Disclosure of Order Execution Information

1See Securities Exchange Act Release No. 96493 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) (‘‘Proposing Release’’). 2See Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414 at 75416 (Dec. 1, 2000) (Disclosure of Order Execution and Routing Practices) (‘‘Rule 11Ac1–5 Adopting Release’’). Along with Rule 11Ac1–5, the Commission also adopted Rule 11Ac1–6 as part of the Rule 11Ac1– 5 Adopting Release. See 17 CFR 242.606 (‘‘Rule 606’’). When the Commission later adopted Regulation NMS in 2005, Rule 11Ac1–5 was re￾designated as Rule 605, and Rule 11Ac1–6 was re￾designated as Rule 606. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). Rule 606 requires the public disclosure of order routing practices and was amended in
2018. See Securities Exchange Act Release No.
84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) (‘‘2018 Rule 606 Amendments Release’’). 3Regulation NMS defines the term ‘‘market center’’ to mean any exchange market maker, over￾the-counter (‘‘OTC’’) market maker, alternative SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240 and 242 [Release No. 34–99679; File No. S7–29–22] RIN 3235–AN22 Disclosure of Order Execution Information AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) is adopting amendments to a rule under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) that requires disclosures for order executions in national market system (‘‘NMS’’) stocks. First, the amendments expand the scope of reporting entities subject to the preexisting rule that requires market centers to make available to the public monthly execution quality reports to encompass broker-dealers with a larger number of customers. Next, the amendments modify the definition of ‘‘covered order’’ to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices. In addition, the amendments modify the information required to be reported under the rule, including changing how orders are categorized by order size as well as how they are categorized by order type. The amendments, as part of the changes to the order size categories, modify the rule to capture execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the amendments modify reporting requirements for non￾marketable limit orders (‘‘NMLOs’’) in order to capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become executable. The amendments modify time-to-execution categories and require average time to execution to be measured in increments of a millisecond or finer and calculated on a share-weighted basis for all orders. The amendments require that the time of order receipt and time of order execution be measured in increments of a millisecond or finer, and that realized spread be calculated at multiple time intervals. Finally, the amendments enhance the accessibility of the reported execution quality statistics by requiring all reporting entities to make a summary report available. DATES:
Effective date: The final rules are effective June 14, 2024. Compliance date: See section VII, titled ‘‘Transition Matters,’’ for further information on transitioning to the final rules. FOR FURTHER INFORMATION CONTACT:
Kathleen Gross, Senior Special Counsel, Lauren Yates, Senior Special Counsel, Susie Cho, Special Counsel, Christopher Chow, Special Counsel, David Michehl, Special Counsel, or Laura Harper Powell, Special Counsel at (202) 551– 5500, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 17 CFR 242.600 (‘‘Rule 600’’) to add new defined terms to and modify certain existing defined terms in Rule 600 that are used in 17 CFR 242.605 (‘‘Rule 605’’) as amended, as well as amendments to Rule 605; and to make conforming amendments to defined terms in 17 CFR 242.602, 242.611, and 242.614; and conforming amendments to defined terms in 17 CFR 240.3a51–1, 240.13h–1, 242.105, 242.201, 242.204, and 242.1000.
Table of Contents
I. Introduction and Background
A. Overview of Need for Rule Modernization B. Overview of the Proposal and Comments Received
C. Overview of Final Rule 605
II. Modifications to Reporting Entities
A. Larger Broker-Dealers

1. Proposed Approach
2. Final Rule and Discussion
   B. Qualified Auction Mechanisms
3. Proposed Approach
4. Final Rule and Discussion
   C. NMS Stock ATSs and SDPs
5. Proposed Approach
6. Final Rule and Discussion
   III. Modifications to Scope of Orders Covered
   and Required Information
   A. Covered Order
7. Orders Submitted Pre-Opening/Post￾Closing
8. Stop Orders
9. Non-Exempt Short Sale Orders
   B. Required Information
10. Categorization by Order Size
11. Categorization by Order Type
12. Timestamp Conventions and Time-to￾Execution Statistics
13. Execution Quality Statistics
    IV. Summary Execution Quality Report
    A. Proposed Approach
    B. Final Rule and Discussion
14. Required Information
15. Required Format
16. Investor Testing and Education
    V. Requirements for Making Rule 605 Reports
    Available to the Public
    A. Proposed Approach
    B. Final Rule and Discussion
17. Accessibility of Rule 605 Reports
18. Alternatives to Rule 605 Proposal
    VI. Existing Commission Exemptive Relief
    and Staff Statements
    VII. Transition Matters
    VIII. Paperwork Reduction Act
    A. Summary of Collection of Information B. Proposed Use of Information
    C. Respondents
    D. Total PRA Burdens
    IX. Economic Analysis
    A. Introduction
    B. Market Failure
    C. Baseline
19. Regulatory Baseline
20. Use of Reports under Rule 605 Prior to
    Rule Amendments
21. Disclosure Requirements under
    Preexisting Rule 605
22. Markets for Brokerage and Trading
    Services for NMS Stocks under Preexisting Rule 605 Disclosure Requirements D. Economic Effects
23. Benefits
24. Costs
25. Economic Effects on Efficiency,
    Competition, and Capital Formation E. Reasonable Alternatives
26. Reasonable Alternative Modifications to
    Reporting Entities
27. Reasonable Alternative Modifications to
    Scope of Covered Orders
28. Reasonable Alternative Modifications to
    Required Information
29. Reasonable Alternative Modifications to
    Accessibility
30. Other Reasonable Alternatives
    X. Regulatory Flexibility Act Certification
    XI. Other Matters
    Statutory Authority
    I. Introduction and Background
    On December 14, 2022, the
    Commission proposed amendments to Rule 605 under Regulation National Market System (17 CFR 242.600 through 242.614) (‘‘Regulation NMS’’) to update the disclosure of order execution quality statistics in national market system (‘‘NMS’’) stocks.1 Rule 605, formerly known as Rule 11Ac1–5, was adopted in 2000 2 and requires market centers 3 to

trading system (‘‘ATS’’), national securities exchange, or national securities association. See final 17 CFR 242.600(b)(55). ‘‘Exchange market maker’’ means any member of a national securities exchange that is registered as a specialist or market maker pursuant to the rules of such exchange. See final 17 CFR 242.600(b)(37). ‘‘OTC market makerrdquo; means any dealer that holds itself out as being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a regular or continuous basis otherwise than on a national securities exchange in amounts of less than a block size. See final 17 CFR 242.600(b)(75). ‘‘Alternative trading system’’ or ‘‘ATS’’ means any organization, association, person, group of persons, or system: (1) That constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of 17 CFR 240.3b–16; and (2) That does not: (i) Set rules governing the conduct of subscribers other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system; or (ii) Discipline subscribers other than by exclusion from trading. See 17 CFR 242.300(a). See also final 17 CFR 242.600(b)(4) (stating that ‘‘alternative trading system’’ has the meaning provided in 17 CFR 242.300(a)). ‘‘National securities exchange’’ means any exchange registered pursuant to section 6 of the Exchange Act. See final 17 CFR 242.600(b)(63). ‘‘National securities associationrdquo; means any association of brokers and dealers registered pursuant to section 15A of the Exchange Act. See final 17 CFR 242.600(b)(62). 4Prior to these amendments, a ‘‘covered order’’ was defined to include any market order or any limit order (including immediate-or-cancel orders) received by a market center during regular trading hours at a time when a national best bid and national best offer (‘‘NBBO’’) is being disseminated, and, if executed, is executed during regular trading hours, and did not include any orders for which the customer requests special handling, including, but not limited to, market on open and market on close orders, stop orders, all or none orders, and ‘‘not held’’ orders. See prior 17 CFR 242.600(b)(22). Generally, a ‘‘not held’’ order provides the broker￾dealer with price and time discretion in handling the order, whereas a broker-dealer must attempt to execute a ‘‘held’’ order immediately. See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58340, n.19 (Nov. 19, 2018). 5 ‘‘NMS stock’’ is defined under Regulation NMS as any NMS security other than an option. See final 17 CFR 242.600(b)(65). An ‘‘NMS security’’ is defined as any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an
effective national market system plan for reporting transactions in listed options. See final 17 CFR 242.600(b)(64). 6See prior 17 CFR 242.605. The procedures for market centers to make their execution quality data available to the public are set forth in the National Market System Plan Establishing Procedures Under Rule 605 of Regulation NMS (‘‘Rule 605 NMS Plan’’). See prior 17 CFR 242.605(a)(2) and Securities and Exchange Commission File No. 4– 518 (Rule 605 NMS Plan). See also Securities Exchange Act Release No. 44177 (Apr. 12, 2001), 66 FR 19814 (Apr. 17, 2001) (order approving the Rule 605 NMS Plan) (‘‘Rule 605 NMS Plan Release’’). 7See prior 17 CFR 242.605(a)(1); Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75423–25 (Dec. 1, 2000). 8See prior 17 CFR 242.605(a)(1). Prior to these amendments, ‘‘Categorized by order type’’ referred to categorization by whether an order is: (1) a market order, (2) a marketable limit order, (3) an inside-the-quote limit order, (4) an at-the-quote limit order, or (5) a near-the-quote limit order. See prior 17 CFR 242.600(b)(14). 9See prior 17 CFR 242.605(a)(1). Prior to these amendments, the size categories were: 100 to 499 shares; 500 to 1,999 shares; 2000 to 4,999 shares; and 5,000 or greater shares. See prior 17 CFR 242.600(b)(13). On June 22, 2001, the Commission granted exemptive relief to any order with a size of 10,000 shares or greater (‘‘Large Order Exemptive Relief’’), reasoning that the exclusion of very large orders would help assure greater comparability of statistics in the largest size category of 5,000 or greater shares. See letter from Annette L. Nazareth, Director, Division of Market Regulation to Darla C. Stuckey, Assistant Secretary, NYSE Group, Inc., dated June 22, 2001 (‘‘Large Order Exemptive Letter’’). 10See prior 17 CFR 242.605(a)(1)(i). 11See prior 17 CFR 242.605(a)(1)(ii). 12See prior 17 CFR 242.600(b)(91), (92). 13See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). For clarity, when this release discusses the adoption of Rule 605, it is referring to the Rule 11Ac1–5 Adopting Release, supra note 2. 14See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75416 (Dec. 1, 2000). 15See id. at 75418. Data obtained from Rule 605 reports are used by the third parties including academics and the financial press to study a variety of topics related to execution quality, including liquidity measurement, exchange competition, zero commission trading, and broker-dealer execution quality. See Proposing Release, 88 FR 3786 at 3833, n.545–547 (Jan. 20, 2023) and accompanying text. 16See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). Although it is difficult to isolate the effects of Rule 605 given the evolution of the equity markets over time, one academic study examining the introduction of Rule 605 found that the routing of marketable order flow by broker-dealers became more sensitive to changes in execution quality across market centers after Rule 605 reports
became available. See Ekkehart Boehmer et al., Public Disclosure and Private Decisions: Equity Market Execution Quality and Order Routing, 20 REV. FIN. STUD. 315 (2007) (‘‘Boehmer et al.’’). Another study attributed a significant decline in effective and quoted spreads following the implementation of Rule 605 to an increase in competition between market centers, who improved the execution quality that they offered in order to attract more order flow. See Xin Zhao & Kee H. Chung, Information Disclosure and Market Quality: The Effect of SEC Rule 605 on Trading Costs, 42 J. FIN. QUANTITATIVE ANALYSIS, 657 (Sept. 2007) (‘‘Zhao & Chung’’). 17See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 at 3604, n.55 (Jan. 21,
2010) (‘‘Concept Release on Equity Market
Structure’’).
18See Proposing Release, 88 FR 3786 at 3787–88 (Jan. 20, 2023). As used in this release, ‘‘individual investor’’ refers to natural persons that trade relatively infrequently for their own or closely related accounts. make available standardized monthly reports of statistical information concerning covered orders 4 in NMS stocks 5 that they received for execution.6 Prior to these amendments, the Rule 605 report contained a number of execution quality metrics for covered orders.7 The information was categorized: by (1) individual security, (2) one of five order types,8 and (3) one of four order sizes.9 Within each of the three categories, the Rule 605 report that was required prior to these amendments included statistics about the total number of orders submitted, and the total number of shares submitted, shares cancelled prior to execution, shares executed at the receiving market center, shares executed at another venue, shares executed within different time-to￾execution buckets, and average realized spread.10 For market and marketable limit orders specifically, the report required by Rule 605 prior to these amendments also included statistics about the (1) average effective spread; (2) number of shares executed better than the quote, at the quote, or outside the quote; (3) average time to execution when executed better than the quote, at the quote, or outside the quote; and (4) average dollar amount per share that orders were executed better than the quote or outside the quote.11 To calculate the required statistics, the time of order execution and time of order receipt were measured to the nearest second.12 At the time the Commission adopted Rule 11Ac1–5, there was little publicly available information to enable investors to compare and evaluate execution quality among different market centers.13 Rule 605, along with Rule 606 of Regulation NMS, was adopted in 2000, and together these rules required the public disclosure of execution quality and order routing practices.14 The Commission intended Rule 11Ac1–5 to provide awareness about how broker-dealers responded to trade-offs between price and other factors, such as speed or reliability, and establish a baseline level of disclosure in order to facilitate cross-market comparisons of execution quality.15 The Commission reasoned that once investors could evaluate execution performance provided by various broker-dealers, competitive forces could then be brought to bear on broker￾dealers both with respect to the explicit trading costs associated with brokerage commissions and the implicit trading costs associated with execution quality.16 The information disclosed under Rule 605 has provided significant insight into execution quality at different market centers.17 However, Rule 605 has not been substantively updated since it was adopted in 2000. In the interim, equity market conditions have changed due in
part to many technological
advancements that have altered the speed and nature of trading. In addition, the participation of individual investors in the equity markets has increased.18 Accordingly, the Commission is adopting amendments to Rule 605 to update and improve the disclosure of execution quality information by

19See Securities and Exchange Commission, Annual Report for fiscal year 2000, at 38 available at https://www.sec.gov/pdf/annrep00/ar00full.pdf. 20See Securities Exchange Act Release Nos. 78309 (July 13, 2016), 81 FR 49432 at 49436 (July 27, 2016) (‘‘Rule 606 Amendments Proposing Release’’); 42450 (Feb. 23, 2000), 65 FR 10577 at 10579–80 (Feb. 28, 2000) (‘‘Fragmentation Release’’). 21See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75415 (Dec. 1, 2000) (stating that in Sep. 2000, for example, the New York Stock Exchange Inc. (‘‘NYSE’’) accounted for 83.3% of the share volume in NYSE equities and that the American Stock Exchange, LLC (‘‘Amex’’) accounted for 69.9% of share volume in Amex equities). See also Concept Release on Equity Market Structure, 75 FR 3594 at 3595 (Jan. 21, 2010) (stating that in Jan. 2005, NYSE executed approximately 79.1% of the consolidated share volume in its listed stocks, as compared to 25.1% in Oct. 2009). In addition, NYSE-listed stocks were traded primarily on the floor of the NYSE in a manual fashion until Oct. 2006, at which time NYSE began to offer fully automated access to its displayed quotations. See id. at 3594–95. However, stocks traded on the NASDAQ Stock Market LLC (‘‘NASDAQ’’), which in 2000 was owned and operated by a national securities association, were already trading in a highly automated fashion at many different trading centers. See id. at 3595; Fragmentation Release, 65 FR 10577 at 10580 (Feb. 28, 2000). See also Proposing Release, 88 FR 3786 at 3791, n.76 (Jan. 20, 2023). 22See final 17 CFR 242.600(b)(100) (defining ‘‘SRO trading facility’’ as, among other things, a facility operated by a national securities exchange that executes orders in a security). 23An ‘‘NMS Stock ATS’’ as used in this release is an ATS that has filed an effective Form ATS–N with the Commission. 24The term ‘‘wholesaler’’ is not defined in Regulation NMS, but is commonly used to refer to an OTC market maker that seeks to attract orders from broker-dealers that service the accounts of a large number of individual investors. The primary business model of wholesalers is to trade internally as principal with individual investor orders. They do not publicly display or otherwise reveal the prices at which they are willing to trade internally as a means to attract individual investor orders from broker-dealers. 25See 15 U.S.C. 78c(a)(4)(A) (defining ‘‘broker’’ generally as any person engaged in the business of effecting transactions in securities for the account of others); 15 U.S.C. 78c(a)(5)(A) (defining ‘‘dealer’’ generally as any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise). The term ‘‘broker-dealer’’ is used in this release to encompass all brokers, all dealers, and firms that are both brokers and dealers. See also final 17 CFR 242.600(b)(106) (defining ‘‘trading center’’). Broker￾dealers that primarily service the accounts of individual investors
(referred to in this release as ‘‘retail brokers’’) often route the marketable orders of individual investors in NMS stocks to wholesalers. 26See Proposing Release, 88 FR 3786 at 3860, n.768 (Jan. 20, 2023) and accompanying text. 27See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.766 (Jan. 20, 2023) and accompanying text; and 3861 (Table 7). 28See infra Table 6. See also Proposing Release, 88 FR 3786 at 3860, n.767 (Jan. 20, 2023) and accompanying text; and 3861 (Table 7). 29See infra Table 6. See also Proposing Release, 88 FR 3786 at 3861 (Table 7) (Jan. 20, 2023). 30See Securities Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 at 18606–07 (Apr. 9,
2021) (‘‘Market Data Infrastructure (‘‘MDI’’)
Adopting Release’’) (citing Securities Exchange Act Release No. 88216 (Feb. 14, 2020), 85 FR 16726 at 16739 (Mar. 24, 2020) (‘‘MDI Proposing Release’’)) (stating that ‘‘between 2004 and 2019, the average price of a stock in the Dow Jones Industrial Average nearly quadrupled’’). See also Proposing Release, 88 FR 3786 at 3787, n.16 (Jan. 20, 2023). 31See MDI Adopting Release, 86 FR 18596 at 18616 (Apr. 9, 2021) (describing analyses included in the MDI Adopting Release confirming observations made in the MDI Proposing Release that a significant proportion of quotation and trading activity occurs in odd-lots, particularly for frequently traded, high-priced stocks); and Proposing Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023) (describing analysis using the NYSE Trade and Quote database (obtained via Wharton Research Data Services (‘‘WRDS’’)) (‘‘TAQ data’’ or ‘‘NYSE TAQ data’’) that found that odd-lots increased from around 15% of trades in Jan. 2014 to more than 55% of trades in Mar. 2022). An analysis of data from the SEC’s Market Information Data Analytics System (‘‘MIDAS’’) analytics tool available at https://www.sec.gov/marketstructure/ datavis.html#.YoPskqjMKUk shows that, in Q1 2023, odd-lots made up 80.5% of on-exchange trades (37.3% of volume) for stocks in the highest price decile and 18.8% of on-exchange trades (1.2% of volume) for stocks in the lowest price decile. See dataset ‘‘Summary Metrics by Decile and Quartile’’ available at https://www.sec.gov/marketstructure/ downloads.html. See also Proposing Release, 88 FR 3786 at 3792, n.91 (Jan. 20, 2023). 32Analysis using Consolidated Audit Trail (‘‘CAT’’) data for executed orders in Aug. 2023 found that an estimated 67.4 million originating orders with a fractional share component were eventually executed on- or off-exchange. Orders with a fractional share component represented approximately 4% of all executed orders and 22% of executed orders from ‘‘individual’’ accounts. Generally, accounts classified as ‘‘individual’’ in CAT are attributed to natural persons. See also Proposing Release, 88 FR 3786 at 3792, n.92 (Jan. 20, 2023). 33See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis using data from May 2020 and finding that approximately 45% of all trades executed on exchange and approximately 10% of all volume executed on exchange in corporate stocks and exchange-traded funds (‘‘ETFs’’) (6,926 unique symbols) occurred in odd-lot sizes (i.e., less than 100 shares) and 40% of those odd-lot transactions (representing approximately 35% of all odd-lot volume) occurred at a price better than the NBBO). In addition, a recent academic working paper shows that odd-lots offer better prices than the NBBO 18% of the time for bids and 16% of the time for offers. This percentage increases monotonically in the stock price, for example, for bid prices, increasing from 5% for the group of lowest-price stocks in their sample, to 42% for the group of highest-priced stocks.
See Robert P. Bartlett, Justin McCrary, and Maureen O’Hara, The Market Inside the Market:
Odd-Lot Quotes (working paper Feb. 1, 2022), available at SSRN: https://ssrn.com/ abstract=4027099 (retrieved from SSRN Elsevier database) (‘‘Bartlett, et al.’’). See also Elliot Banks, BMLL Technologies, Inside the SIP and the Microstructure of Odd-Lot Quotes (observing an upward trend in odd-lot trading inside the NBBO expanding the scope of entities subject to Rule 605, modifying the information required, and making key execution quality metrics more accessible to investors. A. Overview of Need for Rule Modernization The U.S. equity markets have evolved significantly in the last couple of decades. For instance, the equities markets have become increasingly fragmented, as both the market shares of individual national securities exchanges have decreased and an increased percentage of order flow has moved off￾exchange. In 2000, there were nine registered national securities exchanges and one registered national securities association.19 A large proportion of the order flow in listed equity securities was routed to a few, mostly manual, trading centers,20 and the primary listing exchanges maintained a high percentage of the order flow for exchange-listed equities.21 In contrast, trading in the U.S. equity markets today is highly automated and spread even more among different types of trading centers, allowing even more choices about where orders may be routed. The types of trading centers that currently trade NMS stocks are: (1) national securities exchanges operating self-regulatory organization (‘‘SRO’’) trading facilities; 22 (2) ATSs that trade NMS stocks (‘‘NMS Stock ATSs’’); 23 (3) exchange market makers; (4) wholesalers; 24 and (5) any other broker￾dealer that executes orders internally by trading as principal or crossing orders as agent.25 Some OTC market makers, such as wholesalers, operate single-dealer platforms (‘‘SDPs’’) through which they execute institutional orders in NMS stocks against their own inventory.26 In the first quarter of 2023, NMS stocks were traded on 16 national securities exchanges, and off-exchange at 33 NMS Stock ATSs and at over 220 other Financial Industry Regulatory Authority (‘‘FINRA’’) members.27Approximately 56% of NMS share volume was executed on national securities exchanges.28 The majority of off￾exchange share volume was executed by wholesalers, who executed over one quarter of total share volume (26.9%) and about 61% of off-exchange share volume.29 In addition, developments in trading further point toward the utility of amending Rule 605. Average stock prices have continued to increase over time,30 and odd-lots 31 and fractional shares 32 continue to trade with increasing frequency. In addition, odd￾lot quotes in higher-priced stocks continue to offer prices that are frequently better than the round lot

from Jan. 2019 to Jan. 2022). See also Proposing Release, 88 FR 3786 at 3792, n.93 (Jan. 20, 2023). 34See MDI Adopting Release, 86 FR 18596 at 18613 n.202 (Apr. 9, 2021) (describing analysis included in the MDI Adopting Release that examined quotation data for the week of May 22– 29, 2020 for stocks priced from $250.01 to $1000.00 and found that there is odd-lot interest priced better than the new round lot NBBO 28.49% of the time, and, in 48.49% of those cases, there are better priced odd-lots at multiple price levels). See also Proposing Release, 88 FR 3786 at 3792, n.94 (Jan. 20, 2023). 35The odd-lot rate is the total number of odd-lot trades divided by the total number of all trades. 36For example, odd-lot rates for corporate stock price deciles 1–3 (the lowest priced corporate stocks comprising 30% of all corporate stocks) have been higher on average in 2021, 2022, and Sep. 2023 (34%, 34%, 34%) as compared to 2019 and 2020 (23%, 27%). Similarly, exchange-traded products (‘‘ETPs’’) also exhibit higher average odd￾lot rates in price quartiles 1 and 2 (the lowest priced ETPs comprising 50% of all ETPs) on average in 2021, 2022, and Sep. 2023 (26%, 28%, 28%) compared to 2019 and 2020 (19%, 22%). Analysis has been updated based on MIDAS, available at https://www.sec.gov/opa/data/market-structure/ marketstructuredownloadshtml-byldecilelandl quartile. See also Proposing Release, 88 FR 3786 at 3792, n.95 (Jan. 20, 2023). 37See Proposing Release, 88 FR 3786 at 3792, n.91–92 (Jan. 20, 2023). See also id. at 3840, n.619– 622 and accompanying text (estimating, based on analysis of Tick Size Pilot data, coverage of current Rule 605 reporting requirements). 38See id. at 3841 (Figure 3) (describing analysis comparing one market center’s volume (NYSE) to TAQ data that showed that an estimated 50% of shares executed during regular market hours were included in Rule 605 reports as of Feb. 2021, and showed that this number has been on a slightly downward trend since around mid–2012). 39Analysis of data from the SEC’s MIDAS analytics tool shows that the percent of on￾exchange NMLOs that are fully executed within 1 millisecond (as a percentage of all fully executed on-exchange NMLOs) has increased from 2.1% in Q1 2012 to 11.7% in Q1 2023 for small cap stocks, and from 5.9% in Q1 2012 to 14.0% in Q1 2023 for large cap stocks. Further, in Q1 2023 nearly half (48.0%) of NMLOs executed in less than 1 second in large market capitalization stocks. See dataset ‘‘Conditional Cancel and Trade Distribution,’’ available at https://www.sec.gov/marketstructure/ downloads.html. See also infra notes 1216–1217 and accompanying text. See also Proposing Release, 88 FR 3786 at 3792, n.98 (Jan. 20, 2023). 40For example, since the adoption of Rule 605 in 2000, the Commission has periodically revised certain of its NMS rules, including the adoption of Regulation NMS in 2005. See, e.g., Regulation NMS Adopting Release, 70 FR 37496 (June 29, 2005); and MDI Adopting Release, 86 FR 18596
(Apr. 9, 2021). 41See Concept Release on Equity Market Structure, 75 FR 3594 at 3605 (Jan. 21, 2010). 42The archives of these meetings are available at https://www.sec.gov/spotlight/emsac/emsac￾archives.htm. 43See 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. 44See Letter from Virtu Financial re Petition for Rulemaking to Amend SEC Rule 605 (Sept. 20,
2021) (‘‘Virtu Petition’’), available at https://
www.sec.gov/rules/petitions/2021/petn4-775.pdf. 45The amendments to Rule 606 in 2018 (‘‘2018 Rule 606 Amendments’’) also modified Rule 605 to require that the public order execution quality reports be kept publicly available for a period of three years. See 2018 Rule 606 Amendments Release, 83 FR 58338 (Nov. 19, 2018). 46See supra note 4 (discussing held and not held orders). 47A ‘‘non-directed order’’ means any order from a customer other than a directed order. See final 17 CFR 242.600(b)(66). A ‘‘directed order’’ means an order from a customer that the customer specifically instructed the broker or dealer to route to a particular venue for execution. See final 17 CFR 242.600(b)(32). 48See 17 CFR 242.606(a)(1). Held orders are typically used by individual investors. See, e.g., 2018 Rule 606 Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018) (stating that retail investors’ orders are typically submitted on a held basis and are typically smaller in size). 49See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58372 (Nov. 19, 2018). 50See id. at 58373. 51See 17 CFR 242.606(b)(3); 2018 Rule 606 Amendments Release, 83 FR 58338 at 58345 (Nov. 19, 2018) (stating that by using the not held order distinction, Rule 606(b)(3) as adopted will likely result in more Rule 606(b)(3) disclosures for order flow that is typically characteristic of institutional customers—not retail customers—and will likely cover all or nearly all of the institutional order flow). 52See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). See also Proposing Release, 88 FR 3786 at 3790, n.66 (Jan. 20, 2023) and accompanying text. priced odd-lot liquidity is distributed across multiple price levels.34 In addition, odd-lot rates 35 have increased among lower priced stocks.36 Because Rule 605 size categories prior to these amendments excluded orders smaller than 100 shares, a significant proportion of market activity was excluded.37 An analysis of Rule 605 data shows that Rule 605 coverage has declined in the decades since the initial adoption of Rule 605.38 Further, because order size categories were tied to the number of shares, the categories may have grouped orders of very different notional values, which might have complicated comparisons of aggregate execution quality. Finally, the speed of trading in the market has increased exponentially since 2000,39 rendering the 1 second timestamp conventions of preexisting Rule 605 less informative. Moreover, since the adoption of Rule 605, the Commission and its staff have continually assessed market events and their impact on market structure, with much of this effort aimed at achieving enhanced transparency for investors.40 In 2010, the Commission issued a Concept Release on Equity Market Structure seeking public comment on, among other things, the metrics for assessing the performance of the current market structure and the effectiveness of tools such as Rule 605 reports to protect investor interests.41 In
2015, the Commission formed the Equity Market Structure Advisory Committee (‘‘EMSAC’’), which considered issues related to Regulation NMS and equity market structure.42 The EMSAC recommended that the Commission amend Rule 605 to modernize it and increase the usefulness of available execution quality disclosures.43 In addition, one broker-dealer petitioned the Commission to amend Rule 605.44 In 2018, the Commission modified Rule 606, which requires broker-dealers to disclose the identity of market centers to which they route orders on behalf of customers.45 Rule 606(a)(1), which focuses on held orders,46 requires broker-dealers to produce quarterly public reports regarding their routing of non-directed orders 47 in NMS stocks that are submitted on a held basis and these reports include the identity of regularly used venues, the percentage of orders routed to each venue, and information about the broker-dealer’s relationship with each venue.48 When adopting the 2018 Rule 606 Amendments, the Commission identified intensified competition for customer orders, the rise in the number of trading centers, and the introduction of new fee models for execution services as the main concerns with held orders for NMS stocks that it sought to address with the proposal.49 The Commission adopted enhanced public disclosures pursuant to Rule 606(a)(1) that focused on increased transparency for the financial inducements that broker￾dealers face when determining where to route held order flow.50 The Commission also adopted Rule 606(b)(3) to require detailed, customer-specific order handling disclosures that can be requested by a customer that places, directly or indirectly, one or more orders in NMS stocks that are submitted on a not held basis.51 At the time of the 2018 Rule 606 Amendments, the Commission considered suggestions from the EMSAC and other commenters that the Commission include more or different execution quality statistics in the required disclosures.52 But the Commission stated that the enhancements to Rule 606(a) that it was adopting were appropriately designed to enable customers- and retail customers in particular-to better assess their broker-dealers’ order routing performance and, in particular, potential conflicts of interest that their broker-dealers face when routing customer orders and how their broker￾dealers manage those potential

53See 2018 Rule 606 Amendments Release, 83 FR 58338 at 58379 (Nov. 19, 2018). 54See id. The Commission further stated that the amendments to Rule 606 provide an appropriate level of insight into the widespread financial arrangements between broker-dealers and execution venues that may affect broker-dealers’ order routing decisions. See id. 55See id. 56See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537 (June 29, 2005); Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269–70, 274 (3d Cir.), cert. denied, 525 U.S. 811 (1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900, 53 SEC 1150, 1162 (1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). In addition, the Commission has separately proposed a rule concerning broker-dealers’ duty of best execution. See Securities Exchange Act Release No. 96496 (Dec. 14, 2022), 88 FR 5440 (Jan. 27,
2023) (‘‘Regulation Best Execution Proposing
Release’’). See also Proposing Release, 88 FR 3786 at 3790, n.69 (Jan. 20, 2023). 57See Regulation NMS Adopting Release, 70 FR 37496 at 37538 (June 29, 2005) (referring to the best reasonably available price and citing Newton, 135 F.3d at 266, 269–70, 274). Newton also specified certain other factors relevant to best execution— order size, trading characteristics of the security, speed of execution, clearing costs, and the cost and difficulty of executing an order in a particular market. See Newton, 135 F.3d at 270, n.2. See also Proposing Release, 88 FR 3786 at 3791, n.70 (Jan. 20, 2023). 58See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75420 (Dec. 1, 2000). 59See id. 60See id. For example, the execution quality statistics included in Rule 605 do not encompass every factor that may be relevant in determining whether a broker-dealer has obtained best execution, and the statistics in a market center’s reports typically will reflect orders received from a number of different routing broker-dealers. See id. See also infra notes 1097–1098 and accompanying text for discussion of an investment adviser’s fiduciary duty, including the duty to seek best execution of a client’s transactions where the investment adviser has the responsibility to select broker-dealers to execute client trades. See also Proposing Release, 88 FR 3786 at 3791 (Jan. 20, 2023). 61See Proposing Release, 88 FR 3786 at 3796– 3801 (Jan. 20, 2023). Throughout the release, the term ‘‘larger broker-dealer’’ refers to a broker-dealer that meets or exceeds the ‘‘customer account threshold,’’ as defined in final Rule 605(a)(7). See also infra section II.A. 62See Proposing Release, 88 FR 3786 at 3804–22 (Jan. 20, 2023). 63See id. at 3823–25. 64The Commission received comments from a wide range of market participants, including individual investors, broker-dealers, academics, securities industry groups, national securities exchanges, and investor advocacy groups. Comments received on the Proposing Release are available on the Commission’s website, available at https://www.sec.gov/comments/s7-29-22/ s72922.htm. 65See, e.g., letters from: Ellen Greene, Managing Director, Equity Options Market Structure, SIFMA (Mar. 31, 2023) (‘‘SIFMA Letter II’’) at 2; Stephen John Berger, Managing Director, Global Head of Government and Regulatory Policy, Citadel Securities (Mar. 31, 2023) (‘‘Rule 605 Citadel Letter’’) at 1; Stephen W. Hall, Legal Director and Securities Specialist, Better Markets, Inc. (Mar. 31,
2023) (‘‘Better Markets Letter’’) at 1–2.
66As used in this release, ‘‘financial services firm’’ refers to an entity that includes multiple types of affiliated entities providing financial services, including broker-dealers, investment advisers, or banks. 67See, e.g., SIFMA Letter II at 27–28; and letters from: Howard Meyerson, Managing Director, Financial Information Forum (Mar. 31, 2023) (‘‘FIF Letter’’) at 2–5; Tyler Gellasch, President and CEO, Healthy Markets Association (Mar. 31, 2023) (‘‘Healthy Markets Letter’’) at 16–18; Douglas A. Cifu, Chief Executive Officer, Virtu Financial, Inc. (Mar. 30, 2023) (‘‘Virtu Letter II’’) at 10–12. These and other comment letters discussing the scope of reporting entities and proposed metrics included in the detailed report or summary report are described infra throughout this release. 68See, e.g., Rule 605 Citadel Letter at 5; and letters from: Ryan Kwiatkowski, Chairman of the Board, and James Toes, President & CEO, Security Traders Association (Apr. 3, 2023) (‘‘STA Letter’’) at 4–5; Derrick Chan, Head of Equities, Fidelity Capital Markets (Mar. 31, 2023) (‘‘Fidelity Letter’’) at 2, 8; Naureen Hassan, President, UBS Americas, Robert Karofsky, President, UBS Investment Bank, and Suni Harford, President, UBS Asset Management, UBS (Mar. 31, 2023) (‘‘UBS Letter’’) at 2; Tim Gately, Managing Director, Head of Equities Sales, Americas, Citigroup Global Markets Inc. (Mar. 31, 2023) (‘‘CGMI Letter’’) at 1–2, 3; Jason Clague, Managing Director, Head of Operations, The Charles Schwab Corporation (Mar. 31, 2023) (‘‘Schwab Letter II’’) at 2, 30, 33. These and other comment letters discussing the recommendations of other commenters are described infra throughout this release. Several individual investors stated that in Dec. 2022, FINRA and the Commission sent out risk alerts regarding a lack of compliance with reports pursuant to Rule 606 of Regulation NMS and that ‘‘one would suspect that brokers will be as non-compliant with the new 605 reports.’’ Letter Type D; Letter Type E; and Letter Type H at https:// www.sec.gov/comments/s7-29-22/s72922.htm. The Commission will monitor the implementation of the amendments to Rule 605. 69Letter from Howard Meyerson, Managing Director, Financial Information Forum (June 22,
2023) (‘‘FIF Letter II’’) at 11. See also letter from
Howard Meyerson, Managing Director, Financial conflicts.53 The Commission further stated the limited modifications being adopted at that time were reasonably designed to further the goal of enhancing transparency regarding broker-dealers’ order routing practices and customers’ ability to assess the quality of those practices, and that the suggested execution quality statistics were not necessary to achieve that goal.54 However, the Commission stated that its determination not to adopt the additional specific disclosures was not an indication that the Commission had formed a decision on the validity or usefulness of the suggested execution quality statistics.55 Separately, each broker-dealer has a legal duty to seek to obtain best execution of customer orders.56 The duty of best execution requires broker￾dealers to execute customers’ trades at the most favorable terms reasonably available under the circumstances.57 When adopting Rules 605 and 606, the Commission stated that these rules do not address and therefore do not change the existing legal standards that govern a broker-dealer’s duty of best execution.58 The Commission recognized that the information contained in the Rule 605 reports (and Rule 606 reports) will not, by itself, be sufficient to support conclusions regarding a broker-dealer’s compliance with its legal responsibility to obtain the best execution of customer orders.59 As the Commission stated, any such conclusions would require a more in￾depth analysis of the broker-dealer’s order routing practices than will be available from the disclosures required by the rules.60 B. Overview of the Proposal and Comments Received In acknowledgment of the myriad changes to the securities markets since the adoption of Rule 605 more than two decades ago, the proposed amendments to Rule 605 sought to ensure the continued transparency and utility of the execution quality statistics required by Rule 605. The Commission proposed to amend Rule 605 by expanding the scope of reporting entities to include broker-dealers with a larger number of customers (‘‘larger broker-dealers’’).61 The Commission also proposed to modify the set of required data to capture execution quality information for more order types and sizes, require time-based execution statistics to be at a more granular level, and enhance the utility of the statistics.62 The Commission further proposed to require that reporting entities provide a report of summary execution quality statistics, in addition to the more detailed reports.63 The Commission received numerous comment letters in response to the Proposing Release, a large portion of which were from individual investors.64 Many commenters supported updating the disclosures required by Rule 605.65 Several commenters, including industry groups, broker-dealers, financial services firms,66 and investor advocacy groups, suggested clarifications or changes to the scope of reporting entities and to certain proposed metrics included in the
detailed report or summary report.67 Other commenters broadly supported the more detailed recommendations of other commenters.68 One industry group recommended that the Commission reissue the proposed rule after incorporating comments from it and other market participants ‘‘to ensure that the final rule achieves the Commission’s intended purpose and allow market participants to identify additional enhancements.’’ 69 A broker-dealer

Information Forum (Feb. 14, 2024) (‘‘FIF Letter III’’) at 2, 5. 70See letter from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities (Dec. 5, 2023) (‘‘Equity Market Structure Citadel Letter II’’) at 3. 71The Commission voted to issue the Proposing Release on Dec. 14, 2022. The release was posted on the Commission’s website that day, and comment letters were received beginning the same day. The comment period closed on Mar. 31, 2023. The Commission has considered comments received since Dec. 14, 2022. 72 In addition, as discussed above, the EMSAC and commenters responding to the Commission’s Concept Release on Equity Market Structure and to the 2018 Rule 606 Amendments recommended that the Commission update Rule 605 and one broker￾dealer petitioned the Commission to amend the Rule. See supra notes 40–44, 52, and accompanying text. The Commission considered these suggestions when proposing amendments to Rule 605. See Proposing Release, 88 FR 3786 at 3792–95 (Jan. 20, 2022). 73See Regulation Best Execution Proposing Release, 88 FR 5440 (Jan. 27, 2023) (proposing rule that would establish Commission rule-based best execution standards); and Securities Exchange Release Nos. 96494 (Dec. 14, 2022), 87 FR 80266 (Dec. 29, 2022) (‘‘Minimum Pricing Increments Proposing Release’’) (proposing amendments to Regulation NMS to reduce minimum pricing increments, add a minimum trading increment, reduce access fee caps, improve transparency of exchange fees and rebates, and enhance the transparency of market data infrastructure); 96495 (Dec. 14, 2022), 88 FR 128 (Jan. 3, 2023) (‘‘Order Competition Rule Proposing Release’’) (proposing rule that would enhance competition for the execution of marketable orders of individual investors). 74See, e.g., SIFMA Letter II (Mar. 31, 2023); Equity Market Structure Citadel Letter II (Dec. 5, 2023); and letters from: Michael Blaugrund, Chief Operating Officer, NYSE Group, Inc., Jason Clague, Managing Director, Head of Operations, Charles Schwab & Co., and Joseph Mecane, Head of Execution Services, Citadel Securities (Mar. 6,
2023) (‘‘NYSE, Schwab, and Citadel Letter’’);
Christopher A. Iacovella, President & Chief Executive Officer, American Securities Association (Mar. 31, 2023) (‘‘American Securities Association Letter II’’); Hope Jarkowski, General Counsel, NYSE Group, Inc. (Mar. 31, 2023) (‘‘NYSE Letter’’); Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities (Mar. 31, 2023) (‘‘Equity Market Structure Citadel Letter’’); Jason Clague, Managing Director, Head of Operations, The Charles Schwab Corporation (Mar. 22, 2023) (‘‘Schwab Letter’’); Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative (Mar. 24, 2023) (‘‘Modern Markets Initiative Letter’’); Joanna Mallers, Secretary, FIA Principal Traders Group (Mar. 31,
2023) (‘‘FIA PTG Letter II’’); Peter D. Stutsman,
Global Head of Equity Trading, and Timothy J. Stark, Head of Equity Markets and Transaction Research, The Capital Group Companies, Inc. (Mar. 31, 2023) (‘‘Capital Group Letter’’); Andrew Hartnett, NASAA President and Deputy Commissioner, Iowa Insurance Division, North American Securities Administrators Association, Inc. (Mar. 31, 2023) (‘‘NASAA Letter’’); David Howson, Executive Vice President, Global President, Cboe Global Markets, Nathaniel N. Evarts, Managing Director, Head of Trading, Americas, State Street Global Advisors, Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global Advisors, Mehmet Kinak, Global Head of Equity Trading, T. Rowe Price, Todd Lopez, Americas Head of Execution Services, UBS Securities LLC, and Douglas A. Cifu, Chief Executive Officer, Virtu Financial, Inc. (Mar. 24, 2023) (‘‘Cboe, State Street, et al., Letter’’); John A. Zecca, Executive Vice President, Global Chief Legal, Risk & Regulatory Officer, Nasdaq, Inc. (Mar. 30, 2023) (‘‘Nasdaq Letter’’); Jennifer W. Han, Executive Vice President, Chief Counsel & Head of Global Regulatory Affairs, Managed Funds Association (Mar. 30, 2023) (‘‘Managed Funds Association Letter’’); Jonathan Kanter, Assistant Attorney General, Antitrust Division, U.S. Department of Justice (Apr. 11, 2023) (‘‘DOJ Letter’’); Nathanial N. Evarts, Managing Director, Head of Trading, Americas, and Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global Advisors (Mar. 30, 2023) (‘‘State Street Global Advisors Letter’’); Michael Markunas, Deputy General Counsel, Chief Compliance Officer, B. Riley Securities, Inc. (Mar. 31, 2023) (‘‘B. Riley Letter’’). 75See, e.g., Virtu Letter at 1; Equity Market Structure Citadel Letter at 16–17; Schwab Letter II at 3–4 (‘‘there is a distinct absence of economic data to support many aspects of the Proposals and to support the Commission’s analysis of costs versus benefits . . . CAT data is not publicly available and thus public commenters . . . do not have access to the very data on which the Commission relies’’); and letters from: Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Feb. 8,
2023) (‘‘SIFMA Letter’’) at 3–4; Kristen
Malinconico, Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce (Mar. 31, 2023) (‘‘Chamber of Commerce Letter’’) at 2–3. Some of these commenters also requested that the Commission identify the specific broker-dealers whose Rule 605 and Rule 606 reports, which are publicly available, were used in the proposals. See, e.g., SIFMA Letter at 2; Virtu Letter at 1–2. 76See, e.g., Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 at 56978 (Aug. 1, 2012) (stating that maintaining the confidentiality of customer and other information reported to CAT ‘‘is essential’’ and that ‘‘[w]ithout adequate protections, market participants would risk the exposure of highly-confidential information about their trading strategies and positions’’); Securities Exchange Act Release No. 84696 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (stating that a security breach involving CAT data could, among other things, ‘‘leak highly-confidential information about trading strategies or positions, which could be deleterious for market participants’ trading profits and client relationships’’ or ‘‘expose proprietary information about the existence of a significant business relationship with either a counterparty or a client, which could reduce business profits’’). 77 In addition, the Commission declines to provide the identities of the specific broker-dealers whose Rule 606 reports were used in connection with the Proposing Release. See supra note 75. The reports themselves are publicly available and interested parties can analyze these reports using their own selection of broker-dealers. As with the CAT data, the Commission has fully described in the Proposing Release the Rule 606 data used, the methodology for analysis, and the results of its analyses. This information provides notice of the Commission’s use and analysis of Rule 606 data used in support of this rulemaking. 78For example, the SEC’s MIDAS analytics tool collects and processes data from the consolidated tapes as well as from the separate proprietary feeds made individually available by each equity exchange. See MIDAS: Market Information Data Analytics System, SEC, available at https:// www.sec.gov/marketstructure/midas-system. See also letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC (‘‘IEX’’) (Oct. 13,
2023) (‘‘IEX Letter’’) at 3 (stating that there are
‘‘myriad sources of information that . . . market participants draw on to consider how orders are handled and how markets compete with and compare to each other,’’ including NYSE TAQ data, other exchange proprietary and consolidated market data, and FINRA’s reports on off-exchange trading). See also, e.g., infra note 330 (FIF Letter) and accompanying text; notes 113–114 (Professor Christopher Schwarz, University of California Irvine, Professor Brad Barber, University of California, Davis, Professor Xing Huang, Washington University in St. Louis, Professor Philippe Jorion, University of California, Irvine, Professor Terrance Odean, University of California, Berkeley (Feb. 7, 2023) (‘‘Professor Schwarz et al. Letter’’)) and accompanying text. stated that the Commission should provide market participants the opportunity to review and comment on such a revised proposal prior to finalization.70 The Commission does not agree with these commenters. Delaying the adoption of a final rule, and thereby delaying the benefits of Rule 605, is not warranted. The Commission has reviewed and carefully considered the extensive comment file,71 which included input from a broad array of market participants, and as discussed below, has made certain changes in response to these comments.72 For these reasons, re-proposal of the Rule 605 amendments is not necessary. Contemporaneously with the proposal to modify Rule 605, the Commission issued three other proposals related to separate aspects of equity market structure and Regulation NMS.73 A number of commenters provided comments on all four proposals jointly.74 Some commenters requested that the Commission publicly release anonymized subsets of CAT data used in connection with the tables and figures in the proposals’ economic analyses.75 The Commission is not releasing anonymized subsets of CAT data used in connection with the proposals, including CAT data used in connection with data and figures in the Proposing Release. The CAT database contains highly sensitive and granular market information.76 The Commission fully described in the Proposing Release and this Release the CAT data used, the methodology for analysis, and the results of its analyses. This provides notice of the Commission’s use and analysis of CAT data in support of this rulemaking.77 Market participants, such as broker￾dealers, may analyze their own order and transaction information as well as commercially available data and use this analysis to provide meaningful comment on the Proposing Release from their own perspectives.78 The level of aggregation that would be required to protect market and proprietary information so that it cannot be used, either itself, or with other commercially or publicly available information, to reverse engineer or otherwise reveal market participants’ identities, market

79See, e.g., SIFMA Letter II at 2 (‘‘[o]nce an amended Rule 605 is implemented, the Commission will have the data it needs to fully assess market quality and consider whether additional rulemaking is needed and how any such rulemaking should be designed’’); Equity Market Structure Citadel Letter II at 1–3; NYSE, Schwab and Citadel Letter at 1– 2; STA Letter at 4; Modern Markets Initiative Letter at 2; Cboe, State Street, et al. Letter dated Mar. 24, 2023 at 1–2; Managed Funds Association Letter at 2; T. Rowe Letter at 3; UBS Letter at 1–2; Virtu Letter II at 2; SIFMA Letter II at 11; Professor Schwarz et al. Letter at 5; and letters from Bill Foster, French Hill, Henry Cuellar, Bill Huizenga, Wiley Nickel, Andy Barr, Ritchie Torres, Ann Wagner, Brittany Pettersen, Dan Meuser, Josh Gottheimer, Mike Flood, Vicente Gonzalez, Byron Donalds, Mike Quigley, Michael V. Lawler, David Scott, Andrew R. Garbarino, Gregory W. Meeks, Monica De La Cruz, Sean Casten, Scott Fitzgerald, Bradley S. Schneider, Erin Houchin, Jim Himes, Young Kim, Steven Horsford, Ralph Norman, Gwen Moore, Tom Emmer, Marc Veasey, and Zach Nunn, United States House of Representatives (Sep. 26,
2023) at 2; Michelle Bryan Oroschakoff, Managing
Director and Chief Legal Officer, LPL Financial (Mar. 31, 2023) (‘‘LPL Financial Letter’’) at 3–4; Chester Spatt, Pamela R. and Kenneth B. Dunn Professor of Finance, Tepper School, Carnegie Mellon University and former Chief Economist, U.S. Securities and Exchange Commission (2004– 2007), Thomas Ernst, Assistant Professor of Finance, Smith School of Business, University of Maryland, Andrey Malenko, Professor of Finance, Carroll School of Management, Boston College, Jian Sun, Assistant Professor of Finance, Le Kong Chian School of Business, Singapore Management University (Nov. 29, 2023) (‘‘Professor Spatt et al. Letter’’) at 5; see also letter from Patrick McHenry, French Hill, Frank Lucas, Pete Sessions, Bill Posey, Blaine Luetkemeyer, Bill Huizenga, Ann Wagner, Andy Barr, Roger Williams, Tom Emmer, Barry Loudermilk, Alexander X. Mooney, Warren Davidson, John Rose, Bryan Steil, William Timmons, Ralph Norman, Dan Meuser, Scott Fitzgerald, Andrew R. Garbarino, Young Kim, Byron Donalds, Mike Flood, Michael V. Lawler, Zach Nunn, Monica De La Cruz, Erin Houchin, and Andy Ogles, United States House of Representatives (Sept. 26, 2023) (‘‘McHenry et al. Letter’’) at 2. But see IEX Letter at 5 (‘‘the premise that Rule 605 updates must be a precondition to any other changes looks more like a calculated stall than an argument for careful, reasoned decision making’’); letter from Stephen W. Hall, Legal Director and Securities Specialist, Better Markets, Inc. (Oct. 31,
2023) (‘‘Better Markets Letter II’’) at 5 (‘‘argument
that the Commission should first get more information is a delaying tactic designed to forestall meaningful reforms that are already clearly necessary and appropriate’’). 80See McHenry et al. Letter at 2. As discussed further below, Rule 605 as amended imposes reporting requirements only on market centers and larger broker-dealers that meet the customer account threshold (i.e., introduce or carry at least 100,000 customer accounts) and thus does not bring smaller or emerging firms within scope on the basis of their customer-facing broker-dealer business. The Commission addresses the impact of its rulemaking on smaller or emerging firms in its releases, including this release. See infra section IX.D.1.d)(1). Further, the Regulatory Flexibility Act (‘‘RFA’’) (5 U.S.C. 601 et seq.) requires Federal agencies, in promulgating rules, to consider the impact of those rules on small entities. See infra section X for further discussion of the Commission’s consideration of the impact of the amendments on small entities. 81See infra note 981. 82See id. The Order Competition Rule Proposing Release, the Regulation Best Execution Proposing Release, and the Minimum Pricing Increments Proposing Release mentioned by commenters remain at the proposal stage. To the extent that the Commission takes final action on any or all of those proposals, the baseline in each of those subsequent rulemakings will reflect the regulatory landscape that is current at that time. See also infra section IX.C.1.d). 83See, e.g., FIF Letter, SIFMA Letter II. 84See, e.g., supra note 16 (discussing studies by Boehmer et al. and Zhao & Chung). positions, or trading strategies would also mean that the dataset would be substantially dissimilar from the actual data used in the Commission’s analysis. In addition, several commenters suggested a sequencing of the equity market structure proposals, such that the Commission would implement the amendments to Rule 605 and evaluate the execution quality data from the updated reports, before undertaking further action on the remaining equity market structure proposals.79 One group of members of Congress recommended that no equity market structure rule ‘‘should be finalized or implemented’’ until the Commission ‘‘[c]onduct[s] a comprehensive cost-benefit analysis of the aggregate impact of [these rules] and seek[s] public comment on this analysis[,]’’ and proposes ‘‘a reasonable, workable, and staggered schedule for public comment on the adoption and implementation of the proposals, considering their overlapping nature, significant compliance and operational burdens, and if they may be insurmountable for smaller or emerging firms.’’ 80 As discussed below in the economic analysis, the Commission uses as a baseline the world as it exists today, including adopted rules but not proposed rules.81 Comments on how the adoption of the Rule 605 amendments should affect the timing or sequence of the other equity market structure proposals will be considered if
and when those rules are acted on. Similarly, because the effects of the final rule are measured against the existing regulatory baseline, which does not include rules that have not been adopted, the Commission does not agree that an additional analysis of the aggregate impact of the several equity market structure rules is necessary before the adoption of the Rule 605 amendments.82 The proposed amendments to Rule 605, as well as the costs and benefits of the proposed amendments, were detailed in the Proposing Release and received substantial public comment. The proposed amendments to Rule 605 received broad support from many commenters. The Commission has considered the comments received, updated its data analysis where needed, and, in some instances, has modified the proposal in response to comments received.
C. Overview of Final Rule 605
After reviewing the comments received and considering the recommendations from commenters,83 the Commission has determined to adopt the proposal with several modifications. In some cases, final amendments to Rule 605 add new data elements that provide additional context and information for both the detailed and summary execution quality reports. In adopting the final amendments to Rule 605, the Commission aims to provide individual investors, institutional customers, and broker￾dealers with information that they can use to choose market centers or broker￾dealers that align with their investment and execution objectives. Further, as with Rule 605 reports prior to these amendments,84 the Commission anticipates that third parties, such as academics and journalists, will also utilize the reported execution quality data for comparison purposes and analysis of market conditions. As discussed in section II (Modifications to Reporting Entities) below, the Commission is adopting the amendments to the scope of reporting entities largely as proposed, with a few modifications. The Commission is retaining in the adopted amendments to Rule 605 the proposed requirements that brokers and dealers introducing or carrying 100,000 or more customer accounts prepare Rule 605 reports and that separate reports be prepared for a firm’s broker-dealer activity and its market center activity. The Commission is also providing additional explanation of these requirements. The Commission has determined not to require market centers that operate a proposed qualified auction to prepare a separate report for covered orders received for execution in the qualified auction. The Commission is specifying that ATSs must prepare Rule 605 reports separately from their broker-dealer operators as proposed and is also retaining the proposed requirement that a broker-dealer that operates an SDP prepare a separate report for activity specific to the SDP, but with a modified description of what constitutes an SDP. In addition, as discussed in section III (Modifications to Scope of Orders Covered and Required Information) below, the Commission is adopting amendments to the information required to be reported in the detailed report required by Rule 605(a)(1) with modifications from the proposal. The Commission is adopting amendments to

85 15 U.S.C. 78k–1.
86 15 U.S.C. 78k–1(c)(1)(B).
87 15 U.S.C. 78k–1(c)(1)(E).
88The national market system objectives of
section 11A of the Exchange Act include the
economically efficient executions of securities transactions; fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets; the availability of information on securities quotations and transactions; and the practicability of brokers executing investor orders in the best market. See 15 U.S.C. 78k–1(a)(1)(C). 89 ‘‘Customer’’ means any person that is not a broker or dealer. See final 17 CFR 242.600(b)(28). 90Proposing Release, 88 FR 3786 at 3795 (Jan. 20, 2023). 91See id. at 3797. 92See id. at 3796 (discussing amendments to Rule 605 in proposed Rule 605 introductory text, (a) heading, (a)(1) introductory text, (a)(1)(i)(D), and (a)(3), (4), (5), and (6)). 93Prior 17 CFR 242.600(b)(22). 94See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); proposed Rule 605(b)(30). The Commission also proposed to require all market centers and broker-dealers that would be subject to Rule 605’s reporting requirements to produce summary reports with aggregated execution quality information. See infra section IV for further discussion of the summary report. 95See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). the scope of covered orders largely as proposed, with changes to the coverage of orders with stop prices. The Commission is also revising the categorization by order size from the proposal to incorporate notional size buckets and whether an order is for less than a share, is an odd-lot, or is a round lot. With respect to the categorization by order type, the Commission is adopting the categorization of executable NMLOs as proposed, but is modifying the categorization of NMLOs priced at or better than the midpoint and adding more categories of immediate-or-cancel orders and more categories related to orders submitted with stop prices. The Commission is also adopting a timestamp convention of at least a millisecond as proposed, but eliminating the proposed statistics for median and 99th percentile time to execution in favor of utilizing more granular time-to-execution buckets. Further, the Commission is adopting the other required statistics for inclusion in the detailed report with several changes from the proposal, including: (1) adding realized spread statistics for more time intervals; (2) calculating effective spread and effective spread divided by quoted spread for marketable order types and NMLOs priced more aggressively than the midpoint only; (3) utilizing spread￾based weighting to calculate effective spread divided by quoted spread; (4) adding statistics for average quoted spread, average midpoint, and cumulative notional size; (5) measuring size improvement at time of order receipt rather than time of execution, adding an additional size improvement statistic focused on orders that can receive size improvement, and calculating these size improvement statistics for marketable order types and NMLOs priced more aggressively than the midpoint only; and (6) adding a
relative fill rate statistic for NMLOs based on order executions occurring on national securities exchanges. Further, as discussed in section IV (Summary Execution Quality Report) below, the Commission is adopting a requirement for a summary report pursuant to Rule 605(a)(2), with several changes from the proposal. The Commission is changing the weighting of certain statistics and grouping orders into notional size buckets. The Commission is modifying the required statistics related to average order size in shares; share-weighted average percentage price improvement; and effective spread divided by quoted spread. The Commission is including additional metrics in the summary report for share-weighted average midpoint; share-weighted average notional size; average percentage quoted spread; and average percentage realized spread as calculated at two time horizons. The Commission also is requiring that the summary report be provided in an alternative format. Finally, as discussed in section V (Requirements for Making Rule 605 Reports Available to the Public) below, the Commission is adopting procedures for making the Rule 605 reports publicly available as proposed. The Commission endeavors to ensure that investors are provided with timely and accurate information needed to make informed investment decisions, and the final amendments to Rule 605 reflect the Commission’s ongoing commitment to enhance transparency for investors. Facilitating the ability of the public to compare and evaluate execution quality among different market centers, brokers, and dealers, is an effective means of reconciling the need to promote both vigorous price competition and fair competition among market centers and broker-dealers, to the benefit of individual investors.
Section 11A of the Exchange Act 85
grants the Commission the authority to promulgate rules necessary or appropriate to assure the fairness and usefulness of information on securities transactions 86 and to assure that broker￾dealers transmit and direct orders for the purchase or sale of qualified securities in a manner consistent with the establishment and operation of a national market system.87 By requiring the uniform public disclosure of useful and accessible statistics, amended Rule 605 will better promote competition among market centers and broker￾dealers on the basis of execution quality and ultimately improve the efficiency of securities transactions, consistent with the objectives of our national market system.88
II. Modifications to Reporting Entities
A. Larger Broker-Dealers

1. Proposed Approach
   Prior to the adopted amendments, Rule 605 of Regulation NMS required only market centers, such as national securities exchanges, OTC market makers, and ATSs, to produce publicly available, monthly execution quality reports. The Commission proposed to expand the scope of entities that must prepare Rule 605 reports to include larger broker-dealers that introduce or carry at least 100,000 customer 89 accounts. The Commission reasoned that the proposed expansion would ‘‘improve the usefulness of execution quality statistics, promote fair competition, and enhance transparency by providing investors with information that they could use to compare the execution quality provided by customer￾facing broker-dealers.’’ 90 As discussed further below, the proposed minimum reporting threshold of 100,000 customers was intended to balance the benefits of having broker-dealers produce execution quality statistics with the costs of implementation and continued reporting.91 To implement this proposed expansion, the Commission proposed to insert references to ‘‘brokers’’ and ‘‘dealers’’ where prior Rule 605 referred to ‘‘market centers.’’ 92 In addition, the Commission proposed to revise the definition of ‘‘covered order’’ in prior Rule 600(b)(22), which referred to any market order or any limit order (including immediate-or-cancel orders) ‘‘received by a market center,’’ 93 to refer to orders ‘‘received by a market center, broker, or dealer.’’ 94 Proposed Rule 605(a)(7) stated that a broker or dealer that is not a market center shall not be subject to the requirements of Rule 605 unless that broker or dealer introduces or carries 100,000 or more customer accounts through which transactions are effected for the purchase or sale of NMS stocks (the ‘‘customer account threshold’’).95 As explained in the Proposing Release, the Commission analyzed available data to determine the proposed customer account threshold given the additional costs that broad expansion of the rule to

96See id. at 3797, 3886–87.
97See id. (discussing analysis of the estimated number of broker-dealers that would be subject to Rule 605 reporting requirements according to different definitions of the customer account threshold). See infra note 146 and accompanying text for a discussion of an updated analysis. 98See Proposing Release, 88 FR 3786 at 3797 (Jan. 20, 2023). An introducing broker-dealer is a broker￾dealer that has a contractual arrangement with another firm, known as the carrying or clearing firm, under which the clearing/carrying firm agrees to perform certain services for the introducing firm. Usually, the introducing firm transmits its customer accounts and customer orders to the clearing/ carrying firm, which executes the orders and carries the account. See Securities Exchange Act Release No. 31511 (Nov. 24, 1992), 57 FR 56973 at 56978 (Dec. 2, 1992) (Net Capital Rule). Alternatively, some broker-dealers utilize an ‘‘omnibus clearing arrangement,’’ where the clearing firm maintains one account for all customer transactions of the introducing firm, rather than a ‘‘fully disclosed introducing relationship.’’ In an omnibus arrangement, the clearing firm does not know the identity of the customers of the introducing firm, whereas in a fully disclosed arrangement, the clearing/carrying firm knows the names, addresses, securities positions, and other relevant data as to each customer. See id. at 56978, n.16. 99See Proposing Release, 88 FR 3786 at 3797–98 (Jan. 20, 2023); proposed Rule 605(a)(7). 100See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 101See id. at 3798–99. Proposed Rule 605(a)(7) stated that a broker or dealer that meets or exceeds the customer account threshold shall be required to produce reports pursuant to this section for at least three calendar months (‘‘Reporting Period’’). See id. at 3799. As proposed, the Reporting Period shall begin the first calendar day of the next calendar month after the broker or dealer met or exceeded the customer account threshold, unless it is the first time the broker-dealer had met or exceeded the customer account threshold. See id. Any time after a broker or dealer has been required to produce reports pursuant to this proposed section for at least a Reporting Period, if a broker or dealer falls below the customer account threshold, the broker or dealer shall not be required to produce a report pursuant to this paragraph for the next calendar month. See id. 102See id. at 3799. The Commission also proposed that after the three-calendar month grace period, the Reporting Period shall begin on the first calendar day of the fourth calendar month after the broker or dealer has met or exceeded the customer account threshold. See id. As proposed, a broker￾dealer that crosses the customer account threshold for the first time is required to comply with the reporting requirements of Rule 605 for at least a Reporting Period, even if that broker-dealer falls below the customer account threshold during the grace period.
See id. 103See, e.g., prior 17 CFR 242.605(a)(1)(ii)(D) (measuring, for shares executed with price improvement, the share-weighted average period from the time of order receipt to the time of order execution). 104See prior 17 CFR 242.600(b)(92). See also Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000) (‘‘The definition [of ‘time of order receipt’] is intended to identify the time that an order reaches the control of the market center that is expected, at least initially, to execute the order.’’). 105See Proposing Release, 88 FR 3786 at 3799– 800 (Jan. 20, 2023); proposed Rule 600(b)(109). The time that the order is received by the market center for execution should be the same as the time that the order is received by the broker-dealer for execution when the broker-dealer also acts as a market center for that order. 106See, e.g., letters from: Dylan Hodges (Dec. 27, 2022); Edward Murray (Dec. 26, 2022); Dr. Paul Pritchard (Dec. 27, 2022); Cody Welch (Mar. 7,
2023) (‘‘Welch Letter’’); Abanes (Mar. 3, 2023)
(‘‘Abanes Letter’’); Ryan Macarthur (Feb. 24, 2023) (‘‘Macarthur Letter’’); David Genco, Jr. (Feb. 24,
2023) (‘‘Genco Letter’’).
107Letter from Caleb C. (Mar. 18, 2023). broker-dealers would entail.96 Utilizing a 100,000 customer account threshold as proposed would allow the Rule 605 reporting requirements to capture those broker-dealers that introduce or carry the vast majority of customer accounts, while subjecting only a relatively small percentage of broker-dealers that accept customer orders for execution to the reporting obligation and excluding those broker-dealers that introduce or carry fewer customer accounts.97 The proposed customer account threshold also required brokers-dealers to include in their calculations the public customer accounts that they introduce, as well as the customer accounts that they carry.98 Because an introducing broker-dealer may use an omnibus clearing arrangement and not disclose certain information about its underlying customer accounts to the clearing firm, the Commission proposed that, for purposes of Rule 605, a broker or dealer that utilizes an omnibus clearing arrangement for any of its underlying customer accounts would be considered to carry such underlying customer accounts when calculating the number of customer accounts that it introduces or carries.99 Proposed Rule 605(a)(7) stated that any broker or dealer that meets or exceeds the customer account threshold and is also a market center shall produce separate reports pertaining to each function.100 Further, as proposed a broker-dealer is excluded from Rule 605’s reporting requirements only with respect to its customer-facing broker￾dealer function (as opposed to its market center function, if applicable) if the number of customer accounts that it introduces or carries is less than the customer account threshold.101 However, under the proposal, a broker￾dealer that meets or exceeds the customer account threshold for the first time has a grace period of three calendar months before being required to comply with Rule 605’s reporting requirements.102 Prior to the amendments, Rule 605 required that reporting entities calculate certain statistics based on the time of order receipt.103 Moreover, Regulation NMS defined ‘‘time of order receipt’’ based on the time an order was received by a market center for execution.104 In conjunction with the proposed expansion of Rule 605 to cover larger broker-dealers, the Commission proposed to modify the definition of ‘‘time of order receipt’’ to specify that, in the case of a broker or dealer that is not acting as a market center, the time of order receipt is the time that the order was received by the broker or dealer for execution.105
2. Final Rule and Discussion
The Commission is adopting amendments to Rule 605 to include larger broker-dealers as proposed and addresses certain commenters’ questions below. These amendments will provide enhanced transparency to investors, allowing them to compare and evaluate execution quality among different customer-facing larger broker￾dealers and promoting competition among these broker-dealers. As discussed in section II.A.2.a), the Commission is adopting the customer account threshold as proposed. In addition, as discussed in section II.A.2.b), the Commission is adopting as proposed the requirement that larger broker-dealers that are also market centers produce separate reports pertaining to each function. Finally, as discussed in section II.A.2.c), the Commission is adopting as proposed the requirement that all reporting entities, including larger broker-dealers, measure certain statistics from the time of order receipt. The Commission received comments from a variety of market participants on the proposed expansion to require larger broker-dealers to provide Rule 605 reports. Certain individual investors supported the proposed expansion of publicly available Rule 605 reports to include broker-dealers because this expansion would increase transparency and encourage competition among broker-dealers.106 One such commenter stated that the proposal would: (1) require broker-dealers to provide more detailed information about the execution quality of their trades, including data on execution speeds, price improvements, and order routing practices, which would help retail investors ‘‘make more informed decisions about where to route our orders and which broker-dealers to work with’’; (2) provide more data on execution quality that would ‘‘help level the playing field between individual investors and large institutional players who currently have an information advantage’’; and (3) ‘‘encourage broker￾dealers to compete on the quality of their executions, which would ultimately benefit all investors.’’ 107 Two other individual investors supported the inclusion of broker-dealers and the proposed rule overall, stating that it would ‘‘provide a more detailed and

108Letters from Justin West (Mar. 19, 2023); Ankit (Mar. 19, 2023). 109See letter from Aswin Joy (Mar. 7, 2023) (‘‘Joy Letter’’); letter from James J. Angel, Georgetown University (Mar. 31, 2023) (‘‘Angel Letter’’) at 2–3. See infra section II.A.2.a) for additional discussion about the scope of the broker-dealer reporting requirement. 110See Fidelity Letter at 9 (stating that expanding Rule 605 reporting requirements to new entities will provide greater transparency into execution quality differences and increase the ability to measure retail order outcomes in a competitive environment); letter from Gregory Davis, Managing Director and Chief Investment Officer, and Matthew Benchener, Managing Director, Personal Investor, The Vanguard Group, Inc. (Mar. 31, 2023) (‘‘Vanguard Letter’’) at 3 (stating that the proposal will increase transparency by empowering investors to compare execution quality across broker-dealers and make more informed decisions about their choice of broker-dealer); Healthy Markets Letter at 16 (stating that Rule 605 reports should cover large brokers that route orders for investors); Better Markets Letter at 5 (stating that the proposed expansion of entities subject to Rule 605 disclosures will help the public compare and evaluate execution quality among different market centers and broker-dealers, and thereby increase transparency of order execution quality, increase information available to both retail and institutional investors, and help promote competition among market centers and broker-dealers); Professor Schwarz et al. Letter at 2; and letter from John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Co-Chair, Committee on Capital Markets Regulation (Mar. 31, 2023) (‘‘CCMR Letter’’) at 14 (stating that the proposed expansion ‘‘will allow retail investors to determine the execution quality of their orders’’ and ‘‘would likely enhance competition among retail broker-dealers based on price improvement and overall execution quality’’). 111See Vanguard Letter at 3. 112 Id. at 3–4 (stating that requiring larger broker￾dealers to make Rule 605 disclosures would address this coverage gap and give their customers a ‘‘direct line of sight into broker-dealer performance’’). See also NASAA Letter at 5–6 (stating that the proposed expansion of reporting entities would ‘‘provide the public with a more comprehensive view of order execution quality across the national market system’’ and ‘‘allow brokerage customers to compare execution quality among different broker￾dealers’’). 113See Proposing Release, 88 FR 3786 at 3832, n.529 (Jan. 20, 2023) and accompanying text (citing Christopher Schwarz et al., The ‘Actual Retail Price’ of Equity Trades (Aug. 28, 2022)). 114See Professor Schwarz et al. Letter at 1–2 (strongly supporting the inclusion of large broker￾dealers given their research study finding that shows economically and statistically significant price execution variation across brokers; the level of such
differences was previously unknown to retail traders and a large portion of the financial industry). A group consisting of some of these academics submitted another comment letter in which they cited a more recent academic working paper regarding competition among wholesalers and stated that their results ‘‘emphasize the need for further price execution disclosure at the broker level.’’ Letter from Xing Huang, Philippe Jorion, and Christopher Schwarz (Dec. 12, 2023) (‘‘Huang et al. Letter’’) at 1 (attaching Xing Huang, Philippe Jorion, Jeongmin Lee & Christopher Schwarz, Who Is Minding the Store? Order Routing and Competition in Retail Trade Execution (Nov. 19, 2023)). 115See Professor Schwarz et al. Letter at 3. See also Better Markets Letter at 9–10 (stating that even though some retail investors may not read Rule 605 reports, these investors will benefit indirectly by virtue of enhanced disclosure that will ‘‘promote competition, improve regulatory oversight, and facilitate use by third-party researchers and academics’’ to expose problematic order routing and execution practices). 116See Virtu Letter II at 3. 117See id. at 9. This commenter stated that the proposal ‘‘may lead to changes in the equilibrium mix of customer types at each broker’’ because investors would migrate towards brokers that have better execution quality statistics. See id. at 9, n.24. This commenter explained that ‘‘order execution quality tends to be inversely related to the aggregate cost to provide liquidity to that broker’s customers’ orders because market makers are willing to provide more price improvement to orders that are less expensive to service.’’ Id. This commenter also stated that if the proposal ‘‘induces retail investors with more costly to service orders to move to brokers that previously had less costly to service orders, it could cause execution quality to worsen at the broker with previously less costly to service orders.’’ Id. 118 Id. at 9. 119See Robinhood Letter at 41–42 (stating that adding the proposed expansion to include larger broker-dealers is not realistically going to get usable execution quality information in the hands of individual investors because the voluminous data are in a format proven not to be particularly useful for them and that the Commission underestimates the costs for a type of report not generally prepared by broker-dealers that are not also market centers); letter from Seth A. Miller, President Advocacy & Administration, Cambridge Investment Research, Inc. (Mar. 31, 2023) (‘‘Cambridge Letter’’) at 7 (stating in its capacity as a broker-dealer and investment adviser that the broad scope of the proposed inclusion of larger retail broker-dealers will impose significant costs and is ‘‘likely to lead to misaligned, misleading comparisons between totally different entities’’); Schwab Letter II at 35 (stating that differences in certain execution statistics such as E/Q may be attributable to different business models across firms
rather than actual differences in E/Q among comparable business models, and thus would create investor confusion rather than provide useful information); Tastytrade Letter at 4–5 (observing that the proposal will significantly increase the number of reported data points per ticker on approximately 10,000 NMS traded products, and expressing concern about the ability of customers to digest the additional ‘‘confusing and complicated’’ data points in Rule 605 reports). 120See Tastytrade Letter at 4 (‘‘While we agree in general that greater transparency results in a level playing field for retail customers, it seems counterproductive to do so in a manner that risks confusion.’’). comprehensive standard for broker￾dealers to follow, resulting in consistently robust best execution practices.’’ 108 In addition, an academic and an individual investor suggested expanding the Rule 605 reporting requirement to include all broker￾dealers, rather than just larger broker￾dealers.109 For reasons similar to those offered by individual investors, financial services firms, industry groups, and a group of academics supported the proposed expansion of Rule 605 reporting requirements to larger broker-dealers.110 One financial services firm stated that the proposed expansion would ‘‘fill a gap in coverage that currently obscures the order handling practices of many broker-dealers’’ because many customer￾facing broker-dealers do not meet the definition of a market center and thus do not produce Rule 605 reports.111 This commenter stated that the customers of these broker-dealers are left without any ‘‘reliable way to evaluate and compare broker-dealer performance.’’ 112 A group of academics that authored an academic working paper concerning the execution quality of market orders received from various broker-dealers 113 also submitted a comment letter supporting the proposed expansion and cited the need for improved public transparency based on their research.114 These commenters stated that, even if retail investors do not pay attention to broker-level disclosures about execution quality if the dollar cost to retail investors is low, such disclosures are likely to be scrutinized by brokers, leading to greater competition and ultimately better execution for retail investors.115 A broker-dealer supported the proposed expansion to retail brokers, stating that it will make order execution quality, and the marketplace generally, more transparent to retail investors.116 This commenter also stated that, given the ‘‘highly competitive state of the current retail brokerage market,’’ it is not certain that the proposed enhancements to Rule 605 would improve execution quality for individual investors because outcomes for such investors could be ‘‘asymmetric.’’ 117 However, this commenter stated that to the extent that there are opportunities to optimize execution quality for individual investors, ‘‘empowering investors to compare execution quality across retail brokers (and
consequently to switch brokers based on this information) would be the most efficient and effective way to address these concerns.’’ 118 Some broker-dealers and financial services firms opposed the proposed expansion to include larger broker￾dealers, citing costs and the risk of confusion, especially for individual investors.119 One such broker-dealer stated that retail customers are not asking for or seeking information at the level of granularity required by the proposed rule, stating that the potential risk of investor confusion seems disproportionate to the defined transparency benefits it may provide.120 Another commenter opposed the proposed expansion because the 605 reports are ‘‘overly complicated for the average investor’’ and may give a ‘‘false

121See letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Mar. 31,
2023) (‘‘Data Boiler Letter’’) at 27–28.
122See final 17 CFR 242.605(a)(7) (establishing the customer account threshold for larger broker￾dealer reporting requirements, production of separate reports, and applicable Reporting Period). See also final 17 CFR 242.605 (inserting references to ‘‘brokers’’ and ‘‘dealers’’ in introductory text, heading for (a), (a)(1) introductory text, (a)(1)(i)(E), and (a)(3), (4), (5), and (6)). See also final 17 CFR 242.600(b)(27) (inserting references to orders received by a ‘‘broker’’ or ‘‘dealer’’ in definition of ‘‘covered order’’) and final 17 CFR 242.600(b)(103) (specifying that the definition of ‘‘time of order receipt,’’ in the case of a broker or dealer that is not acting as a market center, is the time (at a minimum to the millisecond) that an order was received by the broker or dealer for execution). For further discussion of these amendments, see Proposing Release, 88 FR 3786 at 3796, 3798–99 (Jan. 20, 2023). 123See supra notes 119–121 and accompanying text. 124See supra notes 106–108 and accompanying text. 125See infra section IV.B. 126See infra section IV.B.2. For a discussion of comments regarding investor education or testing related to the summary reports, see infra section IV.B.3. As the new Rule 605 requirements, including the expansion of scope to include larger broker-dealers, are implemented, the Commission will consider whether there is a need for additional educational resources to assist investors. 127See infra notes 1075–1077 and accompanying text (discussing ways in which third parties have used Rule 605 reports to produce information that is meant for public consumption). 128See SIFMA Letter II at 29. 129See id. at 30. This commenter also stated it does not understand on what basis the Commission believes that differences in business models are well-known by market participants, and particularly retail investors, for purposes of evaluating execution quality statistics. See id. (discussing Proposing Release, 88 FR 3786 at 3800 (Jan. 20, 2023)). However, the Commission’s statement in the Proposing Release was made in specific reference to market participants’ use of Rule 605 reports to compare a market center and a broker-dealer, rather than use of Rule 605 reports to compare broker-dealers with one another. The Commission agrees with the commenter that differences between broker-dealer business models may not be ex ante well-known to market participants. However, market participants, including individual investors, will be able to use the information in Rule 605 detailed reports and the Rule 605 summary reports to account for differences in broker-dealer order flow, and broker￾dealers are not precluded from separately providing their customers with information that can be used to contextualize the information in the Rule 605 reports. 130See id. at 30 (stating that when pointing to potential shifts in order flow from one broker-dealer to another, the Commission does not account for any potential effects on execution quality caused
by the shifting of the order flow itself or the potential for order flow to consolidate among a smaller number of firms, thereby reducing competition and ultimately hurting execution quality). 131See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023). See also infra note 984 for an sense of comfort’’ about order execution practices and quality.121 After considering the comments, the Commission is adopting the requirement for broker-dealers that meet the 100,000 customer account threshold to produce Rule 605 reports, as proposed. To implement this requirement, the Commission also is adopting the related amendments to Rules 600 and 605.122 The Commission agrees with commenters who recognized the need for Rule 605 data pertaining to customer-facing larger broker-dealers. Larger broker-dealer reporting will be useful in increasing the transparency of larger broker-dealers’ order execution quality so that investors have information available to compare and evaluate order execution quality and order routing practices among market centers and larger broker-dealers. As discussed further in section II.A.2.a) below, by limiting Rule 605 reporting requirements to larger-broker dealers that meet the customer account threshold only, Rule 605 will balance the benefits of broker-dealer reporting with the costs. The Commission disagrees with commenters’ concerns that larger broker-dealer reporting will be too confusing or misleading to investors, or will create a ‘‘false sense of comfort’’ about order execution practices and quality.123 Individual investor commenters expressed interest in receiving access to execution quality statistics pertaining to larger broker￾dealers because this increased transparency would allow individual investors to make more informed decisions and encourage competition among larger broker-dealers.124 Due to the expansion of Rule 605 reporting requirements to larger broker-dealers, customers of these broker-dealers, including individual investors, and other market participants will no longer need to make inferences about these broker-dealers’ execution quality based on a combination of broker-dealers’ routing information contained in reports required by Rule 606 and market centers’ Rule 605 reports. Instead, customers will be able to use execution quality information contained in larger broker-dealers’ Rule 605 reports to make comparisons across these broker-dealers and select those broker-dealers that offer better execution quality. The availability of information about larger broker￾dealers’ execution quality also is expected to increase the extent to which these broker-dealers compete on the basis of execution quality when making their order routing decisions. Further, to the extent that broker-dealers increase the extent to which they route orders to the market centers offering better execution quality, increased liquidity at those venues may further improve execution quality, as a result of promoting the flow of orders to
market centers that offer better execution quality. The stock-by-stock order execution information that will be provided in the detailed report will allow market participants, including individual investors familiar with data analysis, to make their own determinations about how to group stocks or orders when comparing execution quality information across broker-dealers. However, the Commission is mindful that the detailed report will contain a larger volume of statistical data and many market participants, including individual investors, may not have the means to directly analyze the detailed report. As discussed further below, the Commission is adopting a requirement that every market center, broker, or dealer produce a summary execution quality report in addition to the more detailed report required by Rule 605(a)(1).125 These summary reports will make available to market participants and other interested parties readily accessible, aggregated data that will allow them to compare some of the more significant aspects of the execution quality provided by specific market centers and larger broker￾dealers. These summary reports will provide human-readable information that any investor, including individual investors, can assess without needing technical expertise or relying on an intermediary.126 Moreover, even individual investors that do not read Rule 605 reports from larger broker￾dealers will benefit from independent analysts, consultants, broker-dealers, the financial press, or market centers analyzing and producing more digestible information using Rule 605 data.127 One industry group stated that it remains unclear whether broker-dealers’ Rule 605 reports would increase competition.128 This commenter stated its concern that producing Rule 605 statistics without accounting for different broker-dealer business models could lead investors to make incorrect decisions regarding broker-dealer selection.129 This commenter further stated that differences in execution quality could be the result of a myriad of factors, including ‘‘the customers . . . different brokers serve and the equities the customers trade.’’ 130 In response to this commenter, the Commission agrees that, as a result of different business models, a particular broker-dealer’s order flow may be made up of a different mixture of securities, order types, and order sizes, which may impact or constrain that broker-dealer’s overall execution quality level.131

example of how differences in order flow characteristics may impact inferences about execution quality. For further discussion, see infra
section IX.C.1.a). 132That some of the information contained in the
summary execution quality report will be useful for controlling for differences across differences in order flow characteristics of broker-dealer was supported by comment. See, e.g., comments in support of including average notional order size and average realized spreads in the summary reports, discussed in infra section IV.B.1.b). 133See SIFMA Letter II at 31. 134See Virtu Letter II at 3–4. 135See Rule 605 NMS Plan at 2 (providing that the detailed report must be in standard, pipe￾delimited ASCII format); final 17 CFR 242.605(a)(2) (providing that the summary report must be made available using the most recent version of the schema for CSV format and the associated PDF renderer). 136See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). 137Any such statements will be subject to applicable securities laws and regulations. 138See Robinhood Letter at 42 (‘‘Instead of unnecessarily imposing additional costs on the industry to create new Rule 605 reports that may not have the desired result of empowering investors to analyze broker-dealers’ execution quality, the SEC should require broker-dealers that already publish Rule 606 reports . . . to add execution quality statistics to their Rule 606 reports.’’). 139See supra notes 45–51 and accompanying text (discussing Rule 606(a)(1) reports that provide quarterly information about order routing and payment arrangements). 140See infra section II.A.2.a) (discussing the Commission’s analysis to support the adoption of the customer account threshold, which indicates that approximately 85 broker-dealers introduce or carry more than 100,000 customer accounts and these broker-dealers together handle over 98% of customer accounts). See also infra section IX.E.5.b) (discussing a reasonable alternative to expand Rule 606 reporting requirements). 141See Healthy Markets Letter at 16, n.38; Nasdaq Letter at 43 (stating that the proposed customer account threshold ‘‘appears to balance the associated implementation costs on those broker￾dealers that may provide the execution quality statistics with the greatest benefit’’). 142See Joy Letter; Angel Letter at 2–3 (stating that all broker-dealers should be required to show execution quality information, and that CAT could easily produce Rule 605 reports at low incremental cost). See also Robinhood Letter at 44–45 (recommending that, if the Commission decides to proceed with the proposed rule, it should require all broker-dealers to report under Rule 605, because the number of large broker-dealers is relatively small (6.7% of all broker-dealers); the limited application of the rule would create an information gap about execution quality for investors that use smaller broker-dealers and new retail broker entrants). With respect to the commenter’s suggestion that CAT data could be used to produce Rule 605 reports, see infra section V.B.2.b) for a discussion of the potential alternative to generate order execution quality reports using CAT data. 143See
Cambridge Letter at 7 (‘‘such breadth cannot be justified in light of the likely significant costs to be imposed on certain participants’’). 144See id. 145See infra section IX.D.2.a)(1) for a discussion of the costs related to expanding the scope of Rule 605 reporting entities. As discussed further below, broker-dealers that were not previously required to publish Rule 605 reports will incur initial costs to prepare and post Rule 605 reports for the first time, which may include developing any policies and procedures that may be needed to do so, and all Continued However, under these amendments, larger broker-dealers will be required to categorize the execution quality information required by Rule 605 by individual security, different types of orders, and different order sizes. Giving market participants access to this information in Rule 605 reports will help ensure that they are able to control for these differences in order flow characteristics and make apples-to￾apples comparisons when assessing and comparing execution quality information across broker-dealers.132 An industry group suggested that the Commission allow firms an opportunity to provide a statement in their Rule 605 reports explaining how to contextualize the report based on the nature of the firm’s order flow.133 In addition, a broker-dealer suggested that the Commission permit retail brokers to provide background and contextual information to explain how their obligations are different from those of wholesalers or other market centers that currently report under Rule 605.134 The Commission is not adopting the suggestion to include a descriptive statement within the Rule 605 reports because it would be inconsistent with the structure of these reports, which are designed to be structured, standardized, machine-readable, quantitative disclosures.135 As the Commission stated in the original adopting release for Rule 605, Rule 605 is intended to establish a baseline level of disclosure and facilitate cross-market comparisons of execution quality.136 Similarly, the adopted amendments to Rule 605 provide a baseline level of disclosure that all market centers and larger broker￾dealers must meet. Rule 605 does not preclude larger broker-dealers from disclosing additional information concerning their order execution practices that they believe would provide useful context concerning the quality of their services on their websites or through other means of communication.137 A broker-dealer recommended that rather than expanding Rule 605 to include larger broker-dealers, the Commission should update Rule 606, which already applies to nonmarket center broker-dealers, to require additional information regarding execution quality.138 In response to the commenter’s suggestion, the Commission considers the inclusion of larger broker-dealers in Rule 605 as adopted to be the preferable option. Although providing Rule 605 data within an expanded version of the existing Rule 606 reports could result
in lower compliance costs as a result of broker-dealers’ existing experience with preparing and filing Rule 606 reports, many of the costs associated with the initial reporting of execution quality statistics would still be incurred by broker-dealers and therefore broker￾dealers would not benefit from a significant reduction in compliance costs overall. Moreover, the format and frequency of the Rule 606 reports differs because the data are more aggregated and the reports are issued quarterly.139 In contrast, Rule 605 reports are monthly and provide detailed, symbol￾by-symbol data that will allow market participants and other users of the report to analyze the data and consider the execution quality that a broker￾dealer provides for orders with specific characteristics. Further, while Rule 606 covers all brokers or dealers, subject to a de minimis exception, as described below, the customer account threshold will focus the Rule 605 reporting requirement on those larger broker￾dealers for which the provision of Rule 605 data will include data for most of the customer accounts handled by broker-dealers and, therefore, will balance the benefits of broker-dealer reporting with the costs of reporting.140 (a) Customer Account Threshold An investor advocacy group and a national securities exchange specifically supported the proposed customer account threshold that would include in scope a broker or dealer that introduces or carries 100,000 or more customer accounts.141 An academic and an individual investor suggested that all broker-dealers should be required to submit Rule 605 reports.142 In contrast, a broker-dealer stated that it is not clear why it is necessary to include such a broad scope of larger broker-dealers.143 According to this commenter, the proposal would require larger retail broker-dealers to produce execution quality reporting and metrics that are identical to those required of securities exchanges and market makers, even if those broker-dealers do not direct client orders.144 After considering the comments, the Commission is adopting the 100,000 customer account threshold, as proposed. The Commission’s analysis of available data on the number of broker￾dealers that will meet the minimum reporting threshold of 100,000 customers confirmed that such threshold will balance the benefits of having broker-dealers produce execution quality statistics with the costs of implementation and continued reporting,145 given the smaller amount

broker-dealers will face ongoing costs to continue to prepare the reports each month. See also infra
section IX.E.1.a) for a discussion about the
estimated costs of utilizing a different number of customer accounts as the minimum reporting threshold. 146Analysis from the Proposing Release was repeated regarding the estimated number of broker￾dealers that will be subject to Rule 605 reporting requirements according to different definitions of the customer account threshold. See Proposing Release, 88 FR 3786 at 3886–87 (Jan. 20, 2023). For a description of how this analysis differs from the analysis in the Proposing Release, see infra note
1747. This updated analysis indicates that
approximately 85 broker-dealers (or approximately 6.7% of customer-carrying broker-dealers) introduce or carry more than 100,000 customer accounts and these broker-dealers together handle over 98% of customer accounts. See infra Table 13 for a cost-benefit analysis of different customer account thresholds that could be used to define ‘‘larger broker-dealer’’ and accompanying text for methodology. For example, approximately 244 broker-dealers introduce or carry more than 10,000 customer accounts and these broker-dealers together handle over 99% of customer accounts. Further, approximately 1,245 broker-dealers introduce or carry at least 1 customer account. 147See infra section IX.E.1.a) (reducing the customer account threshold from 100,000 to 10,000 would almost triple both initial and ongoing costs); see also infra section IX.E.1.b) (discussing the alternative of requiring all broker-dealers to prepare Rule 605 reports). 148See supra notes 143–144 and accompanying text. It is unclear, and the commenter does not explain, why any of the required execution quality metrics will not be appropriate for reporting by a larger broker-dealer and the commenter does not suggest any alternative metrics. It is also unclear, and the commenter does not explain, how a Rule 605 report prepared by a retail broker will be less useful if the retail broker did not direct client orders. Even though the same underlying order may be reflected on multiple Rule 605 reports, the aggregated statistics within each report will provide different views of execution quality specific to the group of orders received by each reporting entity. Thus, a Rule 605 report prepared by a retail broker will allow that retail broker’s customers, as well as other market participants, to view the execution quality specific to those orders received by the specific retail broker. 149See Proposing Release, 88 FR 3786 at 3797, n.167 (Jan. 20, 2023) and accompanying text (discussing potential initial and ongoing costs that broker-dealers would incur as a result of the proposed amendments to Rule 605). 150See infra section IX.E.1.a) and Table 13 (demonstrating that, for example, reducing the customer account threshold from 100,000 to 10,000 would increase estimated initial and ongoing compliance costs from about $3.4 million and $4.4 million, respectively, to about $9.8 million and $12.6 million, respectively, while increasing the coverage of customer accounts by 1.4% and the coverage of customer order originations by 21%). See also infra notes 1749–1751 (discussing why lowering the customer account threshold to include these customers might not be particularly beneficial). 151See Table 13 (demonstrating that raising the customer account threshold to 250,000 would lower estimated initial and ongoing compliance costs to about $2.4 million and $3.1 million, respectively, while decreasing the coverage of customer accounts by 1.1% and the coverage of customer order originations by 55.7%). 152See FIF
Letter at 6. 153See FIF Letter II at 2. 154See id. 155See letter from William C. Thum, Managing Director and Assistant General Counsel, SIFMA AMG (Mar. 31, 2023) (‘‘SIFMA AMG Letter’’) at 6. 156For instance, retail brokers potentially face conflicts of interest when making order routing decisions, including whether to route to a particular wholesaler. See infra section IX.C.4.a)(2). As an example, broker-dealers face conflicts of interest when making routing decisions due to their own affiliation with market centers (e.g., if the broker￾dealer operates its own ATS), from the presence of liquidity fees and rebates on some market centers, or from payments that some retail brokers receive from wholesalers to attract the order flow of their individual investor customers (i.e., PFOF). See infra notes 1300–1304 and accompanying text. of benefits relative to costs that there would be if the Rule 605 reporting requirements extended to broker-dealers that introduce or carry a smaller number of customer accounts. Specifically, this analysis indicates that approximately 85 broker-dealers introduce or carry more than 100,000 customer accounts and these broker-dealers together handle over 98% of customer accounts.146 The Commission is not subjecting all broker￾dealers to Rule 605 reporting requirements, as suggested by certain commenters, because of the lower benefits relative to costs for broker￾dealers with a smaller number of customer accounts.147 Conversely, the Commission disagrees with the commenter that states that the scope of larger broker-dealers that will be required to provide Rule 605 reports is overbroad.148 The relative market-wide benefit of having a broker-dealer prepare Rule 605 reports increases when the broker-dealer has more customers.149 The Commission’s updated analysis indicates that utilizing a lower customer account threshold, such as 10,000 customer accounts, would nearly triple both initial and ongoing costs for non￾market center broker-dealers (which are not otherwise subject to Rule 605’s reporting requirements) and yet would result in capturing only modestly more customer accounts than the 100,000 customer account threshold.150 The Commission’s updated analysis also indicates that utilizing a higher customer account threshold, such as 250,000 customer accounts, would lower costs but also decrease coverage of customer accounts and customer order originations.151 Thus, utilizing 100,000 customer accounts as the adopted minimum reporting threshold will better balance the benefits of having broker-dealers produce execution quality statistics with the costs of implementation and reporting. The customer account threshold will require brokers-dealers to include in their calculations the customer accounts that they introduce, as well as the customer accounts that they carry. Rule 605 reports that reflect orders received from customer accounts that a broker￾dealer introduces or carries will provide useful information to market
participants because both introducing and carrying broker-dealers make decisions about where to route those orders and it will be helpful for customers to be able to evaluate the execution quality received as a result of those decisions. One industry group requested an exception from the Rule 605 reporting requirement for an introducing firm that routes all of its customer orders to its clearing firm, on a non-directed basis, where the clearing firm makes all routing decisions and the introducing firm does not receive payment for order flow (‘‘PFOF’’).152 This commenter explained that its request would reduce the reporting burden for smaller introducing firms.153 This commenter stated that, given its suggested conditions for the exception from reporting requirements that an introducing broker would be required to examine the clearing firm’s Rule 605 report and not have reason to believe the clearing firm’s report materially misrepresents the introducing broker’s order flow, the quality of the disclosure should not be impacted.154 A second industry group made a similar request for an exception from reporting for certain introducing broker-dealers, stating that when introducing broker￾dealers send customer orders to a clearing broker that makes the routing decisions, the introducing broker may not be in the best position to generate Rule 605 reports.155 The Commission considered these commenters’ suggestion that Rule 605 provide an exception for certain introducing broker-dealers, but is not adopting the suggested exception for the following reasons: (1) Rule 605 reports prepared by larger broker-dealers will provide market participants and other interested parties with information relevant to evaluating how relationships among broker-dealers may affect execution quality, and the payment of PFOF is not the only circumstance that leads to conflicted relationships between an introducing broker-dealer and its customers; 156 (2) an introducing firm would not be able to determine whether or not its clearing firm’s Rule 605 report materially misrepresents the introducing firm’s order flow without independently calculating its own execution quality statistics, and if the introducing firm needed to make these calculations to do this assessment, then any additional burden due to the requirement to prepare Rule 605 reports will be minimal; (3) different firms

157 In some instances, the same underlying order may be reflected on the Rule 605 reports provided by both an introducing firm and its clearing firm, but the separate reports will provide different views of execution quality specific to the group of orders handled by each broker-dealer. See also Proposing Release, 98 FR 3786 at 3798 (Jan. 20, 2023). 158See FIF Letter at 5–6 (requesting clarifications on how a firm would calculate its number of accounts to determine whether it meets the customer account threshold in the following circumstances: (1) an introducing firm that is not a clearing firm, where the introducing firm establishes a top-level trading account for an institutional asset manager and the asset manager allocates trade executions to sub-accounts; (2) a firm that has accounts for non-U.S. customers; (3) a firm that provides routing services for other broker-dealers; and (4) a firm that has authorized an account to trade NMS stocks but that account has never traded an NMS stock or has not traded an NMS stock for an extended period of time). 159 In this scenario as presented by the commenter, the asset manager submits orders using this top-level account and separately establishes multiple underlying accounts with the clearing broker-dealer to allocate trades post-execution. See id. at 5–6. 160See supra note 98 and accompanying text (discussing omnibus clearing arrangements in which the clearing firm does not know the identity of the customers of the introducing firm). Having an introducing broker-dealer count the top-level account through which trading occurs is consistent with the approach for reporting transactions to the CAT. See FINRA CAT FAQ M4, available at https:// catnmsplan.com/faq (stating that in scenarios involving managed accounts where an order may be placed in a master account with subaccount allocations made at a later time, the identifier representing the master/top account should be reported to CAT for transaction events requiring such identifier). 161See final 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(7). 162See Instructions to FOCUS Report—Form X– 17A–5 at 2. 163See Healthy Markets Letter at 16 (‘‘[B]rokers that are also market centers (including as OTC market makers) should be required to separately report their market center functions for all covered orders (e.g., ATS or SDP operations).’’); Better Markets Letter at 5, n.12. 164See Proposing Release, 88 FR 3786 at 3798 (Jan. 20, 2023). 165See SIFMA Letter II at 28 (asking the following questions as to how a firm should group different transactions for Rule 605 separate reports: (1) ‘‘If a firm is an OTC market maker and introduces or carries 100,000+ customer accounts, how should the firm determine which orders to report as broker￾dealer trades versus those executed as a market center?’’; (2) ‘‘If a firm engages in a mixed capacity trade involving both a portion executed as agent and a portion executed as principal, would this order need to be bifurcated
between the two reports?’’; (3) ‘‘If a firm trades in a riskless principal capacity, but the transaction was part of its internal broker-dealer business and not its OTC market making business, should the firm nonetheless attribute the riskless principal trade to its market center Rule 605 report? The Commission only discusses a market center engaging in riskless principal transactions, but it seems possible that a non-market center might transact on a riskless principal basis as well.’’). could have differing interpretations of how much variation there could be in execution quality statistics between an introducing firm and its clearing firm before the clearing firm’s Rule 605 report would ‘‘materially misrepresent’’ the introducing firm’s order flow; and (4) even if an introducing firm determined that it has no reason to believe that its clearing firm’s Rule 605 report materially misrepresents the introducing firm’s order flow, the introducing firm’s customers could consider certain differences between the execution quality statistics of the introducing firm and its clearing firm to be meaningful.157 An industry group asked for clarification regarding how firms would calculate their number of customer accounts for purposes of the customer account threshold.158 In response, the Commission is providing the following guidance. First, the introducing broker￾dealer generally should only count the institutional top-level account when an introducing broker-dealer that is not a clearing broker-dealer establishes a top￾level account for an institutional asset manager.159 The Commission recognizes that in such instances the introducing broker-dealer often utilizes an omnibus clearing arrangement and thus does not have specific knowledge of how many underlying accounts a top-level account may represent.160 Second, broker￾dealers generally should count and only count the accounts for all of their customers that are authorized by their broker-dealers to trade NMS stocks, including non-U.S. customers. A focus on customers that are authorized to trade NMS stocks generally should align with the scope of Rule 605 reports because these reports relate to covered orders in NMS stocks.161 Third, broker￾dealers that provide routing services for other broker-dealers could have customer accounts for that portion of their business and the routing broker￾dealer generally should consider whether a top-level account pertains to customer orders and count only those top-level accounts that the routing broker-dealer introduces or carries that are associated with customer orders. Fourth, broker-dealers generally should count only active customer accounts. Broker-dealers generally should consider customer accounts as active in the same manner as defined and reported in their Financial and Operational Combined Uniform Single (‘‘FOCUS’’) Reports on Form X–17A–
5.162 Consistent with their FOCUS
reports, larger broker-dealers reporting under Rule 605 generally should count only active accounts that have a non￾zero cash or securities balance at the end of the reporting period. Leveraging an existing classification of active accounts in these FOCUS reports generally should facilitate the identification of inactive accounts. (b) Production of Separate Reports Two investor advocacy groups expressed their support for the proposed requirement that larger broker-dealers that are also market centers produce separate reports for each activity.163 After considering the comments, the Commission is adopting the requirement that larger broker-dealers that are also market centers produce separate reports pertaining to each function, as proposed. As explained in the Proposing Release, requiring a firm to produce separate reports pertaining to its market center function and its broker-dealer function will allow market participants and other interested parties to view the firm’s execution quality from the perspective of how it operates in each of these separate roles.164 An industry group stated that the proposed distinction between broker￾dealer activity and market center activity in Rule 605 reports requires clarification and asked specific questions to clarify this distinction for purposes of grouping orders to prepare the separate reports.165 In response, the Commission provides the following clarifications. First, a firm that is an OTC market maker and introduces or carries over 100,000 customer accounts (i.e., meets the customer account threshold for larger broker-dealers) generally should include in its Rule 605 report pertaining to its broker-dealer function all covered orders in NMS stocks that the firm’s broker-dealer received for execution as part of its customer-facing line of business. The firm generally should include in its Rule 605 report pertaining to its market center function all covered orders in NMS stock that the firm received for execution that are the type of order for which the firm serves as an OTC market maker. The set of orders pertaining to a firm’s broker-dealer function may overlap with the set of orders pertaining to its market center function. The firm generally should include an order in both of its Rule 605 reports if its broker￾dealer received the order from a customer and the firm also acts as a market center for that type of order. Second, a firm that engages in a mixed capacity trade (i.e., a trade involving both a portion executed as agent and a portion executed as principal) generally should include in its Rule 605 report pertaining to its broker-dealer function the entire covered order that it received for execution as part of its customer-facing line of business and subsequently executed in a mixed capacity. Based on

166See final 17 CFR 242.600(b)(55). 167When a market center, broker, or dealer receives a covered order for execution, it may execute in part at the receiving market center, broker, or dealer and in part at an away venue, but the entire covered order will be included in the firm’s Rule 605 report. See final 17 CFR 242.605(a)(1)(i)(E) (requiring a market center, broker, or dealer to report the cumulative number of shares of covered orders executed at the receiving market center, broker, or dealer, excluding shares executed on a riskless principal basis) and final 17 CFR 242.605(a)(1)(i)(F) (requiring a market center, broker, or dealer to report the cumulative number of shares of covered orders executed at any other venue). 168The Commission agrees with the previous guidance provided by the staff that the Rule 605 reporting requirement for market centers generally should apply to broker-dealers insofar as they act as a market center with respect to orders received from other persons. See Proposing Release, 88 FR 3786 at 3798, n.180 (Jan. 20, 2023) (citing Division of Market Regulation: Staff Legal Bulletin No. 12R (Revised), Question 4 (June 22, 2001), available at https://www.sec.gov/interps/legal/slbim12a.htm). The Commission provides the following example to illustrate. Assume that Firm A generally acts as an OTC market maker for XYZ stock. If Firm A receives an order for 100 shares of XYZ stock, it may choose to execute as principal 50 shares of XYZ stock that it holds in inventory and execute as agent the 50 shares of XYZ stock necessary to fill the entire order. Firm A generally would have received the entire 100-share order in its capacity as an OTC market maker, notwithstanding its execution of a portion of the order as agent. In contrast, Firm B acts as an OTC market maker for XYZ stock but not ABC stock. If Firm B receives an order for 50 shares of XYZ stock and an order for 50 shares of ABC stock, Firm B generally would have received the order for 50 shares of XYZ stock in its capacity as an OTC market maker, regardless of whether it executed those shares as principal or as agent. In this scenario, Firm B generally would not have received the order for 50 shares of ABC stock in its capacity as an OTC market maker and therefore generally would have received this order in connection with its broker-dealer function only. 169See Fidelity Letter at 9–10. 170See supra note 3 for the definition of ‘‘OTC market maker.’’ The term ‘‘covered order’’ is defined in final 17 CFR 242.600(b)(27). As discussed above, a firm may act as an OTC market maker for certain types of orders only. For example, Firm C acts as an OTC market maker for fractional shares only. If Firm C receives an order for 51.25 shares of XYZ stock, it may execute as principal
0.25 shares of XYZ stock and execute as agent 51
shares of XYZ stock. Firm B generally would have received only the fractional share component of the order (i.e., 0.25 shares) in its capacity as an OTC market maker and therefore only the fractional share component generally should be included in Firm C’s Rule 605 report pertaining to its market center function. 171See Proposing Release, 88 FR 3786 at 3789, n.36 (Jan. 20, 2023). 172See Professor Schwarz et al. Letter at 5. See also Better Markets Letter at 5, n.14 (agreeing with this recommendation). 173See Huang et al. Letter at 1 (‘‘[O]ur results suggest that disclosures for each broker-wholesaler pair should provide additional helpful information to monitor broker and wholesaler performance. This would allow within-broker comparisons of execution quality that are more meaningful than comparisons solely across brokers.’’). 174See Rule 605 Citadel Letter at 8 (recommending that the Commission engage with market participants to appropriately define a retail order, such as by reference to an order or trade threshold and stating that forty trades per day would be inappropriately high). the firm’s execution of a portion of the order as principal, as a general matter, the firm acts as an OTC market maker for that type of order and, because an OTC market maker falls within the definition of a ‘‘market center,’’ 166 that portion of the order generally should be included in its report pertaining to its market center function. The firm’s execution of a portion of the order as agent generally should not be determinative of whether the firm acts as an OTC market maker for that type of order. The firm also generally should include in its Rule 605 report pertaining to its market center function the portion of the covered order that it executed as agent if it received the order for execution as an OTC market maker.167 Whether the firm received the entire covered order in its capacity as an OTC market maker (and thus as market center) or only a portion of the order in its capacity as an OTC market maker generally will depend on the types of orders for which it acts as an OTC market maker.168 Third, a firm that trades in a riskless principal capacity with respect to a transaction handled by its non-market center, internal broker-dealer business rather than its OTC market making business generally should not need to include the transaction in its Rule 605 report pertaining to its market center function because this division of business lines suggests that the firm is acting in its capacity as a broker-dealer only. However, the firm generally should evaluate whether or not it acts as an OTC market maker in connection with its internal broker-dealer business, in which case that portion of the business may be a market center and thus be required to be reported as such. A financial services firm requested clarification of whether a broker-dealer that principally facilitates the trading of fractional shares must publish a separate Rule 605 report as a market
center.169 In response, the Commission clarifies that under the adopted amendments to Rule 605 a reporting entity must produce a separate Rule 605 report as a market center if it meets the definition of an ‘‘OTC market maker’’ and receives ‘‘covered orders’’ for execution in such capacity.170 As stated in the Proposing Release, as a general matter, a broker-dealer generally should categorize a customer’s submitted order for an NMS stock, whether it be for a fractional share, whole shares, or whole shares with a fractional share component, as a ‘‘held’’ order (and thus a covered order) if the customer reasonably expects its broker-dealer to attempt to execute such order immediately.171 One group of academics suggested that the Commission require separate disclosures for each account type at each broker-dealer to reflect the observation that execution quality differs across platforms with different commission and PFOF structures.172 A group consisting of some of these academics also suggested that the Commission require separate disclosures of specific ‘‘broker￾wholesaler pairs’’ consisting of a broker￾dealer and each wholesaler to which the broker-dealer routes orders from retail investors.173 A broker-dealer stated that execution quality metrics, including the proposed summary reports, would be more informative if Rule 605 reports differentiated between retail investors and professional customers because the nature of order flow and resulting execution quality may be quite different.174 Another broker-dealer stated that ‘‘each firm’s order flow is unique’’ and suggested that the Commission ‘‘consider the balance of this additional transparency of order flow’’ both: (1) ‘‘in the context of reporting fragmentation for trading venues that have built in segmentation (i.e., ATS with multiple pools or an exchange that has a continuous order book and a retail price improvement order book)’’; and (2) ‘‘in the context of retail brokers where experience may be materially different within a broker￾dealer (i.e., a retail broker chooses to offer retail customers different experiences within the same broker￾dealer).’’ The Commission is not adopting these commenters’ suggestions that larger broker-dealers be required to produce multiple reports that differentiate between account types, business segments, or routing destinations. Requiring larger broker-dealers to split their orders amongst multiple Rule 605 reports pertaining to their broker-dealer function would create additional implementation costs and potentially undercut the goal of having standardized reports that are comparable across entities. For instance, differences among how firms structure different business lines would pose challenges in ensuring that each firm is capturing order flow with similar characteristics in the same way, which could impede the comparability of reports. (c) Time of Order Receipt One investor advocacy group stated that broker-dealers should be required to calculate time of
order receipt based on when that broker-dealer received the

175See Healthy Markets at 16–17.
176See FIF Letter at 18–19; Schwab Letter II at 33; letter from Jason Clague, Managing Director, Head of Operations, The Charles Schwab Corporation (Sep. 28, 2023) (‘‘Schwab Letter III’’) at 5. 177See FIF Letter at 19. 178See id. 179See id. (citing Rule 606 Staff FAQs, FAQ 11.01). Rule 606 Staff FAQs are available at: https:// www.sec.gov/tm/faq-rule-606-regulation-nms. Staff reports, Investor Bulletins, and other staff documents (included those cited herein) represent the views of Commission staff and are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the content of these staff documents and, like all staff documents, they have no legal force or effect, do not alter or amend the applicable law, and create no new or additional obligations for any person. 180See Schwab Letter II at 33; Schwab Letter III at 5 (‘‘The use of order receipt time rather than route time would result in some execution quality statistics like execution speed not being fairly represented in the reports due to outliers caused by market access review activities.’’). 181See final 17 CFR 242.600(b)(103). 182See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75423 (Dec. 1, 2000) (discussing a commenter’s concern that a market center might attempt to manipulate the time of receipt for its order flow by, for example, monitoring market movements before and/or after receipt of any order and assigning the NBBO that is most favorable to them during that brief option period). 183See Schwab Letter II at 33; Schwab Letter III at 5. 184Schwab Letter II at 33; Schwab Letter III at 5. 185See 17 CFR 240.15c3–5. 186See FIF Letter at 19. 187This practice of separately identifying and routing the marketable orders of individual investors to wholesalers is a form of ‘‘segmentation.’’ 188For a full description and discussion of the order competition rule proposal, see Order Competition Rule Proposing Release, 88 FR 128 (Jan. 3, 2023); proposed 17 CFR 242.615 (‘‘Rule 615’’). order because, in the commenter’s view, the use of the time the order was received would show if there are order￾delays and thereby provide a useful metric for anyone examining order￾routing latency across brokers.175 An industry group and a financial services firm suggested instead of the proposed rule text that broker-dealers should be required to calculate time of order receipt based on the time that the broker-dealer first routes the order.176 The industry group questioned whether execution metrics should be measured before or after the broker-dealer has applied risk controls and decided whether to reject the order.177 This commenter stated that current order management systems may not generate a timestamp for when risk controls have been applied and it would be costly to generate such markers.178 For this reason, this commenter suggested permitting a routing firm to use the time of its first route as the time of order receipt and stated that the time of first
route would be consistent with the Staff frequently asked questions (FAQs) regarding Rule 606.179 The financial services firm stated that Rule 605 reports for a non-market center should use the time of order routing, not the time of order receipt, because broker￾dealers perform necessary review activities following receipt of the order but prior to routing the order.180 After consideration of comments, the Commission is adopting the requirement that larger broker-dealers calculate time of order receipt based on the time that they received the initial order, as proposed.181 Time of order receipt, rather than order route time, is more relevant to customers of a broker￾dealer because it will show how the broker-dealer handled the order from the time of receipt by the broker-dealer. Time of order receipt will show any delays in executing the order, and any resulting consequences on the execution quality the broker-dealer obtained for that order, because the execution quality statistics will be measured based on the prevailing market prices at the time the order was received. In addition, counting time of order receipt from the time that a broker-dealer initially receives the order will allow broker￾dealers to assign a time of order receipt in a prompt and uniform manner and thus help to ensure that the time of order receipt is assigned in a non￾manipulatory manner.182 A financial services firm that suggested the use of order route time stated that larger share orders are more likely to be sent to a review queue and could have a ‘‘disproportionate negative impact’’ on average execution speed.183 This commenter further stated that, ‘‘[c]onsequently, using order receipt time could create a perverse incentive for firms to diminish time spent on necessary reviews in an effort to improve execution speed statistics.’’ 184 The Commission disagrees that broker￾dealers will be incentivized to circumvent their risk controls because time-to-execution statistics take into account the period during which a broker-dealer is performing various reviews and before the broker-dealer routes an order. Broker-dealers have multiple reasons to implement risk controls upon the receipt of customer orders. For example, broker-dealers are subject to other regulatory requirements, including the Commission’s market access rule, that will continue to apply.185 The existence of such requirements means that broker-dealers will continue to utilize risk controls necessary to comply with these requirements, including risk controls implemented to comply with the market access rule, because the potential consequences of failing to comply with these requirements likely would counterbalance any perceived benefits of being able to report faster execution times. Broker-dealers also have reputational and business concerns that serve as additional incentives to continue to apply risk controls. Further, to the extent that larger orders received by broker-dealers may result in slower execution
times due to the application of risk controls, measuring time to execution at the time of order receipt may motivate broker-dealers to make their risk controls more efficient. Moreover, time-to-execution statistics are only one aspect of execution quality statistics and price-based execution quality statistics will provide a different dimension of the reporting firms’ execution quality. An industry group requested confirmation that orders rejected based on the application of risk and compliance controls would not count as having been received for purposes of Rule 605 reporting.186 In response, the Commission confirms that a broker￾dealer generally should not include orders rejected based on the application of risk and compliance controls within its Rule 605 reports. Including these rejected orders in Rule 605 reports would not provide data useful to understanding the execution quality provided by the reporting broker-dealer because these orders would not have been received by the firm in a form where execution was possible. Thus, these rejected orders generally should not be treated as ‘‘received’’ by the broker-dealer for Rule 605 reporting purposes. B. Qualified Auction Mechanisms

1. Proposed Approach
   In today’s equity markets, retail brokers often identify and route the marketable orders of individual investors in NMS stocks to wholesalers and the wholesalers often internalize these orders.187 At the same time that the Commission proposed the amendments to Rule 605 discussed herein, the Commission separately proposed rules that generally would require that individual investor orders be exposed to order-by-order competition in fair and open auctions designed to obtain the best prices before such orders could be internalized by wholesalers or any other type of trading center that restricts order-by-order competition.188 The proposal focused on the treatment of segmented orders, which the Commission proposed to define as an order for an NMS stock that

189See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023); proposed Rule 600(b)(91) (defining ‘‘segmented order’’). 190See Order Competition Rule Proposing Release, 88 FR 128 at 149 (Jan. 3, 2023). 191See id. at 243; proposed Rule 600(b)(87) (defining ‘‘restricted competition trading center’’); proposed Rule 615(a) (describing the order competition requirement). An ‘‘open competition trading center’’ would be a national securities exchange or NMS Stock ATS that meets certain requirements, including being transparent and having a substantial trading volume in NMS stocks independent of qualified auctions. See Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed Rule 600(b)(64) (defining ‘‘open competition trading center’’). A ‘‘qualified auction’’ would be an auction operated by an open competition trading center pursuant to specified requirements that are designed to achieve competition. See Order Competition Rule Proposing Release, 88 FR 128 at 243 (Jan. 3, 2023); proposed Rule 600(b)(81) (defining ‘‘qualified auction’’); proposed Rule 615(c) (setting forth requirements for operation of a qualified auction). 192See Proposing Release, 88 FR 3786 at 3802 (Jan. 20, 2023). 193See, e.g., Joy Letter; Pritchard Letter; and letters from Julio Cesar (Feb. 24, 2023) (‘‘Cesar Letter’’); Nevin Varghese (Dec. 26, 2022) (‘‘Varghese Letter’’). 194See FIF Letter at 13 (stating that segmented orders would likely need to be separate from non￾segmented orders); Fidelity Letter at 9 (recommending that the Commission distinguish Rule 605 data by segmented and non-segmented order flow and display such orders separately in detailed reports and summary reports); SIFMA Letter II at 29 (stating that it is unclear why retail broker-dealers should have to report on segmented orders because execution quality will depend on the qualified auction rather than actions by the originating broker, and suggesting instead a single Rule 605 report that evaluates all qualified auctions). 195See prior 17 CFR 242.605(a)(1) (requiring ‘‘every’’ market center to produce a report). See also Rule 605 NMS Plan at n.1 (‘‘An entity that acts as a market maker in different trading venues (e.g., as a specialist on an exchange and as an OTC market maker) would be considered as a separate market center under the Rule for each of these trading venues. Consequently, the entity should arrange for a Designated Participant for each market center/ trading venue (e.g., an exchange for its specialist trading and an association for its OTC trading).’’) For a description of ‘‘Designated Participant’’ as defined in the Rule 605 NMS Plan, see infra note 869. 196 17 CFR 242.300(k). ‘‘Regulation ATS’’ consists of 17 CFR 242.300 through 242.304 (Rules 300 through 304 under the Exchange Act). 197See Proposing Release, 88 FR 3786 at 3803 (Jan. 20, 2023). 198See id. To the extent that a reporting firm produces more than one Rule 605 report, the firm could label
each report with the type of business reflected on the report. 199See id. 200See, e.g., Healthy Markets Letter at 16 (‘‘[B]rokers that are also market centers (including as OTC market makers) should be required to separately report their market center functions for all covered orders (e.g., ATS or SDP operations).’’); Better Markets Letter at 5, n.10 (‘‘[R]equiring SDPs and ATSs to produce Rule 605 reports independently from their broker-dealers operations would increase transparency by allowing market participants to distinguish such activity from more traditional broker-dealer activity.’’); Varghese Letter (‘‘Expanding the scope of entities subject to Rule 605 to include . . . single dealer platforms will ensure that a wider range of market participants are held to the same standards of transparency and accountability.’’). is for an account that is: (1) of a natural person or an account held in legal form on behalf of a natural person or group of related family members; and (2) in which the average daily number of trades executed in NMS stocks was less than 40 in each of the six preceding calendar months.189 The intent of the proposed definition was to encompass the marketable orders of individual investors that retail brokers currently route to wholesalers for handling and execution.190 Under those proposed rules, a ‘‘restricted competition trading center’’ would not be allowed to execute internally a segmented order for an NMS stock until after a broker or dealer has exposed such order to competition at a specified limit price in a ‘‘qualified auction’’ that met certain requirements and was operated by an ‘‘open competition trading center.’’ 191 If the Commission adopts the order competition rule proposal, a national securities exchange or NMS Stock ATS that serves as an open competition trading center and is required to prepare execution quality reports under Rule 605 would be required to include covered orders that it received for execution in a qualified auction within its blended execution quality statistics. Because of concerns that differences in execution quality for orders executed within proposed qualified auctions as compared to orders executed outside of these qualified auctions would not be apparent in blended execution quality statistics, the Commission proposed to amend Rule 605(a)(1) to state that market centers that operate a qualified auction must prepare a separate report under Rule 605 pertaining only to covered orders that the market center receives for execution in a qualified auction.192
2. Final Rule and Discussion
In this release, the Commission is not acting on the proposal to require separate Rule 605 reports for orders that a market center receives for execution from a qualified auction. The Commission received generally supportive comments from a variety of market participants, including individual investors, on this proposed amendment.193 Some industry commenters suggested that Rule 605 reports should distinguish between segmented and non-segmented orders, as described in the Order Competition Rule Proposing Release.194 The Commission is still considering the order competition rule proposal and the proposal to require separate Rule 605 reports for orders that a market center receives for execution in a qualified auction. Therefore, the qualified auctions contemplated by the Order Competition Rule Proposing Release do not exist as a place of execution at this time. Accordingly, in this release, the Commission is not acting on the proposed separate Rule 605 reporting requirement for orders a market center receives for execution in a qualified auction.
C. NMS Stock ATSs and SDPs

1. Proposed Approach
   Under Rule 605 prior to the amendments, firms that operate two separate markets must prepare separate Rule 605 reports for each market center.195 This requirement allows market participants to assess the execution quality of each market individually and prevents differences in the nature of each market from obscuring information about execution quality. The Commission proposed to specify in Rule 605(a)(1) that an NMS Stock ATS (as defined in Regulation ATS) 196 shall prepare reports separately from their broker-dealer operators to the extent such entities are required to prepare reports.197 The Commission also proposed to require in Rule 605(a)(1) that any market center that provides a separate routing destination that allows persons to enter orders for execution against the bids and offers of a single dealer shall produce a separate report pertaining only to covered orders submitted to such routing destination.198 This provision would have covered an SDP operated by a broker-dealer and required a separate report pertaining to those orders submitted to the SDP, allowing customers and other market participants to distinguish SDP activity from more traditional dealer activity.199
2. Final Rule and Discussion
   The Commission is specifying that NMS Stock ATSs must report separately from their broker-dealer operators, as proposed, and adopting a separate reporting requirement for SDPs largely as proposed. In each instance, separate reporting under Rule 605 will bring transparency to these segments of the OTC equity market. The Commission received generally supportive comments from a variety of market participants regarding having firms produce separate Rule 605 reports for NMS Stock ATSs and for SDPs.200 After considering the comments, and for the reasons discussed in the Proposing Release, the Commission is specifying

201Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) (‘‘2022 Regulation ATS/Definition of Exchange Proposing Release’’). The comment period was reopened on May 9, 2022, and ended on June 13, 2022:
Securities Exchange Act Release No. 94868 (May 9, 2022), 87 FR 29059 (May 12, 2022). The Commission reopened the comment period for the 2022 Regulation ATS/Definition of Exchange Proposing Release again in the 2023. See Securities Exchange Act Release No. 97309 (Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (‘‘2023 Regulation ATS/ Definition of Exchange Reopening Release’’). The 2023 Regulation ATS/Definition of Exchange Reopening Release provided supplemental information and economic analysis regarding trading systems that trade crypto asset securities that would be newly included in the definition of ‘‘exchange’’ under the proposed rules. See id. 202See letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, Samantha DeZur, Managing Director, Global Public Policy Group, BlackRock, Inc. (Mar. 31, 2023) (‘‘BlackRock Letter’’) at 4–5 (‘‘Unlike market centers, OEMSs only route orders based on explicit order handling direction provided by a user. . . . OEMSs would not have the necessary data—and are not structured in a manner—that would allow them to file Rule 605 reports.’’); Managed Funds Association Letter at 5– 6 (‘‘[I]t would be inappropriate for [OEMSs] to fall within the communication protocol systems definition. . . . [OEMSs], which are essentially software systems that help to facilitate and manage trade executions, do not have (and should not be required to develop) the operational capabilities to gather and disseminate information required by Rule 605 reports . . . due to [their] limited role.’’). 203See SIFMA Letter II at 28 (noting that the Commission provides no formal SDP definition); Rule 605 Citadel Letter at 7 (stating its views about the importance of clearly defining what constitutes an SDP). 204See Rule 605 Citadel Letter at 7 (recommending that the Commission review FINRA Regulatory Notice 18–28, and the comments submitted in response, to define ‘‘SDP’’ more precisely). 205 Id. at 7. 206 Id. at 8. 207 Virtu Letter II at 12–13. 208See Virtu Letter at 12. 209See supra note 207 and accompanying text. 210See section IX.D.2.a)(1) for a discussion of compliance costs related to expanding the scope of Rule 605 reporting entities. See also section IX.D.1.a)(2) for a discussion of the benefits of requiring separate Rule 605 reports for SDPs. 211See supra note 206 and accompanying text. the separate reporting requirement for NMS Stock ATSs as proposed. Two commenters requested clarification and confirmation that order and execution management systems (‘‘OEMSs’’) will not need to register as ATSs under the Commission’s proposal to amend the definition of ‘‘exchange’’ under 17 CFR 240.3b–16 (‘‘Rule 3b– 16’’) 201 and thus need not comply with Rule 605’s separate reporting requirement for NMS Stock ATSs.202 The Commission is still considering whether to adopt the proposed changes to the definition of ‘‘exchange’’ discussed in the 2022 Regulation ATS/ Definition of Exchange Proposing Release and
2023 Regulation ATS/ Definition of Exchange Reopening Release. Any need to comply with Rule 605’s separate reporting requirement under any future rulemaking is outside the scope of this rulemaking. An industry group and a broker-dealer requested additional clarity around what constitutes an SDP.203 The broker￾dealer suggested that the Commission avoid an over-inclusive definition of SDPs by focusing on the order types used by non-retail investors to interact with SDPs, such as immediate-or-cancel (‘‘IOC’’) orders and fill-or-kill orders (‘‘FOKs’’), while also capturing substantially similar trading activities to ensure a level playing field.204 This commenter stated that ‘‘the Commission should consider whether certain Rule 605 metrics may be unduly impacted by differences in SDP business models, rather than execution quality’’ (e.g., ‘‘a SDP that sends indications of interest (‘‘IOIs’’) to customers may have materially higher fill rates than a SDP that solely receives blind IOCs’’).205 This commenter further suggested that the Commission ‘‘conduct a more holistic review of the Rule 605 reports already produced by ATSs in order to determine whether any additional revisions are warranted in order to accurately report execution quality for non-retail orders’’ (e.g., ‘‘the definition of a ‘covered order’ may need to be amended in order to ensure that the Rule 605 reports are sufficiently comprehensive for non-retail orders’’).206 Another broker-dealer opposed the separate reporting requirement for SDPs, stating that it is ‘‘unnecessary to report these execution quality statistics separately, as users of SDPs are all sophisticated entities capable of carrying out their own execution quality measurements,’’ and thus the requirement ‘‘imposes an additional cost on SDPs without any clear benefit.’’ 207 After considering the comments, the Commission is adopting separate reporting for SDPs largely as proposed. The Commission acknowledges that SDPs have different business models and that SDPs that receive blind IOCs throughout the trading day (so-called ‘‘blind pinging’’) would likely have execution quality statistics that differ significantly from the statistics of SDPs that send out IOIs. Although a commenter raised concerns about potential differential impacts on Rule 605 metrics for SDPs with different business models,208 in the Commission’s experience SDPs largely receive institutional orders and therefore those market participants that send orders to SDPs generally are or represent sophisticated market participants that would likely be aware of and understand these differences in business models; thus these market participants can contextualize the Rule 605 reports appropriately. To the extent that OTC market makers operating SDPs think that additional context would help market participants understand their Rule 605 reports, these firms generally should consider whether to provide additional explanation on their websites about the nature of their
order flow and how it affects the particular SDP’s execution quality statistics. In response to one commenter’s statement that imposing a separate reporting requirement on SDPs lacks any clear benefit to justify the additional cost,209 these order flow differences highlight the transparency benefits that justify the costs of requiring OTC market makers operating SDPs to produce Rule 605 reports separate from their other trading activity.210 Otherwise, commingling SDP activity with other market center activity in Rule 605 reports may obscure differences in execution quality or distort the general execution quality metrics for the market center. Moreover, Rule 605’s description of what constitutes SDP activity for purposes of the separate reporting requirement will help ensure that the SDP-specific Rule 605 reports reflect comparable activity. In response to one commenter’s suggestion that the Commission consider revisions to Rule 605 ‘‘in order to accurately report execution quality for non-retail orders,’’ 211 no further changes to Rule 605 are necessary to accommodate reporting by SDPs. Prior to the amendments, market centers included non-retail orders in their Rule 605 reports, to the extent that such orders were held orders, and therefore the reporting requirement for SDPs will not represent the first time that market centers were required to report execution quality for non-retail orders. It is more appropriate in the context of Rule 605 to require the same metrics for all reporting entities. As discussed above, market participants that utilize SDPs generally understand nuances of different market centers. Further, the Commission is adopting a requirement that SDPs prepare Rule 605 reports separate from the Rule 605 reports of their associated broker-dealers so that their customers and market participants will be able to distinguish SDP activity from more traditional dealer activity and separately evaluate reporting firms’ execution quality with respect to each type of activity. It is not necessary for the achievement of this goal to make adjustments to the scope of Rule 605 to

212 In response to the commenter’s suggestion that the Commission consider FINRA Regulatory Notice 18–28 to define ‘‘SDP’’ more precisely (see supra note 204), the Commission observes that FINRA requested comment on a definition of SDP but did not propose or adopt a definition. See FINRA Regulatory Notice 18–28. 213A dealer is defined in Exchange Act section 3(a)(5), 15 U.S.C. 78c(a)(5). 214Final 17 CFR 242.605(a)(1). Compare final 17 CFR 242.605(a)(1) with proposed Rule 605(a)(1) (‘‘Any market center that provides a separate routing destination that allows persons to enter orders for execution against the bids and offers of a single dealer shall produce a separate report pertaining only to covered orders submitted to such routing destination.’’). SDPs are a type of market center as defined in Regulation NMS Rule 600(b)(55) because the description of an SDP in the adopted amendments to Rule 605 includes the term ‘‘OTC market maker’’ and the definition of ‘‘market center’’ lists OTC market maker as one of the included entities. See final 17 CFR 242.600(b)(55). Therefore, as a general matter, SDPs are a type of market center and, as such, are within the scope of Rule 605 reporting entities without reference to the 100,000 customer account threshold. 215See final 17 CFR 242.600(b)(55) (defining ‘‘market center’’ to mean any exchange market maker, OTC market maker, ATS, national securities exchange, or national securities association). Compare final 17 CFR 242.600(b)(75) (defining ‘‘OTC market maker’’ to mean any dealer that holds itself out as being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a regular and continuous basis otherwise than on a national securities exchange in amounts of less than a block size). 216Unlike an ATS, on an SDP the broker-dealer operator is the only counterparty to any trade that occurs on the SDP. See, e.g., Where Do Stocks Trade?, FINRA.org (Sep. 28, 2023), available at https://www.finra.org/investors/insights/where-do￾stocks-trade#::text=The%20most%20familiar %20type%20of,in%20popularity%20in %20recent%20years. In contrast, an ATS meets the criteria of 17 CFR 240.3b–16(a) and ‘‘brings together the orders for securities of multiple buyers and sellers.’’ 217See Rule 605 Citadel Letter at 7. 218See final 17 CFR 242.605(a)(1). 219NMS Stock ATSs may offer counterparty selection or certain segmentation profiles that allow a single participant to interact with one or certain counterparties. Form ATS–N requires public disclosures about these aspects of an NMS Stock ATS. See Form ATS–N, Part III, Items 13 and 14. An NMS Stock ATS that permits a subscriber to use its counterparty selection or segmentation procedures to trade with only one subscriber or a certain subset of subscribers can be required, depending on its operations and arrangement with the subscriber, to disclose additional information in response to other requirements of the Form ATS– N. These
disclosures can include, among others,
Part II, Item 2 (Affiliates Trading Activities on
ATS), Part II, Item 4 (Arrangements with Trading Centers), Part III, Item 7 (Order Types and Attributes), Part III, Item 11 (Trading Services, Facilities, and Rules), and Part III, Item 18 (Fees). 220See, e.g., 17 CFR 242.301(b)(3) (containing requirements for ATSs pertaining to order display and execution access); 17 CFR 242.301(b)(5) (containing requirements for ATSs that have a significant percentage of overall trading volume in a security or category of securities during a certain period of time to comply with fair access requirements, which include, among other things, that the ATS establish written standards for granting access to trading on the ATS and not unreasonably prohibit or limit access by applying those access standards in an unfair or discriminatory manner). 221See final 17 CFR 242.605(a)(1) (defining an SDP as a trading system for only a single dealer to solely buy and sell securities against ‘‘all other persons entering orders in that system’’). 222See SIFMA Letter II at 28 (posing the following interpretive questions to distinguish between OTC market makers and SDPs: (1) ‘‘Is the Commission suggesting that an SDP is a type of OTC market maker and therefore a market center?’’; (2) ‘‘Would an SDP be considered an OTC market maker for purposes of any other rule?’’; (3) ‘‘Is the Commission assuming that an SDP only accepts IOC orders?’’; (4) ‘‘Under what circumstances can an SDP be considered to be embedded within an ATS (such as when an SDP can be specifically targeted within an ATS by IOC or FOK orders)?’’; (5) ‘‘Would SDP activity include orders received from both a client (whether or not a broker-dealer) and from internal smart order routers?’’). include more non-retail orders because the amendments to Rule 605 address this separation of SDPs’ execution quality statistics. The Commission also agrees with the two commenters regarding the need for additional clarity around the scope of entities that are SDPs for purposes of Rule 605. After considering commenter suggestions,212 the Commission is replacing the proposed description of what type of broker-dealer activity constitutes SDP activity for purposes of the separate SDP reporting obligation. In its place, the Commission is adopting a modified description of SDP activity that states: ‘‘Any OTC market maker that provides a trading system for only a single dealer 213 to solely buy and sell securities against all other persons entering orders in that system shall produce a separate report pertaining only to covered orders entered in such trading system.’’ 214 Specifically, the Commission’s modified SDP description contains two substantive changes to the proposed SDP description. First, the Commission is replacing the term ‘‘market center’’ with the term ‘‘OTC market maker’’ because the term ‘‘market center’’ would have been overbroad. ‘‘Market center’’ includes an ATS, national securities exchange, or national securities association, none of which can be a single dealer.215
Second, the Commission is replacing ‘‘separate routing destination’’ with ‘‘trading system’’ to focus on the activity that occurs on SDPs and adding ‘‘only’’ before ‘‘a single dealer’’ to clarify that the trading system offered will not be for multiple dealers and instead will be limited to one dealer.216 A broker-dealer recommended that the Commission clarify: (i) the circumstances in which an SDP can be considered to be embedded within an ATS (e.g., by constituting a separate tier within an ATS that can be specifically targeted by IOC or FOK orders), and (ii) whether SDP activity includes orders received from both the client (whether a broker-dealer or not) and from internal smart order routers.217 First, executions that occur on or through an NMS Stock ATS are attributable to that NMS Stock ATS and covered orders received for execution on or through an ATS must be included in the Rule 605 report pertaining to the ATS rather than on a separate Rule 605 report.218 Therefore Rule 605 reporting requirements are not dependent on whether ‘‘an SDP [could] be considered to be embedded within an ATS.’’ The Commission understands that certain NMS Stock ATSs offer counterparty selection and segmentation procedures that may allow the orders of a particular participant to interact with the orders of only a subset of participants, and in this respect trading activity that occurs on certain NMS Stock ATSs may resemble trading activity that occurs on SDPs.219 Providing separate Rule 605 reports for SDP-like activity on ATSs would not be practicable given the lack of uniformity among NMS Stock ATSs’ operations, particularly their counterparty and segmentation procedures. Another factor that could decrease comparability across reports if they were divided, as suggested by the commenter, is that trading activity on an NMS Stock ATS occurs within the context of regulatory requirements specific to NMS Stock ATSs.220 In contrast, SDPs (as defined for purposes of Rule 605) operate as broker-dealer trading systems that are not ATSs and thus that are not subject to ATS regulatory requirements. Given the differences in operations and regulatory requirements between the types of trading systems, which affect order interaction and execution, the execution quality statistics for SDP-like trading activity occurring on ATSs could significantly vary in a manner that differs from the variation in execution quality statistics among SDPs, thereby reducing the utility of comparing execution quality statistics for trading activity occurring on SDPs. Second, SDP activity includes orders received from both a client (whether or not a broker-dealer) and internal smart order routers. Orders received from internal smart order routers are included in Rule 605 reports specific to SDPs because the determination that a trading system is an SDP for purposes of Rule 605 reporting requirements depends on the type of trading system that receives the orders and the single dealer counterparty
that interacts with the orders that the system receives.221 An industry group asked specific questions about how to distinguish between OTC market making and SDP activities in Rule 605 reports.222 The

223See supra note 214.
224See prior 17 CFR 242.605(a)(1); final 17 CFR 242.605(a)(1). See supra note 4. 225 ‘‘Regular trading hours’’ is defined as the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other time as is set forth in the procedures established pursuant to 17 CFR 242.605(a)(3). See final 17 CFR 242.600(b)(88). 226See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75421 (Dec. 1, 2000). 227See id. 228See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). The Commission proposed to revise the definition of ‘‘categorized by order type’’ to include executable NMLOs and executable orders submitted with stop prices. See id. at 3804, n. 227; proposed Rule 600(b)(20). The Commission also proposed to expand the definition of ‘‘covered order’’ to cover NMLOs received by a market center or broker-dealer outside of regular trading hours or when an NBBO is not being disseminated and, if executed, executed during regular trading hours. See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023); proposed Rule 600(b)(30). 229See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). Specifically, the Commission proposed that an order received at a time when a national best bid and national best offer is not being disseminated would be a marketable limit order if it is a buy order with a limit price equal to or greater than the national best offer at the time that the national best offer is first disseminated during regular trading hours after the time of order receipt, or if it is a sell order with a limit price equal to or less than the national best bid time at the time that the national best bid is first disseminated during regular trading hours after the time of order receipt. See id.; proposed Rule 600(b)(57). 230See Proposing Release, 88 FR 3786 at 3804– 05 (Jan. 20, 2023); proposed Rule 600(b)(30). The Commission stated that, pursuant to the proposed amendments to Rule 605, NMLOs (including orders submitted with stop prices) received outside of regular trading hours or at a time when an NBBO is not being disseminated would have been considered covered orders, provided the NMLOs were not executed outside of regular trading hours. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 231See letter from Annette L. Nazareth, Director, Division of Market Regulation to Theodore Karn, President, Market Systems, Inc., dated June 22, 2001 (‘‘Market Systems Exemptive Letter’’) at 2. The Commission proposed to rescind the Opening Exemption. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 232See Proposing Release, 88 FR 3786 at 3804 (Jan. 20, 2023). 233See id. at 3805. Commission provides the following responses. First, Rule 605(a), as adopted, defines the separate Rule 605 reporting obligation as applying to any OTC market maker that provides a separate trading system that meets specified criteria; therefore, as it pertains to Rule 605 reporting, any SDP required to prepare Rule 605 reports will be a type of OTC market maker and therefore a market
center.223 Second, the Commission is not changing the definition of ‘‘OTC market maker’’ in Rule 600. Thus, any other rule that refers to an ‘‘OTC market maker’’ will utilize the same definition in Rule 600. Third, the Commission is not assuming that an SDP accepts only IOC orders. As such, an SDP is not limited to accepting or receiving a particular type of covered order for execution. Fourth, as described above, although a subscriber’s activity on an NMS Stock ATS may resemble SDP activity, the trading activity occurs on the ATS and thus is attributable to the ATS for purposes of Rule 605 reporting requirements. Fifth, as described above, SDP activity includes orders received from both a client (whether or not a broker-dealer) and from internal smart order routers.
III. Modifications to Scope of Orders
Covered and Required Information The reports required by Rule 605(a)(1) prior to these amendments grouped orders by both order size and order type and included certain standardized execution quality metrics for all types of orders, as well as additional metrics for market orders and marketable limit orders. For all reporting entities, including larger broker-dealers, the Commission proposed to: (1) modify the order size and order type groupings; and (2) make changes to the required information for all types of orders, market and marketable limit order types, and non-marketable order types. The Commission is adopting the proposed changes to Rule 605 largely as proposed, with certain modifications discussed below. Section III.A. describes the ways in which the Commission is modifying its proposed definition of ‘‘covered order’’ in the adopted amendments. Section III.B. describes the modifications that the Commission is making to the information contained in the detailed execution quality reports required by Rule 605(a)(1), including how orders are categorized by size and type, the timestamp conventions, and which execution quality statistics are included. A. Covered Order The scope of Rule 605’s reporting requirements is limited to covered orders.224 The Commission proposed expanding the definition of ‘‘covered order’’ to include: (1) certain orders received outside of regular trading hours; and (2) orders submitted with stop prices. The Commission also addressed whether non-exempt short sale orders would be covered orders when a price test restriction is in effect for the security.

1. Orders Submitted Pre-Opening/Post￾Closing
   (a) Proposed Approach
   Prior to these amendments, Rule 605 reports were required to include only orders received during regular trading hours 225 at a time when an NBBO is being disseminated. When the Commission adopted Rule 11Ac1–5, the Commission excluded orders submitted during the pre-opening or after the close, among other order types, from the scope of reporting because nearly all of Rule 605’s statistical measures required the availability of the NBBO at the time of order receipt as a benchmark.226 Similarly, orders for which customers requested special handling, including orders to be executed at a market opening price, were excluded from Rule 605 reports because of a concern that their inclusion would skew the general statistics.227 In the Proposing Release, the Commission proposed to: (1) expand the scope of Rule 605 reporting to include certain NMLOs submitted outside of regular trading hours if they become executable after the opening or reopening of trading during regular trading hours; 228 (2) amend the definition of ‘‘marketable limit order’’ to specify that the marketability of an order received when the NBBO is not being disseminated would be determined using the NBBO that is first disseminated after the time of order receipt; 229 and (3) exclude from Rule 605 reports market or limit orders received during regular trading hours at a time when an NBBO is being disseminated but prior to the dissemination of the primary listing market’s first firm, uncrossed quotations for a trading day (‘‘Opening Exemption’’),230 thereby incorporating previously granted exemptive relief into the proposed definition of ‘‘covered order.’’ 231 The Commission’s proposed definition of ‘‘covered order’’ would have excluded market orders and marketable limit orders submitted prior to open or during a trading halt; therefore, any limit order received outside of regular trading hours or during a trading halt that is marketable based on the first disseminated NBBO during regular trading hours after the time of order receipt would not have been a covered order for purposes of Rule 605.232 Additionally, the Commission proposed amending Rule 605(a)(1) to require a market center, broker, or dealer to include in its monthly report, in addition to the covered orders in NMS stocks that it received for execution from any person, those covered orders in NMS stocks that it received for execution in a prior calendar month but which remained open.233

234See final 17 CFR 242.600(b)(19) (defining ‘‘categorized by order type’’). 235As discussed further below, the Commission is making additional modifications to this order type category and renaming the associated definition as ‘‘midpoint-or-better limit order.’’ See infra section III.B.2.b). 236See final 17 CFR 242.605(a)(1). 237See, e.g., Pritchard Letter; letter from Dan Liefwalker (Mar. 7, 2023); Macarthur Letter; Genco Letter; Varghese Letter; letter from Jeremy B. Beddo (Mar. 30, 2023) (‘‘Beddo Letter’’). 238See Joy Letter. However, an individual investor who opposed the proposal stated that including as covered orders certain orders submitted outside of regular trading hours (as well as certain orders submitted with stop prices) ‘‘could make it difficult for retail investors to place orders at the best possible price’’ and ‘‘[t]his could lead to retail investors being left with less favorable prices and missing out on potential gains in the dark markets.’’ Letter from Jacob Gillmore (Feb. 24, 2023) (‘‘Gillmore Letter’’). It is not clear—and the commenter does not explain—how including orders submitted outside of regular trading hours in Rule 605 reports could make it difficult for retail investors to place orders at the best possible price. 239See Virtu Letter II at 3. 240Schwab Letter II at 32. 241 Id. 242See Nasdaq Letter at 43, text accompanying n.121. 243See Healthy Markets Letter at 17. This commenter’s suggestion of when Rule 605 should be in effect is consistent with the definition of ‘‘regular trading hours.’’ See final 17 CFR 242.600(b)(88) (‘‘Regular trading hours means the time between 9:30 a.m. and 4 p.m. Eastern Time, or such other time as is set forth in the procedures established pursuant to § 242.605(a)(3).’’) This commenter did not address whether to include certain orders submitted outside of regular trading hours but executed during regular trading hours within the scope of Rule 605’s reporting requirements as proposed. 244See FIF Letter at 8. 245See id. at 7. 246See id. at 8. 247As discussed below, the Commission also is rescinding a portion of the Market Systems Exemptive Letter and updating a related staff FAQ. See infra section VI. 248See supra note 240 and accompanying text. 249See supra note 230 and accompanying text. 250See Proposing Release, 88 FR 3786 at 3804– 05 (Jan. 20, 2023). 251See id. at 3804. (b) Final Rule and Discussion The Commission is adopting as proposed an expansion to the scope of Rule 605 reporting to include NMLOs submitted outside of regular trading hours that become executable after the opening or reopening of trading during regular trading hours.234 The Commission is adopting the definition of ‘‘covered order’’ as it relates to orders submitted outside of regular trading hours largely as proposed, but with a modification to accept a commenter’s recommendation as discussed below. The Commission is similarly modifying the proposed definitions of ‘‘executable,’’ ‘‘marketable limit order,’’ and
‘‘beyond-the-midpoint limit order’’ 235 to accommodate this modification. Further, the Commission is adopting as proposed the requirement for a market center, broker, or dealer to include in its monthly report those covered orders in NMS stocks that it received for execution in a prior calendar month but which remained open.236 Generally, individual investors supported including certain orders submitted outside of regular trading hours within the scope of covered orders.237 One individual investor who supported the proposed change stated that after-market and pre-market trades play a greater role today than ever before, with many of the price changes occurring during these times rather than during market hours.238 A broker-dealer supported the inclusion of pre-market orders in Rule 605 reports, stating these orders (along with other included order types) would provide investors with a more complete picture of order execution quality across the marketplace.239 Another commenter stated that NMLOs entered outside of ‘‘normal hours’’ should not be included because ‘‘these will likely skew the statistics.’’ 240 Specifically, this commenter stated that frequently the first quote after opening is wide and not representative of the quote when the primary exchange opens, and many orders deemed NMLOs by this benchmark would likely fill as soon as the primary exchange opens. Therefore, according to this commenter, ‘‘including these orders will skew the NMLO stats and lead to difficult comparisons between brokers.’’ 241 A national securities exchange supported inclusion of certain orders submitted outside of regular trading hours within the definition of ‘‘covered order.’’ 242 An investor advocacy group recommended that Rule 605 run from primary market open to primary market close (e.g., 9:30 a.m. to 4 p.m. eastern standard time).243 An industry group stated that the proposed definition of ‘‘covered order,’’ in the context of NMLOs, does not address orders received during regular trading hours but prior to the primary listing market disseminating its first firm, uncrossed quotations in a security (referred to herein as the ‘‘interim opening period’’).244 This commenter recommended that the demarcation point for whether an order should be treated as a pre-open (or post-close) order or an order received during regular trading hours should be the point at which the primary listing market disseminates its first firm, uncrossed quotations for the applicable security.245 To address orders received during the interim opening period, this commenter recommended that the Commission change each of the references to the ‘‘time when a national best bid and national best offer is being disseminated’’ in the proposed definitions of ‘‘marketable limit order’’ and ‘‘beyond-the-midpoint limit order’’ to reflect not only that a national best bid and national best offer has been disseminated but also that the primary market has disseminated its first firm, uncrossed quotations
for the security.246 After a review of the comments, for the reasons discussed in the Proposing Release and discussed below, the Commission is adopting the definition of ‘‘covered order,’’ along with other changes addressing the expansion of the scope of Rule 605 to include certain orders received outside of regular trading hours, largely as proposed.247 However, in response to comments, the Commission is making several modifications that address the treatment of orders received during the interim opening period. As discussed below, these changes help address the concerns of one of the commenters that the inclusion of NMLOs entered outside of normal hours in Rule 605 reports would skew the reported execution quality statistics.248 When proposing to incorporate the exemptive relief contained in the Opening Exemption 249 into the definition of ‘‘covered order’’ with respect to market or limit orders received during regular trading hours at a time when an NBBO is being disseminated, the Commission recognized that quotations disseminated prior to a primary listing market disseminating its first quotations in a security often reflect spreads that vary significantly from the norm and intended that the proposed changes to the definition would prevent such quotations from skewing execution quality statistics.250 In proposing to expand the scope of Rule 605 reporting requirements to include certain NMLOs submitted outside of regular trading hours if they become executable during the opening or reopening of trading during regular trading hours, the Commission intended to provide increased visibility into the execution quality for individual investor orders.251 The Commission agrees with the commenter who recommended additional changes to the definition of ‘‘covered order’’ (along with related changes to the definitions of ‘‘marketable limit order’’ and ‘‘beyond￾the-midpoint limit order’’) and stated that treating orders received during the interim opening period in the same manner as orders received outside of

252See FIF Letter at 7–8.
253See final 17 CFR 242.600(b)(27).
254See final 17 CFR 242.600(b)(39).
255The Commission proposed to measure the time to execution for non-marketable orders from the time such orders become executable. See infra
section III.B.3.
256An NMLO (including orders submitted with stop prices) that executes during the interim opening period (including an NMLO that executes at the opening of the primary listing market) will not have the opportunity to meet the definition of executable; therefore, such an order will not be included in a Rule 605 report because the reports required by Rule 605(a)(1) include only NMLOs that are executable. See final 17 CFR 242.600(b)(39). This treatment of an NMLO that executes during the interim opening period will be similar to the treatment of an NMLO that executes outside of regular trading hours and will similarly prevent order executions where quotations may vary significantly from the norm from skewing execution quality statistics. See section III.A.2.b) infra for additional discussion of orders submitted with stop prices and section III.B.2.a)(2) infra for additional discussion of the defined term ‘‘executable.’’ 257See final 17 CFR 242.600(b)(56). 258As discussed further below, the Commission is making additional modifications to this order type category and renaming the proposed term ‘‘beyond-the-midpoint limit order’’ to be ‘‘midpoint-or-better limit order.’’ See infra section III.B.2.b). 259See final 17 CFR 242.600(b)(57). 260See id. 261See prior 17 CFR 242.600(b)(22). Generally, an order submitted with a stop price may become either a market order or a limit order when the offer (bid) reaches the stop price for a buy (or sell) order or the security trades at or above (or below) the stop price for a buy (or sell) order. regular trading hours will be consistent with the Commission’s stated objectives.252 Accordingly, the Commission is adopting a definition of ‘‘covered order’’ that scopes in any NMLO (including an order submitted with a stop price) that is received by a market center, broker, or dealer at a time before the primary listing market has disseminated its first firm, uncrossed quotations in the security and that, if executed, is executed during regular trading hours.253 The ‘‘covered order’’ definition, as proposed and as the Commission is adopting, does not include within its scope those market orders and marketable order types received outside of regular trading hours. Keeping market and marketable limit orders received during the interim opening period outside the scope of covered orders is consistent with how these orders are treated when received outside of regular trading hours. The changes to the definition of ‘‘covered order,’’ together with the modifications to the definition of ‘‘executable’’ and ‘‘marketable limit order’’ discussed below, will help ensure that an order received or executed during the interim opening period will be treated in the same manner as any other order received or executed pre-open or post￾close. The Commission is also adopting a modified version of the proposed definition of ‘‘executable’’ that specifies that whether an NMLO is executable will be determined based on the order’s limit price
during regular trading hours and after the primary listing market has disseminated its first firm, uncrossed quotations in the security.254 Under the definition of ‘‘executable’’ as proposed, an NMLO (including an order submitted with a stop price) received during the interim opening period would have had the possibility of becoming executable before the primary listing market has disseminated its first firm uncrossed quotations in the security. During this interim opening period, quotations and execution prices may be less representative of the value of the security than during the rest of regular trading hours because, as stated above, quotations disseminated prior to a primary listing market disseminating its first quotations in a security often reflect spreads that vary significantly from the norm during regular trading hours. Therefore, a scenario in which an NMLO becomes executable (as defined in the proposal) during the interim opening period led to two potential ways in which including these orders could skew execution quality statistics. First, if the NMLO executed during the interim period (including at the opening of the primary listing market), that order would have been included in reports required pursuant to proposed Rule 605(a)(1) as an NMLO that became executable and executed during regular trading hours. Second, the benchmark that would have been used for those statistics to measure from the time that an order becomes executable 255 would have been a quotation price from the interim opening period. The modification to the proposed definition of ‘‘executable’’ that the Commission is adopting addresses both concerns. Pursuant to the adopted rule, an NMLO (including an order submitted with a stop price) received during regular trading hours will not have the possibility of being considered executable until after the primary listing market has disseminated its first firm, uncrossed quotations in the security.256 Further, the benchmark used for those statistics that are measured from the time that an order becomes executable will be measured from a point in time that is after the primary listing market has disseminated its first firm, uncrossed quotations in the security. These changes to the final rule will help to prevent the potential skewing of execution quality statistics caused by reliance on quotations from the interim opening period, and thereby increase the comparability of Rule 605 reports. In addition, the Commission is revising the proposed definition of ‘‘marketable limit order’’ so that, with respect to an order received at a time when the NBBO is being disseminated but before the primary listing market has disseminated its first firm, uncrossed quotations in the security (i.e., during the interim opening period), whether the order is a marketable limit order will be determined from the time that the primary listing market disseminates its first firm, uncrossed quotations in the security.257 This change will move the
determination of whether an order is a marketable limit order or a NMLO to a time when the NBBO is more representative of the security’s price than may be the case during the interim opening period. The Commission is also modifying the definition of ‘‘midpoint-or-better limit order’’ from the proposed definition 258 in a similar manner so that the price used to determine whether an order is a midpoint-or-better limit order will be more representative of the security’s price. The definition that the Commission is adopting specifies that, for orders received when an NBBO is being disseminated and the primary listing market has disseminated its first firm, uncrossed quotations in the security (i.e., after the interim opening period), whether the order is a midpoint or better limit order will be determined based on the time of order receipt.259 The adopted definition also specifies that, for orders received at a time when the NBBO is being disseminated but before the primary listing market has disseminated its first firm, uncrossed quotations in the security (i.e., during the interim opening period), whether the order is a midpoint-or-better limit order will be determined from the time that the primary listing market disseminates its first firm, uncrossed quotations in the security.260 These changes also will help to prevent skewing of execution quality statistics and thereby increase the comparability of Rule 605 reports.
2. Stop Orders
(a) Proposed Approach
Orders submitted with stop prices were not included in Rule 605 reports prior to these amendments because the definition of ‘‘covered order’’ excluded orders with special handling instructions, including orders submitted with stop prices.261 The Commission

262See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023); proposed Rule 600(b)(30). 263See Proposing Release, 88 FR 3786 at 3805, 3810, n.302 (Jan. 20, 2023); proposed Rule 600(b)(42). 264See Proposing Release, 88 FR 3786 at 3805, n.241 (Jan. 20, 2023); proposed Rule 600(b)(20). 265See Macarthur Letter; Cesar Letter; Genco Letter; Varghese Letter. See also supra note 238 (discussing Gillmore Letter, which relates to whether to include as covered orders certain orders submitted outside of regular trading hours and orders submitted with stop prices). 266See Nasdaq Letter at 44. 267See Virtu Letter II at 3. 268Rule 605 Citadel Letter at 12. 269Schwab Letter III at 5–6. 270 Id. at 6. According to this commenter, the most common other trigger condition on a sell stop is the bid, but very rarely do equity sell stop orders trigger off the ask. See id. 271See FIF Letter at 9, 12. This commenter stated that it was using the term ‘‘stop order’’ in a manner consistent with the Commission’s usage of the term in the Proposing Release. See id. at 9. This commenter stated that it used ‘‘stop order’’ to include stop orders and stop limit orders, as those terms are defined in FINRA Rule 5350, but also included orders that are triggered upon the stop price matching (or passing) a quoted price, in addition to those orders triggered upon the stop price matching (or passing) a trade price, and trailing stop orders. See id. 272See id. at 9–11. 273See id. at 10, 11–12. This commenter stated that the terms ‘‘triggered’’ and ‘‘activated’’ are used interchangeably in FINRA Rule 5350, Supplementary Material .01 and .02 and that the commenter considers these terms to have the same meaning as applied to stop orders. See id. at 10 & n.25. This commenter also stated that its members do not believe that it would be necessary for the Commission to define ‘‘triggering’’ or ‘‘activation’’ because this concept for a stop order is well￾understood by industry members and regulators. See id. at 11. See also FIF Letter II at 2. Further, this commenter stated that a material percentage of stop orders are triggered based on a change in the NBBO (in most cases, but not always, the opposite￾side quote) and a material percentage of stop orders are triggered based on a change in the last sale price. See id. 274See FIF Letter at 10. 275See final 17 CFR 242.600(b)(39). The addition of the reference to the interim opening period is discussed in section III.A.1.b) supra. 276The Commission’s analysis of stop order volume demonstrates that most stop orders are triggered by the last sale price, but there is also nontrivial order flow associated with other trigger events, including changes to the quotation. See infra text accompanying note 1167; Table 3. 277Although the Commission is not adopting a commenter’s suggestion to use the term ‘‘triggered’’ or ‘‘activated’’ instead of ‘‘executable’’ when used in connection with stop orders (see supra note 273 and accompanying text), redefining
‘‘executable’’ to mean that an order’s stop price has been triggered during regular trading hours will have the same substantive effect. 278See supra note 274 and accompanying text. In addition, revising the definition of ‘‘executable’’ to focus on when a stop order has been triggered is consistent with the Commission’s goal of helping investors compare the performance of market centers and broker-dealers from a point in time proposed to remove this exclusion and measure the execution quality of orders submitted with stop prices from the time such orders become executable.262 As part of the proposed definition of ‘‘executable,’’ the Commission specified that executable means, for any buy order submitted with a stop price, that the stop price is equal to or greater than the national best bid during regular trading hours, and, for any sell order submitted with a stop price, that the stop price is equal to or less than the national best offer during regular trading hours.263 In addition, the Commission proposed to modify the definition of ‘‘categorized by order type’’ to add executable orders submitted with stop prices as a separate order type category.264 (b) Final Rule and Discussion The Commission is adopting the definition of ‘‘covered order’’ as proposed to include orders submitted with stop prices within the scope of Rule 605. However, the Commission is modifying the proposed definition of ‘‘executable’’ as it pertains to orders submitted with stop prices in response to recommendations from commenters. Additionally, the Commission is modifying the proposed definition of ‘‘categorized by order type’’ to include separate categories for executable market orders submitted with stop prices, executable marketable limit orders submitted with stop prices (‘‘executable stop marketable limit orders’’), and executable non-marketable limit orders submitted with stop prices (‘‘executable stop non-marketable limit orders’’ or ‘‘executable stop NMLOs’’), in response to comments. As part of adding these separate stop order categories, the Commission is also adding new definitions of ‘‘executable stop marketable limit order’’ and ‘‘executable stop non-marketable limit order.’’ Individual investors generally supported including certain orders submitted with stop prices within the definition of ‘‘covered order.’’ 265 A national securities exchange supported inclusion of orders submitted with stop prices within the definition of ‘‘covered order.’’ 266 One broker-dealer supported the inclusion of executable stop orders as an order type.267 Another broker-dealer supported including stop orders, but stated that there are many different types of stop orders. This commenter stated that, ‘‘rather than attempting to define what constitutes a trigger and its corresponding reference market for purposes of determining whether and how a stop order is included within Rule 605, it would be preferable to simply require that all stop orders that are triggered be included in
Rule 605 reports to the extent that the resulting market or limit order is a covered order.’’ 268 Another commenter stated that the definition of executable stop order ‘‘runs counter to how stop orders actually become executable.’’ 269 According to this commenter, while FINRA Rule 5350 defines a stop order as ‘‘an order to buy (or sell) that becomes a market order to buy (or sell) when a transaction occurs at or above (below) the stop price,’’ broker-dealers may elect to trigger a stop order in a different fashion but are prevented from calling it a ‘‘stop order.’’ 270 An industry group suggested that the Commission and FINRA adopt consistent usage of the term ‘‘stop order’’ and other relevant terms because the proposed definition is inconsistent with the terminology in FINRA Rule 5350 in a number of respects.271 The commenter stated that stop orders should be reported separately from other types of orders, but suggested that the Commission modify the criteria for when to include stop orders in Rule 605(a)(1) reports and expand the order type categories related to stop orders.272 This commenter recommended that stop orders become reportable if the order is ‘‘triggered’’ or ‘‘activated’’ and that an alternate term along these lines be used instead of ‘‘executable.’’ 273 According to this commenter, requiring reporting pursuant to Rule 605 ‘‘with respect to any time period prior to the triggering of a stop order would provide no value to market participants and would provide misleading information to the market’’ because there is no action that a firm can take to execute a stop order prior to the point when the order is triggered.274 After review of the comments, the Commission is adopting a modified definition of ‘‘executable’’ as it pertains to orders submitted with stop prices. As adopted, ‘‘executable,’’ with respect to orders submitted with stop prices, means that the stop price has been triggered during regular trading hours and after the primary listing market has disseminated its first firm, uncrossed quotations in the security.275 As stated by commenters, orders may be submitted with stop prices that trigger or activate based on different conditions, such as a last sale price or a change in the NBBO.276 The definition of ‘‘executable’’ that the Commission is adopting will more broadly encompass the different conditions that may convert an order with a stop price into an order that may execute.277 Additionally, this change addresses a commenter’s suggestion by preventing stop orders from being executable before they have been triggered.278

when such orders could reasonably be expected to execute. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). 279See Schwab Letter III at 5–6. This commenter raised, but did not recommend, an alternative approach. See infra note 282 and accompanying text. 280See FIF Letter at 10–11. Specifically, this commenter suggested the following new order type categories for limit orders with a stop price: (a) stop marketable limit order for an order that is a marketable limit order at the trigger time; (b) stop beyond-the-midpoint limit order for an order that is a beyond-the-midpoint limit order at the trigger time; and (c) stop executable NMLO for an order that is an NMLO at the trigger time. See id. This commenter also stated that a material percentage of stop orders have a limit price and a material percentage of stop orders do not have a limit price. See FIF Letter II at 2. 281See FIF Letter at 9; FIF Letter III at 4. 282Schwab Letter III at 6. This commenter did not recommend this approach because, according to the commenter, it would ‘‘create increased complexity with little benefit for the individual investor.’’ Id. The Commission disagrees. The Commission continues to believe that including stop orders within the scope of the Rule will benefit market participants by allowing them to analyze variations in execution quality. See Proposing Release, 88 FR 3786 at 3805 (Jan. 20, 2023). Moreover, stop orders make up a nontrivial percentage of orders from individual investors. See infra Table 3. 283See infra note 1387 and accompanying text. 284See final 17 CFR 242.600(b)(19). 285See final 17 CFR 242.600(b)(40) and (41). 286See final 17 CFR 242.605(a)(1)(i), (ii), and (iii). 287 In addition, the Commission’s analysis of stop order volume shows that there is a significant volume of stop orders with and without limit prices. See infra Table 3 (showing that stop orders placed by institutional investors are 36.1% market orders and 63.9% limit orders, and stop orders placed by individual investors are 89.0% market orders and 11.0% limit orders). These results are consistent with the commenter who stated that a material percentage of stop orders have a limit price and a material percentage of stop orders do not have a limit price. See FIF Letter II at 2. A commenter suggested that Rule 605 reports should exclude stop orders to ‘‘avoid confusion’’ and allow firms to disclose the relevant details to their clients in a manner consistent with the clients’ trading experience.279 However, such disclosures would not be an adequate substitute because they would not be required, might not be provided in a uniform format, and might not be available to market participants that are not clients of a particular firm, all of which would impede market participants’ ability to compare statistics across firms. An industry group recommended that:
(1) once a stop order without a limit price has been triggered, the order should be reported as a stop market order; and (2) once a stop limit order has been triggered, the order should be reported in one of several new order type categories based on the status of the order at the time the order is triggered.280 This commenter further suggested that, for purposes of representing all of these order type categories, the Commission should add a column to Rule 605(a)(1) reports to indicate whether the applicable row pertains to stop orders.281 A commenter that recommended excluding stop orders from Rule 605 reports stated that ‘‘stop orders can have at least three distinct behaviors after they are triggered—market order, marketable limit order, and nonmarketable limit order’’ and suggested that a ‘‘more transparent way to include these orders would be to create three separate categories of stop orders reflecting these triggers.’’ 282 In consideration of these comments, the Commission is modifying Rule 605’s treatment of stop orders from the proposal to split executable stop orders into three categories—executable market orders submitted with stop prices, executable stop marketable limit orders, and executable stop NMLOs—based on the stop orders’ status at the time that they are triggered. Separating executable stop orders into these three categories will group orders with similar execution profiles.283 To implement these changes to the treatment of stop orders, the Commission is: (1) modifying the proposed definition of ‘‘categorized by order type’’ to replace the category for executable orders submitted with stop prices with categories for executable market orders submitted with stop prices, executable stop marketable limit orders, and executable stop non￾marketable limit orders; 284 (2) adding new defined terms of ‘‘executable stop marketable limit order’’ and ‘‘executable stop non-marketable limit order;’’ 285 and (3) modifying the execution quality statistics required for stop orders to align the three categories of stop orders with the type of order they most resemble once triggered.286 In response to comments received, the Commission conducted a supplemental analysis of the distribution of stop orders that fell into six existing order type categories once triggered using a sample of CAT data for 400 stocks for March 2023. The results are presented in Table 1 and show that the majority of orders submitted with a stop price that trigger are market orders when triggered (almost 86%). However, a significant percentage of orders submitted with a stop price that trigger are limit orders.287

288See final 17 CFR 242.600(b)(40) and (41). Measurement of the execution quality of an executable stop marketable limit order and an executable stop non-marketable limit order begins when the stop price is triggered because that is the point in time at which customers generally expect such orders to be eligible to execute. While the determination of whether a limit order is a marketable limit order is calculated differently, i.e., based on the time of order receipt, see final 17 CFR 242.600(b)(56), the time of order receipt will similarly allow customers to compare execution quality from a point in time when such orders could reasonably be expected to execute. 289See final 17 CFR 242.600(b)(40). 290See final 17 CFR 242.600(b)(41). 291See Proposing Release, 88 FR 3786 at 3805, 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (iii). 292See final 17 CFR 242.605(a)(1)(ii). 293See final 17 CFR 242.605(a)(1)(iii). The Commission is adopting definitions for ‘‘executable stop marketable limit order’’ and ‘‘executable stop non-marketable limit order’’ to provide that the determination of which of these two categories a limit order submitted with a stop price falls into is made using the point in time that the order submitted with a stop price is triggered.288 Utilizing this determination point in time will help align the sub-grouping of limit orders submitted with stop prices with the characteristics of these orders once the stop price is triggered. Under the adopted definitions, an ‘‘executable stop marketable limit order’’ will be an order whose limit price is equal to or greater than the best offer (for a buy order) or equal to or less than the national best bid (for a sell order) at the time the stop price is triggered, i.e., when the limit order submitted with a stop price becomes executable.289 Similarly, an ‘‘executable stop non-marketable limit order’’ will be an order whose limit price is less than the best offer (for a buy order) or greater than the national best bid (for a sell order) at the time the order becomes executable.290 As proposed, Rule 605 would have required that the execution quality statistics provided for executable orders submitted with stop prices include those execution quality statistics required for non-marketable order types.291 However, executable market orders submitted with stop prices and executable stop marketable limit orders (together, ‘‘marketable stop order types’’) will behave like market and marketable limit orders once triggered rather than NMLOs. Therefore, the Commission is modifying the proposed execution quality statistics for marketable stop order types to provide that the same statistics required of other marketable order types (e.g., price improvement statistics) be calculated for these types of stop orders.292 However, because executable stop NMLO orders will behave like other NMLOs once triggered, the Commission is requiring that the same statistics required of other non-marketable order types
(e.g., relative fill rate) be calculated for these stop orders.293 ER15AP24.002</GPH>
Table 1: Number of Triggered Stop Orders (Mar. 2023)
Order Type Number of Stop Orders Percentage of Stop Orders Market 190,027 85.99% Marketable Limit 26,097 11.81 % Beyond-the-Mid point 1,770 0.80% At-the-Midpoint 686 0.31% Below-the-Mid point 1,118 0.51% At-the-Quote 1,282 0.58% This table presents the distribution of stop orders across different order types (market, marketable limit, beyond-the-midpoint, at￾he-midpoint, below-the-midpoint, and at-the-quote), using a sample of CAT data for 400 stocks for Mar. 2023. See infra note 1261 for a description of this dataset. The data includes all stop orders that were triggered during Mar. 2023 from orders that originated during Mar. 2023. Stop limit orders are identified as marketable, beyond-the-midpoint, at-the-midpoint, below-the￾midpoint, or at-the-quote based on the NBBO at the time the stop order triggered. NMLOs categories are defined as follows. "Beyond-the-midpoint" NMLOs consist of, for sell orders, NMLOs with limit prices lower than the midpoint but higher than the national best bid ("NBB"), and, for buy orders, NMLOs with limit prices higher than the midpoint but lower than the national best offer ("NBO"). "At-the-midpoint" NMLOs consist ofNMLOs with limit prices equal to the NBBO midpoint. "Below-the￾midpoint" NMLOs consist of, for sell orders, NMLOs with limit prices higher than the midpoint but less than the NBO and, for buy orders, NMLOs with limit prices lower than the midpoint but higher than the NBB. "At-the-quote" NMLOs consist of, for sell orders, NMLOs with limit prices equal to the NBO and, for buy orders, NMLOs with limit prices equal to the NBB. "Near￾he-quote" NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by no more than $0.10 and, for buy orders, NMLOs with limit prices worse (i.e., lower) than the NBB by no more than $0.10. "Away-from-the-quote" NMLOs consist of, for sell orders, NMLOs with limit prices worse (i.e., higher) than the NBO by more than $0.10 and, for buy orders, NMLOs with limit prices worse (i.e., lower) than the NBB by more than $0.10.

294See supra note 281 and accompanying text. 295See infra section IX.D.1.b)(2)(a)(ii). 296See infra section IX.C.3.c)(3). 297See infra section III.B.2.b)(2). 298See prior 17 CFR 242.600(b)(22); ‘‘Responses to Frequently Asked Questions Concerning Rule 605 of Regulation NMS’’ (Feb. 22, 2013) (‘‘2013 FAQs’’). 299Rule 201 generally requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a short sale at an impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 10% in one day. Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply to short sale orders in that security for the remainder of the day and the following day, unless an exception applies. See 17 CFR 242.201(b)(1). One exception is for the execution or display of a short sale order marked ‘‘short exempt.’’ See 17 CFR 242.201(b)(1)(iii)(B); 17 CFR 242.201(c). 300See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 301See Nasdaq Letter at 43–44. 302NYSE Letter at 8. 303See Virtu Letter II at 3; Robinhood Letter at 45–46. 304See Joy Letter. 305See FIF Letter at 12. 306See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). See also infra note 1172 and accompanying text. 307See final 17 CFR 242.600(b)(27). The Commission is not adopting the commenter’s recommendation to add an additional column to the Rule 605(a)(1) detailed report to denote whether a particular row pertains to stop orders.294 The additional order type categories in amended Rule 605 for executable market orders submitted with a stop price, executable stop marketable limit orders, and executable stop NMLOs partially align Rule 605 with this recommendation substantively because they will require firms to provide execution quality statistics for these types of stop orders that are grouped according to the characteristics of the orders once triggered. However, the commenter’s recommendation would in effect have created a separate order type category for stop orders with characteristics of each of the other order types (e.g., executable midpoint-or￾better limit order with a stop condition, executable marketable IOC with a stop condition). The Commission does not believe the execution profiles for an order type category or categories for executable midpoint-or-better order types with a stop condition would vary significantly enough from other executable stop NMLOs to warrant additional order type categories. A significant portion of midpoint-or-better limit orders may have the expectation of executing immediately, for example, against hidden or odd-lot liquidity inside of the spread.295 Because these orders are likely to have different execution profiles than other types of NMLOs,296 the Commission is requiring separate order type categories for midpoint-or-better limit orders.297 In contrast, an order submitter placing a stop limit
order likely does not have an expectation of executing immediately and does not know ex ante what the market conditions will be when the stop price is triggered, i.e., how aggressive the limit price will be when the order is converted into a limit order. Therefore, because executable midpoint￾or-better order types with a stop condition are not likely to have significantly different execution profiles than other executable stop NMLOs, the Commission is not requiring the use of order type categories that would further sub-divide executable stop NMLOs. In addition, it is not likely that orders will have both an IOC instruction (which indicates an expectation of immediacy) and a stop condition (which indicates an intention to wait until market conditions change and trigger the stop condition). Even if such orders are utilized, they are not likely to have significantly different execution profiles than other stop orders that fall within the same order type categories. Thus, the Commission is not requiring the use of order type categories that would further sub-divide the categories for orders submitted with stop prices.
3. Non-Exempt Short Sale Orders
(a) Proposed Approach
Commission staff has taken the position that staff would view all short sale orders that are not marked ‘‘short exempt’’ (‘‘non-exempt short sale orders’’) as special handling orders and, in the staff’s view, these orders may be excluded from the definition of ‘‘covered order.’’ 298 Non-exempt short sale orders are subject to a price test under 17 CFR 242.201 (‘‘Rule 201’’ of Regulation SHO (17 CFR 242.200 through 242.204)) that sets forth a short sale circuit breaker that is triggered in certain circumstances, after which time a price restriction will apply to short sale orders in that security for that day and the following day.299 The Commission proposed that non-exempt short sale orders would not be considered special handling orders unless a price test restriction is in effect for the security. As proposed, non￾exempt short sale orders would fall within the definition of ‘‘covered order’’ and thus be subject to Rule 605 reporting, unless another exclusion applies. Conversely, during a short sale price test, a short sale order not marked ‘‘exempt’’ would continue to be subject to special handling and would be excluded from the definition of ‘‘covered order’’ and thus from Rule 605 reporting.300 (b) Final Rule and Discussion The Commission is adopting as proposed its position that non-exempt short sales orders will not be considered special handling orders unless a price test restriction is in effect for the security. The Commission received several comments on this aspect of the proposal. One national securities exchange supported the proposed treatment of non-exempt short sale orders.301 Another national securities exchange suggested that the Commission provide more detailed instructions relating to any order types that would be excluded from the definition of ‘‘covered order,’’ e.g., order types that are considered ‘‘special handling,’’ ‘‘to ensure that such orders are treated uniformly by respondents in their data disclosures.’’ 302 Two broker￾dealers supported the proposal,303 as did an individual investor who stated that non-exempt short sale orders are ‘‘a core component of the current market.’’ 304 An industry association also supported this aspect of the proposal, but asked how the Commission intends to document the change, which is not reflected in any change to the definition of ‘‘covered order.’’ 305 After consideration of the comments, the Commission is adopting the position that non-exempt short sale orders will not be considered special handling orders unless a price test restriction is in effect for the security, as proposed. As discussed in the Proposing Release, when a non-exempt short sale order is subject to a price test restriction under Rule 201 of Regulation SHO, a trade may only take place at least one tick above the national bid or offer; however, non-exempt securities are infrequently subject to such a price test restriction.306 The inclusion of non-exempt short sale orders within the scope of Rule 605 when a short
sale price test is not in effect will not skew execution quality statistics because non-exempt short sale orders are not tick-sensitive during this period. However, when a price test restriction under Rule 201 of Regulation SHO is in effect, any non-exempt short sale order (i.e., an order that is tick￾sensitive) will be an ‘‘order to be executed only on a particular type of tick or bid’’ which is one of the types of special handling orders specified as being excluded from the definition of ‘‘covered order.’’ 307 Such orders will

308See Proposing Release, 88 FR 3786 at 3806 (Jan. 20, 2023). 309See infra section VI. As stated earlier, when a short sale price test restriction is in place for the security, a short sale order not marked ‘‘exempt’’ generally would continue to be subject to special handling and generally would be excluded from the definition of covered order and thus from Rule 605 reporting. See supra note 300 and accompanying text. At this time, no further guidance concerning additional order types that require ‘‘special handling’’ is required because it is not possible for the Commission to provide an exhaustive list of the types of orders that may be considered ‘‘special handling’’ and no specific questions regarding whether particular order types should be considered ‘‘special handling’’ have been raised. 310There 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). 311See Large Order Exemptive Letter. 312See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023); proposed Rule 600(b)(19). 313For NMS stocks priced $250.00 or less per share, a round lot will be 100 shares; for NMS stocks priced $250.01 to $1,000.00 per share, a round lot will be 40 shares; for NMS stocks priced $1,000.01 to $10,000.00 per share, a round lot will be 10 shares; and for NMS stocks priced $10,000.01 or more per share, a round lot will be 1 share. See prior 17 CFR 242.600(b)(82); MDI Adopting Release, 86 FR 18596 at 18617 (Apr. 9, 2021). Separately, the Commission proposed to accelerate the implementation of the round lot definition. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80270 (Dec. 29, 2022). The Commission established a phased transition plan for the implementation of the MDI Rules, which provided for the implementation of the round lot definition as part of the final phase of implementation. See MDI Adopting Release, 86 FR 18596 at 18698–701 (Apr. 9, 2021). At a minimum, round lot implementation will be two years after the Commission’s approval of the plan amendment(s) required by 17 CFR 242.614(e) (‘‘Rule 614(e)’’). Until the round lot definition adopted pursuant to the MDI Rules is implemented, round lots continue to be defined in exchange rules. See id. at 16738. For most NMS stocks, a round lot is defined as 100 shares. 314The Commission proposed to rescind the exemptive relief for orders of 10,000 or more shares and include these orders within the scope of Rule 605 reports. See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). 315See, e.g., Welch Letter (supporting the inclusion of fractional, odd-lot, and large size orders); Abanes Letter;
Macarthur Letter. 316See Joy Letter (stating that the ‘‘inclusion of fractional shares [and] odd-lots are also essential in the provided data as these are the most commonly used orders by retail’’ and that including these order size categories ‘‘provides retail more information confidence to invest more frequently with smaller order sizes’’); letter from Art. R Medina (Dec. 26, 2022) (‘‘Medina Letter’’) (stating that the proposed new size categories would ‘‘help for better execution in the lit market exchanges’’ and ‘‘help these systems better execute customer orders for broker-dealers and ensure competition’’). 317See letter from Creighton Bledsoe (Feb. 28,
2023) (‘‘Bledsoe Letter‘‘).
318See Healthy Markets Letter at 17.
319See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2022). 320Tastytrade Letter at 5. 321See supra text accompanying note 313 (defining MDI Rules). 322See Better Markets Letter at 6. 323See SIFMA Letter II at 32; Angel Letter at 2; Schwab Letter II at 33; Fidelity Letter at 9; Rule 605 Citadel Letter at 6. Further, an academic recommended using dollar rather than share amounts and stated that ‘‘[r]ound lots are obsolete.‘‘ Angel Letter at 2. 324See Schwab Letter II at 33, Fidelity Letter at 9, Rule 605 Citadel Letter at 6. When discussing a potential average notional order size metric for the summary report, one of these broker-dealers stated that notional size is measured by multiplying the number of shares by the midpoint at the time of order entry. See Schwab Letter III at 3. In addition, an industry group stated that notional value should be based on the midpoint at the time of order receipt. See FIF Letter II at 11. See also infra notes 792 and 793 and accompanying text. therefore be excluded from the definition of ‘‘covered order.’’ In addition, including non-exempt short sale orders for which a price test restriction is not in effect within the scope of Rule 605 reports will lead to a more complete picture of reporting entities’ execution quality.308 As discussed further below, the prior staff statements that conflict with the Commission’s adopted position will be rescinded.309 B. Required Information

1. Categorization by Order Size
   (a) Proposed Approach
   Prior to the amendments, Rule 605 reports utilized order size categories based on the numbers of shares in the order (e.g., 100–499 shares and 500– 1,999 shares). Historically, round lots generally have been viewed as groups of 100 shares, and Rule 605 prior to these amendments reflected this: it did not require reporting of orders smaller than 100 shares, including odd-lot orders or fractional share orders (i.e., orders for less than one share).310 Additionally, preexisting Rule 605 reports did not include orders with a size of 10,000 shares or greater, pursuant to exemptive relief provided by the Commission in 2001.311 The Commission proposed to amend the definition of ‘‘categorized by order size’’ to designate the following categories for order sizes: (i) less than 1 share; (ii) odd-lot; (iii) 1 round lot to less than 5 round lots; (iv) 5 round lots to less than 20 round lots; (v) 20 round lots to less than 50 round lots; (vi) 50 round lots to less than 100 round lots; and (vii) 100 round lots or greater.312 The proposed modifications to the order size categories would have utilized the new definition of round lot adopted in the Market Data Infrastructure rule (the ‘‘MDI Rules’’),313 and included odd-lots, fractional shares (i.e., orders for less than one share), and larger order sizes.314 (b) Final Rule and Discussion In response to comments, the Commission is adopting a definition of ‘‘categorized by order size’’ that differs from the proposal’s focus on round lot increments. Instead, as adopted, each order size category reflects a notional dollar value range, along with an indication that the category reflects orders that were for an odd-lot, a round lot, or less than a share. As adopted, this amendment will increase transparency regarding distribution of order sizes that a reporting entity handles, particularly for higher-priced stocks. The Commission also is adopting an execution quality statistic for cumulative notional order size of covered orders. Individual investors generally supported the proposed order size categories.315 Some individual investors stated that these categories would help them achieve investor confidence or better executions.316 Another individual investor stated that reporting execution quality information across orders of different sizes would be ‘‘incredibly beneficial’’ to understanding the ‘‘degree of fairness in the market.’’ 317 An investor advocacy group supported the proposed changes to the definition of categorized by order size.318 But one broker-dealer stated that ‘‘because the Commission has simultaneously submitted for proposal a new rule that would change tick sizes and round lot definitions’’ (i.e., the Minimum Pricing Increments Proposing Release),319 the reporting requirements pertaining to categorization by order size ‘‘are subject to change which in turn could create customer confusion.’’ 320 Other commenters addressed specific elements of the proposed order size categories. An investor advocacy
   group supported basing the order size categories on round lots, stating that doing so not only would harmonize Rule 605 disclosure with the MDI Rules 321 that established a price-based definition of ‘‘round lot’’ but also would better enable Rule 605 reports to group orders in a way that provides useful order execution information.322 However, a number of commenters suggested using notional dollar value categories instead of or in addition to the share-based categories.323 Similarly, several commenters, including a broker-dealer and financial services firms, suggested using notional size categories rather than round lot￾based size categories.324 One of the financial services firms stated that ‘‘the process for assigning the number of shares per round lot per security is not

325Schwab Letter II at 33. This commenter stated that the ‘‘price of a stock can vary dramatically in the three-month period in which the round lot size is set,‘‘ so an intent to approximate the notional order size by the round lot category would ‘‘frequently fail.‘‘ Id. 326 Id. 327See Fidelity Letter at 9. This commenter stated that notional sizes would: (1) be more easily compared over time as lot sizes change or stocks splits occur; and (2) provide ‘‘a more representative view of the cost to implement different types of trades and [be] more consistent with increased market use of fractional/notional trading.‘‘ Id. 328See Rule 605 Citadel Letter at 6. 329See SIFMA Letter II at 32; FIF Letter at 14– 15. 330See FIF Letter at 14–15. This commenter also stated that it was providing information on the percentage of orders that fell within each notional value category, as estimated by IHS Markit for Q1
2018. See id. at 15. Specifically, the notional size
buckets and associated percentage of orders were as follows: (1) $1 to $999 (33%); (2) $999 to $4,999 (29%); (3) $5,000 to $19,999 (24%); (4) $20,000 to $49,999 (8%); and (5) $50,000 to $500,000 (6%). See id. at 14–15. 331 Id. at 15. As discussed below, consistent with this commenter’s recommendation, the Commission analyzed current CAT data to establish the notional size buckets it is adopting. 332See id. See also infra note 353 and accompanying text. 333See SIFMA Letter II at 32. 334 Id. This commenter suggested that, for example, the Commission could use the notional buckets recommended by the first industry group in
2019. See id. at 32, n.78 and accompanying text
(citing a letter to Brett Redfearn, Director, Division of Trading & Markets, Commission, from Christopher Bok, Financial Information Forum (Jan. 30, 2019), available at https://www.sec.gov/ comments/s7-02-10/s70210-5002077-182848.pdf). 335See Nasdaq Letter at 46. 336See id. at 44. 337See FIF Letter at 15. 338See id.; FIF Letter II at 3. 339See SIFMA Letter II at 32; Rule 605 Citadel Letter at 6. A group of academics also recommended having a separate entry solely for round lot trades, which they said accounts of a large fraction of trade sizes and dollar values. See Professor Schwarz et al. Letter at 5. 340See, e.g., Pritchard Letter; Welch Letter; Macarthur Letter; Genco Letter; Cesar Letter; Joy Letter. 341See Professor Schwarz et al. Letter at 3. 342See id. at 4. 343See id. 344See id. 345See Virtu Letter II at 3. 346See Rule 605 Citadel Letter at 11. 347See FIF Letter at 15; FIF Letter II at 3. This commenter recommended that orders be broken out into the following categories within each notional value range because orders in each of these categories have distinct execution characteristics:
round lot without fractional component; round lot with fractional component; odd-lot without fractional component; odd-lot with fractional component; and fractional (less than one share). See FIF Letter II at 3. According to the commenter, if these five categories are separately reported for each notional value range, reporting based on the number of shares would not provide any material value for market participants. See id. 348SIFMA Letter II at 31. 349 Id. dynamic enough to make this a meaningful delineation.’’ 325 In addition, according to this commenter, ‘‘after the size of an order has achieved round lot status, there is no intrinsic difference in the size of the order until it reaches 10,000 shares or $200,000,’’ and therefore ‘‘bucketing by round lots has no application to the broader market structure.’’ 326 Another financial services firm stated that creating order size categories based on notional dollar amounts would provide investors with clearer views of the execution experiences associated with their orders.327 A broker-dealer stated that grouping orders by notional size would allow for a more accurate comparison of execution quality.328 Two industry groups also recommended grouping orders based on their notional dollar values.329 One of these industry groups stated that in 2018 and 2019 it had recommended a set of notional size buckets for Rule 605 reporting.330 This commenter suggested that the Commission utilize CAT data to conduct an analysis similar to the one conducted by IHS Markit for Q1 2018 ‘‘to determine whether [those] notional value categories would still be appropriate or whether these notional value categories should be adjusted.’’ 331 This commenter also specifically suggested that one of the thresholds separating notional value categories be $200,000.332 The other industry group supported revising Rule 605 to utilize notional buckets for the order size categorizations instead of, or in addition to, using the number of round lots as proposed.333 This commenter recommended that the Commission ‘‘calculate appropriately informative notional size buckets.’’ 334 A national securities exchange suggested using the following notional value buckets rather than share size categories: less than $10,000; $10,000 to less than $50,000; $50,000 to less than $100,000; $100,000 to less than $200,000; and $200,000 to $400,000.335 This commenter stated that this alternative would avoid the drawbacks of the current order size categories based on number of shares while ensuring coverage of most retail trades.336 To address the Commission’s concern that defining order size buckets according to notional dollar values would no longer produce a meaningful distinction between round lot and odd￾lot orders, one industry group suggested adding a column to the Rule 605 report to signify whether the orders in the applicable row are round lot or odd-lot orders.337 This commenter also recommended that mixed lot orders be classified as round lot
orders for purposes of Rule 605 reporting.338 Another industry group and a broker￾dealer recommended distinguishing round lot and odd-lot orders using a separate flag.339 Several individual investor commenters supported the proposed inclusion of odd-lot and fractional share orders in Rule 605 reports.340 A group of academics stated that odd-lots currently account for over 60% of trades 341 and, under current disclosure requirements, retail traders are unable to evaluate market center execution quality for a majority of their trades.342 These commenters also stated that fractional share market orders receive widely different price improvement across broker-dealers and full share price improvement statistics are not informative for the execution quality of fractional trades.343 These commenters stated that these factors justify adding fractional and odd-lot trades to Rule 605 reports.344 A broker-dealer similarly supported the proposed new category for fractional share orders as well as a category for orders from one share to 99 shares.345 Another broker-dealer also supported including odd-lot orders in Rule 605 reports and stated this would particularly benefit retail investors seeking to accurately assess execution quality delivered by wholesale broker￾dealers.346 Explaining that when a round lot or odd-lot order has a fractional share component, the time to execution and execution price may be impacted, one industry group recommended that: (1) fractional share orders (i.e., orders for less than one share) be reported separately from round lot and odd-lot orders; and (2) round lot and odd-lot orders be broken-out further to differentiate between those orders that have, and do not have, a fractional share component.347 However, another industry group suggested eliminating the requirement to include orders for fractional shares in Rule 605 reports, contending that ‘‘this information is of limited value to investors.’’ 348 This commenter stated that ‘‘[t]here is also no clear way to execute fractional shares in a purely agency capacity’’ and, ‘‘[a]s a result, to the extent fractional share orders are required to be included in Rule 605 reports, any broker-dealer, even a small broker-dealer, that wanted to facilitate a fractional share order for its customer would be considered a market center for purposes of Rule 605.’’ 349 Additionally, this commenter stated that ‘‘much of today’s market infrastructure does not yet support fractional share trading’’ and the ‘‘costs to fully modify this infrastructure would

350 Id. This commenter stated as an example that ‘‘FINRA does not currently have a mechanism to report fractional share trades, because all of these trades are rounded up today.’’ Id. 351See Schwab Letter II at 33. 352See Virtu Letter II at 3. 353See FIF Letter at 14–15. 354Nasdaq Letter at 46. 355 Id. 356See supra note 331 and accompanying text. See also supra note 334 and accompanying text (suggesting that the Commission calculate appropriate notional size buckets). 357See infra Figure 16 and Figure 17. In aggregate, order flow appears reasonably well￾distributed across the various notional order size buckets that the Commission is adopting, with the exceptions of the smallest size bucket (orders for $250 or less) and the largest size bucket (orders for $200,000 or more), both of which have little order flow. See infra Section IX.D.1.b)(2)(a)(i). The Commission is adopting these notional order size buckets for the reasons described below. 358Some commenters suggested utilizing a column or a flag to designate whether orders in a particular row are odd-lots or round lots. See supra notes 337–339 and accompanying text. Instead, the Commission is incorporating into the defined order size categories whether an order is for a round lot, odd-lot, or less than a share for ease of application. The two approaches have the same substantive effect of having a single row representing each possible combination of round lot, odd-lot, and fractional share with each notional value size range. 359See final 17 CFR 242.600(b)(18). The adopted categories address the concern expressed by a commenter that the proposed categories, which were based on round lots (and also included categories for orders for less than one share and for odd-lots), may cause confusion because the definition of round lot may change. See supra note 320 and accompanying text. 360See final 17 CFR 242.600(b)(18). 361The Commission does not agree with the commenters’ suggestion that notional value of an order generally should be calculated based on the midpoint of the national best bid and national best offer at time of order receipt. See supra note 324. The order size categories reflect the order from the perspective of the order submitter. Likewise, calculating an order’s notional value for purposes of categorization by order size by referencing the limit price for a limit order or the far touch for a market order generally should better reflect the order submitter’s expectation of the order’s notional value. be high compared to the minimal benefit of including fractional share reporting.’’ 350 With respect to the proposed inclusion of larger-sized orders, a commenter stated that a ‘‘natural breakpoint’’ between size categories exists at $200,000 and suggested establishing a size bucket of $200,000 and greater.351 Another commenter supported the proposed order size category for orders greater than 10,000 shares.352 An industry group recommended designating one of the thresholds for separating
notional value categories at $200,000 because in the Order Competition Rule Proposing Release the Commission proposed to utilize a $200,000 threshold for an exception from the obligation to submit a segmented order to a qualified auction.353 A national securities exchange stated that the Commission should ‘‘consider increasing the current cap of $200,000 [the notional block size], as this benchmark has not changed with the market or inflation over time.’’ 354 This commenter stated that increasing the cap may provide ‘‘information that is helpful for institutional buyers.’’ 355 Taking into consideration the comments received, the Commission is adopting a modified definition of ‘‘categorized by order size.’’ The Commission followed the suggestion that it use CAT data to examine which notional order size buckets would be appropriate.356 Based on this analysis (discussed below), the Commission is adopting order size categories that utilize the following notional dollar value ranges: (i) less than $250; (ii) $250 to less than $1,000; (iii) $1,000 to less than $5,000; (iv) $5,000 to less than $10,000; (v) $10,000 to less than $20,000; (vi) $20,000 to less than $50,000; (vii) $50,000 to less than $200,000; and (viii) $200,000 or more.357 Each adopted order size category reflects one of these notional dollar value ranges, along with an indication that the orders were for an odd-lot, a round lot, or less than a share.358 Accordingly, as adopted, ‘‘categorized by order size’’ means dividing orders into separate categories for the following sizes:

• Less than $250 and less than a
  share;
• Less than $250 and odd-lot;
• Less than $250 and at least a round
  lot;
• $250 to less than $1,000 and less
  than a share;
• $250 to less than $1,000 and odd￾lot;
• $250 to less than $1,000 and at least
  a round lot;
• $1,000 to less than $5,000 and less
  than a share;
• $1,000 to less than $5,000 and odd￾lot;
• $1,000 to less than $5,000 and at
  least a round lot;
• $5,000 to less than $10,000 and less
  than a share;
• $5,000 to less than $10,000 and
  odd-lot;
• $5,000 to less than $10,000 and at
  least a round lot;
• $10,000 to less than $20,000 and
  less than a share;
• $10,000 to less than $20,000 and
  odd-lot;
• $10,000 to less than $20,000 and at
  least a round lot;
• $20,000 to less than $50,000 and
  less than a share;
• $20,000 to less than $50,000 and
  odd-lot;
• $20,000 to less than $50,000 and at
  least a round lot;
• $50,000 to less than $200,000 and
  less than a share;
• $50,000 to less than $200,000 and
  odd-lot;
• $50,000 to less than $200,000 and at
  least a round lot;
• $200,000 or more and less than a
  share;
• $200,000 or more and odd-lot; and
• $200,000 or more and at least a
  round lot.359
  As discussed further below, the adopted categories will facilitate market participants’ ability to compare across orders of different sizes in higher-priced stocks, while controlling for potential differences in the treatment of larger￾sized orders. Additionally, the adopted buckets better account for potential differences in the distribution of order sizes that reporting entities typically handle for a given stock when comparing execution quality metrics across reporting entities, facilitating apples-to-apples comparisons of execution quality across reporting entities. For purposes of the order size categories, a mixed lot order (i.e., an order for an amount of shares greater than a round lot that is not a multiple of such round lot) will be grouped in the ‘‘at least a round lot’’ category and an order for an odd-lot with a fractional share component or a round lot with a fractional share component will be grouped with other odd-lots or round lots, respectively.360 Reporting entities generally should calculate a limit order’s notional value by multiplying the number of shares by the order’s limit price. In addition, reporting entities generally should calculate a market order to buy’s notional value by multiplying the number of shares by the national best offer at the time of order receipt and a market order to sell’s notional value by multiplying the number of shares by the national best bid at the time of order receipt.361 Calculation of the notional value of a stop order generally should follow these principles based on whether the order once triggered is a limit order or a market order, except that the notional value of a stop market order should be based upon the national best bid or national best offer at the time the order is triggered rather than the time of order receipt. The Commission used CAT data to examine the distribution of orders

362This number is based on an analysis of the volume-weighted average price (‘‘VWAP’’) calculated for each stock during normal trading hours for Q1 2023 using data from WRDS Intra-Day Indicators. 363Based on an analysis of the CAT data described in note 1261 infra, 17.4% of odd-lot orders are valued below $1,000, and for stocks priced less than $50 (which represent 85% of all stocks), this percentage increases to 68.9%. across a granular set of notional order size buckets to determine which breakpoints form the most appropriate notional order size buckets. Figure 1 presents the distribution of orders across the notional order size buckets and shows that orders tend to be clustered around certain round notional values (e.g., $100, $1,000, $10,000, and $50,000). BILLING CODE 8011–01–P When trying to determine the optimal cut-off points between notional order size buckets, the Commission considered how the order size buckets selected could meaningfully capture variations in order sizes across a variety of different factors, including stock prices, market centers, lot type and order share size categorization (i.e., round lot, odd-lot, and fractional share orders). Based on its analysis, the Commission makes the following observations about the types of variations in order characteristics that will be captured by the adopted order size buckets. First, Figure 2 below presents the cumulative order flow (as a percentage of total orders) across notional order size buckets. These results show that, for stocks priced less than $5,362 87.6% of orders are valued below $1,000 and 66.9% of orders are valued below $500. Given that nearly a quarter of stocks are priced below $5, including a set of smaller notional order size buckets (i.e., less than $250; and $250 to less than $1,000) will help ensure that orders are meaningfully distributed across order size categories and not clustered within a single category. Additionally, odd-lot orders tend to be valued less than $1,000, so the smaller notional order size buckets are useful for capturing the distribution of odd-lot orders specifically.363 ER15AP24.003</GPH>
Figure 1: Distribution of Orders Across Notional Order Size Buckets, Ql 2023
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2.5-
2.0- u 0 1.0-
0.5- o.o￾This figure shows the distribution of orders ( as a percent of total orders) across notional order size buckets. Percentages are calculated as the number of submitted orders within each order size bucket, summed across all stocks and days in the sample, divided by the total number of submitted shares summed across all stocks and days. This analysis uses data from CAT for a sample of 400 stocks for Ql 2023. See infra note 1261 for a description of this dataset. The 196 notional order size buckets were determined as follows: For orders between $0 and $1,000, notional order size buckets were set in increasing $50 increments (i.e., less than $50, from $50 to less than $100, from $100 to less than $150, etc.). For orders between $1,000 and $10,000, order size buckets were set in increasing $100 increments. For orders between $10,000 and $25,000, order size buckets were set in increasing $500 increments. For orders between $25,000 and $50,000, order size buckets were set in increasing $1,000 increments. For orders between $50,000 and $200,000, order size buckets were set in increasing $5,000 increments.

364See infra note 1144 for a description of an ‘‘Individual Customer’’ account. 365This proxy was employed for two reasons. First, it was utilized because a high percentage of individual investors’ orders are handled by wholesalers. See Proposing Release, 88 FR 3786 at 3839, n.614 (Jan. 20, 2023) (describing a Commission analysis of Rule 606 reports that showed that, in Q1 2022, a sample of 46 retail broker-dealers routed 87.3% of orders in S&P 500 stocks and 87.9% of orders in non-S&P 500 stocks to wholesalers, as compared to 9.1% and 8.5%, respectively, to national securities exchanges). Second, it was utilized because it is the Commission’s understanding that IOC orders handled by wholesalers are likely to be orders directed to wholesaler SDPs. See infra note 1110. Based on an analysis of the CAT data described in in note 1261 infra, non-IOC orders that are valued less than $1,000 and that originate from Individual Customer accounts make up around 10.2% of wholesalers’ total order flow. Second, orders valued below $250 contain a higher percentage of individual investor orders than higher￾valued orders. To proxy for small individual investor orders, the Commission analyzed the distribution of non-IOC orders that are valued less than $1,000 and that originate from Individual Customer 364 accounts and are handled by wholesalers.365 The Commission found that 54.2% of these orders are valued less than $250. Furthermore, 99.7% of fractional orders for less than a share, the majority of which are originated from Individual Customer accounts, are valued less than $250. Figure 3 below shows the breakdown of orders originating from Individual and Institutional Customer account types and shows that nearly three-fourths of orders valued under $250 originate from Individual Customers. Therefore, a separate notional order size category for orders valued less than $250 will be particularly useful in allowing individual investors to compare the execution quality of their orders across reporting entities. ER15AP24.004</GPH>
Figure 2: Cumulative Order Flow across Notional Order Size Buckets, by Stock Price, Ql
2023
,......_

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  <$5
  $5-$10
  $10-$25
  $25-$50
  $50--$100
  $100-$250
  $250-$500
  $500--$1000
  $1000+
  This figure shows the cumulative percentage of orders across notional order size buckets for stocks grouped according to average stock prices. Percentages are calculated as the cumulative number of submitted orders within each size bucket, summed across all stocks within a given price group and across all days in the sample, divided by the total number of submitted orders summed across all stocks within a given price group and across all days in the sample. This analysis uses data from CAT for a sample of 400 stocks for Ql 2023. See infra note 1261 for a description of this dataset. Stocks were grouped according to their average share price over the sample period. The 196 notional order size buckets were determined as follows: For orders between $0 and $1,000, notional order size buckets were set in increasing $50 increments (i.e., less than $50, from $50 to less than $100, from $100 to less than $150, etc.). For orders between $1,000 and $10,000, notional order size buckets were set in increasing $100 increments. For orders between $10,000 and $25,000, notional order size buckets were set in increasing $500 increments. For orders between $25,000 and $50,000, notional order size buckets were set in increasing $1,000 increments. For orders between $50,000 and $200,000, notional order size buckets were set in increasing $5,000 increments.

366See supra note 363.
367See, e.g., 17 CFR 242.606(a)(1) (requiring reports on the routing of customer orders) and prior 17 CFR 242.600(b)(25) (defining ‘‘customer order’’ to exclude an order with a market value of $200,000 or more); 17 CFR 242.604(b)(4) (providing an exception for orders of block size from required limit order display) and prior 17 CFR 242.600(b)(12) (defining ‘‘block size’’ as, in part, an order for a quantity of stock having a market value of at least $200,000). In addition, the adopted rule is consistent with the recommendations by two commenters to establish a $200,000 threshold and to increase the cap above $200,000. See supra notes 353 and 354 and accompanying text. 368See Proposing Release, 88 FR 3786 at 3807 (Jan. 20, 2023). 369See id. BILLING CODE 8011–01–C Third, for stocks priced less than $50 (which, again, represent 85% of all stocks 366), 68.0% of orders are valued between $1,000 and $10,000. Two of the adopted notional order size buckets ($1,000 to less than $5,000; and $5,000 to less than $10,000) will capture some variation across the majority of orders for the majority of stocks. Fourth, 69.6% of round lots have relatively higher notional order sizes of between $10,000 and $200,000. In addition, some market centers seem to specialize in larger orders. For example, 63.3% of order flow to ATSs is valued between $10,000 and $200,000. The remaining adopted notional order size buckets ($10,000 to less than $20,000; $20,000 to less than $50,000; and $50,000 to less than $200,000) capture the distributions of these larger notional value orders, and thus allow for measurement of execution quality at market centers that specialize in larger notional value order sizes. Lastly, the additional notional order size category for orders for valued $200,000 or more will be useful because these orders typically warrant different treatment than smaller orders.367 Designating order size categories based on notional order size buckets represents a shift in approach from the proposed order size categories based on round lot size ranges. In the Proposing Release, the Commission stated that modifying the order size categories to reflect the number of round lots would better allow Rule 605 reports to group orders with similar characteristics and notional values, and thereby provide more useful execution quality information.368 The Commission also stated its belief that notional buckets and caps would not be necessary because the definition of round lot, as modified by the MDI Rules, incorporates the current market price of the security.369 However, the Commission requested and, as described above, received, comments supporting the use of order size categories based on ER15AP24.005</GPH>
Figure 3: Percentage of Individual and Institutional Customer Orders, by Notional Order
Size Bucket, Ql 2023
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• lndM:duaf Customer Accoums lnsliiluliiooat Customer Accoun~
  This figure shows the percentage breakdown of orders originating from either individual customer accounts or institutional customer accounts. Percentages are calculated as the number of submitted orders within each order size bucket that originated from a given account type, summed across all stocks and days in the sample, divided by the total number of submitted orders within each order size bucket, summed across all stocks and days. This analysis uses data from CAT for a sample of 400 stocks for Q 1 2023. ~ mfu! note 1261 for a description of this dataset. ~ mfu! note 1144 for a description of account types in CAT.

370See id. at 3809.
371See id. at 3891–92 (describing reasonable alternative to define order sizes based on dollar volume categories rather than number of round lots). 372See supra notes 323–335 and accompanying text. 373See supra notes 337–339 and accompanying text. 374One commenter supported the proposed order sized definitions in part because they would harmonize Rule 605 disclosures with the price￾based definition of round lot from the MDI Rules. See supra note 322. Because the adopted order size categories combine notional value with an indication of whether the order was a round lot, odd-lot, or order less than a share, the order size categories will reflect the price-based definition of round lot when it is implemented. 375The Commission disagrees with a commenter’s statement that the reporting requirements relating to order size categories are subject to change and thus could create confusion because of the changes being proposed in the Minimum Pricing Increments Proposing Release. See supra notes 319–320 and accompanying text. The Minimum Pricing Increments Proposing Release includes a proposal to accelerate the implementation of the round lot definition adopted under the MDI Rules that will assign NMS stocks priced over $250 to round lot sizes smaller than 100 shares. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80270 (Dec. 29, 2022). Although the new round lot definition when implemented will be dynamic and lead to changes in the round lot for stocks priced over $250, market participants will have notice of these changes. Further, the use of notional value in the adopted order size categories will help users of Rule 605 reports understand the effect of a change in round lot size for a security because a notional value range will remain constant even if the size of a round lot changes. Moreover, it is not clear, and the commenter does not explain, how the proposals to modify tick sizes in the Minimum Pricing Increments Proposing Release would potentially affect Rule 605’s requirements concerning categorization by order size. 376See infra note 769 and accompanying text. One commenter specifically recommended ‘‘adding to the 605(1) report the aggregate notional value of covered orders for each row.’’ See FIF Letter II at 11. 377See final 17 CFR 242.605(a)(1)(i)(B) (requiring the reporting of the cumulative notional value of covered orders for all order types). 378See final 17 CFR 242.605(a)(2)(ii). See also infra note 796 and accompanying text (discussing the average notional order size metric in the summary report). 379See Proposing Release, 88 FR 3786 at 3808 (Jan. 20, 2023). The Commission is rescinding the portion of the Large Order Exemptive Letter that grants the Large Order Exemptive Relief because it is inconsistent with, and will be obsolete in light of, the new order size categories. See infra section VI for further discussion. 380See supra note 348 and accompanying text. 381See Proposing Release, 88 FR 3786 at 3808 (Jan.
20, 2023). A broker-dealer that principally facilitates the trading of fractional shares must produce a separate Rule 605 report as a market center if it meets the definition of an ‘‘OTC market maker’’ and receives covered orders for execution in such capacity. See final 17 CFR 242.600(b)(18) (defining ‘‘categorized by order size’’ to include categories for orders of less than a share); final 17 CFR 242.600(b)(55) (defining ‘‘market center’’); final 17 CFR 242.600(b)(75) (defining ‘‘OTC market maker’’); final 17 CFR 242.605(a)(1) (‘‘Every market center . . . shall make available for each calendar month . . . a report on the covered orders in NMS stocks that it received for execution from any person or that it received for execution in a prior calendar month but which remained open.’’). See also supra note 170 and accompanying text. As discussed below, the inclusion of orders less than one share will expand the number of market centers filing Rule 605 reports, and therefore this change will increase transparency about the execution quality achieved by those market centers. See infra notes 1436–1438 and accompanying text. 382Analysis of CAT data from Mar. 2022 found that almost 68% percent (31.67 million) of the 46.63 million executed orders with a fractional component were for less than a single share. See Proposing Release, 88 FR 3786 at 3808, n.279 (Jan. 20, 2023). Updated analysis from Aug. 2023 found that both the number and percentage of orders for less than a share increased. In Aug. 2023, approximately 81% (54.7 million) of the 67.4 million executed orders with a fractional component were for less than a single share. 383This considers any order with a fractional component. However, orders for less than one share still account for over 16% of order executions originating from individual accounts. See infra note
1424. Generally, accounts classified as ‘‘individual’’
in CAT are attributed to natural persons. 384See supra note 350 and accompanying text. notional value.370 In the Proposing Release, the Commission recognized advantages to defining order size categories based on dollar value of the order, while also recognizing that this approach would no longer produce a meaningful distinction between round lot and odd-lot orders according to the new definitions under the MDI Rules and therefore it would not be possible to distinguish orders that may not be at the same price as quotes protected under 17 CFR 242.611 (‘‘Rule 611’’).371 Many commenters favored utilizing order size categories based on notional dollar value.372 Further, accepting commenters’ suggestion to combine notional dollar value ranges with an indication of whether a category represents round-lot orders and odd-lot orders,373 and also indicating whether a category represents orders of less than a share, will preserve the ability to distinguish between such orders.374 Designating order size categories according to notional value and whether the order represents a round lot, an odd￾lot, or an order smaller than a single share preserves the comparability of order execution quality statistics within an order size category and is responsive to comments.375 In addition, in response to commenters’ suggestions that the statistics in the summary report should be derivable from the detailed report,376 the Commission is adding a metric to the detailed report under Rule 605(a)(1) for the cumulative notional order size of all covered orders.377 Specifically, users of the detailed reports can use the cumulative notional order size metric to calculate average notional order size, which is a metric in the summary report, and thus either reconstruct a firm’s calculations in its summary report or calculate the metric for different combinations of orders.378 Users of the detailed report also can use the cumulative notional order size metric to calculate the average share price for covered orders received by combining the metric with shares submitted. Further, the cumulative notional order size metric provides information to users of the detailed report regarding whether the orders that the reporting entity received are more heavily weighted towards the higher or the lower end of a notional order size range. For the reasons discussed in the Proposing Release and as described below, the Commission continues to believe that fractional, odd-lot, and larger-sized orders of 10,000 or more shares represent important order flow segments.379 By incorporating these orders into the new order size categories, Rule 605 reports will contain information about some orders that were previously missing from Rule 605 reports. The Commission disagrees with the commenter that stated that execution quality information for fractional share orders is of limited value to investors and suggested not including such orders in Rule 605 reports.380 Fractional share orders have become
increasingly popular with individual investors and the Commission continues to believe that it is important to provide standardized execution quality metrics for this segment of order flow.381 Analysis of CAT data from August 2023 found that executed orders with a fractional share component originated from almost five and a half million unique accounts. Further, orders for less than a single share represented a significant portion of fractional order executions.382 While fractional share orders continue to represent a small percentage (around 4.1%) of originating orders that eventually execute, they represent a significant percentage (21.6%) of order executions originating from individual accounts.383 With respect to the commenter’s statement that the cost of modifying market infrastructure to accommodate fractional share trading ‘‘would be high compared to the minimal benefit’’ of including fractional shares in Rule 605 reports,384 this commenter has not provided data to quantify the projected increased costs. Although this commenter provides as an example of potential infrastructure issues that FINRA ‘‘does not currently have a mechanism to report fractional share trades, because all of these trades are

385SIFMA Letter II at 31.
386See FINRA Trade Reporting FAQs, available at https://www.finra.org/filing-reporting/market￾transparency-reporting/trade-reporting-faq (‘‘Q101.15: Must trades for less than one share be reported? A101.15: Yes . . . where a trade is executed for less than one share, e.g., 1⁄3 share, firms should round up and report a share quantity of 1.’’). 387See CAT FAQ B.10 available at https:// catnmsplan.com/faq. 388For example, a broker-dealer that accepts orders with fractional shares for execution will need to provide a trade confirmation to its customer that includes the execution price. In addition, such broker-dealer will need to have the ability to compare the execution price to the NBBO at the time of execution in order to help ensure compliance with the order protection rule. See 17 CFR 242.611. 389See infra notes 1674–1676 and accompanying text (discussing costs and benefits). 390See supra note 347. 391As discussed below, the Commission did not find execution quality to systematically vary significantly between odd-lots and rounds lots with fractional components and their counterparts without fractional components. See infra at section IX.E.3.(a)(2). 392See prior 17 CFR 242.600(b)(14). 393See Proposing Release, 88 FR 3786 at 3809– 12 (Jan. 20, 2023); proposed Rule 600(b)(20). 394See, e.g., Better Markets Letter at 6–7; Pritchard Letter; Abanes Letter. An individual investor stated that creation of new order type categories would help improve executions in the lit exchanges and ensure competition among broker￾dealers. See Medina Letter. 395 In addition, as discussed in section III.A.2 above, the Commission is subdividing the order type category for executable orders submitted with stop prices and modifying the definition of executable as it pertains to stop orders. 396 Inside-the-quote limit order, at-the-quote limit order, and near-the-quote limit order mean non￾marketable buy orders with limit prices that are, respectively, higher than, equal to, and lower by $0.10 or less than the national best bid at the time of order receipt, and non-marketable sell orders with limit prices that are, respectively, lower than, equal to, and higher by $0.10 or less than the national best offer at the time of order receipt. See prior 17 CFR 242.600(b)(37). 397See Proposing Release, 88 FR 3786 at 3809 (Jan. 20, 2023); proposed Rule 600(b)(20). 398See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). 399See id.; proposed Rule 600(b)(42). 400See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). rounded up today,’’ 385 these trades must still be reported to FINRA’s trade reporting facility.386 Further, CAT accepts reports involving fractional shares.387 Only market centers or larger broker-dealers that accept orders with fractional shares for execution will need to include fractional shares in their Rule 605 reports, and those firms have the necessary systems to handle fractional shares.388 Therefore, the Commission does not agree that the cost to
implement any modifications to infrastructure needed to provide for the inclusion of fractional shares in Rule 605 reports would be so high as to exceed the benefits of providing standardized execution quality metrics for this segment of order flow.389 In addition, the Commission is not adopting the commenter’s suggestion that Rule 605 reports also include separate reporting categories for round lot orders with a fractional share component and odd-lot orders with a fractional share component.390 The majority of orders that have a fractional share component are orders for less than one share and these orders will appear separately in Rule 605 reports in the designated order size category. The value of including an additional category of orders of larger than one share with a fractional share component is unclear.391 Such orders will be grouped with orders of the same notional size and according to whether the order based on overall share size is an odd-lot or a round lot, which should provide sufficient comparability for such orders.
2. Categorization by Order Type
Rule 605 reports include data for orders as categorized by order type. Prior to the amendments, Rule 605 defined ‘‘categorized by order type’’ to mean dividing orders into separate categories for market orders, marketable limit orders, inside-the-quote limit orders, at-the-quote limit orders, and near-the-quote limit orders.392 The Commission proposed to modify this definition: (1) to remove the order type categories for inside-the-quote limit orders, at-the-quote-limit orders, and near-the-quote limit orders; (2) to add order type categories for marketable immediate-or-cancel orders, beyond-the￾midpoint limit orders, executable NMLOs (excluding beyond-the￾midpoint limit orders and orders submitted with stop prices), and executable orders submitted with stop prices; and (3) to specify that the category for marketable limit orders will exclude immediate or cancel orders.393 The Commission received comments supporting the overall changes to order type categories being proposed.394 Additionally, and as discussed in relevant subsections below, many commenters discussed specific aspects of the proposed changes to the order type categories. The Commission is adopting the amendments to the order type categories, with a few adjustments from the proposal. First, in connection with the proposed order type categories for NMLOs, the Commission is making certain modifications to the proposed definition of executable, as discussed in
section III.B.2.a) below. Second, the
Commission is retaining a separate order type category for executable beyond-the-midpoint limit orders largely as proposed, with a small expansion in scope and corresponding change to the name of the relevant defined term to refer to them as ‘‘midpoint-or-better limit orders,’’ as discussed in section III.B.2.b) below. Finally, the Commission is adopting the proposed order type category for marketable IOCs, while also adding order type categories for two other types of IOCs, as discussed in section III.B.2.c) below.395 (a) NMLOs (1) Proposed Approach The Commission proposed to eliminate the three separate order type categories pertaining to NMLOs (i.e. , inside-the-quote limit orders, at-the￾quote limit orders, and near-the-quote limit orders) 396 and to replace them with new categories for NMLOs that become executable (excluding orders submitted with stop prices and beyond￾the-midpoint limit orders) and beyond￾the-midpoint limit orders.397 The Commission recognized that more meaningful measures of execution quality for NMLOs, as well as orders submitted with stop prices, would assist investors in measuring execution quality, and stated that it was proposing to add the concept of ‘‘executable’’ to allow execution quality statistics to be measured from a point where an order could be executed.398 Specifically, the Commission proposed the following definition of ‘‘executable’’ for NMLOs (other than orders submitted with stop prices): for any non-marketable buy order (excluding orders submitted with stop prices), executable means that the limit price is equal to or greater than the national best bid during regular trading hours, and, for any non-marketable sell order (excluding orders submitted with stop prices), that the limit price is equal to or less than the national best offer during regular trading hours.399 The Commission stated that, as is the case for orders submitted with stop prices, incorporation of the ‘‘executable’’ concept would have two effects-NMLOs would only be reported as part of a Rule 605 report if they become executable during regular trading hours and the point that NMLOs first become executable would be used as an input for several execution quality metrics.400 (2) Final Rule and Discussion An individual investor supported the proposed modifications to reporting requirements for NMLOs, stating they would capture more relevant execution

401See Genco Letter.
402Rule 605 Citadel Letter at 11.
403See NYSE Letter at 8. Until the implementation of the MDI Rules, a reporting entity generally should use data from the exclusive SIPs to calculate its Rule 605 statistics, including the determination of whether a limit order is marketable. The MDI Rules include a phased transition plan to implement the decentralization consolidation model, including a parallel operation period followed by the cessation of operations of the exclusive SIPs, which will only cease operations if the Commission approves an amendment to the effective national market system plan(s) to effectuate such a cessation. See MDI Adopting Release, 86 FR 18596 at 18700–01 (Apr. 9, 2021). The Commission will monitor the implementation of the decentralized consolidation model required under the MDI Rules. 404See Nasdaq Letter at 44. 405See Professor Schwarz et al. Letter at 5. 406See id. Each firm or market center generally should classify orders based on the order type when received. This generates execution quality statistics that are comparable among different types of reporting entities because many of the Rule’s statistical measures are based on time of order receipt (or benchmarked to the NBBO when received, for marketable order types). In addition, some receiving market centers or broker-dealers may not have information about the order type when the originating customer entered the order and thus would not have the information needed to classify orders based on the order type selected by the customer. 407These terms will no longer be used with the adopted changes to the order type categories, which focus on whether a NMLO becomes executable rather than on how a NMLO’s limit price compares to the quote, as discussed further below. The Commission received one comment supporting the elimination of this definition. See Nasdaq Letter at 44. 408See Proposing Release, 88 FR 3786 at 3809– 10 (Jan. 20, 2023); final 17 CFR 242.600(b)(19). As discussed further below, the Commission is adopting a new order type category for executable NMLOs that are immediate-or-cancel and thus these orders will not be included within the scope of the order type category for executable NMLOs. See infra section III.B.2.c). 409See final 17 CFR 242.600(b)(39). See also supra notes 244–246 and accompanying text. 410See NYSE Letter at 8–9. This commenter stated that, under the LULD Plan, a security is in a ‘‘Straddle State’’ when the national best bid is below the LULD lower price band or the national best offer is above the LULD upper price band and an order is not executable when the underlying security is in a Straddle State. See id. at 9, n.12. 411See Section VII(A)(2) of 20th Amendment to the National Market System Plan to Address Extraordinary Market Volatility (‘‘LULD Plan’’). The LULD Plan defines a ‘‘Straddle State’’ as when the national best bid (offer) is below (above) the lower (upper) price band and the stock is not in a limit state, and ‘‘trading in that NMS Stock deviates from normal trading
characteristics such that declaring a Trading Pause would support the [LULD] Plan’s goal to address extraordinary market volatility.’’ Id. The primary listing exchange for a stock must have policies and procedures to determine when to declare a trading pause. See id. 412See Proposing Release, 88 FR 3786 at 3810 (Jan. 20, 2023). The Commission is further advancing this goal through the adopted definition of ‘‘executable,’’ which additionally specifies that NMLOs will be executable only after the primary listing market has disseminated its first firm, uncrossed quotations in the security. See final 17 CFR 242.600(b)(39). 413This guidance is based upon the current definition of Straddle State in the LULD Plan, as described above. If this definition changes due to an LULD Plan amendment and the change impacts the guidance provided here, this guidance may no longer be valid. 414See prior 17 CFR 242.600(b)(14). 415Prior Rule 605(a)(1)(i) specified execution quality statistics to be provided for all order types, and prior Rule 605(a)(1)(ii) specified execution quality statistics to be provided for marketable order types. See prior 17 CFR 242.605(a)(1)(i) and (ii). 416See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023). quality information for these orders.401 A broker-dealer supported replacing the current NMLO order categories with NMLOs that become executable and beyond-the-midpoint limit orders, and stated that ‘‘[a]dding these new categories should capture many more orders compared to current Rule 605 reports.’’ 402 A national securities exchange asked for clarification regarding whether market centers would be permitted to use their own view of the NBBO, data from the securities information processors (‘‘SIPs’’), or data from competing consolidators (in the future, pursuant to the MDI Rules) when determining order marketability.403 Another national securities exchange supported replacing the three current categories for NMLOs with NMLOs that become executable, beyond-the￾midpoint limit orders, and executable orders submitted with stop prices and stated that these changes would enhance execution quality information within Rule 605 reports and better group comparable orders.404 According to a group of academics, some broker￾dealers convert their customers’ order types and route most of them to the broker-dealer’s ATS.405 These commenters recommended, to provide transparency on order types selected by customers, that Rule 605 statistics reflect the order type selected by customers rather than the routing broker-dealer.406 After reviewing the comments, the Commission is eliminating the definition of ‘‘inside-the-quote limit order, at-the-quote limit order, and near￾the-quote limit order,’’ 407 as proposed and is adopting the order type category for executable NMLOs largely as proposed for the reasons stated in the Proposing Release.408 As a result, Rule 605 reports will capture more of those NMLOs that have an opportunity to execute, and
execution quality statistics will be more useful for these types of NMLOs. However, as discussed above in
section III.A.1.b), the Commission is
modifying the definition of ‘‘executable’’ in response to a comment regarding the treatment of orders received during the interim opening period.409 A national securities exchange stated that under the Limit-Up Limit-Down (‘‘LULD’’) Plan, certain NMLOs would not necessarily be ‘‘executable’’ and requested that the Commission modify the definition of ‘‘executable’’ to conform to the provisions of the LULD Plan.410 The Commission agrees with the commenter that an order generally should not fall within the definition of ‘‘executable’’ when the underlying security is in a Straddle State. The market for a security in a Straddle State can substantially differ from the market for that security outside of a Straddle State, as reflected in the fact that the primary listing exchange may declare a trading pause for an NMS Stock in a Straddle State.411 Even if the primary listing exchange has not declared a trading pause for a security in a Straddle State, the decision to not consider an order executable based on a whether the national best bid or national best offer reaches a specific price at a time when the underlying security is in a Straddle State is consistent with the Commission’s decision to include within the scope of Rule 605 reports only those NMLOs that become executable during regular trading hours. The Commission stated that it was only including in Rule 605 reports those NMLOs that become executable during regular trading hours in order to provide a basis for more comparable execution quality measures because there are substantial differences in the nature of the market between regular trading hours and after-hours.412 Accordingly, for purposes of determining when an order first became executable, an order generally should not become executable during a time when the underlying security is in a Straddle State.413 (b) Midpoint-or-Better Limit Orders (1) Proposed Approach Inside-the-quote limit orders were a separate order type category under Rule 605 before the amendments,414 and Rule 605 did not require price improvement statistics to be calculated for these orders because they are not a marketable order type (i.e., they do not fully cross the spread).415 The Commission proposed to require execution quality statistics for limit orders priced more aggressively than the midpoint and to classify these types of orders as beyond￾the-midpoint limit orders.416 Specifically, the Commission proposed to define a ‘‘beyond-the-midpoint limit order’’ as follows: with respect to an order received at a time when a NBBO is being disseminated, (i) any non￾marketable buy order with a limit price

417See id.; proposed Rule 600(b)(16).
418See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) through (iii). 419See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(9) (definition of average effective order quoted spread), (10) (definition of average effective spread), (11) (definition of average percentage effective spread). 420See Nasdaq Letter at 44; Rule 605 Citadel Letter at 11. 421See Rule 605 Citadel Letter at 11. 422See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2023). 423See FIF Letter at 13. 424See id. at 12. 425See final 17 CFR 242.600(b)(57). See also supra section III.A.1.b) (discussing modifications to account for interim opening period). 426See final 17 CFR 242.605(a)(1)(i) through (iii). See also final 17 CFR 242.600(b)(19). 427See final 17 CFR 242.600(b)(8), (9), and (12). As discussed further below, the Commission is adopting a separate order type category for midpoint-or-better limit orders that are also IOCs. See infra section III.B.2.c). As such, the Commission is adopting separate order type categories for midpoint-or-better limit orders (excluding IOCs) and midpoint-or-better limit orders that are immediate-or-cancel. For purposes of this release, these two order types may be referred to collectively as ‘‘midpoint-or-better order types.’’ 428See supra note 423 and accompanying text. The Commission is still considering the proposed changes to minimum pricing increments discussed in the Minimum Pricing Increments Proposing Release. 429For example, Commission analysis demonstrates that midpoint-or-better limit orders executed by wholesalers tend to have somewhat higher fill rates and on-exchange midpoint-or-better limit orders tend to have a higher percentage of orders that execute in less than 1 millisecond. See infra note 1213; Table 4. See also Proposing Release, 88 FR 3786 at 3810–11 (Jan. 20, 2023). 430See infra Section IX.C.3.c)(3). 431See supra note 424 and accompanying text. 432The Commission is modifying this exclusion in the definition of ‘‘categorized by order type’’ from the proposal to refer to the midpoint-or-better order types instead of beyond-the-midpoint limit orders to conform with the modification to the defined term as discussed above. See final 17 CFR 242.600(b)(19). that is higher than the midpoint of the national best bid and national best offer at the time of order receipt, or (ii) any non-marketable sell order with a limit price that is lower than the midpoint of the national best bid and national best offer at the time of order receipt; and, with respect to an order received at a time when a NBBO is not being disseminated, (i) any non-marketable buy order with a limit price that is higher than the midpoint of the national best bid and national best offer at the time that the national best bid and national best offer is first disseminated after the time of order receipt, or (ii) any non-marketable sell order with a limit price that is lower than the
midpoint of the national best bid and national best offer at the time that the national best bid and national best offer is first disseminated after the time of order receipt.417 Additionally, the Commission proposed to require that the execution quality statistics for beyond-the￾midpoint limit orders include the additional information required of both marketable and non-marketable order types.418 The Commission also proposed to modify the time-to￾execution statistics to state that, with respect to beyond-the-midpoint limit orders, these time-based statistics would have been measured from the time such orders become executable rather than from the time of order receipt.419 (2) Final Rule and Discussion A national securities exchange and a broker-dealer supported including beyond-the-midpoint orders among the new order type categories.420 The broker-dealer stated that adding beyond￾the-midpoint limit orders, along with NMLOs that become executable, should capture many more orders.421 On the other hand, an industry group questioned whether the proposed inclusion of beyond-the-midpoint limit orders would be worthwhile given their current sparse usage (2.9% of NMLOs), which the commenter predicts would decrease if the minimum pricing increments proposed in the pending Minimum Pricing Increments Proposing Release 422 are adopted.423 In addition, this commenter suggested clarifying that an order that is a beyond-the-midpoint limit order would not also be a NMLO.424 After consideration of the comments, the Commission is adopting an order type for limit orders priced aggressively as compared to the midpoint, but with several modifications from the beyond￾the-midpoint limit order that was proposed. The specific changes being made from the proposal are: (1) revising the definition of ‘‘beyond-the-midpoint limit order’’ to include limit orders priced at the midpoint and renaming this term ‘‘midpoint-or-better limit order’’; and (2) making a modification to this definition to account for the interim opening period, as suggested by a commenter.425 In addition, the Commission is adopting as proposed the requirements that for this order type: (1) the Rule 605 report will include the execution quality statistics specific to both marketable order types and non￾marketable order types; 426 and (2) time￾based statistics will be measured from the time such orders become executable.427 The Commission is expanding the scope, as compared to the proposal, of the ‘‘midpoint-or-better’’ order types to include limit orders priced at the midpoint in response to a commenter’s concern that a category for orders that are priced more aggressively than the midpoint may not be worthwhile because these types of NMLOs are sparsely used.428 The Commission conducted additional analysis of NMLOs priced in between the national best bid and national best offer and continues to believe that market participants would benefit from receiving execution quality information specific to NMLOs
priced better than the midpoint, along with NMLOs priced at the midpoint, because they may have different execution quality statistics than other types of NMLOs.429 The Commission understands that some NMLOs priced inside the quote are submitted by traders with the intention of executing immediately against hidden or odd-lot liquidity that may be available. Scoping in limit orders priced at the midpoint will increase the size of this order type category, while including additional orders that have certain execution quality statistics that are similar to limit orders priced more aggressively than the midpoint.430 Midpoint-or-better limit orders may be treated more like marketable limit orders in certain contexts, and the Commission continues to believe that market participants will benefit from receiving price improvement statistics and effective spread statistics for these order types. In response to a commenter’s request for clarification that an order that falls within this order type would not also be a NMLO,431 the Commission confirms that midpoint-or-better limit orders will not fall within the order type category for NMLOs that become executable. Although midpoint-or-better limit orders are technically a subset of NMLOs, the definition of ‘‘categorized by order type’’ expressly excludes midpoint-or-better limit orders from the order type category for executable NMLOs.432 Accordingly, execution quality data for midpoint-or-better limit orders will be included within the statistics for only the order type categories for midpoint-or-better limit orders (excluding IOCs) or midpoint-or￾better limit orders with an immediate￾or-cancel instruction, and described in
section III.B.2.c)(2) below.
(c) Marketable and Non-Marketable IOCs (1) Proposed Approach Prior to the amendments, Rule 605 reports grouped marketable IOCs together with other marketable orders.

433See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 600(b)(20). 434See Proposing Release, 88 FR 3786 at 3811 (Jan. 20, 2023); proposed Rule 605(a)(1)(i) and (ii). 435See Nasdaq Letter at 44. 436See FIF Letter at 13. This commenter stated that an additional column in the Rule 605(a)(1) report could be used to indicate whether a particular row pertains to IOC or time-in-force orders. See id. See also FIF Letter III at 4. 437See Rule 605 Citadel Letter at 7. 438 Id. 439See id. at 10. 440See id. 441See final 17 CFR 242.600(b)(19). 442See supra notes 436, 440, and accompanying text. 443To implement this change from the proposed amendments, the Commission is modifying the proposed amendments to the definition of ‘‘categorized by order type’’ to add midpoint-or￾better limit orders that are immediate-or-cancel and executable non-marketable limit orders that are immediate-or-cancel, as well as to exclude IOCs from the order types for midpoint-or-better limit orders and executable NMLOs. See final 17 CFR 242.600(b)(19). Consistent with this change, the Commission is also modifying Rule 605 to refer to midpoint-or-better limit orders and midpoint-or￾better IOCs in Rule 605(a)(1)(i) (setting forth execution quality statistics required of all order types), (ii) (setting forth execution quality statistics required of marketable order types), and (iii) (setting forth execution quality statistics required of non-marketable order types); and to refer to executable NMLOs and executable NMLO IOCs in Rule 605(a)(1)(i) and (iii). 444See infra Table 5. With respect to orders that would fall within the adopted NMLO IOC category, this analysis demonstrates that for orders received by exchanges and ATSs, IOCs represent 4.7% of orders priced below the midpoint and 13.3% of orders priced at the quote, and for orders received by wholesalers, IOCs represent 65.3% of orders priced below the midpoint and 67.0% of orders priced at the quote. And with respect to orders that would fall within the adopted midpoint-or-better IOC category, this analysis demonstrates that for orders received by exchanges and ATSs, IOCs represent 35.8% of orders priced above the midpoint and 37.9% of orders priced at the midpoint, and for orders received by wholesalers, IOCs represent 90.8% of orders priced above the midpoint and 84.2% of orders priced at the midpoint. See id. 445See supra notes 437–440 and accompanying text. 446See infra Table 5. 447See supra notes 436, 440, and accompanying text. 448See infra Table 5. 449See supra section III.A.2.b). It is unlikely that many market participants will submit a market order with both a stop condition and an IOC instruction. However, even if such orders are submitted, they will either: (1) trigger immediately and execute at market prices, or (2) not trigger and cancel immediately because of the IOC instruction. In the case of (1), such orders are not likely to have different execution profiles than other market orders submitted
with a stop price. In the case of (2), such orders will be cancelled before they become executable and will therefore not be in reported as part of Rule 605 reports because orders submitted with stop prices must be triggered to become executable and be included in a Rule 605 report. The Commission proposed to assign marketable IOCs their own separate order type category by adding a category for ‘‘marketable immediate-or-cancel orders’’ and indicating that the category for ‘‘marketable limit orders’’ excludes IOC orders.433 The Commission also proposed to require the same execution quality information for marketable IOCs as is required for other marketable order types.434 (2) Final Rule and Discussion A national securities exchange supported establishing a new order type category for marketable IOC orders.435 An industry group stated that, for each order type, the execution profile differs based on whether the orders are IOC or time-in-force orders and therefore recommended requiring broker-dealers and market centers to break out reporting of all order types (not just marketable order types, as proposed by the Commission) to distinguish between IOC and time-in-force orders.436 A broker-dealer stated that it supported assigning IOCs to a separate order category so that they would no longer be commingled with retail orders.437 According to this commenter, many wholesale broker-dealers execute IOC orders for non-retail investors and currently ‘‘these IOC orders may be aggregated with retail orders for reporting purposes, even though the execution profile is very different and could negatively skew a wholesale broker-dealer’s execution quality metrics.’’ 438 This commenter also stated that although the Commission proposed to assign marketable IOCs as a separate order type category, similar treatment was not proposed for non-marketable IOCs.439 Thus, this commenter suggested that the Commission ‘‘include a flag for IOC orders that equally applies across both marketable and non￾marketable orders’’ because of the commenter’s view that including non￾marketable IOCs within the same order type category as regular NMLOs would significantly skew reported data.440 Following consideration of the comments, the Commission is adopting a separate order type category for marketable IOCs as propose 441 Moreover, to address commenters’ suggestions that there also be separate order type categories for non-marketable IOCs,442 the Commission is adopting, in addition to the categories that were proposed, order type categories for NMLOs that are immediate-or-cancel (‘‘NMLO IOCs’’) and midpoint-or-better limit orders that are immediate-or￾cancel (‘‘midpoint-or-better IOCs’’). As is the case with other non-marketable order types, NMLO IOCs will be included in Rule 605 reports if they become executable.443 Additional Commission analysis demonstrates that IOCs represent a significant component of order flow for both marketable orders and non-marketable orders.444 Moreover, the
Commission agrees with the commenter that commingling NMLO IOCs with NMLOs that are not immediate-or-cancel or midpoint-or￾better IOCs with midpoint-or-better limit orders that are not immediate-or￾cancel could distort execution quality statistics 445 because the Commission’s analysis demonstrates that IOCs tend to have shorter execution times and, with respect to orders received by wholesalers, lower fill rates.446 However, the Commission is not fully adopting commenters’ suggestion that the Commission differentiate between IOCs and orders that are not immediate￾or-cancel for every order type category used in Rule 605.447 While the adopted amendments will add order type categories for marketable IOCs, executable NMLO IOCs, and midpoint￾or-better IOCs, the adopted amendments will not include separate order type categories for IOCs that have characteristics of the other order types (e.g., market order with an immediate or cancel instruction, executable stop marketable limit order with an immediate or cancel instruction). An order submitter placing a market order likely has an expectation of receiving an immediate execution because there is no limit price. IOC limit orders are also submitted with an expectation of executing immediately. Moreover, an order submitter placing a market order with an immediate or cancel instruction or a limit order with an immediate or cancel instruction can reasonably expect that, if the order receives an execution, it will be at the prevailing market price at the time of order receipt. Therefore, the Commission does not believe that the execution profile for market orders with an immediate or cancel instruction will vary significantly enough from other marketable IOCs to warrant an order type category for market orders with an immediate or cancel instruction that separates these orders from other marketable IOCs.448 In addition, as discussed above, the execution profiles for an order type category or categories for limit orders with a stop condition and an IOC instruction are not likely to have significantly different execution profiles than other stop orders that fall within the same order type categories based upon marketability, and thus the Commission is not requiring order type categories that would further sub-divide the categories for orders submitted with stop prices.449

450See prior 17 CFR 242.605(a)(1)(i)(F) through (J) (requiring for all orders the reporting of the cumulative number of shares of covered orders executed within 5 specified time intervals after the time of order receipt). The preexisting time-to￾execution bucket intervals were: (1) 0 to 9 seconds; (2) 10 to 29 seconds; (3) 30 to 59 seconds; (4) 60 to 299 seconds; and (5) 5 to 30 minutes. 451See prior 17 CFR 242.605(a)(1)(ii)(D), (F), and (I) (requiring for market and marketable limit orders the reporting of average time to execution for shares executed with price improvement, shares executed at the quote, and shares executed outside the quote, respectively). See infra section III.B.4.g) for additional information about Rule 605 statistics based on whether orders executed with price improvement, at the quote, or outside the quote. 452See prior 17 CFR 242.600(b)(91) and (92). 453See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 600(b)(108) and (109). 454See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(C), (G), and (L). Prior to the amendments, Rule 605 did not specify a level of granularity for the existing time￾to-execution statistics. However, the Rule 605 NMS Plan requires these fields to be expressed in number of seconds and carried out to one decimal place. See Rule 605 NMS Plan section VI (a)(21), (23), and (26). 455See Proposing Release, 88 FR 3786 at 3812– 13 (Jan. 20, 2023); proposed Rule 600(b)(42); proposed Rule 605(a)(1)(iii)(C). 456See Proposing Release, 88 FR 3786 at 3812– 13 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(D), (E), (H), (I), (M), and (N); proposed Rule 605(a)(1)(iii)(D) and (E). Specifically, the Commission stated that while the distribution of execution speeds in addition to the average would still be useful, the then-existing time-to-execution buckets are of limited utility because the smallest time-to-execution bucket encompasses all orders executed between zero and nine seconds. See Proposing Release, 88 FR 3786 at 3813 (Jan. 20, 2023). The Commission further stated that, rather than adding additional buckets to provide distribution information for execution speeds of less than one second, the Commission was proposing to require both share-weighted median and 99th percentile time-to-execution statistics to allow users of the data to assess how quickly a market center or broker-dealer is able to execute incoming orders and understand the extent to which the time to execution for a particular category is affected by outlier values. See id. 457See, e.g., Pritchard Letter, Macarthur Letter, and Cesar Letter. 458See Bledsoe Letter. In addition, several commenters stated that ‘‘broker-dealers are able and should be required to measure order executions in seconds or milliseconds, rather than 2 days.’’ Letter Type C at https://www.sec.gov/comments/s7-29-22/ s72922.htm. 459See Nasdaq Letter at 44. 460See id. at 45. 461 Id. 462See FIF Letter at 17. 463See id. 464See
Better Markets Letter at 8. 465See Healthy Markets Letter at 17 (recommending that the Commission adopt these time buckets pursuant to an attachment to the Rule, rather than the Rule itself, to facilitate the easy updating of these buckets). 466 Id. 467See Robinhood Letter at 46.
3. Timestamp Conventions and Time-to￾Execution Statistics
(a) Proposed Approach
Prior to the amendments, Rule 605 required the reporting of information on the number of shares of covered orders executed within certain timeframes, as measured in seconds after the time of order receipt.450 Rule 605 also required the reporting of information on the average time to execution for marketable order types.451 In addition, the definitions ‘‘time of order execution’’ and ‘‘time of order receipt’’ in preexisting Rule 600 specified that time must be measured ‘‘to the second.’’ 452 The Commission proposed to update the timestamp conventions in the definitions of ‘‘time of order receipt’’ and ‘‘time of order execution’’ so that these definitions require that such times be measured in increments of a millisecond or finer.453 The Commission also proposed to specify that the average time-to-execution statistics that Rule 605 required for marketable order types should be expressed in increments of a millisecond or finer.454 Further, the Commission proposed to require that the share-weighted average time to execution be provided for non￾marketable order types, as calculated from the time such orders become executable, and the proposed definition of ‘‘executable’’ provided that the time an order becomes executable shall be measured in increments of a millisecond or finer.455 Finally, the Commission proposed to eliminate the existing time-to-execution buckets and require the reporting of share-weighted median and 99th percentile time to execution for all order types.456 (b) Final Rule and Discussion As discussed below, after consideration of the comments, the Commission is adopting the use of timestamp conventions of a millisecond or finer for time-based execution quality statistics as proposed. The Commission is also requiring average time-to￾execution statistics for all order types and specifying that for NMLOs these statistics will be measured from when the order becomes executable as proposed. However, the Commission is not adopting the proposed median and 99th percentile execution quality statistics for all order types. Instead, the Commission is retaining the time-to￾execution buckets from Rule 605 prior to these amendments, which apply to all order types, but is modifying the associated time ranges to account for the overall increase in trading speeds since Rule 605 was adopted and as supported by certain commenters. Several individual investors supported the proposal to require reporting of average time to execution, median time to execution, and 99th percentile time to execution in increments of a millisecond or finer.457 Another individual investor stated that measuring in milliseconds would be a ‘‘huge step forward’’ in understanding order execution.458 A national securities exchange supported eliminating time-to￾execution categories in favor of average time to execution, median time to execution, and 99th percentile time to execution, each as measured in increments of a millisecond or finer and calculated on a share-weighted
basis.459 This commenter stated that requiring average time to execution for all order types, as well as statistics regarding the distribution of execution times within each order type, ‘‘would offer more consequential information.’’ 460 According to this commenter, ‘‘[t]hese statistics could be used to judge and compare the average time to execution for a particular order type and still provide information about the extent to which outlier values may skew the average.’’ 461 One industry group stated that the use of milliseconds is the best approach at this time.462 This commenter suggested that the Commission should engage in discussions with market centers to consider whether a requirement for market centers to report with increased granularity for CAT, Rule 605, and other required reporting would be appropriate.463 An investor advocacy group stated that requiring timestamp information in millisecond increments would allow for meaningful points of comparison between market centers and/or broker-dealers for data that uses timestamp information and time-to￾execution statistics.464 Another investor advocacy group recommended that the Commission modify the required time￾to-execution buckets for all order types to time buckets that can be adjusted over time, starting with the following buckets: less than 500 microseconds; 500 microseconds to 1 millisecond; 1 to 10 milliseconds; 10 to 100 milliseconds; 100 milliseconds to 1 second; 1 to 10 seconds; and greater than 10 seconds.465 This commenter stated that ‘‘[b]y creating buckets for timestamp, rather than average time to execution, the reports would provide much greater granularity while still allowing a user of the data to recreate average time to execution.’’ 466 A broker-dealer supported the new statistics reporting times in increments of a millisecond or finer and stated that this will better reflect the speed at which orders are executed today.467

468See Proposing Release, 88 FR 3786 at 3812 (Jan. 20, 2023). 469See id. Reporting entities that choose to utilize a timestamp convention finer than a millisecond generally should utilize that same convention throughout their detailed report required by Rule 605(a)(1) for a particular month. 470See Robinhood Letter at 47–48. 471See id. at 48. 472See infra note 1461 and accompanying text. 473See id. 474See Gillmore Letter. 475See id. 476See infra notes 1476–1477 and accompanying text. 477See final 17 CFR 242.605(a)(1)(ii)(G), (I), and (L); final 17 CFR 242.605(a)(1)(iii)(D). See also Proposing Release, 88 FR 3786 at 3813 (Jan. 20, 2023). 478See FIF Letter II at 3–4. In an earlier comment letter, this commenter had suggested that the time￾to-execution period should only consider the portion of an order that is marketable at the time of order receipt or, alternatively, only count towards the time of execution the period during which the order is marketable. See FIF Letter at 18. See also FIF Letter II at 3 (amending its suggestion after further discussions). 479See FIF Letter at 17–18; FIF Letter II at 3. This commenter also requested confirmation that time to execution should not be reported for unfilled shares and that unfilled shares would be reflected through the reporting of the number of shares of covered orders and the number of shares cancelled prior to execution. See FIF Letter at 18. The Commission agrees that, as is currently the case, the time to execution for unfilled shares will not be required to be reported as part of the time-to-execution statistics because their inclusion could distort the statistics. See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring disclosure of ‘‘the cumulative number of shares of covered orders’’ executed in less than 100 microseconds) (emphasis added). 480See Rule 605 Citadel Letter at 10. 481See Schwab Letter II at 32. 482See supra note 480 and accompanying text. The Commission is adopting the updates to the timestamp conventions to measure time-based statistics in increments of a millisecond or finer as proposed for the reasons discussed in the Proposing Release.468 Requiring that Rule 605 reports include timestamp information in millisecond increments will allow for meaningful points of comparison among market centers or broker-dealers.469 A broker-dealer stated that although it supports transitioning time-to-execution metrics to smaller increments of time, it is concerned that more granular timestamps may lead to greater variation across firms because firms may have different practices around when to mark the same event, quotation information may vary materially due to geographic latency, and SIP data are likely to vary from proprietary feeds.470 This commenter stated that the Commission should address these potential issues with timestamps to ensure that execution quality statistics for brokers are not misleading, biased, or inconsistent.471 However, evidence suggests that geographic latencies, which
may account for the majority of latency differences experienced by the SIP, are currently below a millisecond.472 Therefore, any distortions related to latencies are likely to be smaller than the timestamp granularity. Further, it is likely that distortions may be reduced by using finer timestamp conventions that more closely align to existing market practice, as the NBBO that is matched to a particular order is likely to be closer to the NBBO at the time of order receipt.473 Reporting firms generally should record the time of order receipt at the time that the firm first receives the order and the time of order execution at the time of execution as included on the trade confirmation. One individual investor, who expressed concern related to the proposal, stated that focusing on the speed of execution only benefits high￾frequency traders who can take advantage of small price discrepancies to make quick profits.474 This commenter stated that he is more concerned with getting a fair price for his trades than the speed of execution.475 The Commission is retaining time-to-execution statistics in Rule 605 reports for the reasons discussed herein. Different investors benefit from faster execution times for different reasons. With respect to individual investors in particular, delays in execution can lead to worse prices for market orders in an increasing (for buy orders) or decreasing (for sell orders) market and lower probabilities of execution for IOCs.476 However, amended Rule 605 does not focus on speed to the exclusion of other important aspects of execution quality, including fill rates and price improvement. The Commission is adopting, as proposed, the requirement that average time-to-execution statistics be calculated for all order types, including non-marketable order types.477 The Commission is also adopting, as proposed, the requirement that average time to execution for non-marketable order types be measured from the point in time that orders become executable because this will provide a control for prevailing market conditions and benchmark orders from a point when such orders can reasonably be expected to execute. An industry group raised concerns with reporting time to execution when the size of the customer’s order exceeds the size of the opposite-side bid or offer and suggested that time-to-execution statistics for marketable orders should only consider the time to execution for shares executed by a reporting firm during the time period prior to the order first becoming unmarketable.478 This commenter stated that firms that receive marketable orders that are larger relative to the opposite-side displayed NBBO quantity would show a longer time to execution as compared with firms that receive marketable orders that are smaller relative to the opposite-side displayed NBBO quantity, and in this way reported performance would be impacted by factors that do not reflect a true comparison of the execution performance across firms.479 In
addition, a broker-dealer stated that execution time statistics should be required only for market orders because marketable limit orders (including NMLOs that become marketable) may be partially executed or may exceed the consolidated quote size and it would be difficult to interpret this data without more context and information.480 Another commenter stated that the execution speed metric for marketable limit orders should be limited to size available at the best protected quote at the far touch because this will ensure that orders larger than the quoted size that take out the best price and are posted for the balance do not skew the statistics.481 The Commission is not adopting these commenters’ suggestions to limit the application of time-to-execution statistics to take into account concerns about marketable limit orders that exceed the available quantity at the opposite side bid or offer. The Commission disagrees with restricting time-to-execution statistics so that they apply to market orders only because time-to-execution statistics will provide meaningful information for all marketable and non-marketable order types and the time it takes to execute an initially marketable limit order that becomes non-marketable is still relevant.482 The Commission also disagrees with the suggestion that it is necessary to limit time-to-execution statistics to the time it takes to execute the size available at the opposite side quote or the time it takes to first exhaust available liquidity to avoid skewed statistics. If a covered order receives a partial execution, the share-weighted time-to-execution statistics will consider the execution time of each subset of shares that received an execution and will not consider any subset of shares that does not receive an execution, and this will help mitigate against partial executions distorting

483Requiring that average time-to-execution statistics be calculated for non-marketable order types from the point in time that they become executable will realize the benefits of including those orders in the statistics while, at the same time, minimizing the distortions that could occur if time-to-execution statistics included the time during which such orders were non-marketable. 484See supra notes 457, 459–461, and accompanying text. 485See FIF Letter at 21–22; FIF Letter II at 7–9; FIF Letter III at 3. 486FIF Letter III at 3. 487See FIF Letter at 21–22. This commenter suggested that, for example, the share-weighted average time to execution that is adjusted for outliers could exclude the one percent of orders with the longest time to execution. See id. 488See supra notes 465–466 and accompanying text. 489See supra note 485 and accompanying text. 490See supra note 487 and accompanying text. 491See Proposing Release, 88 FR 3786 at 3892 (Jan. 20, 2023). 492See supra notes 465–466 and accompanying text. 493See final 17 CFR 242.605(a)(1)(i)(G) through (N). The Commission is not specifying time ranges for the time-to-execution bucket in a separate attachment as suggested by a commenter (see supra note 465) and is instead adopting set time buckets. 494See infra Figure 20 and Figure 21. 495See infra note 1466; Figure 21. time-to-execution statistics.483 Similarly, if some shares of a covered order execute more quickly than others due to the availability of liquidity, the share-weighted time-to-execution statistics will take into account the time to execution for each subset of shares. Other available information will allow users of Rule 605 reports to control for these types of factors and facilitate their ability to interpret time-to-execution statistics for marketable limit orders. In particular, Rule 605 statistics will be categorized by order type and size and this categorization will provide useful context to understand time-to-execution statistics. For example, larger-sized orders may be more likely to exceed the consolidated quote size and the time-to￾execution statistics for covered orders that fall within different size ranges will appear in separate rows. Individual investors and a national securities exchange supported the proposed addition of median and 99th percentile time-to-execution statistics for all order types.484 However, an industry group recommended an alternative to the reporting of the median and 99th percentile statistics because of its view that market participants and other firms analyzing Rule 605 data would not be able to aggregate these statistics across symbols and order types.485 The commenter stated that ‘‘it is important that users of the report have the ability to aggregate this data . . . across different sub￾categories of orders.’’ 486 Specifically, this commenter recommended that firms report share-weighted average time to execution without adjusting for outliers and separately report share￾weighted average time
to execution with an adjustment for outliers.487 In addition, an investor advocacy group suggested that the Commission modify the required time-to-execution buckets for all order types to time buckets that can be adjusted over time rather than requiring average time-to-execution statistics.488 The Commission agrees with the commenter that it would not be possible to aggregate median or 99th percentile time-to-execution statistics across symbols or order types.489 Although median or 99th percentile time-to￾execution statistics may have provided useful information in each individual row (i.e., representing a particular symbol, order type, and order size), users of the reports would have been unable to aggregate these statistics across multiple rows without the full underlying dataset because the median and 99th percentile values cannot be aggregated across different stocks or order types. The inability to aggregate these statistics would have made them less useful because the final rule amendments will result in more rows of information, and the median and 99th percentile time-to-execution statistics would only have provided information to compare more discrete subsets of Rule 605 data. Therefore, the Commission is not adopting its proposal to require the reporting of median and 99th percentile time-to-execution statistics for all order types. The Commission is not adopting the commenter’s suggestion that, instead of requiring median and 99th percentile time-to-execution statistics, the Commission should require the separate reporting of average time to execution with outliers and without outliers.490 The Commission does not agree that these alternative metrics would solve the identified problem because the method of identifying outliers, such as the longest 1% of orders, would also prevent aggregation across multiple rows. As is the case with median and 99th percentile statistics, any cut-off selected as the means to identify outliers would not be constant across different stocks or order types and thus interfere with aggregation. As another means of providing such distribution information, and consistent with the alternative that the Commission considered in the Proposing Release 491 and a commenter’s suggestion,492 the Commission is retaining the time-to￾execution buckets in place prior to the amendments and modifying these buckets to incorporate additional granularity. The Commission continues to believe that information about the distribution of order execution speeds is useful because orders may execute near instantaneously or over the course of several minutes and thus average time￾to-execution statistics in some instances could be skewed by outlier values. The amended time-to-execution buckets that the Commission is adopting will provide information about the distribution of execution times at a more granular level. This information will allow market participants and other users of the data to assess how quickly a market center or
broker-dealer is able to execute incoming orders and better understand whether and to what extent the average time to execution within a particular category may be affected by outlier values. The adopted time-to-execution buckets differ from the time-to￾execution buckets that existed in Rule 605 prior to the amendments in two respects. First, the Commission is utilizing new time ranges for the time￾to-execution buckets to make the buckets more granular in recognition of increased execution speeds and consistent with comment. As adopted, the time-to-execution bucket ranges are:
(1) less than 100 microseconds; (2) 100 microseconds to less than 1 millisecond; (3) 1 millisecond to less than 10 milliseconds; (4) 10 milliseconds to less than 1 second; (5) 1 second to less than 10 seconds; (6) 10 seconds to less than 30 seconds; (7) 30 seconds to less than 5 minutes; and (8) 5 minutes or more.493 The Commission is selecting these amended time-to-execution bucket ranges based on its analysis of the distribution of shares across various time-to-execution buckets.494 The Commission’s analysis demonstrates that most market and marketable limit orders have execution times clustered in the faster buckets and most at-the-quote NMLOs have execution times in the slower buckets.495 The time-to￾execution buckets that the Commission is adopting are designed to best capture variations in execution times across different order types. Specifically, the Commission is including a time-to-execution bucket of less than 100 microseconds in order to provide visibility into differences in execution times for IOCs. Most IOCs execute in less than 100 microseconds and the distribution of some IOCs across slower time-to-execution buckets will

496See infra note 1465; Figure 20.
497See supra notes 465–466 and accompanying text. 498See supra note 465 and accompanying text. 499See supra notes 494–495 and accompanying text. 500See prior 17 CFR 242.605(a)(1)(i)(F) (for covered orders executed from 0 to 9 seconds after the time of order receipt) and (G) (for covered orders executed from 10 to 29 seconds after the time of order receipt). 501See prior 17 CFR 242.605(a)(1)(i)(I) (for covered orders executed from 60 seconds to 299 seconds after the time of order receipt) and (J) (for covered orders executed from 5 minutes to 30 minutes after the time of order receipt). 502See, e.g., final 17 CFR 242.605(a)(1)(i)(G) (requiring reporting of ‘‘[t]he cumulative number of shares of covered orders executed less than 100 microseconds after the time of order receipt; or, for non-marketable limit orders, after the time the order becomes executable’’). 503See note 496 and accompanying text (stating that most IOCs execute in less than 100 microseconds). 504See, e.g., final 17 CFR 242.605(a)(1)(i)(G). 505See, e.g., prior 17 CFR 242.605(a)(1)(i)(F). 506See supra note 455 and accompanying text. 507See prior 17 CFR 242.605(a)(1)(i). 508See prior 17 CFR 242.605(a)(1)(ii). For a discussion of the time-to-execution statistics in the current rule, see supra section III.B.3. 509See Proposing Release, 88 FR 3786 at 3903– 04 (Jan. 20, 2023). 510See id. at 3904. 511See id. at 3904–05. For a discussion of the proposed modifications to time-to-execution statistics as discussed in the Proposing Release, see supra section III.B.3. 512See, e.g., Prichard Letter; Varghese Letter; Welch Letter. 513See Varghese Letter. allow market participants to use Rule 605 reports to identify IOCs that are outliers with respect to execution time.496 The Commission is also adopting a time-to-execution bucket of 100 microseconds to less-than-one millisecond that will capture an additional set of sub-millisecond orders. The inclusion of sub-millisecond orders in distinct time-to-execution buckets is consistent with the commenter’s suggestion to utilize more granular time buckets for orders executed in less than 500 microseconds and for orders executed in between 500 microseconds and 1 millisecond.497 The two adopted time-to-execution buckets for orders executed from 1 millisecond to less than 1 second are similar to the commenter’s recommendation for sub-second time buckets,498 but utilize two time-to￾execution buckets instead of the suggested three based on the Commission’s analysis of order distribution.499 The time-to-execution buckets for orders executed from 1 second to less than 10 seconds and from 10 seconds to less than 30 seconds are comparable to the two shortest time-to￾execution buckets in the preexisting rule.500 The longest time-to-execution buckets being adopted are comparable to the longest time-to-execution buckets in the preexisting rule, but combine the second- and third-longest buckets based on the Commission’s analysis of order distribution.501 Under the
amended rule, the Commission is adopting time-to￾execution buckets at the sub￾millisecond level while also adopting a timestamp convention that will not require the use of reporting increments finer than a millisecond. These two aspects of Rule 605 are not inconsistent because the time-to-execution buckets will not require reporting entities to record time in microseconds. Instead, reporting entities that record time at the millisecond-level only generally should bucket orders based on the difference between the recorded time of order receipt (or executability in the case of NMLOs) and the recorded time of execution.502 Accordingly, a reporting entity that records time in milliseconds generally should report in milliseconds and will not be able to identify orders as being completed in less than 100 microseconds; therefore, this time-to￾execution bucket will remain empty.503 Second, when calculating where an NMLO falls within a time-to-execution bucket, time to execution will be calculated from the time the order becomes executable.504 Prior to the amendments, Rule 605 reporting requirements included only those NMLOs that fell within limited order type categories (i.e., inside-the-quote limit orders, at-the-quote limit orders, and near-the-quote limit orders) and the preexisting time-to-execution buckets contemplated that, for all orders, the relevant time period to be measured was from the time of order receipt to the time of order execution.505 Calculating where NMLOs fall within the time-to￾execution buckets utilizing the time the order becomes executable rather than the time of order receipt is consistent with how the Commission proposed, and is adopting, to measure other time￾based execution quality statistics for NMLOs.506
4. Execution Quality Statistics
Preexisting Rule 605(a)(1) required market centers to include in their monthly reports columns of detailed execution quality information. For all order types, the required statistics included information on the number of orders; cumulative number of shares; cumulative number of shares cancelled prior to execution; cumulative number of shares executed at the receiving market center and at any other venue; and average realized spread.507 In addition, for market orders and marketable limit orders, the required statistics included information on the average effective spread; cumulative number of shares executed with price improvement, at the quote, and outside the quote; for shares executed with price improvement, the share-weighted average amount per share that prices were improved; and for shares executed outside the quote, the share-weighted average amount per share that prices were outside the quote.508 As described further herein, the Commission proposed to modify the execution quality statistics required for all order types and marketable order types, and to add execution quality statistics specific to non-marketable order types. As proposed, the required statistics for all order types would have included information on the number of orders; cumulative number of shares; cumulative number of shares cancelled prior to execution; cumulative number of shares executed at the receiving market center, broker, or dealer, and at any other venue; cumulative number of shares of the full displayed size of the protected bid or offer at the time of execution; average realized spread and average percentage realized spread at two time intervals; average effective spread; average percentage effective spread; and average effective over quoted spread.509 In addition, the required statistics for marketable order types and beyond-the-midpoint limit orders would have included the cumulative number of shares for shares executed with price improvement, at the quote, and outside the quote; share￾weighted average amount per share that prices were improved; share-weighted average amount per share that prices were outside the quote; and price improvement statistics relative to the best available displayed price.510 Finally, for non-marketable order types the required statistics would have included the number of orders that received a complete or partial fill, and cumulative number of shares executed regular way at prices that could have filled the order while the order was in force.511 Several individual investors generally supported the proposal to add new execution quality statistics.512 One of these individual investors stated that the proposed enhancements to the required statistical measures of execution quality will provide valuable insights for investors.513 Another individual investor stated that the proposed modification to reporting requirements for NMLOs would capture more relevant execution quality

514See Genco Letter.
515See Gillmore Letter. The proposed changes to Rule 605’s execution quality metrics are not intended to reduce market fragmentation. Instead, the Commission expects that these changes will ameliorate the potentially adverse effects of market fragmentation on efficiency, price transparency, best execution of investor orders, and order interaction. 516See SIFMA Letter II at 20. 517See id. at 21. The Commission is still considering the proposal to change tick sizes discussed in the Minimum Pricing Increments Proposing Release. 518See Professor Schwarz et al. Letter at 5. 519See id. 520See Angel Letter at 4. 521See id. 522For a discussion of the time-to-execution statistics that the Commission is adopting and the changes made to those statistics as compared to what was proposed, see supra section III.B.3. For a discussion of the cumulative notional value of covered orders statistic that the Commission is adopting, see supra notes 376–378 and accompanying text. 523See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). For buy orders, realized spread was calculated as double the amount of difference between the execution price and the midpoint of the NBBO 5 minutes after the time of order execution. For sell orders, realized spread was calculated as double the amount of difference between the midpoint of the NBBO 5 minutes after the time of order execution and the execution price. See id. 524See id. at 3815. 525See Better Markets Letter at 8; Nasdaq Letter at 44; Pritchard Letter. See also Schwab Letter III at 3 (supporting the inclusion of realized spread statistics in the summary report to provide ‘‘better transparency regarding the distinct characteristics of order flow among brokers’’). 526See SIFMA Letter II at 31; Rule 605 Citadel Letter at 8; Virtu Letter II at 11. 527See SIFMA Letter II at 31. 528Rule 605 Citadel Letter at 8–9 (stating that realized spread does not consider the actual exit trade, does not account for fixed or variable costs, and cannot compare a large ‘‘parent’’ order with smaller ‘‘child’’ orders). 529See Virtu Letter II at 11–12. information for these orders.514 However, an individual investor that expressed concerns about the proposal stated that the proposed amendments to execution quality statistics ‘‘do not address the fundamental of market fragmentation, where orders are routed to different venues depending on their likelihood of being executed quickly and cheaply.’’ 515 An industry group stated that the Commission does not appear to have considered the impact of variable tick sizes for securities, as contemplated by the proposed harmonization of quoting and trading increments discussed in the Minimum Price Increments Proposing Release, on market participants’ ability to compare execution quality over several months.516 This commenter suggested that there should be some mechanism by which investors are informed of how to interpret Rule 605 reports in situations where the tick size is recalibrated and it impacts
reported execution quality.517 A group of academics stated that although some of the new disclosure requirements may be helpful for a subset of trades, they suggest limiting changes to the Rule 605 statistics to the new order size categories, including new categories for fractional shares and odd-lots, and E/Q statistics.518 These commenters stated that these adjustments would reduce implementation costs and speed up adoption.519 However, although limiting the changes to order size categories and E/Q statistics could potentially reduce costs and speed implementation, the other adopted modifications to the execution quality statistics described herein are designed to enhance the disclosures required by prior Rule 605. Even if the Commission were to limit the amendments to order sizes and E/Q statistics, preexisting market centers would still need to adjust their systems and processes to capture new information and new reporting entities would need to develop their systems and processes to capture the required execution quality statistics. The Commission received many comments concerning specific execution quality statistics and discusses these comments below. Further, with respect to the proposed execution quality statistics in general, an academic suggested adding median data in addition to average data because, according to this commenter, ‘‘fat tails’’ can make average numbers ‘‘highly misleading.’’ 520 This commenter also generally suggested that percentages should be included along with dollar amounts.521 The Commission is adopting the proposed detailed execution quality statistics with several adjustments. In the subsections below, the Commission discusses the comments received and the execution quality statistics being adopted as they pertain to: (1) realized spread, (2) average effective spread, (3) percentage-based effective and realized spread, (4) effective over quoted spread, (5) size improvement, (6) riskless principal, (7) price improvement, and (8) relative fill rate.522 In response to the commenter’s suggestion to add median data and percentages, as described herein, the Commission is adopting additional statistics that will provide modified time-to-execution buckets, percentage-based statistics that will complement certain dollar-based statistics, and an average midpoint statistic that will make it possible to calculate percentages relevant to other statistics. (a) Realized Spread (1) Proposed Approach Prior to these amendments, Rule 605 required calculation of average realized spread for executions of all covered orders and this metric was calculated by comparing the execution price of an order and the midpoint of the NBBO as it stands 5 minutes after the time of order execution.523 The Commission proposed to shorten this time horizon and require that average realized spread be calculated 15 seconds and 1 minute after the time of execution in recognition of the increased speed of the contemporary market environment.524 The
Commission proposed to require realized spreads to be calculated at both intervals in order to provide relevant information for symbols with different liquidity characteristics. (2) Final Rule and Discussion The Commission is adopting the proposed realized spread time horizons of 15 seconds and 1 minute for the realized spread statistics required for all order types. After considering comments received, the Commission is also adding shorter time horizons of 50 milliseconds and 1 second, and additionally retaining preexisting Rule 605’s requirement to calculate realized spread 5 minutes after the time of order execution. In total, there will be five realized spread time horizons: 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes. A national securities exchange, an investor advocacy group, and an individual investor supported the proposed changes to realized spread.525 However, an industry group and two broker-dealers opposed the continued inclusion of realized spread statistics and recommended that the Commission remove these statistics from Rule 605’s reporting requirements.526 The industry group stated that it was concerned that this data element is being misused as a proxy for certain firm profits.527 One of the broker-dealers stated that ‘‘the Commission’s assertion that realized spread can serve as a proxy for liquidity provider profitability has been thoroughly discredited, including by academic research.’’ 528 The other broker-dealer stated that realized spread statistics are not a measure of profitability because they ignore inputs that impact profitability, including inventory holding costs, fixed costs, and transaction rebates and fees.529 This commenter further stated that ‘‘there is

530 Id. at 12. 531See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75424 (Dec. 1, 2000). 532See id. 533See infra note 1230 and accompanying text. 534See Proposing Release, 88 FR 3786 at 3814 (Jan. 20, 2023). 535See infra note 1232 and accompanying text. 536Schwab Letter III at 3. Similarly, an industry group advocated including realized spread statistics in the summary report in order to provide a means of assessing the impact of order flow that market participants may classify as more or less informed as well the size of an order relative to the average daily value of the stock. See FIF Letter at 31–32. Because realized spreads will be measured using the price at the time of order execution, and effective spreads will be measured using the price at the time of order receipt (or order executability, in the case of NMLOs and midpoint-or-better limit orders), the decomposition of realized spreads into effective spreads and price impact will not be exact. See infra note 1484 for further discussion. 537Better Markets Letter at 8. 538See SIFMA Letter II at 31–32. This commenter further stated that it does not believe a one-size-fits￾all metric can work because market participants have different views regarding the appropriate time periods for measuring realized spread and the appropriate period can vary based on the specific symbol or type of order flow involved. See id. at 32. 539See Rule 605 Citadel Letter at 8. 540 Id. 541See Virtu Letter II at 12. 542See Healthy Markets Letter at 17. 543See Proposing Release, 88 FR 3786 at 3815– 16 (Jan. 20, 2023). 544See id. at 3814, n.367 (citing Jennifer S. Conrad & Sunil Wahal, The Term Structure of Liquidity Provision, 136(1) J. Fin. Econ. 239–259 (2020)) and at 3815. In response to the commenter’s statement that the Commission has not appropriately analyzed inventory turnover (see supra note 538 and accompanying text), the Commission observes that although an ideal measurement horizon would align with the amount of time that an average liquidity provider holds only inventory positions established from providing liquidity, these data are not easily observable. See infra note 1489 and accompanying text. Instead, the Commission’s analysis of realized spreads in the Proposing Release was based on the theoretically motivated and empirically observed decline in realized spreads over increasing time horizons, similar to the academic literature. See infra notes 1490–1491 and accompanying text. 545See supra notes 537–541 and accompanying text. a risk that such measurements are improperly used . . . as a proxy for liquidity providers’ profitability.’’ 530 The Commission observes that commenters to the original Rule 11Ac1– 5 proposal also questioned the usefulness of a realized spread statistic and recommended that it be eliminated.531 When adopting Rule 11Ac1–5, the Commission stated that average realized spread is an essential measure for evaluating a market center’s order execution practices.532 Average realized
spread remains an essential measure for evaluating execution quality because it measures the portion of the spread that liquidity providers earn in excess of adverse selection.533 Liquidity providers’ adverse selection risk represents the risk that market prices will move against them before they can unwind their accumulated positions. A lower average realized spread can indicate that prices have moved in a direction more adverse to the liquidity provider after the order was executed. Thus, a low average realized spread can indicate that a liquidity provider was providing liquidity at a time when prices were moving against it. In addition, average realized spread can provide useful information about the type of order flow a larger broker-dealer receives because smaller (or even negative) realized spreads reflect that liquidity providers are earning less of the spread from their liquidity provisions, which is usually a reflection of order flow with greater adverse selection risk. Therefore, the Commission is retaining the metric, and is adopting the 15 second and 1 minute time horizons as proposed along with additional time horizons as discussed below, to make the metric more useful in relation to current market speeds. The Commission stated in the Proposing Release that to the extent realized spreads capture adverse selection costs faced by liquidity providers, they provide a measure of the potential profitability of trading for liquidity providers.534 The Commission does not maintain that realized spread is a measure of a firm’s overall profitability.535 Instead, realized spread statistics allow market participants to identify those market centers willing to supply liquidity during stressed markets or when prices are moving quickly, and to evaluate larger broker-dealers’ order execution or routing practices, as well as to understand the type of order flow a particular broker-dealer may be handling. One commenter, in the context of summary reports, stated that realized spread can be used to calculate price impact (when combined with effective spread statistics), which ‘‘would provide better transparency regarding the distinct characteristics of order flow among brokers.’’ 536 For both market centers and larger broker￾dealers, realized spread can allow market participants to control for the extent to which orders submitted by persons with better information than is generally available in the market are routed to different market centers or received by different broker-dealers, as compared to orders submitted by persons without an information advantage. Orders submitted by persons with such an information advantage represent a substantial risk to liquidity providers that take the other side of the position. Several commenters discussed the proposed time horizons for measuring realized spread. An investor advocacy group stated the 15 second and 1 minute time horizons ‘‘better capture the reality of today’s fast-paced market transactions and align
well with the available academic literature.’’ 537 An industry group stated that the Commission has not provided a rational basis for its method of calibrating the realized spread timeframes and, in particular, has not appropriately analyzed inventory turnover, thereby making the proposed 15 second and 1 minute timeframes arbitrary with respect to inventory turnover.538 A broker-dealer stated that ‘‘[r]ealized spread assumes that liquidity providers exit each position in a costless manner at the end of a fixed period and is highly dependent on the time horizon used to make the calculation’’ and questioned the Commission’s choice of 15 seconds and 1 minute.539 This commenter stated that ‘‘[w]hile mark-out metrics like realized spread might have limited use in comparing samples of otherwise substantially similar order flow, these metrics become largely useless when attempting to compare different types of order flow or market centers.’’ 540 Another broker-dealer stated that it is unclear what the Commission’s basis is for ‘‘bluntly’’ measuring realized spreads at 15 seconds and 1 minute.541 Another investor advocacy group recommended that to best identify adverse selection, realized spread should be calculated on even shorter time horizons, including 50 milliseconds and 100 milliseconds.542 As discussed in the Proposing Release, requiring realized spread information at different time horizons will provide investors with relevant information for more liquid stocks and more thinly traded stocks.543 The Commission selected the 15 second and 1 minute time horizons for calculating realized spread based on its own analysis, which was supported by several commenters and aligned with existing academic literature.544 However, several commenters questioned the Commission’s basis for measuring realized spreads at 15 seconds and 1 minute.545 In the Proposing Release, the Commission acknowledged that both shorter (50 millisecond, 100 millisecond) and longer (3 minute, 5 minute) time horizons would provide useful information for certain groups of stocks, but stated that each additional time horizon adds computational burden and increases the size and complexity of

546See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 547See id.; infra Table 7. In the Proposing Release, the analysis showed that most of the difference in realized spread was captured for the largest stocks at 15 seconds, and more than half of the difference was captured for smaller cap stocks at one minute. See Proposing Release, 88 FR 3786 at 3815 (Table 1) (Jan. 20, 2023). Similarly, the analysis using Q1 2023 data shows approximately 90% of the cumulative decline in realized spread is captured by the 15-second horizon for the largest market capitalization group, compared to only about 50% for the smaller market capitalization groups. At the one-minute horizon, approximately 75% of the realized spread is captured for the smaller market capitalization groups. See infra
Table 7.
548See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 549See also infra notes 833–838 and accompanying text for discussion of the addition of average realized spread to the summary report. 550See supra note 542 and accompanying text (suggesting that realized spread should be calculated on even shorter time horizons, including 50 milliseconds and 100 milliseconds). The Commission considered 50 and 100 millisecond time horizons as part of its updated analysis, consistent with the commenter’s suggestion to add 50 and 100 millisecond time horizons (see infra note 1492), but, based on this analysis, determined that one very fast time horizon, such as 50 milliseconds, among a wider range of time horizons will be beneficial, for the reasons described below. 551See, e.g., Bringing the Power of Signal V6 to D-Limit, IEX (Oct. 31, 2023), available at https:// www.iex.io/article/bringing-the-power-of-signal-v6- to-d-limit; Mackintosh, Phil, What Markouts Are and Why They Don’t Always Matter, Nasdaq (July
2020) available at https://www.nasdaq.com/
articles/what-markouts-are-and-why-they-dont￾always-matter-2020-07-23; and Mackintosh, Phil, All-in Economics to Trade Are What Matters Most, available at https://www.nasdaq.com/articles/all￾in-economics-to-trade-are-what-matters-most. 552See infra Table 7. 553Offering a range of realized spread time horizons is also consistent with industry practice, in which a range of time horizons is used to compare adverse selection with so-called ‘‘mark-out curves.’’ See, e.g., supra note 551. 554See supra notes 538 and 541. 555See infra Figure 22 and Figure 23. 556See infra Figure 23. 557See supra note 542. 558See infra Figure 23. 559See id. 560See prior 17 CFR 242.605(a)(1)(ii)(A). 561See prior 17 CFR 242.600(b)(8). 562See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 563See proposed Rule 600(b)(10). As proposed, beyond-the-midpoint limit orders would have been a type of NMLO. See Proposing Release, 88 FR 3786 at 3816, n.385 (Jan. 20, 2023). 564See proposed Rule 600(b)(10). See also Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). reports.546 Further, in the Proposing Release, the Commission analyzed the decline in realized spreads of increasing time horizons in order to determine when a significant percentage of the decline in realized spread had been captured. The Commission replicated its realized spread analysis from the Proposing Release, using data from Q1 2023, and in both analyses the cumulative decline in realized spread captured at different time horizons varies by market capitalization.547 These results indicate that, consistent with the Commission’s statement in the Proposing Release,548 both shorter and longer time horizons than those proposed will provide useful information for certain subsets of stocks. After consideration of the comments and the Commission’s original and updated analysis, the Commission is adopting two shorter time horizons (50 milliseconds and 1 second) and one longer time horizon (5 minutes, consistent with prior Rule 605) in addition to the two time horizons that were proposed (15 seconds and 1 minute).549 The time horizons of 50 milliseconds and 1 second are in line with the commenter’s suggestion that the Commission include shorter time horizons to better capture adverse selection.550 Further, as discussed below, the 50 millisecond time horizon is appropriate for large capitalization stocks. The 1 second time horizon offers another point of comparison along the range of time horizons and aligns with a realized spread measure that industry analysts often use.551 The Commission is also adopting the requirements to calculate realized spread at 15 seconds and 1 minute, which were the time horizons proposed. Finally, the Commission is retaining the requirement in place prior to the amendments to calculate realized spread at 5 minutes. The results of the Commission’s replicated realized spread analysis continue to show that a 5 minute time horizon is informative for illiquid stocks.552 Thus, requiring
realized spread at five time horizons will better capture variation 553 among different capitalization stocks with different liquidity profiles than the two proposed thresholds alone. In response to commenters critical of the Commission’s basis for its selection of realized spread time horizons,554 the Commission performed additional empirical analyses of optimal realized spread time horizons for robustness. The Commission examined the amount of noise in price impact measures to analyze the time horizon that incorporates the lowest amount of noise into measurements of price impact.555 For the largest stocks, the signal-to-noise ratio begins to decline immediately, even at very fast time horizons.556 This latter result supports including a very fast time horizon, such as 50 milliseconds, consistent with a comment received.557 However, the ratio starts to flatten out after the 1 minute horizon for smaller stocks and for medium to large stocks after 15 seconds.558 Further, for the two smaller stock groups, the results show a small but steady increase in the signal-to￾noise ratio as the time horizon increases, implying that realized spread measures are becoming more informative as the noise in the price impact component decreases. This result supports including a longer time horizon, i.e., 5 minutes, which maximizes the signal-to-noise ratio for these stocks.559 These additional empirical analyses also support a range of realized spread time horizons, consistent with the amended time horizons. (b) Average Effective Spread (1) Proposed Approach Prior to these amendments, Rule 605 required firms to calculate average effective spread for market and marketable limit order types only.560 Preexisting Rule 600(b)(8) defined ‘‘average effective spread’’ as the share￾weighted average of effective spreads for order executions calculated, for buy orders, as double the amount of difference between the execution price and the midpoint of the national best bid and national best offer at the time of order receipt and, for sell orders, as double the amount of difference between the midpoint of the national best bid and national best offer at the time of order receipt and the execution price.561 The Commission proposed to expand effective spread reporting requirements to require that firms report average effective spread statistics for all covered orders, and to modify the methodology for calculating this metric for executable NMLOs, beyond-the-midpoint limit orders, and executable stop orders.562 Specifically, the Commission proposed to revise the definition of ‘‘average effective spread’’ to provide that, for order executions of NMLOs 563 and orders submitted with stop prices, average effective spread be calculated from the time the order becomes executable.564 (2) Final Rule and Discussion The Commission is adopting a requirement to report effective spread statistics for marketable order types (i.e., market orders, marketable limit orders, and marketable IOCs),
marketable stop order types, and midpoint-or-better order types, but is not adopting the proposal to expand the effective spread reporting requirement to other non￾marketable order types. For marketable

565 Virtu Letter II at 12. See also infra notes 609– 611 and accompanying text (describing a commenter’s suggestion that the Commission remove reporting of E/Q for all orders and not add price improvement statistics for non-marketable group orders). 566See Virtu Letter II at 12. 567 Id. 568See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 569See id. 570See id. 571See infra note 1209 and accompanying text. 572See prior 17 CFR 242.605(a)(1)(i)(K) and (a)(1)(ii)(A). 573See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023). 574See id. at 3816-17. 575See Better Markets Letter at 8. 576See FIF Letter at 29. 577See id. stop order types and midpoint-or-better order types, average effective spread will be measured from the time that the order becomes executable. One broker-dealer suggested that the Commission should reconsider whether to require firms to report effective spread statistics for NMLOs because ‘‘effective spread is not widely accepted as a meaningful measure of execution quality for NMLOs.’’ 565 This commenter stated that the proposed effective spread metric for NMLOs does not measure a dimension of execution quality that is likely to differ across market centers or be affected much by where an order is routed.566 This commenter further stated that ‘‘[f]or orders submitted outside the NBBO, [effective spread] essentially amounts to negative one times the quoted spread at the moment the order becomes executable’’ and ‘‘shows better execution when the quoted spread is wider.’’ 567 After consideration of the comments, the Commission is adopting a modified version of the proposed amendments. The Commission is adopting amendments that will expand effective spread reporting requirements to include marketable stop order types and midpoint-or-better order types, in addition to market and marketable limit order types as required by the preexisting rule. However, the Commission is not adopting the proposed requirement to require average effective spread statistics for all covered orders, and thus is not requiring reporting for other non-marketable order types. The Commission is also revising the proposed definition of ‘‘average effective spread’’ to specify that, for order executions of marketable stop order and midpoint-or-better limit orders, average effective spread is calculated from the time the order becomes executable. In effect, the adopted amendments require average effective spread for all marketable order types (i.e., market orders, marketable limit orders, and marketable IOCs), marketable stop orders, and midpoint￾or-better order types. The Commission acknowledged in the Proposing Release that average effective spread for NMLOs and orders submitted with stop prices would measure something different than the average effective spread for marketable order types.568 Generally, because these orders are less aggressively priced, average effective spread would not measure the price paid for immediacy of execution as it would for
marketable order types.569 Instead it would provide a measure of the amount a liquidity provider could expect to earn for providing liquidity.570 As the commenter states, this amount would generally vary based on the width of spread, which is outside the control of the reporting entities that are receiving orders for execution. Therefore, average effective spread for NMLOs and stop NMLO orders may not provide a useful measure to distinguish between market centers or larger broker-dealers and thus the Commission has determined not to adopt this proposed metric. The exception is with respect to midpoint￾or-better limit orders, which in some cases behave more like marketable orders.571 Similar to market and marketable limit orders, some inside￾the-quote limit orders are submitted by traders with the intention of executing immediately, in this case against hidden or odd-lot inside-the-quote liquidity. Because midpoint-or-better order types are more aggressively priced, the average effective spread metric will also measure the price these orders could expect to pay for immediacy. Further, requiring average effective spread for midpoint-or-better order types is consistent with requiring the same statistics for this order type as are required for marketable order types (for example, price improvement statistics). Finally, because marketable stop orders will be either market orders or marketable limit orders at the time they are triggered (i.e., at the time they are executable), measuring effective spread from the point of executability will also measure the price these orders pay for immediacy once triggered. Therefore, as described in section III.A.2.b) above, the Commission is requiring the same statistics for marketable stop orders as for other marketable order types, including average effective spread. (c) Percentage Spreads (Effective and Realized) (1) Proposed Approach Prior to these amendments, Rule 605 statistics included the average realized spread and average effective spread for executions of covered orders, and these statistics provide dollar-based spread data.572 The Commission proposed to add a requirement that effective spread and realized spread also be reported as percentages.573 The proposed definitions for ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread’’ would have: (1) utilized the dollar-based effective and realized spread statistics for the numerator; (2) utilized the midpoint of the NBBO at either the time of order receipt (for marketable order types) or the time an order first becomes executable (for non-marketable order types) as the denominator; and (3) then the result would be averaged on a share￾weighted basis for the month.574 (2) Final Rule and Discussion The Commission is adopting the proposed requirement to disclose percentage-based spread statistics for average realized spread and average effective spread. However, the Commission is modifying the proposed definitions of ‘‘average
percentage effective spread’’ and ‘‘average percentage realized spread’’ to use a new defined term (‘‘average midpoint’’) in the denominator. Doing so will eliminate any ambiguity about how to calculate these statistics, as described in more detail below. In addition, the Commission is making the percentage effective spread statistic applicable to marketable order types, marketable stop order types, and midpoint-or-better limit order types only, rather than all order types as proposed. Further, the Commission is adding a requirement to include an average midpoint statistic, which serves as the denominator of percentage-based spread statistics, in the detailed reports required pursuant to Rule 605(a)(1). An investor advocacy group stated that a percentage-based spread measure would provide additional information where there is a significant price change in a security during the month.575 In addition, an industry group stated its agreement with the approach proposed by the Commission for calculating average percentage effective spread.576 Specifically, this commenter described share-weighted average percentage spread as the sum of effective spread per share times shares executed divided by the sum of the midpoint times shares executed.577

578See Proposing Release, 88 FR 3786 at 3816-17 (Jan. 20, 2023). 579See id. at 3817; proposed Rule 600(b)(11) (average percentage effective spread) and proposed Rule 600(b)(12) (average percentage realized spread). 580See supra note 577. 581See Proposing Release, 88 FR 3786 at 3817, n.392 (Jan. 20, 2023) and accompanying text (stating the percentage would be averaged on a share￾weighted basis). 582See id. at 3816–17 (stating ‘‘this [referring to the denominator] would then be averaged on a share-weighted basis for the month’’). 583See final 17 CFR 242.600(b)(8). 584See final 17 CFR 242.600(b)(10). See also 17 CFR 242.600(b)(9) (defining average midpoint). 585See final 17 CFR 242.600(b)(13). 586See final 17 CFR 242.600(b)(11). 587See Proposing Release, 88 FR 3786 at 3816 (Jan. 20, 2023); proposed Rule 600(b)(11) (average percentage effective spread) and proposed Rule 600(b)(12) (average percentage realized spread). 588See final 17 CFR 242.600(b)(9). The Commission is modifying the order types listed in the definition of average midpoint from the definition that was proposed to be included in both percentage-based spread statistics in order to conform to the order types adopted herein. See supra section III.B.2. 589The definition includes ‘‘share-weighted’’ to make clear that average midpoint is also a share￾weighted statistic. See final 17 CFR 242.600(b)(9). 590See final 17 CFR 242.605(a)(1)(i)(Y); final 17 CFR 242.605(a)(2)(vi), (vii), (viii), (x), and (xi). 591See infra note 769 and accompanying text. 592See supra notes 568–571 and accompanying text. 593See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 594See id. E/Q is generally expressed as a percentage that represents how much price improvement an order received. An E/Q of 100% means a buy order was executed at the national best offer or a sell order was executed at the national best bid, and an E/Q of 0% means an order was executed at the midpoint of the NBBO. See id. 595See id. 596See id. The Commission continues to believe including percentage-based statistics for effective spread and realized spread, in addition to the dollar-based statistics in the existing report, will account for differing underlying stock prices and better facilitate comparisons of spread statistics across different time periods and securities.578 In order to simplify the definitions and eliminate ambiguity about how to calculate percentage-based spread statistics, and because the Commission is requiring the separate disclosure of an average midpoint statistic as described below, the Commission is modifying the adopted definitions of ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread’’ to use defined terms. As proposed, both percentage-based spread statistics would have been share-weighted and used as their denominator the midpoint of the national best bid and national best offer at the time of order receipt or, for non-marketable limit orders, beyond￾the-midpoint limit orders,
and orders submitted with stop prices, at the time such orders first become executable.579 A commenter stated it interpreted the definition of share-weighted average percentage spread as the ratio of share￾weighted effective spread divided by share-weighted midpoint.580 However, based on the commenter’s interpretation, the Commission acknowledges that it is ambiguous whether the modifier ‘‘share-weighted’’ in the proposed amendment applied to:
(1) the percentage calculation (i.e., calculating the percentage effective spread or percentage realized spread for each transaction and then share￾weighting such percentage); 581 or (2) each of the denominator and the numerator (i.e., calculating the share￾weighted average effective or realized spread and dividing that by the share￾weighted midpoint).582 Therefore, in order to simplify these definitions and eliminate ambiguity as to how percentage-based spread statistics will be required to be calculated, and consistent with the commenter’s interpretation of how to calculate this statistic, the Commission is modifying the definitions of ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread’’ from the definitions proposed. Specifically, ‘‘average percentage effective spread’’ will be defined as the average effective spread 583 for order executions divided by the average midpoint for order executions.584 ‘‘Average percentage realized spread’’ will be defined as the average realized spread 585 for order executions divided by the average midpoint for order executions.586 As proposed, the definitions of ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread’’ used as their numerators the share-weighted effective spread and the share-weighted realized spread, respectively.587 However, because ‘‘average effective spread’’ and ‘‘average realized spread’’ are defined as share-weighted averages, the Commission is instead using the defined terms ‘‘average effective spread’’ and ‘‘average realized spread’’ as the numerator in order to simplify the adopted definitions of ‘‘average percentage effective spread’’ and ‘‘average percentage realized spread.’’ Instead of repeating the same definition of average midpoint in each of the percentage-based spread definitions as proposed, the Commission is adopting the defined term ‘‘average midpoint’’ and will use this term in the denominator (i.e., average midpoint for order executions). ‘‘Average midpoint’’ will be defined as the share-weighted average of the midpoint of the national best bid and national best offer at either the time of order receipt or, for non￾marketable limit orders, midpoint-or￾better limit orders, and orders submitted with stop prices, at the time such orders first become executable.588 The term ‘‘average midpoint’’ as applied to order executions will be substantively the same as the proposed denominator for the percentage-based spread statistics.589 Further, the Commission is adding an average midpoint statistic to the detailed report required by Rule 605(a)(1) so that certain statistics in the summary report—namely, average midpoint and the percentage-based statistics—will be derivable from the detailed report,590 as suggested by commenters.591 With the detailed report containing the information necessary to calculate the statistics in the summary report, market participants and other users of the reports will be able to recalculate the
statistics in the summary report with different subsets of data. Finally, the Commission is requiring average percentage effective spread only for marketable order types, marketable stop order types, and midpoint-or-better order types for the same reasons that the Commission is requiring average effective spread only for these order types.592 (d) Effective over Quoted Spread (E/Q) (1) Proposed Approach Effective over quoted spread (‘‘E/Q’’) can be derived from Rule 605 reports required prior to these amendments, but the prior Rule did not require the reporting of E/Q or quoted spread.593 The Commission proposed to require, for executions of all covered orders, that reporting entities report the average E/ Q, expressed as a percentage, for all marketable and non-marketable order types.594 The proposed definition ‘‘average effective over quoted spread’’ would have required the computation of a share-weighted average E/Q by dividing effective spread by quoted spread for each transaction and then averaging that over the month (weighted by number of shares).595 The quoted spread would have been the difference between the national best bid and the national best offer at either the time of order receipt (for marketable order types) or the time an order first becomes executable (for non-marketable order types).596 (2) Final Rule and Discussion The Commission is adopting a statistic for average E/Q, expressed as a percentage, but with a modified

597Schwab Letter II at 31. 598 Vanguard Letter at 4. 599See Better Markets Letter at 8. 600See FIF Letter at 23; SIFMA Letter II at 27; Schwab Letter II at 31; Schwab Letter III at 4; Rule 605 Citadel Letter at 5. 601FIF Letter at 23. 602See id. at 23–24. 603See SIFMA Letter II at 27. 604See id. 605Schwab Letter III at 4. 606See Schwab Letter II at 31; Schwab Letter III at 4. 607See Rule 605 Citadel Letter at 5. 608See id. This commenter provided examples of how the same amount of price improvement in dollars can generate different share-weighted average E/Q statistics depending on the symbols to which it is allocated, whereas spread-weighting yields the same E/Q in each scenario. See id. at 5, 13. 609See FIF Letter at 20–21 (stating that for marketable order types, it is not necessary to include E/Q in the detailed reports required by Rule 605(a)(1) because E/Q can be derived from other data that is already included and this data, specifically, is found in the price improvement, price dis-improvement, and effective spread statistics); Schwab Letter II at 31 (suggesting that the reports include effective spread and quoted spread and then allow individuals to compute E/ Q). 610See FIF Letter at 21. As described in supra
section III.B.4.b)(2), the Commission is requiring
effective spread statistics only for marketable order types, marketable stop order types, and midpoint￾or-better order types, rather than all order types as proposed. As described in more detail below, the Commission is requiring E/Q only for these same order types. Further, the required statistics for each of these order types also include price improvement statistics. See final 17 CFR 605(a)(1)(ii)(E) through (L). Therefore, there are no order types for which Rule 605 will require the reporting of E/Q but not price improvement statistics. 611See FIF Letter at 21. 612See supra notes 600–608 and accompanying text. 613See final 17 CFR 242.605(a)(1)(ii)(D). 614Because the requirement to report average quoted spread applies only to market orders, marketable limit orders, marketable IOCs, marketable stop order types, and the midpoint-or￾weighting methodology to utilize spread-based weighting rather than the proposed weighting methodology of share-weighting the E/Q for each transaction. In addition, the Commission is making the average E/Q statistic applicable to marketable order types, marketable stop order types, and midpoint-or-limit order types only, instead of all order types. Further, the Commission is adding a requirement to include average quoted spread, which is the denominator of average E/Q, in the detailed reports required pursuant to Rule 605(a)(1). A financial services firm stated that E/ Q is a ‘‘very common metric used within the industry to judge execution quality’’ and that it ‘‘does a good job of providing a normalized comparison of price improvement relative to the price improvement opportunity.’’ 597Another financial services firm stated that ‘‘E/Q directly quantifies how much of the spread the broker secures for its investor-client’’ and ‘‘[i]ncluding E/Q on Rule 605 reports will enable investors to make ‘apples to apples’ comparisons of execution quality.’’ 598 In addition, an investor advocacy group stated that requiring a separate field in Rule 605 reports for E/Q allows market participants to compare price improvement statistics across securities and across market centers and broker￾dealers.599 However, several commenters recommended that the Commission require spread-based weighting, rather than share-based weighting, for the calculation of average E/Q and indicated that the industry uses spread-based weighting when calculating E/Q.600 One industry group stated that spread-based weighting ‘‘results in the same amount of E/Q being reported for the same aggregate dollar amount of E/Q being provided.’’ 601 This commenter further stated that the method of weighting can influence the reported E/Q metrics and, using share-based or notional-based weighting, a firm that provides a lower aggregate dollar amount of price improvement relative to a second firm could result in the first firm reporting a lower E/Q than the second firm, even though this lower E/Q would not reflect that customers received better executions.602 Another
industry group stated that a share-weighting formula would tend to weigh sub-dollar stocks more heavily and could allow a firm to manipulate its average E/Q by adjusting the type of stocks for which it provides better price improvement.603 This commenter also stated that using a spread-weighting formula would preserve the relationship between price improvement in dollars and E/Q and therefore the firm’s E/Q would remain the same regardless of how the firm distributes its price improvement among different stocks.604 Similarly, a financial services firm stated share-weighting detaches E/Q from the ability to understand it in the context of the opportunity for price improvement and this ‘‘opens the door for possible manipulation of results.’’ 605 This commenter also stated that wholesalers’ discretionary price improvement dollars are fungible and that share-weighting of E/Q would result in an incentive to provide more price improvement on narrow spread securities and less price improvement on wide spread securities.606 A broker￾dealer stated that a share-weighted methodology may incentivize market participants to allocate price improvement to lower priced securities with narrower quote spreads.607 This commenter recommended the use of a spread-weighted average because a spread-weighted average would be tied to the total price improvement delivered in dollars and unaffected by how that price improvement is allocated among different symbols.608 An industry group and a financial services firm suggested that Rule 605 reports not include E/Q and leave it to users of the report to calculate E/Q from other statistics that are currently included in the reports.609 The industry group further stated that the Commission was inconsistent when it proposed requiring the reporting of E/Q for non-marketable order types but not requiring the reporting of price improvement statistics for such order types.610 This commenter provided four alternative approaches to address this perceived inconsistency, but did not recommend two of the alternatives because they required the reporting of E/Q and did not recommend a third alternative because, according to the commenter, price improvement is only a relevant statistic for marketable orders.611 After review of the comments, as stated above, the Commission is adopting a requirement that Rule 605 reports include a statistic for average E/ Q, expressed as a percentage, but is adjusting the weighting methodology from the proposal. The Commission is adopting a spread-weighted average E/Q statistic, consistent with commenters’ suggestions.612 In addition, the Commission is requiring average E/Q only for marketable order types, marketable stop order types, and midpoint-or-better order types, rather than all order types as proposed. Because spread-weighted average E/Q is the same as average effective spread divided by average quoted spread, in lieu of creating a separate definition for ‘‘average effective over quoted spread’’ as
proposed, Rule 605 as adopted specifies that the required statistics for marketable order types, marketable stop order types, and midpoint-or-better order types include, for executions of covered orders, the average effective spread divided by the average quoted spread, expressed as a percentage.613 The Commission is also requiring that Rule 605 reports include a reported statistic for average quoted spread and is defining ‘‘average quoted spread’’ as the share-weighted average of the difference between the national best offer and the national best bid at the time of order receipt or, for order executions of non-marketable limit orders,614 the difference between the

better order types, the only non-marketable limit orders this will apply to are the midpoint-or-better order types and marketable stop order types (which are non-marketable until triggered). See final 17 CFR 242.605(a)(1)(ii)(A). 615See final 17 CFR 242.600(b)(12); final 17 CFR 242.605(a)(1)(ii)(A); final 17 CFR 242.605(a)(2)(viii). See also infra notes 817–827 and accompanying text for discussion of E/Q and quoted spread statistics in the summary report. 616See final 17 CFR 242.605(a)(1)(ii)(A). 617See supra notes 600–608 and accompanying text. 618See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 619See supra note 600 and accompanying text. 620See supra note 597. 621See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). The substantive difference between the two is that ‘‘average quoted spread’’ as adopted will reflect the share-weighted average of quoted spreads of all transactions for the month within a reporting category, whereas ‘‘average effective over quoted spread’’ would have divided effective spread by quoted spread for each transaction and then used a share-weighted average of that number over the month. See id. 622See supra note 609. 623See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). See also infra notes 1534–1537 (discussing that the concern in the Proposing Release that extrapolating an average E/Q using average effective spread and average quoted spread may lead to a noisier level of E/Q is no longer relevant with the use of a spread-weighted average E/Q). 624See supra section III.B.4.b)(2). 625See final 17 CFR.605(a)(1)(ii)(D). 626Although share-weighted effective spread metrics may provide information about size improvement because effective spread will be larger for orders that have to ‘‘walk the book’’ (i.e., consume available depth beyond the best-priced quotes), effective spread combines both price and size information. See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 627See id. at 3818. 628See id.; proposed Rule 605(a)(1)(i)(F). 629See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023); proposed Rule 605(a)(1)(i)(F). 630See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 631See Pritchard Letter; SIFMA Letter II at 25; SIFMA AMG Letter at 6; Rule 605 Citadel Letter at Continued national best offer and the national best bid at the time such orders first become executable.615 Thus, Rule 605 as adopted also will specify that the required statistics for marketable order types, marketable stop order types, and midpoint-or-better order types include, for executions of covered orders, average quoted spread.616 The Commission agrees with commenters that the use of a spread￾weighting methodology will provide a consistent measure of E/Q that will not vary based on the specific symbols to which price improvement is allocated.617The adopted methodology will avoid a potential incentive to allocate price improvement in a manner that would maximize the reported E/Q statistic without changing the
total dollar value of the price improvement provided. Thus, the use of a spread￾weighted average E/Q is consistent with the Commission’s stated goal of facilitating the comparability price improvement statistics across symbols.618 In addition, the Commission acknowledges that the industry generally uses spread￾weighting when calculating E/Q 619 and thus, as stated by a commenter, will provide a ‘‘normalized comparison of price improvement relative to the price improvement opportunity’’ 620 that is consistent with existing industry practice. The adopted definition of ‘‘average quoted spread’’ is the same as the description of ‘‘total quoted spread’’ that was embedded in the proposed definition of ‘‘average effective over quoted spread,’’ with two modifications from the embedded definition as proposed.621 First, the Commission is specifying that average quoted spread is a share-weighted average. Second, the Commission is limiting the list of order types for which the average quoted spread will be required to be measured at the time the order first becomes executable to conform to the order types being adopted herein. The inclusion of an average quoted spread statistic in Rule 605 reports will provide an additional piece of information that market participants and other users of the reports can use to evaluate execution quality. Moreover, in response to the commenters who stated that E/Q could be calculated using the effective spread and quoted spread statistics and that the Commission should allow users to derive E/Q,622 as stated in the Proposing Release, E/Q is a relatively simple metric to capture contemporaneously with execution and requiring a separate field for E/Q will increase the ability of market participants to access and utilize E/Q to compare price improvement statistics across securities, and across market centers and broker-dealers.623 In addition, because effective spread is a necessary input into E/Q, the Commission is not adopting the application of E/Q to non-marketable order types other than midpoint-or￾better order types (and marketable stop order types, which are generally non￾marketable orders upon receipt).624 Accordingly, the Commission will include E/Q within the statistics required for marketable order types, marketable stop order types, and midpoint-or-better order types only.625 (e) Size Improvement (1) Proposed Approach Prior to the amendments, Rule 605 reports included price improvement metrics but did not include any statistics that directly measured whether orders received an execution of more than the displayed size at the quote.626 The Commission proposed adding a benchmark metric that would, in combination with information about shares executed, indicate the level of ‘‘size improvement,’’ i.e., the extent to which orders received an execution at prices at or better than the quote for share quantities greater than the displayed size at the quote.627 Specifically, the Commission proposed requiring the reporting of
the cumulative number of shares of the full displayed size of the protected bid at the time of execution, in the case of a market or limit order to sell; and of the full displayed size of the protected offer at the time of execution, in the case of a market or limit order to buy.628 As proposed, for each order, the share count would have been capped at the order size if the full displayed size of the national best bid or national best offer is larger than the order.629 The Commission explained that the proposed size improvement benchmark metric could be combined with information about the number of shares executed at or above the quote to measure a market center or broker￾dealer’s ability to offer customers execution at the quote (or better), even when there is no depth available at that price.630 (2) Final Rule and Discussion The Commission is adopting a modified version of the proposed size improvement benchmark metric that measures the displayed size at the time of order receipt (or the time the order becomes executable for midpoint-or￾better order types) instead of measuring the displayed size at the time of order execution as proposed. The Commission is also modifying the proposed size improvement benchmark metric by having it apply only to marketable order types, marketable stop order types, and midpoint-or-better order types rather than all order types, as proposed. Finally, based on comments received, the Commission is adopting an additional size improvement metric (as discussed below, ‘‘size improved outsized shares’’) that was not part of the proposal and indicates the amount of size improvement in those instances in which an order could have received size improvement. Several commenters supported adding a requirement that Rule 605 reports include the proposed size improvement benchmark metric.631 A broker-dealer

11; CCMR Letter at 13. See also Nasdaq Letter at 44 (stating that size improvement opportunities are significant and relevant to best execution decisions). 632See Rule 605 Citadel Letter at 11. 633See id. (stating that, according to a recent study, factoring in size improvement more than doubled the dollar amount of price improvement reported by wholesale broker-dealers). 634Robinhood Letter at 46–47. This commenter opposed the proposed changes to Rule 605 but suggested expanding Rule 606 reports to add a column for size improvement, among other execution quality metrics. See id. at 42–43. 635See id. at 48 (asking how the displayed size and the time of execution of fractional share orders would be counted for purposes of the size improvement benchmark). 636See CCMR Letter at 13. 637See FIF Letter at 20. 638See id. This commenter stated that this method is how other statistics in the report, such as effective spreads, are measured. See id. 639See FIF Letter II at 4–7. In the first scenario, the customer’s order size is larger than the displayed size, and the commenter states its suggested approach would reflect this oversizing and provide for a more accurate comparison across brokers that receive customer orders that, on average, oversize the NBBO by different percentages. See id. at 4–5. In the second scenario, the customer’s order size is larger than the displayed size and results in price dis￾improvement, and the commenter states that its suggested approach would require the broker-dealer to report price dis-improvement but would also include data to reflect that the broker-dealer received an order that oversized the opposite-side NBBO. See id. at 5–6. In the third scenario, a broker-dealer is delayed in executing the customer’s order due to a systems issue and the executed size is the same as the displayed size at the time of order receipt but larger than the displayed size at the time of order execution, and the commenter states that its suggested approach would correctly reflect that the broker-dealer did not provide size improvement. See id. at 6–7. 640See id. at 5, n.10, and 6, n.11. 641See FIF Letter at 20. 642See id. 643 Virtu Letter II at 5. 644See id. at 10. 645See id. According to this commenter, these metrics would be more informative because they would not include orders in which there was no need to provide size improvement. See id. 646See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (citing Virtu Petition at 3). 647See id. 648See id. at 3818–19. 649See Virtu Letter II at 7 (‘‘To truly and accurately measure execution quality, Rule 605 disclosures should be updated to compare fill prices for all orders to the average price in the market to fill the same number of shares considering all displayed quotes—including NBBO, depth of book, and odd lots.’’), 10 (‘‘To properly reflect the value of size improvement benefits that brokers obtain for retail investors, Rule 605 should measure an order’s execution price that is the
volume-weighted average price (‘VWAP’) for an equivalent quantity of shares based on the shares available across exchanges.’’). stated that the proposed size improvement metric would provide market participants with important information about an additional dimension of execution quality that is not captured by current Rule 605 statistics.632 According to this commenter, this metric will be particularly beneficial for retail investors seeking to accurately assess execution quality delivered by wholesale broker-dealers.633 Another broker-dealer stated that size improvement is a ‘‘substantial benefit’’ offered by broker-dealers and market makers to retail orders and ‘‘its absence in Current Rule 605 reports means that execution quality is significantly undercounted.’’ 634 This commenter requested an explanation of how fractional share orders should be addressed in certain statistics, for example size improvement statistics.635 Another commenter stated that it supported the addition of a size improvement metric because of its significant impact on transaction costs for retail investors.636 An industry group stated that it agreed with the Commission on the value of including size improvement statistics, but opposed measuring size improvement based on the number of shares available at the time of execution.637 Instead, this commenter recommended measuring size improvement against the full displayed size at the opposite side of the NBBO as of the time of order receipt (for marketable group orders) or as of the time an order becomes executable (for non-marketable group orders).638 This commenter presented three scenarios to illustrate why it supports measuring size improvement against the full displayed size at the time of order receipt rather than at the time of execution.639 This commenter also stated that it assumes that where an order has multiple executions, the Commission would require adding the displayed size to the benchmark metric at the time of each execution, rather than counting the displayed size for only one execution.640 Further, this commenter stated that a market could have protected bids and offers that are not represented in the NBBO but are at the same price as the NBBO, and these bids and offers are included in Level 1 market data.641 This commenter also stated that it understands that when the Commission refers to the cumulative number of shares of the full displayed size of the protected bid or offer, the Commission is including in this number shares of protected bids and offers that are not represented in the NBBO but are at the same price as the NBBO.642 A broker-dealer stated that the proposal ‘‘falls well short of including the necessary statistics to reflect the benefits of size improvement.’’ 643 This commenter stated that the proposed size improvement metric would be inadequate because it would include all orders in the calculation, even when there is no opportunity to provide size improvement, and thereby would dilute the
amount and obfuscate the value of size improvement provided when the need for size improvement actually exists.644 This commenter suggested the following alternative metrics that, in its view, would more accurately reflect size improvement benefits obtained by each broker for its retail investor customers:
(1) the number of orders for which the order size exceeded the available shares displayed on the relevant side of the NBBO (‘‘outsized orders’’); (2) the total number of shares executed as part of these outsized orders; and (3) the number (or percentage) of shares within the outsized orders that received size improvement (i.e., were executed at or better than the NBBO price, in excess of the amount of aggregate displayed liquidity at the NBBO).645 As discussed in the Proposing Release, this commenter also suggested in a petition for rulemaking to the Commission that Rule 605 should include an alternative metric, referred to as ‘‘real price improvement’’ (‘‘RPI’’), that combines price improvement with size improvement by using as its benchmark a price that reflects the equivalent size of shares-including depth of book quotes and odd-lot quotes.646 When the Commission described why it was not proposing to include an RPI benchmark or metric in the proposed rule, the Commission stated that although RPI may be a more informative measure of size improvement than a measure that can be calculated using the proposed size improvement benchmark metric, the RPI would require market centers and reporting broker-dealers to subscribe to all exchanges’ proprietary depth-of-book data feeds and would entail a ‘‘significant cost’’ to reporting entities that did not already subscribe to these feeds.647 Therefore, the Commission preliminarily believed that the benefits to market participants of having an RPI metric were not justified by the potentially significant additional costs to reporting entities.648 In commenting on this rulemaking, this commenter again suggested that the Commission add an RPI benchmark or metric to Rule 605 and responded to the Commission’s statement that such measure could be too costly for market participants who would need to subscribe to exchanges’ depth-of-book data feeds.649 According to this

650See id. at 10. 651 Id. The Commission is still considering the proposed changes discussed in the Minimum Pricing Increments Proposing Release, including changes to tick sizes. See Minimum Pricing Increments Proposing Release, 87 FR 80266 (Dec. 29, 2023). The Commission will consider comments regarding whether changes to tick sizes would lead to changes in the use of depth-of-book feeds in the context of that proposal. 652See CCMR Letter at 16. See also id. at 15 (stating that current Rule 605 disclosures fail to consider that there is a limited size available at the NBBO on exchanges, thus failing to account for size improvement, and price improvement should be measured with reference to the average price obtainable for the full order on the exchange, not just with reference to the NBBO). 653See id. at 16 (citing Proposing Release, 88 FR 3786 at 3894 (Jan. 20, 2023)). 654Angel Letter at 3. 655See Healthy Markets Letter at 18. 656See id. 657See Professor Schwarz et al. Letter at 5. 658See final 17 CFR 242.600(b)(72). 659See id. 660See id. 661See final 17 CFR 242.605(a)(1)(ii)(R). 662See supra notes 637–639 and accompanying text. 663See supra note 637. This commenter also provided several scenarios presenting how the presentation of size improvement statistics would differ if size improvement is measured against the full displayed size at the time of order receipt (as suggested by the commenter) or the time of execution (as proposed). See supra note 639 and accompanying text. As described, final Rule 605 measures size improvement at the time of order execution. 664See supra note 639. In response to the commenter’s request for clarification about how to calculate size improvement for fractional shares (see supra note 635 and accompanying text), the order size benchmark is capped at the size of the order and therefore in the case of a fractional share order where the displayed size exceeds the order size, the order size benchmark will reflect the fractional size of the order. See final 17 CFR 242.600(b)(72). The commenter’s question about how to calculate time of execution is moot because the adopted rule will measure the size improvement statistics at the time of order receipt rather than the time of execution. 665See final 17 CFR 242.600(b)(72). commenter, many brokers utilize vendors to produce Rule 605 reports and these vendors are capable of handling depth-of-book data.650 This commenter also stated that ‘‘if the Commission’s proposed tick size reductions are adopted, there would be less liquidity at the NBBO, and investors who currently use SIP data would have less visibility into market liquidity and would need to access the exchanges’ depth-of-book data feeds anyway.’’ 651 Another commenter suggested that the Commission undertake a more detailed analysis of the costs and benefits of requiring RPI statistics in Rule 605 reports and that the Commission should require the reporting of RPI information if this analysis ‘‘indicates that the
benefits . . . outweigh the costs.’’ 652 According to this commenter, the Commission did not quantify either the costs of requiring reporting entities to have access to a full set of consolidated depth information or the benefits of providing this additional information about size improvement to market participants.653 Finally, one commenter stated that ‘‘[p]rice improvement should be measured relative to the displayed book, not the NBBO. Odd lots are ignored in the calculation of the NBBO.’’ 654 An investor advocacy group recommended eliminating the proposed size improvement metric until such a time when the public data feed contains more information regarding the depth of quotations.655 According to this commenter, accurately identifying size improvement would require proprietary depth of book feeds, and if the size improvement statistic relied solely on the SIP it would be misleading because it would not reflect the top of book across public quotes or hidden or mid￾point priced orders.656 A group of academics stated that some of the proposed disclosure requirements, such as size improvement, may be helpful for a subset of trades, but recommended limiting changes to Rule 605 to a more limited set of statistics to reduce implementation costs and speed up adoption.657 The Commission considered the comments and, in response to commenter feedback, is modifying the proposed size improvement benchmark metric and adding an additional size improvement metric. Further, the Commission is requiring the disclosure of both size improvement metrics only for marketable order types, marketable stop order types, and midpoint-or-better order types, rather than for all order types as proposed. To implement these changes, the Commission is adopting a defined term for the size improvement benchmark metric—the ‘‘order size benchmark.’’ As adopted, ‘‘order size benchmark’’ means the number of shares of the full displayed size of all protected bids at the same price as the national best bid at the time of order receipt, in the case of a market or limit order to sell, or the full displayed size of all protected offers at the same price as the national best offer at the time of order receipt, in the case of a market or limit order to buy.658 For marketable stop order types and midpoint-or-better order types, the full displayed size is measured at the time the order becomes executable rather than the time of order receipt.659 For each order, the share count is capped at the order size.660 The Commission is also modifying the proposed Rule 605(a)(1) metrics to require the reporting of, for executions of covered orders, the cumulative number of shares of the order size benchmark.661 The term ‘‘order size benchmark’’ is the same as the proposed size improvement benchmark metric, except in the following two respects. First, in response to the commenter who recommended the size improvement benchmark be captured at the time of order receipt,662 the Commission is modifying the
time at which the order size benchmark measures the available displayed size on the opposite side of the NBBO. Instead of measuring the displayed size at the time of execution as proposed, the order size benchmark in the final rule measures displayed size at the time of order receipt, for market and marketable limit orders, and at the time an order becomes executable, for marketable stop order types and midpoint-or-better order types. Capturing the displayed size of the opposite side quote at the time of order receipt (or the time of executability for marketable stop order types and midpoint-or-better order types) provides a view of the available size at the time an order could first reasonably be expected to execute and therefore provides users of the Rule 605 data information relating to which market centers and broker-dealers are more likely to be able to fill orders in a size larger than what may be readily available. Using the time of order receipt (or time the order becomes executable) as in the final rule will simplify calculation of the order size benchmark because there will be one relevant time for each order, even if that order results in multiple executions. In contrast, if the Commission required calculation of the order size benchmark at the time of execution as proposed, an order with multiple executions would have different times of execution for different portions of the order. The Commission also agrees with the commenter that measuring the displayed size at the time of execution could result in a less accurate picture of size improvement in some instances,663 particularly if some shares priced at the opposite side of the NBBO are displayed at the time of order receipt and then lifted before the time of execution.664 Second, the Commission is adopting a modification to make clear that the order size benchmark measures the full displayed size of all shares at the same price as the protected bid or offer (as applicable).665 The Commission agrees with the commenter that the share count should be required to include not just those shares that are represented in the NBBO but also shares of protected bids

666See supra notes 641–642 and accompanying text. 667See supra notes 645–653 and accompanying text. 668See final 17 CFR 242.605(a)(1)(i)(C); final 17 CFR 242.605(a)(1)(ii)(R). 669See Virtu Letter II at 10. 670For further discussion of the Commission’s consideration of alternative size improvement measures, see infra section IX.E.3.d)(3). 671See supra note 645 and accompanying text. 672See final 17 CFR 242.605(a)(1)(ii)(S). 673The Commission is not adopting a metric that would reflect the percentage of shares within outsized orders that received size improvement because it will be possible to calculate this percentage using the outsized share count and the size improved outsized shares. 674See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023) (discussing the ‘‘size improvement share count’’). To better distinguish this term from size improved outsized shares, the Commission is using the term ‘‘net size improvement’’ herein instead of ‘‘size improvement share count.’’ 675 In cases where the best displayed quote equals or exceeds the order size (i.e., where there is no opportunity to provide size improvement), the size improved outsized shares will always be zero. In contrast, the net size improvement will not be negative in instances in which the depth at the best displayed quote exceeds the customer-requested order size because the share count used to calculate the order size benchmark will be capped at the order size. The Commission’s analysis of the correlation between the proposed measure of size improvement and this additional measure of size improvement indicates that including information about size improved outsized shares will likely provide information that is not available from the net size improvement. See infra note 1548 and accompanying text; Table 8. This analysis also indicates that these size improvement metrics convey different information about execution quality than the price improvement metrics contained in Rule 605 reports prior to these amendments, particularly for orders received by off￾exchange market centers. See infra note 1548 and accompanying text; Table 8. and offers that are not represented in the NBBO but are at the same price as the NBBO.666 Reporting entities will be able to capture information about these shares without relying on proprietary depth-of-book feeds because the SIP includes all protected bids and offers. The Commission considered commenter’s suggestions for alternative size improvement metrics.667 In response to the commenter’s recommendation to include the number of shares executed as part of outsized orders, the Commission observes that, using the Rule 605 statistics as adopted, it is possible to calculate the number of shares eligible for size improvement (‘‘outsized share count’’) for any row of Rule 605 data by taking the cumulative number of shares of covered orders received and subtracting the cumulative number of shares of the order size benchmark.668 Although the outsized share count that
can be calculated using Rule 605 statistics as adopted differs slightly from the commenter’s recommended metric, it similarly addresses commenter’s criticism that the order size benchmark includes orders in which the reporting entity does not have the opportunity to provide size improvement because the order size is equal to or less than the available shares at the NBBO.669 The Commission is not adopting the commenter’s suggestion to include the number of outsized orders in the Rule 605 statistics because the number of outsized orders alone is less meaningful when this information is aggregated across orders.670 Instead, the outsized share count, which will be derivable from the Rule 605 statistics as adopted, will provide a metric that is more useful for comparison purposes when aggregated. The Commission agrees with the commenter that it would provide useful information to add a size improvement metric that will measure the level of size improvement in those instances in which the order presents an opportunity for size improvement.671 Therefore, the Commission is adopting an additional Rule 605 statistic that will require reporting of the sum of, for each execution of a covered order, the greater of: the total number of shares executed with price improvement plus the total number of shares executed at the quote minus the order size benchmark; or zero (the ‘‘size improved outsized shares’’).672 For each execution of a covered order, the total number of shares executed with price improvement plus the total number of shares executed at the quote represents the number of shares executed at or better than the opposite side of the NBBO at the time of order receipt (or executability). Subtracting the order size benchmark from that sum represents the extent to which the reporting entity provided such executions at a size greater than the displayed size at the quote. The resulting number can be negative if a reporting entity does not provide an execution at or better than the NBBO for the full number of displayed shares at the opposite side of the NBBO (i.e., there is ‘‘size dis￾improvement’’). However, the size improved outsized shares metric is designed to capture the extent to which the reporting entity achieves size improvement when an order presents an opportunity for size improvement and as such will never be negative. Instead, for each execution of a covered order, the size improved outsized shares metric will be the greater of the described calculation and zero. As an example, assume the protected NBBO for a security is $5.00–$5.05. If a market center receives a 400-share market order to sell and executes all 400 shares at $5.00, and there were 300 shares displayed at the national best bid at the time of order receipt, the order size benchmark will be 300 shares. To continue this example, the size improved outsized shares will be the greater of 100 shares (i.e., 400 shares minus 300 shares) and zero shares, and thus the size improved outsized
shares will be 100 shares.673 As a second example, assume the protected NBBO for a security is $10.00–$10.10. If a market center receives a 300-share market order to buy but only executes 100 shares at $10.10 and there were 200 shares displayed at the national best offer for $10.10 at the time of order receipt, the order size benchmark will be 200 shares. To continue this example, the size improved outsized shares will be the greater of ¥100 shares (i.e., 100 shares minus 200 shares) and zero shares, and thus the size improved outsized shares will be zero shares. Where the size improved outsized shares will differ from information derivable from other execution quality statistics in final Rule 605 is in cases where there is size dis-improvement, which may occur when some shares execute at prices worse than the quote or do not execute even though a sufficient number of shares are displayed at the quote. With respect to the information that can be derived from other Rule 605 statistics, as discussed in the Proposing Release, the order size benchmark can be compared to the number of shares executed at or better than the quote to calculate whether the reporting entity filled any portion of the customer order at the opposite side of the NBBO (or better), even when insufficient depth was available at that price (‘‘net size improvement’’).674 Unlike the size improved outsized shares, the net size improvement will take into account instances of size dis￾improvement and, in such instances, will take into account negative values.675 To continue the second example above, where the market center is able to fill 100 shares at $10.10 but the depth available at the protected offer is 200 shares, the net size improvement will be ¥100 shares (i.e., 100 shares minus 200 shares). The ability to compare size improved outsized shares and net size improvement will contain useful information for market participants as well. For example, market participants will be able to use this variable to tell the difference between a market center that has a net size improvement value

676 In this simplified example, it is possible to compare the overall size improvement percentage (calculated by dividing the net size improvement by the outsized share count) to the size improvement outsized shares percentage (calculated by dividing the size improved outsized shares by the outsized share count) to see the difference between these two metrics. To continue the above example, assume that Market Center 1 has an outsized share count of 10,000 and Market Center 2 has an outsized share count of 20,000. Market Center 1 and Market Center 2 would each have 25% overall size improvement, indicating that Market Center 1 and Market Center 2 achieved similar amounts of overall size improvement. Market Center 1 would have 40% size improved outsized shares and Market Center 2 would have 30% size improved outsized shares. Market Center 1’s higher size improved outsized shares percentage, combined with the fact that it has the same overall size improvement percentage as Market Center 2, indicates that orders received size dis-improvement more frequently on Market Center 1 than Market Center 2. 677See infra note 1547 and accompanying text. 678See final 17 CFR 242.605(a)(1)(ii)(E), (H), and (I). For example, the count of shares executed at or better than the NBBO is necessary to calculate net size improvement. 679 Information about the size available at the protected quote may be more informative for midpoint-or-better order types because the Commission understands that some traders submit inside-the-quote limit orders with the intention of executing immediately. 680For further discussion of the RPI metric, see infra section IX.E.3.d)(1). 681See Proposing Release, 88 FR 3786 at 3818 (Jan. 20, 2023). 682See supra note 650 and accompanying text. 683See supra note 657 and accompanying text. 684See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). In the Proposing Release, the Commission stated that Commission staff has taken the position that the market center executing an order as riskless principal should reflect the order on its monthly report as executed at such market center, and not at another venue, using the time that the order was executed at such market center. See id. (citing Staff Legal Bulletin No. 12R, ‘‘Frequently Asked Questions About Rule 11Ac1–5’’ (June 22, 2001)). 685See id.; proposed Rule 605(a)(1)(i)(D). of zero because it does not offer size improvement, or because it offers a mix of size improvement and size dis￾improvement. This will be informative for market participants that are concerned about the risk of receiving size dis-improvement. Market participants and other users of Rule 605 reports will be able to divide the size improved outsized shares by the net size improvement to obtain a ratio that informs about the extent to which a reporting entity is executing orders with size dis-improvement. The higher the ratio (i.e., the higher it is above 1), the more size dis-improvement occurred. For example, assume a market
participant compares two market centers for a particular order type, size, and security and calculates that Market Center 1 has net size improvement of 2,500 and size improved outsized shares of 4,000; and Market Center 2 has net size improvement of 5,000 and size improved outsized shares of 6,000. To continue this example, Market Center 1 would have a ratio of 8/5 (i.e., 4,000/ 2,500) and Market Center 2 would have a ratio of 6/5 (i.e., 6,000/5,000), indicating that orders received size dis￾improvement more frequently on Market Center 1 than on Market Center
2.676 In addition, market participants
can standardize the size improved outsized shares by dividing this metric by the outsized share count.677 Finally, the Commission is limiting the application of the size improvement metrics to marketable order types, marketable stop order types, and midpoint-or-better order types, rather than to all order types as proposed. The order size benchmark is more useful in conjunction with information about the number of shares executed at, better than, or worse than the NBBO,678 and these statistics are available only for marketable order types, marketable stop order types, and midpoint-or-better order types in Rule 605 as amended. Further, the size improved outsized shares metric is more informative when it can be compared to net size improvement and providing information about size improved outsized shares without a view of net size improvement could be misleading. In addition, NMLOs generally do not have an expectation of execution at the price of the protected quote at the time of order receipt and therefore providing information about the size available at that price is less informative.679 Therefore, the Commission is not requiring the order size benchmark or the size improved outsized shares metric for non-marketable order types other than midpoint-or-better order types. The Commission is not adopting a metric based on RPI.680 As the Commission stated in the Proposing Release, RPI would require market centers and reporting broker-dealers to subscribe to all exchanges’ proprietary depth-of-book feeds and these subscriptions would entail a significant cost for those reporting entities that do not already subscribe to the feeds.681 Although a commenter states that many broker-dealers use vendors to prepare Rule 605 reports that can handle depth￾of-book data,682 Rule 605 does not require use of a vendor and the Commission does not assume that all reporting entities will choose to use a vendor. Moreover, if vendors need to subscribe to all exchanges’ proprietary depth-of-book feeds for purposes of preparing Rule 605 reports, these vendors may pass on these costs to the reporting entities. In response to the commenter’s suggestion that the Commission should not adopt Rule 605 metrics concerning size improvement, among others, because of concerns about implementation costs and adoption speed,683 reporting entities will have the underlying raw data necessary to calculate the order size benchmark and the new size improved outsized shares metric because they are already capturing this information for trade confirmations or internal purposes or will be easily able to obtain this information from publicly available data sources. Therefore, the inclusion of these metrics in Rule 605 reports will not make a significant difference in the costs or amount of time needed to implement the changes to Rule 605 being adopted. (f) Riskless Principal (1) Proposed Approach In effecting riskless principal transactions, a market center or broker￾dealer submits a principal
order to an away market center in order to fulfill a customer order. Upon execution at the away market center, the market center or broker-dealer that initially received the customer order (i.e., the receiving market center or broker-dealer) executes the customer transaction on the same terms as the principal execution. Prior to these amendments, a market center that executed the riskless principal leg of the trade (i.e., the receiving market center’s execution of the customer order on the same terms as the principal transaction) generally should have reported those orders in its Rule 605 statistics as part of the cumulative number of shares of covered orders that were executed at the receiving market center under Rule 605(a)(1)(i)(D), rather than as a part of the cumulative number of shares of covered orders executed at any other venue under Rule 605(a)(1)(i)(E).684 The Commission proposed to carve riskless principal orders out from Rule 605(a)(1)(i)(D) by providing that the number of shares of covered orders executed at the receiving market center, broker, or dealer excludes shares that the market center, broker, or dealer executes on a riskless principal basis.685 As a result, the market center that executes the riskless principal order would have included these shares as part of the cumulative number of shares executed away from that venue under Rule 605(a)(1)(i)(E), and only the market center that executes the corresponding principal order would have included those shares as
part of the cumulative number of shares

686See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(i)(E). 687Final 17 CFR 242.605(a)(1)(i)(F) (cumulative number of shares executed at any other venue). 688See Rule 605 Citadel Letter at 10. 689See id. (citing Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023)). 690 Id. 691See Proposing Release, 88 FR 3786 at 3819 (Jan. 20, 2023). 692See prior 17 CFR 242.605(a)(1)(ii)(B) through (I). ‘‘Executed with price improvement’’ means, for buy orders, execution at a price lower than the national best offer at the time of order receipt and, for sell orders, execution at a price higher than the national best bid at the time of order receipt. See final 17 CFR 242.600(b)(45). ‘‘Executed at the quote’’ means, for buy orders, execution at a price equal to the national best offer at the time of order receipt and, for sell orders, execution at a price equal to the national best bid at the time of order receipt. See final 17 CFR 242.600(b)(42). ‘‘Executed outside the quote’’ means, for buy orders, execution at a price higher than the national best offer at the time of order receipt and, for sell orders, execution at a price equal to the national best bid at the time of order receipt. See final 17 CFR 242.600(b)(44). 693See final 17 CFR 242.600(b)(69); MDI Adopting Release, 86 FR 18596 at 18613 (Apr. 9, 2021). 694 ‘‘Odd-lot information’’ means (i) odd-lot transaction data disseminated pursuant to the effective national market system plan or plans required under 17 CFR 242.603(b) as of Apr. 9, 2021; and (ii) odd-lots at a price greater than or equal to the national best bid and less than or equal to the national best offer, aggregated at each price level at each national securities exchange and national securities association. See final 17 CFR 242.600(b)(69). Contemporaneously with the Proposing Release, the Commission separately proposed to, among other things, amend the definition of odd-lot information to include a new data element to identify the best odd-lot orders available in the market inside the NBBO, and accelerate the implementation of the round lot and the odd-lot information definitions. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80293–302 (Dec. 29, 2022). 695See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). 696See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). Because the best odd-lot order to buy or sell would be inside the NBBO, the national best bid or national best executed at the receiving market center under proposed Rule 605(a)(1)(i)(D). (2) Final Rule and Discussion The Commission is adopting the requirement that the calculation of the number of shares of covered orders executed at the receiving market center, broker, or dealer will exclude shares executed on a riskless principal basis as proposed, for the reasons described in the Proposing Release.686 Therefore, a receiving market center, broker, or dealer will reflect the execution of the
principal order as executed at any other venue.687 For example, Market Center 1 receives a customer order for 100 shares that it executes on a riskless principal basis. Market Center 1 sends a corresponding principal order of 100 shares to Market Center 2, where it executes in full. Prior to these amendments, Market Center 1 generally would have counted 100 shares as executed at the market center (rather than away). Because Market Center 2 was the execution venue for the corresponding principal order, it also would have counted 100 shares executed at the market center (i.e., at Market Center 2). Under the amendments, Market Center 1 will instead count 100 shares executed away and Market Center 2 will count 100 shares executed at the market center. A broker-dealer requested clarification regarding the Commission’s proposed changes to the treatment of riskless principal orders.688 This commenter stated that the ‘‘Proposal’s suggestion’’ that the proposed change would make execution statistics more informative to market participants ‘‘is misleading.’’ 689 According to this commenter, execution quality metrics reported under current Rule 605 ‘‘correctly take into account all orders routed to a wholesale broker-dealer (irrespective of where execution occurs) in order to provide a comprehensive view of the market center’s overall execution quality’’ and ‘‘[t]his would not change under the Proposal.’’ 690 The Commission agrees with the commenter that the execution quality statistics for these shares are already reported as part of Rule 605 reports (i.e., regardless of whether such shares are executed at a market center or away, market centers must include the statistics for such orders). However, modifying whether riskless principal orders are required to be classified as shares executed at a market center, broker, or dealer will make the Rule 605 statistics more informative. If both the market center that executes the riskless principal order and the away market center that executes the corresponding principal order count their legs of the transaction as part of their shares executed at the receiving market center, it could obscure information about how often a market center internalizes an order. As applied to wholesalers, it will be useful for investors to be able to observe what percentage of orders a wholesaler internalizes because internalized orders are not exposed to competition on an order-by-order basis, whereas the principal order associated with a riskless principal transaction may be exposed to trading interest from other market participants. In response to the commenter’s request for clarification, the Commission observes that it was referring to only proposed Rule 605(a)(1)(i)(D) and (E) (i.e., the statistics concerning the cumulative number of shares of covered orders executed at the receiving market center, broker, or dealer and executed at any other venue) when it stated in the Proposing Release that Rule 605’s execution quality
statistics would be more informative if riskless principal orders were reported as executed at another venue.691 (g) Price Improvement (1) Proposed Approach Preexisting Rule 605 required the reporting, for marketable order types, of:
(1) the cumulative number of shares of covered orders (a) executed with price improvement, (b) executed at the quote, and (c) executed outside the quote; (2) for shares executed with price improvement, the share-weighted average amount per share that prices were improved; and (3) for shares executed outside the quote, the share￾weighted average amount per share that prices were outside the quote.692 Under these preexisting requirements, an order executed at a price better than the NBBO would have been an order executed with price improvement. The MDI Rules expanded the data that will be made available for dissemination within the national market system (‘‘NMS data’’) and included certain odd￾lot information in NMS data.693 While this odd-lot information will include pricing information for odd-lots priced inside the NBBO,694 using the Rule 605’s price improvement statistics prior to the amendments, there is no way for market participants to evaluate the performance of broker-dealers and market centers relative to such better￾priced orders. The Commission proposed to add a definition for ‘‘best available displayed price,’’ which would include the best priced odd-lot if that price is inside the NBBO and to provide additional price improvement statistics related to the best available displayed price.695 Specifically, the Commission proposed to define ‘‘best available displayed price’’ as, with respect to an order to buy, the lower of (i) the national best offer at the time of order receipt or (ii) the price of the best odd-lot order to sell at the time of order receipt as disseminated pursuant to an effective transaction reporting plan or effective national market system plan; and, with respect to an order to sell, the higher of (i) the national best bid at the time of order receipt or (ii) the price of the best odd-lot order to buy at the time of order receipt as disseminated pursuant to an effective transaction reporting plan or effective national market system plan.696 The Commission also proposed

offer would only be used if there is not a best odd￾lot price on the same side of the market as the order. See id. at 3820, n.427. 697See proposed Rule 600(b)(14); Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). 698See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). The Commission proposed to define ‘‘executed outside the best available displayed price’’ as, for buy orders, execution at a price higher than the best available displayed price; and, for sell orders, execution at a price lower than the best available displayed price. See id.; proposed Rule 600(b)(44). Similarly, the Commission proposed to define ‘‘executed with price improvement relative to the best available displayed price’’ as, for buy orders, execution at a price lower than the best available displayed price; and, for sell orders, execution at a price higher than the best available displayed price. See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 600(b)(47). 699See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023); proposed Rule 605(a)(1)(ii)(O) through (S). 700See Better Markets Letter at 8. 701See Angel Letter at 3. 702See SIFMA Letter II at 32; Schwab Letter III at 6; Robinhood Letter at 47; Rule 605 Citadel Letter at 6. 703SIFMA Letter II at 32. 704See Schwab Letter III at 6. 705See Schwab Letter II at 34; Schwab Letter III at 6. See also Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023) (citing Bartlett et al. (2022)). 706See Schwab Letter II at 34; Schwab Letter III at 6. 707See Robinhood Letter at 47. 708 Id. This commenter also stated that the best displayed odd-lot price might be a reasonable reference point for very small sized orders, such as fractional shares orders, but is not reasonable for any order of a round lot or greater. See id. at 47, n.115. 709See Rule 605 Citadel Letter at 6. 710 Data Boiler Letter at 28. 711See Schwab Letter III at 6; FIF Letter at 33. 712See Proposing Release, 88 FR 3786 at 3820 (Jan. 20, 2023). 713See MDI Adopting Release, 86 FR 18596 at 18729 (Apr. 9, 2021) (describing analysis that found, among other things, that in May 2020, ‘‘40% of {odd-lot} transactions (representing approximately 35% of all odd-lot volume) occurred at a price better than the NBBO’’). 714See Bartlett et al. (2022). The authors found that this percentage increases monotonically in the stock price, for example, for bid prices, increasing Continued 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.697 The Commission further proposed to add two defined terms—’’executed outside the best available displayed price’’ and ‘‘executed with price improvement relative to the best available displayed price’’—to classify order executions based on their execution price relative to the best available displayed price.698 Finally, the Commission proposed to require the reporting, for marketable order
types, of (1) the cumulative number of shares of covered orders (a) executed with price improvement relative to the best available displayed price, (b) executed at the best available displayed price, and (c) executed outside the best available displayed price; (2) for shares executed with price improvement relative to the best available displayed price, the share-weighted average amount per share that prices were improved as compared to the best available displayed price; and (3) for shares executed outside the best available displayed price, the share￾weighted average amount per share that prices were outside the best available displayed price.699 (2) Final Rule and Discussion The Commission is adopting the definition of ‘‘best available displayed price’’ as proposed. Further, the Commission is requiring price improvement statistics relative to the best available displayed price, in addition to price improvement statistics relative to the NBBO, for marketable order types and midpoint-or-better order types as proposed. An investor advocacy group agreed with the Commission that additional price improvement statistics specifically related to the best available displayed price would allow market participants to evaluate how well market centers and broker-dealers perform in executing covered orders relative to the best available displayed price.700 In addition, an academic stated in support of the proposal that it ‘‘is ludicrous to measure price improvement while ignoring visible odd lot liquidity’’ and that price improvement should be measured relative to the effective best bid or offer for the dollar amount of the order.701 However, several commenters disagreed with the proposed price improvement statistics based on the best available displayed price because, according to these commenters, these statistics could be ‘‘misleading.’’ 702 An industry group stated that metrics that measure price improvement utilizing a comparison to the best odd-lot price would ‘‘yield misleading information because it ignores the size of the order as compared to the size available at the odd-lot price.’’ 703 A financial services firm suggested that the detailed report should exclude best available displayed price because this metric is only relevant in the commenter’s view in a small number of occasions and would add ‘‘misleading’’ information to the report.704 This commenter stated that while the Commission cited a recent academic working paper showing that odd-lots offer better prices than the NBBO 16–18% of the time, the percent of the time that the best available price differs from the NBBO will be smaller when the MDI Rule’s new round lot definitions take effect.705 According to this commenter, if the best available displayed price is relevant only for a small part of the time and absent context regarding how many shares are included in the price or how many shares the order was for, the best available displayed price metrics would ‘‘border on meaningless and add
unnecessary complexity to the report.’’ 706 Another broker-dealer suggested that the Commission reconsider the use of execution quality statistics based on best available displayed price because the use of two sets of execution quality statistics with differing reference points would be ‘‘confusing to retail investors.’’ 707 This commenter also stated that using the best displayed odd￾lot price as a reference point presents a number of difficulties or opportunities to be misleading because, for example, these quotes could ‘‘be flickering quotes that are generally not accessible’’ or for a ‘‘size substantially smaller than the order size.’’ 708 Another broker-dealer stated that measuring price improvement against odd-lot prices would ‘‘yield unhelpful and misleading information’’ because the size associated with odd-lot prices ‘‘will vary greatly.’’ 709 One commenter added that ‘‘{c}ompilation of protected quotes is complicated. An odd-lot NBBO creates ambiguity.’’ 710 An industry group and a financial services firm stated that any data related to the best available displayed price should not be included in the report format until the best odd￾lot order to buy and best odd-lot order to sell have been included in the SIP.711 After consideration of the comments, the Commission is adopting the definition of ‘‘best available displayed price’’ and the addition of price improvement statistics based on this price for marketable order types and midpoint-or-better order types as proposed. As discussed in the Proposing Release, requiring price improvement statistics relative to the best available displayed price in the market, whether that is the NBBO or the best odd-lot order to buy or sell, will enhance the ability of market participants to evaluate the performance of market centers and broker-dealers.712 The Commission continues to hold this view. Odd-lots often reflect pricing that is superior to the NBBO.713 A recent academic working paper shows that odd-lots offer better prices than the NBBO 18% of the time for bids and 16% of the time for offers.714 Although the round lot

from 5% for the group of lowest-price stocks in their sample, to 42% for the group of highest-priced stocks. 715See MDI Adopting Release, 86 FR 18596 at 18753, n.1960 (Apr. 9, 2021) and accompanying text (estimating ‘‘approximately 98.5% of NMS stocks will have a round lot size of 100 shares’’). 716See id. at 18753. 717See id. at 18754. See also infra notes 1032– 1034 and accompanying text. 718See MDI Adopting Release, 86 FR 18596 at 18753 (Apr. 9, 2021). 719The Commission is still considering the proposed changes discussed in the Minimum Pricing Increments Proposing Release, which included proposals to accelerate the implementation of the round lot and odd-lot information definitions contained in the MDI Release and amend the definition of odd-lot information to include a new data element for the best available odd-lot orders available in the market. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80294–95 (Dec. 29, 2022). If, in the future, the Commission determined to adopt an amendment to the definition of odd-lot information to include a data element that identifies the best odd-lot orders available in the market, reporting entities would be required to use such information to determine the best available odd-lot price. However, when the MDI Rules are implemented, there will be sufficient odd-lot information for reporting entities to calculate the best available displayed price because odd-lot information will include better priced odd￾lot orders. 720See supra notes 702–710 and accompanying text. 721See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(A). 722See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). Generally, ‘‘regular way’’ refers to bids, offers, and transactions that embody the standard terms and conditions of a market whereas a non-regular way transaction refers to one executed other than pursuant to standardized terms and conditions, such as a transaction that has extended settlement terms. See, e.g., Regulation NMS Adopting Release, 70 FR 37496 at 37537, n.326 (June 29, 2005). 723See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023); proposed Rule 605(a)(1)(iii)(B). 724See Proposing Release, 88 FR 3786 at 3821 (Jan. 20, 2023). 725For example, final 17 CFR 242.605(a)(1)(i)(A) requires disclosure of the number of ‘‘covered orders.’’ 726See final 17 CFR 242.605(a)(1)(iii)(A). Rule 605 as amended applies only to covered orders, so this does not represent a substantive change to Rule 605(a)(1)(iii)(A) as proposed. Final 17 CFR 242.605(a)(1) specifies that ‘‘[e]very market center, broker, or dealer shall make available . . . : a report on the covered orders in NMS stocks that it received for execution.’’ definition in the MDI Rules will result in fewer odd-lot orders in stocks with prices greater than $250, most stocks will not be affected by the new round lot definition.715 In addition, a substantial amount of odd-lot transaction
volume in stocks greater than $250 will not be included in the MDI round lot definition.716 The changes in the MDI Rules may also result in a higher number of odd-lot trades, as the inclusion of odd-lot quotes that may be priced better than the current NBBO in consolidated market data may attract more trading interest from market participants that did not have access to this information prior to the MDI Rules.717 Therefore, even though implementation of MDI Rules may result in changes to the number of odd-lot orders, price improvement statistics relative to the best available displayed price will continue to enhance the ability of market participants to evaluate order performance after implementation of the MDI Rules’ round lot definition. Under the MDI Rules, odd-lot information will include pricing information about odd-lots priced better than the NBBO and competing consolidators will be able to offer a product that contains information on the best priced odd-lot on each exchange.718 Once this odd-lot information is available, reporting entities will be able to calculate the best available displayed price by using the information to identify the best-priced odd-lot order to buy (order to sell) available in the market and comparing it to the national best bid (offer). The MDI Rules have been approved but have not yet been implemented. As discussed further in section VII below, Rule 605’s price improvement statistics that are relative to the best available displayed price will not be required to be reported until six months after odd-lot order information needed to calculate the best available displayed price is made available pursuant to an effective national market system plan.719 The Commission disagrees with commenters’ concerns that price improvement statistics relative to the best available displayed price will be misleading or confusing.720 The price improvement statistics relative to the NBBO contained in preexisting Rule 605 will still be available to market participants and other users of Rule 605 reports and therefore the price improvement statistics relative to the best available displayed price will be a supplement to, rather than a replacement for, price improvement statistics relative to the NBBO. While an odd-lot price that is better than the NBBO may not reflect sufficient quantity to execute certain orders, particularly larger-sized orders, the NBBO similarly may not reflect the best price at which certain orders can be filled using readily available liquidity. Statistics on price improvement relative to the best available displayed price will provide an additional data point for market participants to consider in the detailed Rule 605(a)(1) reports. Further, Rule 605’s price improvement statistics will be presented within order size categories, including order size categories for orders of less than one share and odd-lot orders. Thus, to the extent that price improvement relative to the best available displayed price may be
more informative for smaller￾sized orders than larger-sized orders, the Rule 605 reports will present the price improvement statistics related to best available displayed price in a format that will make it possible to focus on those smaller-sized orders. (h) Relative Fill Rate (1) Proposed Approach Prior to these amendments Rule 605 did not contain any execution quality metrics specific to non-marketable order types. Recognizing the need for more meaningful measures of execution quality for NMLOs and orders submitted with stop prices, the Commission proposed requiring additional information for executable NMLOs, executable stop orders, and beyond-the￾midpoint limit orders. Specifically, the Commission proposed to require the reporting of the number of orders that received either a complete or partial fill.721 The Commission also proposed to require the reporting of the cumulative number of shares executed regular way at prices that could have filled the order while the order was in force, as reported pursuant to an effective transaction reporting plan or effective national market system plan.722 As proposed, the share count for each order would be capped at the order size.723 (2) Final Rule and Discussion The Commission did not receive comment on the proposal to report the number of orders that received either a complete or partial fill. For the reasons discussed in the Proposing Release, the Commission is adopting Rule 605(a)(1)(iii)(A) as proposed, with one correction to the rule text.724 Specifically, the Commission is adding the word ‘‘covered’’ to keep the language of Rule 605(a)(1)(iii)(A) consistent with other parts of Rule 605 725 as amended and avoid creating any ambiguity in the language of Rule
605.726 The Commission also is
adopting the relative fill rate metric as proposed, and, in response to comments received, is adopting an additional relative fill rate metric that measures only on-exchange executions. With respect to the proposed metric based on the cumulative number of shares executed regular way at prices that could have filled the order while it was in force, an industry group stated that it would be fairer to measure a

727See FIF Letter at 22. See also 17 CFR 242.610(a) and (b) (addressing means of access to quotations); 15 U.S.C. 78f(b)(2) and 15 U.S.C. 78o(b)(3) (providing for fair access to membership in SROs). 728See FIF Letter at 22. 729See Virtu Letter II at 12. 730See Proposing Release, 88 FR 3786 at 3821– 22 (Jan. 20, 2023); final 17 CFR 242.605(a)(1)(iii)(B). 731See final 17 CFR 242.605(a)(1)(iii)(C). 732See id. 733See supra note 727 and accompanying text. 734See 15 U.S.C. 78f(b)(2), (4), (5), and (8). See also 17 CFR 242.610. 735See prior 17 CFR 242.605(a)(1) and (2); Rule 605 NMS Plan, at sections V and VI. 736As described in section II.A supra, a broker or dealer that is not a market center is not subject to the reporting requirements of Rule 605(a)(1) or (2) unless that broker or dealer introduces or carries 100,000 or more customer accounts through which transactions are effected for the purchase or sale of NMS stocks. 737See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 738See id. 739See id. at 3823–24. 740See id. at 3824; proposed Rule 605(a)(2). XML enables data to be defined, or ‘‘tagged,’’ using standard definitions. XML and PDF are ‘‘open standards,’’ which is a term that is generally applied to technological specifications that are widely available to the public, royalty-free, at no cost. 741See final 17 CFR 242.605(a)(2). 742See, e.g., Beddo Letter; Genco Letter; Pritchard Letter; Macarthur Letter; Varghese Letter; letter from Ian Marshall (Mar. 6, 2023). firm’s execution rate against on￾exchange executions because exchanges are fair-access venues, while ATS and dealer trades may not represent liquidity accessible to all market participants.727 This commenter recommended that the Commission also require firms to report the cumulative number of shares executed ‘‘regular way’’ on any exchange at prices that could have filled the order while the order was in force.728 Further, a broker￾dealer stated that it may be useful to receive data on the number of shares that traded on all market centers for NMLOs as compared to an individual market center because being able to compare relative fill rates would potentially allow market participants to choose venues they perceive as being more likely to execute their NMLOs or assess if changes to the venues they route these orders to produce better fill rates.729 After consideration of the comments, the Commission is adopting the requirement for reporting of the cumulative number of shares executed regular way at prices that could have filled the order while the order was in force as proposed, for the reasons discussed in the Proposing Release.730 In response to commenters’ concerns about being able to compare the relative fill rate for orders executed on venues accessible to all market participants, the Commission is adopting an additional requirement for the reporting of the cumulative number of shares executed regular way on any national securities exchange at prices that could have filled
the order while the order was in force, as reported pursuant to an effective transaction reporting plan or effective national market system plan.731 Similar to the other relative fill rate metric that the Commission is adopting as proposed, for each order the share count will be capped at order size to prevent relatively small orders from skewing the metric.732 The Commission agrees with commenters that the general metric that will measure the cumulative number of shares executed regular way anywhere in the market may include liquidity that was not accessible to the reporting firm.733 Under the Exchange Act, national securities exchanges must provide fair access to displayed quotations.734 Therefore, the additional metric concerning the relative fill rate on national securities exchanges will provide a comparative metric based on displayed quotations that all firms will have had the ability to access.
IV. Summary Execution Quality Report
Prior to the amendments, Rule 605 required market centers to produce detailed execution quality statistics and make this data available via large electronic data files, as required by the Rule 605 NMS Plan.735 This detailed report was in machine-readable, rather than human-readable, format. The required format made the detailed report more suitable for further processing and analysis than for ready use by market participants and other interested parties. The Commission proposed in Rule 605(a)(2) that all market centers and larger broker-dealers required to produce the detailed report pursuant to Rule 605(a)(1) must also produce a summary execution quality report. After consideration of the comments, the Commission is adopting Rule 605(a)(2), with modifications from the proposal, as described further below. A. Proposed Approach Proposed Rule 605(a)(2) would have required every market center, broker, or dealer 736 to make publicly available for each calendar month a report providing summary statistics on all executions of covered orders that are market orders and marketable limit orders that it received for execution from any person.737 The proposed summary report included a section for NMS stocks that are included in the S&P 500 Index as of the first day of the month and a section for other NMS stocks, and within each section, each symbol would have been equally weighted based on share volume.738 The Commission proposed that each section of the report required by Rule 605(a)(2) contain the following summary statistics: (i) the average order size; (ii) the percentage of shares executed at the quote or better; (iii) the percentage of shares that received price improvement; (iv) the average percentage price improvement per order; (v) the average percentage effective spread; (vi) the average effective over quoted spread, expressed as a percentage; and (vii) the average execution speed, in milliseconds.739 The Commission proposed that the summary report be made available using the most recent version of the XML schema and the associated PDF renderer published on the Commission’s website.740 The proposed schema would have been a set of custom XML tags and XML restrictions designed by the Commission to reflect the disclosures in proposed Rule 605(a)(2). B. Final Rule and Discussion The Commission is adopting Rule 605(a)(2), with modifications from the proposal, to require that every market center, broker, or dealer produce a summary execution quality report in addition to the more detailed report required by Rule 605(a)(1).741 The summary report will enable market participants and other interested parties to have ready access to focused aggregated data that will allow them to compare some of the more significant aspects of the execution quality provided by specific market centers and larger broker-dealers. Moreover, by requiring market centers, brokers, and dealers to produce a summary report in addition to, rather than instead of, the more voluminous
data called for by Rule 605(a)(1), those market participants or other observers that would like to perform more comprehensive or specific analyses of execution quality remain able to download the more granular underlying data files and perform such analyses. Several commenters supported the proposal to produce a summary report on the basis that investors would benefit from the greater access to execution quality data.742 A financial services firm stated that although some broker-dealers voluntarily publish summary-level execution quality reports on their websites, ‘‘these ad hoc disclosures are not universal, and, in any event, generally feature statistics brokers prefer to ‘showcase’ that may not reflect the

743 Vanguard Letter at 4.
744 Id.
745 Id.
746Fidelity Letter at 8.
747 Id.
748See, e.g., SIFMA Letter II at 30; Virtu Letter II at 11; Rule 605 Citadel Letter at 5; Schwab Letter II at 30–31; Schwab Letter III at 2; Data Boiler Letter at 17–18; letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Apr. 12,
2023) (‘‘Data Boiler Letter II’’) at 1.
749 Virtu Letter II at 11. Another broker-dealer stated more generally that the Commission should account for ‘‘retail client personas that vary considerably among broker-dealers,’’ and these ‘‘differences cause execution quality data to be difficult to compare on an apples-to-apples basis because, for example, trade and execution data generated from buy-and-hold investors’ orders differs vastly from the same data generated from active traders’ orders.’’ Letter from Steven M. Greenbaum, Senior Vice President and General Counsel, TradeStation Securities, Inc. (Mar. 30,
2023) (‘‘TradeStation Letter’’) at 7.
750Schwab Letter III at 2. 751 Id. 752See id. at 2–3. 753See Proposing Release, 88 FR 3786 at 3831 (Jan. 20, 2023). 754See Schwab Letter III at 2–3. 755See infra section IV.B.1.b) for additional discussion of these specific metrics. 756 Virtu Letter II at 4. 757See infra note 833 and accompanying text. 758See Rule 605 Citadel Letter at 5. 759 Id. 760See id. most meaningful measures of execution quality.’’ 743 According to this commenter, the proposal would address this ‘‘coverage gap’’ by requiring larger broker-dealers to make Rule 605 disclosures and giving customers of these larger broker-dealers ‘‘a direct line of sight into broker-dealer performance.’’ 744 This commenter added that a ‘‘standardized summary report will provide retail investors with a comprehensible overview of the thousands of rows and dozens of columns that appear on Rule 605 reports today.’’ 745 Another financial services firm stated that a summary report ‘‘will help investors more effectively evaluate competing broker offerings’’ 746 and that compliance and technology costs associated with enhanced Rule 605 reporting ‘‘are outweighed by the significant benefits to retail investors,’’ including ‘‘greater competition among firms to provide customers with strong execution quality.’’ 747 In contrast, other commenters, including broker-dealers, stated that a summary report could mislead investors, especially if the metrics required by Rule 605(a)(2) do not adequately account for differences in broker-dealer business models and customer bases.748 One broker-dealer stated that using the summary report to compare execution quality across broker-dealers ‘‘without normalizing for different order activity ignores differences in the flow of orders handled by these brokers and other aspects of the services that brokers provide or offer, including fees, interest rates, commissions, ease of use, customer service, accessibility, tools, and educational resources, and therefore could be potentially misleading to individual investors.’’ 749 A financial services firm stated that the summary report ‘‘needs additional descriptive statistics showing order flow attributes that can affect the comparability of execution quality statistics to enable a more accurate and useful measure of execution quality.’’ 750 This commenter also stated that ‘‘retail brokers have vastly different client bases reflected in vastly different order flow characteristics, which affects execution quality’’ and ‘‘[t]hese differences need to be reflected in the Summary Report so that the individual investor has sufficient data to make an educated assessment of execution quality performance between different brokers.’’ 751 To address these concerns, this commenter suggested that the Commission add several metrics to the summary report ‘‘to enable investors to accurately compare execution quality between different brokers’’— specifically, average notional order size, percentage realized spread, and percentage quoted
spread.752 The Commission acknowledges that differences in execution quality can be driven by differences between reporting entities other than differences in their skills at handling and/or executing orders, such as differences in the characteristics of their order flow. Any particular market center or broker￾dealer’s order flow may be made up of a different mixture of securities, order types, and order sizes, which may impact that market center or broker￾dealer’s execution quality statistics 753 The Commission recognizes that it is important to strike a balance between sufficient aggregation of orders to produce statistics that are meaningful and sufficient differentiation of orders to facilitate fair comparisons of execution quality across reporting entities. After reviewing the comments received, the Commission is modifying the calculation of several proposed metrics and is also adding several new metrics to the final summary report. For example, the Commission agrees with a commenter’s suggestion 754 to add certain metrics—average notional order size, percentage realized spread, and percentage quoted spread—to the final summary report.755 Although a commenter suggested that the summary reports be ‘‘normalized across brokers’’ in order to reflect differences in order flow that may impact a broker’s execution quality, including ‘‘the difficulty of order flow the broker is handling,’’ 756 the commenter did not explain how the summary reports should be normalized. The changes to the proposed summary report will provide more information about a broker-dealer’s order flow characteristics than originally proposed 757 and will therefore enable users of the summary reports to better compare the execution quality metrics of broker-dealer firms with similar order flow characteristics and identify when different order flow characteristics may be contributing to differences in execution quality. Further, while the Rule 605(a)(2) summary report presents only one particular set of metrics related to execution quality, customers and other interested parties may also take into consideration other aspects of broker-dealer service, including but not limited to, fees, commissions, and educational resources, when comparing broker-dealers. In section IV.B.1.b) below the Commission discusses the specific execution quality statistics in detail. Another broker-dealer stated that the detailed Rule 605 reports are often difficult for retail investors to analyze.758 However, this commenter stated that the proposed solution— creating a high-level summary report— ‘‘could lead to retail investor confusion if the summary report does not adequately capture or explain the differences in order flow that are present across different market centers and broker-dealers.’’ 759 This commenter stated that it may make sense for the Commission to first implement the revisions to Rule 605(a)(1) and evaluate the detailed reports before working with FINRA, retail brokers, and retail
investors to determine how best to produce a summary report that contains ‘‘digestible and accurate execution quality information.’’ 760 The Commission does not agree with the commenter’s approach. The Commission described the proposed summary report in detail in the Proposing Release, has considered comments related to the summary report, and is making changes in response to comments. The adopted summary report will improve the ability of investors and the public to view some of the more significant aspects of the execution quality provided by specific market centers and larger broker￾dealers. Denying investors the opportunity to view a summary report

761 Gillmore Letter.
762Better Market Letter at 9.
763 Id. at 9–10.
764See Proposing Release, 88 FR 3786 at 3796 (Jan. 20, 2023); Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75419 (Dec. 1, 2000). 765Any such statements will be subject to applicable securities laws and regulations. 766See, e.g., Rule 605 Citadel Letter; FIF Letter; Schwab Letter II. 767The Commission is including in the summary report the following metrics that were not in the Proposing Release’s rule text: (i) average notional order size; (ii) for executions of covered orders, the average midpoint; (iii) for executions of covered order, the average percentage quoted spread; (iv) for executions of covered orders, the average percentage realized spread as calculated 15 seconds after the time of execution; and (v) for executions of covered orders, the average percentage realized spread as calculated 1 minute after the time of execution. These metrics are discussed in greater detail infra at section IV.B.1.b). 768FIF Letter at 22. 769See id. at 29; FIF Letter II at 9; FIF Letter III at 3; Schwab Letter II at 32; Schwab Letter III at 4. 770See Rule 605 Citadel Letter at 8. until after the detailed reports are fully implemented would entail unnecessary delay of the benefits the summary report is designed to provide. Finally, according to an individual investor, the information contained in the proposed summary report is not useful to investors, and ‘‘[m]ost retail investors lack the knowledge and expertise to interpret these reports and use them to make informed trading decisions.’’ 761 In contrast, an investor advocacy group states it ‘‘does not agree with those who would argue that the proposed changes to disclosure of order execution will not benefit retail investors, who are unlikely to read the Rule 605 reports.’’ 762 This commenter stated that ‘‘even though a certain percentage of retail investors may not read the Rule 605 reports, they will still benefit indirectly as the enhanced disclosure will promote competition, improve regulatory oversight, and facilitate use by third-party researchers and academics, who in turn can extract information from the reports and use it to expose issues and problems with today’s order routing and execution practices.’’ 763 The Commission agrees with the investor advocacy group commenter and continues to view the summary report as a useful means to provide individual investors and other market participants with an overview of execution quality data. The summary report will aid investors by providing information in a more easily digestible format than the detailed Rule 605(a)(1) reports. Moreover, the changes that the Commission is making to the summary report in response to commenters, including breaking out the statistics into notional size categories and adding average percentage realized and quoted spreads, will provide more information about the type of order flow received by the reporting entity. The increased amount of data required by final Rule 605(a)(2) will add some complexity to the adopted summary
report as compared to the proposed summary report, however, based on such information, users of the report will be able to identify reporting entities with more comparable order flow and have greater context to understand the differences in execution quality statistics across market centers or broker-dealers with less comparable order flow. The summary report contains a selection of execution quality metrics for interested parties to assess, rather than imposing a single metric that might require a subjective judgment or obscure meaningful differences in execution quality among broker-dealers or market centers. Despite being an abbreviated overview of the more detailed Rule 605(a)(1) report, as with the detailed report, independent analysts, consultants, broker-dealers, the financial press, and market centers likely will respond to the needs of investors by analyzing the disclosures and producing even more digestible information using data from the summary report, so that the broader public, including those that may not read the summary report, will benefit.764 As with the Rule 605(a)(1) detailed report, if a market center or broker-dealer believes that the statistics do not fully reflect its order flow and execution practices, it is encouraged to make any additional information publicly available, outside of the summary report, that it believes will be helpful to investors and other market participants.765

1. Required Information
   The Commission received comments discussing the calculation and utility of individual proposed statistics in the proposed summary report, along with comments recommending the addition of new statistics or requesting clarification or confirmation of how proposed statistics should be calculated, as described further below.766 After review of the comments, the Commission is adopting the statistics in Rule 605(a)(2) largely as proposed, with modifications to the computation of certain statistics. The Commission is also adding new execution quality statistics to the summary report.767 For the reasons described in section IV.B.1.a) below, the Commission is not requiring that the summary report be equally weighted by symbol based on share volume. Section IV.B.1.b) below discusses each of the execution quality statistics in the summary report, including, where appropriate, how these statistics will be weighted. As described in section IV.B.1.b), the summary report will divide each of market and marketable limit orders into separate categories based on eight notional order size buckets plus an aggregated category for all orders with a notional value of less than $200,000. The Commission agrees with one industry group that stated it is ‘‘important to ensure that the summary report provides the necessary information to allow for a fair comparison across reporting firms.’’ 768 The final summary report will provide statistics that are relevant to evaluating what type of pricing orders received, how quickly orders were executed, and what type of order flow the market center or broker-dealer received. As discussed further in section IV.B.1.b) below, the Commission is including several execution quality statistics beyond those included in the proposal to help ensure that the summary report provides sufficient information for a meaningful comparison across firms. Some commenters stated that any statistic included in the summary report or necessary to calculate a statistic in the summary report should also be included in the Rule 605(a)(1) report, so that the statistics in the summary report may be derived from the detailed Rule 605(a)(1) report.769 The Commission agrees and, as discussed further below, is making conforming changes so that the Rule 605(a)(1) detailed report will contain all information necessary to be able to reconstruct the Rule 605(a)(2) summary report. In addition, market participants will be able to use the data contained in the Rule 605(a)(1) reports to create their own summary-level report with any adjustments that they find useful for comparison with and evaluation of a reporting entity’s published summary report. A broker-dealer suggested that the summary report may be more informative if it differentiated between retail investors and professional customers because the nature of each order flow is different and segmentation would allow retail investors to obtain execution quality statistics for similar types of orders.770 A financial
   services firm stated that the Commission ‘‘should distinguish Rule 605 data by [s]egmented [o]rder and non- [s]egmented [o]rder flow and display this information separately in both the

771Fidelity Letter at 9.
772See supra notes 172–174 and accompanying text; note 194 and accompanying text. 773See Schwab Letter III at 4. 774See Order Competition Rule Proposing Release, 88 FR 128 at 199 (Jan. 3, 2023) (Table 15— Regression Analysis Showing Relationship Between Execution Quality and PFOF in NMS Common Stocks and ETFs). 775See Proposing Release, 88 FR 3786 at 3839 (Jan. 20, 2023) (Table 3—Average Wholesaler Execution Quality Received by Retail Broker Quintiles, January-March 2022). 776Schwab Letter III at 4. 777 Id. 778See Proposing Release, 88 FR 3786 at 3823 (Jan. 20, 2023). 779See FIF Letter at 25–26, 28. This commenter stated that one interpretation of ‘‘equal weighting by symbol based on share volume’’ is to use share￾based weighting within each symbol and then symbol-based weighting across symbols, but requested clarification. See id. at 25. The Commission confirms that this explanation is consistent with the weighting method as proposed. 780See id. at 27. 781See id. The commenter stated that weighted average execution price would be computed as follows: first, for each individual execution, multiply the number of shares executed by the execution price; next, sum the results; and last, divide the result by the total number of shares executed. See id. 782 Id. 783See id. at 23, 27, 28–32. 784See supra section III.B.4.d for a more detailed discussion of comments with respect to weighting of statistics in the detailed reports required under Rule 605(a)(1). 785See FIF Letter at 25–26 (providing a comparison between two hypothetical firms of average effective over quoted spread with symbol￾based weighting). 786See supra note 781 and accompanying text. detailed Rule 605 reports and the proposed Summary Reports.’’ 771 The Commission has decided not to revise the summary report to divide the report between retail investors and professionals or between segmented and non-segmented orders, as suggested by the commenters, for the same reasons that the Commission is not making corresponding changes to the reports required by Rule 605(a)(1).772 Another commenter argued that the summary report should limit the orders in the report to those with a notional value of less than $200,000.773 This commenter argued that the Commission in its economic analysis of the Order Competition Rule Proposing Release 774 and the Proposing Release 775 had limited the scope of retail order flow to orders of less than $200,000, to ‘‘normalize order flow variables for analysis in order to meaningfully compare broker-dealers’ execution quality.’’ 776 The commenter stated its belief that the summary report should likewise limit the report to orders of a notional value less than $200,000, ‘‘which is a natural breakpoint between size categories.’’ 777 In response to this commenter’s suggestion, as described in more detail in section IV.B.1.b) below, while the Commission is not establishing such a limit for the summary report as a whole, the Commission is adding execution quality information
as divided by notional order size buckets, along with a row of execution quality information that aggregates all orders in a particular category, excluding orders with a notional value of $200,000 or more. This aggregated information will provide users of the summary report a means to compare among market centers’ or broker-dealers’ execution quality for orders less than $200,000. (a) Weighting Method The Commission proposed that within each section of the summary report, each symbol would have been equally weighted based on share volume. The Commission stated in the Proposing Release that equal weighting of each symbol would facilitate the comparability of execution quality statistics among market centers or broker-dealers that receive for execution different mixes of stocks and prevent the nature of the stocks traded from making it more difficult to determine how the reporting entity performed with respect to execution quality for the particular mix of orders that it received for execution.778 One industry group, however, stated that the summary report statistics should not be equally weighted by symbol based on share volume because this approach would result in misleading data being provided to customers.779 This commenter agreed with the Commission that the mix of symbols traded by a firm could impact its reported execution quality statistics, but was concerned that symbol-based weighting would create distortions that ‘‘would significantly outweigh any potential benefits.’’ 780 The commenter recommended as an alternative that the Commission require each market center and broker-dealer producing a summary report to include its weighted average execution price as a separate reportable item on the summary report.781 The commenter stated that its recommended approach would avoid the ‘‘misleading data that would result from symbol￾based weighting’’ and ‘‘customers can take a broker’s weighted average execution price into account when reviewing the summary report data.’’ 782 This commenter further recommended that the same approach be used for weighting within and across symbols and, as described further below, that the Commission require the use of spread￾based weighting for E/Q and share￾based weighting for certain other statistics.783 After considering the comments, the Commission is not requiring that the summary report be equally weighted by symbol based on share volume as proposed.784 The Commission is persuaded that symbol-based weighting could cause distortions in cases where a reporting entity receives a significantly different volume of orders in one symbol as compared to another symbol,785 and these distortions potentially might not justify any potential benefit of utilizing this weighting method. As discussed further below, the Commission is not adding the share-weighted notional average execution price to the summary report as recommended by the commenter,786 but the Commission is adding average midpoint for order executions. Similar
to the commenter’s recommendation, this metric will provide information about whether a reporting entity’s order flow was more heavily weighted towards lower-priced stocks or higher￾priced stocks. The summary report statistics will also utilize share-based weighting, instead of equally weighting by symbol based on share volume, except as discussed specifically below. (b) Statistics Included The summary report required by final Rule 605(a)(2) includes sections for NMS stocks in the S&P 500 Index and for all other NMS stocks. Within each
section, the final rule requires that the
summary report divide market and marketable limit orders into categories based on eight notional order size buckets and an aggregated bucket for orders with a notional value less than $200,000 (as described below). The Commission is requiring that the summary report include the following statistics as proposed, as described below: (i) percentage of shares executed at the quote or better; (ii) percentage of shares that received price improvement; (iii) average percentage effective spread; and (iv) average execution speed, in milliseconds. The Commission is also requiring that the summary report include the following statistics with modifications from the proposal, as described below: (i) average order size in shares; (ii) share-weighted average percentage price improvement; and (iii) average effective spread divided by the average quoted spread, expressed as a percentage. Finally, the Commission is requiring that the summary report include the following additional statistics that were not part of the

787See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2)(i). 788FIF Letter II at 11. 789 Id. This commenter also stated that notional value should be obtained by multiplying the number of shares by the midpoint at the time of order receipt. See id. 790See Fidelity Letter at 9; Schwab Letter III at 3. 791See Fidelity Letter at 9. 792This commenter would calculate ‘‘average notional order size’’ by multiplying the number of shares by the midpoint at the time of order entry. See Schwab Letter III at 3. 793See id. 794See final 17 CFR 242.605(a)(2)(i). 795 Virtu Letter II at 11. 796See final 17 CFR 242.605(a)(2)(ii). An industry group recommended that average order size in notional value be calculated ‘‘by dividing the aggregate notional value of covered orders by the number of orders.’’ FIF Letter II at 11. Average order size in notional value will be calculated as the cumulative notional value of covered orders divided by the total number of orders, as recommended by the commenter. As discussed above, the Commission is adopting a requirement that the detailed reports required by Rule 605(a)(1) include a cumulative notional value of covered orders metric so that average order size in notional value can be calculated from the summary report. See supra notes 376–378 and accompanying text. 797See final 17 CFR 242.605(a)(2). 798See supra section III.B.1.b). The Commission is not adopting commenters’ suggestion that the notional value of an order should be based on the midpoint. See supra notes 789, 792. Instead, the notional value of a market or limit order will be calculated in the same manner for the summary report as it is for the detailed report. See supra note 361 and accompanying text. proposal, as described below: (i) average notional order size; (ii) average midpoint; (iii) average percentage quoted spread; (iv) average percentage realized spread as calculated 15 seconds after the time of execution; and (v) average percentage realized spread as calculated 1 minute after the time of execution. Average order size. The Commission proposed to include in the summary report a metric for average order size.787 As described below, the Commission is adopting this metric largely as proposed and adding a break-out of execution quality metrics by notional size bucket and an additional order size metric in response to comments. One industry group recommended that ‘‘average order size in shares for the summary report be calculated (for the covered orders that must be reported in the summary report) by dividing the aggregate number of shares of covered orders by the number of orders.’’ 788 This commenter further recommended adding ‘‘average order size in notional value’’ to the summary report, which ‘‘can be calculated by a reporting firm (for the covered orders that must be reported in the summary report) by dividing the aggregate notional value of covered orders by the number of orders.’’ 789 A couple of financial services
firms also recommended presenting order-size categories in the summary report by average notional order size instead of lot size.790 One of these commenters stated that order notional sizes provide investors a clearer view of the execution experience associated with their order, are more easily compared over time, are more representative of the cost to implement different types of trades, and are more consistent with increased market use of fractional/notional trading.791 Similarly, the other commenter stated its belief that including ‘‘average notional order size’’ 792 in the summary report alongside average order size in shares would allow a user of the summary report to calculate another metric, ‘‘average price per share,’’ by dividing ‘‘average notional order size’’ by ‘‘average share order size.’’ 793 After reviewing the comments, the Commission is retaining the ‘‘average order size’’ metric in the summary report largely as proposed with a modification to state that average order size will be reported in number of shares because the proposed rule was ambiguous about whether average order size would have been measured in number of shares or notional value.794 The average order size in shares is relevant to understanding the relative size of the orders that the reporting market center, broker, or dealer received for execution. However, the Commission also agrees with commenters that the average order size in notional value is relevant to understanding relative order size. For example, one broker-dealer stated that certain orders may be harder to execute, ‘‘for example, when market liquidity is scarce or when the customers have difficult (e.g., large-sized) orders to execute.’’ 795 The Commission agrees with commenters that differences in a firm’s execution quality metrics may correspond to differences in order flow. In particular, smaller orders may receive different execution quality than larger orders because, among other things, available liquidity in a particular security at a particular price is more likely to be sufficient to fill a smaller order. Therefore, the Commission is modifying the proposed summary report to: (1) add a metric for average notional order size; 796 and (2) require categorization of the data by notional order size.797 Dividing execution quality statistics in the summary reports according to notional order size buckets provides investors with a more nuanced means to differentiate between firms and allows for comparison of execution quality statistics for more similar orders. Moreover, the average notional order size metric provides important context for where a firm’s orders tend to fall within the range of a particular notional order size bucket. With respect to the categorization of the data by notional order size, the statistical information in the summary reports for market orders and marketable limit orders is divided into eight notional order size ranges: less than $250; $250 to less than $1,000; $1,000 to less
than $5,000; $5,000 to less than $10,000; $10,000 to less than $20,000; $20,000 to less than $50,000; $50,000 to less than $200,000; and $200,000 or more. These notional order size ranges correspond with the notional order size ranges that are used in the detailed reports required pursuant to Rule 605(a)(1).798 As discussed in
section III.B.1.b) above, the Commission
selected these notional order size ranges based on its analysis of CAT data and comments received. Moreover, using the same notional order size ranges for the detailed reports and summary reports allows the statistics in the summary reports to be derived from the detailed reports as suggested by commenters. As an additional measure of categorization by notional order size, the summary report also includes overall statistics for non-block size market and marketable limit orders— i.e., the statistics in this row are not divided by notional order size range but only include orders smaller than $200,000 in notional value. Capping these overall statistics at $200,000 will prevent extremely large, block size orders from skewing the averages. It will also provide an accessible snapshot of information for investors. Providing overall execution quality statistics will balance providing more detailed execution quality data to market participants with providing an overview of a market center’s or broker-dealer’s execution quality in a more readily digestible form for investors, other market participants, or interested parties. Finally, because average order size in both shares and notional value are the average order size received rather than executed, the Commission is modifying the first sentence of Rule 605(a)(2) to remove the words ‘‘executions of’’ in the clause referring to summary report ‘‘providing summary statistics on all executions of covered orders that are

799See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2). 800See final 17 CFR 242.605(a)(2). 801See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2)(ii) and (iii); final 17 CFR 242.605(a)(2)(iv) and (v). 802See FIF Letter at 31. This commenter stated that ‘‘percentage of shares executed at the quote or better’’ would be calculated by dividing the total shares executed at the quote or better by the total shares executed, and ‘‘percentage of shares that received price improvement’’ would be calculated by dividing the total number of shares executed with price improvement by the total number of shares executed. See id. 803See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2)(iv). 804See FIF Letter at 28–29. See also FIF Letter III at 3 (‘‘FIF members understand [‘share weighted average percentage price improvement’] to mean the share-weighted price improvement divided by the share-weighted midpoint.’’). 805See FIF Letter at 29. This commenter also recommended that the Commission add a column to the detailed Rule 605(a)(1) report that would provide the share-weighted average midpoint for each row, so that the market center or broker-dealer could derive the denominator for the share￾weighted average percentage price improvement calculation. See id. See also FIF Letter II at 10; FIF Letter III at 3. 806See final 17 CFR 242.605(a)(2)(vi). 807See final 17 CFR 242.605(a)(2)(vi) and final 17 CFR 242.600(b)(9) (defining average midpoint). The cumulative amount that prices were improved is derivable from the Rule 605(a)(1) reports by multiplying, for each row, the cumulative number of shares of covered orders executed with price improvement (required by Rule 605(a)(1)(ii)(E)) by the share-weighted average amount per share that prices were improved (required by Rule 605(a)(1)(ii)(F)). Similarly, the cumulative amount that prices were executed outside the quote is derivable by multiplying, for each row, the cumulative number of shares of covered orders executed outside the quote (required by Rule 605(a)(1)(ii)(J)) by the share-weighted average amount per share that prices were outside the quote (required by Rule 605(a)(1)(ii)(K)). The numerator will be the total cumulative price improvement for every included row, less the total cumulative amount the prices were executed outside the quote for every included row. The denominator is derivable from the Rule 605(a)(1) reports by multiplying, for each row, the total number of shares executed (i.e., the sum of the share counts required by Rule 605(a)(1)(i)(E) and (F)) by the average midpoint (required by Rule 605(a)(1)(i)(Y)). The denominator will be the sum of the total for every included row. 808See supra note 805. 809See supra note 591 and accompanying text. 810See final 17 CFR 242.600(b)(9). The average midpoint for order executions represents the same calculation as the denominator for the percentage￾based spread
statistics as proposed. See supra notes 588–591 and accompanying text. 811See final 17 CFR 242.605(a)(1)(i)(Y). 812See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2)(v). 813See FIF Letter at 29. The commenter also recommended that for clarity the metric be retitled as ‘‘share-weighted average percentage effective spread.’’ See id. The Commission disagrees with the commenter that this additional language is needed because the adopted definition of ‘‘average percentage effective spread’’ includes the use of share-weighting. See final 17 CFR 242.600(b)(10). 814See supra section III.B.4.b)(2). The ‘‘average percentage effective spread’’ is calculated as the average effective spread for order executions divided by the average midpoint for order executions. See final 17 CFR 242.600(b)(10). 815See final 17 CFR 242.605(a)(2)(vii). As discussed above, the Commission is adding a statistic for average midpoint for order executions market and marketable limit orders.’’ 799 Instead, to avoid any ambiguity about how each of the statistics are calculated, the Commission is specifying where individual data elements apply to executions of covered orders, as described below.800 Percentage of shares executed at the quote or better and percentage of shares that received price improvement. The Commission proposed to include in the summary report metrics for the percentage of shares executed at the quote or better and percentage of shares that received price improvement and is adopting these metrics as proposed.801 One industry group stated that there is no need to reference ‘‘equal weighting by share volume,’’ or any other weighting methodology with respect to the ‘‘percentage of shares executed at the quote or better’’ or ‘‘percentage of shares that received price improvement’’ metrics, because the weighting is clearly understood from the data element itself.802 The Commission agrees that these metrics are weighted based on the number of shares executed and that reporting entities will understand this based on the metric as proposed. The Commission is adopting these statistics as proposed, while clarifying in the rule text that the statistics apply to executions of covered orders. These statistics will provide useful information for evaluating what type of pricing orders received. Share-weighted average percentage price improvement. The Commission proposed to include a metric in the summary report for share-weighted average percentage price improvement per order.803 As described below, the Commission is adopting this metric largely as proposed and adding a related metric to the detailed report. One industry group stated that it will assume that the proposed metric ‘‘average percentage price improvement per order’’ is intended to report price improvement as a percentage of the midpoint (as of the time of order receipt) and further recommended that average price improvement be share￾weighted.804 In addition, for clarity, this
commenter recommended that the metric be labeled as ‘‘share-weighted average percentage price improvement’’ and the words ‘‘per order’’ be removed from the text of proposed Rule 605(a)(2)(iv).805 Average percentage price improvement will be measured as a percentage of the midpoint of the national best bid and national best offer at the time of order receipt.806 In other words, average percentage price improvement is the share-weighted average price improvement for orders executed divided by the share-weighted average midpoint at the time of order receipt for those orders. The Commission agrees with the commenter that further clarity in this regard would be useful. Therefore the Commission is renaming this metric from the proposal to refer to the ‘‘share-weighted average percentage price improvement,’’ as suggested by the commenter, so that the use of share-based weighting is explicit, clarifying in the rule text that the share￾weighted average percentage price improvement applies to executions of covered orders, and specifying that this statistic is calculated as the cumulative amount that prices were improved less the cumulative amount that prices were executed outside the quote divided by sum of the average midpoint times the number of shares executed.807 In addition, as suggested by the commenter,808 the Commission is requiring that the Rule 605(a)(1) detailed report include an additional column setting forth the average midpoint for executions of covered orders.809 The new defined term for ‘‘average midpoint’’ refers to the share￾weighted average of the midpoint of the NBB or NBO at the time of order receipt (or, for non-marketable limit orders, beyond-the midpoint limit orders, and orders submitted with stop prices, at the time such orders first become executable).810 The inclusion of average midpoint for executions of covered orders in the Rule 605(a)(1) detailed report will enable users to derive the share-weighted average percentage price improvement.811 Average percentage effective spread. The Commission proposed to include in the summary report a metric for the average percentage effective spread.812 The Commission is adopting the metric largely as proposed. One industry group stated in connection with the summary report that it agrees with the approach proposed by the Commission for calculating average percentage effective spread.813 As discussed above, the Commission is modifying the definition of ‘‘average percentage effective spread’’ from the definition of such term in the proposal to make use of other defined terms.814 Although the adopted metric in the summary report utilizes the new definition of ‘‘average percentage effective spread,’’ the metric itself is unchanged and the Commission is clarifying in the rule text that the metric applies to executions of covered orders.815

to the detailed report so that the percentage-based spread statistics in the summary report can be derived from the detailed report. See supra notes 588–591 and accompanying text. 816See Proposing Release, 88 FR 3786 at 3823– 24 (Jan. 20, 2023); proposed Rule 605(a)(2)(vi). 817See supra notes 600–608 and accompanying text. 818See FIF Letter at 29. 819See id. This commenter stated that if average percentage effective spread and quoted spread are reported then a person could derive the average percentage price improvement for the summary report. See id. 820See Schwab Letter III at 3. 821 Id. 822See Schwab Letter II at 31. 823To implement the change in weighting methodology, the Commission is modifying the description of the average E/Q metric to specify that it is average effective spread divided by average quoted spread. As is the case with the average E/ Q statistics in the detailed report required by Rule 605(a)(1), this description of the average E/Q statistic for the summary report makes use of adopted defined terms for ‘‘average effective spread’’ and ‘‘average quoted spread.’’ See supra notes 613–615 and accompanying text. See also final 17 CFR 242.605(a)(2)(ix); final 17 CFR 242.600(b)(8); final 17 CFR 242.600(b)(12). In contrast, the Commission proposed to utilize a defined term for ‘‘average effective over quoted spread,’’ which would have required the calculation of the E/Q for each transaction that would have then been averaged over a month, as weighted by number of shares. See Proposing Release, 88 FR 3786 at 3817 (Jan. 20, 2023). 824See final 17 CFR 242.605(a)(2)(viii) (requiring that average percentage quoted spread be included as a metric in the summary report and providing that average percentage quoted spread means the average quoted spread for order executions divided by the average midpoint for order executions). 825See final 17 CFR 242.605(a)(2)(viii) and (ix). 826See supra notes 617–620 and accompanying text. 827See Proposing Release, 88 FR 3786 at 3970 (Jan. 20, 2023). 828See id. at 3823–24; proposed Rule 605(a)(2)(vii); final 17 CFR 242.605(a)(2)(xii). 829See FIF Letter at 31. 830The time-to-execution statistics in the detailed report required by Rule 605(a)(1) similarly utilize a share-weighted average. See final 17 CFR 242.605(a)(1)(ii)(G), (I), (L); final 17 CFR 242.605(a)(1)(iii)(D). 831A broker-dealer suggested that the Commission should only require execution-time statistics for market orders because marketable limit orders may be partly executed or may exceed the consolidated quote size. See Rule 605 Citadel Letter at 10. The summary report will include average execution speed for market and marketable limit orders. The Commission is retaining average execution speed for marketable limit orders in the summary report for the same reasons that the Commission is retaining execution-time statistics for marketable limit orders in the detailed report required by Rule 605(a)(1). See supra section III.B.3.b. 832See Proposing
Release, 88 FR 3786 at 3825. (Jan. 20, 2023). 833See FIF Letter at 31. 834See id. at 32. Average effective spread divided by average quoted spread (E/Q). The Commission proposed to include a metric in the summary report for average effective spread over average quoted spread, expressed as a percentage.816 As discussed below, the Commission is adopting this metric largely as proposed and adding a metric for average quoted spread. As discussed above, several commenters stated that the Commission should require firms to calculate average E/Q utilizing spread￾based, rather than share-based, weighting.817 One industry group recommended that the summary report include the share-weighted average percentage quoted spread, in addition to the share-weighted average effective spread.818 This commenter stated that with these statistics any person could derive effective over quoted spread and so it would not be necessary to include E/Q in the summary report.819 A financial services firm also suggested that the summary report include ‘‘percentage quoted spread,’’ to be calculated by dividing the quoted spread by the midpoint of the NBB and NBO at the time of order entry.820 This commenter stated that ‘‘[i]n addition to providing transparency into the mix of each broker’s order flow, including this metric will allow users to confirm the E/ Q calculation on the Summary Report by dividing Percentage Effective Spread by Percentage Quoted Spread.’’ 821 This commenter also suggested that the summary report show effective spread and quoted spread and then allow individuals to compute their own E/Q from those two numbers.822 After reviewing the comments, the Commission is: (1) adopting average E/ Q as a metric on the summary report largely as proposed, while adjusting the weighting methodology from share￾based weighting to spread-based weighting as suggested by commenters; 823 and (2) adding average percentage quoted spread as a metric in the summary report, also as suggested by commenters.824 The Commission is also stating in the rule text for clarity that these metrics apply to executions of covered orders.825 As discussed above, requiring spread-based weighting for the E/Q statistics will provide a consistent measure of E/Q that will not vary based on the specific symbols to which price improvement is allocated and thereby will facilitate the comparability of price improvement statistics.826 Further, even though market participants and other interested parties could calculate E/Q on their own if the summary report includes average effective spread and average quoted spread, there is additional utility in having the average E/Q readily accessible on the summary report, particularly because market participants often use E/Q as a measure of execution quality.827 The inclusion of average quoted spread on the summary report will provide another metric that users of the summary report may use to understand the nature of the reporting firm’s order flow. Average execution
speed in milliseconds. The Commission proposed to include a metric in the summary report for average execution speed in milliseconds and is adopting this metric largely as proposed.828 An industry group stated its understanding that the calculation of ‘‘average execution speed in milliseconds’’ would proceed as follows: first, for each individual execution multiply the shares executed by the time to execution; second, sum the results; and finally, divide that sum by the total shares executed.829 The Commission confirms that reporting entities will calculate the metric as stated by the commenter and to add clarity to the rule text is specifying that this metric applies to executions of covered orders and is a share-weighted average.830 The proposed metric is relevant to evaluating how quickly orders were executed, and the Commission therefore has decided to adopt the metric as proposed.831 Additional statistics in the summary report. In the Proposing Release, the Commission solicited comment on whether any additional execution quality statistics required under proposed Rule 605(a)(1) should be included as an aggregated statistic in the summary report.832 As described below, in consideration of these comments, the Commission is adding to the summary report metrics for average realized spread as calculated at 15 seconds and 1 minute from time of execution, and a metric for the average midpoint. An industry group stated that order flow characteristics such as the amount of ‘‘informed’’ order flow received by a broker-dealer and the size of an order relative to the average daily volume of a stock are factors outside of the control of order-handling parties but can impact the amount of price improvement received.833 This commenter further stated that the impact of these order flow characteristics could be measured in part through statistics such as realized spread and price impact and thus recommended that the Commission require firms to include in the summary report the weighted-average realized spread at 15 seconds and at 1 minute after the time of execution.834 A financial services firm also suggested that percentage realized spread be included in the summary report statistics and argued that this ‘‘simple addition would provide better transparency regarding the distinct

835Schwab Letter III at 3. 836See FIF Letter at 32; Schwab III Letter at 3. 837See supra section III.B.4.a)(2) for a discussion of the utility of the realized spread statistic. 838See final 17 CFR 242.605(a)(2)(x) and (xi). As discussed above, the Commission is adding a statistic for average midpoint for order executions to the detailed report so that the percentage-based spread statistics in the summary report can be derived from the detailed report. See supra notes 589–592 and accompanying text. 839See FIF Letter at 27. 840See final 17 CFR 242.605(a)(2)(iii). Pursuant to the definition of ‘‘average midpoint,’’ average midpoint for order executions is a share-weighted average. See final 17 CFR 242.600(b)(9). 841See Vanguard Letter at 4. 842See Nasdaq Letter at 46. 843Angel Letter at 3. This commenter stated that additional efforts need to be made to make sure that the summary reports are ‘‘human-friendly’’ and provide useful data for comparing brokers. See id. 844A CSV (comma-separated values) file is a text file in which commas separate the values in each row. 845FIF Letter at 5, 32. 846See final 17 CFR 242.605(a)(2). Rule 605(a)(4) does not apply to the summary report required by Rule 605(a)(2). This is because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV format and associated PDF renderer, and therefore the Rule 605 NMS Plan does not establish the formats and fields for the summary report. Further the summary report is not included in Rule 605(a)(4) because the procedures for preparation and posting of the summary report under Rule 605(a)(2) are contained in Rule 605(a)(2), which sets forth the necessary format for the summary report, and Rule 605(a)(5), which requires internet posting. characteristics of order flow among brokers which, in turn, affects the average execution quality metrics on the reports.’’ 835 Both commenters stated that a person reviewing the summary report could calculate the price impact based on the realized spread and the effective spread.836 The Commission agrees with the commenters that viewing the average realized spread in the summary report will be useful to investors. The average realized spread metrics for 15 seconds and 1 minute after the time of execution were proposed for inclusion in the detailed report required pursuant to Rule 605(a)(1) and will similarly allow users of the summary report to differentiate between various types of order flow.837 Moreover, because the final Rule 605(a)(1) detailed report requires the calculation of average realized spread at multiple time horizons, including 15 seconds and 1 minute, adding these two time horizons for average realized spread to the summary report should impose a minimum burden on reporting entities. Therefore, the Commission is requiring that the summary report include, for executions of covered orders, both the average percentage realized spread as calculated 15 seconds after the time of execution and the average percentage
realized spread as calculated 1 minute after the time of execution.838 An industry group further suggested adding share-weighted average execution price as a metric to the summary report.839 Although the Commission agrees with the commenter that the share-weighted average execution price could provide useful information, average execution price is not a metric included in the detailed report required by Rule 605(a)(1) and therefore if this statistic were included in the summary report it would not be derivable from the detailed report, contrary to commenters’ suggestions that the metrics in the summary report should be derivable. Therefore, the Commission is adding to the summary report a metric for average midpoint for executions of covered orders because this metric will be included in the detailed report so that other summary report statistics will be derivable from the detailed report and, similar to share￾weighted average execution price, average midpoint provides information about the mix of stocks represented in the reported statistics.840 Thus, the inclusion of the average midpoint will provide those using the summary report for comparison purposes with a means to assess whether differences in the price mix of stocks could be a factor affecting other execution quality statistics of reporting entities.
2. Required Format
As discussed below, commenters supported the production of the summary report in a human-readable format. A financial services firm supported the proposal to require a standardized summary report in a ‘‘user￾friendly format.’’ 841 A national securities exchange stated that the proposed format would make the data in the summary reports accessible to a wider audience in a standard format to facilitate comparisons.842 However, one academic believed that while the proposed summary reports ‘‘are most important,’’ the Commission’s proposal ‘‘did not clearly display what the summary reports would look like.’’ 843 Finally, one industry group recommended that CSV,844 or another format that could be copied into a spreadsheet software program, be used in place of XML for the summary report. According to the commenter, using CSV ‘‘would allow investors to compare summary data across firms more readily.’’ 845 After review of the comments, the Commission is requiring the use of PDF format as proposed and modifying proposed Rule 605(a)(2) to require that market centers and broker-dealers also produce the summary report in CSV format instead of XML format as suggested by the commenter.846 Making the summary report available in these file formats will allow market centers and broker-dealers to efficiently prepare the summary reports. In addition, investors and other members of the public will benefit from being able to access the summary report in multiple formats. Presently, it is challenging for individual investors to decipher and analyze the detailed Rule 605(a)(1) report. These individual investors will be more readily able to use a summary report to make a more informed choice about selection of a broker-dealer than they can now. Because the summary report is human-readable in PDF format, individual investors will be able to assess the data by reviewing and comparing summary reports without needing technical expertise or relying on an intermediary. Further, independent analysts, consultants, and the financial press may also analyze the summary reports to provide more information to individual investors, including those who do not themselves access the summary reports. The Commission further agrees with the industry group commenter that investors will benefit from the summary report being provided in CSV format and has modified proposed Rule 605(a)(2) to require that the summary report required therein be provided in CSV format, instead of XML, and also provided using the associated PDF renderer. As would have been the case using XML, the requirement to use the Commission’s schema for CSV format will result in the summary report data being provided in a format that is structured and machine-readable, which allows users to more easily process and analyze the data, and provides consistency of format across reports. Requiring a CSV file format also provides market participants and other interested parties with a simple and versatile format that is viewable in
many programs. Like XML (and PDF), CSV is ‘‘open standard,’’ which is a term that is generally applied to technological specifications that are widely available to the public, royalty￾free, at no cost. However, the Commission agrees with the commenter that a CSV file format may allow investors and other members of the public to compare summary data across firms more readily than XML. Investors and other members of the public may find a CSV file format preferable to an XML file format because the data can be more readily viewed and analyzed in widely used spreadsheet applications.

847See also infra sections IX.D.1.b)(3) and IX.E.4.b). 848See SIFMA Letter II at 30; NASAA Letter at 6. 849See Angel Letter at 3. 850See SIFMA Letter II at 30. 851See id. In particular, one commenter suggested educating investors on price impact (as defined in the Order Competition Proposal). See Schwab Letter II at 31. 852See SIFMA Letter II at 31. 853See NASAA Letter at 6. 854See letter from Andrew (Mar. 31, 2023). 855See Letter Type G at https://www.sec.gov/ comments/s7-29-22/s72922.htm (suggesting this guidance ‘‘especially for retail investors who may not have a deep understanding of the markets’’). 856See supra note 742. 857See, e.g., https://www.sec.gov/education/ investor-education, https://www.investor.gov/ introduction-investing/investing-basics/how-stock￾markets-work/executing-order. The Commission’s Office of Investor Education and Advocacy regularly posts investor alerts and bulletins. In addition, Investor.gov is an online resource from the Commission’s Office of Investor Education and Advocacy to help individual investors ‘‘make sound investment decisions and avoid fraud.’’ See https:// www.investor.gov/about-us. 858See Proposing Release, 88 FR 3786 at 3824 (Jan. 20, 2023). 859See id. 860See id. Because the Rule 605 summary report consists solely of a series of discrete numeric values in a fixed tabular layout, and does not contain elements in nested structures, the sophisticated validations that XML enables would not have provided significant benefits for the Rule 605 summary report.847 Instead, the CSV format, which yields much smaller file sizes and therefore more efficient processing and storage of data than the XML format, is equally capable of handling the Rule 605 summary report content. The increased usability of the CSV file format will be more relevant to investors and other members of the public viewing and analyzing the summary report than the broader technical coverage of XML. Therefore, the Commission is requiring the use of a schema for CSV format rather than an XML schema. Further, the requirement that the same data be provided through the use of a PDF renderer helps ensure that the summary report is also available in a human-readable format and consistently presented across operating systems and applications.
3. Investor Testing and Education
An industry group and an association of securities regulators both strongly encouraged the Commission to provide investor education or testing to ensure that the summary report is useful.848 In addition, an academic stated that additional effort needs to be made to make sure the summary report is ‘‘human-friendly and provide[s] useful data for comparing brokers.’’ 849 The industry group further stated that ‘‘the industry has expended significant effort and resources to ensure that retail investors have access to educational materials and support necessary to best inform their use of broker-dealer services’’ and stated that the Commission was in the best position to educate investors about the use of summary reports.850 This commenter suggested providing educational resources to retail investors that would help them understand the summary reports and how such information can be used to inform their investment decisions.851 This commenter also suggested that investors should understand how to interpret varying data in order to facilitate the most accurate cross-comparisons between broker-dealers’ execution quality.852 The association of securities regulators suggested testing the summary report with investors prior to implementation, such as through focus groups, to confirm that the summary report provides useful information for retail investors.853 An individual supported investor testing and investor roundtables for all equity market system rules recently proposed by the Commission.854 Several individuals suggested that the Commission should provide clear guidance on how to read and interpret the amended Rule 605 reports.855 The Commission does not agree that prescribed testing or investor focus groups or roundtables are needed at this time. Rule 605 has been in existence for over two decades. Although larger broker-dealers will be required to produce the detailed report under Rule 605(a)(1) for the first time, and both market centers and larger broker-dealers will be required to create and post a summary report under Rule 605(a)(2) for the first time, investors should be broadly familiar with many of the execution quality metrics that the summary report is intended to highlight. Further, many commenters, including individuals, supported the proposed summary report as it provides greater access to execution quality data.856 Notwithstanding any potential insights into the Rule 605 reports that could be gained from testing or focus groups, delay in the adoption of final Rule 605 would delay the benefits of the amendments from accruing. Some commenters suggested that the Commission directly provide educational resources to individual investors related to the final Rule 605 amendments. However, many market participants, in addition to the Commission,857 have undertaken efforts to educate retail investors about securities trading and how to compare broker-dealer execution quality, and the Commission expects that these initiatives will continue to
inform retail investors about means to evaluate their broker-dealers’ performance, including the utilization of summary report statistics. Individual broker-dealers may provide their own educational resources addressing Rule 605 directly to their customers and other market participants and customers of broker-dealers may ask their broker-dealers questions about the Rule 605 reports. Likewise, broker￾dealers can provide information about their firms and the nature of their order flow on their websites or through other communications to customers. Further, as stated above, third parties, including analysts, researchers, and the financial press, may also use the summary reports to analyze and compare execution quality across broker-dealers or market centers and provide such information to individual investors in different formats that provide individual investors with alternative ways to engage with Rule 605 data. The Commission therefore does not believe it is necessary to prescribe investor education at this time. However, the Commission will monitor the implementation of Rule 605, including with regard to whether additional information about investor use or analysis of the summary report would be helpful.
V. Requirements for Making Rule 605
Reports Available to the Public A. Proposed Approach Prior to these amendments, the requirements for the dissemination of the market center report required by Rule 605 were set forth in paragraphs (a)(2) and (3) of Rule 605.858 Preexisting Rule 605(a)(2) required every national securities exchange on which NMS stocks are traded and each national securities association to act jointly in establishing procedures for market centers to make the reports required by Rule 605(a)(1) available to the public in a uniform, readily accessible, and usable electronic form.859 The Commission proposed to amend preexisting Rule 605(a)(2), which would be reorganized into amended Rule 605(a)(3), so that the proposed summary report would also be made available in accordance with the procedures established by the Rule 605 NMS Plan.860 Further, preexisting Rule 605(a)(2) provided that, in the event there is no effective national market system plan, market centers shall prepare their reports in a consistent, usable, and machine-readable electronic

861See id. at 3824, n.475.
862See id.
863See id. at 3824.
864See id. at 3824, n.475.
865See id. at 3825.
866See id.
867See final 17 CFR 242.605(a)(3) through (6); Proposing Release, 88 FR 3786 at 3824–25 (Jan. 20, 2023). The Commission proposed to amend current Rule 605 by reorganizing paragraphs (a)(2) and (3) of current Rule 605 as paragraphs (a)(3) through (6) of proposed Rule 605. 868See final 17 CFR 242.605(a)(3) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001). For a discussion of the implementation of amendments to the Rule 605 NMS Plan pursuant to 17 CFR 242.608 (‘‘Rule 608’’), see infra section VII. 869See Rule 605 NMS Plan at section VIII. As of January 2024, the parties to the Rule 605 NMS Plan are the 16 registered national securities exchanges trading NMS stocks and one national securities association (the ‘‘Participants’’). Although not all market centers are Participants, the Participants are required to enforce compliance with the terms of the Rule 605 NMS Plan by their members and persons associated with their members. See 17 CFR 242.608(c). Each market center must notify its Designated Participant of the website where its reports may be downloaded, and each Designated Participant must maintain a comprehensive list of links for all market centers for which it functions as a Designated Participant. See Rule 605 NMS Plan at sections IV, VIII(c). 870See Rule 605 NMS Plan at section VII. 871See 17 CFR 242.608(c). 872See Rule 605 NMS Plan at 2 (‘‘Section V . . . provides that market center files must be in standard, pipe-delimited ASCII format’’). 873See Healthy Markets Letter at 16. See also Better Markets Letter at 9, n.26 (‘‘We agree with Healthy Market Association that improved header data would go a long way to making Rule 605 Reports more readable, particularly for retail investors, and suggest the Commission make this technical enhancement to the Rule 605 NMS Plan.’’). 874See Healthy Markets Letter at 16. 875 If the Plan Participants determine to amend the Rule 605 NMS Plan to incorporate headers into the reports, an amendment must be filed with the Commission pursuant to Rule 608 of Regulation NMS. See 17 CFR 242.608(a). Amendments to NMS plans are subject to notice and comment, and may be either effective upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before amendments may be effective, pursuant to 17 CFR 242.608(b)(2). 876Under Rule 608(a)(2) of Regulation NMS, the Commission may propose amendments to any effective national market system plan. See 17 CFR 242.608(a)(2). The Commission could in the future propose an amendment to the Rule 605 NMS Plan to address issues related to the Rule 605 reports. format and make such reports available for downloading from an internet website that is free and readily accessible to the public.861 The Commission proposed to reorganize this provision into amended Rule 605(a)(4) and modify amended paragraph (a)(4) to explicitly refer to the requirements in amended Rule 605(a)(1).862 Rule 605(a)(2), prior to these
amendments, also specified that the detailed reports required by Rule 605(a)(1) must be posted on an internet website that is free and readily accessible to the public for a period of three years from the initial date of posting.863 As proposed, these same requirements would be reorganized into amended Rule 605(a)(5) and would be extended to the summary report required under proposed Rule 605(a)(2).864 Finally, prior to these amendments, Rule 605(a)(3) specified that the detailed report required by Rule 605(a)(1) must be made available within one month after the end of the month addressed in the report.865 The Commission proposed to renumber this provision as amended Rule 605(a)(6) and to extend this requirement to the amended Rule 605(a)(2) report.866 B. Final Rule and Discussion

1. Accessibility of Rule 605 Reports
   The Commission is updating these provisions of preexisting Rule 605 by reorganizing paragraphs (a)(2) and (3) of preexisting Rule 605 into amended paragraph (a)(3) and new paragraphs (a)(4) through (6) as proposed.867 In the amended paragraphs, the Commission proposed to apply the website posting, timing, and retention requirements to the proposed Rule 605(a)(2) summary report and to extend Rule 605’s procedural requirements to brokers and dealers subject to Rule 605. The Commission received no comments regarding the proposed renumbering and reorganization of preexisting Rule 605(a)(2) and (3), but did receive comments on the substance of proposed Rule 605(a)(3). The Commission is adopting paragraphs (a)(3) through (6) of Rule 605 as proposed. These rule provisions set forth the requirements for making the Rule 605 reports accessible to the public, and retaining these requirements from preexisting Rule 605 will continue to provide interested parties with the ability to access the reports easily and efficiently. Rule 605(a)(3) directs the SROs to act jointly in establishing procedures for market centers, brokers, and dealers to follow in making available to the public the detailed report under Rule 605(a)(1) and summary report under Rule 605(a)(2). The Rule 605 NMS Plan establishes procedures for market centers to make data available to the public in a uniform, readily accessible, and usable electronic form.868 The Rule 605 NMS Plan requires each market center to arrange with a single plan participant to act as the market center’s Designated Participant.869 The Rule 605 NMS Plan also requires market centers to post their monthly reports on an internet website that is free of charge and readily accessible to the public.870 Inclusion of Rule 605(a)(2)’s summary reports within the scope of the Rule 605 NMS Plan will promote consistent administration of Rule 605 and allow the Designated Participant for each reporting entity to play a role with respect to the reports required by Rule 605(a)(1) and (2). As is the case for market centers that are not Participants prior to these rule amendments, the Participants will be required to enforce compliance with the terms of the Rule 605 NMS Plan by their members and persons associated with their members.871 In addition, formatting for Rule 605 data is governed by the Rule 605 NMS Plan. Among other things, the Rule 605 NMS Plan sets forth the file type and structure of the reports and the order and format of fields, yielding reports that are structured and machine￾readable.872 Because of the amendments to Rule 605, the Rule 605 NMS Plan will need to be updated in order to incorporate references to larger broker￾dealers subject to Rule 605 and to account for summary reports and the new data fields required to be reported. The compliance period for amending the Rule 605 NMS Plan, and other implementation details, are discussed in infra section VII. With respect to report formatting, an investor advocacy group
   stated that header data should be included in the Rule 605 reports, arguing that ‘‘it is impossible to understand the reports’’ without looking separately to published Commission guidance.873 This commenter also stated that Rule 605 reports should continue to be made available in a machine-readable format.874 The Commission agrees that having more ready access to the information needed to understand the content of the reports could be beneficial for market participants. Because the Rule 605 NMS Plan establishes the procedures for reporting entities to follow in making the report available in a uniform, readily accessible, and usable electronic form, the Participants are well-positioned to determine how to include header information in connection with the updates to the record layout for the detailed Rule 605(a)(1) reports.875 The Commission encourages the Participants to consider whether header information or a more accessible record layout or key should be part of the procedures for making the reports available to the public, especially as it pertains to the detailed Rule 605(a)(1) reports.876 In the event that an amendment to the Rule 605 NMS Plan establishing

877The requirements of Rule 605(a)(4) do not apply to the Rule 605(a)(2) summary report because Rule 605(a)(2) specifies the necessary format for the reports, while Rule 605(a)(5) contains the requirement for internet posting. 878See Proposing Release, 88 FR 3786 at 3824– 25 (Jan. 20, 2023). 879See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75425 (Dec. 1, 2000). If a market center or broker-dealer believes that its particular circumstances warrant an exemption from the provisions of the Rule, it may request an unconditional or conditional exemption pursuant to paragraph (b) of Rule 605. Such an exemption will be granted if the Commission determines that it necessary or appropriate in the public interest, and is consistent with the protection of investors. See 17 CFR 242.605(b). 880See Proposing Release, 88 FR 3786 at 3824– 25 (Jan. 20, 2023). 881See id. at 3825, 3894. 882See id. at 3894. The Commission also stated that a centralized system could enable programmatic checks that the Rule 605 reports are appropriately standardized, formatted, and complete before posting. See id. 883See id. 884See id. at 3895. 885See id. at 3896. Under this alternative, entities would submit Rule 605 information to the Commission, but would not file Rule 605 information with the Commission. Under the Exchange Act, documents filed with the Commission are subject to heightened liability for misstatements contained therein as compared to documents otherwise provided to the Commission (e.g., documents furnished to the Commission). See 15 U.S.C. 78ff. 886See BlackRock Letter at 4; Angel Letter at 3; Fidelity Letter at 8; Healthy Markets Letter at 16; Nasdaq Letter at 46; SIFMA Letter II at 25; J.T. Letter. 887Fidelity Letter at 8. 888Nasdaq Letter at 46. See also BlackRock Letter at 4. 889See Healthy Markets Letter at 16. 890See Fidelity Letter at 8. 891See Angel Letter at 3. 892See J.T. Letter. This commenter stated that it is ‘‘essential to ensure that these reports are appropriately standardized, formatted, and completed before acceptance through programmatic checks.’’ Id. 893See FIF Letter at 33; Healthy Markets Letter at 16. 894See FIF Letter at 33. 895See Healthy Markets Letter at 16. Another commenter objected to the standardization and centralization of Rule 605 reports and stated that ‘‘[g]iving away vast amounts of information to free riders (e.g., activists, MEME stock insurgents, and foreign adversaries) increases vulnerabilities’’ such as ‘‘MEME events and other irrational exuberance.’’ Data Boiler Letter at 27. The Commission does not agree that the standardization and centralization of Rule 605 reports would increase these so-called ‘‘vulnerabilities’’ simply by making the reports viewable at one central location in a consistent format because it is unclear how the execution quality information contained in Rule 605 reports would lead to these outcomes. procedures for market centers, brokers, and dealers to comply with Rule 605 has not been approved by
the Commission prior to the compliance date of the amendments to Rule 605, paragraph (a)(4) of Rule 605 provides that market centers, brokers, and dealers shall prepare their reports in a consistent, usable, and machine￾readable electronic format, and make such reports available for downloading from an internet website that is free and readily accessible to the public.877 Paragraph (a)(5) of Rule 605 requires market centers, brokers, and dealers to keep the reports required by Rule 605(a)(1) and (2) posted on an internet website that is free and readily accessible to the public for a period of three years from the initial date of posting. Finally, paragraph (a)(6) of Rule 605 requires market centers, brokers, and dealers to make their Rule 605(a)(1) and (2) reports available within one month after the end of the month addressed in the reports. The Commission received no comments on its proposal to renumber and update paragraphs (a)(4) through (6) of Rule 605 and is adopting paragraphs (a)(4) through (6) of Rule 605 as proposed, for the reasons stated in the Proposing Release.878 Final Rule 605 will extend these procedural requirements to the Rule 605(a)(2) summary report so that valuable information on order execution quality will be made available to the public without undue delay.879 Further, the ability to access Rule 605(a)(1) and (2) reports at the same time and the availability of these reports for the same period of time will aid users of the reports in their review and analysis of execution quality data.880
2. Alternatives to Rule 605 Proposal
(a) Centralization of Rule 605 Data In the Proposing Release, the Commission solicited comment on whether to require centralized posting of Rule 605 reports and discussed as an alternative that instead of, or in addition to, having market centers and larger broker-dealers post Rule 605 reports to their websites, the Commission could require these reporting entities to submit their Rule 605 reports to a centralized electronic system, which would then make these reports available to market participants.881 The Commission stated that the creation of a centralized electronic system could promote greater transparency by better enabling market participants to access and evaluate the reports of multiple reporting entities because the reports would be available at a single location.882 However, the Commission recognized that the entity responsible for administering the centralized electronic system would incur compliance costs as a result of the creation and maintenance of such a system, and these costs could be passed on to reporting entities in the form of filing fees or to consumers of Rule 605 reports in the form of access fees.883 Specifically, the Commission considered two options for how to implement a centralized electronic system. One option would have been for the Commission to require that the Plan Participants establish procedures pursuant to the Rule 605 NMS Plan to provide for the creation and maintenance of a centralized electronic system to serve as a repository for Rule 605 reports and make such reports available for viewing and downloading in a manner that is free and readily accessible to the public.884 The second option would have been for the Commission to require that reporting entities disclose Rule 605 information directly to the Commission through the Commission’s Electronic Data Gathering, Analysis, and Retrieval (‘‘EDGAR’’) system, with the Commission subsequently making the information publicly available on EDGAR.885 Several commenters supported the centralized posting of Rule 605 reports (summary and detailed).886 Some of these commenters stated that providing centralized access to Rule 605 reports would ‘‘facilitate accessibility and comparability of the metrics to the benefit of retail customers and market participants’’ 887 and that ‘‘market participants would be more likely to use the data to compare execution quality, leading to increased competition and improvements in execution quality.’’ 888 Some of these commenters suggested various means of centralizing Rule 605 reports—having FINRA maintain a public database for Rule 605 reports,889 creating a central repository for Rule 605 reports to be located on a single
page on the Commission’s website,890 or
working out the details of a central repository through the Rule 605 NMS Plan.891 An individual investor suggested that the Commission should require the summary and detailed reports to be posted in a centralized electronic system implemented by the Commission that subjects reporting entities to liabilities and has no access fees.892 An industry group and an investor advocacy group both specifically discouraged the use of EDGAR as the centralization method,893 stating that the EDGAR system is ‘‘outdated technology’’ 894 and ‘‘inadequate for the task.’’ 895 The Commission has considered the comments but is not adopting a requirement for centralized posting of Rule 605 reports for a number of reasons. While several commenters supported the goal of centralizing Rule

896See final 17 CFR 242.605(a)(5). 897 In May 2023, FINRA requested comment on whether to require its members to provide Rule 605 reports to FINRA for centralized publication. See FINRA Regulatory Notice 23–10 (May 31, 2023) (‘‘Regulatory Notice’’). FINRA stated in the Regulatory Notice that the proposed requirement to provide Rule 605 reports to FINRA would supplement, not replace, firm’s current obligations under Rule 605. See Regulatory Notice at 3. Comments received on FINRA Regulatory Notice 23–10 are available at https://www.finra.org/rules￾guidance/notices/23-10#comments. 898As set forth in the National Market System Plan for the Consolidated Audit Trail (‘‘CAT NMS Plan’’), the CAT NMS Plan Processor is required to develop and, with the prior approval of the Operating Committee, implement policies, procedures, and control structures related to the CAT System that are consistent with 17 CFR 242.613(e)(4), and Appendix C and Appendix D of the CAT NMS Plan. See Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 at 84704, n.136 (Nov. 23, 2016) (order approving the CAT NMS Plan). 899See Proposing Release, 88 FR 3786 at 3897 (Jan. 20, 2023). 900See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; FIF Letter at 32; Healthy Markets Letter at 16; SIFMA Letter II at 27; State Street Letter at 2; Tastytrade Letter at 4; LPL Financial Letter at 4. 901LPL Financial Letter at 4. 902BlackRock Letter at 4. 903Tastytrade Letter at 4. 904See Angel Letter at 3; Black Rock Letter at 4; Fidelity Letter at 8; SIFMA Letter II at 27; State Street Letter at 2. 905See SIFMA Letter II at 27; see also Healthy Markets Letter at 16 (‘‘we recommend that as part of its access to CAT data to create 605 reports as
part of their regulatory oversight/surveillance,
FINRA should make its report cards publicly available’’). 906See infra section VII. 907SIFMA Letter II at 26. 908 Id. at 26–27. 909Final 17 CFR 242.605(a)(3). 910See final 17 CFR 242.605(a)(2). 605 reports, commenters did not have a consensus view on how to accomplish centralization. Further, two commenters expressed specific concerns with the Commission using EDGAR as a centralized repository. The Commission acknowledges that centralization of Rule 605 data, by providing standardization to the reports, could help to make it easier for market participants to access and evaluate Rule 605 reports. However, developing a centralized repository and procedures for reporting entities to follow, whether done by the Commission or by Plan Participants, could potentially result in implementation time delays and require the expenditure of considerable technology and personnel resources. Further, although a centralized repository could lower search cost for market participants, even without centralization, Rule 605 reports will be required to be readily available and accessible.896 The changes to Rule 605 discussed herein will expand the scope of the reports and improve the usefulness of the execution quality statistics provided and made public. For example, the addition of a reporting requirement for larger-broker dealers will provide investors with information that they could use to compare the execution quality provided by different broker￾dealers. The current disclosure requirements set forth in the amended rule and under the Plan will help ensure that implementation of final Rule 605 will proceed in a timely manner.897 (b) Generation of Order Execution Quality Reports Using CAT Data As an alternative to the proposed Rule 605 amendments, the Commission asked for comment on using CAT data to have either the Commission or the CAT NMS Plan Processor 898 provide execution quality information to the public at monthly (or more frequent) intervals. This alternative would have effectively eliminated the need for market centers and larger broker-dealers to prepare Rule 605 reports.899 A few commenters supported the use of CAT data to produce Rule 605 reports.900 An investment advisory firm stated that utilizing CAT data to create a report and making such reports easily accessible in one location ‘‘will likely result in a meaningful increase in transparency for investors.’’ 901 An asset management firm stated that if every reporting firm generates its own reports, there would be ‘‘needless duplication of the costs and burdens associated with the implementation and ongoing maintenance of disclosures,’’ and that ‘‘a centralized processor for Rule 605 reports would also eliminate the inevitable inconsistencies or errors which arise when independent systems are responsible for creating reports.’’ 902 Another broker-dealer specified that ‘‘for the sake of consistency and transparency, FINRA is best positioned to provide these reports’’ through the use of CAT data.903
Several commenters also stated that a central Rule 605 report processor would lower compliance burdens for broker-dealers.904 An industry group stated that if FINRA/ CAT is not used to produce all Rule 605 reports, but FINRA prepares its own Rule 605 data for regulatory purposes, such FINRA data/report should be made available to the relevant firm.905 The Commission recognizes the value in having one entity calculate the statistics required under Rule 605 and produce execution quality disclosures because it could result in more standardized data. This in turn could help facilitate one of the primary goals of the Rule 605 amendments—to enhance order execution quality reporting to better enable investors to compare and evaluate execution quality among different market centers and larger-broker-dealers. This approach could also allow for the publication of execution quality data for all broker￾dealers instead of just those that meet the customer account threshold. However, there are potentially significant costs and time delays associated with implementation of this alternative. The obstacles associated with authorizing and enabling FINRA CAT to prepare execution quality disclosures could hinder the ability of investors and market participants more broadly to have ready access to enhanced execution quality information. Rule 605, as adopted, will require updated disclosure within a comparatively shorter timeframe.906 However, the Commission will continue to monitor this alternative in the context of the implementation of CAT and may in the future consider whether execution quality disclosure utilizing CAT data is practicable or advisable. If the Commission in the future determines that CAT data should be utilized to produce execution quality disclosures, the Commission could also consider whether to eliminate the requirement that market centers and broker-dealers themselves produce Rule 605 reports in that context. An industry group stated that ‘‘[t]o the extent FINRA/CAT are not utilized to produce Rule 605 reports, the Commission or FINRA should be required to provide a publicly available data template that specifies exactly how a market center or broker-dealer’s Rule 605 reports should be produced.’’ 907 The commenter further stated that ‘‘[d]oing so would establish a standardized metric consistent with regulators’ expectations and reduce any regulatory risks reporting entities may face from having to make independent interpretations of various reporting requirements.’’ 908 Although the Commission will not publish an exact data template for the detailed reports, the NMS Plan required by Rule 605(a)(3) will establish procedures for making the detailed report available to the public in a ‘‘uniform, readily accessible, and usable electronic form.’’ 909 Further, Rule 605(a)(2) requires the summary report to be made available using the schema for CSV published on the Commission’s website.910 In addition, the Commission is providing herein a detailed
discussion of the final rule, including responses to issues and questions raised by commenters. Therefore, reporting entities will have

911See supra section III.A.1.b).
912See Staff Legal Bulletin No. 12R, ‘‘Frequently Asked Questions About Rule 11Ac1–5’’ (June 22,
2001) (‘‘2001 FAQs’’), Question 19.
913See Market Systems Exemptive Letter at 2. 914 Id. 915See supra notes 351–355 and accompanying text. 916See 2001 FAQs, Question 27. 917See 2013 FAQs, Question 2; and 2001 FAQs, Question 24. 918One commenter requested confirmation that execution quality metrics reported under Rule 605 include execution quality information for riskless principal orders. See supra note 688 and accompanying text. 919See supra section III.A.2.b). 920See prior 17 CFR 242.605(a)(2) and Rule 605 NMS Plan. See also Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001). the information needed to produce Rule 605 reports in a uniform manner.
VI. Existing Commission Exemptive
Relief and Staff Statements Upon the compliance date of the amendments to Rules 600 and 605, the Commission exemptive relief and staff statements listed below will be withdrawn. To the extent any staff statement is inconsistent with or conflicts with the requirements of Rule 600 or Rule 605, as amended, even if not specifically identified below, those statements are superseded. As discussed in section III.A.1, the Commission is incorporating the Opening Exemption into the definition of covered order with respect to market or limit orders received during regular trading hours at a time when an NBBO is being disseminated.911 The Commission did not receive any comments opposing the proposed incorporation of the Opening Exemption into rule text or the rescission of the Opening Exemption in the 2001 Exemptive Letter. The Commission is rescinding the Opening Exemption as proposed, for the reasons discussed in the Proposing Release and in section III.A.1. The rescission of the Opening Exemption supersedes a staff FAQ.912 In addition to the Opening Exemption, the Market Systems Exemptive Letter included a separate exemption from Rule 605 for orders received during a time when the consolidated best bid and offer (‘‘BBO’’) reflects a spread that exceeds $1 plus 5% of the midpoint of the consolidated BBO (‘‘Spread Width Exemption’’).913 As proposed, the Commission is not modifying or rescinding the Spread Width Exemption. Orders received during a time when the consolidated BBO reflects a spread that exceeds $1 plus 5% of the midpoint of the consolidated BBO ‘‘could be the result of potentially erroneous quotes or of abnormal trading conditions’’ and their inclusion ‘‘could significantly affect the comparability and reliability of the execution quality measures in market center monthly reports.’’ 914 As discussed in section III.B.1, commenters supported the inclusion of larger-sized orders, which necessarily requires the recission of the Large Order Exemptive Relief.915 The Commission is rescinding the Large Order Exemptive Relief as proposed, for the reasons discussed in the Proposing Release and in section III.B.1. The rescission of the Large Order Exemptive Relief supersedes the relevant staff FAQ.916 Finally, two additional staff FAQs are specifically superseded by Rule 605, as amended, and the guidance contained in this release.917 First, the final rule incorporates a provision that supersedes current staff statements regarding the treatment of riskless principal orders. Specifically, adopted Rule 605(a)(1)(i)(D) provides that the number of shares of covered orders executed at the receiving market center, broker, or dealer excludes shares that the market center, broker, or dealer executes on a riskless principal basis.918 Second, as proposed, the Commission is providing guidance that non-exempt short sale orders will not be special handling orders unless a price test restriction is in effect for the security.919 The FAQs will be updated accordingly
consistent with these changes.
VII. Transition Matters
The Commission is providing a transition period between when the amendments to Rule 605 are adopted and when the changes are fully implemented. As discussed above, the Rule 605 NMS Plan establishes procedures for market centers to make data available to the public in a uniform, readily accessible, and usable electronic form.920 In addition, formatting for Rule 605 data is governed by the Rule 605 NMS Plan, which sets forth, among other things, the file type and structure of the reports and the ER15AP24.006</GPH> Market Systems Exemptive Letter, Opening Exemption only Large Order Exemptive Relief 2001 FAQ, Questions 19, 24, and 27 only 2013 FAQ, Question 2 onl June 22, 2001 June 22, 2001 June 25, 2001 Feb. 25, 2013 Orders received during regular trading hours at a time when an NBBO is being disseminated but prior to the dissemination of the primary listing market's first firm, uncrossed quotations for a tradin da . Any order with a size of 10,000 shares or reater. Orders received prior to dissemination of quotations by primary listing SRO, riskless principal orders, and exemption for block orders. Non-exem t short sale orders.

921See Rule 605 NMS Plan Release, 66 FR 19814 at 19815 (Apr. 17, 2001) (‘‘Section V . . . provides that market center files must be in standard, pipe￾delimited ASCII format’’). 922The Rule 605 NMS Plan details procedures for market centers to follow and, among other things, specifies the order and format of fields in a manner that aligns with Rule 605(a)(1). See Rule 605 NMS Plan generally and section VI.(a) of the Rule 605 NMS Plan. As is currently the case for market centers that are not Participants, the Participants will be required to enforce compliance with the terms of the Rule 605 NMS Plan by their members and persons associated with their members. See 17 CFR 242.608(c). 923See letter from Andrew M. Saperstein, Co￾President, Morgan Stanley (Mar. 31, 2023) (‘‘Morgan Stanley Letter’’) at 7 (‘‘The proposed amendments to Rule 605 involve a host of changes, including the introduction of new order types in scope, which will require broker-dealers and their vendors to adopt new processes and controls.’’); SIFMA Letter II at 27 (recommending a minimum implementation period of one year and ‘‘ideally two years’’ following adoption of proposed Rule 605 ‘‘to allow for the industry, SROs, and the Commission to ensure that revised Rule 605 reports are produced in a consistent way’’); FIF Letter at 5, 33 (proposing that the implementation period should be a minimum of one year from the Commission’s approval of applicable Plan amendments). 924FIF Letter at 33. 925FIF Letter III at 5 (‘‘If the Commission does not publish proposed specifications prior to adopting a final rule, FIF members recommend that any implementation timetable commence from the date that the Commission publishes guidance in response to interpretive questions from industry members relating to the reporting requirements that the Commission adopts.’’). 926See Healthy Markets Letter at 16. An industry group and a broker-dealer recommended implementing changes to Rule 605 before any of the other changes to the U.S. equity market structure that the Commission has proposed in order to provide a baseline for measuring market quality. See FIF Letter at 1, 33 (recommending implementation of proposed Rule 605 reporting changes at least one year prior to other changes); Morgan Stanley Letter at 2 (recommending a staggered approach to changes to U.S. equity market structure, starting with changes to Rule 605). See also supra note 79 and accompanying text (discussing other commenters’ views on Rule 605 sequencing). 927NYSE Letter at 8. 928With respect to the compliance date, commenters requested that the Commission consider interactions between the proposed rule and other recent Commission rules. See supra note
79. In determining compliance dates, the
Commission considers the benefits of the rules as well as the costs of delayed compliance dates and potential overlapping compliance dates. For the reasons discussed throughout the release, to the extent that there are costs from overlapping compliance dates, the benefits of the rule justify such costs. See infra sections IX.C.1.d) and IX.D.2.a)(5) for a discussion of the interactions of final Rule 605 with certain other Commission rules. 929See SIFMA Letter II at 27. 930See id. (stating the Commission should provide for an implementation period of ‘‘ideally two years following adoption of the Rule 605 Proposal’’) and FIF Letter at 33 (stating the Commission’s implementation period should be a ‘‘minimum of one year from the Commission’s approval of applicable Plan amendments’’). Amendments to NMS plans are subject to notice and comment, and may be either effective upon filing pursuant to 17 CFR 242.608(b)(3) or subject to action by Commission order before amendments may be effective, pursuant to 17 CFR 242.608(b)(2). order and format of fields.921 As described in section V.B.1 above, the Commission is adopting paragraph (a)(3) of Rule 605 as proposed to direct the SROs to act jointly in establishing procedures for market centers, brokers, and dealers to follow in making Rule 605 reports available to the public. Because of the amendments to Rule 605 that the Commission is adopting, the Rule 605 NMS Plan will need to be updated to: (1) incorporate references to broker-dealers subject to Rule 605; (2) account for summary reports that will be required under Rule 605(a)(2); and (3) incorporate the new data fields that will be required under Rule 605(a)(1) for the detailed reports.922 In addition, larger broker-dealers and market centers will need time to test and implement programming and systems changes in order to comply with Rule 605 as amended. The Proposing Release did not include a proposed compliance date for final Rule 605, but several commenters recommended that the Commission provide a sufficient implementation period for the proposed Rule 605 amendments, including an industry group that recommended a minimum of one year and an industry group that recommended a minimum of one year from ‘‘approval of applicable Plan amendments.’’ 923 One of these industry groups suggested that the Commission should not require the inclusion of any data relating to the best available displayed price ‘‘until the best odd-lot order to buy and the best odd-lot order to sell have been included in the SIP and firms have had a reasonable time period, subsequent to such inclusion, to incorporate this data into their Rule 605 reports.’’ 924 This industry group also stated that the implementation timetable for final Rule 605 should ‘‘commence from the date that the Commission publishes guidance in response to interpretive questions from industry members’’ regarding the adopted reporting requirements.925 However, an investor advocacy group recommended implementation of
the proposed changes to Rule 605 ‘‘without delay.’’ 926 In addition, a national securities exchange stated that deferring ‘‘key implementation details’’ to the Participants ‘‘may introduce additional complications and further delay implementation of the Rule 605 Proposal since NMS Plan Participants would first need to reach agreement and then file amendments to the Rule 605 NMS Plan with the Commission, which the Commission would need to approve.’’ 927 The amendments to Rule 605 discussed herein shall become effective 60 days after the date of publication in the Federal Register (‘‘Effective Date’’). The compliance date shall be 18 months after the Effective Date (‘‘Compliance Date’’).928 This amount of time is consistent with the commenter’s request that the Commission provide a minimum implementation period of one year following adoption of amendments to Rule 605.929 The Commission also recognizes that preexisting market centers and vendors will need time to update their systems and processes to ensure that data responsive to the amended requirements are correctly collected and formatted, and that larger broker-dealers and market centers newly subject to Rule 605 will need time to create such systems and processes. Although two commenters referred to a potentially longer timeframe for implementation,930 the adopted timeframe will allow the benefits of the amended rule to be achieved sooner and therefore the Commission is adopting the implementation timeframe discussed in this section. After considering the comments, the Commission agrees that implementation of Rule 605 as amended should not be unnecessarily delayed because the modifications to Rule 605 that the Commission is adopting will expand its scope and improve the usefulness of the execution quality statistics that reporting entities will make available pursuant to Rule 605. As part of the implementation process, and pursuant to the requirement in paragraph (a)(3) of Rule 605 as amended directing the SROs to act jointly in establishing procedures for market centers, brokers, and dealers to follow in making Rule 605 reports available to the public, the Rule 605 NMS Plan Participants (16 national securities exchanges and one national securities association) will need to file with the Commission a proposed Rule 605 NMS Plan amendment updating the Plan to reflect the amendments made herein to Rule 605, pursuant to Rule 608(a)(1) of Regulation NMS. The NMS Plan Participants are the appropriate parties to update the Rule 605 NMS Plan provisions given their experience in administering the Rule 605 NMS Plan since its approval by the Commission in
2001. Many of the detailed issues
relating both to the format of the reports under Rule 605 as amended, and to the means of access to the reports, are appropriately addressed in the context of approval of an amendment to the

931For example, in the Proposing Release, the Commission discussed potential alternatives to the website posting of Rule 605 reports, including, among other things, requiring Rule 605 NMS Plan Participants to amend the Rule 605 NMS Plan to create a centralized electronic system repository for Rule 605 reports. See Proposing Release, 88 FR 3786 at 3895–96 (Jan. 20, 2023). 932Because an amendment to the Rule 605 NMS Plan will address certain technical elements of Rule 605, the Commission does not agree that it is necessary to commence implementation after publication of any Commission guidance. See FIF Letter III at 5. As noted above, amendments to NMS plans are subject to notice and comment. See supra note 930. 933Because final Rule 605(a)(2) requires the use of the Commission’s schema for CSV and the associated PDF renderer, the Rule 605 NMS Plan will not establish the formats and fields for the summary reports. 934See 17 CFR 242.608(b). 935 If the Rule 605 NMS Plan does not incorporate the necessary changes to Rule 605 in advance of the Compliance Date, final Rule 605(a)(4) will govern and the Compliance Date will still apply. As described further above in section V.B.1, final Rule 605(a)(4) will require that in the event that there is no effective national market system plan establishing required procedures, market centers, brokers, and dealers shall prepare their reports in a consistent, usable, and machine-readable electronic format, in accordance with the requirements in final Rule 605(a)(1), and make such reports available for downloading from a website that is free and readily accessible to the public. 936See supra note 923 and accompanying text. 937See final 17 CFR 242.605(a)(1)(ii)(M) through (Q). 938The Commission has outlined a phased transition plan for the implementation of the MDI Rules, including the implementation of odd-lot order information to be disseminated by competing consolidators. See Proposing Release, 88 FR 3786 at 3820, n.422 (Jan. 20, 2023). The Commission is still considering whether to adopt the proposed changes in the Minimum Pricing Increments Proposal to accelerate the implementation of the odd-lot information definition and have odd-lot order information disseminated by the exclusive SIPs. See Minimum Pricing Increments Proposing Release, 87 FR 80266 at 80295–99 (Dec. 29, 2022). If, in the future, the Commission accelerates implementation of this aspect of the MDI Rules, implementation of the modifications to the odd-lot definition and dissemination of odd-lot order information pursuant to an effective national market system plan would proceed on a revised timeframe as designated by the Commission at such time. 939 44 U.S.C. 3501 et seq. 940OMB Control Number 3235–0542. Rule 605 NMS Plan.931 However, while the Rule 605 NMS Plan Participants will need to determine how to address certain technical elements of Rule 605,932 the modifications that will need to be made by the Rule 605 NMS Plan generally will be
dictated by Rule 605 as amended (e.g., updates to the list of fields included in the reports required by Rule 605(a)(1)). In accordance with Rule 605 as amended, the Rule 605 NMS Plan amendment will need to establish procedures for market centers, brokers, and dealers to follow in making Rule 605 reports publicly available.933 Notice of the proposed amendment to the Rule 605 NMS Plan and the opportunity for comment will be provided.934 In addition, market centers, brokers, and dealers will need to make necessary preparations to be in a position to comply with Rule 605 as amended by the Compliance Date.935 The Compliance Date strikes an appropriate balance between: (1) affording brokers, dealers, and market centers sufficient time to program their systems and implement business process changes necessary to comply with the new rules; and (2) requiring that the execution quality statistics in their Rule 605 reports become available to investors in a timely manner. The Compliance Date is designed to allow time for both an amendment to the Rule 605 NMS Plan and time for brokers, dealers, and market centers time to comply with Rule 605 as amended.936 Notwithstanding the Compliance Date, reporting entities will not be able to calculate the price improvement statistics relative to best available displayed price that will be required to be included in the detailed reports required by Rule 605(a)(1) for marketable order types, marketable stop orders, and midpoint-or-better order types until odd-lot order information is made available pursuant to an effective transaction reporting plan or effective national market system plan.937 The MDI Rules included odd-lot information in the data that will be made available within the national market system. Although the Commission adopted the MDI Rules, the MDI Rules have not been implemented.938 Once odd-lot order information is made available pursuant to an effective national market system plan, market centers, brokers, and dealers will need time to make any program updates and changes to their business processes that are necessary to calculate the price improvement statistics relative to the best available displayed price. In order for odd-lot order information to be made available pursuant to an effective national market system plan, participants will need to file with the Commission a proposed NMS plan or a proposed amendment to an NMS plan pursuant to Rule 608(a)(1) of Regulation NMS. Any such filing will be subject to public comment and Commission approval by order before the effectiveness of such plan or plan amendments pursuant to Rule 608(b)(2) of Regulation NMS. A Commission order approving a proposed plan or plan amendment making odd-lot information available will provide market participants notice of when odd-lot order information will be required to be made available. Further, to the extent that odd-lot information is collected, consolidated, and disseminated by the effective national market system
plan(s), market participants will be provided notice of the availability of such information through usual communication channels that may be established by the competing consolidator(s) or that are used by exclusive SIPs, to the extent exclusive SIPs collect, consolidate, and disseminate odd-lot information pursuant to an effective national market system plan. Market centers, brokers, and dealers will have six months after odd-lot order information sufficient to calculate the best available displayed price is made available pursuant to an effective national market system plan to start including price improvement statistics relative to the best available displayed price in their Rule 605 reports.
VIII. Paperwork Reduction Act
Certain provisions of the rule amendments contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).939 The Commission requested comment on the collection of information requirements in the Proposing Release and submitted relevant information to the Office of Management and Budget (‘‘OMB’’) for review in accordance with 44 U.S.C 3507(d) and 5 CFR 1320.11. The Commission is altering an existing collection of information and applying such collection of information to new categories of respondents. The title of such existing collection of information is: Rule 605 of Regulation NMS (f/k/a Rule 11Ac1–5).940 An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the agency displays a currently valid control number. Views of commenters relevant to the Commission’s analysis of the reporting burdens imposed by the collection of information for Rule 605 as proposed are discussed below. In addition, certain estimates have been modified, as necessary, to conform to the adopted amendments and to reflect the most recent data available to the Commission. A. Summary of Collection of Information The amendments create burdens under the PRA by: (1) adding new categories of respondents to the existing collection of information and (2) modifying the requirements of such existing collection of information. The

941See final 17 CFR 242.600(b)(55).
942The PRA for preexisting Rule 605 estimates 319 reporting entities (153 OTC market makers, plus 24 national securities exchanges, 1 national securities association, 80 exchange market makers, and 61 ATSs). The Commission’s method of estimating the reporting entities for the Commission’s currently approved PRA for prior Rule 605 was over-inclusive. For example, it included national securities exchanges and ATSs that do not trade NMS stocks and broker-dealers that may trade NMS stocks but are not market makers. Based on updated estimates of the number of respondents, the Commission now estimates that there are only 228 current reporting entities. 943These 85 brokers-dealers include 39 broker￾dealers that act as introducing brokers. The Commission initially estimated there would be 85 broker-dealers that introduce or carry 100,000 or more customer accounts, which included 37 broker￾dealers and 48 carrying broker-dealers. See Proposing Release, 88 FR 3786 at 3826 (Jan. 20, 2023). The Commission updated this estimate based on the FYE 2022 FOCUS Reports received by the Commission and data from CAT for calendar year
2022. See infra Table 13.
944As of Nov. 21, 2023, there are 33 NMS Stock ATSs that have filed an effective Form ATS–N with the Commission. 945These 30 new market center respondents consist of 20 market centers that will need to produce reports as a result of including fractional share orders within the scope of Rule 605 and 10 SDPs. The Commission initially estimated there would be 38 new market center respondents, which included 8 entities that would operate qualified auctions. See Proposing Release, 88 FR 3786 at 3826 (Jan. 20, 2023). Because final Rule 605 does not include a requirement that entities operating qualified auctions report separately, the Commission is revising its estimate to include 30 new market center respondents. 946National securities exchanges, national securities associations, and registered brokers and dealers are subject to existing recordkeeping and retention requirements including 17 CFR 240.17a– 1 (‘‘Rule 17a–1’’) (for SROs); 17 CFR 240.17a–3 (‘‘Rule 17a–3’’) and 240.17a–4 (‘‘Rule 17a–4’’) (for broker-dealers). See Rules 17a–1, 17a–3, and 17a–
4. The Commission’s estimates include Rule 605’s
requirement that reporting market centers and broker-dealers keep Rule 605 reports posted on an internet website that is free and readily accessible to the public for a period of three years from the initial date of posting on the internet website. See final 17 CFR 242.605(a)(5). 947See infra note 953. 948See Proposing Release, 88 FR 3786 at 3826– 27 (Jan. 20, 2023). amendments do not create any new collections of information. The categories of new respondents subject to Rule 605, as amended, are larger broker-dealers and new market centers, consisting of SDPs and entities that act as market centers for orders that were previously not covered by Rule 605, e.g., orders smaller than 100 shares. The amendments modify both the scope of the standardized monthly reports required under Rule 605 and the required information. Rule 605, as amended: (1) expands the definition of ‘‘covered order’’ to include certain orders submitted outside of regular trading hours, certain orders submitted with stop prices, and non-exempt short sale orders; (2) modifies the existing order size categories to base them on notional value as well as whether an order is for less than a share, for an odd￾lot, or for a round lot or greater rather than number of shares; (3) creates four new order type categories (marketable IOCs, executable market orders submitted with stop prices, executable marketable limit orders submitted with stop prices, and executable non￾marketable limit orders submitted with stop prices) and replaces three existing categories of non-marketable order types with four new categories of order types (midpoint-or-better limit orders, midpoint-or-better IOCs, executable NMLOs, and NMLO IOCs); (4) modifies current time-to-execution reporting buckets; (5) modifies realized spread statistics to require realized spread to be calculated after 50 milliseconds, 1 second, 15 seconds, 1 minute, and 5 minutes; and (6) requires new statistical measures of execution quality including average effective spread divided by quoted spread, percentage effective and realized spread statistics, a size improvement benchmark and statistic, and certain statistical measures that could be used to measure execution quality of NMLOs. The amendments require all reporting entities to make a summary report available that will be formatted using the most recent versions of the schema for CSV format and the associated PDF renderer as published on the Commission’s website. Finally, as a result of the amendments to Rule 605, Rule 605 NMS Plan Participants will need to amend the Rule 605 NMS Plan to account for the new data fields. B. Proposed Use of Information The purpose of the information collection is to make information about order execution practices available to the public and allow investors, broker￾dealers, and market centers (which include exchange markets, OTC market makers, and ATSs) 941 to undertake a comparative analysis of these practices across markets. Broker-dealers may use the
information to make more informed choices in deciding where to route orders for execution and to evaluate their internal order handling practices. Investors may use the information to evaluate the order handling practices of their broker-dealers. Market centers may use the information to compete on the basis of execution quality.
C. Respondents
The collection of information obligations of Rule 605 applies to larger broker-dealers and market centers that receive covered orders in national market system securities (collectively, ‘‘reporting entities’’). The Commission estimates that there are approximately 228 reporting entities (91 OTC market makers, plus 16 national securities exchanges, 1 national securities association, 87 exchange market makers, and 33 ATSs) under Rule 605 prior to these amendments.942 However, under the amendments, the Commission estimates there will be 343 reporting entities (91 OTC market makers, 85 broker-dealers that introduce or carry 100,000 or more customer accounts,943 16 national securities exchanges, 1 national securities association, 87 exchange market makers, 33 ATSs,944 plus 30 new market center respondents 945) that will be subject to the collection of information obligations of Rule 605. Each of these respondents will be required to respond to the collection of information on a monthly basis. In addition, the amendments to Rule 605 will require the Rule 605 NMS Plan Participants (16 national securities exchanges and 1 national securities association) to prepare and file an amendment to the Rule 605 NMS Plan. D. Total PRA Burdens Rule 605, as amended, will require broker-dealers and market centers to make available to the public monthly order execution reports in electronic form. Broker-dealers and market centers retain most, if not all, of the underlying raw data necessary to generate these reports in electronic format or, if they do not, may obtain this information from publicly available data sources.946 Consequently, Rule 605 will not require new data collection or recordkeeping burdens. Respondents could either program their systems to generate the statistics and reports, or transfer the data to a service provider (such as an independent company in the business of preparing such reports or an SRO) that would generate the statistics and reports. The currently approved PRA for prior Rule 605 estimates that each respondent spends 6 hours a month to collect the data necessary to generate the reports, or 72 hours per year.947 In the Proposing Release, the Commission estimated that each respondent would spend 8 hours a month, or 96 hours per year, on an ongoing basis, to comply with Rule 605 as proposed to be amended.948

949See Data Boiler Letter at 21.
950See Robinhood Letter at 42 (stating that annual costs of up to $42,000 per year is ‘‘an underestimation of annual costs’’). 951The Commission estimates the monetized initial burden for this requirement to be $4,577,100. The Commission derived this estimate based on per hour figures from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead: [(Sr. Programmer at $399 for 25 hours) + (Sr. Systems Analyst at $343 for 10 hours) + (Compliance Manager at $373 for 10 hours) + (Director of Compliance at $588 for 5 hours)] = $20,075 per respondent for a total initial monetized burden of $4,577,100 ($20,075 × 228 respondents). 952The Commission estimates the monetized annual burden for this requirement to be $11,775,744. The Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead:
[((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + (Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) × 12 reports per year] = $51,648 per respondent for a total annual monetized burden of $11,775,744 ($51,648 × 228 respondents). 953The Commission’s currently approved PRA for prior Rule 605 (OMB Control Number 3235–0542), last updated in Apr. 2022, estimates that current respondents each will spend 6 hours per month to collect the data necessary to generate the reports, or 72 hours per year. Although the amendments to Rule 605 will require additional data fields and the generation of summary reports, the data collection and report generation process will be an automated process that will not require substantial additional burden hours after initial set-up. 954See supra notes 949–950 and accompanying text. Specifically, although the commenters did not provide an estimate of the costs or time burdens that would be attributable to work performed by technical staff, the Commission is allocating 2 hours to a programmer and 1 hour to a systems analyst to account for technical assistance that may be necessary to ensure automated processes are functioning as intended. 955The Commission estimates the monetized initial burden for this requirement to be $4,617,250. The Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead: [(Sr. Programmer at $399 for 50 hours) + (Sr. Systems Analyst at $343 for 20 hours) + (Compliance Manager at $373 for 20 hours) + (Director of Compliance at $588 for 10 hours)] = $40,150 per respondent for a total initial monetized burden of $4,617,250 ($40,150 × 115 respondents). One commenter stated that the proposal did not include burdens related to business-line personnel or technical staff.949 Further, one commenter stated that the Commission’s compliance cost estimates were too low because the Commission neglected to take into account dedicated staff time needed for data reconciliation and validation and other ongoing compliance costs.950 The commenters provided no data and provided no alternative estimates of the cost of preparing the monthly reports. In response to the commenters, the Commission is adjusting its estimated annual burdens to account for work to be performed by technical staff, as described below. In addition, the Commission is adjusting the hourly rates used to monetize burden hours in order to account for recent inflation rates. The Commission estimates that the initial and ongoing burdens will be different for those respondents that are already required to prepare reports and for new respondents. The Commission estimates that Rule 605 amendments will result in an initial burden for current respondents
of 50 hours per respondent 951 for systems updates to ensure that data responsive to the amended requirements is correctly collected and formatted. The initial burden estimate represents the work that will need to be done by existing respondents to modify their systems to collect data required under the amendments to Rule 605 and generate the monthly reports. The estimate includes time required to program and test automated systems to collect the necessary data, as well as review and approval by compliance personnel. The Commission does not believe the information required to be aggregated and included in Rule 605 reports, as amended, will require preexisting respondents to acquire new hardware or systems to process the information required in the reports. The Commission further estimates that the Rule 605 amendments will result in an ongoing monthly burden of 11 hours per respondent to collect the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 132 hours per respondent.952 This estimate represents an increase of 3 hours per respondent over the Commission’s initial estimate because it accounts for technical staff time that will be required to verify automated processes are functioning as intended and post and prepare the required reports, or transfer data to a service provider to generate the reports.953 This estimate has been revised from the Proposing Release in response to commenters who stated that the Commission did not adequately account for technical staff.954 With an estimated 228 respondents already subject to Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 11,400 hours while the monthly reporting requirement is estimated to be 30,096 hours per year (228 × 132). The burdens for respondents currently reporting under Rule 605 are likely to be lower than those of new reporting entities because currently reporting entities already have systems in place to collect the data necessary to generate reports under the current rule. These estimates include the impact of preparing and making summary reports available using the most recent versions of the schema for CSV format and the associated PDF renderer as published on the Commission’s website. The Commission estimates that Rule 605 amendments will result in an initial burden for new respondents of 100 hours for each respondent 955 for systems updates to ensure that data responsive to the amended requirements is correctly gathered and formatted. This burden is higher than the estimated burden for current respondents because new respondents do not currently have in place the systems to collect the information required for current Rule 605 reports. These respondents will likely require additional time to collect the relevant information. In addition, this estimate includes additional time for programming and testing automated systems to collect the necessary data and additional hours for review and approval by
compliance personnel. Once the relevant data are collected, respondents could either program their systems to generate the reports or transfer the data to a service provider that will generate the reports. Respondents will likely not be required to acquire new hardware or other technological resources to be able to collect the data required by the amended rule given that respondents already have computing systems in place to, for example, transmit and process order information, and such systems could be leveraged to collect the required data. Further, to the extent a respondent does not have the technological capabilities or resources to generate the reports in-house, such respondents will likely utilize a service provider, as discussed below.

956The Commission estimates the monetized annual burden for this requirement to be $5,939,520. The Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead:
[((Compliance Attorney at $440 for 6 hours) + (Compliance Manager at $373 for 2 hours) + (Programmer at $301 for 2 hours) + (Systems Analyst at $316 for 1 hour)) × 12 reports per year] = $51,648 per respondent for a total annual monetized burden of $5,939,520 ($51,648 × 115 respondents). The Commission estimates that the Rule 605 amendments will result in an ongoing monthly burden of 11 hours to collect the necessary data and to prepare the required Rule 605 reports, for a total annual burden of 132 hours per respondent.956 With an estimated 115 new respondents subject to Rule 605, the total initial burden to comply with the Rule 605 amendments is estimated to be 11,500 hours while the monthly reporting requirement is estimated to be 15,180 hours per year (115 × 132). These estimates include the impact of preparing and making summary reports available using the most recent versions of the schema for CSV format and the associated PDF renderer as published on the Commission’s website. ER15AP24.007</GPH>
Table 2: Respondent Burdens for Producing Rule 605 Reports
OTC Market 91 Initial 50 4,550 Makers Annual 11 12 12,012 Exchange Market 87 Initial 50 4,350 Makers Annual 11 12 11,484 Exchanges 16 Initial 50 800 Annual 11 12 2,112 Associations Initial 50 50 Annual 11 12 132 ATSs 33 Initial 50 1,650 Annual 11 12 4,356 Totals for Current 228 Initial 50 11,400 Respondents Annual 11 12 30,096 Broker-Dealers with 85 Initial 100 8,500 2':100,000 customer accounts Annual 11 12 11,220 Non-market center 20 Initial 100 2,000 broker-dealers Annual 11 12 2,640 SDPs 10 Initial 100 1,000 Annual 11 12 1,320 Total Burden for 115 Initial 100 11,500 New Respondents Annual 11 12 15,180

• In the case of annual burdens, the Total Burden Hours is equal to the burden per respondent multiplied by the
  number of responses per year.

957This estimate is the same as the Commission’s estimate in the Proposing Release. The Commission’s currently approved PRA for prior Rule 605 estimates that the retention of a service provider to prepare a monthly report would cost $2,978 per month, or approximately $35,736 per year. Although the individual line items required by Rule 605, as amended, are different than prior Rule 605 or proposed Rule 605, the Commission does not believe that the overall cost of creating the required reports will differ substantially from these estimates. The Commission received no comments regarding its estimate of the external cost to retain a service provider. As discussed above, a commenter stated that the Commission underestimated annual compliance costs in the Proposing Release because the Commission’s estimate of up to $42,000 per year in annual costs failed to account for staff time and other ongoing compliance costs. See supra note 950. In response to comments, the Commission increased its annual burden estimate. See supra notes 952 and 956. 958Although the Commission is now estimating the collective burden for the SROs to make the necessary amendments to the Rule 605 NMS Plan, the Commission’s estimate of total initial burden hours and external costs remains consistent with the estimate in the Proposing Release. The Commission did not receive any comment on these burden hour estimates and external cost estimates. 959The Commission estimates the monetized initial burden for this requirement to be $43,605. The Commission derived this estimate based on per hour figure from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead: [(Attorney at $501 for 68 hours) + (Assistant General Counsel at $561 for 17 hours)] = a total initial monetized burden of $43,605. 960The Commission’s estimates of the relevant wage rates for outside legal services take into account staff experience, a variety of sources including general information websites, and adjustments for inflation. 961 (11,400 + 11,500 + 119) = 23,019 initial burden hours. (24,624 + 12,420) = 37,044 annual burden hours. The Commission estimates the monetized initial burden for all respondents to be $9,257,505 ($4,577,100 + $4,617,250 + $63,155) and the monetized annual burden for all respondents to be $17,715,266 ($11,775,744 + $5,939,520). 962Exchange 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). 963See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75417 (Dec. 1, 2000). The Commission estimates that in lieu of preparing both summary and detailed monthly reports in-house, an individual respondent could retain a service provider to prepare its monthly reports for between approximately $3,000 and $3,500 per month or approximately $36,000 to $42,000 per year.957 This per￾respondent estimate is based on the rate that a reporting entity could expect to obtain if it negotiated on an individual basis. Based on the $3,000 to $3,500 estimate, the monthly cost to the 343 respondents to retain service providers to prepare reports will be between approximately $1,029,000 and $1,200,500 ((343 × $3,000) and (343 × $3,500), respectively), or a total annual cost of between approximately $12,348,000 and $14,406,000 (($1,029,000 × 12) and ($1,200,500 × 12), respectively). Finally, the 16 national securities exchanges and 1 national securities association will need to amend the Rule 605 NMS Plan to account for the new data fields required to be reported and to include references to larger broker￾dealers in addition to market centers. The Commission is modifying the estimates for the initial burden and costs to the SROs to file the amendment to eliminate the per respondent burden for each SRO and instead estimate the burden for the SROs collectively because the respondents would file this amendment jointly, rather than individually, in connection with their status as participants in the effective national market system plan.958 The Commission estimates that there will be a one-time (or initial) burden of 85 hours 959 to amend the Rule 605 NMS Plan to account for the new reporting fields and reporting parties. The Commission does not estimate that there will be any ongoing annual burden associated with the Rule 605 NMS Plan amendment to account for the new reporting fields and reporting parties. The Commission has based its estimate of SRO burden hours to amend the Rule 605 NMS Plan on the burden hours for existing NMS plans, while also taking into account the limited nature of the updates to the Rule 605 NMS Plan that will be required under the amendments to Rule 605. The Commission estimates that there will be outsourcing of legal time to develop and draft the Rule 605 NMS Plan amendment in order to account for additional data fields and reporting parties. The Rule 605 NMS Plan amendment will be an update to the list of formats and fields to track the data elements set forth in the Rule and add references to broker-dealers subject to the Rule, and therefore the Commission estimates the hours necessary to develop and draft the amendment will be significantly lower than other
recent NMS plan amendments. The Commission estimates that the plan participants will outsource 34 hours of legal time to prepare and file an amendment to the Rule 605 NMS Plan, at an average hourly rate of $575.960 The Commission estimates that the aggregate one-time reporting burden for preparing and filing an amendment to the Rule 605 NMS Plan will be approximately $19,550 in external costs from outsourced legal work [(at $575 for 34 hours = $19,550)]. The Commission currently estimates a total initial burden of 23,019 hours for all respondents and a total annual burden of 45,276 hours for all respondents.961
IX. Economic Analysis
A. Introduction
The Commission is mindful of the economic effects that may result from these amendments to Rule 605, including the benefits, costs, and the effects on efficiency, competition, and capital formation.962 The following economic analysis identifies and considers the costs and benefits— including the effects on efficiency, competition, and capital formation— that could result from these amendments to Rule 605. In 2000, when the Commission adopted Rule 11Ac1–5, which was later redesignated as Rule 605, it stated that the rule should facilitate comparisons across market centers and provoke more vigorous competition on execution quality and broker-dealer order routing performance.963 However, under prior Rule 605 reporting requirements, market participants have not been able to observe the variations across broker￾dealers in terms of the execution quality achieved by their order routing services using standardized and publicly available execution quality reports. Furthermore, in the subsequent decades, substantial changes in equity markets, including increases in trading speeds and fragmentation, have made it so that Rule 605 reports have become less informative than they were when Rule 605 was adopted. These amendments to Rule 605, including expanding the scope of reporting entities, modernizing the content of Rule 605 reports, and broadening the reports’ accessibility, will increase the relevance and use of the information contained in the reports, and promote competition among market centers and broker￾dealers. This increase in competition is expected to ultimately lead to improved execution quality for investors. The Commission recognizes that these amendments to Rule 605 will entail additional costs to market centers and broker-dealers of disclosing the required

964See supra note 17.
965 In 2018, while amending Rule 606, the Commission also modified Rule 605 to require that the public order execution quality report be kept publicly available for a period of three years but did not change the content of the reports. See supra note 45 and corresponding text. 966See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75414–15 (Dec. 1, 2000). 967Several commenters stated that there are limitations to preexisting Rule 605 in light of significant market changes since 2000. See, e.g., Vanguard Letter at 3 (stating that ‘‘though [Rule 605] provides a helpful baseline level of disclosure, it predates Regulation NMS and has not kept pace with advancements in technology and changes in market behavior’’); Healthy Markets Letter at 16 (stating that ‘‘[t]he metrics [in Rule 605]—which are decades-old—are wildly outdated’’); Better Markets Letter at 1 (stating that ‘‘[Rule 605] has fallen well behind the dramatic changes in the structure of the markets and the advances in technology’’); McHenry et al. Letter at 3 (stating that ‘‘our equity markets have changed dramatically since Rule 605 was adopted in 2000 . . . the data reported under Rule 605 no longer provides an accurate measure of execution quality, particularly price improvement, for retail investors’’). In addition, one commenter stated that Rule 605 reports are ‘‘incomplete’’ and stated that they ‘‘present an inaccurate picture of execution quality.’’ Virtu Letter II at 1–2. One commenter believes that ‘‘the current execution quality reports deliver sufficient comparative information on execution quality.’’ TradeStation Letter at 6. For the reasons discussed throughout this release, in this section and in
section IX.D.1, the Commission believes that there
are currently limits to the usefulness of Rule 605 for market participants, and that market participants will benefit from these updates to Rule 605. 968 In the Rule 11Ac1–5 Adopting Release, the Commission stated that, while some market centers may have voluntarily made order execution information privately available to independent companies or broker-dealers, the information in these reports generally had not been publicly disseminated. To the extent such information had been made available, not all of it was useful or in a form that would allow for cross-market comparisons. See Rule 11Ac1–5 Adopting Release, 65 FR 75414 at 75431 (Dec. 1, 2000). 969For example, in 2015, a working group associated with the Financial Information Forum developed a standardized template that firms may use when publicly disclosing summary information about execution quality for retail investor orders in exchange-listed stocks (‘‘FIF Template’’). See Retail Execution Quality Statistics, Fin. Info. F., available at https://fif.com/tools/retail￾execution-quality-statistics. While the FIF Template represents a standardized set of execution quality statistics, only one wholesaler currently produces reports using the FIF Template. See also infra notes 1084–1085 and accompanying text (discussing the limited number of firms that have produced reports utilizing the FIF Template at various points in time). While it is unclear whether the lack of widespread uptake of the FIF Template was due to a lack of incentives for reporting entities to report or due to a lack of consumption by market participants, in either case these market failures are addressed by the current amendments to Rule 605, which require updates to the information reported under Rule 605 by all reporting entities. The amendments additionally increase the usefulness and accessibility of Rule 605 reports by expanding the scope of reporting entities to include larger broker-dealers, and by requiring summary execution quality reports. 970See supra section III describing the amendments modifying the scope of orders covered and information required to be disclosed pursuant to Rule 605. execution quality information. Market centers will face initial compliance costs when updating their methods for preparing Rule 605 reports, and broker￾dealers that were not required to publish Rule 605 reports prior to these amendments will face initial compliance costs, including, but not limited to, developing the systems and processes and organizing the resources necessary to generate the reports pursuant to Rule 605, and ongoing compliance costs to publish Rule 605 reports each month. The Commission has considered and is describing the economic effects of these amendments to Rule 605 and wherever possible has quantified the likely economic effects of these amendments. The Commission has incorporated data and other information, such as academic literature, to assist in the analysis of the economic effects of these amendments.
However, because the Commission does not have, and in certain cases does not believe that it reasonably can obtain, data that may inform on certain economic effects, the Commission is unable to quantify those economic effects. Further, even in cases where the Commission has some data, the number and type of assumptions necessary to quantify certain economic effects would render any such quantification unreliable. Our inability to quantify certain costs, benefits, and effects does not imply that such costs, benefits, or effects are less significant. B. Market Failure The information disclosed under Rule 605 has provided significant insight into execution quality at different market centers.964 However, the utility of some of the metrics in Rule 605 reports has eroded because such metrics have not kept up with the substantial changes in equity markets since the initial adoption of Rule 605’s predecessor in 2000.965 As a result, Rule 605 is less able to address the market failures identified in the Rule 11Ac1–5 Adopting Release, including market centers’ limited incentives to produce publicly available, standardized execution quality reports.966 While some metrics remain robust, particular metrics required to be reported by Rule 605 prior to these amendments have become less useful for comparing execution quality across market centers than they were when the predecessor of Rule 605 was initially adopted. Further, some metrics that will be useful in today’s market were not required to be reported prior to these amendments. These market changes have limited the degree to which the metrics reported under prior Rule 605 promoted competition among market centers and improved execution quality.967 To enhance the value of Rule 605 reports, the Commission is updating the disclosure of order execution information and expanding the scope of reporting entities under Rule 605, which will result in a variety of improvements to market participants’ access to information about execution quality. The Commission does not believe that improvements to the preexisting Rule 605 metrics are likely to be achieved through a market-based solution.968 Even if all market centers were incentivized to voluntarily produce updated statistics for competitive or reputational reasons (e.g., they may lose business if their competitors provide reports and they do not), under current rules, there is little incentive for all market centers to agree on a standardized set of updated statistics. For example, market centers may be incentivized to design ad hoc reports to highlight areas where they believe they compare well to their competitors. Without a standardized set of statistics, it would be difficult for market participants to easily compare execution quality across market centers. Furthermore, it may be difficult for certain market participants to compute accurate and relevant execution quality metrics from data sources other than Rule 605 reports, due to the lack of granularity and
significant time delay of many other publicly available datasets, which can lead to imprecise or stale measures. This limits certain market participants’ ability to conduct analyses that examine and compare execution quality across market centers to inform investors. Moreover, even if execution quality information were voluntarily reported by market centers, there may also be limits to market participants’ incentives to access it. For example, even if a subset of market centers is able to coordinate on and produce a standardized set of voluntary execution quality metrics, the ability of market participants to use this measure to make comparisons across reporting entities would depend on the subset of reporting entities that choose to report it. If this subset is not of a significant enough size, there may be few incentives for market participants to access the information.969 Therefore, this rulemaking to modernize the information required to be reported by all Rule 605 reporting entities will prove beneficial.970