SEC Pushes For Broker Transparency, Disclosing Client Orders Details

Recent SEC proposals have focused on broker disclosure, specifically in regard to client orders and their destination.

In a bid to foster greater transparency over the institutional trading space, the U.S. Securities and Exchange Commission (SEC) has proposed a series of statutes that would see obligatory provisions by brokers to yield standard data on where they send institutional clients’ orders to be completed, per a Bloomberg report.

The action would be noteworthy, as it would bring to light client orders in a more concise manner. While brokers presently disclose certain types of orders and their destinations, the new SEC rules would represent something different entirely. In essence, for the first time, the regulator would require brokers to reveal data about potential conflicts of interest and also how well they carried out orders for customers.

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Investors expect — and deserve — to know how their orders are treated

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The shifting focus follows a recent SEC proposal at a meeting today, which called for the publication of details on an aggregated level in reports, which will be posted on the SEC’s website. Moreover, money managers have long since sought more details as to where their orders are being sent, and why. The current playing field presents an interesting dilemma, namely in regard to the US equity markets – many individuals claim that brokers are not obligated to share their practices in sufficient detail.

Mary Jo White Source: Bloomberg
Mary Jo White
Source: Bloomberg

These sentiments were echoed by SEC Chair Mary Jo White in a recent set of remarks Wednesday: “Investors expect — and deserve — to know how their orders are treated. This proposal should provide investors with an important new tool to better assess whether a broker-dealer’s order routing practices are consistent with their investment objectives.”

More specifically, elements of data that would be revealed would center on the average rebate the firm got for its orders, as well as the average size of the orders it sent out and the percentage of trades that were carried out at a price favorable to the institution. This would also be in conjunction to a larger level of detail as to where brokers send retail orders.

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