SEC Order Granting Limited Exemptions from Rule 605 of Regulation NMS for Certain Fractional Share Orders and Modifying Prior Exemptions
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The SEC is granting a new limited exemption from Rule 605 reporting requirements for customer-facing broker-dealers that only execute fractional share orders when customers are exiting positions acquired through dividend reinvestment programs or fractional stock dividends. These situations occur infrequently, so the compliance costs outweigh the benefits of reporting execution quality statistics. The order also rescinds and replaces the prior exemption for orders received during trading halts, distinguishing between marketable and non-marketable orders, and makes adjustments to exemptions for inactively traded securities and crossed markets. It rescinds the exemption for manually received orders.
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Key Changes
- New exemption for customer-facing broker-dealers executing fractional share orders only from dividend reinvestment programs or fractional stock dividends
- Broker-dealers engaging in additional OTC market making cannot rely on the fractional share exemption
- Rescinds and replaces exemption for orders received during announced trading halts with new rules distinguishing marketable and non-marketable orders
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Obligations
What this law requires
Customer-facing broker-dealers must not produce separate Rule 605 reports as a market center when executing fractional share orders solely from customers exiting positions acquired through dividend reinvestment programs or stock dividends with fractional components
Broker-dealers must distinguish between marketable and non-marketable orders when reporting on orders received during trading halts, in accordance with the rescinded and replaced exemption
Broker-dealers must continue to comply with modified exemption requirements for inactively traded securities reporting under Rule 605
Broker-dealers must apply the rescinded and replaced exemption for orders received during crossed markets in accordance with the new standards provided
Broker-dealers must include manually-received orders in Rule 605 reporting pursuant to Rule 605(a)(1), as the prior exemption has been rescinded