Statement on Amendments to Disclosure of Order Handling Information

Commissioner Kara M. Stein

July 13, 2016

I want to echo the Chair in thanking the staff that has worked on this proposal, including Ted Venuti, Arisa Kettig, Steve Kuan, Amir Katz, Chris Grobbel, and Andrew Sioson from the Division of Trading and Markets, and Amy Edwards, Hans Heidle, Shawn O'Donoghue, Lauren Moore, and Hermine Wong from the Division of Economic and Risk Analysis. I also want to acknowledge the hard work of those in the securities industry that have been working to improve transparency in our equity markets.[1] Some market participants have voluntarily adopted policies and procedures to provide more meaningful information about order routing and execution to investors. I appreciate these efforts, and they have helped to inform today's proposal.

Sixteen years ago, the Commission sought to improve the transparency of how customer orders were being handled in a competitive marketplace.[2] Today, the Commission considers updating those rules in light of the high-speed digital markets these orders are now being executed in.

Then, and now, the Commission focused its efforts on empowering investors by ensuring they had the information necessary to make informed choices about who handles their orders. There have been a lot of changes over the past sixteen years. So, the need for updating those standards to provide investors with more relevant information in a digital era has been a concern to me since I came to the Commission.

This proposal aims to provide investors with better and more accessible information about how their orders interact today in a widely dispersed marketplace. I see a number of potential benefits to investors with this proposal, which will essentially provide investors with an important "report card" on their broker-dealer.

The mandated reports and data elements should: (1) provide investors with visibility into how their orders are handled by a broker-dealer; (2) reveal the nature and extent of conflicts of interest; and (3) provide investors with a basis for comparing the performance of different broker-dealers. Accordingly, this proposal should provide investors with the information they need to maximize execution quality and to incentivize competition amongst broker-dealers.

Just as with any report card, the focus should be on transparency and accountability. I would like to hear from commenters about how this proposal could be improved. Does the use of a standardized format improve the usability of the reports? Does it and capture the right information? Specifically, I would like commenters to focus not only on whether the required data elements provide meaningful information, but focus also on the means of delivery and the timing of the reports. For example, the current proposal would require broker-dealers to provide reports to institutional investors seven days after receiving an ad hoc request. Alternatively, should broker-dealers provide reports to their customers on a periodic basis? Should such reports be monthly or on some other regular interval? Should other investors be provided with such reports? The current proposal also would require those reports to include information on order routing, order execution, and whether liquidity was provided or removed. What, if any other, data elements should be included?

In addition to improvements in the reports provided to institutional investors, the proposal would require broker-dealers to provide quarterly reports regarding their retail order routing practices on their websites. Specifically, these public aggregate reports would include information about routing behavior and payments received in exchange for order flow. Would these enhanced reports provide enough information to allow a retail investor to gauge how well a broker-dealer fills orders? Alternatively, would it be better to provide the reports in a central location, such as the SEC's website?

I look forward to receiving comments from all interested parties about how this proposal could be improved.

Thank you.