Understanding SEC Rule 605

SEC Rule 605 requires certain market participants, including market centers and larger customer-facing broker-dealers (collectively "market participants"), to publish standardized execution quality reports. The rule was updated to expand reporting requirements and make execution-quality information more accessible and understandable for investors. By providing consistent monthly reporting, Rule 605 helps improve transparency and supports comparison of execution quality across firms.

The goal is to provide greater transparency into how customer orders are handled and executed. These reports are not intended to rank firms or identify a single superior execution provider. Instead, they provide standardized data that investors can use to evaluate execution quality across firms.

The rule requires the monthly production and public display of two reports[JF1.1][JH1.2] for each reporting entity:

• Detailed Report [Rule 605(a)(1)]: It is in machine-readable format and includes low-level groupings, including at the stock-level.
• Summary Report [Rule 605(a)(2)]: It is intended to be human-readable and contains higher-level groupings.

The reports contain both execution quality statistics and descriptive statistics to compare the executions and order flow characteristics of market participants. Links to the Summary Report for market centers are below. 

What Changed

The amended Rule 605 expands reporting obligations to include broker-dealers that introduce or carry 100,000 or more customer accounts, significantly broadening the population of firms subject to execution quality reporting. 

The amendments also modify the categorization and content of order information required to be reported under the rule and require reporting entities to produce a summary report of execution quality.

Source: U.S. Securities and Exchange Commission, SEC Adopts Amendments to Enhance Disclosure of Order Execution Information, March 2024.

Why Enhanced Execution Reporting Matters

Greater Transparency for Clients

Today's investors expect greater visibility into how their trades are executed. The enhanced reporting framework helps provide a clearer view of execution quality and supports more informed conversations around best execution practices. 

Demonstrating Execution Quality

The expanded disclosures give firms new opportunities to illustrate the effectiveness of their trading and routing practices. By leveraging Rule 605 data, firms can better communicate their commitment to delivering quality execution outcomes on behalf of clients. To help firms understand the new disclosures and execution quality measures, the Financial Information Forum (FIF) Rule 605 Fact Sheet provides an overview of the amended rule, reporting requirements, and Summary Report metrics.

Enhanced Comparability

Standardized reporting creates greater consistency across the industry, enabling stakeholders to evaluate execution quality using a common framework. This increased comparability supports market transparency and promotes competition among execution providers. 

How to use Fidelity's Rule 605 Summary Report 

Fidelity's Rule 605 Summary Report provides standardized execution-quality metrics that can help investors better understand and evaluate trade execution outcomes.  When reviewing the report, consider:

• How often orders receive price improvement
• How quickly orders are executed 
• Fill rates across different order categories 
• Results for order sizes similar to your own trading activity Metrics relevant to the types of orders you typically place 

Looking at multiple metrics together may provide a more complete view than focusing on a single statistic.

What Is a Reporting Entity?

Reporting entities are market centers and broker-dealers that are required under SEC Rule 605 to publish standardized reports detailing the quality of order execution they provide, enabling investors and firms to evaluate and compare execution outcomes.  

• National securities exchanges
• National securities associations
• Market makers
• Alternative trading systems (ATSs)
• Broker-dealers that introduce or carry 100,000 or more customer accounts
• Broker-dealers operating single-dealer platforms (which must prepare separate reports for activity on those platforms)

Fidelity's Reporting Entities

• National Financial Services LLC Summary Report
• Fidelity Brokerage Services Summary Report
• Fidelity CrossStream ATS Summary Report
• Fractional Share Summary Report