RULE 605 AND RULE 606 EXECUTION QUALITY
Rule 606 requires all broker-dealers that route orders in equity and option securities to make available quarterly reports that present a general overview of their routing practices. The reports must identify the significant venues to which customer orders were routed for execution during the applicable quarter and disclose the material aspects of the broker-dealer's relationship with such venues. In addition, the Rule requires broker-dealers to provide customers on request, a written copy of the report of the venues to which the customer's individual orders were routed.
For purposes of the Rule, the term "customer order" is defined as any order that is not for the account of a broker-dealer. The definition of "customer order" excludes any order for a quantity of a security having a market value of at least $200,000 for equity orders and $50,000 for options orders. The term "covered securities" includes exchange-listed equities and NASDAQ National Market securities as well as NASDAQ Small-Cap equities and listed options. Large orders are excluded in recognition of the fact that a general overview of order routing practices is more useful for smaller orders that tend to be homogeneous.
Rule 606 applies to all types of orders (e.g., pre-opening orders and short sale orders), but broker-dealers must give an overview of their routing practices only for non-directed orders. The Rule excludes directed orders which are defined as orders that the customer specifically instructs the broker-dealer to route to a particular venue for execution.
The Securities and Exchange Commission has interpreted the Rule to allow a single firm to prepare two or more reports that correspond to functional differences in the firm's order routing practices, if the separate reports will provide a clearer picture of the firm's practices and the basis for the separate reports is fully disclosed to customers and the public.
On June 30, 2012, Knight Capital Americas, L.P. ("KCA LP") and Knight Execution & Clearing Services LLC ("KECS") merged to form Knight Capital Americas LLC ("KCA"). As part of the merger, the institutional sales business of KCA LP and the Knight Direct business of KECS were merged into one firm. Although these businesses are now operated within one legal entity, KCA has decided to prepare separate reports for these businesses as KCA believes that separate reports will provide you with a clearer picture of our routing practices within each business.
Generally, if you route your order to an Institutional Sales Trader, the report labeled Institutional Sales will give you an overview of the Firm's routing practices as it pertains to your order. Similarly, if you route your order to KCA's Knight Direct Algorithms, the Report labeled Knight Direct will give you an overview of the Firm's routing practices as it pertains to your order.
Format of Quarterly Reports and Procedures for Making Reports Publicly Available:
Disclosures and Material Relationships:
Knight Capital Holdings LLC ("KCH") is the parent company of KCA. KCH has a direct ownership interest in Direct Edge Holdings LLC, the parent company of EDGX Exchange, Inc. ("EDGX") and EDGA Exchange, Inc. ("EDGA")
KCA operates an alternative trading system, Knight Match, and is a market maker in OTC securities and securities listed on the following exchanges/venues: New York Stock Exchange ("NYSE"), NYSE Amex ("Amex"), NYSE Arca ("Arca"), NASDAQ OMX ("NASDAQ"), NASDAQ OMX PHLX ("PHLX"), BATS Exchange ("BATS"), Chicago Board Options Exchange ("CBOE") and International Securities Exchange ("ISE").
KCA routes orders to market centers, including national securities exchanges, alternative trading systems, electronic communications networks, and broker-dealers that may offer credits for orders that provide liquidity to (remove liquidity from) their books and assess fees for orders that take liquidity from (add liquidity to) their books. In some cases, the credits offered by a market center may exceed the charges assessed, such that a market center may make a payment to KCA in relation to orders directed to such market center.
"Other Orders" include market opening and closing orders, orders submitted with stop prices, all-or-none orders and Not Held orders. Algorithmic and Smart Order Routing orders are considered Not Held.
Additional information about the Rule 606 reports:
Disclaimer for SEC Rule 606