WASHINGTON (Reuters) - U.S. broker-dealers would be required to post information for the first time on how they route large investors’ trading orders under a rule proposed by the Securities and Exchange Commission on Wednesday.
The proposal would also require additional information on orders from smaller, individual customers.
The SEC hopes the proposed changes would make it easier for investors to see possible conflicts of interest in how their brokers execute their trades, SEC Chair Mary Jo White said at a meeting of the commissioners.
They would set a standard across the industry on what information should be provided on handling institutional orders.
All three commissioners approved releasing the proposal, which now goes into a 60-day public comment period.
White said technology now allows automatic handling of both institutional and retail orders through complex algorithms and routing systems, and has created diverse trading venues, interfaces and pricing models.
By seeing information on routing, execution, fees and rebates, customers should be able to evaluate how broker-dealers address conflicts of interest and manage the risks of information leakage, she said.
Republican Commissioner Michael Piwowar said many groups have pressed for more information about how orders are executed, including academic researchers.
“Today’s rulemaking would empower market participants to make more informed choices about where to direct their orders,” he said. “This should, in turn, promote competition for better execution quality.”
Most in the industry would probably “agree this is a good thing,” said Jamie Selway, market structure analyst at ITG in New York.
“There is no standardized institutional order routing disclosures. What that means is if you are in the business that we are, you get asked by all kinds of clients – big, small, medium – to provide information about your practices,” he said.
“And everybody asks questions that are similar but maybe slightly different, so you wind up working really, really hard to provide this information.”
Many in the industry have been seeking a standard curated by a regulator, and they will have to review the proposal’s details to ensure the SEC is “creating a mechanism to help,” he added.
Reporting by Lisa Lambert; Additional reporting by Chuck Mikolajczak in New York; Editing by Jonathan Oatis