Rule 606 (Order Routing)
SEC Rule 606 requires broker-dealers to publicly disclose their order routing practices on a quarterly basis — and, for larger orders, upon customer request — so that retail and institutional investors can evaluate whether their orders are being routed to execution venues that provide genuine best execution rather than venues that pay the broker for order flow.
The economics of U.S. equity market structure create structural conflicts of interest in order routing. Broker-dealers can receive payments from execution venues — in the form of payment for order flow (PFOF) from market makers, or rebates from exchanges operating maker-taker fee models — in exchange for directing customer orders to those venues. Without disclosure, customers have no practical way to evaluate whether their orders are being routed for their benefit or for the broker's economic interest.
Rule 606, originally adopted in 2000 and substantially amended in 2018, establishes a tiered disclosure framework. Broker-dealers must publish quarterly reports — available on their websites and filed with FINRA — that disclose, on a per-venue basis, the aggregate share of orders routed to each market center, the nature of any material relationships (including PFOF arrangements) with those venues, and summary statistics on execution quality including fill rates and average execution speed.
The 2018 amendments created a second, more detailed disclosure tier for institutional customers. Broker-dealers handling institutional orders (defined as orders for more than 100 shares with a notional value of at least $200,000) must, upon request, provide customer-specific order routing reports covering the prior six months. These reports identify, for each routing decision, the venue selected, any payment relationship, and execution statistics. The intent is to give institutional investors the granular data needed to conduct meaningful best execution reviews of their broker-dealers.
Rule 606 disclosures are an important input for institutional best execution programs. Asset managers subject to fiduciary obligations must periodically review broker-dealer routing practices and assess whether order routing decisions are consistent with achieving best execution. Quarterly 606 reports allow compliance teams to identify patterns — such as consistent routing to PFOF recipients for retail flow or heavy reliance on a single dark pool — that warrant follow-up due diligence.
For retail investors, 606 disclosures have become a focal point in the broader debate over payment for order flow, particularly following the 2021 meme stock trading restrictions. Critics argue that even with disclosure, the complexity of routing data makes meaningful evaluation impractical for most retail customers. Proponents of PFOF argue that competition among market makers for retail order flow produces tight spreads that benefit retail investors regardless of the routing economics.
The SEC has proposed additional reforms to Rule 606 and the broader order routing framework, including best execution rules and order competition proposals, that would further reshape how retail orders interact with market makers and exchanges.