Quick Answer
On request, a broker or dealer tells a customer where that customer's orders were routed in the prior six months, whether directed or non-directed. A customer placing not held orders in national market system stocks can also demand a detailed handling report within seven business days, unless a firm-level or customer-level threshold excuses it.
The quarterly report is public and aggregated. These two disclosures are private, specific to one customer, and only the first of them is owed by every firm.
What Can a Customer Ask For?
On request of a customer, every broker or dealer discloses the identity of the venue to which that customer's orders were routed for execution in the six months prior to the request, whether the orders were directed or non-directed, and the time of the transactions, if any, that resulted from those orders.
That disclosure covers three categories of order.
- Orders in NMS stocks that are submitted on a held basis.
- Orders in NMS stocks that are submitted on a not held basis, where the broker or dealer is not required to provide the customer a not held order handling report.
- Orders in NMS securities that are option contracts.
A broker or dealer notifies customers in writing at least annually of the availability on request of that information.
Exam Tip: Gotchas
- The request disclosure covers directed orders too. The quarterly public report is limited to non-directed orders, while the customer-request disclosure reaches the customer's orders whether directed or non-directed.
- The not held limb is conditional. A customer's not held orders appear in this disclosure only where the firm does not owe that customer the separate not held order handling report.
What Is in the Not Held Order Handling Report?
Except where the firm-level or customer-level threshold below excuses it, every broker or dealer must, on request of a customer that places one or more not held orders in NMS stocks with the firm directly or indirectly, disclose to that customer a report on its handling of those orders.
- The report is delivered within seven business days of receiving the request.
- It covers the prior six months by calendar month.
- The handling of a not held NMS stock order includes the handling of all child orders derived from that order.
- The report is divided into two sections, one for directed orders and one for non-directed orders.
Each section includes four figures for the order flow the customer sent the firm.
- The total number of shares sent to the broker or dealer by the customer during the relevant period.
- The total number of shares executed by the broker or dealer as principal for its own account.
- The total number of orders exposed by the broker or dealer through an actionable indication of interest (IOI).
- The venue or venues to which orders were exposed that way.
Where applicable, a broker or dealer must disclose that it exposed a customer's order through an actionable indication of interest to other customers, but need not disclose the identity of those customers.
Each section then adds columns for each venue to which the firm routed those orders, in the aggregate, in four groups.
| Group | Columns |
|---|---|
| Order routing | Total shares routed; total shares routed marked immediate or cancel; total shares routed that were further routable; average order size routed |
| Order execution | Total shares executed; fill rate, meaning shares executed divided by shares routed; average fill size; average net execution fee or rebate in cents per 100 shares, specified to four decimal places; total shares executed at the midpoint and the percentage of shares so executed; total shares executed priced on the side of the spread more favorable to the order and the percentage so executed; total shares executed priced on the side of the spread less favorable to the order and the percentage so executed |
| Orders that provided liquidity | Total shares executed of orders providing liquidity; the percentage of shares so executed; average time between order entry and execution or cancellation for those orders, in milliseconds; average net execution rebate or fee for those shares in cents per 100 shares, specified to four decimal places |
| Orders that removed liquidity | Total shares executed of orders removing liquidity; the percentage of shares so executed; average net execution fee or rebate for those shares in cents per 100 shares, specified to four decimal places |
Exam Tip: Gotchas
- Child orders travel with the parent. The report covers all child orders derived from the customer's not held order, so a parent order worked across many venues is reported in full.
- The exposure disclosure names the venue, not the counterparty. A firm must say it exposed the order to other customers through an actionable indication of interest, and it need not identify those customers.
Which Firms and Customers Are Outside the Not Held Report?
Two separate thresholds can switch the not held report off.
The firm-level threshold. No broker or dealer is required to provide the report if the percentage of shares of not held orders in NMS stocks it received from its customers over the prior six calendar months was less than five percent of the total shares in NMS stocks it received from its customers during that time.
- A firm that equals or exceeds that five percent threshold must provide the reports for at least six calendar months, called the Compliance Period, regardless of the percentage of not held order shares it receives during that period, and subject to the customer-level threshold.
- The Compliance Period begins the first calendar day of the next calendar month after the firm equaled or exceeded the threshold, unless it is the first time the firm has done so, in which case it begins the first calendar day four calendar months later.
- A firm is not required to provide reports for orders it did not receive during a Compliance Period.
- If, at any time after the end of a Compliance Period, the not held share falls back below five percent over the prior six calendar months, no report is required, except for orders the firm received during the portion of a Compliance Period that remains covered.
The customer-level threshold. No broker or dealer is subject to the not held report with respect to a customer that traded on average each month for the prior six months less than $1,000,000 of notional value of not held orders in NMS stocks through that broker or dealer.
Exam Tip: Gotchas
- The first crossing is delayed and later crossings are not. A firm crossing five percent for the first time starts its Compliance Period four calendar months later; a firm that has crossed before starts the first day of the next calendar month.
- A firm inside a Compliance Period still checks the customer. The customer-level threshold applies on its own terms, so a small customer can be outside the report even at a firm that must produce it.
What Should You Check on Exam Day?
- Confirm the customer-request disclosure covers the prior six months and reaches directed as well as non-directed orders.
- Check the annual written notice that the information is available on request.
- On a not held order handling report, confirm delivery within seven business days and coverage of all child orders.
- Test both thresholds before excusing a not held report: the firm's five percent share and the customer's $1,000,000 monthly average notional value.
- Remember a Compliance Period runs at least six calendar months regardless of the not held percentage inside it.