On this page
Rule 606: Broker Order Routing Disclosure
Rule 606 order routing disclosure is the SEC requirement that forces brokers to publish where they send customer orders and what they get paid for them. Part of Regulation NMS and strengthened in 2018, it splits reporting into quarterly public reports and detailed reports a customer can request.
Key Takeaways
- Rule 606 order routing disclosure requires brokers to publish quarterly reports on where customer orders are routed.
- Reports name the top 10 venues and any venue receiving 5% or more of orders.
- Brokers must disclose payment for order flow and profit-sharing arrangements per venue.
- Rule 606(b) lets customers request detailed handling reports on their own orders within seven business days.
Key Takeaways
- Rule 606 order routing disclosure requires brokers to publish quarterly reports on where customer orders are routed.
- Reports name the top 10 venues and any venue receiving 5% or more of orders.
- Brokers must disclose payment for order flow and profit-sharing arrangements per venue.
- Rule 606(b) lets customers request detailed handling reports on their own orders within seven business days.
What It Is
Rule 606 sits inside Regulation NMS, codified at 17 CFR 242.606. Regulation NMS is the SEC's framework for the structure of US equity markets, and Rule 606 is its order-routing transparency piece. The SEC adopted enhancements in 2016 that took full effect in 2018.
The rule has two halves. Rule 606(a) requires public quarterly reports about how a broker routes held orders, the everyday market and marketable limit orders most retail investors place. Rule 606(b) requires customer-specific reports about not-held orders, the larger institutional orders where the broker has discretion over timing and venue.
The aim is to show investors the conflicts and economics behind routing decisions, especially payment for order flow, where a broker is paid to send orders to a particular market maker.
The Intuition
When you place a market order, your broker decides where to send it. That choice affects the price you get. The broker may also be paid by the venue that fills the order, which creates a conflict between the broker's revenue and your execution quality.
You cannot judge that conflict if you cannot see it. Rule 606 order routing disclosure pulls the routing map into the open. It does not ban payment for order flow. It forces the broker to publish where orders go, what is paid, and on what terms, so investors and regulators can scrutinize whether routing serves customers or revenue.
How It Works
Rule 606(a) public reports are filed quarterly and posted for three years. For non-directed held orders in NMS stocks and listed options, the broker must break orders into categories such as market orders, marketable limit orders, and non-marketable limit orders. For each category the report must list the top 10 venues by order volume plus any venue that received 5% or more of orders.
Crucially, the report must disclose the net payment received from, or paid to, each venue, expressed per hundred shares and split by order type. It must also include a discussion of the material aspects of the broker's relationship with each venue, including any payment for order flow arrangement and any profit-sharing relationship that could influence routing.
Rule 606(b) covers customer-requested information. Under 606(b)(1), a broker must, on request, tell a customer where its orders were routed for the prior six months. Under 606(b)(3), for not-held orders, the broker must provide a detailed report within seven business days covering routing venues, fill rates, and whether the order added or removed liquidity. Brokers must notify customers at least annually that this information is available.
De minimis exceptions limit the burden. Rule 606(b)(4) exempts brokers whose not-held NMS stock order flow is small, and 606(b)(5) exempts reporting for customers whose own not-held flow is below a threshold. Reports use SEC-approved standardized formats so they can be compared across brokers.
Worked Example
A retail brokerage files its quarterly Rule 606(a) report. For market orders in NMS stocks, the report shows that 60% went to one wholesale market maker, 25% to a second, and the rest spread across others. Each line shows net payment per hundred shares.
Reading it, you see the broker received, say, 20 cents per hundred shares from its largest venue. That is payment for order flow, and the report's discussion section must explain the arrangement and whether it influences routing.
Separately, an institutional client that placed a large not-held order asks for a Rule 606(b)(3) report. Within seven business days, the broker must supply venue-by-venue routing, fill rates, and liquidity flags for that specific order, letting the client measure execution quality directly.
Common Mistakes
-
Confusing 606(a) and 606(b). 606(a) is the broad quarterly public report on held orders. 606(b) is the customer-specific report, including detailed not-held order handling on request.
-
Reading payment data as the whole story. A high payment figure flags a conflict but does not prove poor execution. You still need execution quality data to judge outcomes.
-
Assuming the report covers every venue. It lists the top 10 plus any venue at 5% or more, so smaller routing destinations may not appear individually.
-
Forgetting the seven-day clock on 606(b)(3). Brokers must deliver requested not-held order reports within seven business days, not whenever convenient.
-
Ignoring the annual notice. Brokers must remind customers at least once a year that routing information is available, a duty firms sometimes overlook.
Frequently Asked Questions
What is Rule 606 order routing disclosure in simple terms? Rule 606 order routing disclosure is an SEC rule that makes brokers publish where they send customer orders and what they are paid for them. It shines a light on payment for order flow.
How does Rule 606 affect investment decisions? It lets you see whether your broker routes orders to venues that pay it, which can conflict with getting you the best price. Comparing brokers' 606 reports helps you weigh execution quality against zero-commission marketing.
What is a real-world example of Rule 606? A retail broker's quarterly 606(a) report shows most market orders going to one wholesale market maker and lists the payment received per hundred shares. That figure is the payment for order flow behind commission-free trading.
How can investors use Rule 606 effectively? Read your broker's quarterly 606(a) report, note which venues dominate and how much payment they generate, and request a 606(b) report for any large order to check fill quality. Use it alongside any execution-quality statistics.
How is Rule 606 different from Rule 605? Rule 606 discloses where orders are routed and what payment is involved. Rule 605 instead reports the execution quality that trading centers actually deliver, such as speed and price improvement.
Sources
- U.S. Securities and Exchange Commission. "Disclosure of Order Handling Information (Final Rule)." https://www.sec.gov/rules-regulations/2016/07/disclosure-order-handling-information
- Legal Information Institute, Cornell Law School. "17 CFR 242.606 Disclosure of order routing information." https://www.law.cornell.edu/cfr/text/17/242.606
- U.S. Securities and Exchange Commission. "Responses to Frequently Asked Questions Concerning Rule 606 of Regulation NMS." https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/faq-rule-606-regulation
- FINRA. "About NMS Equity and Options Routing Reports (SEC 606(a) Reports)." https://www.finra.org/finra-data/about-606
Disclaimer
This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.