The Securities and Exchange Commission (SEC) will adopt two new rules which will begin to be phased in on Monday, April 2, 2001, and which should significantly help investors/ traders and increase market transparency These rules are especially important for those involved with self directed, self controlled investment systems" The SEC rules are as follows: "Under Rule 11Ac1-5, market centers that trade national market system securities will be required to make monthly, electronic disclosures of basic information concerning their quality of executions on a stock-by-stock basis. Such information will include, for example, how market orders of various sizes are executed relative to the public quotes. Also, for the first time, investors will be informed not just about quoted spreads, but also about effective spreads - the spreads actually paid by investors whose orders are routed to a particular market center. In addition, market centers will disclose the extent to which they provide executions at prices better than the public quotes to investors using limit orders." "Under Rule 11Ac1-6, brokers that route orders on behalf of customers will be required to disclose, on a quarterly basis, the identity of the market centers to which they route a significant percentage of their orders. Brokers also will be required to disclose the nature of their relationships with such market centers, including any internalization or payment for order flow arrangements, which could represent a conflict of interest between the broker and its customers. Finally, brokers must respond to the requests of customers interested in learning where their individual orders were routed for execution during the previous six months." The SEC states that these rules, "should greatly increase the opportunity for public investors to evaluate what happens to their orders after they submit them to a broker-dealer for execution. In addition, by making more visible the execution quality of the securities markets, the rules are intended to spur competition among market centers and broker-dealers to provide the best possible price and speed of execution for investor orders….. Other important SEC statements relating to these rules are; ………"the Rule alone does not create a reliable basis to address whether any particular broker failed to meet its legal duty of best execution." (Hannaian Comment …While this may be technically true these rules go a long way from the previous sutuation towards helping to make a legal case against the broker and or marketmaker when something does go wrong with the execution of an order. It places a greater burden on these parties in justifying their actions and increases the legal possiblities for formal discovery processes in prosecuting a case) ………. "After the market center and broker information is made available to the public, all interested persons, including the financial press, independent analysts, consultants, and others, will be able to prepare analyses of order execution quality that respond to the needs and interests of individual investors. In time, improved public disclosure concerning order execution and routing practices should promote more vigorous competition in the markets to provide better prices to investors, as well as enable investors to make more informed decisions in choosing their brokers."
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