Tags: Rule 606

In Episode 1, we sat down with Joe Wald, Managing Director of Clearpool Group , to discuss issues around transparency and conflicts of interest involved with order routing decisions.

Concerns about conflicts of interest come up all the time in financial markets. The worry is that investors will be harmed if those who owe investors a duty or obligation are conflicted and end up looking out for themselves instead. Given the SEC’s investor protection mandate, it should come as no surprise that a lot of regulation is aimed at conflicts. In particular, those which exist with broker dealers in their order routing decisions of customer orders, the topic of this podcast.

On June 15th, U.S. Court of Appeals for the District of Columbia Circuit thwarted an SEC proposed pilot that would study how exchanges’ pricing creates conflicts of interest for broker dealers that may harm investors. The Courts action was well covered not just because of its ruling on a controversial issue, but also for the language it used in its decision and how it may affect the SEC’s behavior going forward. We recently caught up with Joe Wald, to get his perspective on the DC Circuit decision and how it effects initiatives by the SEC, which seek to increase transparency into order routing with the goals of identifying conflicts of interest and understanding their influence. Joe, is the former chief executive and co-founder of the electronic trading software provider, Clearpool Group, and since being acquired by BMO Capital Markets in January 2020,  is currently a Managing Director, responsible for the execution of Clearpool’s vision and strategic direction.

Open Call – Implementation of Rule 606

STA Open Call – February 26, 2020

Rule 606 Implementation

Chris Bok, FIF & Jim Toes, STA

Reference Material[1]

STA Comment Letter on Rule 15c2-11

STA commends the Commission for proposing amendments to modernize Rule 15c2-11 STA offers the following comments about certain aspects of the Proposal, including: (1) the increased burden that may be imposed on market makers; and (2) potential consequences for retail investors when securities are no longer eligible for public quoting. Full letter here

SEC Proposed Order for New Consolidated Market Data Plan

On Jan 8th the SEC announced it will seek public comments on a proposed order that will modernize the governance of National Market System (NMS) plans that consolidate and disseminate core market data from trading venues by among other things, unifying the three existing plans into one. Comment letters are available here

FINRA Regulatory Notice 20-05; Requesting Comment on Recommendations to Enhance Continuing Education for Securities Industry Professionals Link

While registered persons of broker-dealers are subject to continuing education, they are unable to extend that continuing education in order to maintain their qualification following the termination of any of their registrations. To address this issue, the CE Council recommends that FINRA, and the other SROs participating in the CE program, consider rule changes that would enable previously registered individuals to maintain their qualification for their terminated registration categories by participating in an annual continuing education program. STA Comment Letter

Executive Summary

Amended Rule 606(b)(3) requires that brokers, upon request from their customers, provide a non-public report with a standardized set of individualized disclosures concerning the firm’s handling of that customer’s not-held orders.

  • Standardized disclosures include, but are not limited to, the First and Second routes on orders
  • As of Feb 15th, customers began requesting reports on First routes.
  • Beginning May 15th, customers can begin requesting First and Second route data.

Information on 606(a) and 606(b)(3) provided by Chris Bok, FIF can be found



 This brief is meant for informational purposes only and therefore should not be considered legal advice. STA’s and the STA Foundation’s goals is to raise awareness on this industry development and encourage dialogue.  

Comment Letter: FIF and STA Comments on Amended SEC Rule 606

While much progress has been made with respect to the industry’s implied understanding of the scope and breadth of data that the SEC Staff expects to be reported pursuant to Rule 606, there remain several open questions that the SEC is still considering.

FIF and STA strongly emphasize that the lack of: 1) written guidance; 2) adequate resolution of open questions; and 3) clarity pertaining to reporting look-through data is preventing industry stakeholders from moving forward with the implementation of Rule 606 in a manner that will provide end-customers with consistent and accurate data.

Read full letter here

STA Conference First 15 Speakers and DC Meeting Recaps

FINRA holds July 2019 Board of Governors Meeting.

FINRA CEO Robert Cook, Chairman Bill Heyman, Board members and FINRA staff provided updates from the meeting in a video report . 

Emily Westerberg Russell Named Chief Counsel of Division of Trading and Markets

The Securities and Exchange Commission today announced that Emily Westerberg Russell has been named Chief Counsel of the Division of Trading and Markets. Ms. Russell has been a member of the division’s Office of Chief Counsel for a decade, and since 2011 has served as a Senior Special Counsel in the Office of Sales Practices.

Chairman Tarbert Announces CFTC Executive Leadership Appointments

U.S. Commodity Futures Trading Commission Chairman Heath P. Tarbert announced six appointments to key executive leadership positions at the CFTC.

Read July newsletter here

Talking Points – June 2019

Who We Are
STA is comprised of 24 affiliate organizations covering the entire US and Canada. The STA national board of governors is comprised of past presidents and industry specific leaders. Our membership represents INDIVIDUALS from varying business models – buy-side, sell-side, hedge funds, exchange traders and market makers- dealing in equity and derivative trading.

Regulatory Capital Rule: New Standardized Approach for Calculating the Exposure Amount of Derivative Contracts:
*STA believes that Basel III Standardized Risk Weighted Assets, “RWA” calculations on capital requirements are having an unnecessary & detrimental impact on market maker liquidity. We are supportive of a new approach for calculating the exposure amount for derivative contracts.

SEC Rule 606, aka, “Order Handling Disclosure Rule”
*As with any large scale industry project, regulatory guidance prior to implementation is often needed. As the Oct 1, 2019 compliance date for data collection approaches, the industry seeks SEC guidance on a range of areas, including but not limited to options calculations.
*STA believes that any guidance – even that which is simplistic in nature – at this stage will not allow segments of the industry to meet the Oct 1st deadline. STA therefore believes it is reasonable to request that should the SEC maintain the Oct 1st deadline it consider issuing “no-action” letters.

STA letter to SEC on proliferation of strikes in options markets
*In a April 5, 2019 letter to the SEC, STA relayed its view that the proliferation of series of options for quoting and trading has overly complicated the options markets and necessitated excessive (and thus inefficient) consummations of technology.
*We noted the Options Listing Procedures Plan (“OLPP”), a national market system plan which defines procedures for introducing new options series into the marketplace, is either silent or requires additional guidance in areas instrumental to its overall effectiveness.
*We requested the SEC “expressly authorize and direct the exchanges to participate in a working group to discuss and determine if the strike listing process should be improved and if so, what recommendations should be considered.”
*STA expects to file a supplemental letter with specific recommendations on changes to the OLPP which would improve its functionality and formalize certain core actions, such as regular meetings among the administrators and a means for industry participants to provide input.

Consolidated Audit Trail – Reporting Issues Specific to Options.
*Specific areas where guidance is requested include:
• Option Market Maker quote submission to the CAT will be performed by the exchanges. What happens if an exchange fails to submit the MM quotes?
• What are the reporting obligations and exemptions in Open Outcry Markets?

PDF version here