The Disclosure Model
Regulatory disclosure requirements rest on the premise that informed investors can protect themselves by evaluating disclosed information and making choices accordingly. Under Rule 606, investors can theoretically learn that their broker receives PFOF, determine which market makers receive their orders, and switch brokers if they find the arrangement unsatisfactory.
The Reality of Disclosure Effectiveness
Research on behavioral economics and regulatory disclosure consistently finds that disclosure requirements are less effective in practice than regulators hope. Studies of financial disclosures find that many investors do not read them, those who do read them frequently don't understand them, and even those who understand them often fail to act on the information. These findings apply directly to Rule 606 disclosures.
The Complexity Problem
Rule 606 reports are complex documents that require financial literacy to interpret. They disclose PFOF amounts, routing destinations, and execution quality metrics — but synthesizing this information into an actionable judgment about whether a broker's routing serves investors' best interests requires skills that most retail investors lack. 'Informed consent' through complex disclosure does not meet the standard of meaningful investor protection.
Toward More Effective Approaches
Effective investor protection requires approaches that work regardless of investor sophistication: rules that protect all investors without requiring each investor to individually opt in. This is the logic behind structural reforms — prohibiting PFOF or requiring order competition — rather than disclosure enhancements. Whether the U.S. will adopt such structural approaches remains the central policy question in market structure reform.