FinOps Report: Rule 606: SEC Redefines Discretionary Trades

By Jen Fagenson

August 29, 2019

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Venu Palaparthi (Chief Compliance Officer) adds his thoughts to FinOp’s report discussing the SEC’s upcoming changes to 606 reporting in the US.

The US Securities and Exchange Commission’s decision to broadly define what makes a trade execution discretionary will force introducing and executing brokers to walk a thin tightrope when complying with its new Rule 606.

They will have to make some tough choices on how much information the executing broker can release on a trade order without giving away its secret sauce. The introducing broker must also prevent the data about the trade from falling into the wrong hands — someone other than the intended client.

The SEC’s explanation of the circumstances defining a discretionary trade appears in its FAQs following the publication of the amendments to Rule 606. Although trade execution specialists weren’t entirely surprised by the regulatory agency’s interpretation, they were hoping for a narrower definition which would generate far less angst, particularly for executing brokers.

Postponed until October, the new Rule 606 calls for information on trade execution to be regrouped into two reports. The first Report 606(a)1 will be for held-only orders, typically affecting retail investors. The second report 606(b)3, focused on not-held orders typically executed for institutional investors, will for the first time flash a spotlight on the fees paid and rebates received.

To read the full article, click here.