Several US industry associations have written to the Securities and Exchange Commission (SEC) to outline the importance of brokers providing order routing details to the buy-side to increase market transparency.
In a letter to SEC chair Mary Jo White, the Investment Company Institute (ICI), Managed Funds Association (MFA) and Securities Industry and Financial Markets Association (SIFMA) enclosed an order routing disclosure template to help the SEC formulate new rules.
US brokers are already subject to disclosure rules to institutional investment clients, including having to provide reports showing how orders are routed, possible conflicts of interest and execution quality.
“Those reports, however, do not provide information to measure broker-dealers’ and execution venues’ performance with respect to specific institutional investors. In addition, those reports are not presented in a uniform manner that allows for easy comparison across different broker-dealers and venues,” the co-written letter said.
The template includes details such as shares routed, shares executed, fill rate, rebates and spread information, among others.
Standardised information on order routing would give institutional investors all of the information they need to perform analysis and comparisons on their transaction costs across all venues and promote dialogue with brokers about how to improve routing practices, the letter added.
However, the associations called on the SEC to take a flexible approach to the implementation of order routing disclosure.
“In the continuously evolving and innovating markets, different types of information may become more relevant or useful over time. In this regard, we encourage the Commission to make any regulations in this area flexible so that information disclosures that become obsolete can be readily replaced with disclosures that become relevant,” they said.
The order routing template can be accessed on SIFMA’s website HERE.