As a response to the call for regulating conflicts of interest and opacity of market structures in investments, the SEC unveiled a new proposed scorecard that will require brokers to disclose relevant information about stock handling. In turn, investors will be furnished with a formal metric system to better evaluate the movement of their market orders.
An article on the Wall Street Journal expounded:
Under the proposal, investors would for the first time have uniform data on metrics such as fill rates, which would tell a mutual fund how often its trades were filled on an exchange or dark pool. In general, a higher fill rate is better because it means an investor is getting the outcome he or she wants while buying shares.
A below-average fill rate in a broker’s own dark pool would raise questions about the firm’s service to its clients…
In addition:
The disclosures also aim to shine a light on some of the biggest conflicts of interest in the brokerage business by requiring more disclosure of the rebates brokers receive for sending orders to stock exchanges that use the pricing system known as “maker taker.”
Rebates have the potential to skew a broker’s decision about where to send an order, and investors who spot above-average rebate income for a particular broker may elect to shift their orders to another firm.
Public comments about the proposal will have to be collected first before the SEC votes on it a second time and prepares it for enforcement.
