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Dec 14 -- 1) WSJ: The SEC voted Wednesday to advance the biggest changes to U.S. stock-market rules since the mid-2000s, aiming to give small investors better prices on their trades and reduce some advantages enjoyed by high-speed trading firms.

Democratic commissioners, who hold three of the SEC’s five seats, supported moving forward on each of the four proposals. Republican commissioners voiced objection to two of the measures. Voting to advance the rules opens them to public comment until at least March 31 before the agency can decide whether to finalize them.

The proposals grew out of a review prompted by last year’s frenzied trading in GameStop Corp. They would fundamentally alter the relationships between brokerages that take investors’ orders to buy or sell securities, the high-speed traders that often handle those orders, and stock exchanges. The broad idea motivating the proposals is to use greater competition for investors’ orders to deliver better prices, while stepping up regulations of the firms that profit from handling retail stock trades. . . .

2) SEC Proposes Amendments to Enhance Disclosure of Order Execution Information [press release]
The SEC today proposed amendments that would update the disclosure required under Rule 605 of Regulation NMS for order executions in national market system stocks, which are stocks listed on a national securities exchange. Rule 605 was adopted in 2000 and provides visibility into execution quality at different market centers. It has not been substantively updated since it was adopted.

“In the 22 years since Rule 605 was adopted, our equity markets have been transformed by ever-changing technologies and business models,” said SEC Chair Gary Gensler. “Current Rule 605 disclosures have not kept up with our markets and provide investors with an incomplete picture of execution quality. Thus, I am pleased that today’s proposal would modernize Rule 605 in a number of ways. This proposal, if adopted, would increase transparency for investors and facilitate their ability to compare brokers. That helps make our markets more efficient, competitive, and fair.”

The proposed amendments would expand the scope of entities subject to Rule 605, modify the information required to be reported under the rule, and change how orders are categorized for the purposes of the rule. Among other things, the proposal would expand the scope of entities that must produce monthly execution quality reports to include broker-dealers with a larger number of customers. In addition, the proposal would modify the definition of “covered order” to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices. The proposed amendments would capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become “executable.”

The proposed amendments to how orders are categorized would require the reporting of execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Further, the proposal would require that the time of order receipt and time of order execution be measured in increments of a millisecond or finer and that realized spread be calculated at both 15 seconds and one minute. The proposal would also require new statistical measures of execution quality, such as average effective over quoted spread (a percentage-based metric that represents how much price improvement orders received) and a size improvement benchmark. Finally, the proposal would enhance the accessibility of the required reports by requiring all entities subject to the rule to make a summary report available to the public.
Jan 20 -- FRN proposed rule: https://www.federalregister.gov/d/2022-27614

3) SEC Proposes Rules to Amend Minimum Pricing Increments and Access Fee Caps and to Enhance the Transparency of Better Priced Orders

The Securities and Exchange Commission today proposed to amend certain rules under Regulation NMS to adopt variable minimum pricing increments, or “tick sizes,” for the quoting and trading of NMS stocks, reduce access fee caps for protected quotations, and accelerate the transparency of the best priced orders available in the market. The proposed amendments are designed to enhance trading opportunities for all investors and to help ensure that orders placed in the national market system reflect the best prices available for all investors. . . .

Specifically, the Commission proposed to amend Rule 612 of Regulation NMS to establish variable minimum pricing increments for quotations and orders in NMS stocks that are priced at, or greater than, $1.00 per share based on objective and measurable criteria and make such minimum pricing increments applicable to the trading of all NMS stocks regardless of price, subject to certain specified exceptions.  Under the proposal, the primary listing exchanges would measure and calculate the Time Weighted Average Quoted Spread for the relevant NMS stock and determine the applicable minimum pricing increment.

To reflect the lower variable minimum pricing increments proposed under Rule 612, the Commission also proposed to amend Rule 610 of Regulation NMS to reduce the access fee caps for protected quotations in NMS stocks priced $1.00 or more to $0.0005 per share for those NMS stocks that have a minimum pricing increment of $0.001, and to $0.001 per share for those NMS stocks that have a minimum pricing increment greater than $0.001 per share. For protected quotations in NMS stocks priced less than $1.00 per share, the proposal would cap access fees at 0.05 percent of the quotation price. In addition, the Commission proposed to amend Rule 610 to require exchanges to make the amounts of all fees and rebates determinable at the time of execution.

Finally, the Commission proposed to accelerate the implementation of previously-adopted round lot and odd-lot information definitions to expedite the transparency benefits of these definitions by making information about better priced interest available in the market more widely available on a faster timetable. Moreover, the Commission proposed to amend the definition of odd-lot information to require the identification of the best priced odd-lot orders available in the market.  
Dec 29 -- FRN proposed rule https://www.federalregister.gov/d/2022-27616
4) SEC Proposes Rule to Enhance Competition for Individual Investor Order Execution [press release]

The Securities and Exchange Commission today proposed a rule that would require certain orders of individual investors to be exposed to competition in fair and open auctions before such orders could be executed internally by any trading center that restricts order-by-order competition. . . .

Individual investors use marketable orders for stocks listed on U.S. securities exchanges (NMS stocks) when they seek to trade immediately at the best available prices in the market. Currently, retail brokers route more than 90 percent of these orders to a small group of off-exchange dealers, known as wholesalers. This routing practice is known as a type of segmentation and reflects the fact that these orders impose lower costs on liquidity providers than unsegmented order flow.

Wholesalers typically execute the marketable orders of individual investors internally, without providing any opportunity for other market participants to compete to provide better prices. As a result, these orders are not merely segmented; they are also isolated from order-by-order competition. While wholesalers provide some price improvement to these orders relative to prices available on national securities exchanges for unsegmented order flow, data analysis conducted for the proposal suggests that the amount of price improvement falls short of what would be expected if these orders were subject to order-by-order competition. The annual amount of this “competitive shortfall” is estimated to be $1.5 billion.

If adopted, the proposed rule generally would prohibit a “restricted competition trading center” such as a wholesaler from internally executing “segmented orders” – orders for NMS stocks that are made for an account of a natural person or an account held in legal form on behalf of a natural person or group of related family members and in which the average daily number of trades executed in NMS stocks was less than 40 in each of the six preceding calendar months – unless the orders are first exposed to competition in a “qualified auction” operated by an “open competition trading center.” The proposed rule would also include limited exceptions to this general prohibition, such as for orders executed at a very favorable price for the individual investor.

Jan 3 -- FRN proposed Order Competition Rule https://www.federalregister.gov/d/2022-27617

5)  SEC Proposes Regulation Best Execution [press release]
The Securities and Exchange Commission today proposed Regulation Best Execution, which would establish through Commission rules a best execution regulatory framework for brokers, dealers, government securities brokers, government securities dealers, and municipal securities dealers. While a best execution rule was first established in 1968 by the National Association of Securities Dealers, Inc., the predecessor to the Financial Industry Regulatory Authority, Inc., the proposed rule, if adopted, would create the first SEC-established rule concerning best execution. . . .

Proposed Regulation Best Execution would require broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to comply with the proposed best execution standard. Further, the proposal would require these policies and procedures to address how broker-dealers will comply with the best execution standard and how they will determine the best market and make routing or execution decisions for customer orders.

The policies and procedures would also be required to address additional factors for conflicted transactions with retail customers. With respect to such transactions, the proposal would require broker-dealers to document their compliance with the best execution standard, including all efforts to enforce their best execution policies and procedures for conflicted transactions and the basis and information relied on for their determinations that such conflicted transactions would comply with the best execution standard. Broker-dealers would also be required to document any arrangement concerning payment for order flow. Moreover, proposed Regulation Best Execution would require broker-dealers to review the execution quality of customer orders at least quarterly.

Proposed Regulation Best Execution would require broker-dealers to review their best execution policies and procedures at least annually, document such reviews, and present written reports detailing the results of such reviews to their boards of directors or equivalent governing bodies.

Broker-dealers that qualify as introducing brokers under proposed Regulation Best Execution would be exempt from many of the operative provisions of the proposed rules so long as they establish, maintain, and enforce policies and procedures that require them to regularly review the execution quality obtained from their executing brokers, compare that execution quality with the execution quality they might have obtained from other executing brokers, and revise their order handling practices accordingly. Introducing brokers would be required to document the results of this review.

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