From: Michelle Lacouture
Sent: December 8, 2016
Subject: Comment Letters on Rule 605 and 606

Dear Chair Mary Jo White,

Rules 605 and 606 are to be used as the principal method of assessing market quality and broker routing quality. However, with the increasing complexity of the markets, they ought to be reformed to produce more informative information for the public regarding the markets and brokers execution quality. Thus, Rule 605 should be updated so execution quality can be more easily evaluated. Rule 606 should also be updated so investors can more clearly see how brokers are routing their orders.
Rule 605 is ineffective at displaying market quality as it has too long of a reporting time frame, covers a limited order set, and fails to require brokers to distinguish where they trade their orders (particularly if they are traded in ATSs and Dark Pools). First, it would improve market visibility if market reports were released within a shorter time frame.  This would reduce the lag time between when investors make decisions and when they see performance measures. Additionally, Rule 605 ought to be expanded to include a broader range of orders (separate from market orders) including, but not limited to: “immediate or cancel”, “peg”, “flash”, and “hidden” orders. Lastly, the rule should require that dealers that trade in ATSs and Dark Pools report those orders separate to increase transparency.

Moreover, I recommend updating Rule 606 so that the public can be better informed as to how their orders are being routed. As Robert Battalio et al. cite, “while Rule 606 filings identify the most important venues utilized by each broker, they may not provide a complete record of a broker’s order routing decisions” (“Can Brokers Have it All? On the Relation between Make-Take Fees and Limit Order Execution Quality, p. 14). Rule 606 neglects to include specific information on (including, but not limited to): OTC market securities, odd lot categories, marketable limit orders, block transactions, limit orders, and number of shares executed versus sent. By including specific information about a broader range of securities,  investors can more clearly see how and which orders are being routed. Robert Battalio et al. cite “...our results suggest that order routing decisions have an important impact on limit order execution quality and that routing decisions based primarily on rebates/fees are inconsistent with best execution” (“Can Brokers Have it All? On the Relation between Make-Take Fees and Limit Order Execution Quality, p. 35). Moreover, the public should be able to see ALL of the order flow received and have all current and historic reports available to them in an accessible fashion. These modifications to Rule 606 would ensure the market is more transparent and better serves the public's interest.


Respectfully Submitted,

Michelle Lacouture