Execution Quality Disclosure (SEC Rule 605)
The Formal Definition
A mandatory public monthly disclosure required by the SEC from market centers and broker-dealers detailing quantitative execution quality metrics, including effective spreads, price improvement percentages, and execution speed across standardized share categories.
Rule 605 Quality Benchmark: Price Improvement Percentage = (Total Orders Executed Inside NBBO / Total Covered Orders) × 100
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Rule 605 reports are where brokers have to show their work. A broker can market 'lightning-fast execution and incredible price improvement' on TV, but their SEC Rule 605 filing tells the real truth. It reveals down to the microsecond how fast their orders actually fill and whether they really beat the national best bid and offer or just execute at the full retail spread."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: Auditing monthly execution quality reports across 1,000,000 retail equity orders
| Execution Metric | Audited Institutional Lit Router (Rule 605 Leader) | Internalizer-Dependent PFOF Broker |
|---|---|---|
| Fee / Rate | $0.005 per share | $0.00 'free' |
| Spread / Buffer | Rule 605 filing proves 82% of eligible orders received real price improvement | Rule 605 filing reveals only 24% of orders received price improvement |
| Execution / Status | Average execution speed: 18 milliseconds; effective spread beat quoted spread by 40% | Average execution speed: 140 milliseconds; effective-to-quoted spread ratio was 0.98 |
| Total Cost / Result | Documented execution quality verified by federal disclosure | Proves marketing claims of price improvement were largely promotional |
How Brokers Weaponize This Term
Retail brokerages obscure their Rule 605 filings in deep, unlinked website directories using raw pipe-delimited text files that cannot be parsed without custom database scripts.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Publishes third-party audited execution quality scorecards (IHS Markit) directly comparing its Rule 605 effective spreads against industry averages.
Read Audit →Cole Flags / Avoids
PFOF Mobile Desks: Hides raw Rule 605 files behind legal footers, masking low price improvement percentages on retail equity orders.
View Trap Details →Frequently Asked Questions
What is the difference between SEC Rule 605 and SEC Rule 606?
Rule 605 measures execution quality (how good your fills are); Rule 606 measures order routing (where your broker sends your orders and the PFOF payments received).
What updates did the SEC introduce to Rule 605 recently?
The SEC expanded Rule 605 to include larger broker-dealers directly (not just market centers), added fractional share orders, and mandated summary execution quality overview sheets for everyday retail investors.