Order Routing Information

Execution statistics say how well an order was filled. Routing disclosure says where the firm sent it, and the net payments that passed between the firm and each venue it used.

What Does the Quarterly Routing Report Cover?

Every broker or dealer makes publicly available, for each calendar quarter broken down by calendar month, a report on its routing of two order populations.

• Non-directed orders in national market system (NMS) stocks that are submitted on a held basis.
• Non-directed orders that are customer orders in NMS securities that are option contracts.

The report is published within one month after the end of the quarter it addresses, and is kept posted on an internet website that is free and readily accessible to the public for three years from the initial date of posting.

The report's structure decides how every later test is measured.

• It includes a section for NMS stocks, separated by securities that are included in the S&P 500 Index as of the first day of that quarter and other NMS stocks.
• It includes a separate section for NMS securities that are option contracts.
• Each section in a report includes the required information, so the venue counts and percentage tests below run inside each section rather than across the report as a whole.

Exam Tip: Gotchas

• The held-basis limit reaches only the stock half. The NMS stock population is limited to orders submitted on a held basis, while the options population is described as non-directed customer orders with no held-basis qualifier.
• The tests run per section, not per report. A venue taking five percent of a firm's total non-directed orders may fall short of five percent within the S&P 500 section and clear it comfortably in the other NMS stock section.

Which Venues Must the Report Name?

Each section first gives the percentage of total orders for the section that were non-directed orders, and then the percentages of total non-directed orders for the section that were market orders, marketable limit orders, non-marketable limit orders, and other orders.

A directed order is an order from a customer that the customer specifically instructed the broker or dealer to route to a particular venue for execution. A non-directed order is any order from a customer other than a directed order.

Two venue tests then run together.

• The identity of the ten venues to which the largest number of total non-directed orders for the section were routed for execution.
• The identity of any venue to which five percent or more of non-directed orders were routed for execution.

For each venue identified, the section gives the percentage of total non-directed orders for the section routed to that venue, and the percentages of total non-directed market orders, marketable limit orders, non-marketable limit orders and other orders for the section routed to that venue.

Exam Tip: Gotchas

• Both venue tests run, so the list can exceed ten. A venue that takes five percent or more is named even if it sits outside the top ten by order count.
• The order-type breakdown repeats for every named venue. The four percentages are given once for the section as a whole and again for each venue identified.

What Must the Report Disclose About Payments and Venue Relationships?

For each venue identified by the ten-venue and five percent tests, the report gives the net aggregate amount of four items, both as a total dollar amount and per share.

Those four amounts are given for each of four non-directed order types: market orders, marketable limit orders, non-marketable limit orders, and other orders.

The report then adds a discussion of the material aspects of the broker's or dealer's relationship with each venue identified. That discussion includes a description of any arrangement for payment for order flow and any profit-sharing relationship, and a description of any terms of those arrangements, written or oral, that may influence an order routing decision, including, among other things, four named terms.

• Incentives for equaling or exceeding an agreed upon order flow volume threshold, such as additional payments or a higher rate of payment.
• Disincentives for failing to meet an agreed upon minimum order flow threshold, such as lower payments or the requirement to pay a fee.
• Volume-based tiered payment schedules.
• Agreements regarding the minimum amount of order flow the broker-dealer would send to a venue.

Exam Tip: Gotchas

• The list of influencing terms is open. The phrase "among other things" precedes the four named terms, so an arrangement of a shape the rule never lists still belongs in the discussion.
• Both dollars and cents per share are required. Each of the four payment items is disclosed as a total dollar amount and per share, so a report giving only one of the two is short.

What Should You Check on Exam Day?

• Confirm the quarterly report covers non-directed held-basis NMS stock orders and non-directed customer option orders, and is broken down by calendar month.
• Measure the ten-venue and five percent tests inside the section, and remember both tests run, so more than ten venues can be named.
• Check whether the payment figures are given as a total dollar amount and per share for each of the four order types.
• Treat the list of terms that may influence a routing decision as open, since the rule says among other things.
• Confirm the report is published within one month after the quarter and stays posted free for three years.