Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), as a leading provider of institutional brokerage services, is committed to keeping its clients informed of the quality of execution it provides. MLPF&S believes its execution services are competitive with those of any other broker/dealer and would like to share this information with clients. This commitment is consistent with the goals of SEC Rule 605 ("Rule 605"), which requires broker/dealers, such as MLPF&S, and other "market centers" to disclose and report to the investing public certain statistical information concerning their executions. (Every exchange or OTC market maker, alternative trading system, or national securities exchange, is considered a "market center".) The factors disclosed in these "Rule 605 Reports" include execution price, speed of execution, and price improvement statistics.
MLPF&S reports on its covered orders and associated executions in listed securities traded over–the–counter (note: these executions are distinct from the executions of listed securities effected on an exchange). MLPF&S also reports on its covered orders and associated executions in Nasdaq securities.
The Rule 605 statistics for Merrill Lynch, Pierce, Fenner & Smith Incorporated are available for public review by clicking here
SEC Rule 606 ("Rule 606") requires broker–dealers, such as MLPF&S, that route customer orders in equity and option securities, to make publicly available quarterly reports that, among other things, identify the market centers to which customer orders are routed for execution.
The Rule 606 Report provides information on the routing of "non–directed orders" — any order that the client has not specifically instructed to be routed to a particular venue or market center for execution. For these non–directed orders, MLPF&S has selected the execution venue on behalf of its clients.
The Rule 606 Report is divided into four sections. Section 1 is for securities listed on the New York Stock Exchange; section 2 is for securities traded on Nasdaq; section three is for securities listed on the American Stock Exchange or regional exchanges; and section four is for exchange–listed options.
For each section, this Report reflects information concerning certain market centers to which MLPF&S has routed orders, sets forth the percentage of various types of orders routed to these market centers, and discusses the material aspects of MLPF&S' relationship with these market centers. The SEC noted in the Adopting Release of Rule 606 that "the quarterly reports on order routing are intended to provide a general overview of a broker–dealer's practices that is accessible and useful to individual investors." To this end, MLPF&S is required by Rule 606 to disclose information concerning orders routed to the ten market centers to which MLPF&S routed the most orders as well as information concerning orders to which MLPF&S routed at least five per cent or more of its orders. Lastly, Rule 606 requires MLPF&S to disclose to its clients, upon request, the market centers to which their individual orders were routed.
Order routing information for all of Merrill Lynch, Pierce, Fenner & Smith's Business Units as well as other Market Makers' Rule 606 data is available at the following link: http://www.marketsystems.com
The following is a general description of the information provided in MLPF&S' Rule 606 report as it pertains to listed–options.
- Summary Statistics: On a percentage basis, the breakdown by order type of non–directed listed option customer orders.
- Exchanges: By exchange, a percentage breakdown of non–directed order flow.
- Types of Orders: By exchange, a percentage breakdown of non–directed order flow for each type of listed option order.
- Material aspects of relationship with venue: By exchange, a description of any material aspects of the relationship between MLPF&S and the option exchanges.
More details regarding Rule 605, Rule 606 and the SEC interpretation related to these new rules can be obtained directly from the SEC and FINRA. Should you have any questions regarding Rule 605, Rule 606 or MLPF&S' best execution practices and procedures, please contact your sales representative or our Compliance Department at:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
Bryant Park Tower, 3rd Floor
New York, NY 10036
Attn: Equity Compliance Dept