The Securities and Exchange Commission (SEC) on Wednesday voted to propose new rules governing order executions in national market system stocks, which are stocks listed on a national securities exchange, Reuters reported.  

These proposals would represent the biggest changes to stock market rules since the SEC introduced Rule 605 of Regulation National Market System (NMS). According to the SEC, "Rule 605 of Regulation NMS was originally adopted in November 2000 as Rule 11Ac1-5 under the Securities Exchange of 1934. In 2005, Rule 11Ac1-5 was redesignated as Rule 605 with the adoption of Regulation NMS. Rule 605 generally requires a market center that trades NMS stocks to make available to the public monthly electronic execution reports that include uniform statistical measures of execution quality."

“In the 22 years since Rule 605 was adopted, our equity markets have been transformed by ever-changing technologies and business models,” said SEC Chair Gary Gensler. “Current Rule 605 disclosures have not kept up with our markets and provide investors with an incomplete picture of execution quality. Thus, I am pleased that today’s proposal would modernize Rule 605 in a number of ways. This proposal, if adopted, would increase transparency for investors and facilitate their ability to compare brokers. That helps make our markets more efficient, competitive, and fair.”

“[T]he Commission is proposing to expand the scope of reporting entities subject to the rule that requires market centers to make available to the public monthly execution quality reports to encompass broker-dealers with a larger number of customers. Next, the Commission is proposing to modify the definition of 'covered order' to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices,” the
proposed rule states.

“In addition, the Commission is proposing modifications to the information required to be reported under the rule, including changing how orders are categorized by order size as well as how they are categorized by order type. As part of the changes to these categories, the Commission is proposing to capture execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the Commission is proposing to modify reporting requirements for non-marketable limit orders ('NMLOs') in order to capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become executable.”

“The Commission is also proposing to eliminate time-to-execution categories in favor of average time to execution, median time to execution, and 99th percentile time to execution, each as measured in increments of a millisecond or finer and calculated on a share-weighted basis. In order to better reflect the speed of the marketplace, the Commission is proposing that the time of order receipt and time of order execution be measured in increments of a millisecond or finer, and that realized spread be calculated at both 15 seconds and one minute. Finally, the Commission is proposing to enhance the accessibility of the required reports by requiring all reporting entities to make a summary report available.”

"We feel that these reforms, if enacted, will ultimately help the price discovery process and save investor’s money," Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. “Allowing orders to interact with each other, rather than segmenting them, will enhance competition and yield better prices."

The Securities and Exchange Commission (SEC) on Wednesday voted to propose new rules governing order executions in national market system stocks, which are stocks listed on a national securities exchange, Reuters reported.