at 3. 213 17 CFR 242.300 et seq. 214See proposed Rule 605(a)(1). 215Wholesalers and other OTC market makers either execute orders themselves or instead further route the orders to 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.org (Dec. 3, 2021), available at https:// www.finra.org/investors/insights/where_do_stocks_ trade for further discussion. 216See infra note 615 and accompanying text. 217See infra notes 618 and 769 and accompanying text. 218For example, IOC orders typically have different execution profiles than other types of orders, including lower fill rates, and therefore including orders submitted to a market center’s SDP with its other orders will effect a downwards skew on the market center’s fill rates. See infra note 723 and accompanying text; Table 6. 219See proposed Rule 605(a)(1). 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. As discussed above, the Commission proposes to expand the scope of Rule 605 to include larger broker-dealers. See supra section III.A. It is possible that firms would need to prepare several Rule 605 reports if they are both a larger broker-dealer and a market center and need to prepare more than one report as a market center, pursuant to proposed Rule 605(a)(1). measured in relation to any additional price matching offered by the wholesaler that routed the order to the qualified auction? Please explain and provide data, if possible.
C. ATSs and Single-Dealer Platforms
Currently under Rule 605, firms that operate two separate markets must prepare separate reports for each market center.209 For example, for a firm that acts both as an exchange market maker and as an OTC market maker, each function would be considered a separate market center and Rule 605 requires the firm to prepare separate reports. The requirement to produce separate Rule 605 reports for separate markets 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. Regulation ATS requires each ATS to register as a broker-dealer.210 Many broker-dealers that operate NMS Stock ATSs have separate lines of business that are distinct from their ATSs, yet also relate to the trading of NMS stocks.211 In addition, one EMSAC panelist suggested that the Commission require all ATSs and dark pools (i.e., ATSs that do not publish quotations) to report separately from their affiliated broker-dealers under Rule 605.212 The Commission believes there is a need to address directly what Rule 605 requires with respect to reporting by firms that operate ATSs. By specifying that a broker-dealer that operates an ATS must produce Rule 605 reports that are specific to the ATS and separate from the broker-dealer operator’s other trading activity, the Commission intends to increase transparency and regulatory compliance. Accordingly, the Commission proposes to specify in Rule 605(a)(1) that ATSs (as defined in Regulation ATS 213) shall prepare reports separately from their broker￾dealer operators, to the extent such entities are required to prepare reports.214 Some OTC market makers, such as wholesalers, operate SDPs through which they execute institutional orders in NMS stocks against their own inventory.215 Institutional customers often communicate their trading interest using immediate-or-cancel orders (‘‘IOCs’’) or IOIs on SDPs.216 SDPs account for a nontrivial amount of trading volume overall (for example, SDPs accounted for approximately 4% of total trading volume in Q1 2022) and a significant portion of trading volume executed by wholesalers.217 Co￾mingling 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.218 It would be useful if SDPs reported execution quality statistics separately from those of their associated broker￾dealer under Rule 605, so that their customers and other market participants would be able to distinguish SDP activity from more traditional dealer activity. Separate statistics may be particularly useful if a dealer provides an SDP (i.e., a separate routing destination for the execution of orders) for a particular group of customers or type of orders. Therefore, the Commission is proposing 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.219 Request for Comment The Commission seeks comment on the proposal to specify that an ATS must produce reports separately from its broker-dealer operator, and to require that any market center that provides a separate routing destination that allows persons to enter orders against the bids and offers of a single dealer must produce separate reports pertaining to orders submitted to that routing destination. In particular, the Commission solicits comment on the following:
13. Is it useful for an ATS to produce
reports pursuant to Rule 605 that are specific to covered orders submitted to the ATS and separate from orders submitted in connection with other trading activity of its broker-dealer operator? Why or why not?
14. Should a broker-dealer operating
an SDP be required to produce reports pursuant to Rule 605 that are specific to orders sent to that routing destination and separate from other trading activity by that dealer, as proposed? Why or why not? Do commenters agree that the description of ‘‘a 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’’ accurately describes SDPs? If not, what is a more accurate description of an SDP? Please explain.
IV. Proposed Modifications to Scope of
Orders Covered and Required Information Rule 605 reports group orders by both order size and order type, and require certain standardized information for all types of orders and additional information for market orders and marketable limit orders. The Commission is proposing to modify the order size and order type groupings, and is proposing to make changes to the required information for: all types of orders; market and marketable limit

220See proposed Rule 600(b)(30). 221 ‘‘Regular trading hours’’ is defined as the time between 9:30 a.m. and 4:00 p.m. Eastern Time, or such other time as is set forth in the procedures established pursuant to 17 CFR 242.605(a)(2). See 17 CFR 242.600(b)(77). The Commission is proposing to renumber the definition of ‘‘regular trading hours’’ as proposed Rule 600(b)(91). 222See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421. 223See id., text accompanying note 39.
Specifically, the Commission stated that the average quoted spread, average effective spread, and trade price volatility increased significantly for certain securities after the close of regular trading hours. See id. at n.39. 224See id. at 75421. 225See supra notes 123–125 and accompanying text (commenter to 2018 Rule 606 Amendments and petitioner for rulemaking recommending inclusion of orders submitted prior to market open). 226Analysis of CAT data found that NMLOs submitted prior to open and designated as only able to execute during regular hours make up only a small percentage of order flow when compared to a sample 10-minute window of NMLOs submitted during regular hours. However, the analysis shows that individual investor orders are relatively concentrated in order flow submitted outside of regular market hours. Specifically, pre-open submission volume contains a larger percentage of individual investor shares than the sample time window during regular trading hours, at least for off-exchange market centers. See infra notes 672– 673 and accompanying text. 227See proposed Rule 600(b)(20) (defining ‘‘categorized by order type’’ to include executable NMLOs and executable orders submitted with stop prices). 228See proposed Rule 600(b)(30). 229See infra section IV.B.2.(a). 230See proposed Rule 600(b)(57). 231For example, a market or marketable limit order that is not received by a market center or broker-dealer during regular trading hours at a time when the NBBO is being disseminated would not be a covered order under proposed Rule 600(b)(30). In addition, the covered order definition would continue to exclude any order for which the customer requests special handling for execution, including orders to be executed at a market opening price, see proposed Rule 600(b)(30), and therefore market-on-open (‘‘MOO’’) orders and limit-on-open (‘‘LOO’’) orders would be excluded. 232See 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. order types; and nonmarketable order types. The modifications described below would apply to Rule 605 reports produced by all reporting entities, including larger broker-dealers. A. Covered Order The Commission proposes to expand the definition of ‘‘covered order’’ in a number of ways.220 The Commission proposes to include certain orders received outside of regular trading hours and orders submitted with stop prices. Additionally, the Commission is addressing whether Rule 605 requires non-exempt short sale orders to be incorporated into Rule 605 reporting when a price test restriction is in effect for the security.

1. Orders Submitted Pre-Opening/Post￾Closing
   Currently, Rule 605 reports are required to include only orders received during regular trading hours 221 at a time when an NBBO is being disseminated. 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 order receipt as a benchmark.222 At the time of adoption, the Commission stated that there are substantial differences in the nature of the market between regular trading hours and after-hours, and orders executed at these times should not be blended together in the same statistics.223 Similarly, orders for which customers requested special handling, including orders to be executed at a market opening price, are excluded from Rule 605 reports because their inclusion would skew the general statistics.224 Market participants submit limit orders prior to market open, and these orders are not captured in current Rule 605 reports.225 Although NMLOs submitted outside of regular trading hours may represent a relatively small percentage of NMLO orders overall, pre￾open NMLO submission volume includes a higher concentration of individual investor orders.226 In order to provide increased visibility into execution quality for individual investor orders, including those submitted outside of regular trading hours, the Commission proposes to 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.227 The Commission is proposing to expand the definition of ‘‘covered order’’ to include any NMLO received by a market center, broker, or dealer outside of regular trading hours 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.228 As discussed below, the Commission is proposing that NMLOs would be benchmarked from the time they become executable rather than the time of order receipt.229 The executability of limit orders that are received while an NBBO is not being disseminated would be determined with reference to the opening or re-opening price of the security. This would allow market participants to evaluate execution performance for NMLOs submitted outside of regular trading hours if they become executable during regular trading hours. The Commission proposes to 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. Specifically, the Commission proposes 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.230 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 be a covered order for purposes of Rule 605.231 The Commission’s proposed definition excludes market orders and marketable limit orders submitted prior to open or during a trading halt because such orders would generally execute at the opening or re-opening price. Therefore, their inclusion in general market and marketable limit order statistics would skew both time to execution statistics and other measures of execution quality if aggregated with market and marketable limit orders received during regular trading hours. While including market and marketable limit orders submitted prior to open or during a trading halt within the definition of covered order and requiring that the execution statistics for these types of orders be reported as a separate order type category would avoid the concern about skewed statistics, it would add to the complexity of the report. The current definition of covered order includes orders received during regular trading hours while an NBBO is being disseminated but before the primary listing market has disseminated its first quotations in the security. Prior to a primary listing market disseminating its first quotations in a security, disseminated quotations often reflect spreads that vary significantly from the norm.232 To prevent such quotations from skewing the execution quality statistics, the Commission exempted orders from inclusion in Rule

233See id. (exemption from reporting under Rule 11Ac1–5, the predecessor to Rule 605). In addition to the Opening Exemption, the Market Systems Exemptive Letter included a separate exemption from the Rule for orders received during a time when the consolidated BBO reflects a spread that exceeds $1 plus 5% of the midpoint of the consolidated BBO (‘‘Spread Width Exemption’’). 234See proposed Rule 600(b)(30). 235See id. 236Because the Spread Width Exemption is not inconsistent with the proposed amendments to Rule 605, the Commission would not rescind the Spread Width Exemption. The Commission continues to believe that 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.’’ Market Systems Exemptive Letter at 2. The Commission may adopt an updated or modified exemption under Rule 605(b) to further refine the exemption if, for example, additional factors could be considered reliable indicators of orders that could be the result of erroneous quotes or abnormal trading conditions. See 17 CFR 242.605(b). 237See proposed Rule 605(a)(1). 238See 17 CFR 242.600(b)(22). Generally, a limit order submitted with a stop price becomes a market order when the stop price is reached. A stop order to buy becomes a market order when the security is bid or trades at or above the specified stop price; a stop order to sell becomes a market order when the security is offered or trades at or below the specified stop price. 239See supra note 123 and accompanying text. 240See proposed Rule 600(b)(42). See also infra note 303 and accompanying text (discussing the definition of ‘‘executable’’ as it relates to other non￾marketable order types). 241See proposed Rule 600(b)(20) (defining ‘‘categorized by order type’’ to include a category for ‘‘executable orders submitted with stop prices’’) (emphasis added). 242For further discussion of these metrics, see infra sections IV.B.3, IV.B.4.(a), IV.B.4.(b), IV.B.4.(d), and IV.B.6. 605 reports that are received prior to the dissemination of the primary listing market’s first firm, uncrossed quotations for a trading day (‘‘Opening Exemption’’).233 With respect to orders received during regular trading hours but before the primary listing market has disseminated its first firm, uncrossed quotation, the Commission continues to believe, for the same reasons it granted this exemption, that including such orders could distort execution quality statistics. Therefore, the Commission is proposing to incorporate this exemptive relief into the proposed 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.234 However, 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 could be considered covered orders, provided the NMLOs were not executed outside of regular trading hours.235 Inclusion of these orders in Rule 605 reports would be useful to market participants, even though such orders necessarily would be received before the primary listing market has disseminated its first firm, uncrossed quotation and thus fall within the scope of the Opening Exemption. Because the Commission is proposing to incorporate the exemptive relief reflected in the Opening Exemption into the Rule with respect to market or limit orders received during regular trading hours, but believes it would be useful to include the NMLOs described above in Rule 605 reports, the Commission is also proposing to rescind the Opening Exemption.236 As a result of the proposed inclusion of limit orders submitted after closing and the proposed changes to the categorization of NMLOs described in
section IV.B.2, limit orders could be
received for execution and fall within the scope of Rule 605 on a day other than the day of order receipt. Under current Rule 605(a)(1), a reporter must prepare a monthly report on the covered orders in NMS stocks that it received for execution from any person. In order to address this scenario, the Commission proposes that a covered order would be required to be included in the report for the month in which it becomes executable if the day of receipt and the day it initially becomes executable occur in different calendar months. Therefore, the Commission proposes to amend 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.237
2. Stop Orders
The definition of ‘‘covered order’’ excludes orders with special handling instructions, including orders submitted with stop prices.238 Therefore, orders submitted with stop prices are excluded from Rule 605 reports. The Commission preliminarily understands that market centers and broker-dealers may differ in how they handle stop orders, and the current lack of consistent information regarding executions of such orders may prevent investors from comparing the execution quality of such orders. Further, stop orders are likely to hit their stop prices, and are often executed, during periods of price volatility or downwards market momentum, which may entail less than favorable execution conditions. Given the potential for variation across market centers and broker-dealers, as well as the market conditions under which stop orders may execute, the Commission believes including stop orders within the scope of the Rule would benefit market participants by allowing them to analyze these variations in execution quality. Further, as stated by the petitioner, including stop orders within the Rule’s scope would provide a more complete view of the orders certain broker-dealers may use when assessing the execution quality market centers provide.239 Orders submitted with stop prices are often submitted well before their stop prices are reached. In order to provide an ‘‘apples-to-apples’’ comparison of stop orders, the Commission is proposing to measure the execution quality of orders submitted with stop prices from the time their stop prices are reached, i.e., when such orders become executable. As part of the proposed definition of ‘‘executable,’’ the Commission is proposing to specify 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 orders submitted with a stop price, that the stop price is equal to or less than the national best offer during regular trading hours.240 Incorporation of the ‘‘executable’’ concept would have two effects. First, stop orders would be reported as part of a Rule 605 report only if they become executable.241 Second, the point that a stop order first becomes executable would be used as a benchmark for several execution quality metrics, including average effective spread, average effective over quoted spread, average realized spread, and average time to execution statistics.242 The Commission is proposing to use the time an order becomes executable rather than the time of order receipt based on the understanding that customers, at least for purposes of evaluating execution quality of stop orders, would generally expect such orders to be executed close in time to when their stop prices are triggered. Including executable orders submitted with stop prices within the scope of the Rule would help investors compare the performance of market centers and broker-dealers from a point in time when such orders
could reasonably be expected to execute. Accordingly, the Commission proposes to rescind the exclusion of orders submitted with stop prices within the definition of covered

243See proposed Rule 600(b)(30) (eliminating the express carve out of orders submitted with stop prices from the definition of ‘‘covered order’’). 244See also infra section IV.B.2.a below for more detailed description of the changes to categorization by order type, including a new category for executable orders with stop prices. 245 17 CFR 242.600(b)(15). See ‘‘Responses to Frequently Asked Questions Concerning Rule 605 of Regulation NMS’’ (Feb. 22, 2013) (‘‘2013 FAQs’’). 246 17 CFR 242.201. 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 ten percent 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). 247See 2013 FAQs. 248See 17 CFR 242.201(b)(1)(i). 249See 17 CFR 242.600(b)(22). 250See infra note 662 and accompanying text. 251 In adopting Rule 605, the Commission stated that the definition of covered order excludes orders (including short sales that must be executed on a particular tick or bid) for which the customer requested special handling for execution and that, if not excluded, would skew general statistical measures of execution quality. See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75421. 252See infra note 820 and accompanying text. 253See infra notes 821–827 and accompanying text. See also supra note 123 and accompanying text (petitioner recommending inclusion of short sales in Rule 605). 254 If an order is otherwise subject to special handling it would not be a covered order. See proposed Rule 600(b)(30). order.243 As proposed, these orders would comprise a separate order type category to help ensure comparability of execution quality statistics since, as stated above, stop orders more often may execute under volatile or downward-trending market conditions.244
3. Non-Exempt Short Sale Orders
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’’ in Rule 600(b)(15).245 Non-exempt short sale orders are subject to a price test under Rule 201 of Regulation SHO (‘‘Rule 201’’) that sets forth a short sale circuit breaker that is triggered in certain circumstances, after which time a price restriction will apply to short sale orders in that security for that day and the following day.246 In 2013, Commission staff stated that because in certain circumstances non￾exempt short sale orders are subject to a price test under Rule 201, and the circumstances could vary for different securities and different days throughout the month, staff would view all non￾exempt short sale orders as subject to special handling.247 The Commission preliminarily believes that for purposes of this proposal, not all non-exempt short sale orders should be excluded from the scope of Rule 605 reporting. 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 best bid.248 These tick-sensitive orders could be ‘‘orders to be executed only on a particular type of tick or bid,’’ which is one of the types of special handling orders specified in the definition of covered order.249 However, excluding all non-exempt short sale orders from Rule 605 reporting, regardless of whether or not a Rule 201 price test restriction is in effect, excludes a significant portion of short sale orders that are not tick-sensitive. Non-exempt short sale orders do not appear to be tick-sensitive the majority of the time because they are infrequently subject to a price test restriction. Analysis shows that, between April 2015 and March 2022, an event that triggered the Rule 201 circuit breaker only occurred on 1.7% of trading days for an average stock.250 The analysis also found that around 18% of trigger events occurred the day after a previous trigger event, and around 46% of trigger events occurred within a week after a previous trigger event, implying that these trigger events tend to be relatively infrequent and clustered around a small number of isolated events. Moreover, because non￾exempt short sale orders are not tick sensitive when a short sale price test is not in effect, the inclusion of these orders would not skew execution quality statistics.251 In addition, including non-exempt short sale orders for which a price test restriction is not in effect for the security within Rule 605 statistics would lead to a more complete picture of reporting entities’ execution quality, because there is evidence that short sales compose a large segment of trades, and likely also order flow. Analysis of short volume data shows that, between August 2009 and February
2021, short selling constituted an average of 47.3% of trading volume for non-financial common stocks.252 As discussed further below, evidence suggests that hedge funds make up the majority of the short selling market, while an academic working paper found that, between January 2010 and December 2016, around 10.92% of retail trading was made up of short sales.253 Therefore, under the proposal, non￾exempt short sale orders would not be considered special handling orders unless a price test restriction is in effect for the security. Unless another exclusion applies, non-exempt short sale orders would fall within the definition of covered order and thus within the scope of Rule 605 reporting.254 Conversely, during a short sale price test, a short sale order not marked ‘‘exempt’’ would be subject to special handling and would be excluded from the definition of covered order and thus from Rule 605 reporting. Request for Comment The Commission seeks comment generally on the proposed expansion of Rule 605 reporting requirements to include certain orders received outside of regular trading hours and orders submitted with stop prices, as well as the proposal to incorporate non-exempt short sale orders into Rule 605 unless a price test restriction is in effect for the security. In particular, the Commission solicits comment on the following:
15. Should the security’s opening or
re-opening price be required to be used as a benchmark to determine whether a limit order submitted outside of regular trading hours is marketable or non￾marketable? If not, what would be an alternative benchmark? Please explain.
16. Should the definition of ‘‘covered
order’’ include NMLOs submitted outside of regular trading hours or when the NBBO is not being disseminated (i.e., limit orders that are not marketable based on the security’s opening or re￾opening price)? Should market orders and marketable limit orders submitted outside of regular trading hours or when the NBBO is not being disseminated be included within the definition of ‘‘covered order’’? Why or why not? Should these orders be grouped with other market or marketable limit orders or as new order type categories?
17. Do commenters agree that
requiring orders submitted with stop prices to be included in Rule 605 reports, and segregating them into their own order type category, would avoid distorting execution quality statistics? If not, why not?
18. Do commenters agree that periods
when a short sale price test is in effect are relatively infrequent and clustered around a small number of isolated events? Why or why not?
19. Should other types of orders be
included within the scope of covered orders? For example, currently intermarket sweep orders (‘‘ISOs’’) with a limit price inferior to the NBBO may

255See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75423.
256See id.
257 17 CFR 242.600(b)(13). See supra note 40. 258See infra note 281 and accompanying text. 259See proposed Rule 600(b)(19). 260See supra note 16. 261See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421 (stating that nearly all of the
statistical measures included in the Rule depend on the availability of a consolidated BBO at the time of order receipt). 262See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18621. 263Specifically, the Commission re-defined ‘‘round lot’’ as: 100 shares for stocks priced at $250 or less, 40 shares for stocks priced at $250.01 to $1,000, ten shares for stocks priced at $1,000.01 to $10,000, and one share for stocks priced at $10,000.01 or more. See 17 CFR 242.600(b)(82). 264As described in the MDI Adopting Release, orders currently defined as odd-lots often reflect superior pricing. See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18616 (describing analysis that made similar findings using data from May of 2020). A recent working paper analyzed the effect of the new round lot definition and found that for sample stocks in the 40-share round lot category the incidence of better-priced odd-lot quotes fell by approximately 4.8% and for sample stocks in the 10-share round lot category the incidence fell by approximately 22%. See Bartlett, et al. at 5. 265The round lot definition, together with the increased availability of better priced odd-lot information, was designed to provide investors with valuable information about the best prices available and help to facilitate more informed order routing decisions and the best execution of investor orders. See MDI Adopting Release, 86 FR 18596 (Apr. 9,
2021) at 18602.
266See id. The Commission is separately proposing to accelerate the implementation of the round lot definition. See Securities Exchange Act Release No. 96494 (Dec. 14, 2022) (File No. S7–30–
22) (Regulation NMS: Minimum Pricing Increments,
Access Fees, and Transparency of Better Priced Orders) (‘‘Minimum Pricing Increments Proposal’’). 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 (Apr. 9, 2021) at 18698–18701. At a minimum, round lot implementation will be two years after the Commission’s approval of the plan amendment(s) required by 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. According to TAQ Data, as of April 2022, eleven stocks had a round lot size other than 100. Nine stocks had a round lot of ten and two stocks had a round lot of one. 267See supra notes 128–132 and accompanying text. 268See Large Order Exemptive Letter. 269See infra section IV.B.1.(b)(1) and (2). The largest order size category would be 100 round lots or more. See proposed Rule 600(b)(19)(vii). be viewed to be subject to special handling and are excluded from Rule 605 reports. Should these or other orders types be included within the scope of covered orders? If so, please explain any additional requirements or conditions that would help ensure comparability of order execution quality statistics across reporting entities. For example, if a new order type should be within the scope of covered orders, should it be a new order type category or be added to an existing or proposed order type category (as described in part IV.B.2 below)? B. Required Information The categories in Rule 605 reports are intended to strike a balance between sufficient aggregation of orders to produce statistics that are meaningful on the one hand, and sufficient differentiation of orders to facilitate fair comparisons of execution quality across market centers on the other hand.255 When adopting the Rule, the Commission stated that its experience with the categories prescribed by the Rule may indicate ways in which they could be improved in the future.256

1. Categorization by Order Size
   Rule 600(b)(13) defines ‘‘categorized by order size’’ as dividing orders into separate categories based on the number of shares composing an order.257 For the purposes of Rule 605 reports, the largest size category has been limited to include only orders greater than 5,000 shares and less than 10,000 shares.258 The Commission proposes to amend the definition of ‘‘categorized by order size’’ to provide the following categories for order sizes: (i) less than 1 share; (ii) odd￾lot; (iii) 1 round 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.259 The reasons for these changes are discussed below. (a) Round Lot Multiple Characterization Currently, Rule 605 reports utilize 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 current Rule 605 reflects this. In recent years, the prices of some of the most widely held stocks have increased significantly,260 and differences in price affect how stocks trade. For example, a 100-share order of a $1,200 stock would likely have very different execution quality statistics than a 100-share order of a $10 stock because more capital is at risk in the former. But under current Rule 605, these orders are reported in the same order size category. Further, many of Rule 605’s execution quality measures rely on the NBBO as a benchmark.261 In adopting the Market Data Infrastructure rules (the ‘‘MDI Rules’’), the Commission stated that the new definition of round lot will improve certain Rule 605 statistics. The Commission stated that the definition of round lot would allow additional orders of meaningful size to determine the NBBO, and, therefore, the execution quality and price improvement statistics required under Rule 605 would be based upon an NBBO that the Commission believes is a more meaningful benchmark for these statistics.262 As a result of the new round lot definition,263 the NBBO in higher-priced NMS stocks is based on smaller, potentially better￾priced orders.264 The newly adopted definition of round lot is tiered based on the NMS stock’s prior month closing price.265 Upon implementation, the NBBO will be calculated based on the new definition of round lot.266 The Commission proposes to modify the order size categories to utilize the new definition of round lot and include odd-lots, fractional shares, and larger order sizes. Because the new definition of round lot incorporates the current market price of the security, the Commission believes that notional buckets and caps suggested by commenters are not necessary.267 The proposed order size categories would correspond to the existing share-based order size categories to reflect that round lots historically had been viewed as groups of 100 shares. For example, the
   category for 100 to 499 shares would instead be 1 round lot to less than 5 round lots. Because the current exemptive relief 268 effectively caps the existing order size category of 5,000 or more shares to 9,999 shares, the second largest order size category would be 50 round lots to less than 100 round lots. The Commission is also proposing to add new order size categories for odd￾lots, fractional shares, and larger-sized orders as discussed below.269 Additionally, 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. In particular, with the NBBO to be calculated based on the new definition of round lot, updating the order size categories to be based on round lots should allow for better comparisons of statistics that rely on the NBBO as a benchmark, including price improvement statistics. The NBBO is used as a benchmark throughout Rule 605 to determine marketability of orders, effective and realized spread, and price improvement/dis￾improvement statistics. If the order size category were not based on the round lot size for that stock, Rule 605 statistics

270There 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). 271See Healthy Markets IV (discussing recommended reforms to Rule 605 and Rule 606) at 3; IHS Markit Letter (responding to the 2018 Rule 606 Amendments) at 5, text accompanying n.15; EMSAC III (recommendations regarding modifications to Rule 605 and Rule 606) at 2. 272FIF I at 1. The commenter also stated that retail investors account for a notable portion of odd￾lot trades. See FIF I at 1. Later, the commenter stated that odd-lots represent close to 50% of self￾directed orders. See FIF III at 4. 273See ‘‘Effective Spreads, Payment for Order Flow, and Price Improvement’’, RBC Capital Markets (Mar. 2022) at 5. Cf., Virtu Petition at 4, n.13 and accompanying text (odd-lots make up 70% of all trades in high priced stocks). 274See supra note 16. 275See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18616 (describing analyses 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). 276See supra note 91. 277See dataset ‘‘Summary Metrics by Decile and Quartile’’ available at https://www.sec.gov/ marketstructure/downloads.html. 278See infra note 642. Orders with a fractional share component may be executed in a number of ways: a broker-dealer may (i) internalize the entire order as principal using its own inventory; (ii) create a representative order that rounds up the order to the nearest whole number using its own inventory and route it for execution, then fill the original customer’s fractional order after the representative order is executed; (iii) internalize the fractional component of the order (e.g., 0.5 shares) and send the whole share component (e.g., 2 shares) away for execution; or (iv) aggregate different fractional orders to make one large representative order and then route it for execution, and fill the original fractional orders post-execution. 279Analysis of CAT data from March 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 infra note 644 and accompanying text. 280For example, a covered order for 10.5 shares in a security with a 100-share round lot would be categorized as an odd-lot. See proposed Rule 600(b)(19). 281See Large Order Exemptive Letter. 282 Id. at 2. 283See IHS Markit Letter at 34. See also KOR Group I at 4 (responding to the Commission’s Concept Release on Equity Market Structure, suggesting elimination of a share size
cap on Rule 605 reporting). 284See Virtu Petition at 4–5. 285See id. at 5. 286See infra note 649 and accompanying text. The percentage of larger-sized trades has fluctuated over time, in part due to broker-dealers’ use of Smart Order Routers (‘‘SORs’’) to break up their institutional investor customers’ large parent orders into smaller-sized child orders along with other market changes, such as the overall increase in stock prices. The rate of larger-sized trades has declined from a rate of more than 25% in late 2003, but has increased from 6.7% in August 2011. See id. 287See infra Figure 4. While larger-sized orders comprise a non-negligible percent of order flow, would show, for example, larger amounts of price improvement for high￾priced stocks based on the presumably wider NBBO. However, the statistics would still be comparable across market centers and broker-dealers since they would all be utilizing the same benchmark. (b) New Sizes Within Scope (1) Odd-Lots and Orders Less Than a Share Currently, Rule 605 does not require reporting for orders smaller than 100 shares, including odd-lot orders or fractional share orders (i.e., orders for less than one share).270 Commenters suggested amending the scope of the Rule to include odd-lot orders.271 One commenter offering suggestions regarding enhancements to Rule 605 and Rule 606 from a retail perspective stated that, while ‘‘odd lots may not represent a high percentage of executed share volume, they do represent a high percentage of incoming executed order volume.’’ 272 Market participants stated that odd-lots make up a majority of all trades.273 Particularly as stock prices have risen,274 odd-lots have come to represent an increased percentage of orders.275 Analysis using TAQ data found that odd-lots increased from around 15% of trades in January 2014 to more than 55% of trades in March
2022.276 An analysis of data from the
SEC’s MIDAS analytics tool shows that, in Q1 2022, odd-lots made up 81.2% of on-exchange trades (40% of volume) for stocks in the highest price decile and 25% of on-exchange trades (2.72% of volume) for stocks in the lowest price decile.277 Based on changes the Commission has observed in the market, the observations of commenters and other market participants, as well as its analysis, the Commission preliminarily believes the exclusion of order sizes smaller than 100 shares excludes an important segment of order flow. Therefore, the Commission is proposing a new order size category for odd-lots. Similarly, fractional share orders have become increasingly popular with individual investors as certain stock prices have risen and certain broker￾dealers have made fractional shares available to their customers.278 Analysis of CAT data from March 2022 found that executed orders with a fractional share component originated from over 5 million unique accounts. Orders for less than a single share represent a significant portion of fractional orders executions.279 In order to capture execution quality information for these orders, the Commission is proposing a new size category for orders less than a share. To the extent an order with a fractional share component is for more than a single share, it would not be included in this size category to help ensure comparability of order execution quality statistics.280 (2) Larger-Sized Orders Currently, Rule 605 does not require reports that include orders with a size of 10,000 shares or greater pursuant to exemptive relief provided by the Commission in 2001.281 In granting the exemption, the Commission stated that a primary objective of the Rule is to ‘‘generate statistical measures of execution quality that provide a fair and useful basis for comparisons among different market centers,’’ and reasoned that the exclusion of such orders would help assure greater comparability of statistics in the largest size category of 5,000 or more shares.282 Commenters have advocated for the Commission to include larger-sized orders in Rule 605 reports. One commenter responding to the 2018 Rule 606 Amendments stated that the exclusion of certain types of marketable limit orders, including those of 10,000 shares or more, undermines the utility of Rule 605 reports.283 The entity that petitioned for rulemaking in this area stated that because of the variation in stock prices (e.g., a 5,000 share order with a notional value of $17.3 million and a 5,000 share order with a notional value of $76,000), categorizing orders by share size is no longer effective.284 The petitioner recommended the Commission include both odd-lots and orders of 10,000 or more shares, and add notional size categories to the metrics, with a notional cap.285 The Commission proposes to rescind the exemptive relief for orders of 10,000 or more shares and include these orders within the scope of Rule 605 reports. The Commission believes that including such
larger-sized orders would improve execution quality statistics in Rule 605 reports by including information about an important segment of order flow. Analysis of TAQ data shows that the number of shares associated with trades that were for 10,000 or more shares as a percent of total executed shares was 11.3% in March 2022.286 In addition, analysis of the distribution of NMLO sizes in order submission data from MIDAS for the month of March 2022, shows that, while NMLOs of 10,000 or more shares made up only 0.09% of order flow in terms of number of orders, they made up nearly 7.8% of order flow in terms of share volume.287 Although

some or possibly most of these large orders may be not held to the market, in which case they would not be included in Rule 605 reports even without the exemptive relief. 288See supra text following note 267, notes 268– 269 and accompanying text. The two largest buckets in proposed Rule 600(b)(19)(vi) and (vii) group together orders of between 50 round lots to less than 100 round lots and orders of 100 round lots or greater, respectively. 289See 17 CFR 242.600(b)(14). The Commission is proposing to renumber the definition of ‘‘categorized by order type’’ as proposed Rule 600(b)(20). 290See proposed Rule 600(b)(20). Market orders and marketable limit orders are existing categories under the current definition of ‘‘categorized by order type.’’ See 17 CFR 242.600(b)(14). 291Under the proposal, near-the-quote limit orders would fall outside the scope of the order type categories if they do not become executable. See infra section IV.B.2.(a) for discussion of the definition of executable. 292The following orders fall outside the scope of the current order type categories: (1) non￾marketable buy orders and non-marketable sell orders with limit prices that are more than $0.10 lower than the national best bid or higher than the national best offer, respectively, at the time of order receipt; and (2) stop orders. Under the proposal, such orders, if they become executable, would fall within the order types for executable NMLOs or executable stop orders. However, these orders would fall outside the scope of the order type categories as proposed if they do not become executable. 293See supra text accompanying note 290. Beyond-the-midpoint limit orders, discussed in more detail in section IV.B.2.(b) infra, are a type of NMLO that is priced more aggressively than the midpoint. 294See 17 CFR 242.600(b)(14). 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 17 CFR 242.600(b)(37). The Commission is proposing to eliminate this definition of inside-the-quote limit order, at-the￾quote limit order, and near-the-quote limit order. These defined terms would no longer be used with the changes to order type categories proposed herein. The proposed new order type categories for NMLOs would focus on whether a NMLO becomes executable rather than on how a NMLO’s limit price compares to the quote, as discussed further below. 295See Proposing Release, 65 FR 48406 (Aug. 8,
2000) at 48414.
the Commission had concerns about the comparability of execution quality statistics for larger-sized orders when adopting the Rule, the Commission expects that the proposed inclusion of two additional categories for larger order sizes 288 (i.e., corresponding to 5,000–9,999 shares and 10,000 or more shares in the case of a 100 share round lot) would allow for better comparability of statistics. The proposed amended definition of ‘‘categorized by order size’’ that aligns with the new definition of round lot would enhance such comparability. Request for Comment The Commission seeks comment on the proposed changes to the definition of ‘‘categorized by order size.’’ In particular, the Commission solicits comment on the following:
20. Should fractional share orders be
required to be included in Rule 605 reports? Why or why not?
21. Should odd-lot orders be required
to be included in Rule 605 reports? Why or why not?
22. Should orders of 10,000 or more
shares be required to be included in Rule 605 reports? Why or why not? Do commenters believe that including such orders would skew the statistics for the largest order size category? Would commenters support one or more notional caps for share size buckets (such as 10,000 shares or greater), and if so, why? Please explain and provide data.
23. Do commenters agree with the
proposed modification of order size categories? If not, why not? Would categories based on number of shares— or the following categories based exclusively on notional value: $1 to less than $10,000.00, $10,000.01 to less than $25,000.00, $25,000 to less than $100,000, and over $100,000—be more useful, less burdensome, or more cost￾effective as either a permanent or an alternative measure until such time as the new definition of round lot has been implemented? Do commenters recommend different size or notional value categories? If so, please describe such categories.
2. Categorization by Order Type
Under Rule 605(a)(1), monthly reports are categorized by order type. Currently, ‘‘categorized by order type’’ means 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.289 As discussed below, the Commission proposes to modify this definition to mean dividing orders into separate categories for market orders, marketable limit orders (excluding immediate-or-cancel orders), marketable immediate-or-cancel orders, beyond-the-midpoint limit orders, executable non-marketable limit orders (excluding beyond-the midpoint limit orders and orders submitted with stop prices), and executable orders submitted with stop prices.290 The following compares the order type categories under the current Rule to the proposed new order type categories:
Existing order type category Order type category as proposed Market ....................................................................................................... Market, Marketable IOC. Marketable Limit ....................................................................................... Marketable Limit, Marketable IOC. Inside-the-Quote Limit .............................................................................. Beyond-the-Midpoint Limit, Executable NMLO. At-the-Quote Limit .................................................................................... Executable NMLO. Near-the-Quote Limit ................................................................................ Executable NMLO.291 [Not Included] 292 ...................................................................................... Executable NMLO, Executable Stop. The Commission believes that the proposed categories will improve execution quality information within Rule 605 reports and better group comparable orders. (a) NMLOs and Orders Submitted With Stop Prices The Commission proposes to eliminate the three separate categories for types of NMLOs (i.e., inside-the￾quote limit orders, at-the-quote limit orders, and near-the-quote limit orders) and to replace them with new categories: non-marketable limit orders that become executable (excluding orders submitted with stop prices and beyond-the-midpoint limit orders) and beyond-the-midpoint limit orders.293 Current Rule 605 reports group NMLOs as inside-the-quote, at-the-quote, and near-the-quote, and exclude NMLOs that are more than ten cents away from the quote at the time of order receipt.294 When proposing to exclude NMLOs with a limit price more than ten cents away from the NBBO, the Commission reasoned that the execution quality statistics for these types of orders may be less meaningful because executions of these types of orders depend more on the order’s limit price and price movement in the market than on handling by the market center.295 Commenters supported including NMLOs further away from the quote in

296Angel Letter at 7. See also Blackrock Letter at 3 (stating in response to the Commission’s Concept Release on Equity Market Structure that revised Rule 605 disclosures should provide greater transparency on NMLOs). 297See FIF III at 4. 298See supra section IV.A.2. 299An analysis of 80 stocks in March 2022 finds that away-from-the-quote orders (i.e., NMLOs that are more than $0.10 away from the NBBO) represent 23.8% of non-marketable share volume). See infra
section VII.C.2.(c)(1).
300As discussed above, the Commission is proposing to modify the definition of ‘‘covered order’’ to include NMLOs submitted outside of regular trading hours or when an NBBO is not being disseminated and orders submitted with a stop price. See supra sections IV.A.1 and IV.A.2. 301For 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 is less reflective of execution quality than of prevailing market conditions. 302As discussed above (see supra section IV.A.2.), the Commission also believes it would be helpful to investors to measure the execution quality of orders submitted with stop prices. Therefore, it is proposing to add a separate order type category of ‘‘executable orders submitted with stop prices’’ to the definition of ‘‘categorized by order type.’’ See proposed Rule 600(b)(20). 303See proposed Rule 600(b)(42). See also supra note 240 and accompanying text (discussing the definition of ‘‘executable’’ as it relates to orders submitted with stop prices). 304See proposed Rule 600(b)(20) (defining ‘‘categorized by order type’’ to include a category for ‘‘executable non-marketable limit orders’’) (emphasis added). 305See infra section IV.B.3. 306See infra section IV.B.4.(b). 307See infra section IV.B.4.(c). 308See infra section IV.B.4.(d). 309See 17 CFR 242.600(b)(14). 310Cf. id. (marketable limit orders separated from inside-the-quote limit orders). 311Rule 605(a)(1)(i) specifies execution quality statistics to be provided for all order types, and Rule 605(a)(1)(ii) specifies execution quality statistics to be provided for marketable order types. See 17 CFR 242.605(a)(1)(i) and (ii). For a discussion of the changes that the Commission is proposing to make to the execution quality statistics to be provided for all order types and for marketable order types, see infra sections IV.B.4 and IV.B.5, respectively. The Commission is also proposing to require additional execution quality statistics to be provided for non-marketable order types. See infra
section IV.B.6.
312See infra note 689 and accompanying text;
Table 5.
313See infra section VII.C.2.(c)(3).
Rule 605 reports but noted the difficulty of providing meaningful execution quality statistics for such orders. One commenter to the 2018 Rule 606 Amendments observed: ‘‘With non￾marketable limit orders, what matters is the skill of the broker in choosing the venue with the highest probability of filling the order. Measuring execution quality is difficult in that some limit orders are placed far away from the NBBO and are unlikely to be filled. Others are cancelled after varying lengths of time for any number of reasons. It may be difficult to tell whether a cancelled order would have been filled later had it not been cancelled.’’ 296 In offering suggestions to modernize Rule 605, another commenter recommended including an additional ‘‘away-from-the-quote’’ bucket for NMLOs, which the commenter stated would capture a significantly greater number of self￾directed orders from individual investors.297 The Commission recognizes that more meaningful measures of execution quality for NMLOs, as well as orders submitted with stop prices,298 would assist investors in measuring execution quality. A large number of NMLOs are not captured because they are more than ten cents away from the NBBO or submitted outside of regular market hours.299 The Commission believes that it would be informative to calculate execution quality statistics for those NMLOs and orders submitted with a stop price that become ‘‘executable.’’ 300 Because execution quality for orders placed further away from the quote depends heavily on prevailing market conditions,301 adding the concept of ‘‘executable’’ allows execution quality statistics to be measured from a point where an order could be executed.302 As proposed, Rule 605 statistics would be collected for ‘‘executable’’ NMLOs. The Commission proposes 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.303 This definition is designed to capture NMLOs (including beyond-the￾midpoint limit orders) that, during their time in force, ‘‘touched’’ a price where they could have been executed. For example, if the market is $10.05 × $10.10, a limit order to buy at $10.02 would not be an executable NMLO unless the market moved to a price at which that limit order could be executed—for example, $10.02 × $10.06. As is the case for orders submitted with stop prices, incorporation of the ‘‘executable’’ concept would have two effects. First, NMLOs would only be reported as part of a Rule 605 report if they become executable during regular trading hours.304 Because there are substantial differences in the nature of the market
between regular trading hours and after-hours, this would provide a basis for more comparable execution quality measures. Second, the point that a NMLO first becomes executable would be used as an input for several execution quality metrics:
average time to execution statistics,305 average effective spread,306 average percentage effective and realized spread,307 and average effective over quoted spread.308 The Commission is proposing to use the time an order first becomes executable rather than the time of order receipt in order to measure execution quality from a point in time when a liquidity-providing order is priced at or better than the quote. Including executable NMLOs within the scope of the Rule would help investors compare the performance of market centers and broker-dealers from a point in time when such orders could reasonably be expected to execute and provides a more informative measure of execution quality by controlling for market conditions. (b) Beyond-the-Midpoint Limit Orders Under current Rule 605, inside-the￾quote limit orders are a separate order type category.309 Because they are not a marketable order type (i.e., they do not fully cross the spread),310 current Rule 605 does not require price improvement statistics to be calculated for inside-the￾quote limit orders.311 Limit orders priced more aggressively than the midpoint may have different execution quality statistics than other types of NMLOs because market centers and broker-dealers may treat beyond￾the-midpoint limit orders as marketable limit orders in certain circumstances and as NMLOs in others. An analysis of a sample of orders executed by the six most active wholesalers for the period of Q1 2022 312 shows that beyond-the￾midpoint NMLOs executed by wholesalers tend to have much faster time-to-executions and higher fill rates than other types of inside-the-quote NMLOs, and are also somewhat more likely to be given price improvement, indicating wholesalers often treat limit orders priced more aggressively than the midpoint more like marketable limit orders and may offer price improvement to these orders.313 The Commission is proposing to label those limit orders priced more aggressively than the midpoint as ‘‘beyond-the-midpoint limit orders.’’ Because beyond-the-midpoint limit orders are a type of NMLO and could therefore be covered orders even if received outside of regular trading hours

314See proposed Rule 600(b)(16). See also proposed Rule 600(b)(20) (modifying the definition of ‘‘categorization by order type’’ to add beyond￾the-midpoint limit orders to the list of order types). 315See proposed Rule 600(b)(16). 316See proposed Rule 605(a)(1)(ii) (specifying additional required information for market orders, marketable limit orders, marketable immediate-or￾cancel orders, and beyond-the-midpoint limit orders). 317See proposed Rule 605(a)(1)(iii) (specifying additional required information for beyond-the￾midpoint limit orders, executable non-marketable limit orders, and executable orders with stop prices). 318See supra section III.B. 319See infra note 689 and accompanying text;
Table 5. 320The time-based execution quality statistics
that would be required for marketable order types other than beyond-the-midpoint limit orders would be measured from the time of order receipt to the time of order execution. See proposed Rule 605(a)(1)(ii)(C), (D), (E), (G), (H), (I), (L), (M), and (N). 321See proposed Rule 605(a)(1)(ii)(C), (D), (E), (G), (H), (I), (L), (M), and (N). 322Rule 600(b)(14) defines ‘‘categorized by order type’’ and includes ‘‘marketable limit orders’’ within the listed categories of order types. See 17 CFR 242.600(b)(14). 323See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75421.
324See IHS Markit Letter at 11; EMSAC III at 2; FIF I at 2. 325Analysis of CAT data of retail orders received at broker-dealers with 10,000 or more individual accounts during June 2021 indicates that approximately only 0.02% of retail orders are submitted with an IOC instruction. See infra note 722 and accompanying text. 326 In offering recommendations to modernize Rule 605, a commenter who supported separating IOC orders within Rule 605 statistics stated that such orders have a different profile and can skew statistics. See FIF III at 5. 327See infra note 723 and accompanying text;
Table 6. This analysis shows that wholesaler fill
rates range between 60% to 90% for non-IOC orders, but are mostly below 30% for IOC orders, and even smaller with respect to larger order sizes. See id. 328See infra note 723 and accompanying text;
Table 6.
329See proposed Rule 600(b)(20). or during a time when the NBBO is not being disseminated, the Commission is proposing to define a beyond-the￾midpoint limit order with respect to orders received both when an NBBO is being disseminated and when it is not. If the NBBO is being disseminated, ‘‘beyond-the-midpoint limit order’’ would mean: (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.314 If the NBBO is not being disseminated, it would mean: (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 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.315 In addition, the Commission proposes to require that the execution quality statistics for beyond-the-midpoint limit orders include the additional information required of both marketable 316 and non-marketable 317 order types. If beyond-the-midpoint orders instead were treated solely as a non-marketable order type, similar to inside-the-quote limit orders, then market centers and broker-dealers would not be required to provide the types of execution quality statistics specific to marketable orders for these orders. Because beyond-the-midpoint limit orders may participate in the proposed qualified auctions 318 or be treated as marketable orders in certain circumstances, it would be informative if reporting entities provided these types of statistics for these orders, especially given the increased likelihood that these types of orders may receive price improvement in certain circumstances.319 However, because beyond-the-midpoint limit orders may execute more like inside-the-quote limit orders in other circumstances, the additional statistics required for the non-marketable order types would also be required to be reported for beyond￾the-midpoint limit orders. This would facilitate comparisons of beyond-the￾midpoint limit orders with other types of NMLOs. Therefore, the Commission proposes to add beyond-the-midpoint limit orders to both the list of marketable order categories and the list of non-marketable order categories for which those execution quality statistics are required, as provided in proposed Rules 605(a)(1)(ii) and 605(a)(1)(iii), respectively. Unlike market, marketable limit, and marketable IOC orders, beyond-the￾midpoint limit orders may be covered orders even if received outside of regular trading hours or when an NBBO
is not being disseminated.320 However, because beyond-the-midpoint limit orders are priced more aggressively than the midpoint of the NBBO when received, they are by definition executable from the time of order receipt unless submitted prior to market open or during a trading halt. In that case, they would be executable at the time the NBBO is first disseminated after the time of order receipt during regular trading hours. Therefore, the Commission proposes to modify the time to order execution statistics to state, with respect to beyond-the￾midpoint limit orders, these time-based statistics should be measured from the time such orders become executable to the time of order execution.321 (c) Marketable IOCs Rule 605 reports group marketable IOCs together with other marketable orders.322 The Commission included IOC orders in the scope of the Rule, reasoning that IOC orders are functionally the same as orders that are submitted and cancelled almost immediately thereafter.323 The EMSAC, as well as commenters on the 2010 Equity Market Structure Concept Release and the 2018 Rule 606 Amendments, suggested separating IOCs within the categorization by order type.324 While the Commission continues to believe that information regarding IOCs is useful to measure execution quality, marketable IOCs may have a different submitter profile (typically, institutional investors) 325 and different execution quality characteristics.326 Analysis of Tick Size Pilot data indicates that IOCs typically have much lower fill rates than other market and marketable limit orders (on average 3.22% as compared to 15.94%), particularly with respect to larger-sized orders and orders received by wholesalers.327 This data also shows that IOCs make up more than 90% of executed market and marketable share volume.328 As a result, including them with other market and marketable limit orders may be skewing fill rates downwards, especially for larger-sized orders and orders handled by wholesalers. To address this issue, the Commission proposes to assign marketable IOCs to a separate order type category so that they no longer would be commingled with other order types. Specifically, the Commission proposes to add a category for ‘‘marketable immediate-or-cancel orders’’ and indicate that the category for ‘‘marketable limit orders’’ excludes IOC orders.329 Rule 605(a)(1)(i) and (ii) specify execution quality statistics required for enumerated categories of orders, including marketable limit orders. The Commission proposes to add marketable immediate-or-cancel orders to the enumerated order categories for those sets of execution quality statistics so that the Rule would continue to require the same information for marketable IOCs that is

330See proposed Rule 605(a)(i) and (ii). Additional information that is currently calculated for market and marketable limit orders (e.g., price improvement statistics) would continue to be calculated for marketable IOCs. 331See 17 CFR 242.605(a)(1)(i)(F)–(J). 332See 17 CFR 242.600(b)(91) and (92). The Commission is proposing to renumber the definitions of ‘‘time of order execution’’ and ‘‘time of order receipt’’ as proposed Rule 600(b)(108) and (109), respectively. 333See proposed Rule 600(b)(109). 334See proposed Rule 600(b)(108). 335For shares executed with price improvement, executed at the quote, or executed outside the quote, respectively, see proposed Rules 605(a)(1)(ii)(C), 605(a)(1)(ii)(G), and 605(a)(1)(ii)(L). Current Rule 605 does not specify a level of granularity for the existing time-to-execution statistics. However, the 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).
336Proposed Rule 600(b)(42). As discussed above, the Commission is also proposing to expand the scope of Rule 605 reporting to include certain NMLOs submitted outside of regular trading hours, specifically NMLOs that become executable during regular trading hours. See supra section IV.A.1. 337See dataset ‘‘Conditional Cancel and Trade Distribution’’ available at https://www.sec.gov/ marketstructure/downloads.html. See also infra note 692 and accompanying text. 338See, e.g., KOR Group I at 2, FIF I at 2. 339See FIF III, Appendix 1 at 4. 340See IHS Markit Letter at 26–27. 341See Securities and Exchange Commission File No. 4–698 (National Market System Plan Governing the Consolidated Audit Trail), section 6.8(b). See also Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016). 342See 17 CFR 242.613(d)(3) (requiring the use of timestamp increments finer than the minimum so that all reportable events ‘‘can be accurately sequenced’’). 343See 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). 344See 17 CFR 242.605(a)(1)(ii)(D), (F), and (I), requiring share-weighted average period from the time of order receipt to the time of order execution for shares executed with price improvement, at the quote, and outside the quote, respectively. 345Analysis of Tick Size Pilot data shows more than 95% of market and marketable limit orders that executed did so within 1 second. See analysis in infra Figure 12. See also infra section VII.E.3.(b)(1) (analyzing execution speeds of market and marketable limit orders, along with the three categories of NMLOs currently required in Rule 605 (inside-the-quote, at-the-quote, and near-the￾quote)). 346See 17 CFR 242.605(a)(1)(i)(F) (requiring the reporting of the cumulative number of shares of covered orders executed from 0 to 9 seconds after the time of order receipt). required for other marketable order types.330 Request for Comments The Commission seeks comment on the proposed changes to the definition of ‘‘categorized by order type.’’ In particular, the Commission solicits comment on the following:
24. Should the proposed concept of
executability be required to be used as a benchmark for NMLO and stop order statistics? Why or why not? Is another benchmark more appropriate, and if so why? Please explain and provide data, if available.
25. Should beyond-the-midpoint limit
orders have different execution quality statistics than other types of NMLOs or marketable limit orders? Why or why not?
26. Should marketable IOCs be
required to be broken out into a separate order type category? Why or why not? Do commenters agree that marketable IOCs may have a different submitter profile and different execution quality characteristics than market orders and marketable limit orders? Please explain.
3. Timestamp Conventions
Rule 605 reports are required to include information on the number of shares of covered orders executed within certain timeframes, measured by seconds after the time of order receipt.331 Rule 600 definitions for ‘‘time of order execution’’ and ‘‘time of order receipt’’ require that time be measured ‘‘to the second.’’ 332 Further, the smallest time-to-execution category in current Rule 605 includes those covered orders executed from 0 to 9 seconds after the time of order receipt. The Commission proposes to update the timestamp conventions used for the time of order receipt 333 and time of order execution 334 definitions to require that such times be measured ‘‘in increments of a millisecond or finer.’’ The Commission also is proposing to specify that the average time-to￾execution statistics currently required for marketable order types should be expressed in increments of a millisecond or finer.335 Similarly, the proposed definition of ‘‘executable’’ provides that the time an order becomes executable ‘‘shall be measured in increments of a millisecond or finer.’’ 336 The equities markets now operate at much greater speeds than they did in 2000 when timestamps were adopted with second granularity. For example, an analysis of data from the SEC’s MIDAS analytics tool shows that in Q1 2022 more than half (51.6%) of on-exchange NMLOs executed in less than one second in large market cap stocks.337 Changes in technology have made more granular timestamp information more cost effective and practicable and timestamp information ‘‘in increments of a millisecond or finer’’ would result in more informative reports. Numerous commenters have raised concerns about the Rule’s timestamp conventions, especially given the increases in the speed of the market.338 One commenter stated that current time bucketing is outdated and the Rule should provide average execution time for marketable orders, measured in milliseconds (or microseconds).339 Another commenter suggested that Rule 605 should be re-written to include statistics at a granular number of milliseconds from order receipt time to either fill or cancel time.340 The proposed amendments would not require the use of reporting increments finer than milliseconds for reports generated under Rule 605. The CAT NMS Plan requires CAT reporters to report CAT data to the CAT in milliseconds and, to the extent a CAT reporter’s order handling or execution systems utilize timestamps in increments finer than milliseconds, such CAT reporter is required to utilize such finer increments up to nanoseconds when reporting CAT data to the CAT.341 CAT requires the use of such finer increments, when available, to assist in the accurate sequencing of reportable events on an order-by-order basis.342 In contrast, the order and execution quality statistics under Rule 605 utilizing timestamp information are reported in the aggregate. Timestamp information in millisecond increments would allow for meaningful points of comparison between
market centers or broker-dealers for both aggregate data that utilizes timestamp information and time-to-execution statistics such as average time to execution. There would be limited additional utility in requiring Rule 605 reporting using increments finer than a millisecond. In conjunction with the proposed requirement to use the more granular timestamps, the Commission is proposing to eliminate the current time￾to-execution buckets.343 Average time to execution is already required to be reported for market orders and marketable limit orders,344 and generally provides a more informative metric for those order types than the existing time-to-execution buckets given the speed with which those order types typically execute. The vast majority of market orders and marketable limit orders that execute are executed in less than a second,345 an increment that results in almost all market and marketable limit orders being contained in the smallest of the existing time-to￾execution buckets.346 As a result, the existing time-to-execution buckets do not generally provide meaningful time￾to-execution differentiation for market orders and marketable limit orders. The existing time-to-execution buckets only generally provide meaningful information for non-marketable order

347See 17 CFR 242.605(a)(1)(ii)(D), (G), and (H) for shares executed with price improvement, executed at the quote, or executed outside the quote, respectively. 348See proposed Rule 605(a)(1)(iii)(C), (D), and (E). 349See proposed Rule 605(a)(1)(ii)(D), (E), (H), (I), (M), and (N), and proposed Rule 605(a)(1)(iii)(D) and (E), requiring share-weighted median and share-weighted 99th percentile time to execution information. These measures would represent the time at or below which 50 percent of executions occur, weighted by number of shares (in the case of the share-weighted median) and the time at or below which 99 percent of executions occur, weighted by number of shares (in the case of the share-weighted 99th percentile). 350See 17 CFR 242.605(a)(1)(ii)(C). 351See 17 CFR 242.605(a)(1)(ii)(G). 352See 17 CFR 242.605(a)(1)(ii)(L). 353For shares executed with price improvement, executed at the quote, or executed outside the quote, respectively, see proposed Rules 605(a)(1)(ii)(D), 605(a)(1)(ii)(H), and 605(a)(1)(ii)(M). 354For shares executed with price improvement, executed at the quote, or executed outside the quote, respectively, see proposed Rules 605(a)(1)(ii)(E), 605(a)(1)(ii)(I), and 605(a)(1)(ii)(N). 355See proposed Rule 605(a)(1)(iii)(C). 356See proposed Rule 605(a)(1)(iii)(D). 357See proposed Rule 605(a)(1)(iii)(E). As a result, the use of time-to-execution buckets would no longer be necessary. Rule 605(a)(1)(i)(F) through (J) requires statistics for the cumulative number of shares of covered orders executed in separate time￾to-execution buckets. Those requirements would be eliminated. 358See Healthy Markets II at 3 (suggesting use of the following execution time categories: less than 500 microseconds; 500 microseconds–1 millisecond; 1–10 milliseconds; 10–100 milliseconds; 100 milliseconds–1 second; and current categories). types. The Commission believes that requiring average time to execution for all order types, in addition to statistics that would provide information about the distribution of execution times within each order type, would provide more meaningful information because these statistics could be used to compare the average time to execution for a particular order type, while still providing information about the extent to which outlier values do or do not skew the average. Although average time to execution is currently required for marketable order types,347 the Commission believes it would be both feasible and useful to measure average time to execution for non-marketable order types from the point in time they become executable. As stated above, this would provide a control for prevailing market conditions and benchmark orders from a point when such orders could reasonably be expected to execute. Therefore, the proposal would require the share￾weighted average time to execution for non-marketable order types, calculated from the time such orders become executable.348 Because orders may execute near￾instantaneously or over
a number of minutes, average time to execution within a category could be skewed by outlier values. Given this, information about the distribution of execution speeds in addition to the average would still be useful. However, the existing time-to-execution buckets are of limited utility, especially for the fastest executions, given that the smallest time￾to-execution bucket encompasses all orders executed between zero and nine seconds. Although finer increments could be added below one second, it would still be important to retain information for those orders that take longer to execute. Rather than adding additional buckets to provide this distribution information, the Commission proposes requiring both share-weighted median and 99th percentile time-to-execution statistics in order to provide additional descriptive statistical information for executions of all covered order types.349 These two measurements would provide additional information to allow 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 time to execution within a particular category is affected by outlier values. For these reasons, the Commission proposes to require share-weighted median and 99th percentile time to execution for all order types. Average time to execution statistics for marketable order types (market orders, marketable limit orders, marketable IOCs, and beyond-the-midpoint limit orders) would be required for each of:
shares executed with price improvement,350 at the quote,351 and outside the quote.352 For the marketable order types, the Commission is similarly proposing to require: (i) the share￾weighted median period from the time or order receipt to the time of order execution; 353 and (ii) the share￾weighted 99th percentile period from the time of order receipt to order execution.354 For non-marketable order types (beyond-the-midpoint limit orders, executable NMLOs, and executable orders with stop prices NMLOs), the Commission proposes to require, for executed orders: (i) the share-weighted average period from the time the order becomes executable to the time of order execution; 355 (ii) the share-weighted median period from the time the order becomes executable to the time of order execution; 356 and (iii) the share-weighted 99th percentile period from the time the order becomes executable to the time of order execution.357 The Commission considered compressing the current time-to￾execution buckets to a sub-second level (i.e., less than 50 milliseconds, 50–500 milliseconds, 500 milliseconds to 1 second, and greater than 1 second). One commenter suggested that even more granular timestamps be used.358 The proposed rule would not require the use of microsecond timestamps, for the reasons discussed above. The Commission solicits comment below on whether requiring the use of timestamps more granular than a millisecond would be appropriate. Request for Comment The Commission seeks comment generally on the changes to the timestamp conventions within Rule 605. In particular, the Commission solicits comment on the following:
27. Should Rule 605 require
timestamps to be recorded at millisecond level granularity? Why or why not? Would it be preferable in Rule 605 for timestamps to be recorded at microsecond granularity (as suggested by one commenter) or nanosecond granularity? Please explain and provide data, if available. Should Rule 605 require market centers and larger broker-dealers to utilize timestamps in increments finer than milliseconds to the extent such entities’ order handling or execution systems utilize finer increments? Why or why not? Would allowing some market centers and broker-dealers to utilize timestamps in increments finer than milliseconds affect the comparability of their execution quality statistics?
28. Do commenters believe the
proposed level of timestamp granularity would enhance the usefulness of execution quality statistics? Why or why not?
29. Do commenters believe that the
proposed statistical measures that would be required for time to execution (i.e., average, median, and 99th percentile) are appropriate? If not, what statistics should be used?
30. Should the Commission require
share-weighted average time to execution for non-marketable order types, measured from the time the order becomes executable? Should the Commission require share-weighted median and 99th percentile time-to￾execution statistics, measured from the time an order becomes executable?
31. Should the Commission retain the
required time-to-execution buckets for all order types, with revisions to the time intervals used? If so, should the Commission use the time buckets proposed by a commenter (i.e., less than

359See 17 CFR 242.600(b)(9). For buy orders, realized spread is 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 is double the amount of difference between the midpoint of the NBBO five minutes after the time of order execution and the execution price. See id. The Commission is proposing to renumber the definition of ‘‘average realized spread’’ as proposed Rule 600(b)(13). 360See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75424.
361See id.
362 Id. See also Securities Exchange Act Release No. 84875 (Dec. 19, 2018), 84 FR 5202, n.587 (Feb. 20, 2019) (‘‘The realized spread is the portion of the spread that market makers ‘realize’ after adverse selection costs are taken into account.’’). 363See, e.g., Larry Harris, Trading and Exchanges:
Market Microstructure for Practitioners (Oxford University Press 2003) at 286 (‘‘Informed traders buy when they think that prices will rise and sell otherwise. If they are correct, they profit, and whoever is on the other side of their trade loses. When dealers trade with informed traders, prices tend to fall after the dealer buys and rise after the dealers sell. These price changes make it difficult for dealers to complete profitable round-trip trades. When dealers trade with informed traders, their realized spreads are often small or negative. Dealers therefore must be very careful when trading with traders they suspect are well informed.’’) 364See, e.g., Roger Huang & Hans Stoll, Dealer Versus Auction Markets: A Paired Comparison of Execution Costs on NASDAQ and the NYSE, 41 J. Fin. Econ. 313–357 (1996). 365See supra note 98. 366See, e.g., Maureen O’Hara, High Frequency Market Microstructure, 116(2) J. Fin. Econ. 257–270 (2015) (‘‘O’Hara 2015’’); Maureen O’Hara, Gideon Saar, & Zhuo Zhong, Relative Tick Size and the Trading Environment, 9(1) Rev. of Asset Pricing Stud. 47–90 (2019) (‘‘O’Hara et al.’’); Jennifer S. Conrad & Sunil Wahal, The Term Structure of Liquidity Provision, 136(1) J. Fin. Econ. 239–259 (2020) (‘‘Conrad and Wahal’’). 367See Conrad and Wahal. 368See infra Figure 13. 369See infra note 706 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 infra section VII.C.1.(d). 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. 370See Conrad and Wahal. 500 microseconds; 500 microseconds–1 millisecond; 1–10 milliseconds; 10–100 milliseconds; 100 milliseconds–1 second; in addition to the current categories)?
4. Changes to Information Required for
All Types of Orders
(a) Realized Spread
Rule 605 requires calculation of average realized spread for executions of all covered orders and is calculated by comparing the execution price of an order and the midpoint of the NBBO as it stands five minutes after the time of order execution.359 The smaller the average realized spread, the more prices have moved adversely to liquidity providers after the order was executed, which shrinks the spread ‘‘realized’’ by the liquidity providers.360 A low average spread indicates that a liquidity provider was providing liquidity even though prices were moving against it.361 In the Adopting Release, the Commission also stated that the realized spread statistic ‘‘can highlight the extent to which market centers receive uninformed orders (as indicated by higher realized spreads than other market centers), thereby potentially helping to spur more vigorous competition to provide the best prices to these orders to the benefit of many retail investors.’’ 362 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.363 In order to proxy for this, realized spread measures the difference between the execution price and a future price. An ideal measurement horizon would be one that aligns with the amount of time an average liquidity provider holds onto its inventory positions and must be sufficiently long so that it captures a price reversal rather than a series of trades representing the same demand as the initial trade but not so long as to introduce unnecessary noise.364 The equities market moves much faster than it did in 2000,365 and correspondingly any changes in market maker or liquidity provider positions and inventory occur much more quickly in the contemporary market environment. There is academic literature that argues that the current five-minute horizon has become inappropriate for a high-frequency environment.366 One study posits that the five-minute time horizon should be replaced with a horizon of no more than 15 seconds for large cap stocks and 60 seconds for small cap stocks.367 Selecting an appropriate time horizon to calculate the realized spread is important, as realized spreads vary significantly as the time horizon is changed.368 In order to examine this issue, the Commission analyzed how realized spreads vary when calculated over time horizons ranging from one second to five minutes, as well as how they differ based on market capitalization size, using TAQ data from February 2021 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).369 The results are presented in Figure 1, and show that realized spreads tend to decrease as the time horizon increases, and additionally show that they tend to decline as market capitalization size increases. 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 be too short for small cap stocks.370 As a result, the Commission believes that including multiple different time horizons for realized spreads would make this measure more relevant across a wider range of stocks.
Figure 1: Average Realized Spreads by
Market Capitalization, February 2021

371 Generally, if most of the difference between realized spreads is captured at a particular time horizon, then this implies that most of the relevant information has been incorporated into the realized spreads. 372Specifically, analysis shows the 15-second horizon captures over 66.2% of the overall decline in realized spreads for the group corresponding to the largest stocks, but captures less than a third of this decline in the two groups corresponding to smaller stocks. Analysis also shows that the 15- second horizon captures almost 50% of the overall decline in realized spreads for those stocks with a market capitalization of between $1 billion and $10 billion. 373By the one-minute horizon, realized spreads have captured more than 50% of the overall decline in realized spreads for all stocks, and a substantial majority for the two groups of larger stocks (79% and 94.9%). 374For the two smaller-stock groups, a sizeable proportion of the overall decline (37%) does not occur until the five-minute horizon. See infra
section VII.E.3.(c)(1) for a discussion of including
additional time horizons, including the five-minute horizon, for calculating realized spreads. 375See proposed Rule 605(a)(1)(i)(G) and(I). In order to accommodate calculation of ‘‘average realized spread’’ at two different time intervals, the Commission proposes to modify the existing definition of ‘‘average realized spread’’ to replace the reference to five minutes with a ‘‘specified interval.’’ See proposed Rule 600(b)(13). 376See Conrad and Wahal. Further, the analysis of different time horizons and market capitalization shows that most of the difference in realized spread 371 is captured for the largest stocks at 15 seconds, but less than a third is captured for smaller cap stocks, as shown in Table 1 below.372 However, at least half of the difference is captured for smaller cap stocks at one minute.373 Therefore, the proposed time horizons of 15 seconds and one minute would capture most of the realized spread information, in particular for the largest stocks.374
TABLE 1—VARIATION IN AVERAGE REALIZED SPREAD, BY TIME HORIZON
Market cap group 1 sec–5 min ($) Horizon 15 sec (%) 1 min (%) 5 min (%) <$100 million .................................................................................................... 0.021 22.5 40.2 37.3 $100 million–$1 billion ..................................................................................... 0.019 33.2 29.7 37.1 $1 billion–$10 billion ........................................................................................ 0.017 48.5 30.5 21.0 >$10 billion ....................................................................................................... 0.013 66.2 28.7 5.1
Table 1: Variation in Average Realized Spread, by Time Horizon. This table presents the difference between dollar realized spreads calculated
using a 1-second time horizon and realized spreads calculated using a 5-minute time horizon, along with the percentage of variation in this dif￾ference that is captured at various time horizons (15 seconds, 1 minute, and 5 minutes), using data from TAQ. See infra note 722 for dataset de￾scription. 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 369 and infra section VII.C.1.(d). Based on this analysis, for executions of covered orders, the Commission proposes that the average realized spread be calculated at specified intervals of 15 seconds and one minute after the time of execution.375 The Commission believes that these timeframes are appropriate for liquid stocks and for thinly traded stocks because, as suggested by available academic literature and supported by the analysis in this release, realized spreads are likely to be most impacted during the first 15 seconds, for large stocks, and one minute, for small stocks, following a trade.376 The Commission is proposing to require realized spreads to be calculated at both intervals in order EP20JA23.000</GPH>
Figure 1: Average Realized Spreads by Market Capitalization, February 2021. This figure plots the share-weighted average
realized spread using different time horizons, across four different market capitalization groups, using data from TAQ. See infra note 722 for dataset description. 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 l\1DI Rules and numbers may be different following the implementation of the l\1DI Rules. See infra note 369 and infra section VII.C. l .d).

377Two commenters suggested expanding realized spread into 50ms, 100ms, and three minute buckets to better identify adverse selection. See KOR Group I at 4; Healthy Markets II at 3. One commenter suggested that if the realized spread statistic is to remain, the Commission should either determine an appropriate time-scale for the measurement or re-affirm the current five minutes duration. See FIF III at 10. 378Analysis shows that retaining a five-minute horizon, in addition to the proposed one-minute and 15-second horizon, would capture additional information about realized spreads, particular for the smallest stocks. See infra section VII.D.1.(b)(1)(c)(ii). However, as stated above, the one-minute time horizon would still capture more than 50% of the variation in realized spreads for the smallest cap stocks. See supra note 373. 379See infra section IV.B.4.b). 380The 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, e.g., Bjo¨rn Hagstro¨mer, Bias in the Effective Bid-Ask Spread, 142(1) J. Fin. Econ. 314–337 (2021). 381See infra section VII.E.3.(c)(3). 382This might not be a significant additional cost, as reporting entities would be required to collect information on NBBO depth for computing the size improvement benchmark measure under the proposed amendments. See infra section IV.B.4.(e). 383See 17 CFR 242.600(b)(8). All orders that require reference to a consolidated BBO that has been crossed for 30 seconds or more are exempt. See Letter from Annette L. Nazareth, Director, Division, Commission, to Stuart J. Kaswell, Senior Vice President and General Counsel, Securities Industry Association (Mar. 12, 2001) (‘‘SIA Exemption Letter’’). 384See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75415.
385As noted above, beyond-the-midpoint limit orders are a type of NMLO. 386See proposed Rule 600(b)(10). 387See proposed Rule 605(a)(1)(i). The Commission also proposes to delete the current average effective spread calculation requirement in Rule 605(a)(1)(ii)(A), which previously applied only to market and marketable limit orders, because this measurement, with the inclusion of marketable IOCs, beyond-the-midpoint limit orders, executable NMLOs, and executable orders with stop prices, would be included in proposed Rule 605(a)(1)(i)(K). 388See proposed Rule 605(a)(1)(i)(H), (J), and (L). 389See proposed Rule 600(b)(11) and (12). to provide relevant information for symbols with different liquidity characteristics. While commenters supported moving away from the current five-minute calculation, they suggested different time horizons.377 Although both shorter (50ms, 100ms) and longer (three minute, five minute) 378 time horizons would provide useful information for certain groups of stocks, each additional time horizon adds to the computational burden of preparing the reports and increases the size and complexity of the reports, adding to the costs that market participants face when collecting, interpreting, and evaluating Rule 605 reports. Additional time horizons would likely only provide additional benefits for smaller subsets of stocks, while the 15-second and one minute time horizons would generally provide informative average realized spread metrics across the universe of stocks with different market capitalization and different liquidity characteristics. Finally, in connection with both the average realized spread and average effective spread 379 statistics, the Commission has also considered, but is not including in the proposed rule text, an updated method by which the spread is calculated by incorporating a weighted midpoint.380 However, as is discussed in section VII.E.3.(c)(3) below, the midpoint requires data only on the best available bid and ask price.381 In contrast, calculating the weighted midpoint would require that reporting entities additionally collect data on the depth available at the NBBO.382 Furthermore, the midpoint may be easier to compute and interpret, as it is more familiar to market participants than the weighted midpoint. (b) Average Effective Spread Rule 600(b)(8) defines ‘‘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.383 Currently, average effective spread is required to be calculated only for market and marketable limit order types and doing so requires the comparison of the execution price of an
order with the midpoint of the NBBO at the time of order receipt. The Commission proposes to expand effective spread reporting requirements to include all covered orders, and to modify the methodology for calculating this metric for executable NMLOs, beyond-the-midpoint limit orders, and executable stop orders. Average effective spread provides a measure of spread actually paid by investors at a particular market center.384 Generally, for marketable order types, average effective spread provides a measure of the price paid for the immediacy of execution. However, because they are less aggressively priced, NMLOs are not typically submitted with the expectation that they will be executed immediately. Instead, they are submitted with the expectation that they rest and provide liquidity (if executed). Therefore, average effective spread for NMLOs and orders submitted with stop prices provides a measure of the amount a liquidity provider could expect to earn for providing liquidity. The Commission proposes to revise the definition of ‘‘average effective spread’’ to specify that, for order executions of NMLOs 385 and orders submitted with stop prices, average effective spread be calculated from the time the order becomes executable.386 Because the concept of ‘‘executable’’ controls for prevailing market conditions, benchmarking average effective spread statistics for these non-marketable order types from the time such orders become executable would permit average effective spread statistics for these order types to be more informative of execution quality received. The Commission proposes to prescribe the collection of this data point for executable NMLOs, beyond￾the-midpoint limit orders, and executable stop orders by adding proposed Rule 605(a)(1)(i)(K) to require the calculation of average effective spread for executions of covered orders, which includes executable NMLOs and executable stop orders.387 (c) Percentage Spreads (Effective and Realized) Currently, Rule 605 statistics include the average realized spread and average effective spread for executions of covered orders. To compare these dollar-based statistics across the data population while taking into account the wide range of stock prices, dollar￾based statistics need to be converted into percentages. While obtaining historical price information for individual securities is possible, in the Commission’s experience since the implementation of Rule 605, such calculations are time- and resource￾intensive, especially across multiple time periods and securities. Furthermore, the Commission believes that using percentage-based spread measures could provide additional information at the individual stock level if a stock’s price changes significantly during a month. Therefore, the Commission proposes requiring dollar-based spread statistics (i.e., effective spread and realized spread) to also be reported as percentages because a percentage measure would account for differing underlying stock
prices and better facilitate comparisons of spread statistics across different time periods and securities.388 The proposed definitions for ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread’’ would provide the same calculation as the dollar-based effective and realized spread statistics for the numerator.389

390The time of order receipt would be used for market orders, marketable limit orders, and marketable IOCs. See proposed Rule 600(b)(11). 391The time an order becomes executable would be used for NMLOs, beyond-the-midpoint limit orders, and orders submitted with stop prices. See proposed Rule 600(b)(11). 392See proposed Rule 600(b)(11). 393See proposed Rule 600(b)(12). 394Proposed Rule 600(b)(12) provides that the midpoint would be calculated at a ‘‘specified interval’’ after the time of order execution. Proposed Rule 605(a)(1)(i)(H) and (J) would require average percentage realized spread to be calculated at 15 seconds and one minute, respectively, after the time of execution. The Commission is proposing the use of the 15 second and one minute time period for the reasons discussed in supra section IV.B.4.(a). 395See proposed Rule 600(b)(12) and proposed Rule 605(a)(1)(i)(G) and (I). 396Quoted spread is the difference between the national best bid and the national best offer at the time an order is received. 397See, e.g., Bill Alpert ‘‘Who Makes Money on Your Stock Trades,’’ Barron’s, Feb. 28, 2015 (retrieved from Factiva database) (stating ‘‘the industry’s acid-test [execution] quality measure is the ratio of effective spread over the quoted spread, or E/Q’’); https://investor.vanguard.com/about-us/ brokerage-order-execution-quality#:∼:
text=Effective%20over%20quoted%20spread*,in %20our%20low%20E%2F. A commenter stated that E/Q is a commonly used metric of execution quality that measures how effectively a market maker prices a customer’s order relative to the prevailing NBBO. See Citi Letter at 3. 398See, e.g., https://us.etrade.com/trade/ execution-quality#:∼:text=Effective%20spread %20over%20quoted%20spread, between%20the%20bid%20and%20offer. 399Average 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). 400See infra note 878 and accompanying text. 401See proposed Rule 605(a)(1)(i)(M). 402See proposed Rule 600(b)(9) (defining ‘‘average effective over quoted spread’’). 403See id. 404See Adopting Release, 65 FR at 75425. 405See, e.g., FIF III, at 2; Virtu Petition at 3–4. The petitioner states that the ‘‘single biggest shortcoming’’ of Rule 605 is that it does not reflect Continued The denominator for dollar-based spread percentages would be 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) in order to provide a consistent measure of the prevailing stock price from the point when an order could reasonably be expected to execute. This would then be averaged on a share￾weighted basis for the month. Specifically, average percentage effective spread would be calculated for each transaction as double the amount of the difference between the execution price and the midpoint divided by the midpoint. The midpoint used would be at either the time of order receipt 390 or the time of executability.391 Then the percentage would be averaged on a share-weighted basis.392 Similarly, average percentage realized spread would be calculated as the realized spread for an order, divided by the midpoint of the NBBO at the time of order receipt (for marketable order types) or executability (for non￾marketable order types).393 For each buy transaction, realized spread would be double the amount of difference between the execution price and the midpoint of the NBBO at both 15 seconds and one minute after the time of order execution.394 For each sell transaction, realized spread would be double the amount of difference between the midpoint of the NBBO at both 15 seconds and one minute after the time of order execution and the execution price.395 Then the percentage would be averaged on a share-weighted basis for the month to calculate that month’s average 15-second and one￾minute realized spread percentage for each category. (d) Effective Over Quoted Spread (E/Q) The Commission understands that market participants often use effective over quoted spread (‘‘E/Q’’) 396 as a measure of
execution quality.397 E/Q is generally expressed as a percentage that represents how much price improvement an order received.398 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. An E/Q of 0% means an order was executed at the midpoint of the NBBO. Rule 605 does not require quoted spreads to be reported, although average quoted spread can be derived from existing Rule 605 statistics.399 However, along with the proposed requirement to include percentage-based realized and effective spread statistics, it would improve the comparability of price improvement statistics across symbols to include share-weighted average E/Q. Further, the Commission understands E/ Q is already often-used and well￾understood by industry participants. Currently, although average E/Q can be derived under Rule 605, E/Q is a relatively simple metric to capture contemporaneously with an execution. Given the common usage of the metric, requiring a separate field for E/Q would 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. Deriving average quoted spread from the existing reports involves additional computational burdens. Further, there are likely to be differences in E/Q on a per transaction basis that may yield a different average E/Q than extrapolating an average quoted spread for the month and using that to calculate an average monthly E/Q, which is a noisier measure of E/Q.400 Therefore, the Commission proposes to require, for executions of all covered orders, a statistic for the average effective over quoted spread, expressed as a percentage.401 Share-weighted average E/Q would be calculated by dividing effective spread by quoted spread402 for each transaction and then averaging that over the month (weighted by number of shares). The quoted spread would be 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).403 This would provide a consistent measure of the prevailing quoted spread at the point when an order could reasonably be expected to execute. Expressing share-weighted average E/Q as a percentage would provide an additional data point that could be used to evaluate price improvement across symbols or the entire data population. (e) Size Improvement Rule 605 reports are required to include price improvement metrics but do not indicate whether orders received an execution of more than the displayed size at the quote. The Commission considered whether to add a measure of ‘‘size improvement’’ or ‘‘liquidity enhancement’’ when adopting Rule 605, but did not add this type of measure in
part to minimize the complexity and
quantity of statistics, and in part because certain measures, such as effective spread, already reflected a market center’s ability to execute above the displayed size.404 Share-weighted effective spread metrics may provide information about size improvement, since effective spread will be larger for orders that have to ‘‘walk the book’’ (i.e., consume available depth beyond the best quotes). However, effective spread combines both price and size information; therefore, it is difficult to distinguish whether, for example, a low effective spread arises because the market center consistently offered better prices to small orders, or was able to offer better prices to several very large orders. Market participants have expressed support for a size improvement measure,405 and orders are

any benefits received by retail investors on orders that outsize the NBBO, including size improvement. See Virtu Petition at 3. The petitioner states that retail investors deserve more complete execution quality reports that provides transparency about the amount of size improvement that their orders are receiving. See id. at 4. The petitioner specifically states that Rule 605 reporting would be more complete if market participants could assess execution quality by comparing the fill prices on their orders to a reference benchmark that includes all displayed liquidity on exchanges, including resting odd-lots that are visible in market data feeds. See id. 406For example, the petitioner stated that ‘‘approximately 45% of shares (and 54% of the value traded) filled by [the petitioner] in 2020 were from orders that outsized the NBBO.’’ Virtu Petition at 3. 407See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18606. 408See id. at 16751 n.278 and accompanying text (citing the Investment Company Institute letter describing the difficulty of institutional investors’ ability to execute large orders). Shortly after decimalization became a reality, the GAO noted that the average executed trades size declined by 67% on NYSE and 41% on NASDAQ. See GAO Report, ‘‘Decimal Pricing Has Contributed to Lower Trading Cost and a More Challenging Trading Environment,’’ May 2005, at 37. 409See infra section VII.E.3.(d)(1). See infra notes 882–883 for a description of the sample selection and analysis. 410Note that capping the benchmark metric at the order size prevents the size improvement share count from turning negative in situations when depth at the best displayed quote exceeds the customer-requested order size. For example, consider a case in which a market center executes an order for 200 shares when there are currently 500 shares displayed at the national best offer. If the benchmark share count were not capped at the order size, the size improvement share count would be 200¥500 = ¥300 and would become more negative the more depth there is available at the NBBO, which would reduce a market center’s total monthly size improvement share count, simply for fulfilling the customer’s request to only execute 200 shares and not the full 500 shares that were available at the national best offer. Instead, the benchmark share count would be capped at the order size, and the benchmark share count would still be 200 shares. The size improvement share count would be 200¥200 = 0 shares, capturing the fact that the market center did not offer the national best offer price (or better) to any shares over and above the depth available at the best displayed quote. 411See Virtu Petition at 3. 412See id. Additionally, the EMSAC suggested a similar measure—Enhanced Liquidity—designed to indicate for the proportion of shares greater than the available shares displayed at NBBO that were executed at or better than the NBBO. See EMSAC III at 2, n.3 and accompanying text. 413 Virtu
Petition at 5. 414 In a white paper, one market center estimated its costs related to subscribing to depth of book data feeds for 11 exchanges to be between $51,480 and $226,320 per exchange per year. See IEX, Jan. 2019, ‘‘The Cost Of Exchange Services,’’ available at https://iextrading.com/docs/The%20Cost%20of %20Exchange%20Services.pdf. often larger than the displayed size at the NBBO.406 The Commission also stated in the MDI Adopting Release that the decimalization of securities pricing in 2001, and the resulting shift away from the larger fractional quoting and trading increments, had significant implications for the amount of liquidity available at the top of book.407 Market participants have raised concerns about reduced price transparency and difficulty executing large transactions at the best prices due to lower concentrations of trading interest at the top of book.408 The Commission believes that the use of size improvement statistics could help address these concerns by providing users of the statistics with information relating to which market centers and broker-dealers are more likely to be able to fill larger-sized orders at or better than the NBBO. The Commission proposes adding a benchmark metric that would, in combination with information about execution sizes, indicate the level of size improvement, i.e., whether orders received an execution greater than the displayed size at the quote. Analysis of a sample of 100 symbols during March of 2019 indicates only a moderate level of correlation between standard price improvement metrics and a measure of size improvement, indicating that these measures may contain different information about execution quality.409 Given that existing execution quality metrics do not include metrics for size improvement, nor any metrics that serve as an adequate proxy for a size improvement statistic, the Commission proposes to include a benchmark metric for all executions of covered orders. Specifically, proposed Rule 605(a)(1)(i)(F) requires, for executions of all covered orders, 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 for the full displayed size of the protected offer at the time of execution, in the case of a market or limit order to buy. This would capture the full displayed size at the quote on the side of the NBBO against which a buy or sell order would be expected to execute. Pursuant to the proposed rule, for each order, the share count shall be capped at the order size if the full displayed size of the national best bid or national best offer is larger than the order. This would prevent skewing of the size improvement benchmark if the national best bid or national best offer outsized any particular order. By limiting this measure to only the full displayed size of the protected bid or offer that would have been available to a particular order, the benchmark would
represent what could be have been executed at the protected bid or offer. This benchmark metric can be combined with information about the number of shares that a market center or broker-dealer 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 an order’s full size at the quote is not available. For example, if a market center executes a 500 share order to buy at a price at or better than the national best offer, and there are currently 200 shares displayed at the national best offer, the associated benchmark metric for the order would be 200 shares because there were only 200 shares available to fill the order at the best displayed quote. This benchmark share count could then be compared to the number of shares executed at the best displayed quote (in this case, 500 shares) to capture whether the market center filled any part of the customer order at the national best offer (or better), even when there was no depth available at the national best offer (‘‘size improvement share count’’). To continue the preceding example, the size improvement share count would be 500¥200 = 300 shares, since the market center was able to offer the best displayed quote to 300 shares more than the depth available at the best-displayed quote.410 The petitioner suggested an alternative metric: real price improvement (‘‘RPI’’), which combines price improvement (i.e., trades at prices better than the NBBO price) and size improvement (i.e., transactions executed for share quantities greater than shares displayed at the NBBO and at prices at or better than the NBBO price).411 The petitioner stated that RPI reflects the true benefits received by retail investors.412 RPI would use as its benchmark a price that ‘‘reflects the equivalent size of shares—including depth of book quotes and odd lot quotes.’’413 Because the calculation of RPI takes into account the complete set of information related to the consolidated depth of book, RPI may be a more informative measure of size improvement than a measure that can be calculated using the size improvement benchmark metric proposed. However, because the complete set of consolidated depth of book information is not available from public data sources, the RPI would require market centers and reporting broker-dealers to subscribe to all exchanges’ proprietary depth-of-book data feeds, which would entail a significant cost for those reporting entities that do not already subscribe to these feeds.414 The

415See also infra section VII.E.3.(d)(1) for a more detailed discussion of the potential benefits and costs of RPI. 416See Securities Exchange Act Release No. 47364 (Feb. 13, 2003), 68 FR 8686, 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’’). 417We note 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 Staff Legal Bulletin No. 12R, ‘‘Frequently Asked Questions About Rule 11Ac1–5’’ (June 22, 2001). 418See proposed Rule 605(a)(1)(i)(D). 419See supra note 380. 420As is noted above, the petitioner specifically states that Rule 605 reporting would be more complete if market participants could assess execution quality by comparing the fill prices on their orders to a reference benchmark that includes all displayed liquidity on exchanges, including resting odd-lots that are visible in market data feeds. See Virtu Petition at 4. 421See MDI Adopting Release. proposed rule would not require an RPI benchmark or measure, as the Commission preliminarily believes the benefits to market participants from having access to a potentially more accurate measure of size improvement are not justified by these potentially significant additional costs to reporting entities.415 (f) Riskless Principal 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.416 Generally, under the current Rule, a market center that executes 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) reports 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).417 However, because the away market center is also reporting execution of the principal order as part of its shares executed at the receiving market center, this results in both of these legs of the transaction being counted as executed at the receiving market center, which could obscure information about how often a market center internalizes orders. Wholesalers may choose between internalizing orders or executing orders on a riskless principal basis. This choice has an effect on execution quality because internalized orders are not exposed to competition, whereas the principal order associated with a riskless principal transaction may be exposed to trading interest from other market participants. Therefore, it would be useful for
investors to be able to observe what percentage of orders a wholesaler internalizes. Accordingly, Rule 605’s execution quality statistics would be more informative to market participants and other users of the Rule 605 reports if riskless principal orders were reported as executed at another venue, rather than as executed at the market center. The Commission proposes to carve riskless principal orders out from proposed 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.418 As a result, the market center that executes the riskless principal order would include these shares as part of the cumulative number of shares executed at any other venue under Rule 605(a)(1)(i)(E), and only the market center that executes the corresponding principal order would include those shares as part of the cumulative number of shares executed at the receiving market center under proposed Rule 605(a)(1)(i)(D). Request for Comment The Commission seeks comment generally on the changes to the information required for all order types, including the calculation of average realized spread for executed orders, the calculation of average effective spread for NMLOs, percentage-based spread statistics, E/Q statistics, size improvement measures, and the treatment of riskless principal transactions. In particular, the Commission solicits comment on the following:
32. Should realized spread be
required to be calculated 15 seconds and one minute after execution? Why or why not? If not, what alternative interval(s) do commenters recommend and why? Please explain and provide data, if available.
33. Some academic research suggests
that the use of a weighted midpoint would be more appropriate when calculating realized and effective spreads.419 Do commenters believe a weighted midpoint would be more appropriate? If so, why? Would additional costs be associated with utilizing a weighted midpoint?
34. Should average effective spread be
required to be calculated for NMLOs and orders submitted with stop prices? Do commenters agree with the proposed average effective spread calculation methodology that would be required for executable NMLOs and executable stop loss orders?
35. Should dollar-based spread
statistics (i.e., effective and realized spread) also be required to be reported as a percentage? Do commenters believe there are other ways to represent spread statistics that could be helpful? If so, how should spread statistics also be reported?
36. Should share-weighted average E/
Q expressed as a percentage be required to be calculated for all order types? Do commenters agree that share-weighted average E/Q expressed as a percentage would improve the comparability of price improvement statistics across symbols? If not, why?
37. With respect to proposed Rule
605(a)(1)(i)(F), do commenters support adding a requirement to include the proposed metric designed to, in combination with execution metrics, indicate whether orders received an execution greater than the displayed size at the quote (i.e., size improvement)? Why or why not?
38. The Commission seeks comment
on whether the addition of the proposed metric for size improvement would be sufficient to indicate whether orders received an execution greater than the displayed size of the quote. Should the Commission require a comparison of fill prices to a reference benchmark that includes depth of book and odd-lot information (i.e., RPI), or some other liquidity measurement? 420 If so, why?
39. Should riskless principal orders
not be required to be counted as orders executed at the receiving market center, broker, or dealer for the purpose of computing Rule 605 statistics and instead be classified as orders executed away? Why or why not?
5. Additional Required Information for
Market, Marketable Limit, Marketable IOC, and Beyond-the-Midpoint Limit Orders The MDI Rules expanded the data that will be made available for dissemination within the national market system (‘‘NMS data’’).421 One goal of the expansion of NMS data is to increase transparency about the best-priced quotations available in the market. To further increase transparency about the

422See 17 CFR 242.600(b)(59); MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18613. The Commission outlined a phased transition plan for the implementation of the MDI Rules, including the implementation of odd-lot order information. See MDI Adopting Release, 86 FR at 18698–701. 423The Commission is separately proposing 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. See Minimum Pricing Increments Proposal. The Commission encourages commenters to review that proposal to determine whether it might affect their comments on this proposing release. 424Odd-lot transaction information is currently collected, consolidated, and disseminated by the exclusive SIPs. See Securities Exchange Act Release Nos. 70793 (Oct. 31, 2013), 78 FR 66788 (Nov. 6,
2013) (order approving Amendment No. 30 to the
UTP Plan to require odd-lot transactions to be reported to consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6, 2013) (order approving Eighteenth Substantive Amendment to the Second Restatement of the CTA Plan to require odd-lot transactions to be reported to consolidated tape). 425See 17 CFR 242.600(b)(59); MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18613. The Commission is separately proposing to, among other things, accelerate the implementation of the round lot and the odd-lot information definitions. See Minimum Pricing Increments Proposal. 426See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18613. 427See proposed Rule 600(b)(14). 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. 428See id. 429See proposed Rule 600(b)(44). 430See proposed Rule 600(b)(47). 431See 17 CFR 242.600(b)(35). The Commission is proposing to renumber the definition of ‘‘executed outside the quote’’ as proposed Rule 600(b)(45). 432See 17 CFR 242.600(b)(36). The Commission is proposing to renumber the definition of ‘‘executed with price improvement’’ as proposed Rule 600(b)(46). 433See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18698–701. 434See id. at 18753. availability of the best priced odd-lot orders in the market, the Commission also included certain odd-lot information in NMS data as part of the MDI Rules.422 The Commission is proposing to add a definition for ‘‘best available displayed price,’’ which would include the best priced odd-lot if that price is inside the NBBO in order to provide additional price improvement statistics.423 Odd-lot information is defined as (1) odd-lot transaction data disseminated pursuant to the effective national market system plan or plans required under 17 CFR 242.603(b) as of April 9, 2021,424 and (2) 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.425 The Commission stated that making the best priced quotations available in core data is consistent with the Commission’s goal in expanding the content of NMS information—enhancing the availability and usefulness of the information.426 The Commission is proposing to add a definition for ‘‘best available displayed price’’ which shall mean, 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.427 In each case, an order to buy or an order to sell would be benchmarked against the best price on the side of the market against which it could expect to receive an immediate execution. Because a beyond-the-midpoint limit order may be a covered order even if received outside of regular trading hours or when an NBBO is not being disseminated, the Commission proposes to specify that, for beyond-the-midpoint limit orders, the best available displayed price shall be determined at the time such order becomes executable instead of the time of order receipt.428 Generally, the time of order receipt and the time the order is considered executable would be the same for a beyond-the-midpoint-limit order, except in those cases where it is received outside of regular trading hours or when an NBBO is not being disseminated. Therefore, measuring from the point of executability would ensure that a best available displayed price can be determined. The Commission is further proposing to add two definitions relating to the best available displayed price in order to add price improvement statistics. ‘‘Executed outside the best available displayed price’’ shall mean, for buy orders, execution at a price higher than best available displayed price; and, for sell orders, execution at a price lower than the best available displayed price.429 ‘‘Executed with price improvement relative to the best available displayed price’’ shall mean, 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.430 Similar to the existing definitions for ‘‘executed outside the quote’’ 431 and ‘‘executed with price improvement,’’ 432 these definitions would classify order executions based on their execution price relative to the best available displayed price. The Commission also proposes to add to Rule 605(a)(1)(ii) additional price improvement statistics specifically related to the best available displayed price. These statistics mirror the existing price improvement statistics for marketable order types executed better than, at, and outside the quote. Specifically, for each category, these additional price improvement statistics would provide a cumulative share count and a share-weighted average amount per share that prices were improved as compared to the best available displayed price. The Commission is proposing Rule 605(a)(1)(ii)(O), which would require the reporting of the cumulative number of shares of covered orders executed with price improvement relative to the best available displayed price. Proposed Rule 605(a)(1)(ii)(P) would require, 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. Proposed Rule
605(a)(1)(ii)(Q) would require the reporting of the cumulative number of shares of covered orders executed at the best available displayed price. Proposed Rule 605(a)(1)(ii)(R) would require the reporting of the cumulative number of shares of covered orders executed outside the best available displayed price. Finally, proposed Rule 605(a)(1)(ii)(S) would require, 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. These five metrics, in conjunction with each other, 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. The Commission outlined a phased transition plan for the implementation of the MDI Rules, including the implementation of odd-lot order information.433 The Commission stated that competing consolidators could offer a product that contains only information on the best priced odd-lot on each exchange.434 The Commission is separately proposing to, among other things: (1) accelerate the implementation of the round lot and the odd-lot information definitions; and (2) amend the definition of odd-lot

435See Minimum Pricing Increments Proposal. 436See supra section IV.B.1. 437See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18729 (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’’). 438See 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. 439See supra section IV.B.2. 440See proposed Rule 605(a)(1)(i)(D) and (E) (for shares executed at the receiving market center or broker-dealer and shares executed away, respectively). 441 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 (Jun. 29, 2005) at 37537 n.326. 442See FIF III, Appendix 1 at 8–10. 443 Id. information to include a new data element to identify the best odd-lot orders available in the market inside the NBBO.435 As is discussed above 436 and in the MDI Adopting Release, orders currently defined as odd-lots often reflect superior pricing.437 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.438 The Commission believes it would be beneficial to require price improvement statistics relative to the best available displayed price for marketable order types (i.e., market, marketable limit, marketable IOC, and beyond-the-midpoint limit orders). In some cases, this may be equal to the national best bid or national best offer. However, in some cases, the best price available may be reflected in an odd-lot price. Under the current 605 reporting requirements, an order executed inside the NBBO would be an order executed with price improvement. Currently, there is no way for market participants to evaluate the performance of broker￾dealers and market centers relative to the best inside the NBBO odd-lot when such better-priced orders are present. The Commission believes 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, would enhance the ability of market participants to evaluate order performance. Request for Comment The Commission seeks comment generally on changes to information required for market, marketable limit, marketable IOC, and beyond-the￾midpoint limit orders, including time￾to-execution statistics and price improvement statistics relative to the best available displayed price. In particular, the Commission solicits comment on
the following:
40. Do commenters agree with the
proposed definition of ‘‘best available displayed price’’? Do commenters believe this definition would be helpful in the calculation of the price improvement statistics? Why or why not?
41. Should the execution quality
statistics be required to include price improvement relative to the best available displayed price? Why or why not? What additional statistics would be beneficial?
42. If odd-lot price information is not
disseminated pursuant to an effective transaction reporting plan, what do commenters believe would be a viable substitute for a best odd-lot price for purposes of calculating price improvement statistics relative to the best available displayed price? Would use of substitute data provide a sufficiently standardized benchmark? Please explain.
6. Additional Required Information for
Executable NMLOs, Executable Stop Orders, and Beyond-the-Midpoint Limit Orders As discussed above,439 the Commission recognizes the need for more meaningful measures of execution quality for NMLOs and orders submitted with stop prices. First, proposed Rule 605(a)(1)(iii)(A) would require the reporting of the number of orders that received either a complete or partial fill. Although the cumulative number of shares executed is required to be reported for all order types,440 the Commission believes the number of orders filled would 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 share count represents, on average, larger execution sizes or a higher count of orders receiving executions. Second, the Commission is proposing Rule 605(a)(1)(iii)(B) 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.441 The Commission believes that market participants would benefit from more information about the number of shares that executed while an executable NMLO or executable order submitted with a stop price was in force. If a market center or broker-dealer is unable to execute NMLOs or stop orders despite a large number of shares executing in the market at large, market participants may want to take that into account when selecting a market center or broker-dealer. One commenter suggested a new execution quality metric called a ‘‘non-marketable benchmark.’’ 442 The commenter’s benchmark would ‘‘provide a reference for evaluating the extent to which an NMLO could have been filled’’ and considers shares executed on national market system exchanges as well as regular way off-exchange executions reported to the FINRA trade reporting facility.443 Under the proposal, the share count for each order would be capped at the order size. This would allow market participants to see how much activity took place while executable NMLOs and executable orders submitted with stop prices were in force and could give market participants an indication of how effective the market center or broker-dealer is at executing NMLOs and stop orders. This is similar to the benchmark metric suggested by the commenter (i.e., including both exchange and TRF trades), but is qualified by whether or not the NMLO or stop order is executable (not merely that it was in force). The Commission believes that by proposing to restrict the benchmark metric to only those NMLOs or stop orders that are executable would give a more realistic view of the opportunities available to that order. If a NMLO or stop order is never actually executable, inclusion of the order in the metrics could distort the overall view of a market center or broker-dealer’s performance. When combined with execution
information, the metric should provide information about how many trades executed while a NMLO or stop order could have been filled. This metric could then be combined with information on total executions in order to estimate a fill rate that is conditional on whether market prices reached levels at which NMLOs or stop order could have been filled (‘‘conditional fill rate’’). For example, if a NMLO for 200 shares becomes executable and the tape reveals that subsequently 100 consolidated shares were executed at the NMLO’s limit price, then the benchmark metric would be 100 shares. If a market center partially executed 50 shares of the NMLO, the conditional fill rate would be 50 shares/100 shares =

444The unconditional fill rate (i.e., the number of executed shares divided by the number of submitted shares) in this case would be 50 shares/ 200 shares = 25%, revealing that only a quarter of the NMLO was executed. The conditional fill rate adjusts for the fact that available market depth was insufficient to fill the entire order, and only compares the number of executed shares to the number of shares that are available at the limit price. 445Note that, if the metric were not capped at the order size, the conditional fill rate would be 200 shares/500 shares = 40%, which reflects that the order size was smaller than the cumulative number of shares executed during the NMLO’s lifespan. Capping at the order size therefore will result in the metric only capturing whether broker-dealers were able to fill order sizes as given. 446See 17 CFR 242.605(a)(1) and (2); Rule 605 NMS Plan, at V and VI. 447See Rule 605 NMS Plan, at V (‘‘Files shall be prepared in standard, pipe-delimited (‘|’) ASCII format and compressed using standard Zip compression.’’). 448While current Rule 605 applies to market centers only, the Commission also is proposing to expand Rule 605’s reporting obligations to broker￾dealers, subject to a customer account threshold for reporting. See supra section III.A. Requiring broker￾dealers to produce summary reports would align those entities that would be required to produce detailed execution quality statistics with those entities that would be required to produce the summary reports. 449According to the Financial Information Forum, the organization was formed in 1996 to provide a centralized source of information on the implementation issues that impact financial services and technology firms, and its participants include trading and back office service bureaus, broker-dealers, market data vendors, and exchanges. See FIF II at 1 n.1. 450See Financial Services Roundtable Letter at 4 (stating that the Financial Information Forum has established a Rule 605/606 working group that has sought to improve the execution quality statistics for retail investors and that the FIF Template includes order size, average order size, shares executed at the market quote or better, price improvement percentage, average savings per order, and execution speed); Fidelity Letter at 8 (identifying the commenter as one of the few firms that voluntarily publishes these industry￾standardized statistics); IHS Markit Letter at 30 (stating that the introduction of voluntary reporting of execution quality metrics, under the auspices of the Financial Information Forum, has demonstrated improvement in execution quality). See also Financial Information Forum, Retail Execution Quality Statistics, available at https://fif.com/tools/ retail-execution-quality-statistics. 451See EMSAC I at 0099:10–12 (Bill Alpert, Barron’s) (‘‘These are selective disclosures. Only a few brokers and market makers are making them, so a mandate would be nice.’’); Healthy Markets I at 7 n.17
(stating that this information provided is ‘‘incredibly valuable,’’ even if participation is very limited, with just three retail brokers and three wholesale market-making firms providing data). See also infra notes 553–555 and accompanying text (discussing the limited number of firms that have produced reports utilizing the FIF Template at various points in time). 452See Healthy Markets I at 7 (suggesting that the Commission mandate at least the same level of disclosure for retail orders as was provided pursuant to the FIF Template); Fidelity Letter at 7– 8 (suggesting that the Commission require brokers to make publicly available on their website execution statistics, such as price improvement, execution price, execution speed, and effective spread); Financial Services Forum at 5 (stating that although the disclosed metrics do not have to mirror the FIF Template, the Commission should consider requiring similar metrics that are output driven). See also Fidelity Letter at 9 (stating that dividing data between S&P 500 stocks and other exchange-listed stocks is a standard metric that is used to break down execution quality statistics in the FIF Template). 453Rule 606(b)(1) requires broker-dealers to produce to customers, upon request, a human￾readable report with high-level customer-specific order routing information, but these reports do not contain any execution quality information. See supra note 54 and accompanying text. Although the 2018 Rule 606 Amendments modified the orders covered by Rule 606(b)(1), the required disclosures under Rule 606(b)(1) did not change. See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19,
2018) at 58340 n.24.
454Consumer Federation II at 1 (suggesting that the Commission add to the FIF Template information about the NBBO at the time a marketable order is received, the NBBO at the time the order is executed, and any difference between them, and stating that these metrics would give additional information about whether any delays in routing and execution affect the ultimate price the investor pays). See also Angel Letter at 3–7 (suggesting that brokerage firms be required to display summary execution quality statistics on their websites, providing several alternative formats as samples, and suggesting that the statistics include information about the number of customer complaints received); Angel Letter at 2 (stating that the Rule 605 reports are too raw for most investors and few investors have the expertise to interpret the reports). 50%.444 If the market center does not execute the NMLO, the conditional fill rate would be 0 shares/100 shares = 0%. On the other hand, if the tape reveals that 500 consolidated shares were executed at the 200-share NMLO’s limit price subsequent to the limit order becoming executable, the benchmark metric would be capped at the order size to be 200 shares, since the market center would have been able to fully execute the 200-share order. If the NMLO executes, the conditional fill rate would be 200 shares/200 shares = 100%.445 If the NMLO does not execute, the conditional fill rate would be 0 shares/200 shares = 0%. If the market center has two such NMLOs, one that executes and one that does not, the total conditional fill rate would be (0 + 200)/ (200 + 200) = 50%. Request for Comment The Commission seeks comment generally on the reporting of certain information for beyond-the-midpoint limit orders, executable NMLOs, and executable orders with stop prices. In particular, the Commission solicits comment on the following:
43. Should market centers and broker￾dealers be required to report the number
of orders that received either a complete or partial fill? Why or why not?
44. Should the Commission also
require these entities to report the cumulative number of shares executed regular way at prices that could have filled the order while the order was in force? Do commenters believe this statistic would provide a meaningful point of comparison for execution quality for non-marketable order types? Why or why not? Should the Commission require an alternative metric? Why or why not?
V. Proposed Summary Execution
Quality Reports
Rule 605 requires market centers to prepare detailed execution quality statistics and, as required by the Rule 605 NMS Plan, make this data available via large electronic data files.446 The required format for the reports makes them machine-readable and suitable for further processing and analysis.447 However, the sheer number of rows needed to provide symbol-by-symbol data and the fact that human-readable formatting is not required means that Rule 605 reports are not readily usable by market participants and other interested parties that may prefer to review summary statistics, rather than conducting further analysis on the data. Furthermore, some market participants and other interested parties do not have access to software or possess programming skills necessary to conduct such analysis. Accordingly, the Commission is proposing to require all market centers and broker-dealers that are subject to Rule 605’s reporting obligations to produce summary execution quality statistics, in addition to the more detailed reports required by Rule 605(a)(1).448 As recognized by several commenters to the 2018 Rule 606 Amendments, in recent years a working group associated with the Financial Information Forum 449 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’’).450 Although the reports produced using the FIF Template may be useful, given that this disclosure is voluntary, only a few firms are making or have made such disclosures.451 Commenters have suggested that the Commission require broker-dealers to produce a similar summary report.452 For example, one commenter on the 2018 Rule 606 Amendments 453 stated that this proposal ‘‘neglect[ed] to include any meaningful retail disclosure requirements relating to execution quality, either on a customer-specific or publicly aggregated basis,’’ and that the type of disclosure provided in the FIF Template ‘‘must be added to enable investors, third-party analysts, academic

455See supra note 161 and accompanying text. 456Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75419. 457See supra note 164 and accompanying text. 458See supra notes 134–135 and 452–454 and accompanying text. 459See supra notes 450–454 and accompanying text. 460See supra note 456 and accompanying text. 461Those market participants or other observers that perform their own analyses using data from Rule 605 reports might find it useful also to review firms’ summary reports to obtain quick access to an overview of the data or assess information outside the scope of their own data analyses. Conversely, even if consumers of the summary reports do not review the more detailed Rule 605 data themselves, they might benefit from the detailed Rule 605 reports if independent analysts, consultants, broker￾dealers, the financial press, and market centers analyze the disclosures and produce more digestible information using the data, which analysis might include details not present in the summary reports. 462See proposed Rule 605(a)(2). 463Similarly, the FIF Template covers standard market orders. See Fidelity Brokerage Services LLC, Retail Execution Quality Statistics, available at https://www.fidelity.com/bin-public/060_www_ fidelity_com/documents/FIF-FBS-retail-execution￾quality-stats.pdf. But see Angel Letter, at 7 (recommending summary statistics specific to NMLOs). 464See proposed Rule 605(a)(2). 465See 17 CFR 242.606(a)(1). The FIF Template also segregates the reported execution quality statistics based on whether or not the securities are in the S&P 500 Index, and one commenter stated that this is a standard metric. See supra note 452. 466See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58378. 467See proposed Rule 605(a)(2). 468For example, without equal weighting, differences in summary-level execution quality statistics between a market center that receives more high-priced stocks for execution and market center that receives more low-priced stocks for execution may be more attributable to the different mix of stocks, rather than differences in the behavior of the market center. researchers, and regulators to examine the extent to which retail brokers are best serving their clients.’’ 454 When adopting Rule 605, the Commission made a decision to require market centers to produce detailed reports in order to avoid the dangers of overly general statistics.455 The Commission stated that ‘‘[a]ssigning a single ‘execution quality’ score to market centers, for example, would hide major differences in execution quality, potentially creating far more problems than it solved.’’ 456 The large volume of statistical data in the Rule 605 reports allows market participants and other interested parties to select the order characteristics that they find are most appropriate to use to compare execution quality, and their ability to conduct analyses would be enhanced by the modifications to Rule 605 proposed herein.457 Yet many commenters have
observed that also requiring firms to produce summary reports of the voluminous Rule 605 statistics would be useful,458 and some market centers have voluntarily posted summary statistics based on the detailed execution quality statistics in their Rule 605 reports.459 These voluntary reports have some utility, but the practice of producing summary statistics is not uniform and, even where summary statistics are provided, different formats may inhibit comparisons across firms. Requiring market centers and broker￾dealers to produce summary execution quality reports, in addition to the more detailed reports, would allow market participants and other interested parties to have more ready access to high-level data that would allow them to compare some of the more significant aspects of the execution quality provided by specific market centers and broker￾dealers. In particular, it is currently challenging for individual investors to use Rule 605 reports, and these individual investors would be more readily able to use a summary report to make a more informed choice than they can currently about selection of a broker-dealer. Because these reports would be human-readable, individual investors could assess the data by reviewing and comparing summary reports without needing technical expertise or relying on an intermediary. The proposed summary reports would contain significantly more detail than a ‘‘single ‘execution quality’ score’’ 460 and thus would contain quantitative data for interested parties to assess, rather than imposing a single metric that might require a subjective judgement or obscure meaningful differences about a market center’s or broker-dealer’s execution quality. Moreover, by requiring reporting entities to produce summary reports in addition to, rather than instead of, the more detailed statistics called for by the current Rule, those market participants or other observers that would like to perform a more detailed or specific analysis would be able to download the more granular underlying data files and perform such analysis.461 Proposed Rule 605(a)(2) would require every market center, broker, or dealer to make publicly available for each calendar month a report providing summary statistics on all executions of covered orders that are market and marketable limit orders that it received for execution from any person.462 Individual investors trading NMS stocks primarily use marketable orders (including market orders and marketable limit orders) that seek to trade immediately at the best available price in the market. Individual investors would be the most likely consumers of the summary reports, and therefore it would provide significant benefit for the summary reports to cover the types of orders that individual investors use most frequently.463 Other order types, such as NMLOs, would not be included in the summary reports because including these types of orders would increase the amount of information contained in the summary report,
and thus detract from its summary nature, and the summary execution quality information about these types of orders would be less likely to be useful to individual investors. In addition to representing a smaller share of trades by individual investors, a significant risk of including NMLOs is that they may be more likely to not be executed during the time period that they are executable and have a time lag before they become executable again, and therefore it would become more difficult to assess other aspects of execution quality, particularly at an aggregate level. The proposed summary report would include 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.464 Rule 606(a)(1) similarly separates the required quarterly report on order routing into a
section for securities that are included
in the S&P 500 Index and a section for other NMS stocks.465 When adding this provision to Rule 606 in the 2018 Rule 606 Amendments, the Commission stated that the handling of NMS stocks may vary based on their market capitalization value and trading volume, and thus customers that place held orders could benefit from a delineation based on the S&P 500 Index.466 The same reasoning applies to the proposed summary reports pertaining to execution quality statistics under Rule
605. Moreover, within each section,
each symbol would be equally weighted based on share volume.467 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.468 Further, equal weighting by share volume could be calculated using data collected to produce the Rule 605(a)(1) reports and would not require the collection of additional data. Each section of the report would include, for market orders and marketable limit orders, the following

469See proposed Rule 605(a)(2)(i)–(vii). 470See supra note 450 and accompanying text. The categories in the FIF Template for average order size (shares); shares executed at current market quote or better (%); price improvement (%); and average execution speed (seconds) appear to be directly comparable to the categories in proposed Rule 605(a)(2) for the average order size, the percentage of shares executed at the quote or better, the percentage of shares that received price improvement, and the average execution speed, in milliseconds. Moreover, the proposed use of milliseconds, rather than seconds, to measure average execution speed is consistent with proposed changes to the timestamp conventions, as discussed above. See supra section IV.B.3. 471See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75424. The statistics proposed to be
included in the summary report are also generally consistent with commenters’ suggestions that the summary report either follow the FIF Template or provide similar metrics. See supra notes 452–454 and accompanying text. One commenter suggested that the summary report include information about the NBBO at the time of order receipt and at the time of order execution to give information about whether delays in routing and execution affect the execution price. See supra note 454. This effect would likely also be evident in the average effective spread and average E/Q. 472See proposed Rule 605(a)(2). The Commission’s schema would be a set of custom XML tags and XML restrictions designed by the Commission to reflect the disclosures in proposed Rule 605(a)(2). XML enables data to be defined, or ‘‘tagged,’’ using standard definitions. The tags establish a consistent structure of identity and context. This consistent structure can be automatically recognized and processed by a variety of software applications, such as databases, financial reporting systems, and spreadsheets, and then made immediately available to the end-user to search, aggregate, compare, and analyze. In addition, the XML schema could be easily updated to reflect any changes to the open standard. 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. 473See 17 CFR 242.606(a)(1), (b)(1)(iii), and (b)(3). When adopting the 2018 Rule 606 Amendments, the Commission stated that the XML schema was designed to ensure that the data is provided in an XML format that is structured and machine￾readable, so that the data can be more easily processed and analyzed, and that by requiring use of the associated PDF renderer, the XML data would be instantly presentable in a human-readable PDF format and consistently presented across reports. See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58364. The Commission shares the same goals in proposing that the Rule 605(a)(2) reports be produced according to an XML schema and associated PDF renderer. 474See 17 CFR 242.605(a)(2). As discussed above, the Commission is proposing to expand this requirement, and the other procedural requirements in proposed Rule 605(a)(2) and (3), to cover broker￾dealers. See supra note 155 and accompanying text. 475See proposed Rule 605(a)(3). Among other things, the Plan requires each market center to arrange with a single plan participant to act as the market center’s Designated Participant. See Plan, at
section VIII. Inclusion of proposed Rule 605(a)(2)’s
summary reports within the scope of the Plan would 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 proposed Rule 605(a)(2). The Plan also establishes the formats and fields for the reports currently required under Rule 605(a)(1). Because proposed Rule 605(a)(2) requires the use of the Commission’s XML schema and associated PDF renderer, the Plan would not establish the formats and fields for the summary reports. Further, as proposed, the existing provision that states that, in the event there is no effective 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 would be reorganized as proposed Rule 605(a)(4) and modified to explicitly refer to the requirements in Rule 605(a)(1). See proposed Rule 605(a)(4). As proposed, this provision would not apply to the summary reports that would be required by proposed Rule 605(a)(2). The proposed summary reports would not need to be included in proposed Rule 605(a)(4) because the XML schema and associated PDF renderer would specify the necessary format for the reports and proposed Rule 605(a)(5) would contain the requirement for internet posting. 476 17 CFR 242.605(a)(2). summary statistics for executed orders:
(i) the average order size; (ii) the 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.469 Together, the proposed summary-level statistics are intended to provide an overview of price-based information and execution speed. The Commission notes that these categories of statistics are very similar to those used in the FIF Template, and that both the summary statistics in proposed Rule 605(a)(2) and the statistics reflected in the FIF Template focus on statistics that are most relevant to evaluating what type of pricing orders received and how quickly orders were executed.470 The proposed summary report would include average percentage of price improvement per order, average percentage effective spread, and average E/Q, expressed as a percentage, whereas the FIF Template includes average savings per order, expressed in dollars. The three statistics that would be in the proposed summary report each provide a different view of the pricing provided to orders, and, if anything, provide a more robust picture of this pricing than the single metric in the FIF Template. For example, average effective spread is a comprehensive statistic that is a useful single measure of the overall liquidity premium paid by those submitting orders for execution.471 The Commission is proposing to require that the summary reports must be made available using the most recent version of the XML schema and the associated PDF renderer published on the Commission’s website.472 The requirement to use the Commission’s XML schema is intended to ensure that the data is provided in a format that is structured and machine-readable, and this would allow users to more easily process and analyze the data, as well as provide consistency of format across reports. Further, the requirement that the same data should be provided through the use of a PDF renderer is intended to ensure that the reports are also available in a human-readable format and consistently presented across reports. A human-readable format would be a format that can be naturally read by an individual. Preparing reports in a human-readable format allows users that prefer only to review individual reports, and not necessarily aggregate or conduct large-scale data analysis on the data, to access the data easily. The Commission notes that Rule 606 similarly provides that the required reports on order routing shall be made available using the most recent versions of the Commission’s XML schema and associated PDF renderer.473 In addition, although the FIF Template is a general template and does not specify a particular format for the reports, market participants choose to voluntarily prepare reports using the FIF Template. The number of
reporting entities that would be required to prepare summary reports under proposed Rule 605(a)(2) would be much greater than the number of entities that have chosen to produce reports voluntarily using the FIF Template, and requiring a uniform format would facilitate users’ ability to compare information across reports. Rule 605 requires 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, readily accessible, and usable electronic form.474 The Commission is proposing to amend this provision, which would be reorganized into proposed Rule 605(a)(3), so that the proposed summary reports would also be made available in accordance with the procedures established by the Plan.475 Rule 605 also specifies 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.476 As proposed, these same requirements would be reorganized into proposed Rule 605(a)(5) and would be extended to the summary reports for the same reasons expressed when these requirements were adopted for the Rule 605(a)(1) reports and because it would be useful to users of the reports for the Rule 605(a)(1) reports and proposed

477See proposed Rule 605(a)(5). See also 2018 Rule 606 Amendments Release, 83 FR at 58380 (stating that the requirement to keep Rule 605(a)(1) reports posted on a website that is free and readily accessible for three years is appropriate because a three-year retention period is consistent with the requirement under Rule 17a–4(b) that broker￾dealers preserve certain documents for a period of not less than three years; the reports will be useful and not lead to misleading analyses because the Commission expects customers and the public to use historical information to compare information from the same time period; and the public information will provide a historical record of a market center’s order execution information). 478 17 CFR 242.605(a)(3). 479See proposed Rule 605(a)(6). 480 44 U.S.C. 3501 et seq. 481OMB Control Number 3235–0542. Rule 605(a)(2) reports to be available for the same period of time.477 Further, Rule 605 specifies that the detailed reports required by Rule 605(a)(1) must be made available within one month after the end of the month addressed in the report.478 The Commission is proposing to renumber this provision as proposed Rule 605(a)(6) and to extend this requirement to the Rule 605(a)(2) reports.479 The Commission believes that firms could produce the proposed Rule 605(a)(2) report alongside the Rule 605(a)(1) report, which must be produced monthly, because both reports are based on the same underlying data. Additionally, it would be useful for users of the reports to have access to the detailed reports and summary reports at the same time so that they could review the aggregated data in the summary reports and then conduct further analysis using the detailed reports, as needed. Request for Comment The Commission seeks comment generally on the proposed requirement that market centers and brokers-dealers that are required to produce detailed execution quality statistics also provide a summary report. In particular, the Commission solicits comment on the following:
45. Should a market center or broker￾dealer that is subject to Rule 605’s
reporting requirement be required to also provide a summary report reflecting aggregated execution quality information? Why or why not? Do commenters agree that summary reports would make execution quality information more accessible to individual investors? Please explain.
46. Should the summary report be
required to be divided into separate categories according to whether or not securities are included in the S&P 500 Index? Why or why not? Are there any alternative means to group securities that have higher market capitalization or trading volume that should be required to be used to organize the summary statistics, instead of or in addition to dividing the securities included in the report according to whether or not they are included in the S&P 500 Index? Should the summary report include order size categories? Why or why not? Please explain and provide data, if available.
47. Should stocks be required to be
equally weighted by symbol based on share volume within each section? Why or why not? Is there another method of weighting the stocks that would be preferable (e.g., equal weighting by symbol based on dollar volume or applying a common weighting scheme across securities)? Please explain.
48. Should the summary report be
limited to covered orders that are market or marketable limit orders? Why or why not? Would it be preferable to include other specific categories of covered orders (i.e., marketable IOCs, beyond-the-midpoint limit orders, executable NMLOs, executable orders with stop prices) or to include all covered orders? Do commenters agree with the proposed aggregated statistics to include in the summary report? Are there any aggregated statistics that commenters would eliminate? Are there any execution quality statistics that would be required pursuant to proposed Rule 605(a)(1) for which commenters would add corresponding aggregated statistics to the summary report? Please explain.
49. Should the summary reports be
required to be made available using the most recent version of an XML schema and an associated PDF renderer as published by the Commission? Why or why not? Is there an alternative, machine-readable and/or human￾readable format, that would be preferable? Would it be preferable for the Plan to establish the required format, including an associated schema, for the summary reports?
50. Should the Commission require
that summary Rule 605 reports be posted in a centralized location? Alternatively, should the Commission require both summary and detailed reports to be posted in a centralized location? Why or why not? Do commenters have a view on how centralized posting could be implemented? Are there other ways the Commission could improve the accessibility of the reports?
VI. Paperwork Reduction Act
Certain provisions of the proposed rule amendments contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).480 The Commission is submitting these collections of 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. 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. The Commission is proposing to alter an existing collection of information and apply 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).481 A. Summary of Collection of Information The proposed 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 proposed amendments do not create any new collections of information. The categories of new respondents subject to Rule 605, as proposed to be amended, are larger broker-dealers and new market centers, consisting of SDPs and entities that would operate proposed qualified auctions or act as market centers for orders that were previously not covered by the Rule, e.g., fractional share orders. The proposed amendments would modify both the scope of the standardized monthly reports required under Rule 605 and the required information. Rule 605, as proposed to be 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 round lots rather than number of shares and includes additional order size categories for fractional share, odd-lot, and larger-sized orders; (3) creates a new order type category for marketable IOCs and replaces three existing categories of non-marketable order types with three new categories of order types (beyond-the-midpoint limit orders, executable NMLOs, and executable orders with stop prices); (4) eliminates current time-to-execution reporting buckets and requires average time to execution, median time to execution, and 99th percentile time to execution, each as measured in increments of a

482See 17 CFR 242.600(b)(46).
483The current PRA for Rule 605 estimates 319 reporting entities (153 OTC market makers, plus 24 exchanges, 1 securities association, 80 exchange market makers, and 61 ATSs). Based on updated estimates of the number of respondents, the Commission estimates that there are only 236 current reporting entities. 484These 85 brokers-dealers include 37 broker￾dealers that act as introducing brokers. 485As of September 30, 2022, there are 32 NMS Stock ATSs that have filed an effective Form ATS– N with the Commission. 486These 38 new market center respondents would consist of 20 market centers that would need to produce reports as a result of including fractional share orders within the scope of Rule 605, 10 SDPs, and 8 qualified auctions. 487National securities exchanges, national securities associations, and registered brokers and dealers are subject to existing recordkeeping and retention requirements including Rule 17a–1 (for self-regulatory organizations (‘‘SROs’’)); Rules 17a– 3 and 17a–4 (for broker-dealers). See 17 CFR 240.17a–1, 17 CFR 240.17a–3, and 17 CFR 240.17a–
4. The Commission’s estimates include the Rule’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 proposed Rule 605(a)(5). 488The Commission believes the monetized initial burden for this requirement to be $4,368,360. 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 $368 for 25 hours) + (Sr. Systems Analyst at $316 for 10 hours) + (Compliance Manager at $344 for 10 hours) + (Director of Compliance at $542 for 5 hours)] = $18,510 per respondent for a total initial monetized burden of $4,368,360 ($18,510 × 236 respondents). 489The Commission believes the monetized annual burden for this requirement to be $8,847,168. 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 $406 for 6 hours) + (Compliance Manager at $344 for 2 hours)) × 12 reports per year] = $37,488 per respondent for a total annual monetized burden of $8,847,168 ($37,488 × 236 respondents). 490The Commission’s currently approved PRA for Rule 605 (OMB Control Number 3235–0542), last updated in April 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 proposed amendments to Rule 605 would require additional data fields and the generation of summary reports, the Commission believes the data collection and millisecond or finer; (5) modifies realized spread statistics to require realized spread to be calculated after 15 seconds and one minute; and (6) requires new statistical measures of execution quality including average effective over quoted spread, percentage effective and realized spread statistics, a size improvement benchmark, and certain statistical measures that could be used to measure execution quality of NMLOs. The proposed amendments would require all reporting entities to make a summary report available that would be formatted in the most recent versions of the XML schema and the associated PDF renderer as published on the Commission’s website. Finally, as a result of the proposed amendments to Rule 605, the current Rule 605 NMS Plan participants would need to amend the NMS Plan to account for the new proposed 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) 482 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 apply 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 currently approximately 236 reporting entities (93 OTC market makers, plus 16 national securities exchanges, 1 national securities association, 94 exchange market makers, and 32 ATSs).483 However, under the proposed amendments, the Commission believes there would be 359 reporting entities (93 OTC market makers, 85 broker￾dealers that introduce or carry 100,000 or more customer accounts,484 16 national securities exchanges, 1 national securities association, 94 exchange market makers, 32 ATSs,485 plus 38 new market center respondents 486) that would be subject to the collection of information obligations of Rule 605. Each of these respondents would be required to respond to the collection of information on a monthly basis. In addition, the proposed amendments to Rule 605 would require the existing NMS Plan participants (16 national securities exchanges and 1 national securities association) to prepare and file an amendment to the existing NMS Plan. D. Total PRA Burdens As proposed, Rule 605 would require broker-dealers and market centers to make available to the public monthly order execution reports in electronic form. The Commission believes that 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.487 Consequently, the Rule would not require additional 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 Commission estimates that the initial and ongoing burdens would be different for those respondents that are currently required to prepare reports and for new respondents. The Commission estimates that proposed Rule 605 amendments would result in an initial burden for current respondents of 50 hours per respondent 488 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 would need to be done by existing respondents to modify their systems to collect data required under the proposed 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 proposed to be amended, would require existing respondents
to acquire new hardware or systems to process the information required in the reports. The Commission further estimates that the proposed Rule 605 amendments would result in an ongoing monthly burden of 8 hours per respondent to collect the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 96 hours per respondent.489 This estimate represents the time that would 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.490 With an

report generation process should be an automated process that would not require substantial additional burden hours after initial set-up. 491The Commission believes the monetized initial burden for this requirement to be $4,553,460. 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 $368 for 50 hours) + (Sr. Systems Analyst at $316 for 20 hours) + (Compliance Manager at $344 for 20 hours) + (Director of Compliance at $542 for 10 hours)] = $37,020 per respondent for a total initial monetized burden of $4,553,460 ($37,020 × 123 respondents). 492The Commission believes the monetized annual burden for this requirement to be $4,611,024. 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 $406 for 6 hours) + (Compliance Manager at $344 for 2 hours)) × 12 reports per year] = $37,488 per respondent for a total annual monetized burden of $4,611,024 ($37,488 × 123 respondents). estimated 236 respondents currently subject to Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 11,800 hours while the monthly reporting requirement is estimated to be 22,656 hours per year (236 × 96). 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 estimates include the impact of preparing and making summary reports available using the most recent versions of the XML schema and the associated PDF renderer as published on the Commission’s website. The Commission estimates that proposed Rule 605 amendments would result in an initial burden for new respondents of 100 hours for each respondent 491 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 would 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 is collected, respondents could either program their systems to generate the reports, or transfer the data to a service provider that would generate the reports. Respondents would likely not be required to acquire new hardware or other technological resources to be able to collect the data required by the proposed rule given that respondents would 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 would likely utilize a service provider, as discussed below. The Commission estimates that the proposed Rule 605 amendments would result in an ongoing monthly burden of 8 hours to collect the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 96 hours per respondent. 492 With an estimated 123 new respondents subject to Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 12,300 hours while the monthly reporting requirement is estimated to be 11,808 hours per year (123 × 96). These estimates include the impact of preparing and making summary
reports available using the most recent versions of the XML schema and the associated PDF renderer as published on the Commission’s website. BILLING CODE 8011–01–P
Table 2—Respondent Burdens for
Producing Rule 605 Reports

BILLING CODE 8011–01–C
EP20JA23.001</GPH>
OTC Market Makers 93 Initial 50 4,650 Annual 8 12 8,928 Exchange Market 94 Initial 50 4,700 Makers Annual 8 12 9,024 Exchanges 16 Initial 50 800 Annual 8 12 1,536 Associations 1 Initial 50 50 Annual 8 12 96 ATSs 32 Initial 50 1,600 Annual 8 12 3,072 Totals for Current 236 Initial 50 11,800 Respondents Annual 8 12 22,656 Broker-Dealers with 85 Initial 100 8,500 ~100,000 customer accounts Annual 8 12 7,140 Non-market center 20 Initial 100 2,000 broker-dealers Annual 8 12 1,680 SDPs 10 Initial 100 1,000 Annual 8 12 840 Qualified Auctions 8 Initial 100 800 Annual 8 12 672 Total Burden for 123 Initial 100 12,300 New Respondents Annual 8 12 11,808

493 In the case of annual burdens, the burden per respondent is the burden hours multiplied by the number of responses per year. 494The Commission’s currently approved PRA for 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 the Rule 605 amendments would be different than the current Rule, the Commission does not believe that the overall cost of creating the required reports would differ substantially from these current estimates. 495The Commission believes the monetized initial burden for this requirement to be $40,222. 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 $462 for 4 hours) + (Assistant General Counsel at $518 for 1 hour)] = $2,366 per respondent for a total initial monetized burden of $40,222 ($2,366 × 17 respondents). 496The Commission’s estimates of the relevant wage rates for outside legal services takes into account staff experience, a variety of sources including general information websites, and adjustments for inflation. 497 (11,800 + 12,300 + 119) = 24,219 initial burden hours. (22,656 + 11,808) = 34,464 annual burden hours. The Commission estimates the monetized initial burden for all respondents to be $8,978,906 ($4,368,360 + $4,553,460 + $57,086) and the monetized annual burden for all respondents to be $13,458,192 ($8,847,168 + $4,611,024). 498Exchange 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). The Commission estimates that in lieu 493 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.494 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 359
respondents to retain service providers to prepare reports would be between approximately $1,077,000 and $1,256,000 ((359 × $3,000) and (359 × $3,500), respectively), or a total annual cost of between approximately $12,924,000 and $15,078,000 (($1,077,000 × 12) and ($1,256,000 × 12), respectively). Finally, the 16 national securities exchanges and 1 national securities association would be required to amend the 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 estimates that there would be a one-time (or initial) burden of 5 hours per respondent 495 to amend the NMS Plan to account for the new reporting fields and reporting parties, for a total burden of 85 hours (17 × 5). The Commission does not estimate that there would be any ongoing annual burden associated with the 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 NMS Plan on the burden hours for existing NMS plans, while also taking into account the limited nature of the updates to the NMS Plan that would be required under the proposed amendments to Rule 605. The Commission estimates that there would be outsourcing of legal time to develop and draft the NMS Plan amendment in order to account for additional data fields and reporting parties. The NMS Plan amendment would 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 would be significantly lower than other recent NMS plan amendments. The Commission staff estimates that, on average, each exchange and association would outsource 2 hours of legal time to prepare and file an amendment to the NMS Plan, at an average hourly rate of $496.496 The Commission estimates that the aggregate one-time reporting burden for preparing and filing an amendment to the NMS Plan would be approximately $992 in external costs per national securities exchange or national securities association, for an aggregate external cost of $16,864 resulting from outsourced legal work [(2 hours @$ $496 per hour = $992) × (16 national securities exchanges and 1 national securities association)]. The Commission currently estimates a total initial burden of 24,169 hours for all respondents and a total annual burden of 34,368 hours for all respondents.497 E. Request for Comment Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments to:
51. Evaluate whether the proposed
collection of information is necessary for the proper performance of the Commission’s functions, including whether the information shall have practical utility;
52. Evaluate the accuracy of the
Commission’s estimates of the burden of the proposed collection of information;
53. Determine whether there are ways
to enhance the quality, utility, and clarity of the information to be collected;
54. Evaluate whether there are ways
to minimize the burden of collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology; and
55. Evaluate whether the proposed
amendments would have any effects on any other collection of information not previously identified in this section. Persons submitting comments on the collection of information requirements should direct them to the Office of Management and Budget, Attention:
Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and should also send a copy of their comments to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090, with reference to File Number S7–29–22. Requests for materials submitted to OMB by the Commission with regard to this collection of information should be in writing, with reference to File Number S7–29–22 and be submitted to the Securities and Exchange Commission, Office of FOIA/PA Services, 100 F Street NE, Washington, DC 20549–2736. As OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication.
VII. Economic Analysis
A. Introduction
The Commission is mindful of the economic effects that may result from the proposed amendments, including the benefits, costs, and the effects on efficiency, competition, and capital formation.498 The following economic analysis identifies and considers the costs and benefits—including the effects on efficiency, competition, and capital formation—that could result from the proposed amendments to Rule 605. When the Commission adopted Rule 11Ac1–5, which was later re-designated as Rule 605, in 2000, it stated that the

499See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75417.
500 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. See supra note 11. 501See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75414–15.
502 In the 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 Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75431. 503See supra sections IV.A and IV.B describing, respectively, the proposed amendments modifying the scope of orders covered and information required to be disclosed pursuant to Rule 605. 504See supra note 1 defining ‘‘larger broker￾dealer’’ as a broker-dealer that meets or exceeds the ‘‘customer account threshold,’’ as defined in proposed Rule 605(a)(7). See also supra section III.A describing the proposed amendments expanding the scope of Rule 605 reporting entities to include larger broker-dealers. 505Similar information asymmetries were recognized in the 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.’’ See Adopting Release, 65 FR 75414 (Dec. 1, 2000) at 75433. rule should facilitate comparisons across market centers and provoke more vigorous competition on execution quality and broker-dealer order routing performance.499 However, under current Rule 605 reporting requirements, variations across broker-dealers in terms of the execution quality achieved by their order routing services are not currently observable by market participants using 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 are less informative than they were when the Rule was adopted. Furthermore, the Commission believes that the proposed amendments to Rule 605, including expanding the scope of reporting entities, modernizing its content, and broadening its accessibility, would increase the relevance and use of the information contained in Rule 605 reports, and promote competition among market centers and broker-dealers. This increase in competition would ultimately lead to improved execution quality for investors. The Commission recognizes that the proposed amendments would entail additional costs to market centers and broker-dealers of disclosing the required execution quality information. Market centers would face initial compliance costs when updating their methods for preparing Rule 605 reports, and broker￾dealers that were previously not required to publish Rule 605 reports would 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 continue to publish Rule 605 reports each month. The Commission has considered and is describing the economic effects of the proposed amendments to Rule 605 and wherever possible has quantified the likely economic effects of the proposed amendments. The Commission has incorporated data and other information, such as academic literature, to assist in the analysis of the economic effects of the proposal. However, because the Commission does not have, and in certain cases does not believe that it can reasonably 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. The Commission requests that commenters provide relevant data and information to assist the Commission in quantifying the economic consequences of the proposed amendments to Rule 605. B. Market Failure The Commission is proposing to update the disclosure of
order execution information and expand the scope of reporting entities under Rule 605 to achieve a variety of improvements to market participants’ access to information about execution quality, which the Commission does not believe are likely to occur through a market￾based solution. Because equity markets have changed substantially since the initial adoption of Rule 605’s predecessor in 2000, and yet the content of the disclosures required by Rule 605 has not been substantively updated since then, 500 the utility of Rule 605 reports has been eroded, which has limited the Rule’s ability to address the market failures identified in the Adopting Release, including market centers’ limited incentives to produce publicly available, standardized execution quality reports.501 Instead, the metrics currently required to be reported by Rule 605 are no longer as useful for comparing execution quality across market centers as they were when Rule 605 was adopted, and other metrics that would be useful for this purpose are not currently included in reporting requirements, which limits the current benefits of Rule 605 for promoting competition among market centers and improving execution quality for all types of investors. The Commission does not believe that updates to Rule 605 metrics are likely to be achieved through a market-based solution.502 Even if all markets 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 could be difficult for market participants to easily compare execution quality across market centers. Furthermore, it may be difficult for certain market participants to compute accurate and relevant execution quality metrics from data sources other than data collected pursuant to Rule 605, 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 and may thereby further inform investors. Therefore, rulemaking to modernize the information required by Rule 605 may prove beneficial.503 In addition to the need to modernize the content of Rule 605, it may also be appropriate to expand the scope of entities that would be required to prepare Rule 605 reports to include larger broker-dealers.504 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.505 This limits the extent to which broker-dealers need to compete for order flow on the basis of

506While the FIF Template provides a standardized template for summary information about execution quality for retail investor orders in exchange-listed stocks (see supra note 450), the Commission understands that currently only one retail broker voluntarily provides reports using the FIF Template. See also infra notes 554–555 and accompanying text (discussing the limited number of firms that have produced reports utilizing the FIF Template at various points in time). 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, such as reporting different metrics, using different methodologies, or different samples of stocks. See, e.g., Order Execution Quality, TD Ameritrade, available at https://www.tdameritrade.com/tools￾and-platforms/order-execution.html; Execution Quality, E*TRADE from Morgan Stanley, available at https://us.etrade.com/trade/execution-quality; Our Execution Quality, Robinhood, available at https://robinhood.com/us/en/about-us/our￾execution-quality/. 507While 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 non-public and highly individualized, and therefore limited to the execution quality obtained from broker-dealers with which the institutional investors currently does business. Since Rule 605 reports are public, institutional investors could 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 VII.C.1.(c)(2) for further discussion. 508 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 VII.C.1.(c)(1) and VII.C.1.(c)(2) for further discussion. 509See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75436.
510See supra section V describing the proposed amendments requiring Rule 605 reporting entities to prepare summary reports of execution quality information. 511See 17 CFR 242.605. 512See supra notes 39–40 for a discussion and definitions of these order categories. 513For 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. 514See 17 CFR 242.605(a)(1)(ii)(A). 515See 17 CFR 242.605(a)(1)(ii)(B), 17 CFR 242.605(a)(1)(ii)(E) and 17 CFR 242.605(a)(1)(ii)(G), respectively. 516See 17 CFR 242.605(a)(1)(ii)(C) and 17 CFR 242.605(a)(1)(ii)(H), respectively. 517The time-to-execution categories currently defined in Rule 605 are 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 17 CFR 242.605(a)(1)(i)(F)–(J). 518See 17 CFR 242.605(a)(1)(ii)(D), 17 CFR 242.605(a)(1)(ii)(F) and 17 CFR 242.605(a)(1)(ii)(I), respectively. 519See 17 CFR 242.605(a)(1)(i)(B), 17 CFR 242.605(a)(1)(i)(D) and 17 CFR 242.605(a)(1)(i)(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). 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 in that way are subject to the same market failures identified in the Rule 605 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.506 As a result, individual investors and, to some extent, institutional investors,507 have limited access to standardized information that could be used to compare how execution quality varies across broker-dealers.508 Therefore, it may be appropriate to engage in rulemaking to expand Rule 605 reporting requirements to larger broker￾dealers. While ‘‘data available for downloading from a free website in a consistent, usable, and machine￾readable electronic format’’ is currently accessible under Rule 605,509 the data generated under Rule 605 is complex, and the raw data may be difficult for individual investors to access and aggregate. Rule 605 reporting entities have little incentive to voluntarily summarize their execution quality in a standardized way. Instead, in summarizing their execution quality
information, reporting entities may be incentivized to select the measures and aggregation methodologies that make them look the most favorable. Therefore, absent regulation, there is little incentive for Rule 605 reporting entities to coordinate on a standardized summary report that could be used to easily and accurately compare execution quality across reporting entities.510
C. Baseline
The baseline against which the costs, benefits, and the effects on efficiency, competition, and capital formation of the proposed amendments are measured consists of the regulatory baseline, which frames investors’ current access to execution quality information under Rule 605, as well as market participants’ present ability to use the information contained in current Rule 605 reports to evaluate and compare execution quality across reporting entities. Lastly, the baseline consists of the extent to which Rule 605 currently promotes competition on the basis of execution quality, both among broker-dealers and among market centers.

1. Regulatory Baseline
   (a) Current Rule 605 Disclosure Requirements Currently, Rule 605 requires market centers to make available, on a monthly basis, standardized information concerning execution quality for covered orders in NMS stocks.511 Under the Rule, 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.512 This format serves the purpose of allowing market participants to 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 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 level.513 The execution quality information required to be disclosed in Rule 605 reports pertains to several different aspects of execution quality, including execution prices, execution speeds, and fill rates. Information on execution prices includes, for market orders and marketable limit orders, the average effective spread,514 number of shares executed at prices better than the quote, at the quote, or outside the quote,515 as well as average dollar amount per share that orders were executed better than the quote or outside the quote.516 Information on execution speeds includes, for all order types, the cumulative number of shares executed within different time-to-execution buckets 517 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.518 Information that can be used to calculate fill rates includes, 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.519 Market participants have access to public information about the execution quality of market centers other than Rule 605. For example, some

520 If an ATS provides one or more of its subscribers with aggregate platform-wide order flow and execution statistics that were not otherwise required disclosures under Rule 605, that ATS is required to either attach that information to its Form ATS–N, or 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. 521For 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), 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). 522While the FIF Template represents a standardized set of execution quality statistics, only one wholesaler currently produces reports using the FIF Template. See infra note 555. 523See infra sections VII.C.1.(c)(1) and VII.C.1.(c)(2) for further discussions of how publicly available execution quality information may be useful for both individual and institutional investors. 524 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 any conflicts of interest as the principal would be able to directly observe the agent’s actions and switch to another agent. 525See supra note 505, noting that a similar principal-agent problem was recognized in the Adopting Release. 526See infra section VII.C.2.(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. 527Some 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
section VII.C.1.(c) for a detailed discussion. Note
that any source of ex post execution quality information is unlikely to eliminate this information asymmetry entirely, as it is likely infeasible for any agent to perfectly observe ex ante or even in real time how a principal will perform in executing their order. 528See infra section VII.C.3.(b)(1) for a discussion of fragmentation in the market for trading services. 529See Christopher Schwarz, Brad M. Barber, Xing Huang, Philippe Jorion & Terrance Odean, The ‘Actual Retail Price’ of Equity Trades (Aug. 28,
2022) available at https://ssrn.com/
abstract=4189239 (retrieved from SSRN Elsevier database). The authors find that this dispersion is due to off-exchange wholesalers systematically giving different execution prices for the same trades to different brokers. 530See id. at 24. 531See Boehmer et al. 532See 17 CFR 242.606. wholesalers and ATSs make additional order flow and execution quality statistics other than those required under Rule 605 available either on their websites or as part of their ATS–N filings.520 However, these sources are either not standardized 521 or are not available across all market centers,522 such that Rule 605 is an important source of standardized information about market center execution quality. The Commission believes that standardized execution quality information is relevant to many market participants, including to both individual and institutional investors and their broker-dealers,523 who 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, but information asymmetries prevent the principal from being able to directly observe the agent’s handling of the order. This can create possible conflicts of interest, in which the agent’s incentives may not coincide with the interests of the principal.524 These information asymmetries exist both between broker-dealers and their customers, who do not directly observe their broker-dealers’ handling of their orders,525 and between market centers and broker-dealers, who typically do not directly observe market centers’ executions of their routed orders. Rule 605 serves to alleviate these information asymmetries by, first, giving broker￾dealers access to information about the execution quality of market centers, which they can use to inform their routing decisions and, second, in conjunction with broker-dealer routing information from Rule 606 reports,526 giving investors access to information about the execution quality achieved by the market centers to which their broker-dealers typically route.527 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 where to route orders for execution,528 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, and found that the execution quality of these
orders differed significantly in terms of average price improvement and effective spreads.529 The authors argue that these differences in execution quality across 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.530 Given this evidence that there are significant differences in execution quality across broker-dealers, without access to standardized information about broker￾dealer execution quality, it is difficult for investors to compare these differences when choosing a broker￾dealer. Given that Rule 605 reports contain aggregated information, some information asymmetries regarding the order execution quality achieved at different market centers are not fully addressed by Rule 605 because the principal is not able to use Rule 605 reports 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, and there is evidence that Rule 605 reports have indeed been used for this purpose. 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.531 The authors attribute this effect to broker￾dealers factoring in information about the execution quality of market centers from Rule 605 reports when making their order routing decisions. (b) Current Rule 606 Disclosure Requirements Currently, under Rule 606, broker￾dealers are required to identify the venues, including market centers, to which they route customer orders for execution.532 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

533See 17 CFR 242.606(a)(1). See also corresponding discussion in section III.A, supra. 534See 17 CFR 242.606(a)(2). See also corresponding discussion in section III.A, supra. 535See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75435 (‘‘Rule 11Ac1–6 is designed to
address the complementary need for broker-dealers to disclose to customers where their orders are routed for execution. The primary objective of the rule is to afford customers a greater opportunity to monitor their broker-dealer’s order routing practices. Supplied 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. The information also may assist investors in selecting a broker-dealer.’’). 536See infra section VII.C.2.(a)(1) for a discussion of current issues with using information from Rule 606 reports to infer the execution quality of broker￾dealers. 537See supra note 60 and accompanying text for a discussion of these amendments. 538An 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 December 5, 2016, to December 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 (Nov. 19, 2018) at 58393. See also supra note 56 and accompanying text, describing the Commission’s understanding that held orders are typically used by individual investors. 539See 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). 540See 17 CFR 242.606(b)(3)(ii). 541See, e.g., Letter from Daniel Keegan, Managing Director, Citigroup Global Markets Inc. re Concept Release on Equity Market Structure (Release No. 34–61358; File No. S7–02–10) (May 5, 2010) (‘‘Citigroup Letter II’’) at 6. 542See supra note 112 and accompanying text. 543See discussion in infra section VII.C.1.(c)(2). 544See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75419.
545See, e.g., Ruslan Y. Goyenko, Craig W. Holden & Charles Trzcinka, 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, Suchismita Mishra, Shawn O’Donoghue & Le Zhao, Trading Volume Shares and Market Quality:
Pre-and Post-Zero Commissions (working paper Dec. 2, 2020), available at https://ssrn.com/ abstract=3741470 SSRN 3741470 (retrieved from SSRN Elsevier database); Schwarz et al (2022). 546See, e.g., Letter from David Weisberger, Managing Director, Markit, New York, New York Re: Investor’s Exchange LLC Form 1 Application; Release No. 34–75925; File No. 10–222 (Feb. 16, 2016), available at https://www.sec.gov/comments/ 10-222/10222-394.pdf. 547See, 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.’ ’’). 548See discussion in infra section VII.C.1.(c)(2). any PFOF arrangements.533 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 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.534 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 in order to make more informed decisions with respect to their orders.535 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.536 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 2018,537 broker-dealers are subject to requirements under Rule 606 that provide information about the execution quality achieved by their broker-dealers for not held orders, which are typically used by institutional investors.538 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.539 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.540 (c) Current Usage of Rule 605 Reports Rule 605 data is currently used
by some market participants, such as broker-dealers and investment advisers as part of their review of execution quality. However, the use of this data by both individual and institutional investors to directly evaluate and compare execution quality across market centers is currently limited. (1) Usage of Rule 605 Reports by Individual Investors It is likely that the extent to which individual investors directly access Rule 605 reports is currently limited. Several market participants have stated that Rule 605 reports have low usage among individual investors, including at least one commenter to the Commission’s Concept Release on Equity Market Structure,541 and some EMSAC committee members.542 Rule 605 reports are designed to be machine-readable, rather than human￾readable. While machine-readable data is useful for facilitating further processing and analysis,543 it is not readily usable by market participants and other interested parties that may prefer to review summary statistics, and is not easily consumable by market participants who do not have the access to necessary software or programming skills. This may limit the usability of Rule 605 reports for individual investors in particular, who are less likely to have access to these resources. In the 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.544 Although the Commission is unable to observe the full extent to which this has occurred, some third parties have produced information based on Rule 605 reports that is meant for public consumption. For example, data obtained from Rule 605 reports are 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,545 and at least one market participant used Rule 605 data in an analysis supporting its letter to the Commission commenting on one national securities exchange’s registration application.546 Rule 605 data is also used in the financial press.547 Unlike institutional investors,548 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

549There 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 different samples of stocks. See supra note 506. 550See supra note 538 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. 551See supra note 539 describing the customer￾level de minimis exception of Rule 606(b)(5). 552See infra section VII.C.2.(a)(1) discussing several analyses that find significant differences in execution quality across retail brokers. 553See supra note 450 and accompanying text for further discussion of the FIF Template. 554See Retail Execution Quality Statistics, Financial Information Forum, available at https:// fif.com/tools/retail-execution-quality-statistics; 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. 555See Retail Execution Quality Statistics, Financial Information Forum, available at https:// fif.com/tools/retail-execution-quality-statistics; Retail Execution Quality Statistics—Wholesale Market Maker Perspective, Two Sigma, available at https://www.twosigma.com/businesses/securities/ execution-statistics/. The Commission is aware of at least two wholesalers that formerly produced reports using the FIF Template, but stopped in Q3 2019. 556See supra Section VIII.C.1.(b) discussing broker-dealer reporting requirements under Rule 606. 557See supra note 538 discussing an analysis showing that institutional investors are more likely than individual investors to use not held orders. See also supra note 539 describing the customer￾level de minimis exception of Rule 606(b)(5). 558 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 (Nov. 19, 2018) at 58369. 559Currently there are no requirements for aggregated information about the execution quality of not held orders to be made public. The Commission believes that 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 as a result of the disparate behavior of customers when using not held orders. See, e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018) at 58369–70, 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. See also supra note 63 for further discussion. 560See supra note 60 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. 561See supra note 538 discussing an analysis showing that institutional investors are more likely than individual investors to use not held orders. indirectly) from Rule 605 reports.549 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 mostly used by individual investors,550 and contains a customer-level de minimis exception that likely excludes most individual investors.551 In addition, many individual investors do not have access to the information or expertise required to calculate their own execution quality metrics, which makes it difficult for them to compare how execution quality varies across broker-dealers.552 One exception is the recent efforts by a few brokers-dealers and wholesalers to make available voluntary summary disclosures of execution quality in exchange-listed stocks for individual investors using the FIF Template.553 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, and that one of these broker￾dealers was acquired and stopped producing these reports in 2017, and another stopped producing these reports in 2018, such that only one retail broker currently produces reports using the FIF Template.554 Likewise, the Commission understands that there is currently only one wholesaler producing reports using the FIF Template.555 (2) Usage of Rule 605 Reports by Institutional Investors The Commission preliminarily understands that, while the usage of Rule 605 reports by institutional investors may be limited by several factors, Rule 605 reports nevertheless contain information about execution quality that is otherwise useful for institutional investors. First, 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 costs 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 would be less likely to rely on information from Rule 605 reports in order to estimate the execution quality of their
orders. Furthermore, the requirement in Rule 606(b)(3) for broker-dealers to provide individualized reports of execution quality of not held orders upon request,556 which is most likely to be utilized by institutional investors,557 provides institutional investors with another alternative source of information about the execution quality of their orders. While broker-dealers are currently required to provide their customers only with execution quality information about their not held orders under Rule 606(b)(3), which are not covered by Rule 605 reporting requirements, given the large size of most institutional investors and their business, institutional investors may have sufficient bargaining power such that broker-dealers have strong incentives to provide them with this information about the execution quality of their held orders when asked. However, 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. The information on execution quality that is individually collected by institutional investors is typically highly individualized and non-public.558 Therefore, institutional investors would 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. Furthermore, any ad hoc reports that institutional investors may receive from their broker dealers containing information about their held orders are unlikely to be sufficiently standardized to allow for easy comparisons across broker-dealers or market centers. Second, 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,’’ 559 are excluded from Rule 605 metrics.560 As many institutional orders tend to be not held,561 this may limit the extent to which Rule 605 reports contain relevant information for institutional investors. Rule 605 reports may contain information that is relevant for institutional investors, however, as 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. This would allow institutional investors to use the information in Rule 605 reports to evaluate the performances of their broker-dealers. For example, institutional investors may incorporate information from Rule 605 reports into their TCA when evaluating the performance of their broker-dealers’

562See infra section VII.C.3.(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. 563See, e.g., supra notes 545–547, describing the use of Rule 605 data in academic literature, in comment letters related to Commission and SRO rulemaking, and the financial press. 564See 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’’). 565See, 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. IA Fiduciary Interpretation, 84 FR 33669 (Jul. 12, 2019) at 33674–
75. 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).
566See supra note 69 and accompanying text for further discussion of broker-dealers’ best execution requirements. 567See, e.g., Practical Considerations for Your ‘Best Execution Compliance Program’, Ernst & Young (Mar. 2017), available at http:// documents.sifma.org/uploadedFiles/Events/2017/ Compliance_and_Legal_Society_Annual_Seminar/ EY_CL%20Annual_Marketing%20PDF.pdf (stating the broker-dealers rely on ‘‘traditional 605 metrics’’ for best execution review). See also 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’’). 568See supra section IV.B.5, discussing the MDI Rules. 569See supra note 3 and accompanying text. 570 17 CFR 242.600 through 242.614. 571See supra note 195 and accompanying text. 572Currently, 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 Nos. 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); 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. Id. at 10407. 573See supra note 422 and accompanying text for further discussion of changes to the availability of odd-lot information under the MDI Rules. 574See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18625. Smart Order Router (‘‘SOR’’) algorithms.562 The Commission believes that, due to their typically larger 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 currently use aggregated statistics or summaries of Rule 605 reports prepared by third parties, who make these reports available, possibly for a fee. (3) Other Users of Rule 605 Reports While the direct usage of Rule 605 reports by individual and institutional investors is likely limited, Rule 605 reports are currently used by other market participants, including analysts and researchers,563 as well as financial service providers, such as investment advisers and broker-dealers, that are subject to best execution obligations. In particular, 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.564 The duty of care includes, among other things, 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.565 Broker-dealers also have an obligation to seek best execution of customer orders.566 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.567 (d) 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,568 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 practice. 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. Accordingly, this section first will 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 could have on the baseline estimations. (1) Regulatory Structure for Consolidated Market Data Prior to the MDI Rules Consolidated market data is made widely available to investors through the national market system, a system set forth by Congress in section 11A of the Exchange Act 569 and facilitated by the Commission in Regulation NMS.570 Market data is collected by exclusive SIPs,571 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 data.572 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. 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 of the national securities exchanges that trade NMS stocks and 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, including odd-lot transactions. (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; 573 (2) information about certain orders that are outside of an exchange’s best bid and best offer (i.e., certain depth of book data); 574 and (3) information about orders that are participating in opening, closing, and

575See id. at 18630.
576See id. at 18617.
577See 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. 578See id. at 18637. 579See id. at 18698–18701. 580See id. at 18699. 581See, e.g., id. at 18700 n. 355 (compliance date for amendment to Rule 603(b) to be ‘‘180 calendar days from the date of the Commission’s approval of the amendments to the effective national market system plan(s)’’). 582See id. at 18700–18701 (specifying consecutive periods of 90 days, 90 days, 90 days, 180 days, 90 days, a period for filing and approval of another national market system plan amendment to effectuate the cessation of the operations of the SIPS (with a 300-day maximum time for Commission action after filing to approve or disapprove the filing), and a 90-day period). 583Securities Exchange Act Release No. 95851 (Sept. 21, 2022) (Order Disapproving the Twenty￾Fifth Charges Amendment to the Second Restatement of the CTA Plan and Sixteenth Charges Amendment to the Restated CQ Plan). 584See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18741–18799. 585The calculation of the NBBO includes odd-lots that, when aggregated, are equal to or greater than a round lot. Under CFR 242.600(b)(21)(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. 586For 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. 587See supra note 577. 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 at 18743. 588For 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 will be higher for sell orders. 589See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18750. 590However, this effect will depend on how market participants adjust their order submissions. See id. at 18746 for further
discussion. 591See id. at 18754. other auctions.575 The Rules also introduce a four-tiered definition of round lot that is tied to a stock’s average closing price during the previous month.576 For stocks with prices greater than $250, a round lot is defined as consisting of between 1 and 40 shares, depending on the tier.577 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.578 In the MDI Adopting Release, the Commission established a transition period for the implementation of the MDI Rules.579 The ‘‘first key milestone’’ for the transition period was to be an ‘‘amendment of the effective national market system plan(s),’’ which ‘‘must include the fees proposed by the plan(s) for data underlying’’ consolidated market data (‘‘Proposed Fee Amendment’’).580 The compliance date for the Infrastructure Rules was set with reference to the date that the Commission approved the Proposed Fee Amendment.581 The end of the transition period was to be at least two years after the date the Commission approved the Proposed Fee Amendment.582 The MDI Adopting Release did not specify a process for continuing the transition period if the Commission disapproved the Proposed Fee Amendment. On September 21, 2022, the Commission disapproved the Proposed Fee Amendment, because the Participants had not demonstrated that the proposed fees were fair, reasonable and not unreasonably discriminatory.583 Accordingly, there currently is no date to begin the at-least-two-year period for implementation of the MDI Rules, and there is no date that can be reasonably estimated for the implementation of the MDI Rules to be completed. 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 comprehensive quantitative analysis of a baseline that 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 this proposal.584 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 levels 585) to form a round lot and qualify for the NBBO.586 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.587 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 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.588 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 direction such odd-lot imbalances in higher priced stocks currently exist, so it is uncertain of the extent or direction of the change.589 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.590 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 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 than the current NBBO in consolidated market data may attract more trading interest from market participants that previously did not have access to this information.591 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

592See id.
593See id. at 18725.
594See id. at 18744.
595See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18754. 596See id. at 18745, 18754. 597See id. at 18748. 598See id. 599See id. 600See id. at 18747. 601 Individual investor orders typically feature lower adverse selection than other types of orders, such as institutional orders. See infra note 608 and accompanying text, describing how it is generally more profitable for any liquidity provider, including wholesalers, to execute against orders with lower adverse selection risk. 602See MDI Adopting Release, 86 FR 18596 (Apr. 9, 2021) at 18748. 603See supra notes 12–16 and accompanying text for further discussion. 604A broker-dealer may currently be subject to Rule 605 reporting requirements to the extent that the broker-dealer is acting as or operates a market center. However, such reports are required to cover only the orders that the broker-dealer handled within its capacity as a market center. See supra notes 179–180 and accompanying text. 605See supra note 141 and accompanying text. Release that it believes it is not possible to observe this willingness to trade with existing market data.592 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.593 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.594 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.595 However, the Commission stated that it was uncertain about the magnitude of both of these effects.596 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 other orders with which they interact.597 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.598 However, the Commission stated that it was uncertain of the magnitude of these effects.599 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.600 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,601 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.602 If wholesalers do change how they conduct 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.
2. Current Rule 605 Disclosure
Requirements
The Commission believes that there are several areas where market participants’ current access to information about execution quality under Rule 605 could be improved. Specifically, currently broker-dealers that are not market centers are not required to report under Rule 605, which limits 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 the Rule was adopted in 2000, such as an increase in the speed of trading, have decreased the relevance of some of the information contained in Rule 605 reports.603 (a) Scope of Reporting Entities Under Current Rule 605 Reporting Requirements The current scope of entities that are required to report under Rule 605 does not include broker-dealers that only route customer orders externally, rather than executing customer orders internally, because they do not meet the definition of market center. As a result, it is difficult for market participants to use the execution quality statistics that are currently available to compare execution quality across these broker￾dealers. Furthermore, to the extent that firms that operate two separate market centers co-mingle execution quality information about multiple market centers in Rule 605 reports, this would make it difficult for market participants to assess the execution quality of each market individually. (1) Broker-Dealers Currently, broker-dealers that are not market centers are not required to prepare Rule 605 reports,604 which the Commission believes limits market participants’ ability to assess and compare the execution quality that broker-dealers obtain for their customers. Rule 605 and Rule 606 operate together to allow investors to evaluate what happens to their orders after the investors submit their orders to a broker-dealer for execution.605 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-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

606See supra section VII.C.1.(b) for a discussion of broker-dealers’ current reporting requirements under Rule 606. 607For 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 their Broker-Dealer achieves for their 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. 608See, 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). 609This Commission analysis uses CAT data to examine the execution quality of marketable orders in NMS Common stocks and ETFs that belonged to accounts with a CAT account type of ‘‘Individual Customer’’ and that originated from a broker-dealer MPID that originating orders from 10,000 or more unique ‘‘Individual Customer’’ accounts during January 2022. The number of unique ‘‘Individual Customer’’ accounts associated with each MPID was calculated as the number for unique customer account identifiers with an account customer type of ‘‘Individual Customer’’ that originated at least one order during the month of January 2022. Fifty￾eight (58) broker-dealer MPIDs were associated with retail brokers originated orders from 10,000 or more unique Individual Customer accounts in January
2022. Account type definitions are available in
Appendix G to the CAT Reporting Technical
Specifications for Industry Members (https:// catnmsplan.com/), under the field name ‘‘accountHolderType.’’ 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, Foreign, Individual Customer, Market Making, Firm Agency Average Price, Other Proprietary, and Error. An Institutional Customer account is defined by FINRA Rule 4512(c) as a bank, 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. The Commission restricted that analysis to MPIDs that originated orders from 10,000 or more ‘‘Individual Customer’’ accounts in order to ensure that these MPIDs are likely to be associated with retail brokers to help ensure that the sample is more likely to contain marketable orders originating from individual investors. 610Measures of execution quality in this analysis include the percentage effective half-spread and the average E/Q ratio. Percentage effective half-spread is the weighted average of the percentage effective half spread (measured as (execution price—NBBO midpoint at time of order receipt)/NBBO midpoint at time of order receipt). E/Q ratio is the weighted average of the ratio of each transaction’s effective spread divided by its quoted spread at the time of order receipt. Time of order receipt is defined as the time the wholesaler first receives the order. The NBBO is based on consolidated market data feed. Weighted averages are calculated by calculating the share weighted value at the individual stock level over the sample (i.e., weighting at the stock level based on the number of shares executed for transactions in the individual stock) and then weighting across stocks based on their total dollar transaction volume during the sample period (i.e., using the stock’s total dollar trading volume as the weight when averaging the share weighted average stock values). 611The analysis employed filters to clean the data and account for potential data errors. Retail brokers’ fractional share orders with share quantity less than one share were excluded from the analysis. The analysis included market and marketable limit orders that were under $200,000 in value and that originated from one the 58 retail broker MPIDs and were received by a market center that was associated with one of the six wholesalers CRD numbers (FINRA’s Central Registration Depository number) during some point in the order’s lifecycle. Orders that were received by the wholesaler or executed outside of normal market hours were excluded. Orders were also excluded if they had certain special handling codes so that execution quality statistics would not be skewed by orders being limited in handling by special instructions (e.g., pegged orders, stop orders, post only orders, etc.) Orders identified in CAT as Market and Limit
orders with no special handling codes or one of the following special handling codes were included in the analysis: NH (not held), CASH (cash), DISQ (display quantity), RLO (retail liquidity order), and DNR (do not reduce). These special handling codes were identified based on their common use by retail brokers and descriptions of their special handling codes. The marketability of a limit order was determined based on the consolidated market data feed NBBO at the time a wholesaler first receives the order. Limit orders that were not marketable were excluded. The dollar value of an order was determined by multiplying the order’s number of shares by either its limit price, in the case of a limit order, or by the midpoint of the consolidated market data feed NBBO at the time the order was first received by a wholesaler, in the case of a market order. The analysis includes NMS Common Stocks and ETFs (identified by security type codes of ‘A’ and ‘ETF’ in NYSE TAQ data) that are also present in CRSP data from CRSP 1925 US Indices Database and CRSP 1925 US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2022). Price improvement, effective spreads, realized spreads, quoted spreads, and price impacts were winsorized if they were greater than 20% of a stock’s VWAP during a stock-week. 612By measuring the difference between the transaction price and the prevailing market price some fixed period of time after the transaction (e.g., one minute), price impact measures the extent of adverse selection costs faced by a liquidity provider. For example, if a liquidity provider provides liquidity by buying shares from a trader who wants to sell, thereby accumulating a positive inventory position, if the liquidity provider wants to unwind this inventory position by selling shares in the market, they will incur a loss if the price has fallen in the meantime. In this case, the price impact measure will be positive, reflecting the liquidity provider’s exposure to adverse selection costs. In this analysis, percentage price impact is the weighted average of the percentage one minute price impact half spread (measured as (NBBO midpoint one minute after execution—NBBO midpoint at time of order receipt)/NBBO midpoint at time of order receipt). See supra note 610 for a definition of the time of order receipt and information about how weighted averaged were calculated in this analysis. 613This 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 VII.C.1.(d)(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. execution quality at those market centers.606 However, if broker-dealers receive different execution quality from a given market center, combining Rule 606 and Rule 605 data would not be informative about the execution quality of individual broker-dealers’ average execution quality. This is because, since a market center’s Rule 605 report is aggregated across all of its broker-dealer customers, it is not possible to determine how execution quality varies across broker-dealers at a particular market center.607 To explore this idea, an analysis was performed examining whether wholesalers, which know the identities of the broker-dealers who route orders to them, provide different execution quality to different broker-dealers because of differences in characteristics of their order flows: specifically, adverse selection risk. 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.608 Therefore, wholesalers may provide better execution quality to retail brokers whose order flow exhibits lower adverse selection risk, e.g., in order to attract further order flow from that retail broker. Accordingly, a sample of CAT data 609 between January 1, 2022 and March 31, 2022 in NMS common stocks and ETFs was evaluated to see if execution quality 610 that retail brokers received from wholesalers differed based on the adverse selection risk of the broker-dealers’ order flow,611 as measured using price impact.612 Retail brokers were grouped into quintiles based on the weighted average percentage price impact of their order flow.
Table 3 shows that the execution
quality that retail brokers received from wholesalers systematically decreases as the adverse selection risk of their order flow increases, such that retail brokers with orders with higher average adverse selection risk systematically receive worse execution quality in the form of higher average percentage effective half￾spreads and higher average E/Q ratios (i.e., lower price improvement) as

614These numbers are based on an analysis of the percentage of market orders, marketable limit orders, non-marketable limit orders, and other orders that 46 retail brokers route to different types of venues in Q1 2022 based on their Rule 606 reports. Consistent with Rule 606, routing statistics are aggregated together in Rule 606 reports based on whether the stock is listed in the S&P 500 index. The 46 broker-dealers were identified from the 58 retail brokers identified according to the procedure described in supra note 609. This analysis uses the retail broker’s 606 report if they publish one, or the Rule 606 report of their clearing broker if they did not produce a Rule 606 report themselves (the sample of 46 broker-dealer Rule 606 reports include some broker-dealers that were not included in the CAT retail analysis because some clearing broker Rule 606 reports are included). Some broker-dealers reported handling orders only on a not held basis and did not have any Rule 606 reports. Because Rule 606 only include percentages of where their order flow is routed and not statistics on the number of orders, the reports are aggregated together using a weighting factor based on an estimate of the number of non-directed orders each broker-dealer routes in each security type each month. The number of non-directed orders is estimated separately for S&P 500 and non-S&P 500 stocks by dividing the number of non-directed market orders originating from a retail broker in each stock type in a given month, which is estimated from CAT data, by the percentage of market orders as a percent of non-directed orders in the retail broker’s Rule 606 report for that stock type in the same month (the weight for a clearing broker consists of the aggregated orders from the introducing brokers in the CAT analysis that utilize that clearing broker). The resulting statistics show that 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. 615See, e.g., Annie Massa, Trader VIP Clubs, ‘Ping Pools’ Take Dark Trades to New Level, Bloomberg, (Jan. 16, 2018, 5:00 a.m.), available at https://www.bloomberg.com/news/articles/2018-01- 16/trader-vip-clubs-ping-pools-take-dark-trades-to￾new-level#xj4y7vzkg. 616See infra section VII.C.2.(c)(7) for discussion of differences between marketable IOC order executions and the executions of other marketable order types. 617See infra section VII.C.2.(c)(8) for a discussion on how the treatment of wholesalers’ riskless principal trades in Rule 605 reports may also obscure information on execution quality. 618See infra note 769 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 2021. compared to broker-dealers with orders with lower average adverse selection risk.613 This
highlights that wholesalers provide different execution quality to different retail brokers, in this case depending on the adverse selection risk of their orders. This is likely to have a large effect on the execution quality received by retail brokers, as an analysis of Rule 606 data found that retail brokers route more than 87% of the individual investor orders that they handle to wholesalers.614 However, since a wholesaler’s Rule 605 report is aggregated across all of its broker-dealer customers, this variation in execution quality across retail brokers cannot be determined by matching its Rule 605 report to broker-dealers’ routing information from their Rule 606 reports.
TABLE 3—AVERAGE WHOLESALER EXECUTION QUALITY RECEIVED BY RETAIL BROKER QUINTILES, JANUARY–MARCH 2022
Broker-dealer quintile
Percentage price impact
(bps)
Percentage effective half-spread (bps) E/Q ratio 1 ................................................................................................................................................. ¥1.04 2.86 0.43 2 ................................................................................................................................................. 0.48 1.87 0.46 3 ................................................................................................................................................. 0.79 2.15 0.48 4 ................................................................................................................................................. 1.32 3.48 0.61 5 ................................................................................................................................................. 3.85 7.24 0.88
Table 3: Average Wholesaler Execution Quality Received by Retail Broker Quintiles, January–March 2022. This table summarizes how execu￾tion quality varies in NMS Common Stocks and ETFs based on a retail broker MPID’s price impact by grouping 58 retail broker MPIDs identified
according to the procedure described in supra note 609 in NMS Common Stocks and ETFs into quintiles based on their average price impact. Each retail broker MPID’s price impact is determined by share weighting its average percentage price impact half spread within an individual NMS common stock or ETF and then averaging across stocks using the weighting of the dollar volume the retail broker executed in each secu￾rity (dollar volume weighted); this measure of price impact is then used to sort retail broker MPIDs into quintiles. Within each quintile, average percentage price impacts, percentage effective half-spreads, and E/Q ratios are calculated as described in supra notes 610 and 612. See supra note 609 for dataset description and supra note 611 for details on the sample and filters used in this analysis. 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. See supra note 613 and
section VII.C.1.(d).
(2) Reporting Entities That Operate SDPs When a market center also operates a SDP, co-mingling SDP activity with other market center activity may obscure or distort information about the market center’s execution quality in their Rule 605 reports, making it more difficult for market participants to observe the execution quality of each separate trading venue. SDPs are sometimes called ‘‘ping pools,’’ 615 reflecting that institutional investors use these venues to ‘‘ping’’ (i.e., submit a small order in search of hidden liquidity) SDPs, often using Immediate or Cancel (IOC) orders. IOC orders typically have different execution profiles than other types of orders, including lower fill rates.616 Combining information on orders submitted to a market center’s SDP along with its other orders will therefore effect a downwards skew on the market center’s fill rates, and analogously an upward skew on the SDP’s fill rates. This may particularly be the case for wholesalers who combine the orders submitted to their SDP with orders that are internalized or executed on a riskless principal basis,617 since SDP activity represents a significant portion of their trading volume.618 Also, since the information on executions in SDPs largely reflects institutional orders, combining information on SDP orders along with other orders would 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 are less able to observe and compare differences in execution quality across market centers as a result, this may reduce incentives for these market centers to compete for institutional investor orders on the basis of execution quality. (b) Coverage of Orders Under Current Rule 605 Reporting Requirements The Commission believes that current Rule 605 reporting requirements exclude execution quality information about some order sizes and types that are relevant to market participants. To estimate the percentage of shares that are currently excluded from Rule 605 reporting requirements and the driving factor behind their exclusions (i.e., whether they are excluded based on their submission time, type, or size), data from the Tick Size Pilot B.I Market

619See 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 April 2016 to March 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. 620See 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 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. 621Of the shares excluded on the basis of order type, the largest percentage (73.6%) are excluded because they are not-held orders. 622An 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, available at https://www.finra.org/sites/default/ files/Appendix_B_C_Reporting_Requirements_ version2.pdf. 623The number of shares traded on NYSE was collected from the intraday TAQ Consolidated Trade files for the period from October 2003 to February 2021 for the entire universe of TAQ securities. Trades outside of regular trading hours were excluded. This dataset includes trades at the opening and closing auction. Due to that fact that odd-lot trades are only included in TAQ from December 2013 onwards, the Commission excluded odd-lot trades from the dataset to avoid a mechanical decrease in coverage following their inclusion into the dataset. Rule 605 data for the same period was provided by IHS Markit. 624The Commission focused on the data from one market center (NYSE) because of the availability of a long time series for NYSE Rule 605 data. The Commission selected NYSE due to
its large market share and ease of identifying this market center in both Rule 605 and TAQ data. Note that these results are not necessarily representative of all market centers and the results for other market centers may be different. 625The implementation of the MDI Rules may result in a change in the flow of orders across Quality dataset,619 which had much broader reporting requirements than Rule 605,620 was analyzed for a period from April 2016 to March 2019. As a first step, approximately 25% of orders are estimated to be excluded from Rule 605 requirements as they are flagged as having special handling requests. A breakdown of the remaining submitted share volume (i.e., after excluded special handling orders) is presented in
Figure 2, and shows that around 2.2%
of shares are currently excluded from Rule 605 reporting requirements due to having effective times outside of regular trading hours. A further 51.6% of shares are excluded because they were of an order type that is currently excluded from Rule 605 reporting requirements.621 An additional 11.3% of the remaining order volume are excluded from Rule 605 coverage because of the exclusion of orders less than 100 shares and larger-sized orders. This leaves only around a third of share volume that is currently eligible to be included in Rule 605.622 BILLING CODE 8011–01–P
Figure 2: Rule 605 Coverage, by
Submission Time, Order Type, and Order Size, April 2016–March 2019 In order to examine changes in Rule 605 coverage, the Commission compared the number of executed shares in one market center’s Rule 605 reports between October 2003 and February 2021 to data on that market center’s execution volume retrieved from TAQ.623 Figure 3 shows that an estimated 50% of shares executed during regular market hours were included in Rule 605 reports as of February 2021,624 and shows that this number has been on a slightly downward trend since around mid￾2012.625 EP20JA23.002</GPH>
Figure 2: Rule 605 Coverage, by Submission Time, Order Type, and Order Size, April 2016 - March 2019. This figure
shows the additional percentage of orders that are 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 April 2016 to March 2019. See supra note 619 for dataset description.

trading venues, which may result in numbers that are different from those reported here. See supra
section VII.C.1.(d)(2) for further discussion.
However, the Commission does not believe that the MDI Rules would significantly affect the proportion of exchange volume that is covered by Rule 605 reporting requirements. 626See infra note 1021 and corresponding text. Marketable ISOs submitted at prices worse than the NBBO are excluded from Rule 605 reporting requirements. 627See, e.g., Vincent Bogousslavsky & Dmitriy Muravyev, Who trades at the Close? Implications for Price Discovery and Liquidity (working paper Dec. 16, 2021), available at https://ssrn.com/ abstract=3485840 (retrieved from SSRN Elsevier database), showing that closing auctions accounted for 7.5% of daily volume in 2018, up from 3.1% in
2010. The definition of ‘‘covered orders’’ that are
subject to Rule 605 reporting requirements excludes orders for which customers requested special handling, including orders to be executed at a market opening price or a market closing price. See 17 CFR 242.600(b)(22). 628Other market and regulatory changes that may have impacted Rule 605 coverage over time include the increased use of automated orders (e.g., NYSE switching from a floor-based trading model to a hybrid model), which may have increased coverage during the period of 2003–2007 due to an increase in the number of ‘‘held’’ orders (see 2018 Rule 606 Amendments Release, 83 FR 58338), and changes in the use of block orders. Note that the use of odd￾lots and orders for less than one share have also changed substantially over time, but these orders types are excluded from our analysis of TAQ data. 629See 17 CFR 242.605(a)(1). See also supra note 40 and corresponding text for a definition of the current order size categories included in Rule 605 reporting requirements.
Figure 3: Rule 605 Coverage Compared
to TAQ, for the NYSE, October 2003– February 2021
Figure 3 shows that Rule 605 coverage
has varied significantly over time, likely the result of market and regulatory events that may have affected the usage of orders types that are excluded from or included in the definition of a covered order. For example, equity markets have seen an increase in the usage of ISOs after Regulation NMS 626 and an increase in participation in national securities exchanges’ closing auctions,627 both of which likely have decreased Rule 605 coverage over time.628 The following sections will discuss the various facets of Rule 605 reporting requirements that lead to the exclusion of orders from reporting requirements and the extent to which these orders may be relevant for an assessment of execution quality, including excluded order sizes, ISOs, stop orders, non￾exempt short sale orders, away-from￾the-quote limit orders, and orders submitted outside of regular trading hours. (1) Orders Less Than 100 Shares and Larger-Sized Orders Currently, orders of certain sizes are excluded from Rule 605 reporting requirements, including orders for less than 100 shares and larger-sized orders.629 Taken together, data on the usage of orders of these sizes implies that a large percentage of orders and trades is currently excluded from Rule 605 reporting requirements on the basis on order size, thus limiting the extent to which reporting entities compete for customers on the basis of execution quality. (a) Orders Less Than 100 Shares Due to the Rule’s current exclusion of orders that are sized smaller than 100 shares, which excludes all odd-lot orders and, in some cases, round lot orders where a round lot is less than 100 shares, the Commission believes that Rule 605 reports are missing information about an important segment of order flow. The rise in the use of odd-lot orders EP20JA23.003</GPH>
Figure 3: Rule 605 Coverage Compared to TAQ, for the NYSE, October 2003 - February 2021. This figure plots the
number of shares executed on NYSE as reported in monthly Rule 605 reports, divided by the monthly total number of shares traded on NYSE as reported in TAQ. Note that the number of executed shares reported in Rule 605 reports is first divided by two, as in Rule 605 data each trade is reported twice: once for the buy-side, and once for the sell-side of the trade. Due to the presence of outliers, data for September 2014 were removed. See supra note 623 for dataset descriptions. 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 625 and section VII.C. l .d)(2).

630See, e.g., supra note 273 and accompanying text, describing how market participants have stated that odd-lots make up a majority of all trades. 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 577 for a definition of these tiers. 631See dataset Summary Metrics by Decile and Quartile, SEC, available at https://www.sec.gov/ marketstructure/downloads.html. The data is available between January 2012 and March 2022. 632The number of odd-lot trades 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 odd-lot trades, as more trades will be incorporated into the definition of round lots. See supra section VII.C.1.(d)(2) for further discussion. 633See Bartlett, et al. 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. 634This dataset consists of NMLO 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 March 2022. For more details on this dataset, see https://www.sec.gov/ marketstructure/midas-system. The sample of stocks is chosen to be a representative sample in terms of market capitalization and price (calculated using price and shares outstanding data from CRSP on the last trading day in February 2021, from CRSP 1925 US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2022)). Note that the MIDAS dataset only includes displayed orders, and includes some order types that are currently excluded from Rule 605 reports, such as short sale orders and orders with special handling requests, as it is not possible to distinguish these orders in MIDAS. 635This data only includes information about NMLOs, and therefore information about the sizes of market orders and marketable limit orders is not available. documented in modern markets.630 An analysis of data from the SEC’s MIDAS analytics tool 631 confirms that the use of odd-lots has increased substantially as a percentage of total on-exchange trades within the past decade. Figure 4 plots monthly averages of the odd-lot rate (the number of odd-lot trades as a percentage of the total on-exchange trades) across stock price deciles, showing that the relative number of odd-lot trades has increased dramatically between 2012 and 2022, for
high-priced stocks in particular.632 Specifically, the figure shows that the odd-lot rate increased from around 0.6% to 2.32% for the lowest-price stocks (Decile 1), and from 10.6% to 40.9% for the highest-priced stocks (Decile 10).
Figure 4: Odd-Lot Rates by Stock Price
Deciles, January 2012–March 2022 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.633 This is supported by an analysis of the distribution of order sizes using order submission data from MIDAS for a sample of 80 stocks during the month of March 2022.634 Confirming results from
Figure 4 examining the time series of
odd-lot order rates, Figure 5 shows that odd-lot orders make up a significant percentage of orders (18.2%), although these orders are only a small percentage of total submitted share volume (2.8%).635
Figure 5: Distribution of NMLOs Across
Order Size Buckets, March 2022 EP20JA23.004</GPH>
Figure 4: Odd-Lot Rates by Stock Price Deciles, January 2012 - March 2022. This figure plots the odd-lot rate (the number
of odd-lot trades on national securities exchanges as a percentage of the total number of on-exchange trades) across stock price deciles for the period from January 2012 to March 2022. For brevity the plot contains data for the smallest (Decile 1), median (Decile 5) and largest (Decile 10) stock price deciles. See supra note 631 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 632 and section VII.C. l.d)(2).

636See, e.g., Phil Mackintosh, ‘‘Odd Facts About Odd-Lots,’’ (Apr. 2021), available at https:// www.nasdaq.com/articles/odd-facts-about-odd-lots￾2021-04-22. 637See infra section VII.C.3.(a)(1)(b), discussing the practice of broker-dealers handling institutional parent orders as not held orders and splitting them up into child orders. 638See, e.g., Hardy Johnson, Bonnie F. Van Ness & Robert A. Van Ness, Are all odd-lots the same? Odd-lot transactions by order submission and trader type, 79 J. Banking & Fin. 1(2017); Maureen O’Hara, Chen Yao & Mao Ye, What’s not there: Odd lots and market data, 69 J. Fin. 2199 (2014). 639See, e.g., Bartlett et al. (2022); 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/. 640Note that 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. 641See, 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. 642See, e.g., Rick Steves, Fractional Shares:
Experts Weight in Amid Exploding Retail Trading Volumes, Fin. Feeds (June 7, 2021, 8:25 a.m.), 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, more than 1,400%) for brokers after they introduced the use of fractional shares. 643See, e.g., Robert P. Bartlett, Justin McCrary & Maureen O’Hara, A Fractional Solution to a Stock Market Mystery (working paper July 20, 2022), available at https://ssrn.com/abstract=4167890 (retrieved from SSRN Elsevier database). Note that, as fractional shares fall below the smallest order size category in current Rule 605, a broker-dealer that currently exclusively executes fractional shares would be a market center, but would not be required to file Rule 605 reports. 644This dataset contains CAT records capturing introducing and trading activity in March 2022, 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, staff looked at the information specific to the originating customer orders (designated as MENO orders events in CAT) that were eventually Continued 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.636 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 as a result of trading algorithms that split larger parent orders into smaller child orders to reduce the market impact of their trades.637 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.638 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.639 Therefore, by not capturing information related to these orders, Rule 605 reports are missing information about potentially important segments of order flow from both individual and institutional investors. (b) Orders Less Than a Share Due to the Rule’s current exclusion of fractional orders that are smaller than one share,640 the Commission believes that Rule 605 reports are missing information about an increasingly important segment of individual investor order flow. Similar to the increase in odd-lots, one reason for the increase in the use of fractional shares is the increasing presence of trading by individual investors, who tend to use smaller order sizes.641 The past
few years have seen increasing attention paid to fractional shares, as more and more retail brokers are offering this functionality.642 The Commission understands that there are at least two different ways that retail brokers handle fractional trades: first, they can 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 can execute fractional trades against their own inventory.643 An estimation of the percentage of orders that are currently excluded from 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 CAT644 confirms that EP20JA23.005</GPH> les-sThHIOOS!mes Order Size • 100 ,., 49$ SM,es 500 to I , !l!l<S Sl,o,res 2,1:00 to 4,!l!<S :s-. 5,00!0 to $,!l!<S Sl,o,res 10,ll>OO ,S""1res"' I.be
Figure 5: Distribution ofNMLOs across Order Size Buckets, March 2022. This figure plots the percentage ofNMLOs that
can be categorized into the existing Rule 605 order size categories, using order submission data from l\1IDAS. Percentages are expressed relative to the total number of orders and the total number of shares. See supra note 634 for dataset description.

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. 645See supra note 609 for a definition of account types in CAT. 646 In terms of notional volume, executed fractional orders make up around 0.17% of total executed dollar volume and 1.4% of individual investor executed dollar volume. 647See supra note 281 and corresponding discussion describing the exemptive relief provided by the Commission in 2001 for orders with a size of 10,000 shares or greater. 648See infra section VII.C.3.(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. 649This analysis uses data from intraday TAQ Consolidated Trade files for the period from September 2003 to March 2022 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 is 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 Specification, available at https:// www.nyse.com/publicdocs/nyse/data/Daily_TAQ_ Client_Spec_v3.3.pdf. 650See supra note 60 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. levels of fractional trading are mostly the result of individual investor trading:
in March 2022, there were 31.67 million orders for less than one share that eventually received an execution, the overwhelming majority (92%) of which were submitted by accounts attributed to ‘‘Individual Customers.’’ 645 While these orders only represented a small fraction (around 1.4%) of total executed orders, they represented a much higher fraction (10.4%) of executions received by individual investors.646 Therefore, by not capturing information related to these orders, Rule 605 reports are missing information about an important segment of individual investor trades. (c) Larger-Sized Orders Due to the Rule’s current exclusion of orders that are larger than 10,000 shares,647 the Commission believes that Rule 605 reports are missing information about another important segment of order flow. 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.648 As shown in Figure 6, which plots the number of shares associated with trades that are for 10,000 or more shares as a percent of total executed shares,649 the rate of larger-sized trades declined from more than 25% in late 2003 to 11.3% as of March 2022. This decline is likely the result of the increased use of SORs, though other market changes such as the overall increase in stock prices may 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%.
Figure 6: Larger-Sized Trades as a
Percent of Total Executed Shares, September 2003–March 2022 BILLING CODE 8011–01–C Furthermore, larger-sized orders make up a non-negligible percent of order flow. Figure 5, which plots the distribution of NMLO sizes in order submission data from MIDAS for the month of March 2022, shows that, while NMLOs of 10,000 or more shares made up only 0.09% of order flow in terms of number of orders, they made up nearly 7.8% of order flow in terms of share volume. However, some, or possibly most, of these larger-sized orders may be not held to the market, so would not be required to be included in Rule 605 reports even without the exemptive relief.650 (2) Orders Submitted With Stop Prices The Commission believes that the current exclusion of orders with stop prices from the definition of ‘‘covered order’’ excludes orders that are likely relevant for investors. 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 EP20JA23.006</GPH>
Figure 6: Larger-Sized Trades as a Percent of Total Executed Shares, September 2003 - March 2022. This figure plots the
monthly number of shares associated with trades that are for 10,000 shares or more, divided by the total number of executed shares, using data from TAQ. See supra note 649 for dataset description.

651See, e.g., SEC, Types of Orders, 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. 652For 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 to which market center 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 (June 2021), available at https:// www.ubs.com/content/dam/static/wmamericas/ bestexecution.pdf. 653See, e.g., Memorandum from SEC Division of Trading and Markets on Certain Issues Affecting Customers in the Current Equity Market Structure (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. See also How to Survive the Markets Without Stop-Loss Orders, NASDAQ (Dec. 2, 2015), 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. 654See, 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). 655See, e.g., Annie Massa & Sam Mamudi, Black Rock 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’’). 656See, e.g., Memorandum from SEC Division of Trading and Markets on Certain Issues Affecting Customers in the Current Equity Market Structure (Jan. 26, 2016), available at https://www.sec.gov/ spotlight/equity-market-structure/issues-affecting￾customers-emsac-012616.pdf. 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, NASDAQ (Dec. 2, 2015), available at https://www.nasdaq.com/ articles/how-survive-markets-without-stop-loss￾orders-2015-12-02. 657See supra note 609 for dataset description. Stop orders are identified using the reporting requirements for stop orders in the CAT Reporting Technical Specifications for Industry Members. See CAT Reporting Technical Specifications for Industry Members, Consolidated Audit Trail, 64 (July 29, 2022), available at https:// www.catnmsplan.com/sites/default/files/2022-07/ 07.29.2022_CAT_Reporting_Technical_ Specifications_for_Industry_Members_v4.0.0r16_ CLEAN_0.pdf. 658See 2013 FAQs. 659See supra note 246 for more information about Rule 201 of Regulation SHO. 660 ‘‘Short exempt’’ orders include 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). 661See supra section II.B.1.(b) for a discussion of the definition of covered orders. orders.651 The treatment of stop orders varies across broker-dealers and market centers.652 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.653 Some national securities exchanges have eliminated this order type from their rule book.654 Furthermore, the use of stop orders has typically been associated with individual investors,655 who use these orders to try to protect a gain or to limit potential losses of a currently held position.656 Table 4 breaks down a sample of stop loss order volume by account type and stop loss order type using CAT data for March
2022.657 The data confirms that the use
of stop orders by institutional investors is very rare (only 0.23% of market and 0.0003% of limit orders are submitted with stop prices), while their use is relatively more common for individual investors, particularly for market orders, around 6.44% of which are submitted with stop prices.
TABLE 4—STOP ORDER VOLUME BY ACCOUNT AND ORDER TYPES, MARCH 2022
Investor and order type
Orders with stop prices
(% of total orders)
Types of stop orders
(% of total stop orders)
Stop/ stop limit
Stop on quote/stop limit on quote Trailing stop/ trailing stop limit Total Institutional:
Market ........................................................................... 0.23 49.4 0.5 11.3 61.3 Limit .............................................................................. 0.0003 37.8 0.4 0.5 38.7 Individual:
Market ........................................................................... 6.44 68.3 9.0 10.3 87.6 Limit .............................................................................. 0.03 10.1 1.7 0.6 12.4
Table 4: Stop Order Volume by Account and Order Types, March 2022. This table shows the percentage of orders that are submitted with stop
prices (as a percentage of total orders) separately for accounts associated with institutional and individual investor types and for market and limit orders, using a sample of CAT data for all NMS stocks from March 2022. Also shown is a breakdown of stop order submission volume according to six common types of stop orders. See supra note 657 for information on the dataset and identification of stop orders. (3) Non-Exempt Short Sale Orders Commission staff has taken the position that staff would view all non￾exempt short sale orders as special handling orders.658 As a result, these orders are currently not included as part of Rule 605 statistics, which may exclude 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,659 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 exempt.’’ 660 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 orders.’’ 661 The exclusion of tick-sensitive orders from Rule 605 reporting requirements ensures that these orders do not skew execution quality statistics, as the prevention of

662This analysis looked at the percentage of trading days that experienced a Rule 201 trigger event for the period January 2012 to February 2021 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/. 663See Adopting Release, 65 FR at 75421. 664See 17 CFR 242.600(b)(77). 665See, e.g., Special Study: Electronic Communication Networks and After-Hours Trading, SEC (June 2000), available at https://www.sec.gov/ news/studies/ecnafter.htm. 666 Jennifer Wu, Michael Siegel & Joshua Manion, Online Trading: An Internet Revolution, Sloan School of Management Massachusetts Institute of Technology Research Notes, p. 4 (1999). 667See, e.g., Extended Hours Overview, Charles Schwab, available at https://www.schwab.com/ public/schwab/nn/qq/about_extended_hours_ trading.html; Extended-Hours Trading, Robinhood, available at https://robinhood.com/us/en/support/ articles/extendedhours-trading/. 668See supra note 619 for dataset description. 669These 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 Program
Appendix B and C Frequently Asked Questions,
Q4.11, available at https://www.finra.org/sites/ default/files/Tick-Size-Pilot-Appendix-B-and-C￾FAQ.pdf. 670Note that most retail brokers do not permit market orders during extended hours trading. See, e.g., Extended Hours Overview, Charles Schwab, available at https://www.schwab.com/public/ schwab/nn/qq/about_extended_hours_trading.html; Extended-Hours Trading, Robinhood, available at https://robinhood.com/us/en/support/articles/ extendedhours-trading/. 671The sample consists of 390 stocks for the period of March 2021. Note that this sample of NMLOs collected from CAT may include NMLOs that would not be included in Rule 605 reports, if they never touch the NBBO at any point during their lifespan. Characteristics include whether the order was submitted to an exchange or off-exchange market center, distance from the prevailing quote midpoint (or, in the case of pre-open orders, from the open price) in basis points (bps), and order size in terms of number of shares. For off-exchange orders, the Commission is also able to characterize whether the order was initially submitted by an individual investor. 672The definition of marketability for the purposes of this analysis for pre-open orders is determined using the NBBO that is first disseminated after the time of order receipt, such that orders to be executed at a market opening price are excluded. See supra note 231 and accompanying text for more information about 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. However, in the years since Rule 201’s adoption, it has become clear that Rule 201 price test restrictions are not often triggered. Staff found that, between April 2015 and March 2022, a Rule 201 trigger event only occurred on 1.7% of trading days for an average stock.662 Around 18% of Rule 201 triggers occur the day after a previous trigger event, and around 46% 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. (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.663 However, the current exclusion of all orders submitted outside of regular market hours from the definition of ‘‘covered order,’’ 664 in addition to excluding orders that execute outside of regular hours, also extends 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 current exclusion of all orders submitted outside of regular trading hours from Rule 605 may lead 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.665 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.’’ 666 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.667 Since these orders are not intended to, 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 Adopting Release. To estimate the amount of orders that are submitted outside of regular trading hours, data from the Tick Size Pilot B.I Market Quality dataset 668 was analyzed to break order volume down into different trading sessions according to when the order was eligible to trade.669 The Commission considers only those orders that have an effective time during regular market hours to be eligible for Rule 605 reporting, and excludes orders that are otherwise excluded from current 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 eligible to execute during regular trading hours.670 In order to estimate the extent to which this occurs, a sample of CAT data 671 was analyzed to examine submission volumes of NMLOs submitted outside of regular trading hours that were designated as only eligible to trade during regular trading hours,672 and compared them to

defining the marketability of orders submitted outside of regular market hours. 673As 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, staff was not able to differentiate individual investors in the CAT data for exchanges. 674See, e.g., Rule 606(a)(1) of Regulation NMS (requiring reports on the routing of customer orders) and Rule 600(b)(25) of Regulation NMS (defining ‘‘customer order’’ to exclude an order with a market value of $200,000 or more); Rule 604(b)(4) of Regulation NMS (providing an exception for orders of block size from required limit order display) and 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). 675See 17 CFR 242.605(a)(1). See also supra note 40 and corresponding text for a definition of the current order size categories included in Rule 605 reporting requirements. 676 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 266. 677See supra section VII.C.2.(b)(1)(a) for a discussion of the exclusion of orders that are less than 100 shares from current Rule 605 reporting requirements. 678See Phil Mackintosh, Modern Retail Needs Modern Rules, NASDAQ (May 27, 2021, 11:54 a.m.), available at https://www.nasdaq.com/ articles/modern-retail-needs-modern-rules-2021-05- 27/. 679See supra note 577 for a definition of these tiers. 680Both 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, Sugato Chakravarty & Terrence Martell, 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). 681See Proposing Release, 65 FR 48406 (Aug. 8,
2000) at 48414.
682See 17 CFR 242.600(b)(14).
683See supra note 634 for a description of the dataset. the volumes and characteristics of NMLOs submitted during a sample 10- minute time window from 9:40 a.m. to 10:40 a.m. This analysis confirms that pre-open orders eligible to trade during regular trading hours likely make up only a very small percentage of order volume, representing only around 4.8% of the volume of orders submitted during a single ten-minute period of the trading day. However, further analysis reveals that these orders contain a high concentration of individual investor orders. Specifically, pre-open share volume contains a much larger fraction of individual investor shares (29.5%) than the sample time window during regular trading hours (1.9%), at least for off-exchange market centers for which individual investor orders could be identified.673 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) Information Required by Current Rule 605 Reporting Requirements 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 included in Rule 605 reports. This section will discuss how 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 The Commission believes that defining order size categories in terms of numbers of shares has led these order size categories to be less informative about differences in execution qualities across differently-sized orders. To illustrate, consider that some Regulation NMS rules exclude orders or trades that are sized above $200,000, as these orders typically warrant different treatment than smaller orders.674 For a $50 stock, a $200,000 order would be equivalent to around 4,000 shares, meaning that typically-sized orders (i.e., orders that are not excluded from the previously described Regulation NMS rules) below $200,000 (and above $500, given that orders below 100 shares are excluded) are split between three order size categories: 100 to 499 shares, from 500 to 1999 shares, and from 2000 to 4999 shares. Market participants are therefore able to use these order size categories to compare across orders of different sizes. However, for a $500 stock, a $200,000 order would only be equivalent to 400 shares. Therefore, for the purposes of Rule 605 reporting, nearly all typically-sized orders in this high-priced stock are either grouped in the smallest order size category (100 to 499 shares 675), or, if they would fall below the smallest order size category of
100 shares, excluded altogether from reporting requirements.676 As all orders tend to be clustered into a single category, market participants are unable to use these categories to compare across orders of different sizes in higher￾priced stocks. Similarly, at least one market participant argues that the definition of the current order size categories in terms of number of shares together with the exclusion of orders of less than 100 shares,677 has led to the exclusion of more orders with low dollar values as the average stock price increases.678 Furthermore, the Commission’s 2020 adoption of the MDI Rules included a new definition of ‘‘round lot’’ that causes some round lots to be excluded from reporting requirements, absent an update to Rule 605’s order size categories.679 Specifically, the current size categories as defined under Rule 605, which exclude orders with fewer than 100 shares, exclude a portion of round lots for stocks with prices greater than $250. (2) Non-Marketable Limit Order Categories The Commission preliminarily believes that the current categorization of NMLOs may include orders whose executions are more likely to depend on their limit prices and price movements in the market, and exclude orders whose executions are more likely to depend on their handling by the market center. This could lead to the excessive exclusion of limit orders whose execution quality may be relevant to both individual and institutional investors.680 When proposing to exclude away￾from-the-quote NMLOs with a limit price more than ten cents away from the NBBO, the Commission reasoned that the execution quality statistics for these types of orders 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.681 Meanwhile, the current ‘‘near-the￾quote’’ limit order category 682 is meant to include limit orders that are submitted away from the NBBO, but that still have a relative likelihood of being executed (hence the minimum distance requirement from the NBBO). However, it is important to note that the likelihood of execution of both greatly depends on the movement of the NBBO. An order submitted even 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 7 breaks down a sample of
MIDAS NMLO submission data from 80 stocks in March 2022 683 into NMLO

684Results may be different 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 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. See supra section VII.C.1.(d)(2) for further discussion. 685The distribution of orders into various NMLO categories may change following the implementation of the MDI Rules. See supra note 684 and section VII.C.1.d)(2). However, it is not clear how a change in the distribution of orders into various NMLO categories would affect the average fill rates of these NMLO categories. 686Commenters supported including NMLOs further away from the quote in Rule 605 reports but noted the difficulty of providing meaningful execution quality statistics for such orders. See supra notes 296–297 and accompanying text. 687See infra section VII.E.2.(b) for a discussion of how NMLO orders that are cancelled quickly after submission may impact fill rates. types, 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-midpoint, and beyond-the-midpoint).684 The figure shows that away-from-the-quote NMLOs represent nearly a quarter of all non￾marketable share volume. BILLING CODE 8011–01–P
Figure 7: Order Submission Share
Volume by NMLO Type, March 2022
Figure 8 presents data on the fill rates
of NMLO orders, broken down by NMLO type, using the same sample of MIDAS NMLO submission data.685 The
figure shows that near-the-quote and
away-from-the-quote NMLOs appear very similar in terms of fill rates (0.6% and 0.18%, respectively), particularly compared to other types of NMLOs (e.g., inside-the-quote NMLOs have an average fill rate of around 2.7% to 5.1%). The fact that near-the-quote and away-from-the-quote NMLOs have similar fill rates is consistent with the possibility that the current exclusion of NMLOs priced more than 10 cents away from the NBBO is based on a threshold that does not optimally differentiate between orders that have a meaningful chance to execute.686 Meanwhile, orders that never have a meaningful opportunity to execute (e.g., because they never touch the NBBO) may be included in Rule 605 statistics. To get an idea of the extent to which such orders are currently included in Rule 605 statistics, note that, according to
Figure 8, more than 99% of near-the￾quote NMLOs do not execute, which,
according to Figure 7, represents around 36% of total submission volume. 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 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.687
Figure 8: Fill Rates of NMLOs, March
2022
EP20JA23.007</GPH>
!lleo,-t!,e,-C!uote
Away•!rom--the-Oll'lO:te
Figure 7: Order Submission Share Volume by NMLO Type, March 2022. This figure plots the percentage of order flow that
can be categorized into various NMLO categories, using order submission data from l\1IDAS. See supra note 634 for a description of the dataset. This analysis uses data from prior to the implementation of the l\1DI Rules and results may be different following the implementation of the l\1DI Rules. See supra note 684 and section VII.C. l .d)(2).

688Results 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 would result in even tighter price bands. See supra section VII.C.1.(d)(2) for further discussion. Furthermore, defining the threshold for inclusion in Rule 605 reporting requirements in nominal terms (i.e., 10 cents) means that NMLO coverage varies depending on the stock price: high-price stocks with smaller relative tick sizes have less NMLO coverage, since 10 cents represents a relatively tighter band around the NBBO.688 This is shown in
Figure 9, which breaks down the NMLO
submission volumes in Figure 8 by both order type and average share prices. The
figure shows that away-from-the-quote
NMLOs represent 24.4% of total NMLO share volumes for the group of stocks with the highest share prices, but only 8.4% for the group of stocks with the lowest share prices. 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.
Figure 9: Order Submission Share
Volume by NMLO Type and Stock Price Quartiles, March 2022 EP20JA23.008</GPH>
Figure 8: Fill Rates of NMLOs, March 2022. This figure plots the fill rates of order flow that can be categorized into various
NMLO categories, using order submission data from l\1IDAS. Fill rates are calculated as the number of shares executed divided by the number of shares submitted. See supra note 634 for a description of the dataset. This analysis uses data from prior to the implementation of the l\1DI Rules and results may be different following the implementation of the l\1DI Rules. See supra note 685 and section VII.C. l .d 2 .

689See supra note 609 for dataset description. This dataset is from prior to the implementation of the MDI Rules and the distribution of orders into various NMLO categories, including beyond-the￾midpoint orders, may change following the implementation of the MDI Rules. See supra note 684 and section VII.C.1.(d)(2). However, it is not clear how a change in the distribution of orders into various NMLO categories would affect the average fill rates and time-to-execution of these NMLO categories. The percent of price-improved orders may also change, depending on how wholesalers adjust their price improvement practices in stocks with narrower spreads. However, it is unclear how the percentage of price-improved beyond-the￾midpoint NMLOs would change relative to other types of NMLOs. (3) Beyond-the-Midpoint Limit Orders Currently, Rule 605 reports may not accurately reflect how the execution quality of inside-the-quote NMLOs may vary across market centers. The Commission preliminarily understands that some inside-the-quote limit orders may have different execution quality characteristics than other types of NMLOs, and that this may vary across market centers. In particular, the Commission preliminarily understands that 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. However, because they are not a marketable order type (i.e., they do not fully cross the spread), some statistics are not currently calculated for inside-the-quote limit orders, including price improvement statistics and effective spreads. In order to examine this possibility,
Table 5 presents results from an analysis
of the execution quality of beyond-the￾midpoint NMLOs compared to other order types, including market, marketable limit, and other types of inside-the-quote NMLOs, using a sample of orders executed by the six most active wholesalers from CAT data for the period of Q1 2022.689 The results show that beyond-the-midpoint NMLOs executed by wholesalers tend to have much faster time-executions and higher fill rates than other types of inside-the￾quote NMLOs, and are also somewhat more likely to be given price improvement. Grouping beyond-the￾midpoint orders together with other NMLOs obscures the differences in these market centers’ treatment of these types of orders, including potential differences in price improvement.
TABLE 5—EXECUTION QUALITY CHARACTERISTICS OF BEYOND-THE-MIDPOINT NMLOS EXECUTED BY WHOLESALERS, Q1
2022
Order type
Average time￾to-execution
(seconds)
Median time￾to-execution
(seconds)
Fill rates
(%)
Price-improved orders
(% total orders)
Market .............................................................................................................. 21.19 0.04 91.0 78.1 Marketable Limit .............................................................................................. 233.95 3.22 94.0 55.9 Beyond-the-Midpoint NMLOs .......................................................................... 1503.31 145.49 94.1 4.6 EP20JA23.009</GPH> .Sey,,ml-t~t Order Type Ill At-!lie-Hi<lpmt -.,.1!,o-Mi:!poiot At•t-be
Figure 9: Order Submission Share Volume by NMLO Type and Stock Price Quartiles, March 2022. This figure plots the
percent of order flow that can be categorized into various NMLO categories, using order submission data from l\1IDAS. Stocks are split into quartiles based on average stock prices. See supra note 634 for a description of the dataset. This analysis uses data from prior to the implementation of the l\1DI Rules and results may be different following the implementation of the l\1DI Rules. See supra note 688 and section VII.C. l.d)(2).

690See supra note 133 and accompanying text discussing concerns raised by commenters about the current provisions in Rule 605 for time-to￾execution information. 691See supra note 343 for a definition of these time-to-execution categories. 692See dataset Conditional Cancel and Trade Distributions, 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. 693 I.e., Figure 10 plots the number of fully executed NMLOs executed within one second relative to the total number of fully executed on￾exchange NMLOs. Note that, in contrast, Figure 8 plots the number of executed NMLO shares divided by the total number of submitted NMLO shares.
TABLE 5—EXECUTION QUALITY CHARACTERISTICS OF BEYOND-THE-MIDPOINT NMLOS EXECUTED BY WHOLESALERS, Q1
2022—Continued
Order type
Average time￾to-execution
(seconds)
Median time￾to-execution
(seconds)
Fill rates
(%)
Price-improved orders
(% total orders)
At-the-Midpoint and Below-the-Midpoint NMLOs ............................................ 4189.13 1480.60 81.7 1.1
Table 5: Execution Quality Characteristics of Beyond-the-Midpoint NMLOs Executed by Wholesalers, Q1 2022. This table shows execution
quality metrics for different order types handled by the top six wholesalers using CAT data during the period of Q1 2022. See supra note 609 for dataset description. This analysis uses data from prior to the implementation of the MDI Rules and results may be different following the imple￾mentation of the MDI Rules. See supra note 689 and section VII.C.1.d)(2). (4) Time-to-Execution The rapid increase in execution speeds in modern markets has decreased the usefulness of time-to￾execution information that is currently required in Rule 605 reports.690 Currently, time-to-execution information is required in Rule 605 reports in two ways: first, for market and marketable limit orders, the share￾weighted average time-to-executions for orders executed with price improvement, at the quote, and with price dis-improvement, calculated based on timestamps recorded in seconds; and second, for all orders, the number of shares executed within certain pre￾defined time-to-executions categories.691 First, calculating average time-to￾execution statistics using timestamps recorded in terms of seconds does not reflect changes in market speeds. Figure 10 uses data from the SEC’s MIDAS analytics tool 692 to plot the percentage of on-exchange NMLOs that, conditional on being executed,693 are fully executed within one second or less from the time of submission between Q4 2012 and Q1
2022. The figure shows that this
percentage has increased over time across different market capitalization groups, and that in Q1 2022 more than half (51.6%) 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 much of the variation in time-to-execution across market centers in today’s markets.
Figure 10: Percentage of NMLOs
Executed Within One Second, Q1 2012– Q4 2022 EP20JA23.010</GPH>
Figure 10: Percentage of NMLOs Executed Within One Second, Ql 2012 - Q4 2022. 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 Ql 2022 using data from the SEC's l\1IDAS analytics tool. See supra note 692 for dataset description.

694See supra note 343 for a definition of these time-to-execution categories. 695See supra note 634 for data description. Note that 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. 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 684 and section VII.C.1.(d)(2). However, it is not clear how a change in the distribution of orders into various NMLO categories would affect the average time-to-execution of these NMLO categories. 696See supra note 634. MIDAS data includes 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. 697See supra note 619 for data description. Note that, 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 data set (April 2016 until March 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 current 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 only includes 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 684 and section VII.C.1.(d)(2). However, it is not clear how a change in the distribution of orders into various NMLO categories would affect the average time-to-execution of these NMLO categories. Second, given that many orders are executed on a sub-second basis, the current time-to-execution buckets prescribed by Rule 605 are not able to fully capture variations in time-to￾executions across order types.694 To illustrate this, Figure 11 groups on￾exchange NMLO executions collected from MIDAS for the period of March 2022 695 into time-to-execution buckets that correspond to those currently defined in Rule 605. The figure shows that, while the distribution of orders looks reasonable for away-from-the￾quote and near-the-quote NMLOs, for which executions 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, 84.2% to 85.7% 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 Rule 605 (5 to 30 minutes) has only 1.1% to 1.3% of executions. Therefore, these time-to￾execution categories likely do not fully capture variations in the execution times of these orders across reporting entities.
Figure 11: Distribution of NMLO
Execution Times, March 2022 MIDAS data includes only orders and quotes that are posted on national securities exchanges’ LOBs and trades that are executed against those orders,696 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 2019.697 EP20JA23.011</GPH> .-Thil!I JO Mi!ll!tes 110 %, of Exeooled Shere;s Fmm 30 Seioo:I\M to less Th.an fii tt!NW1:es ■ Fil'llm 10 ~ t<::1 t?H:s T'rum: 30 Seool'!ds

• F""" 0 Seoo<l<ls to le,s Thil!l 10 Seoon<ls
  Figure 11: Distribution of NMLO Execution Times, March 2022. This figure plots the distribution of shares across different
  time-to-execution categories, for different categories ofNMLOs, using order submission data from l\1IDAS. See supra note 634 for dataset description. This analysis uses data from prior to the implementation of the l\1DI Rules and results may be different following the implementation of the l\1DI Rules. See supra note 695 and section VII.C. l .d)(2).

698Academic 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, Roni Michaely & Pamela C. Moulton, 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, Bjorn Hagstro¨mer, Lars Norde´n & Ryan Riordan, Trading Fast and Slow: Colocation and Liquidity, 28 Rev. Fin. Stud. 3407 (2015). 699See supra section VII.C.2.(c)(4) for a discussion of evidence of increased market trading speeds. 700See 17 CFR 242.600(b)(9). See also supra note 359 and accompanying text for a further discussion of the definition of the realized spread. 701For 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 and the market maker will have to sell at a lower price than what it paid for the shares.
Figure 12 shows the distribution of
time-to-execution statistics for market and marketable limit orders, along with the three categories of non-marketable limit orders currently required in Rule 605 reports (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 Rule 605.
Figure 12: Distribution of Order
Execution Times, April 2016–March 2019 Echoing the results using MIDAS data in Figure 11, Figure 12 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 the Rule 605 and 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 Rule 605 category of shares executed from 0 to 9 seconds. Likewise, the longer time-to-execution buckets that are included in both the Rule 605 and Tick Size Pilot categorizations are virtually empty. Therefore, as with inside-the-quote NMLOs, current Rule 605 time-to-execution categories are 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 limits the usefulness of time-to-execution information for investors.698 (5) Effective and Realized Spreads The Commission believes that current requirements in Rule 605 related to measures of effective and realized spreads may lead to uninformative or incomplete information. First, because of the increase in the speed at which markets operate,699 the requirement to use a five-minute benchmark to calculate realized spreads 700 may limit the ability of the Rule 605 realized spreads to measure what they are intended to measure, i.e., the adverse selection risk associated with providing liquidity at a market center. 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 are able to unwind their positions.701 Realized spreads are calculated by comparing an order’s transaction price to the NBBO midpoint five minutes later (i.e., an estimate of the average expected trade price). Smaller (or even negative) realized spreads reflect that market prices have moved away from market makers, which is usually a reflection of order flow with EP20JA23.012</GPH>
Figure 12: Distribution of Order Execution Times, April 2016 - March 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. See supra note 619 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 697 and section VII.C. l .d)(2).

702The 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. 703See, e.g., O’Hara 2015; O’Hara et al.; Conrad and Wahal. 704See O’Hara 2015. The author argues that the use of a five-minute time horizon to calculate realized spreads leads to spreads that are nearly always negative, which is inconsistent with their interpretation as returns to market-making. The implication is that the five-minute time horizon is too noisy. 705See Conrad and Wahal. 706Using CRSP data from the last trading day in February 2021, the Commission selected 400 stocks, 100 each from 4 size quartiles: under $100 million, $100 million to $1 billion, $1 billion to $10 billion, and over $10 billion. Within each market cap group, the Commission split the stocks into 4 quartiles based on price and selected 25 stocks from each price quartile evenly spaced within the quartile. The Commission manually replaced 3 stocks in the smallest size quartile with a price and sized matched stock because they had very little trading volume. The Commission limited its analysis to trades during regular market hours without an irregular sale condition. Analysis derived based on data from CRSP 1925 US Stock Database, Ctr. Rsch. Sec. Prices, U. Chi. Booth Sch. Bus. (2022). 707This 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 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 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 VII.C.1.(d)(2) for further discussion. 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 adverse market conditions. Selecting an appropriate time horizon to calculate the realized spread must strike a balance between too short, which could distort the measures by transitory price impact, and too long, which could measure noise 702 or the cumulative impact of subsequent market changes which are unrelated to the order’s execution quality. 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, which is not easily observable. A number of academic studies argue that the five-minute horizon is too long for a high-frequency environment.703 As one paper puts it, ‘‘five minutes
is a ‘lifetime’, and so is not a meaningful time frame in which to evaluate trading.’’ 704 Another paper shows that realized spreads will generally increase as the time horizon that they are calculated over is shortened, highlighting that realized spreads are highly dependent on the time horizon over which they are calculated.705 In order to see how using different time horizons for calculations of realized spreads can affect comparisons across market centers, using TAQ data for a sample of 400 stocks in February 2021,706 the Commission calculated the average realized spreads across 15 different market centers, measured using six different time horizons: 1 second, 5 seconds, 10 seconds, 15 seconds, 1 minute, and 5 minutes. The results are presented in Figure 13, and support the findings from the empirical literature, that the choice of time horizon is non-trivial and realized spreads are generally increasing as the time horizon decreases.707
Figure 13: Average Realized Spreads by
Market Center and Time Horizon, February 2021 BILLING CODE 8011–01–C EP20JA23.013</GPH> _ . ■ tSeo II IGSeo Ulio '""" lionzoo ■ 5 Seo 8 15 - o Min
Figure 13: Average Realized Spreads by Market Center and Time Horizon, February 2021. This figure plots the share￾weighted average realized spread using different time horizons, across 15 different national securities exchanges, using data from
TAQ. See supra note 706 for dataset description. Measures grouped by exchange were calculated on a stock-day basis, then weighted according to the formula: Measures of Stock i on Market Center j x (Volume of Stock i across All Market Centers / Volume of All Stocks across All Market Centers). To account for the fact some stocks did not trade on some market centers on some days, in those instances, the stock-day-exchange measure was replaced by the corresponding measure across all market centers. The measures were then summed up by stock and averaged across trading days. This weighting avoids cases in which a market center may have a higher dollar realized spread because it had more trading volume in high-priced stocks, which tend to have higher realized spreads by construct. 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 707 and section VlLC. l .d)(2).

708See, e.g., Bjorn Hagstro¨mer, Bias in the Effective Bid-Ask Spread, 142 J. Fin. Econ. 314 (2021). See infra section VII.E.3.(c)(3) discussing potential issues with using the midpoint to calculate effective spreads. 709The interpretation of effective spreads for NMLOs is different from that of realized spreads. Effective spreads capture what liquidity providers expect to earn from providing liquidity, assuming that prices do not change before the liquidity provider is able to unwind its position and realized its profit. Meanwhile, realized spreads capture what it actually earns, taking into account that the market price may have moved against the liquidity provider before it could unwind its position. See supra note 701 and accompanying text. Therefore, while the effective spread measures the expected benefits to liquidity provision, the realized spreads measure its riskiness. 710Both individual and institutional investors provide liquidity through the use of NMLOs. See supra note 680. 711 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. 712To illustrate, consider an investor that wants to acquire a $10,000 position in a $250 stock with an effective spread of $0.01; the investors will have to pay about $0.40 to purchase 40 shares of the stock. Now consider an investors 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 ten times more expensive for the investor to accumulate a position worth the same dollar amount in the lower-priced stock. 713While 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 proposed amendment to require reporting entities to prepare summary reports that aggregate execution quality information for S&P 500 stocks, along with all NMS stocks, would give market participants access to aggregate effective spreads for one commonly used basket of stocks. Meanwhile, per-stock percentage spread information would enhance market
participants’ ability to aggregate effective spread information across baskets of stocks other than the S&P 500. 714To 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. These differences can have implications for comparisons across market centers as well. As shown in
Figure 13, while Market Centers 8 and
9 have positive realized spreads using the shortest time horizon, their spreads are mostly negative at longer time horizons. As a result, an assessment of whether these market centers have higher or lower realized spreads (i.e., more or less adverse liquidity conditions) as compared to, say, Market Center 6, depends on the time horizon used. Therefore, the choice of interval can not only affect the interpretation of realized spreads as a measure of liquidity conditions, but also affect comparisons across market centers. From the results of this analysis, it is unclear whether the choice of any specific measurement horizon results in realized spreads more accurately measuring adverse selection risk, as the ‘‘ideal’’ measurement horizon is not easily observable. However, given the higher frequency of trading today, it is likely that the use of a five-minute horizon for realized spreads limits the extent to which these measures are able to capture adverse selection risk, making it more difficult to compare conditions for liquidity providers across market centers. Second, reporting entities are currently not required to include information about the effective spreads of NMLOs in Rule 605 reports, which means that neither individual nor institutional investors have access to information about this dimension of execution quality for their 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.708 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. For NMLOs, instead of capturing a cost of immediacy, the effective spread captures how much the limit order provider expects to earn (i.e., pay less than or receive more than the stock’s estimated value, depending on whether its order is to buy or sell) from the execution of its limit order.709 This measure of the expected benefits to liquidity provision contains information that may otherwise be useful to investors, but is currently missing in Rule 605 reports.710 Lastly, the fact that Rule 605 reports only contain information on average realized and average effective spreads in terms of dollar amounts makes it difficult for market participants to account for differences in share prices when comparing across market centers.711 While spreads in dollar 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.712 All else being equal, spread measures tend to be higher in dollar terms for higher-priced stocks. As different reporting entities handle and/ or transact in different mixes of
stocks, this may make 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.713 Also, measuring spreads in absolute terms may lead to comparisons across reporting entities that do not take into account 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 the offered the better prices (a percentage effective spread of 0.04%) compared to Market Center A (a percentage effective spread of 0.4%).714 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. (6) Price and Size Improvement The current measure of price improvement required for Rule 605 reports may not succeed in always capturing price improvement relative to the best available prices. Currently, market centers are required to report price improvement as the difference between the trade price and the NBBO.

715See 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. 716An 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 April 2016 and March 2019. See infra note 723 for data description. See also supra note 406 and accompanying text. 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 VII.C.1.(d)(2) for further discussion. 717See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75425.
718For example, assume that a trader submits a marketable buy order for 100 shares to a $10.05 × $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) = $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. 719To illustrate, consider the example in supra note 718, 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 × $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. 720For example, compare the example of Market Center B offering size improvement to a 200-share order in note 718, supra, to the example of Market Center B offering price improvement to a 100-share order in note 719, 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. 721See supra note 326 and accompanying text. 722See supra
note 609 for dataset description. However, 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.715 If an order executes against a resting odd-lot with a price better than the NBBO, the execution would result in positive price improvement according to the current Rule 605 reporting requirements. In cases where this occurs, this positive price improvement is the result of an inadequate benchmark price being used, and not the same as if the market center were to actively offer the order at a price better than the best available market price, which is what price improvement is typically intended to measure. Furthermore, such positive price improvement may actually reflect price dis-improvement, once all available displayed liquidity is taken into account. For example, if a market center internalizes an order with $0.05 of price improvement relative to the NBBO, but odd-lots are available on another market center at prices that are $0.10 better than the NBBO, the market center would post 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 instead of internalizing the order. As a result, current measures of Rule 605 may overstate the amount of price improvement offered by some market centers. 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 currently required by Rule 605 do not necessarily capture a market center’s ability to fill orders beyond the liquidity available at the NBBO.716 For example, consider a situation in which the market is $10.05 × $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 is not reflected in the market center’s price improvement statistics. As the Commission stated in the Adopting Release, the average effective spread captures some information about size improvement.717 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).718 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.719 Therefore, investors that particularly value the ability of market centers to offer size improvement, such as investors trading in larger order sizes, would not currently be able to use the metrics currently contained in Rule 605 reports to easily discern which market center would better handle their order according to this dimension of execution quality.720 (7) Marketable IOCs The Commission preliminarily believes that grouping marketable IOCs together with other marketable limit orders may lead to a downward skew on the execution quality metrics (specifically, derived estimates of fill rates) for market centers that handle a large amount of IOCs, which would hinder the extent to which these metrics could be used to accurately compare execution quality across market centers. At least one commenter to the 2010 Concept Release on Equity Market Structure pointed out that IOCs may have a different submitter profile (typically, institutional investors) and different execution quality characteristics than other types of orders.721 Furthermore, an analysis using CAT data 722 of retail orders received at larger retail brokers during June 2021 indicate that approximately only 0.02% of individual investor

723See Tick Size Pilot Plan. This dataset contains information for approximately 2,400 small cap stocks for a period from April 2016 to March 2019. Orders with special handling codes are discarded, as are orders marked as short sales (‘‘SS’’). Note that, as the Tick Size Pilot collected data only for small cap stocks, these time-to-executions are not necessarily representative of all stocks. For example, larger market cap stocks may be traded more actively by institutional investors, and therefore would likely have higher IOC volumes. 724See supra section VII.C.2.(a)(2) for further discussion of co-mingling SDP activity with other market center activity. 725For example, if a market center’s Rule 605 reports reveals low fill rates for market orders simply because it handles a large amount of marketable IOCs, it may not be 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. 726See supra note 416 and accompanying text for a definition and discussion of riskless principal transactions. 727See supra note 417 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, available at https:// www.finra.org/filing-reporting/market￾transparency-reporting/trade-reporting-faq. orders are submitted with an IOC instruction. To examine whether IOC orders have different execution quality characteristics than other types of orders, an analysis was performed using data from the Tick Size Pilot B.II Market and Marketable Limit Order dataset, 723 which includes a flag indicating whether a market or marketable limit order has been marked as IOC. The results are presented in Table 6 and show that IOCs indeed may have different execution quality, as they typically have much lower fill rates (3.22%) than other market and marketable limit orders (15.94%), particularly for larger-sized orders. Therefore, the inclusion of IOCs along with other types of market and marketable limit orders may skew the execution quality of these other orders types, particularly since IOCs make up more than 90% of market and marketable share volume.
TABLE 6—IMMEDIATE-OR-CANCEL (IOC) SHARE VOLUME, OCTOBER 2018–OCTOBER 2019
IOC volume
(% of share volume)
Fill rate
(IOC)
Fill rate
(non-IOC)
Market Centers Other than Wholesalers:
Less than 100 shares ..................................................................................................... 88.1 39.6 15.4 100 to 499 shares .......................................................................................................... 88.9 14.8 11.5 500 to 1,999 shares ....................................................................................................... 84.6 5.4 6.5 2,000 to 4,999 shares .................................................................................................... 89.3 3.0 8.1 5,000 to 9,999 shares .................................................................................................... 91.6 1.3 7.5 10,000 or more shares ................................................................................................... 92.8 0.3 3.8 Wholesalers:
Less than 100 shares ..................................................................................................... 33.6 30.1 67.1 100 to 499 shares .......................................................................................................... 70.7 13.4 48.1 500 to 1,999 shares ....................................................................................................... 66.6 5.6 95.0 2,000 to 4,999 shares .................................................................................................... 54.8 4.3 93.7 5,000 to 9,999 shares .................................................................................................... 59.0 2.1 84.5 10,000 or more shares ................................................................................................... 83.8 0.3 60.7 All Market Centers and Order Sizes ..................................................................................... 90.04 3.22 15.94
Table 6: Immediate-Or-Cancel (IOC) Share Volume, October 2018–October 2019. This table shows the percentage of market and marketable
limit orders submitted with IOC instructions, along with the fill rates of those orders, using data from the Tick Size Pilot B.II Market and Market￾able Limit Order dataset. See supra note 723 for data description. This dataset contains an ‘‘IOC’’ flag, which is equal to ‘‘Y’’ if the order is an IOC order. The Commission excluded orders outside of regular trading hours and identified retail wholesaler orders as orders originating from seven trading center codes that the Commission understands to be retail wholesalers. This is especially likely to be the case for wholesalers. The Commission understands 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. This is supported by Table 6, which shows that the differences between fill rates for IOC and non-IOC orders are particularly stark for these market centers: While wholesaler fill rates range between 60% and 95% for non-IOC orders, they are mostly below 30% for IOC orders, and even smaller for larger order sizes, dropping to just 0.3% for orders for 10,000 shares or more. This is again consistent with the idea that wholesalers’ IOC orders may represent institutional orders that are routed to their SDPs. Co-mingling SDP activity with other market center activity may obscure differences in execution quality or distort the general execution quality metrics for the market center.724 Similarly, grouping together IOC orders along with other types of market and marketable orders could impose a significant downwards skew on the fill rates, in particular for larger order sizes and orders handled by wholesalers. This may impact market centers’ incentives to achieve better execution quality for marketable orders.725 (8) Riskless Principal Orders The Commission believes that current reporting of riskless principal transactions 726 leads to the duplicative reporting of these orders, and creates 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. Currently, for the purposes of Rule 605 reporting, both the first and second market centers in this example would report the riskless principal transaction as having been executed at the 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).727

728See infra section VII.C.3.(b)(1) for further discussion of the market for trading services, which includes wholesalers. 729See supra note 614 for results from an analysis of retail brokers’ routing practices. 730See 17 CFR 242.605(a)(2) (requiring market centers to make their Rule 605 reports ‘‘available for downloading from an internet website that is free and readily accessible to the public. . . .’’). 731See supra section VI.C for a discussion of the estimated number of reporting entities under the proposed amendments. 732See Section VIII of the Rule 605 NMS Plan. For a description of ‘‘Designated Participant’’ as defined in the Plan, see supra note 47. 733See, e.g., Disclosure of SEC—Required Order Execution Information, S&P Global, available at https://vrs.vista-one-solutions.com/sec605rule.aspx. 734For these reasons and others, EMSAC has suggested considering a centralized location for 605 reports. See EMSAC Recommendations Regarding Rule 605 and 606, SEC, 4, available at https:// www.sec.gov/spotlight/emsac/emsac￾recommendations-rules-605-606.pdf (stating that ‘‘To further improve standardization and the consistency of reporting, the SEC could consider centralizing report creation in an unbiased and trusted source such as FINRA.’’). The Commission also notes that FINRA has proposed requiring members to submit Rule 606(a) order routing reports to FINRA for publication on the FINRA website. See Report from FINRA Board of Governors Meeting, FINRA (Mar. 2022), available at https://www.finra.org/media-center/newsreleases/ 2022/report-finra-board-governors-meeting-march￾2022 (describing proposed amendments to centrally host SEC Rule 606(a) reports). 735Some broker-dealers service only the accounts of other brokers, which are excluded from the definition of customers. See supra note 140 for a definition of ‘‘customer.’’ 736See supra note 174 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 (Aug. 21, 2013) at 51911, 51949, and 51968. 737This number is based on the number of broker￾dealers that report carrying at least one customer on their 2021 FOCUS Schedule I reports. 738This number is based on estimates using broker-dealers FDIDs identified in CAT data during the 2021 calendar year. As CAT data only includes information about NMS stocks and options, broker￾dealers that introduce or carry customers trading in other assets classes are not included in these numbers. See infra note 1008 for a discussion of the data and methodology for identifying introducing broker-dealers. 739Some 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 VII.C.3.(a)(1)(b) for further discussion. The Commission believes that, 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 executed at the market center under Rule 605(a)(1)(i)(D) may obscure 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 capital, or they execute orders on a riskless principal basis.728 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. Currently, both types of orders would be categorized together as orders executed at the market center under 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 wholesalers 729) when interpreting and comparing information about wholesalers’ execution quality is currently missing from Rule 605 reports. (d) Accessibility of Current Rule 605 Reports Rule 605 currently requires market centers to post their monthly reports on an internet website that is free of charge and readily accessible to the public.730 There is currently no system or requirement in place for the centralized posting of Rule 605 reports, which results in search costs for market participants. In order to collect a complete or mostly 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 would need to perform the following tasks, for each of the estimated 236 reporting entities that are currently required to prepare Rule 605 reports: 731 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, who is tasked with maintaining a comprehensive list of the hyperlinks provided by its market centers.732 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.733 However, because an individual vendor or Designated Participant may only offer a subset of Rule 605 reports or hyperlinks to reports, which may not be a representative sample of reports, it is still the case that collecting the complete or even a mostly comprehensive set of Rule 605 reports could entail search costs.734 In order to collect a complete set of reports, market participants may still need to search the websites of and collect reports from multiple vendors or Designated Participants.
3. Markets for Brokerage and Trading
Services for NMS Stocks Under Current 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 3,498 registered
broker-dealers as of Q2 2022. A portion of these broker-dealers focus their business on individual and/or institutional investors in the market for NMS stocks.735 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.736 The Commission estimates that there are approximately 153 broker-dealers that carry at least one customer trading in NMS stocks and options, 737 and 1,110 broker-dealers that introduce at least one customer trading in NMS stocks and options.738 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, who generally wants to receive the best possible execution of their order.739 These broker-dealers can generally decide how to route that order for execution to an exchange, a wholesaler, or an ATS, where the trade

740See infra section VII.C.3.(b)(1) for a breakdown of trading in NMS stocks across various types of trading venues. 741See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir.), cert. denied, 525 U.S. 811 (1998). 742See id. 743See 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.’’ See SEC Report of the Special Study of Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess. Pt. II, 624 (1963) (‘‘Special Study’’). 744See, 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. 745See, e.g., Scott Connor, Thinking about Switching to TD Ameritrade? Transferring is Easier than You Might Think, TD Ameritrade (Oct. 17, 2019), available at https:// tickertape.tdameritrade.com/investing/how-to￾switch-brokers-17755 (‘‘If your broker does charge you a transfer fee, TD Ameritrade will refund you up to $100.’’). 746For 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). 747This number is estimated using the CAT data described infra in note 1008. 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 FINRA Rule 4512(c) and are also not proprietary accounts. See supra note 609 for more information about account types in CAT. 748Note that 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), notes 2 and 20. 749See, 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.’’ 750This number is estimated using the CAT data described in infra note 1008. 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 609 for more information about account types in CAT. 751See supra note 538 discussing an analysis showing that institutional investors are more likely than individual investors to use not held orders. 752See 2018 Rule 606 Amendments Release, 83 FR 58338 nn.60–61 and corresponding text. 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. may be executed or potentially routed further. The high level of fragmentation of NMS stock trading 740 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.741 The duty is established from ‘‘common law agency obligations of undivided loyalty and reasonable care that an agent owes to [its] principal.’’ 742 This obligation requires that a ‘‘broker-dealer seek to obtain for its customer orders the most favorable terms reasonably available under the circumstances.’’ 743 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.744 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 would result in lower (or even zero) switching costs.745 The Commission understands that some investors, particularly institutional investors, are likely to
use multiple broker-dealers,746 which would tend to lead to lower switching costs as a customer that is unhappy with one broker-dealer could simply use one of their other broker-dealers to handle those orders. 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 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 2021, there were approximately 1,037 registered broker￾dealers that originated orders on behalf of individual investors in the market for NMS stocks.747 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.748 Competition between 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.749 Instead of commissions on certain transaction, 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 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. (b) Brokerage Services for Institutional Investors As of the end of 2021, there were approximately 909 registered broker￾dealers that originated institutional orders in the market for NMS stocks.750 One feature that distinguishes the market for institutional brokerage services is that a significant portion of institutional investor orders are generally ‘‘not held’’ orders.751 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.752 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

753See 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). 754Note that some child orders may be held orders and thus would be required to be included in Rule 605 reports. 755See supra note 60 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. 756For 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. 757See supra note 554. 758See supra note 506 for examples. 759See supra section VII.C.2.(a)(1). 760See Amber Anand, Mehrdad Samadi, Jonathan Sokobin & Kumar Venkataraman, Institutional Order Handling and Broker-Affiliated Trading Venues, 34 Rev. Fin. Studies 3364 (2021). 761See, e.g., Robert H. Battalio, Shane A. Corwin, & Robert H. Jennings, Can Brokers Have It All? On the Relation Between Make-Take Fees and Limit Order Execution Quality, 71 J. Fin. 2193 (2016). 762See 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.’’ 763The study by Schwarz et al. (2022) in supra note 529 does not find a relationship between the amount of PFOF a retail broker receives and the amount of price improvement their customers’ orders receive. However, the authors noted 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. 764See supra section VII.C.2.(a)(1) discussing broker-dealers’ current execution quality reporting requirements. 765Some 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, Ronald Masulis & Thomas H. MacInish, Trading Rules, Competition for Order Flow and Market Fragmentation, 115 J. Fin. Econ. 330 (2015). 766See Concept Release on Equity Market Structure, 75 FR 3594, 3598–3560 (Jan. 21, 2010) (for a discussion of the types of trading centers); see also Form ATS–N Filings and Information, 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. 767This 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 VII.C.1.(d)(2) for further discussion. 768See Rosenblatt Securities (2022), US Equity Trading Venue Guide. 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. 769See Rosenblatt Securities (2022), US Equity Trading Venue Guide. 770See supra section VI.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. best execution for the parent order.753 For example, a broker-dealer may 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.754 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.755 (2) Competition Between Broker-Dealers on the Basis of Execution Quality Broker-dealers compete with one another along a variety of dimensions,756 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,757 and furthermore some broker-dealers disclose their own execution quality metrics on their websites.758 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. As discussed above,759 when making routing decisions, some broker-dealers may face conflicts of interest that misalign their interests with their customers’ interest in receiving better execution quality. 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 implies a possible conflict of interest relative to their customers’ best interests in that these broker-dealers may 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. At least one academic study has shown that broker-dealers that route orders to their ATSs obtain worse execution quality.760 Similarly, presence of liquidity fees and rebates on 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.761 For example, a recent research paper analyzed the relation between maker￾taker fee schedules and order routing, and found a negative relation between take fees and limit order execution quality.762 Another potential conflict of interest, particularly with regard to individual investor order flow, includes the receipt of PFOF, which may result in broker-dealers routing orders to wholesalers as a result of the terms of the PFOF arrangements.763 If information asymmetries, such as those resulting from insufficient public information about broker-dealer execution quality,764 prevent investors from observing differences in execution quality across broker-dealers, this would limit the extent to which broker-dealers would need to keep these conflicts of interest in check and 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.765 Table 7 shows that in Q1 of 2022, NMS stocks were traded on 16 national securities exchanges and off-exchange at 32 NMS Stock ATSs and at over 230 other FINRA members, including 6 wholesalers that internalize the majority of individual investor marketable orders.766 National securities exchanges execute approximately 60% of total share volume in NMS stocks, while off-exchange market centers execute approximately 40% of total share volume.767 The majority of off￾exchange volume is executed by wholesalers, who execute almost one quarter of total share volume (23.9%) and about 60% 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.768 SDPs accounted for approximately 4% of total trading volume in Q1 2022.769 As of June 2022, the Commission estimates that there are currently 236 market centers to which Rule 605 applies.770

771Some 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, 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, 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). 772See supra note 614 for more details about this analysis. 773See, e.g., Yashar H. Barardehi, et al., Internalized Retail Order Imbalances and Institutional Liquidity Demand (working paper revised May 23, 2022), available at https:// ssrn.com/abstract=3966059 (retrieved from SSRN Elsevier database). 774For 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 have also allowed national securities exchanges to compete with off-exchange market centers for order flow by making it more expensive to offer price improvement over the displayed NBBO. See Transaction Fee Pilot for NMS Stocks, 84 FR 5202 (Feb. 20, 2019) at 5255. 775See supra section VII.C.1.(a). 776See Zhao & Chung. 777See supra section VII.C.3.(a)(2). 778For example, market centers may be less incentivized to compete on the basis of execution Continued
TABLE 7—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 ..................................................................................................................... 32 10.2 25.2
National Securities Exchanges ................................................................................................ 16 59.7 ..........................
Wholesalers ............................................................................................................................. 6 23.9 59.4 Other FINRA Members ............................................................................................................ 232 6.3 15.6
Table 7: NMS Stock Traded Share Volume Percentage by Market Center Type. 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 2022, including lists the number of venues in each market center category. Exchange share volume and total market volume are based on CBOE Market Vol￾ume Data on monthly share volume executed on each exchange available at: https://cboe.com/us/equities/market_statistics/historical_market_vol￾ume/. 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 Sta￾tistics, 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 767 and section VII.C.1.(d)(2). These market centers, among other things, match traders with counterparties, provide a framework for price negotiation and provide liquidity to those seeking to trade, to supply investors with execution services at efficient prices. Market centers’ primary customers are the broker-dealers that route their own orders or their customers’ orders for execution at the trading center, and market centers compete with each other for these customers 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 long-term contractual arrangements to route orders to specific market centers would hamper their ability to switch trading venue. The common practice across national securities exchanges of setting fee and rebate schedules where specific tiers are determined by execution volume 771 may also make it difficult of broker￾dealers to transfer order flow between market centers. 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 for either institutional or 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 2022.772 Meanwhile, SDPs are mainly used for institutional orders,
to avoid exposure to potentially more informed order flow on other trading venues.773 (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.774 As discussed above, Rule 605 reports are currently 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,775 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 between market centers, who improved the execution quality that they offered in order to attract more order flow.776 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. 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. 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 would limit the extent to which broker-dealers would need to compete on the basis of execution quality.777 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,778 or to the extent that Rule

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 VII.C.2.(c)(4) for further discussion. 779For 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 are not required to be included in Rule 605 reports. See supra section VII.C.2.(b)(1)(b) for further discussion. 780See supra section VII.C.1.(d). 781See supra section VII.C.1.(d)(2) for a discussion of the Commission’s anticipated economic effects of the MDI Rules as stated in the MDI Adopting Release. 782See supra section III.A for further discussion of the proposed amendments related to the expansion of Rule 605 reporting entities to include larger broker-dealers. 783The EMSAC and commenters generally supported expanding the Rule’s scope beyond market centers, including to broker-dealers. See supra notes 103–119 and accompanying text. The Commission believes that these effects would principally accrue to larger broker-dealers, who would be required to prepare Rule 605 reports, but may spill over to effect smaller broker-dealers as well. See discussion in infra section VII.D.1.(d)(1). 784See supra section VII.C.3.(b)(1), discussing fragmentation in the market for trading services for NMS stocks. 785See, e.g., supra note 529 and accompanying text, describing a recent academic working paper finding significant variations in execution quality across broker-dealers. 786See supra section VII.C.2.(a)(1) for a discussion of limitations to investors’ abilities to use Rule 606 and Rule 605 reports to estimate the execution quality achieved by broker-dealers. Note that institutional investors may have access to alternative sources of information about execution quality. See supra section VII.C.1.(c)(2) for a discussion. 787This effect would 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 would allow investors to access execution quality information that is exclusively related to the firm’s broker-dealer operations. See supra note 182 and accompanying text. 605 does not include some relevant order sizes or types.779 D. Economic Effects The proposed amendments modifying the reporting requirements under Rule 605 may result in numerous beneficial economic effects. These economic effects would mainly derive from improvements in the transparency of execution quality of broker-dealers and market centers, which would promote competition among these reporting entities on the basis on execution quality. However, the proposed amendments to Rule 605 may also result in initial and ongoing compliance costs to reporting entities. As discussed above, this section measures the economic effects of the proposed
amendments relative to a regulatory baseline that includes the implementation of the MDI Rules.780 Furthermore, this section reflects the Commission’s assessment of the anticipated economic effects, including potentially countervailing or confounding economic effects from the MDI Rules.781 However, 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 comprehensive 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 could 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
   The Commission believes that the proposed amendments would promote increased transparency of order execution quality as a result of the expansion and modernization of Rule 605 disclosure requirements, as well as a requirement for reporting entities to prepare summary reports, which would improve market participants’ ability to use Rule 605 reports and the information contained therein to compare execution quality across reporting entities. This in turn would lead to increased competition between reporting entities on the basis of execution quality, leading to improvements in the execution quality received by investors as competition between reporting entities would be create incentives to offer better execution quality in order to attract and retain customers and order flow. (a) Increase in Transparency and Access to Information About Execution Quality The Commission believes that the proposed amendments would promote increased transparency of order execution quality, particularly for larger broker-dealers who were not previously required to disclose execution quality information under Rule 605, but also for all reporting entities, whose execution quality information would be more relevant and easier to access as a result of improvements to existing Rule 605 disclosure requirements. (1) Expanding the Scope of Reporting Entities (a) Expanding Requirements for Larger Broker-Dealers The proposed amendment expanding the scope of Rule 605 reporting entities to include larger broker-dealers 782 would increase transparency into the differences in execution quality achieved by these broker-dealers when they route customer orders to execution venues.783 Broker-dealers that route customer orders have many choices about where to route customer orders for execution,784 and their routing decisions affect the execution quality that their customers’ orders receive.785 To ensure that they are directing their orders to the broker-dealer(s) that are able to achieve better execution quality, investors, along with other market participants, have a vested interest in their ability to accurately assess the execution quality that their broker￾dealers are able to achieve. However, in the current regulatory environment, the ability of some customers to assess the execution quality that their broker￾dealers are providing for their held orders may be limited.786 As a result of the proposed amendments, customers of these broker dealers, along with other market participants, would no longer need to make inferences about these broker￾dealers’ execution quality based on broker-dealer routing information from Rule 606 data combined with market centers’ execution quality information from Rule 605 data, but would have access to direct information about the aggregate execution quality achieved by these broker-dealers.787 Customers could then use this information to compare across broker-dealers and select 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 would give market participants and other interested parties access to key information that would facilitate their ability to evaluate how these payment relationships may affect execution quality. Under the proposed amendments, larger broker-dealers would be required to categorize the execution quality information required by Rule 605 using the same categories that market centers would be required to use, including by individual security, different types of orders, and different order sizes. As with market centers, 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

788See supra note 513 for an example of how differences in order flow characteristics may impact inferences about execution quality. 789See supra note 609 for dataset description. 790See 17 CFR 242.605(a)(1)(i)(D) and (E). As discussed herein, the Commission is proposing to modify Rule 605(a)(1)(i)(D) to also cover the number of shares executed at the receiving broker or dealer. See supra note 155 and accompanying text. 791To the extent that a broker-dealer also acts as a market center, any executions that it handles would be required to be published in the Rule 605 report(s) that it files in its capacity as a market center. 792See supra section VII.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. 793See proposed Rule 605(a)(1)(i)(F) and discussion in supra section IV.B.4.(e). 794See supra section VII.B. overall execution quality level.788 For example, Figure 14, which uses a week of CAT data 789 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. Giving market participants access to this information in Rule 605 reports would ensure that they are able to control for these differences in order flow characteristics when assessing and comparing execution quality information across broker-dealers.
Figure 14: Broker-Dealer Order Volume
by Order Type, January 3–7, 2022 The proposed amendment for 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 venue 790 would 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 would likely be categorized as away-executed shares in the Rule 605 reports associated with its broker-dealer operations.791 While these shares would 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. The proposed amendments would also require larger broker-dealers to report the same execution quality information as market centers, including information about execution prices, execution speeds, and fill rates,792 as well as, as a result of the proposed amendments, information about size improvement.793 The Commission acknowledges that there are certain ways in which broker-dealers may systematically differ from market centers in terms of their execution quality statistics; for example, due to their need to reroute orders that they receive for execution, broker-dealers are likely to have a longer execution time as measured from the time of order receipt, as compared to market centers who can execute orders immediately without the need to reroute. However, these differences are generally well-known to market participants, who would be able to account for these differences in assessing execution quality. Furthermore, it is unlikely that market participants would use information in Rule 605 reports to compare broker￾dealers to market centers, as 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 problems described in the Market Failure
section,794 information about execution
quality for broker-dealers solves a different principal-agent problem than information about execution quality for market centers. Broker-dealers’ Rule 605 reports would be more likely to be used by broker-dealers’ customers to compare execution quality across broker-dealers to alleviate the principal-agent problem that exists between broker-dealers and their customers. In contrast, market EP20JA23.014</GPH>

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  Figure 14: Broker-Dealer Order Volume by Order Type, January 3-7, 2022. 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 investor and institutional investor customers, using a sample of CAT data for NMS stocks for the period of January 3 to January 7, 2022. See supra note 609 for dataset description.

795See Adopting Release, 65 FR 75414 (Dec. 1,
2000) at 75419 (stating that most individual
investors likely would not obtain and digest the reports themselves). See also supra note 112 and accompanying text (EMSAC committee member stating that retail investors will not look at the Rule 605 reports); Angel Letter at 3 (commenter stating that Rule 605 data is too raw for most investors to interpret); and See Consumer Federation II at 10 (commenter stating that most retail investors may not use the disclosures directly). 796See, e.g., supra notes 545–547, describing the use of Rule 605 data in academic literature, in comment letters related to Commission and SRO rulemaking, and the financial press. 797See proposed Rule 605(a)(2). 798Several EMSAC committee members argued in favor of requiring broker-dealers to file Rule 605 reports rather than only summary reports. See supra notes 112–114 and accompanying text. 799See proposed Rule 605(a)(1). See also supra note 214 and accompanying text. See supra note 212 and accompanying text for discussion of suggestions from the EMSAC and commenters related to reporting requirements for ATSs. 800See proposed Rule 605(a)(1). See also supra note 219 and accompanying text. 801See supra section VII.C.2.(a)(2) for a discussion of why the co-mingling of wholesaler and SDP orders for the purposes of Rule 605 reporting will effect a downwards skew on the fill rates derived from the wholesalers’ Rule 605 reports. 802See Order Competition Rule Proposal. 803See proposed Rule 605(a)(1). See also supra note 203 and accompanying text. 804See supra section III.B for further discussion. 805See proposed Rule 600(b)(19). 806See supra note 486 for further discussion of this estimate. 807Commenters have suggested various ways to expand or modify the definition of covered order, including broadening its scope to capture centers’ Rule 605 reports would continue to be more useful for broker￾dealers to compare execution quality across market centers to alleviate the principal-agent problem that exists between broker-dealers and the market centers to which they route their customers’ orders. 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. By requiring larger brokers￾dealers to report stock-by-stock order execution information in a uniform manner, the current proposal would 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. Requiring larger broker-dealers to produce more detailed execution quality data would also help ameliorate potential concerns about overly general statistics, or about the specific categorization of orders and selection of metrics in the summary reports, by allowing market participants and other interested parties to conduct their own analysis based on alternative categorizations of the underlying data.
Should certain market participants not have the means to directly analyze the detailed statistics,795 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 to the extent that they currently do so.796 Furthermore, requiring all market centers and larger broker-dealers to prepare summary reports with aggregated execution quality information 797 as well as Rule 605 reports would strike a balance between ensuring that market participants have access to detailed execution quality information, and providing an overview of execution quality information that may be more accessible for some market participants.798 (b) Specifying and Expanding Requirements for Market Centers In addition to the proposed amendment expanding the scope of Rule 605 reporting entities to include larger broker-dealers, the Commission believes that additional proposed modifications to the scope of reporting entities would also promote increased transparency. A proposed amendment specifies that broker-dealers that operate ATSs must prepare Rule 605 reports for their ATSs that are separate from the reports for their other trading activities.799 Another proposed amendment requires that market centers operating SDPs post separate reports for each entity.800 These amendments would address directly what Rule 605 requires with respect to reporting by firms that operate multiple market centers, thus increasing the transparency of each reporting entity’s execution quality and limiting the co-mingling of information about multiple types of reporting entities into a single report, which, to the extent that it occurs, may currently add noise to or skew Rule 605 reports. For example, requiring market centers that operate SDPs to report statistics separately for each line of business would increase the transparency of the operating market centers’ fill rates by eliminating the downwards skew from including ‘‘pinging’’ orders submitted to the SDP into their Rule 605 reports.801 Market participants would be better informed about the execution quality of each reporting entity, which would facilitate comparisons across reporting entities. If the Order Competition Rule Proposal is adopted,802 the proposed amendment requiring separate Rule 605 reports for qualified auctions 803 would also promote increased transparency. First, it would allow for easier comparisons of how execution quality varies across qualified auctions. Second, it would limit the extent to which co￾mingling qualified auction statistics with other orders executed on a market center add noise to or skew that market center’s Rule 605 report. For example, orders submitted to a qualified auction may be more likely to receive price improvement, and may have systematically different fill rates and time-to-executions, as compared to similar orders executed in
other trading mechanisms.804 The proposed amendment expanding the order size categories required by Rule 605 to include information about fractional shares 805 would also expand the scope of reporting entities to include an estimated 20 additional market centers 806 that currently exclusively execute fractional shares and that were previously not required to file Rule 605 reports due to fractional shares falling below the smallest order size category in the current Rule 605. This would increase transparency about the execution quality achieved by these market centers. (2) Modifications to Rule 605 Disclosure Requirements The Commission believes that, as a result of the proposed amendments expanding and modernizing Rule 605 disclosure requirements, the metrics contained in Rule 605 would be more informative about execution quality, which would increase transparency into the differences in execution quality achieved by reporting entities. These improvements in transparency would 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. (a) Expanding the Definition of Covered Orders The proposed amendments expanding the definition of covered orders to include additional order types would increase transparency about the execution quality that reporting entities achieve for these additional order types, including orders submitted outside of regular trading hours, orders submitted with stop prices, and non-exempt short sale orders.807