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Federal Register/Vol. 81, No. 144/Wednesday, July 27, 2016

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Federal Register/Vol. 81, No. 144/Wednesday, July 27, 2016 49432 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Proposed Rules SECURITIES AND EXCHANGE execution and order routing reports be FOR FURTHER INFORMATION CONTACT: COMMISSION kept publicly available for a period of Theodore S. Venuti, Assistant Director, three years and to make conforming at (202) 551–5658, Arisa Tinaves Kettig, 17 CFR Parts 240 and 242 changes to Rule 607. Finally, the Senior Special Counsel, at (202) 551– [Release No. 34–78309; File No. S7–14–16] Commission is proposing to amend Rule 5676, Steve Kuan, Special Counsel, at 3a51–1(a) under the Exchange Act; Rule (202) 551–5624, Amir Katz, Special RIN 3235–AL67 13h–1(a)(5) of Regulation 13D–G; Rule Counsel, at (202) 551–7653, Chris 105(b)(1) of Regulation M; Rules 201(a) Grobbel, Special Counsel, at (202) 551– Disclosure of Order Handling and 204(g) of Regulation SHO; Rules 5491, or Andrew Sioson, Attorney- Information 600(b), 602(a)(5), 607(a)(1), and 611(c) of Advisor, at (202) 551–7186 Division of AGENCY: Securities and Exchange Regulation NMS; and Rule 1000 of Trading and Markets, Securities and Commission. Regulation SCI, to update cross- Exchange Commission, 100 F Street, references as a result of this proposed NE., Washington, DC 20549. ACTION: Proposed rule. rule. SUPPLEMENTARY INFORMATION: The SUMMARY: The Securities and Exchange DATES: Comments should be received on Commission is proposing: (1) Commission (‘‘Commission’’ or ‘‘SEC’’) or before September 26, 2016. Amendments to Rules 600 and 606 under the Exchange Act [17 CFR is proposing to amend Rules 600 and ADDRESSES: Comments may be 242.600 and 202.606] to require 606 of Regulation National Market submitted by any of the following additional disclosures by broker-dealers System (‘‘Regulation NMS’’) under the methods: Securities Exchange Act of 1934 to customers about the routing of their (‘‘Exchange Act’’) to require additional Electronic Comments orders; (2) amendments to Rule 605 [17 disclosures by broker-dealers to • Use the Commission’s Internet CFR 242.605] to require that the public customers about the routing of their comment form (http://www.sec.gov/ order execution and order routing orders. Specifically, with respect to rules/proposed.shtml); reports be kept publicly available for a institutional orders, the Commission is • Send an email to rule-comments@ period of three years; and (3) proposing to amend Rule 606 of sec.gov. Please include File Number S7– conforming changes and updating cross- Regulation NMS to require a broker- 14–16 on the subject line; or references in Rule 3a51–1(a) under the dealer, upon request of its customer, to • Use the Federal eRulemaking Portal Exchange Act [17 CFR 240.3a51–1(a)], provide specific disclosures related to (http://www.regulations.gov). Follow the Rule 13h–1(a)(5) of Regulation 13D–G the routing and execution of the instructions for submitting comments. [17 CFR 240.13h–1(a)(5)], Rule 105(b)(1) customer’s institutional orders for the of Regulation M [17 CFR 242.105(b)(1)] prior six months. The Commission also Paper Comments Rules 201(a) and 204(g) of Regulation is proposing to amend Rule 606 of • Send paper comments to Brent J. SHO [17 CFR 242.201(a) and Regulation NMS to require a broker- Fields, Secretary, Securities and 242.204(g)], Rules 600(b), 602(a)(5), 605, dealer to make publicly available Exchange Commission, 100 F Street, 607(a)(1), and 611(c) of Regulation NMS aggregated information with respect to NE., Washington, DC 20549–1090. [17 CFR 242.600(b), 242.602(a)(5), its handling of customers’ institutional All submissions should refer to File 242.605, 242.607(a)(1), and 242.611(c)], orders for each calendar quarter. With Number S7–14–16. This file number and Rule 1000 of Regulation SCI [17 respect to retail orders, the Commission should be included on the subject line CFR 242.1000]. is proposing to make targeted if email is used. To help us process and Table of Contents enhancements to current order routing review your comments more efficiently, disclosures under Rule 606 by requiring please use only one method. The I. Introduction II. Current Practices and Regulation and the limit order information to be broken Commission will post all comments on Need for Enhanced Disclosures down into marketable and non- the Commission’s Internet Web site A. Background on Rule 606 marketable categories, requiring the (http://www.sec.gov/rules/ B. Changes in Order Handling Practices disclosure of the net aggregate amount proposed.shtml). Comments are also C. Need for Enhanced Disclosures for of any payment for order flow received, available for Web site viewing and Institutional Orders payment from any profit-sharing printing in the Commission’s Public 1. Market Complexity relationship received, transaction fees Reference Room, 100 F Street NE., 2. Assessing Best Execution 3. Conflicts of Interest paid, and transaction rebates received Washington, DC 20549–1090 on official 4. Information Leakage by a broker-dealer from certain venues, business days between the hours of D. Need for Public Reporting of Aggregated requiring broker-dealers to describe any 10:00 a.m. and 3:00 p.m. All comments Institutional Order Information terms of payment for order flow received will be posted without change; E. Need for Enhanced Disclosures for Retail arrangements and profit-sharing we do not edit personal identifying Orders relationships with certain venues that information from submissions. You F. Comments on Equity Market Structure may influence their order routing should submit only information that 1. General Need to Update Rule 606 decisions, and eliminating the 2. Need for Rule 606 to be Modernized to you wish to make available publicly. Maintain Pace with Technological requirement to divide retail order Studies, memoranda, or other Advances routing information by listing market. In substantive items may be added by the 3. Requests for Specific Information and connection with these new Commission or staff to the comment file Standardized Disclosures requirements, the Commission is during this rulemaking. A notification of 4. Requests for Specific Disclosures for proposing to amend Rule 600 of the inclusion in the comment file of any Institutional Orders Regulation NMS to include a number of materials will be made available on the 5. Comments on Actionable Indications of newly defined terms which are used in Commission’s Web site. To ensure Interest III. Proposed Amendments to Rule 600, Rule the proposed amendments to Rule 606. direct electronic receipt of such 605, Rule 606, and Rule 607 The Commission is also proposing to notifications, sign up through the ‘‘Stay A. Disclosures for Institutional Orders amend Rules 605 and 606 of Regulation Connected’’ option at www.sec.gov to 1. Definition of Institutional Order in NMS to require that the public order receive notifications by email. Proposed Rule 600(b)(31) VerDate Sep<11>2014 18:19 Jul 26, 2016 Jkt 238001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\27JYP2.SGM 27JYP2 sradovich on DSK3GMQ082PROD with PROPOSALS2 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Proposed Rules 49433 2. Definition of Actionable Indication of 5. Format of Current Reports for has intensified in recent years as routing Interest in Proposed Rule 600(b)(1) Institutional and Retail Orders and execution practices have evolved as 3. Scope and Format of Reports 6. Quality of Broker-Dealer Routing markets have become more automated, 4. Report Content Practices for Institutional Orders dispersed, and complex.2 Historically, 5. Public Report for Institutional Orders 7. Use of Actionable IOIs in Institutional B. Disclosures for Retail Orders Orders there was a substantial manual 1. Marketable Limit Orders and Non- 8. Competition, Efficiency, and Capital component involved in the routing and Marketable Limit Orders Formation execution of institutional customers’ 2. Net Payment for Order Flow and 9. Request for Comment orders. Today, however, institutional Transaction Fees and Rebates by C. Costs and Benefits orders tend to be routed and executed Specified Venue 1. Disclosures for Institutional Orders using sophisticated order execution 3. Discussion of Arrangement Terms with 2. Disclosures for Retail Orders algorithms developed by broker-dealers a Specified Venue 3. Disclosure of Order Execution or others that break up large 4. Additional Amendments to Retail Information Disclosures institutional orders into smaller ‘‘child’’ 4. Structured Format of Reports orders, and smart order routing systems 5. Amendment to Rule 600(b)(18) to 5. Other Definitions in Proposed rename ‘‘Customer Order’’ to ‘‘Retail Amendments to Rule 600 to route those child orders to the full Order’’ D. Alternatives Considered range of trading centers in the national C. Amendment to Disclosure of Order 1. Definition of Institutional Order in market system, including exchanges, Execution Information Proposed Rule 606(b)(31) ‘‘dark pool’’ alternative trading systems IV. Paperwork Reduction Act 2. Limited or No Public Disclosure of (‘‘ATSs’’), other ATSs, and internalizing A. Summary of Collection of Information Institutional Order Routing and broker-dealers.3 These order routing and 1. Customer Requests for Information on Execution Quality (Proposed Rule Institutional Orders execution algorithms use a wide variety 606(c)) of methods, ranging from non-time- 2. Public Aggregated Report on 3. More Frequent Public Disclosure of Institutional Orders sensitive passive strategies to aggressive Institutional Order Routing and 3. Requirement to Document Execution Information (Proposed Rule liquidity-taking strategies, to achieve the Methodologies for Categorizing 606(c)) trading goals of the institutional Institutional Order Routing Strategies 4. Automatic Provision of Customer- customer. Although certain advantages 4. Amendment to Current Disclosures With flow from technological advancements Respect to Retail Orders Specific Institutional Order Handling 5. Amendment to Current Disclosures Report (Proposed Rule 606(b)(3)) and the increase in number of venues, under Rule 605 5.
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