October 12, 1993
TO: SEC RULES COMMITTEE NO. 90-93
MARKET 2000 TASK FORCE
RE: SEC PROPOSES RULE ON PAYMENT FOR ORDER FLOW
__________________________________________________________
The Securities and Exchange Commission recently proposed amendments to Rule
10b-10 and proposed Rule 11Ac1-3 under the Securities Exchange Act to require
broker-dealers to disclose (1) on confirmations, whether payment for order flow
was received and, if so, the amount of the payment and (2) on annual account
statements, the firm’s policies regarding receipt of payment for order flow and
information regarding the aggregate amount of payments received by the firm over
the past year. "Payment for order flow" generally would be defined to include
all arrangements compensating brokers for directing order flow.
The proposing release also announced that the Commission has directed the
staff to report within 45 days on the advisability of requiring investment
advisers to make more extensive disclosure of their soft dollar arrangements.
According to footnote 9 of the release:
[t]he practice of paying for order flow in the retail
equity markets [and] the use of soft dollars in the
institutional
markets . . . involve agents obtaining benefits from broker-dealers
as a result of customers’ securities transactions; yet there are
major differences between these practices. Payment for order flow
and the use of soft dollars involve different market participants,
have different competitive and market structure concerns, and have
different legal frameworks. The Commission believes, however, that
disclosure is an important means of addressing concerns arising from
soft dollar practices as well as payment for order flow.
The release requests comment on all the issues raised regarding the
proposed disclosure requirements, as well as alternative approaches, such as
requiring that payment for order flow be passed through to customers, adopting
a decimal-based system for pricing and reporting, or banning the practice
outright. A copy of the release is attached.
The comment period ends on December 3, 1993. In order to assist us in
determining whether to submit a comment letter, we would appreciate any comments
you might have by November 1, 1993. My direct number is 202/955-6251.
Thomas M. Selman
Assistant Counsel
Attachment