Welcome to the latest episode of At the Forefront: Fintech Conversations!
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In this episode, Forefront VP and Head of Content Sam Belden sits down with Steve Bonanno, CEO of leading compliance reporting and analytics solutions provider BXS, to discuss Rule 605 reform. With the effective date only 18 months away, Steve and Sam talk through the various new reporting requirements, how BXS is helping its clients prepare and what these reforms will mean for the wider regulatory landscape.
Rule 605 reform has been a hot topic since December 2022, when the SEC first proposed it as part of a larger group of equity market structure proposals. The updated rule was officially adopted earlier this year and will require affected firms to increase the level of detail in their monthly data reports on the quality of their trade executions. Steve highlights six mistakes that some firms are already making when it comes to their new compliance mandates:
- Failing to realize your firm’s activities now make you subject to Rule 605 (even if you’ve never had to worry about it before, the reforms encompass new order types)
- Assuming you do not need to take any steps if you are not directly affected today (you may need to prove you are exempt, or may qualify in the future)
- Delaying your firm’s timeline for compliance (waiting until the last minute is a recipe for chaos)
- Under-resourcing the project
- Failing to account for the business implications of the new reporting metrics (new data on your execution quality will become publicly available)
- Not evaluating your business partners (trusted vendors and advisors can help you navigate your new requirements)
Steve goes on to discuss the work BXS is doing to help its clients prepare for the expanded Rule 605. With the firm’s founders having been involved with Rule 605 reporting since its inception nearly 25 years ago, BXS has long anticipated these reforms. Technical specifications are still forthcoming, so the industry does not yet have perfect clarity on how the data will need to be represented. For now, BXS is focused on making sure its systems are prepared to deal with the changes and that its clients are broadly aware of the new requirements. Steve and his team are conducting calls with existing Rule 605 participants to ensure they have a solid understanding of what they need to plan for and prepare. Steve also encourages market participants to read the summary reports and comment letters that have been disseminated to date, citing Better Markets’ letter as a useful example.
Steve also touches on some of the pitfalls of being underprepared for a complicated and multifaceted reform like Rule 605, citing the Consolidated Audit Trail (CAT) as an example of a new requirement that many firms underestimated in terms of complexity. He stresses that it’s not just about initial compliance, but also the day-to-day activities required to maintain compliance over the long haul, from staffing to technology and beyond.
Lastly, Sam and Steve discuss how Rule 605 reform may impact the SEC’s other equity market structure proposals. Steve states that this reform is a logical first step, as the enhanced execution data will guide how priorities like Regulation Best Execution and tick size reform are implemented.
If you’d like to learn more about the work Steve and his team are doing to prepare clients for Rule 605 compliance and beyond, visit the BXS website here.
See below for a breakdown of what was discussed. Happy listening!
Timestamps:
2:08 – Mistakes firms are already making when it comes to Rule 605 reform
6:45 – The steps BXS is taking to help clients with Rule 605 compliance
9:12 – The pitfalls of being underprepared for complex regulations like Rule 605
11: 25 – How Rule 605 reform might impact other SEC priorities
