SEC to Hear Proposals on Order Practices

The Securities and Exchange Commission said Tuesday it will consider several proposed rules on Nov. 15 that would require greater disclosure of stock order-execution and order-routing practices.

The SEC will weigh the measures at the same open meeting at which the commission will take up controversial rule proposals on auditor independence.

“It will be a busy day,” said SEC spokeswoman Joanne Bamberger. “But they’re all very important investor protection issues that the staff has been studying for some time.”

The order-routing proposal, as outlined by the SEC last July, has several parts. The first would require brokerages to disclose how often they fill customer stock orders from their own inventory or sell orders to other firms for execution.

A second would require stock exchange specialists, over-the-counter market makers and electronic trading networks to disclose statistical measures of their trade “execution quality” on a stock-by-stock basis.

A third would require dealers on any options exchange that remains unlinked to its counterparts to disclose when they execute an order at a price other than the best available price.

“I firmly believe these initiatives represent a thoughtful and flexible approach that reinforces the commission’s bedrock principles of fair and orderly markets and investor protection,” SEC Chairman Arthur Levitt said when the commission proposed the rules in July.

The first proposal would require brokerages to post on the Internet quarterly reports on the percentage of customer orders that they route to different venues for execution. These reports also would disclose whether the brokerages pay firms under what are called “internalization” or “payment-for-order-flow” arrangements.

“Internalization” is a practice in which firms use their own stock to fill customer orders. Payment for order flow occurs when brokers sell customer orders to other firms for execution. Levitt has said both practices can prevent investors from getting the best possible prices when they buy or sell.