Loading…
When you place a trade through an online broker, the speed and price at which that order gets filled directly affects your returns. But how do you know if your broker is giving you fair execution? The answer is publicly available—and required by the U.S. Securities and Exchange Commission.
Market centers that trade national market system securities must publicly disclose uniform statistical measures of order execution quality on a monthly basis, including how market orders of various sizes are executed relative to public quotes and information about spreads paid by investors. This regulatory requirement has been in place for decades, but many retail investors have never heard of it.
Rule 605 requires market centers to make available standardized, monthly reports containing statistical information about covered order executions and is intended to promote visibility and competition in order execution quality. These reports focus on critical metrics:
In 2024, the SEC expanded the scope of entities subject to Rule 605, modified the categorization and content of order information required to be reported, and required reporting entities to produce a summary report of execution quality. The amendments expand Rule 605 reporting to include broker-dealers with a larger number of customer accounts and single dealer platforms.
This matters because until 2024, only market centers had to publish Rule 605 data—not the brokers themselves. Although Rule 606 required broker-dealers to provide information regarding customer orders they route, those reports did not include comprehensive information about execution quality. The updated Rule 605 now requires broker-dealers that introduce or carry more than 100,000 customer accounts to provide execution quality disclosures.
Zero-commission trading is now standard, but that doesn't mean trading is free. Payment for order flow (PFOF) is fee income received by brokerage firms in the form of rebates for routing buy or sell orders from retail stock investors to a wholesaler or market maker. PFOF raises issues related to potential conflicts of interest, retail investor financial inclusion, market competition, and market transparency.
Rule 605 and Rule 606 reports together give you visibility into whether your broker is receiving PFOF payments and how those routing decisions might affect your execution quality. Improved transparency should increase the degree to which broker-dealers compete on the basis of execution quality when making their order routing decisions, such as by adjusting their routing practices to increase the extent to which they route orders to market centers offering better execution quality.
Most online brokers publish their Rule 605 and Rule 606 reports on their website, typically in a compliance or legal disclosures section. The files are updated every month on or around the 25th of each month, reflecting execution quality for trades reported for the previous calendar month end.
When comparing brokers, look for:
1. Effective spreads on the order types you actually trade (if you trade options, check those reports specifically—PFOF dynamics differ). 2. Price improvement rates—how often you got better-than-quoted pricing. 3. Fill rates—were your orders actually executed, or did you experience rejections or cancellations? 4. Routing transparency in Rule 606—does your broker route to a diverse set of venues, or concentrate flow with a few market makers?
The amendments also modified the time-to-execution categories to require average time to execution to be measured in increments of a millisecond or finer and to be calculated for all orders. This finer granularity lets you evaluate execution speed more precisely.
Rule 605 and Rule 606 reports are not glamorous reading, but they are among the most concrete, standardized data available about what you actually pay per trade. Since the 2024 amendments expanded reporting requirements, more brokers are now required to publish these metrics. Taking time to review them—especially if you trade frequently—can reveal whether your current broker's execution quality is competitive or whether you're leaking money to wider spreads or slow fills.
Analysis, not investment advice.
