Rules 605 And 606: Execution Quality Disclosure

A broker can always say it gets clients good fills. Rules 605 and 606 exist so nobody has to just take that on faith.

Rule 605 requires market centers — exchanges, ATSs, and market makers that execute orders — to publish monthly, standardized statistics on execution quality: how often orders were filled at or better than the quoted price, how much price improvement was delivered on average, and how fast fills happened, broken out by order size and stock. Because every venue reports the same fields the same way, the numbers are directly comparable across venues, which is what lets brokers and researchers actually benchmark one venue against another instead of relying on marketing claims.

Rule 606 covers the other side of the transaction: it requires broker-dealers to disclose, quarterly, where they routed non-directed customer orders — which venues, what percentage of order flow went to each, and what payment for order flow or other compensation the broker received from those venues. A separate, order-specific version lets a customer request the routing details for their own individual order.

Together, the two rules let anyone reconstruct the full picture: Rule 605 shows how good a venue's fills actually are, and Rule 606 shows which venues a given broker is actually sending orders to and why that might be financially convenient for the broker rather than best for the customer. A broker that routes heavily to whichever venue pays the most for order flow, while that venue's Rule 605 stats show mediocre price improvement, is a pattern regulators and sophisticated customers can spot directly from the disclosures.

Worked example. A broker's Rule 606 report shows 70% of its retail market orders were routed to Wholesaler X, which pays the broker $0.0015 per share in payment for order flow. Wholesaler X's own Rule 605 report shows it delivers an average of $0.001 per share in price improvement versus the NBBO. A customer or analyst can line these two disclosures up and ask whether $0.001 of price improvement is enough to justify sending 70% of flow to a venue paying for that flow — exactly the kind of comparison the rules were designed to make possible.