The Trade-Through Rule and Locked and Crossed Markets Provisions of Regulation NMS

Federal RegisterJun 17, 2026

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 242

[Release No. 34-105655; File No. S7-2026-20]

RIN 3235-AN50

The Trade-Through Rule and Locked and Crossed Markets Provisions of Regulation NMS

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule.

SUMMARY:

The Securities and Exchange Commission (“Commission” or “SEC”) is proposing amendments to Regulation NMS (“Regulation NMS”) under the Securities Exchange Act of 1934 (“Exchange Act”). The proposed amendments would rescind the trade-through rule for NMS stocks, the provision regarding locking and crossing quotations for NMS stocks, and certain defined terms. The proposed amendments would also make conforming changes to other related provisions.

DATES:

Comments should be received on or before August 17, 2026.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (

https://www.sec.gov/comments/s7-2026-20/amendments-regulation-nms

); or

• Send an email to

rule-comments@sec.gov.

Please include File Number S7-2026-20 on the subject line.

Paper Comments

• Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-2026-20. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's website (

https://www.sec.gov/rules-regulations/public-comments/s7-2026-20

). Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection.

Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any materials will be made available on our website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov

to receive notifications by email.

A summary of the proposal of not more than 100 words is posted on the Commission's website (

https://www.sec.gov/rules-regulations/2026/06/s7-2026-20

FOR FURTHER INFORMATION CONTACT:

Theodore S. Venuti, Assistant Director; Kevin Brennan, Special Counsel; Sarah Counts, Special Counsel; Jennifer Dodd, Special Counsel; David Liu, Special Counsel; Gita Subramaniam, Special Counsel, at (202) 551-5500, Office of Market Supervision, Division of Trading and Markets, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is proposing amendments for public comment to the following rules.

Commission reference

CFR citation

(17 CFR)

Exchange Act:

Rule 15c3-5

§ 240.15c3-5

Rule 15b9-1

§ 240.15b9-1

Regulation NMS:

Rule 600

§ 242.600

Rule 610

§ 242.610

Rule 611

§ 242.611

Table of Contents

I. Introduction

A. Overview of Proposal

B. Background

II. Rule 611

A. Description of Rule 611

1. Intermarket Price Protection

2. Exceptions Under Rule 611(b)

B. Proposed Rescission of Rule 611

1. Allowing Market Forces To Shape Equity Market Structure

2. Addressing the Adverse Consequences of Rule 611

3. Rule 611 Is Unnecessary

C. Request for Comment

III. Rule 610(e)

A. Description of Rule 610(e)

B. Proposed Rescission of Rule 610(e)

1. Evolution of Market Structure and Investor Sophistication

2. Potential for Improved Price Discovery and Competition

3. Reduction in Complexity and Compliance Costs

4. Crossed Markets

C. Request for Comment

IV. Conforming Amendments to Regulation NMS Definitions and Related Rules

A. Description

B. Proposed Rescissions and Amendments to Related Rules

1. Proposed Rescission of Related Defined Terms in Rule 600(b) of Regulation NMS

2. Proposed Conforming Amendments to Other Rules in Regulation NMS

3. Proposed Conforming Amendments to Rules Outside of Regulation NMS

C. Request for Comment

V. Paperwork Reduction Act

A. Rescission of Rule 611

B. Request for Comment

VI. Economic Analysis

A. Introduction

B. Economic Baseline

1. Regulatory Baseline

2. Economic Effects of Current Rule 611

3. Economic Effects of Current Rule 610(e)

4. Current Exchange Competition, Revenue, Market Data, and Connectivity Services

5. Competition in the Market for Trading Services and Broker Execution Services

C. Benefits and Costs

1. Rescinding Rule 611

2. Rescinding Rule 610(e)

3. Combined Economic Effects

4. Monetized Benefits and Costs

D. Effect on Efficiency, Competition, and Capital Formation

1. Efficiency

2. Competition

3. Capital Formation

E. Reasonable Alternatives

1. Venue Trading Volume Threshold for Protected Quotes

2. Large Trade Exception From Rule 611

3. Only Rescind Locked Market Prohibition, Keep Prohibition on Crossed Markets.

F. Request for Comment

VII. Regulatory Flexibility Act Certification

VIII. Congressional Review Act

IX. Other Matters

Statutory Authority

I. Introduction

A. Overview of Proposal

Rule 611 of Regulation NMS was adopted in 2005 and established intermarket protection against trade-throughs for all national market system stocks. A trade-through occurs when one trading center executes an order at a price that is inferior to the price of a protected quotation displayed by another trading center. Rule 610(e) was also adopted in 2005 under Regulation NMS and contains restrictions on locking and crossing quotations in national market system stocks. A locked market occurs when the best bid price equals the best offer price, and a crossed market occurs when the best bid price is higher than the best offer price.

Since the adoption of these rules, the structure of the U.S. equity markets has evolved dramatically, and today's markets are highly automated, interconnected, fast, and competitive. While a goal of Rule 611 was to incentivize displayed liquidity, since its adoption the percentage of orders interacting with non-displayed liquidity on- and off-exchange has consistently increased. In addition, since the adoption of Rules 611 and 610(e), U.S. equity markets have become increasingly fragmented and complex.

The Commission is proposing to rescind Rules 611 and 610(e) under Regulation NMS. Rules 611 and 610(e) have led to a myriad of consequences in today's trading environment, including increased costs and market structure complexity, limiting order handling and execution choice, and contributing to exchange proliferation and fragmentation of trading on equity exchanges. Moreover, technologies, particularly with respect to access and order handling and routing, have advanced significantly and obviate any continued need for Rule 611, which was adopted at a time when exchanges and market participants were not as well connected and many linkages that did exist were relatively slow. Also, given this highly automated and interconnected nature of our equity markets today, Rule 611 is not needed to backstop a broker's duty of best execution to seek the most favorable terms for customer orders reasonably available under the circumstances. Similarly, such increases in automation and interconnectivity, as well as increases in market participant access to market data, obviate the need for Rule 610(e). Rescinding Rules 611 and 610(e) would reduce compliance costs and benefit U.S. equity markets by eliminating regulations to allow competition, innovation, and other market forces to shape the U.S. equity market's continued evolution.

B. Background

Congress, through section 11A of the Exchange Act (“section 11A”),

charged the Commission in 1975 with facilitating the establishment of a national market system, and identified five key components for such a system to function properly: (1) economically efficient execution of securities transactions; (2) fair competition among broker-dealers, among exchange markets, and between exchange markets and non-exchange markets; (3) price transparency; (4) best execution of investor orders; and (5) an opportunity, consistent with economic efficiency and best execution, for investor orders to meet without the participation of a dealer.

Following the adoption of section 11A, over the next three decades the Commission sought to facilitate the development of the national market system for NMS securities

by adopting rules, and working with various self-regulatory organizations (“SROs”) to adopt rules and establish national market system plans (“NMS Plans”), relating to, among other things, linkages between markets; the collection, consolidation, and dissemination of quotation and transaction information; the display of quotations; and intermarket price protection.

15 U.S.C. 78k-1.

Exchange Act section 11A(a)(1)(C)(i) through (v); 15 U.S.C. 78k-1(a)(1)(C)(i) through (v).

Rule 600(b)(64) of Regulation NMS defines “NMS security” to include “any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.”

See

17 CFR 242.600(b)(64). In other words, NMS securities include NMS stocks and listed options.

See

Securities Exchange Act Release No. 49325 (Feb. 26, 2004), 69 FR 11126 (Mar. 9, 2004) (“NMS Proposing Release”) at 11130-31.

See also infra

note 13.

The years leading up to 2005 were a time of considerable transformation for the secondary markets for U.S. listed equities. In particular, “the equity markets [had] experienced sweeping changes, ranging from new technologies to new types of markets to the initiation of trading in penny increments”

and a majority of the Commission at that time believed there was an “inescapable” and “pressing” need to modernize the national market system.

Significant increases in the usage of electronic trading systems resulted in more transparent order handling and routing practices; at the same time, intensifying competition drove commissions lower and penny pricing reshaped the mechanics of trading.

After the “culmination of a long and comprehensive rulemaking process,”

and while acknowledging the wide range of different opinions on many contentious issues,

the Commission adopted Regulation NMS in 2005, which it described as “a series of initiatives designed to modernize and strengthen the national market system” for NMS securities.

See

Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (“NMS Adopting Release”) at 37497.

Id.

at 37497.

But see

Dissent of Commissioners Cynthia A. Glassman and Paul S. Atkins to the Adoption of Regulation NMS,

id.

at 37639-43 (“Joint NMS Dissent”).

See

Remarks at the Roundtable on Trade-Through Prohibitions by Paul S. Atkins, Chairman, Commission (Sept. 18, 2025), available at

https://www.sec.gov/newsroom/speeches-statements/atkins-091825-remarks-roundtable-trade-through-prohibitions

(“Chairman Remarks at First TTR Roundtable”).

NMS Adopting Release at 37498;

See also infra

note 90 and accompanying text (discussing the ADF, which currently has no active quoting participants).

Accordingly, Rule 611 provides for intermarket price priority of an exchange's or the ADF's best bid and offer (“BBO”);

it does not establish time priority among quotations at different trading centers, nor does it protect “depth-of-book” quotations (quotations with prices outside an exchange's BBO). Rule 611 also provides certain exceptions to its requirements, including an “intermarket sweep order” (“ISO”)

exception that allows, among other things, a trader simultaneously to sweep multiple price levels outside of a protected quotation, as long as one or more ISOs, as necessary, are routed at the same time to execute against the full displayed size of any protected quotations with better prices.

17 CFR 242.600(b)(15) (definition of “best bid and best offer”);

See also supra

note 15 (discussing amendments to Regulation NMS following its 2005 adoption). Even preceding the adoption of Regulation NMS, the Commission and its staff have undertaken periodic reevaluations of market structure.

See, e.g.,

Concept Release on Market Fragmentation, 65 FR 10577 (Feb. 28, 2000);

Market 2000: An Examination of Current Equity Market Developments,

Division of Market Regulation, Commission (Jan. 1994) (“Market 2000 Study”).

The first

Roundtable on Trade-Through Prohibitions

(“First TTR Roundtable”) was held at the Commission's Washington DC headquarters on September 18, 2025. A transcript and webcast of the First TTR Roundtable can be found at:

https://www.sec.gov/newsroom/meetings-events/roundtable-trade-through-prohibitions

(“First TTR Roundtable Transcript”). Data analysis supporting this roundtable can be found at:

https://www.sec.gov/files/trade-through-roundtable-supporting-data.pdf.

The second

Roundtable on Rule 611

(“Second TTR Roundtable” and, together with the First TTR Roundtable, the “TTR Roundtables”) was held in Austin, TX on December 16, 2025. A transcript and webcast of the Second TTR Roundtable can be found at:

https://www.sec.gov/newsroom/meetings-events/roundtable-rule-611-regulation-nms

(“Second TTR Roundtable Transcript”). A broad overview from the roundtables is summarized below.

See https://www.sec.gov/comments/4-862/4-862.htm.

The term “commenters” throughout this document refers to both the panelists at the TTR Roundtables and those who submitted written comments.

See, e.g.,

letter from Allen Spence (Aug. 13, 2025) at 1-2; letter from R. T. Leuchtkafer (Aug. 25, 2025) (“Leuchtkafer Letter”) at 4; letter from Haoxiang Zhu, Associate Professor of Finance, MIT Sloan School of Management (Dec. 15, 2025) (“Zhu Letter”) at 1; First TTR Roundtable Transcript at 36 (Julie Andress, Securities Traders Association and KeyBanc Capital Markets). Some of these commenters also expressed support for maintaining other aspects of Regulation NMS, such as Rule 610(e)'s prohibition on locked and crossed markets.

See, e.g.,

Leuchtkafer Letter at 5-6; letter from Christopher Nagy, Research Director, Healthy Markets Association (Dec. 12, 2025) (“Healthy Markets Letter II”) at 2 n.7.

See, e.g.,

letter from James J. Angel, Associate Professor, Georgetown University, McDonough School of Business (Sept. 1, 2025) (“J. Angel Letter”) at 1, 16; letter from Matt Billings, President, Robinhood Financial, LLC and Robinhood Securities, LLC (Sept. 16, 2025 (“Robinhood Letter”) at 2-5; letter from Raz Tirosh and Calvin Hayes, Jane Street (Sept. 23, 2025) (“Jane Street Letter”) at 2 (stating the continuation of Rule 611 “imposes negative externalities”); letter from Joseph Saluzzi, Partner, Themis Trading LLC (Dec. 17, 2025) at 3 (calling Rule 611 flawed and offering reforms).

See, e.g.,

letter from Ari Burstein, General Counsel, Imperative Execution, IntelligentCross (Sept. 17, 2025) (“IntelligentCross Letter”) at 3-4; Kelvin To, Founder and President, Data Boiler Technologies,

Can Order Protection be replaced by Competing Market Forces?

(Sept. 8, 2025) (“Data Boiler Comment”) at 1, 4; letter from John A. Zecca, Executive Vice President, Global Chief Legal, Risk & Regulatory Officer, Nasdaq (Sept. 24, 2025) (“Nasdaq Letter I”) at 1-2.

In particular, some commenters questioned whether the trade-through rule is at least partly to blame for the substantial increase in the number of exchanges and excessive fragmentation of liquidity among trading venues.

Some commenters contended that, by requiring market participants to consider the protected quotations of all exchanges and to route orders to execute against those quotations in certain contexts, Rule 611 enables more exchanges to stay in business than may have otherwise been the case.

Similarly, some commenters argued that the proliferation of exchanges increases costs and complexity for market participants by, for example, requiring them to connect to each exchange, directly or indirectly, and to pay for and monitor market data from each exchange, regardless of such venue's utility.

See, e.g.,

Robinhood Letter at 3-5; letter from William O'Brien, Former CEO, Direct Edge (Sept. 16, 2025) (“O'Brien Letter”) at 5; First TTR Roundtable Transcript at 57 (Pankil Patel, Bank of America), at 277 (Daniel Gerhardstein, FIA Principal Traders Group and Jump Trading Group).

See, e.g.,

Jane Street Letter at 2; First TTR Roundtable Transcript at 235 (Mehmet Kinak, T. Rowe Price).

See, e.g.,

Robinhood Letter at 2, 5; First TTR Roundtable Transcript at 68-69 (Pankil Patel, Bank of America).

Some commenters also attributed other market structure concerns to Rule 611. For example, some stated that the trade-through rule has indirectly led to more non-displayed trading by constraining the nature of competition on displayed venues to factors such as speed and fees.

In addition, some commenters stated that Rule 611 has led to unnecessary costs and complexity for market participants

and to the proliferation of complex order types.

Others have stated that the trade-through rule has harmed institutional investors that seek to trade in large size by forcing them to access small-sized quotations that may signal their trading intentions to short-term proprietary traders.

Commenters critical of Rule 611 generally contended that it has not

succeeded in achieving the Commission's stated objective of enhancing the reward for the display of limit orders and has produced negative unintended consequences for market participants.

See, e.g.,

Nasdaq Letter I at 1-2. Non-displayed trading is sometimes referred to as “dark” liquidity and can include off-exchange trading as well as non-displayed (or “hidden”) liquidity on exchanges. Displayed trading is sometimes referred to as “lit” trading.

See, e.g.,

Robinhood Letter at 5; O'Brien Letter at 6.

See, e.g.,

Robinhood Letter at 4; FIA PTG Position Paper—Regulation NMS: A Renewed Call for Reform, FIA PTG Principal Traders Group, Sept. 2025 (“FIA PTG Paper”) at 4; First TTR Roundtable Transcript at 78-80 (Maureen O'Hara, Cornell University, SC Johnson Graduate School of Management), at 169 (Armando Diaz, PureStream).

See, e.g.,

letter from Christopher Nagy, Research Director, Healthy Markets Association (Sept. 16, 2025) (“Healthy Markets Letter I”) at 8.

See, e.g.,

First TTR Roundtable Transcript at 57 (Pankil Patel, Bank of America), 144-45 (Adam Nunes, Hudson River Trading).

Based on these critiques, some commenters recommended rescinding Rule 611 in its entirety.

Other commenters offered alternatives to rescission of Rule 611, including modifications to Rule 611

or modifications to other aspects of Regulation NMS instead.

Several commenters described the interconnectedness of the trade-through rule with best execution obligations

and some commenters recommended, in light of possible changes to Rule 611, consideration of ways to support best execution compliance.

Some commenters suggested that if the Commission rescinds Rule 611, it would need to change other parts of Regulation NMS, including eliminating or modifying the access fee caps set forth in Rule 610(c)

or the prohibition on locked and crossed markets in Rule 610(e).

See, e.g.,

Second TTR Roundtable Transcript at 51-52 (Mehmet Kinak, T. Rowe Price), at 52-53 (Dmitry Bulkin, Bernstein), at 53 (Brett Redfearn, Panorama Financial Markets Advisory); Robinhood Letter at 2; O'Brien Letter at 7.

See, e.g.,

Healthy Markets Letter I at 8-10; Zhu Letter at 1-2; letter from Timothy J. Boyle, Chief Operating Officer, McKay Brothers, LLC (Sept. 5, 2025) (“McKay Letter”).

See, e.g.,

letter from Patrick Sexton, EVP, General Counsel, and Corporate Secretary, Cboe Global Markets, Inc. (Dec. 15, 2025) (“Cboe Letter II”) at 3-6.

See, e.g.,

letter from Adrian Griffiths, Head of Market Structure, MEMX LLC (Sept. 18, 2025) (“MEMX Letter”) at 9-10 n.9; Healthy Markets Letter I at 5; FIA FTG Paper at 2-3; Jane Street Letter at 1-2.

See, e.g.,

Nasdaq Letter I at 3-7; McKay Letter at 2-3; Healthy Markets Letter II at 6-7.

See, e.g.,

letter from Patrick Sexton, EVP, General Counsel, and Corporate Secretary, Cboe Global Markets, Inc. (Sept. 15, 2025) (“Cboe Letter I”) at 4; Nasdaq Letter I at 4; Second TTR Roundtable Transcript at 34-35 (Kevin Tyrell, New York Stock Exchange).

See also

O'Brien Letter at 7 (recommending the Commission rescind Rule 611 and modify Rules 605 (disclosure of order execution information) and 612 (minimum pricing increment)).

See, e.g.,

MEMX Letter at 17-18; FIA PTG Paper at 6; Cboe Letter I at 4-5; First TTR Roundtable Transcript at 129-130 (Jonathan Kellner, MEMX); Second TTR Roundtable Transcript at 55 (Brett Redfearn, Panorama Financial Markets Advisory).

The Commission is cognizant of the complex and interconnected nature of our equity market structure and believes that proceeding with any changes requires taking a holistic view to help ensure that changes result in improvements in, and not a deterioration of, our national market system. Changes to a single rule could have profound effects, both expected and unexpected, on a multitude of other rules and aspects of market structure. Thus, changes to, and modernizations of, the U.S. regulatory structure for our equity markets should be done through a deliberative and calibrated process that is designed to result in improved market efficiency and reduced costs and complexity for investors.

Based on the experience of the Commission and its staff overseeing the equity markets and taking into consideration the input from panelists at the TTR Roundtables and other comments received, the Commission is proposing certain targeted changes to Regulation NMS. Specifically, as described below in greater detail, the Commission proposes to:

• Rescind Rule 611 of Regulation NMS in its entirety;

See infra

section II.

• Rescind Rule 610(e) of Regulation NMS in its entirety;

and

See infra

section III.

• Make conforming revisions to Regulation NMS and other Commission rules to reflect the rescission of Rules 611 and 610(e), including amending the definitional rule of Rule 600 to rescind terms that would no longer be necessary to retain in Regulation NMS given the proposed rescissions of Rules 611 and 610(e).

See infra

section IV. Specifically, the provisions of Regulation NMS that are proposed to be rescinded are Rules 600(b)(6), (7), (47), (54), (81), (82) and (105); the provisions of Regulation NMS that are proposed to be revised are Rules 600(b)(26), (72), and (89), and Rule 610(c); and the other Commission rules that are proposed to be revised are Rules 15c3-5 and 15b9-1 under the Exchange Act.

The Commission understands these proposed changes could impact related aspects of equity market structure. To the extent other changes may be warranted to Commission rules, SRO rules, and NMS Plans

in light of this proposal, the Commission requests market participants to submit comments explaining these market structure impacts and other needed changes.

Such areas for comment may include, but are not limited to: (i) whether, and to what extent, best execution requirements and guidance should be updated if the proposed amendments to Regulation NMS are adopted;

(ii) whether, and to what extent, revisions should be made to market data revenue allocation formulas;

(iii) whether, and to what extent, conforming changes would be required to SRO rules and NMS Plan provisions if the proposed

amendments to Regulation NMS are adopted;

and (iv) whether, and to what extent, the access fee caps under Rule 610(c) under Regulation NMS should be revised.

See

Rule 608 (Filing and amendment of national market system plans), 17 CFR 242.608, which allows two or more SROs, acting jointly, or the Commission itself to propose amendments to effective NMS Plans.

Listed options have their own rules prohibiting trade-throughs and locked and crossed markets, which is set forth in the Options Order Protection and Locked/Crossed Market Plan, a Commission approved NMS Plan.

See infra

note 83. The options markets are materially different than the equities markets in a number of ways. For example, as highlighted by commenters, there is no off-exchange trading in listed options, options are more commonly quote-driven versus order-driven, and there are a great deal more listed options than listed equities.

See, e.g.,

First TTR Roundtable Transcript at 94-98 (Chris Isaacson, Cboe Global Markets, Inc.; Chris Solgan, MIAX Exchange Group). These differences between the equities and options markets necessitate a separate review of the options markets to determine if any structural changes are warranted. To that end, the Commission hosted a roundtable on April 16, 2026, to discuss listed options market structure, including facilitating competition in a quote driven market, evaluating the customer experience, and identifying opportunities and challenges for continued growth.

See https://www.sec.gov/newsroom/press-releases/2026-24-sec-announces-roundtable-options-market-structure-reform.

A broker's duty of best execution derives from common law agency principles and fiduciary obligations, and is incorporated implicitly, through judicial and Commission decisions, in the antifraud provisions of the Federal securities laws. Securities Exchange Act Release No. 37619A, 61 FR 48290, 48322 (Sept. 12, 1996) (“Order Execution Obligations Adopting Release”), citing Market 2000 Study at V-1, 2 and sources cited therein. The Commission has stated that the duty of best execution requires broker-dealers to execute customers' trades at the most favorable terms reasonably available under the circumstances.

Id.

FINRA's best execution rule (FINRA Rule 5310) requires FINRA member firms to “use reasonable diligence to ascertain the best market” for a customer order for a securities transaction and to execute in such market to provide the customer with a price that is “as favorable as possible under prevailing market conditions.” FINRA Rule 5310(a)(1).

The Commission recognizes that the quality of consolidated data, including the national best bid and national best offer (“NBBO”), is critical to the health of our markets. When the Commission adopted Regulation NMS, it also implemented a new market data formula for revenue allocation among the relevant SROs, essentially allocating half of market data revenues to trading and half to quoting.

See

NMS Adopting Release at 37557-70. Some have criticized the formula's quoting component, which they argued has contributed to the creation of new exchanges and subsidizes exchanges that quote but rarely trade, thus providing minimal value to market participants.

See, e.g.,

Jane Street Letter; FIA PTG Paper; McKay Letter. On June 2, 2026, the members of the CT Plan LLC (“CT Plan”) filed Amendment No. 3 to the CT Plan pursuant to Rule 608 of Regulation NMS (proposing certain revisions to the provisions of the plan that govern the allocation of net revenues received under the CT Plan among its members to impose a limit on the ratio of revenue distributed to each individual member that is attributable to its quoting activity compared to revenue such member receives for trading activity under the revenue formula). The CT Plan was approved in November 2024 to become the successor to and replacement for the Nasdaq UTP Plan and the CTA/CQ Plans.

See

Securities Exchange Act Release No. 101672 (Nov. 20, 2024), 89 FR 94924 (Nov. 29, 2024) (“CT Plan Approval Order”). The CT Plan is expected to begin disseminating quote and trade data in the second quarter of 2027.

See

CT Plan FAQs,

available at https://thectplanllc.com/faqs/.

For example, if the proposed amendments to Regulation NMS are adopted, SROs would no longer be required to have rules restricting trade-throughs and locking or crossing quotations. In such a case, the Commission believes, that most, if not all, SROs would seek to amend rules originally designed for compliance with Rules 611 and 610(e). Similarly, if the proposed amendments to Regulation NMS are adopted, key terms such as “protected quote,” “trade-through,” and “intermarket sweep orders” would no longer be defined in Regulation NMS and SRO rulebooks would need to redefine or eliminate such terms. In addition, the text of certain NMS Plans may reference Regulation NMS requirements or defined terms that are being proposed to be rescinded and plan participants may choose to amend such plans. For example, the NMS Plans relating to the collection, consolidation, processing and dissemination of consolidated equity market data by the SIPs, including the CT Plan, the Nasdaq UTP Plan and the CTA/CQ Plan, currently determine “quote credits” based on certain automated quotations that do not lock or cross a previously displayed automated quotation.

See

CT Plan Approval Order; Securities Exchange Release Nos. 104670 (Jan. 22, 2026), 91 FR 3609 (Jan. 27, 2026) (Notice of Filing of the Fifty-Fifth Amendment to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis); and 104665 (Jan. 22, 2026), 91 FR 3602 (Jan. 27, 2026) (Notice of Filing of Fortieth Substantive Amendment to the Second Restatement of the CTA Plan and Thirty-First Substantive Amendment to the Restated CQ Plan). As discussed further below, the Commission is proposing to rescind the defined term “automated quotation” and to eliminate the prohibitions on locking and crossing markets. As a result, plan participants may determine to amend such plans to revise how “quote credits” are determined under the plans.

But see, e.g.,

Second TTR Roundtable Transcript at 56 (Brett Redfearn, Panorama Financial Markets Advisory) (stating that even if the Commission rescinds the prohibition on locked and crossed markets, the SIP revenue allocation formula should not reward participants for actively locking or crossing a market).

See also infra

notes 231-238 and accompanying text (discussing access fee caps and locked and crossed markets).

II. Rule 611

Rule 611 was adopted as the most significant and controversial piece of Regulation NMS.

At the time, the Commission believed that, in adopting Rule 611: (1) investors, particularly retail investors, would be assured that orders would be filled at the best prices, thereby giving them greater confidence that they would be treated fairly when they participated in the equity markets; and (2) the promotion of the best displayed and accessible prices would promote deep and stable markets that minimized investor transaction costs.

Rule 611 was the centerpiece of Regulation NMS and has been likened to the “head of an octopus” because of its ability to impact many different areas of equity market structure.

Rule 611 has recently been analogized to the scaffolding of the national market system, akin to a temporary structure that can now be taken down because it is no longer necessary.

See, e.g.,

NMS Adopting Release at 37498 (“Clearly, the Order Protection Rule was most controversial and attracted the most public comment and attention.”);

See also supra

notes 66-67 and accompanying text (relating to other areas of Regulation NMS commenters believed to be closely connected to Rule 611).

See

First TTR Roundtable Transcript at 123 (Jim Angel, Georgetown University).

See also

J. Angel Letter; Jane Street Letter at 2 (stating that modern automated electronic markets have now evolved beyond the baseline requirements of Rule 611 and that “[w]hile arguably Rule 611 served a historical function, its continuation imposes negative externalities on market participants”).

A. Description of Rule 611

1. Intermarket Price Protection

The core of Rule 611 is paragraph (a)(1), which promotes intermarket price protection of orders by restricting the execution of trades on one venue at prices that are inferior to displayed quotations at another venue. Specifically, it requires a “trading center”

to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center of “protected quotations,”

unless one of the exceptions to the trade-through restrictions set forth in paragraph (b) of the rule applies. A “trade-through” is defined as the purchase or sale of an “NMS stock”

during “regular trading hours”

either as agent or principal, at a price that is lower than a protected bid or higher than a protected offer.

Rule 600(b)(106) defines “trading center” to mean “a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent.” 17 CFR 242.600(b)(106). Trading center is defined broadly to include venues that execute trades in today's equity market structure, including registered exchanges, ATSs, OTC market makers, and any other broker-dealers that execute orders internally, whether as principal or agent.

Rule 600(b)(82) provides that “protected quotation” means “a protected bid or a protected offer.” 17 CFR 242.600(b)(82). Rule 600(b)(81) provides that a “protected bid or protected offer” means “a quotation in an NMS stock that: (i) is displayed by an automated trading center; (ii) is disseminated pursuant to an effective national market system plan; and (iii) is an automated quotation that is the best bid or best offer of a national securities exchange, or the best bid or best offer of a national securities association.” 17 CFR 242.600(b)(81).

An NMS stock generally means any exchange-listed security (other than listed options) for which consolidated market data is disseminated. Rule 600(b)(65) defines an “NMS stock” to mean “any NMS security other than an option.” 17 CFR 242.600(b)(65).

See supra

note 3 (defining NMS security). Listed options have their own trade-through rule, which is set forth in the Options Order Protection and Locked/Crossed Market Plan. That NMS Plan introduced features to the listed options markets analogous to Rule 611 for the equity markets, including requiring its participants to establish, maintain and enforce written policies and procedures that are reasonably designed to prevent trade-throughs, and provided for a number of exceptions to the trade-through requirement (including ISOs). In addition, the plan requires participants to have rules to reasonably avoid displaying locked and crossed markets.

See

Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 39362 (Aug. 6, 2009).

Rule 600(b)(88) defines “regular trading hours” to mean “the time between 9:30 a.m. and 4:00 p.m. Eastern Time, or such other time as is set forth in the procedures established pursuant to 17 CFR 242.605(a)(2).” 17 CFR 242.600(b)(88).

17 CFR 242.600(b)(105) (definition of “trade-through”).

The definition of “protected bid or protected offer”

(collectively, “protected quotations”) includes several key elements. First, they must be “automated quotations”

displayed by

an “automated trading center.”

The definitions of automated trading center and automated quotation generally require that quotations must be immediately and automatically executable, without any programmed delay.

Second, to be protected, a quotation must be disseminated in the consolidated market data feeds. Consequently, Rule 611 does not apply when the consolidated market data feeds are not operating. Third, to be protected, a quotation must be the “best bid” (highest-priced bid) or “best offer” (lowest-priced offer) of an exchange or a national securities association (currently FINRA through its ADF). Currently, 17 exchanges quote and trade NMS stocks but there are no active quoting participants in the ADF,

which means that, practically, Rule 611 only applies to the best round-lot prices on an exchange. Rule 611 does not cover any additional depth-of-book prices (lower prices for bids and higher prices for offers) that are outside the best prices displayed by an automated trading center.

See supra

note 82.

Rule 600(b)(6) defines the term “automated quotation” as “a quotation displayed by a trading center that: (i) permits an incoming order to be marked as immediate-or-cancel; (ii) immediately and automatically executes an order marked as immediate-or-cancel against the displayed quotation up to its full size; (iii) immediately and

automatically cancels any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere; (iv) immediately and automatically transmits a response to the sender of an order marked as immediate-or-cancel indicating the action taken with respect to such order; and (v) immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms.” 17 CFR 242.600(b)(6).

Rule 600(b)(7) defines the term “automated trading center” as “a trading center that: (i) has implemented such systems, procedures, and rules as are necessary to render it capable of displaying quotations that meet the requirements for an automated quotation set forth in [Rule 600(b)(6)]; (ii) identifies all quotations other than automated quotations as manual quotations; (iii) immediately identifies its quotations as manual quotations whenever it has reason to believe that it is not capable of displaying automated quotations; and (iv) has adopted reasonable standards limiting when its quotations change from automated quotations to manual quotations, and vice versa, to specifically defined circumstances that promote fair and efficient access to its automated quotations and are consistent with the maintenance of fair and orderly markets.” 17 CFR 242.600(b)(7).

See

NMS Adopting Release at 37534 (“The term “immediate” precludes any coding of automated systems or other type of intentional device that would delay the action taken with respect to a quotation.”). In 2016, the Commission updated its interpretation of the term “immediate” given technological and market developments since the adoption of Regulation NMS and stated that “immediate” in the context of Regulation NMS does not preclude a

de minimis

intentional delay—

i.e.,

a delay so short as to not frustrate the purposes of Rule 611 by impairing fair and efficient access to an exchange's quotations.

See

Securities Exchange Act Release No. 78102 (June 17, 2016), 81 FR 40785 (June 23, 2016).

See https://www.finra.org/filing-reporting/alternative-display-facililty-adf

(stating “[c]urrently, there are no active quoting ADF participants.”).

Rule 611 restricts trades at prices worse than a protected quotation, though it does not affirmatively require the routing of orders to trading centers that are displaying the best prices. Any trading center is free to execute trades at prices that are equal to or better than a protected quotation, regardless of whether such trading center is currently quoting at that price or is a non-displayed trading center that never displays quotations.

Thus, for example, Rule 611 does not prohibit the execution of trades on non-displayed trading centers (non-displayed ATSs which are sometimes referred to as “dark pools,” off-exchange market makers, and other broker-dealers that execute orders internally) at prices that match displayed prices at displayed trading centers. Moreover, Rule 611 does not mandate transparency or force investors to display their trading interest when they wish not to do so.

Any investor can choose not to display an order, whether on an exchange or a non-displayed trading center, and such orders can be executed as long as they are executed at NBBO prices or better.

Stated another way, Rule 611 does not require orders to be routed to execute against displayed quotations before trades could be executed at matching prices (sometimes referred to as a “trade-at” restriction).

For example, Rule 604 of Regulation NMS provides an exception from display for all block-sized limit orders (unless the customer requests display), as well as an exception for limit orders of any size for which the customer expressly requests non-display. Rule 604 of Regulation NMS (Display of Customer Limit Orders). 17 CFR 242.604.

2. Exceptions under Rule 611(b)

Paragraph (b) of Rule 611 sets forth nine exceptions to the trade-through restrictions of paragraph (a). Two of the most significant of these involve the use of intermarket sweep orders.

ISOs are defined as limit orders that are routed, as necessary, to execute against the full displayed size of all protected quotations with prices that are better than the price of the ISO. Thus, while ISOs are exceptions to Rule 611, they remain consistent with the trade-through rule's objective of promoting intermarket price priority. One ISO exception allows a trading center to execute a trade immediately at any size and price as long as it simultaneously routes ISOs to execute against any better-priced protected quotations.

The other ISO exception allows a trading center to execute an order it receives immediately at any size and price when the order is identified as an ISO.

This exception enables order routers to control the execution of their own orders, while effectively relieving trading centers of the necessity of checking protected quotations at other trading centers. For example, if an order router wishes to immediately access a large-sized quotation with a price inferior to protected quotations at other trading centers, it can route an ISO to execute against the large-sized quotation, while simultaneously routing additional ISOs to execute against all of the better-priced protected quotations.

Rule 600(b)(47) defines an “intermarket sweep order” to mean “a limit order for an NMS stock that meets the following requirements: (i) when routed to a trading center, the limit order is identified as an intermarket sweep order; and (ii) simultaneously with the routing of the limit order identified as an intermarket sweep order, one or more additional limit orders, as necessary, are routed to execute against the full displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of any protected offer, in the case of a limit order to buy, for the NMS stock with a price that is superior to the limit price of the limit order identified as an intermarket sweep order. These additional routed orders also must be marked as intermarket sweep orders.” 17 CFR 242.600(b)(47).

Rule 611(b)(6); 17 CFR 242.611(b)(6).

Rule 611(b)(5); 17 CFR 242.611(b)(5).

Another significant exception to Rule 611 is the “one-second window.”

This exception was primarily designed to deal with the practical difficulties that existed when Regulation NMS was adopted of preventing intermarket trade-throughs during a fast-moving market when quotations can change rapidly (sometimes referred to as “flickering quotes”).

This exception provides that if a trade is executed at a price that would not have been a trade-through of protected quotations as they stood at any point within the previous one second (the one-second window), then the trade is excepted from Rule 611.

Rule 611(b)(8); 17 CFR 242.611(b)(8).

In adopting the exception in 2005, the Commission stated that it “generally does not believe that the benefits would justify the costs imposed on trading centers of attempting to implement an intermarket price priority rule at the level of sub-second time increments.” NMS Adopting Release at 37523. The Commission emphasized, however, that the exception is not an exception to the duty of best execution. For example, a broker-dealer that owes a duty of best execution to its customers cannot disregard a quotation for purposes of best execution if experience shows that it is likely to be accessible.

Id.

at n. 213 (“In making a best execution determination, for example, a broker-dealer cannot rely on the Rule's exception for flickering quotations to justify ignoring a recently displayed, better-priced quotation when experience shows that the quotation is likely to be accessible.”).

Other exceptions to Rule 611 include: (1) the “self-help” remedy that allows market participants to disregard the protected quotations of trading centers that are experiencing systems problems;

(2) transactions that are not “regular way contracts”;

(3) single-priced opening, reopening, and closing transactions;

100

(4) trades during a

crossed market when a protected bid is higher than a protected offer;

101

(5) trades executed at benchmark prices rather than current quoted prices (such as volume-weighted average price (“VWAP”) transactions and other types of average price transactions);

102

and (6) transactions in “stopped orders.”

103

The Commission has also issued several exemptions from Rule 611.

104

Rule 611(b)(1); 17 CFR 242.611(b)(1).

Rule 611(b)(2); 17 CFR 242.611(b)(2).

100

Rule 611(b)(3); 17 CFR 242.611(b)(3).

101

Rule 611(b)(4); 17 CFR 242.611(b)(4).

102

Rule 611(b)(7); 17 CFR 242.611(b)(7).

103

Rule 611(b)(9); 17 CFR 242.611(b)(9). In particular, Rule 611(b)(9) provides an exception for the execution by a trading center of an order for which, at the time of receipt of the order, the trading center had guaranteed an execution at no worse than a specified price (a “stopped order”), where: (i) the stopped order was for the account of a customer; (ii) the customer agreed to the specified price on an order-by-order basis; and (iii) the price of the trade-through transaction was, for a stopped buy order, lower than the national best bid in the NMS stock at the time of execution or, for a stopped sell order, higher than the national best offer in the NMS stock at the time of execution.

Id.

104

See

Securities Exchange Act Release No. 54389 (Aug. 31, 2006), 71 FR 52829 (Sept. 7, 2006), as modified by Securities Exchange Act Release No. 57620 (Apr. 4, 2008), 73 FR 19271 (Apr. 9, 2008) (exemptive order for “qualified contingent trades”); Securities Exchange Act Release No. 54678 (Oct. 31, 2006), 71 FR 65018 (Nov. 6, 2006) (exemptive order for certain sub-penny trade-throughs); Securities Exchange Act Release No. 55884 (June 8, 2007), 72 FR 32926 (June 14, 2007) (exemptive order for certain error correction transactions); Securities Exchange Act Release No. 55883 (June 8, 2007), 72 FR 32927 (June 14, 2007) (exemptive order for certain print protection transactions); Securities Exchange Act Release No. 57621 (Apr. 4, 2008), 73 FR 19270 (Apr. 9, 2008) (exemptive order for non-convertible preferred securities).

B. Proposed Rescission of Rule 611

The Commission proposes to rescind Rule 611 in its entirety. The Commission recognizes that our national market system is complex and interconnected, and that any changes could impact other parts of the national market system and result in unintended consequences. It is precisely for these reasons that the Commission has sought the input of market participants in assessing Regulation NMS and Rule 611 in advance of formulating this proposal.

105

See, e.g., supra

notes 47-67 and accompanying text (discussing TTR Roundtables).

The Commission has engaged in a broad assessment of the regulatory environment since the adoption of Rule 611 and the economic effects of Rule 611

106

and has taken into consideration the comments and input received. Based on its assessment, rescinding Rule 611 and its trade-through restrictions may be appropriate and beneficial for the national market system and, in particular, our equity markets. As discussed in more detail below, Rule 611 has contributed to a myriad of consequences that have resulted in costs to market participants. In addition, equity markets have significantly evolved since 2005 such that the trade-through prohibition in Rule 611 may no longer be needed in our current equity markets because of advancements in technologies, particularly with respect to access and order handling and routing.

107

Also, best execution obligations should continue to ensure brokers use reasonable diligence to secure the most favorable terms for customer orders.

108

Moreover, removing the trade-through prohibition of Rule 611 would allow market participants greater freedom in order handling execution and routing decisions, which could promote competition and foster innovation among trading centers and executing brokers.

106

See infra

section VI.

107

See infra

section II.B.3.a.

108

See infra

section II.B.3.b.

In general, our equity markets are well served by allowing competition, innovation, and other market forces, rather than prescriptive requirements on market participants, to shape their continued evolution to the greatest extent possible. If Rule 611 were to be rescinded, U.S. equity markets may benefit from reduced costs associated with the reduction in market structure complexity and fragmentation, and competition, innovation, and other market forces would no longer be constrained by the restrictions of Rule 611.

109

Today's trading environment is highly competitive, interconnected, and automated, which was not the case when the Commission adopted Rule 611. Rule 611 therefore is unnecessary given that the Commission's concern expressed at the time of adoption of Rule 611 regarding the lack of mechanisms to connect markets is no longer relevant. Rule 611 also is not needed as a backstop to best execution given today's highly automated, interconnected and competitive equity markets, where retail investors have widely available access to market data and execution quality information, and a broker's duty to provide best execution would apply regardless.

110

109

See infra

section VI.C.1.

110

See

Order Execution Obligations Adopting Release at 48323-24.

Accordingly, the Commission believes that rescission of Rule 611 would be in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets in that removing Rule 611 may, in furtherance of the goals of section 11A of the Exchange Act,

111

allow for more economically efficient executions of securities transactions, the execution of investor orders in the best market, and remove impediments to competition.

112

111

Exchange Act section 11A(a)(1)(C); 15 U.S.C. 78k-1(a)(1)(C).

112

See id. See also supra

notes 1-2 and accompanying text (discussing section 11A).

1. Allowing Market Forces To Shape Equity Market Structure

The goal of the changes proposed in this rulemaking is to strengthen our national market system and, in furtherance of section 11A of the Exchange Act,

113

to allow for more economically efficient executions of securities transactions, and to remove impediments to competition,

114

in order to help ensure that the U.S. remains the preeminent securities market in the world, where issuers, investors, and other market participants look to entrust their companies, savings, and capital. When the Commission adopted Regulation NMS in 2005, the U.S. equity markets were undergoing significant changes with respect to technology, trading, and competition. At this time of still-emerging and still-evolving technologies, the Commission adopted Regulation NMS, which set forth a uniform trade-through rule, in order to address inefficiencies in the equity market structure that existed at the time. Rule 611 resulted in market participants needing, as a practical matter, to connect, directly or indirectly, to all markets with protected quotations.

115

Moreover, Rule 611 led to market participants focusing particularly on price and speed with respect to executing trades, as described further in sections II.B.2. and II.B.3 below. While this may be beneficial to the execution quality of retail orders, the overall execution quality for large institutional orders may be negatively affected.

116

Moreover, Rule 611's restriction on trading through protected quotations may have had the effect of incentivizing exchanges to adopt a particular trading protocol (

i.e.,

price-time matching), thereby reducing innovation in exchange trading models and limiting competition among exchanges.

117

113

Exchange Act section 11A(a)(1)(C); 15 U.S.C. 78k-1(a)(1)(C).

114

See supra

notes 1-2 (discussing section 11A).

See also

section VI.D.1.a. (discussing the Commission's Economic Analysis regarding the benefits of rescinding Rule 611).

115

See infra

note 121 and accompanying text (discussing the practical need for market participants to connect to all markets).

116

See infra

section VI.B.2.a. (discussing economic effects on large institutional orders).

117

See infra

section VI.B.4.

Markets are now once again undergoing a period of significant technological change.

118

U.S. equity

markets are highly competitive and resilient, and they should, whenever possible, be allowed to develop on their own. The Commission's involvement should be focused on those areas where its regulatory reach can improve their functioning.

119

Thus, core to the Commission's proposal to rescind Rule 611 is that, where appropriate, market forces should shape U.S. equity market structure. By proposing to remove the regulatory restrictions contained in Rule 611, the Commission seeks to simplify the regulation and structure of our equity markets rather than continue to impose requirements and costs that are no longer necessary, and thus empower market participants to compete on merit and innovation—whether through service, price, technology, costs, or a combination thereof. The Commission believes that removing such restrictions could foster innovation in trading protocols and venue design and increase competition among trading centers and executing brokers.

120

118

See, e.g., supra

notes 42-45 and accompanying text (discussing the rapidly changing technology in today's markets).

119

See Horses and Bourses: Remarks at the 12th Annual Conference on Financial Market Regulation,

by Commissioner Hester M. Peirce (May 16, 2025), available at

https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-financial-market-regulation-051625.

120

See infra

section VI.D.1.

2. Addressing the Adverse Consequences of Rule 611

a. Market Structure Complexity

Rule 611 and its numerous exceptions and exemptions have been at the core of the complexity in our equity market structure since the adoption of Regulation NMS in 2005. The prohibition against trade-throughs effectively requires market participants to connect or have routing capability to all exchanges and to monitor quotes and route orders to exchanges that they otherwise might choose not to do business with.

121

This complexity may be particularly impactful for institutional and larger-sized orders where requirements may result in executions across multiple venues with varying fee structures and latencies, potentially leading to worse overall execution quality than alternative approaches.

122

121

Rule 611 does not mandate that trading centers connect to all trading centers with protected quotes, or even that they have routing capabilities to reach such trading centers. Trading centers can operate without any routing capabilities so long as they abide by the trade-through restrictions of Rule 611 (

i.e.,

that, absent an exception under Rule 611(b), they not trade-through protected quotes at away markets); however, the practical effect of the rule for many market participants has been that they have routing capabilities to reach all trading centers with protected quotes, directly or indirectly.

Trade-Through Roundtable Supporting Data,

by Staff of the Office of Analytics and Research, Division of Trading and Markets (Sept. 9, 2025, revised Sept. 12, 2025) (“121 Analysis”), available at

https://www.sec.gov/files/trade-through-roundtable-supporting-data.pdf.

122

See

Jane Street Letter at 2.

See also infra

section VI.

In addition, since the adoption of Rule 611, there has been a proliferation of order types offered by exchanges.

123

Many of these order types were developed in response to Rule 611 and other Regulation NMS-related requirements and are now commonplace among equity exchanges.

124

These order types include but are not limited to ISOs and “price to comply” orders and variations thereof.

125

When such order types are combined or interact with other similarly complex order types offered by trading venues, the resulting mix of combinations and permutations that need to be considered increases the complexity faced by market participants.

126

In addition, many order types themselves have one or more modifiers, which can add even more market structure complexity,

127

which may increase costs to market participants.

128

Moreover, this complexity and the costs associated therewith may provide an advantage to more sophisticated market participants, such as high-tech algorithmic traders with expansive data and processing capacities who are more capable of managing increased complexity.

129

123

See

Robinhood Letter at 4 (citing “Complaints Rise Over Complex U.S. Stock Orders,” by Herbert Lash, Reuters (Oct. 19, 2012)).

124

Some commenters have stated that this increase in order types stems directly from Rule 611 and related Regulation NMS market structure requirements (such as Rule 610(e)'s prohibition on locking and crossing markets), and that such order types have been developed to enable market participants to take advantage of the complexities.

See

Nasdaq Letter I at 1-2 (citing EMSAC Market Structure Memo,

supra

note 46).

See also

First TTR Roundtable Transcript at 230 (Matt Billings, Robinhood), at 78-80 (Maureen O'Hara, Cornell University, SC Johnson Graduate School of Management), at 168 (Matt Mackenzie, Optiver), at 169 (Armando Diaz, PureStream); Robinhood Letter at 4; Healthy Markets Letter I at 9. One commenter stated that certain order types are “not designed to enhance execution quality but to comply with display rules while maintaining [SIP] visibility . . .”

See

FIA PTG Paper at 4.

See also

First TTR Roundtable Transcript at 165-66 (Hubert De Jesus, BlackRock).

See also

First TTR Roundtable Transcript at 169 (Armando Diaz, PureStream) (noting that “the overwhelming majority of volume” on an exchange was using order types “that are meant to suppress or sidestep 611”), at 168 (Matt Mackenzie, Optiver).

125

ISO order types are designed to allow market participants to avail themselves of the ISO exceptions under Rules 611(b)(5) through (6); 17 CFR 242.611(b)(5) through (6). “Price to comply” orders and variations thereof seek to automatically adjust an order's price to avoid locking or crossing markets.

See, e.g.,

Nasdaq Rule 4702(b)(1). See

also supra

note 29 and accompanying text and section II.A.2. (discussing the ISO exceptions and order types) and

infra

section III.B.3. (discussing complexities associated with Rule 610(e)).

126

See, e.g.,

First TTR Roundtable Transcript at 167 (Adam Nunes, Hudson River) (“[O]ne of the things that adds a great deal of complexity is that you have features to do one thing sitting on top of features to do another thing, and the combinations of those can get quite extreme.”); O'Brien Letter at 6-7 (discussing complexity attributable to Rule 611); Robinhood Letter at 4 (stating that “[t]here has also been an exponential increase in the number and complexity of order types offered by exchanges, with one source estimating that exchanges offer 2,000 variations of order types”).

127

See, e.g., Trading Talk—An In-Depth Look at Exchange Order Types,

Rosenblatt Securities Inc. (June 26, 2013) (“Rosenblatt Order Type Report”);

No Order Type Conspiracy, Rosenblatt Study Says,

by Editorial Staff, Traders Magazine (July 5, 2013) (discussing findings of Rosenblatt Order Type Report, including that “the proliferation of order types had indeed added to the complexities of the marketplace and that `undoubtedly creates opportunities for the savviest market participants.'”).

128

See infra

section VI.C.1. (discussing estimated cost savings due to reduced complexity if Rule 611 is rescinded). Some commenters stated that this complexity also increases risks to market IT infrastructure and systems.

See, e.g.,

O'Brien Letter at 7.

See also

Robinhood Letter at 5; FIA PTG Paper at 4. One commenter stated that Rule 611's rigid requirements make the equity markets more “brittle” because of all the complexity they add. First TTR Roundtable Transcript at 291 (Cameron Smith, Texas Stock Exchange).

129

See infra

section VI.B.3.

In addition to this equity market structure complexity, Rule 611's trade-through prohibition has contributed to an environment where speed has become the primary competitive advantage, allowing fast algorithms to capture price discrepancies.

130

As discussed below, Rule 611 has contributed to the fragmentation of displayed liquidity across numerous order books.

131

This in turn creates latency arbitrage opportunities and has incentivized massive investment in low-latency infrastructure to gain a speed advantage over competitors, resulting in the rise of high-frequency traders (“HFTs”).

132

In today's equity markets, participants are locked in a technology and latency arms race for speed,

133

and

the Commission believes that Rule 611 has contributed to this.

130

See

First TTR Roundtable Transcript at 72-73 (Dave Lauer, Urvin Finance and We the Investors) (citing Rule 611 as a factor driving the “speed race”), at 218 (Vlad Khandros, One Chronos) (stating Rule 611 is exacerbating the “latency arms race”).

See also

Data Boiler Comment at 2 (stating that the trading community is in a “low-latency arms race”).

131

See infra

section II.B.2.b.

132

See

letter from Benjamin L. Schiffrin, Director of Securities Policy, Better Markets, Inc. (Sept. 18, 2025) (“Better Markets Letter”). This commenter states that HFTs pay the exchanges fees for high-speed proprietary data feeds, fees for market data, and fees for having their computers “co-located” in the exchanges' data centers.

Id.

at 3.

133

See, e.g.,

First TTR Roundtable Transcript at 56-57 (Pankil Patel, Bank of America) (discussing a “more sophisticated technology arms race”), 218 (Vlad Khandros, OneChronos) (stating that there is a “latency arms race”), 219 (Jon Herrick, New York Stock Exchange) (discussing “the technological arms race that we're faced with”).

The Commission believes that rescinding Rule 611 would reduce the complexity in our equity market structure that has occurred since its adoption in 2005, which would in turn reduce costs for market participants and foster innovation and competition.

b. Exchange Proliferation and Fragmentation

Rule 611's trade-through restrictions have contributed to greater fragmentation in the U.S. equity markets. Rule 611 effectively lowered barriers to entry for exchanges by giving all exchanges, no matter their trading volume or other competitive distinctions, an opportunity to display a protected quotation, and thus avail themselves of guaranteed market data and connectivity revenue as market participants are effectively required to connect, directly or indirectly, to their markets. As a result, Rule 611 and Regulation NMS have contributed to the proliferation of exchanges in our equity markets.

134

To be clear, the Commission welcomes competition and believes that exchanges that introduce innovations to our markets, such as providing new ways to trade, can benefit the national market system overall. However, the Commission believes that Rule 611 has distorted incentives in the U.S. equity markets by providing new exchanges with protected quotation status at their inception, essentially guaranteeing that market participants must connect to them and subscribe to their market data feeds,

135

and this has led to a proliferation of exchanges.

134

See, e.g.,

O'Brien Letter at 5; Robinhood Letter at 3-4; FIA PTG Paper at 3-4; First TTR Roundtable Transcript at 181-82 (Hubert De Jesus, BlackRock).

See also infra

section II.B.2.b. (discussing exchange proliferation).

135

As one commenter stated, “[a]ll a new venue needs to do is post a quotation and the entire market must connect to its infrastructure, code to its systems and re-shape its trading algorithms to accommodate it.”

See

O'Brien at 5.

See also

FIA PTG Letter at 4; Robinhood Letter at 4 (stating that six exchanges account for approximately 80% of the volume traded on all exchanges while 10 exchanges individually account for less than a 2% market share); First TTR Roundtable Transcript at 49, 72-73 (Dave Lauer, Urvin Finance and We the Investors) (stating that most of the additional exchanges have been “copycat” exchanges), at 288-89 (Mehmet Kinak, T.Rowe Price) (stating that the additional exchanges have not offered anything to differentiate themselves from existing exchanges), at 277 (Daniel Gerhardstein, FIA Principal Traders Group and Jump Trading Group) (stating that “Rule 611 creates artificial incentives for the establishment of new exchanges” and that “[a]chieving the protected quote status provides exchanges with guaranteed revenue through the forced connectivity, market data, and access fees, without regard to new value delivered to market participants”).

This proliferation of exchanges has increased fragmentation of trading on equity exchanges, spreading market share across the increasing number of exchanges, resulting in a dispersal of liquidity.

136

This dispersal of displayed liquidity across numerous exchange order books increases routing complexity and potentially thins size at each exchange's best quotations.

137

This fragmentation is particularly impactful for large and institutional orders because, as the fragmentation of displayed liquidity increases, institutional child orders face more venues with small top-of-book sizes, which raises the complexity and cost of routing to meet the requirements of Rule 611. This greater dispersion across exchanges can make institutional trading intentions easier to detect, which can increase slippage and hurt the overall execution quality of the parent order.

138

136

See, e.g.,

Better Markets Letter at 1-2; FIA PTG Paper at 2 (stating that during the first half of 2025, no exchange had more than 20% market share based on notional volume and 9 exchanges had market share of less than 1%, and that the primary listing exchanges had a combined market share of less than 30% over the first half of 2025 (citing Cboe Exchange Inc, Historical Market Data Volume, available at

https://www.cboe.com/us/equities/market_statistics/historical_market_volume/

)).

See also infra

section II.B.2.b. (discussing exchange proliferation and fragmentation of displayed liquidity).

137

See infra

section VI.B.2.c.

138

See infra

section VI.B.2.

Moreover, with the increase in the number of U.S. equity exchanges, costs for market participants have increased due to the need to connect to trading centers with protected quotes, maintain such connections and routing capabilities thereto, and subscribe to their market data feeds.

139

These costs include incurring connection, routing, and market data fees to certain exchanges that some participants feel may provide limited value, but that such participants must nevertheless incur due to the requirements of Rule 611.

140

In addition, market participants incur costs to monitor for pre-trade and post-trade compliance with Rule 611, which costs increase with the number of venues providing protected quotes.

141

139

See, e.g.,

O'Brien Letter at 6-7; Robinhood Letter at 3-5; FIA PTG Paper at 1 (stating that major firms spend millions annually on market data and connectivity fees to all U.S. exchanges), 3.

See also

Jane Street at 2 (stating that these types of costs were a “regulated subsidy for venue proliferation, as new exchanges can effectively mandate that certain market participants purchase their connectivity and market data services”); First TTR Roundtable Transcript at 51, 70-71 (Joe Mecane, Citadel), at 56-58 (Pankil Patel, Bank of America) (discussing increased costs for infrastructure, colocation/connectivity, and market data), at 48, 72-73 (Dave Lauer, Urvin Finance and We the Investors), at 232-233, 277 (Daniel Gerhardstein, FIA Principal Traders Group and Jump Trading Group) (stating that “[a]chieving the protected quote status provides exchanges with guaranteed revenue through forced connectivity, market data, and access fees, without regard to new value delivered to market participants”), at 246 (Vlad Khandros, OneChronos). Certain commenters have stated that some of the costs that emanate from Regulation NMS have come down due to advances in technology and competition, particularly in areas relating to routing.

See, e.g.,

First TTR Roundtable Transcript at 158 (Allison Bishop, Proof Trading), at 160 (Jeff Starr, Schwab).

See also

First TTR Roundtable Transcript at 19-26 (Dan Mathisson, Commission, Division of Trading and Markets, Office of Analytics and Research). The Commission acknowledges that certain costs may have come down, however, costs resulting from the trade-through prohibition in Rule 611 still remain high because, in practice, Rule 611 results in market participants connecting to all protected markets, even if indirectly through connectivity providers, and rescission of Rule 611 should result in reduced costs for market participants.

140

One commenter stated that, according to its calculations, the increased costs to the industry as a whole for connectivity, market data and options regulatory fees associated with small venues (

i.e.,

for equities venues with less than 2% market share and options venues with less than 4% market share) is approximately $375 million a year, which is about two thirds of the total revenue for those 21 venues.

See

First TTR Roundtable Transcript at 51, 70-71 (Joe Mecane, Citadel Securities). This commenter, however, also stated that it did not believe that eliminating the trade-through rule would impact that cost significantly for a variety of reasons, including because firms are already connected to such venues and because firms' best execution obligations would make it difficult to simply disconnect from a venue to save costs.

See id.

141

See, e.g.,

Robinhood Letter at 5; J. Angel Letter; First TTR Roundtable Transcript at 90 (Julie Andress, Securities Traders Association and KeyBanc Capital Markets) (discussing trade-through compliance).

Without the requirements of Rule 611, market participants will no longer effectively be required to connect, directly or indirectly, to every exchange, which should reduce the connectivity, market data, routing, and compliance costs associated with such connections.

142

In turn, this may result in fewer new exchanges and potentially fewer existing exchanges, as the

exchange revenue streams currently associated with market data and connectivity fees would no longer be guaranteed as they currently are. In addition, without the requirements of Rule 611, market participants will have greater choice in determining which trading center provides the best market for execution of their orders given their investment objectives. Among other things, if the Commission were to rescind Rule 611, market participants would have more flexibility to send their orders to trading centers that have a consistently higher volume of order flow, more reliable speed of execution, or lower adverse selection costs, if they are not constrained by requirements to first route to execute against any protected quotation. Fragmentation may be reduced as broker-dealers concentrate their orders on more liquid trading centers with better execution quality. In turn, trading centers would have more flexibility to innovate and compete for order flow on factors other than price and speed. And rescinding Rule 611 would allow institutional investors more flexibility to route child orders, thereby allowing them to avoid trading at exchanges that may increase their information leakage and reducing slippage.

143

Accordingly, rescinding Rule 611 could lead to reduced exchange fragmentation, enable competition and innovation among trading venues, reduce costs, and remove unnecessary regulatory requirements that may advantage some market participants over others in today's equity markets.

142

See infra

section VI.C.1. One commenter estimated that the fixed costs of connecting to U.S. equity exchanges are 350 percent greater than the average connection costs of the top ten markets that its firm trades in globally. First TTR Roundtable Transcript at 232-33 (Daniel Gerhardstein, FIA Principal Traders Group and Jump Trading Group). Another commenter estimated its costs associated with onboarding new exchanges and connectivity maintenance costs to be $1.5 million for onboarding and $200,000 annually for maintenance. First TTR Roundtable Transcript at 68-69 (Pankil Patel, Bank of America) (stating that, with respect to onboarding a new exchange, the costs for his firm were estimated to be approximately $1.5 million and included not just connectivity and market data, but costs associated with integration into the firm's ecosystem, such as “third party sourcing, procurement, technology, testing, hardware, CAD integration, [and] billing” and that ongoing maintenance costs were estimated at approximately $200,000 per year, and included continued connectivity costs, maintaining upgrades, and ensuring surveillance systems were up-to-date, among other things).

143

See infra

section VI.C.1.

3. Rule 611 Is Unnecessary

a. Technology Has Advanced Significantly

When the Commission adopted Rule 611 and Regulation NMS, one of its goals was to seek the proper balance between competition among markets and competition among orders, and the Commission stated that investors “must be assured that they are participants in a system which maximizes the opportunities for the most willing seller to meet the most willing buyer.”

144

The Commission expressed concern regarding market fragmentation and the absence of mechanisms and linkages “designed to assure that public investors are able to obtain the best price for securities regardless of the type or physical location of the market upon which his transaction may be executed.”

145

Following the adoption of Regulation NMS in 2005, including Rule 611 and its trade-through protections, market participants moved quickly towards electronification of trading and invested in intermarket linkages and routing technologies for the equity markets.

146

One commenter stated that Rule 611 “helped spur investment in interlinkages between venues as routing technology was developing, and best execution practices were less sophisticated” and “served almost as `training wheels' for the national market system, providing clear, objective standards for order routing processes.”

147

While it is possible that such changes would have occurred in our equity markets without the intervention of Regulation NMS and some have argued that it would have been preferable to allow the markets to evolve and develop such technology and processes more naturally through competitive forces,

148

the adoption of Rule 611's requirements and Regulation NMS generally did push the U.S. equity markets toward automation and away from the inefficiencies that existed previously.

149

Currently, the U.S. equity markets are highly automated and interconnected and the Commission's concern expressed at the time of Regulation NMS's adoption in 2005 regarding the lack of mechanisms to connect markets is no longer an issue. Today's market participants have quick, electronic access to the markets and state-of-the-art routing technology is widely available for those seeking it.

150

Liquidity providers now routinely provide enhanced execution results that surpass any minimum benefits of Rule 611, such as through price improvement relative to the national best bid and offer and the execution of orders at midpoint prices.

151

The Commission believes that these execution quality benefits are not dependent on Rule 611, but instead are due to the intense competition among liquidity providers and the availability of execution quality benchmarks and data,

152

which will continue even if Rule 611 were to be rescinded.

144

See

NMS Adopting Release at 37499 (quoting H.R. Rep. 94-123, 94th Cong., 1st Sess. 50 (1975)).

145

See id.

at 37499, n.13.

146

See

J. Angel Letter at 11-13.

147

Jane Street Letter at 2.

148

See, e.g.,

Robinhood Letter at 2.

See also

Chairman Remarks at First TTR Roundtable.

149

See, e.g.,

First TTR Roundtable Transcript at 62 (Katie Kolchin, SIFMA) (referring to the Intermarket Trading System that previously linked various stock exchanges); O'Brien Letter at 3 and Robinhood Letter at 3 (linking NYSE's adoption of electronic quoting and trading to the status automated quotations under Rule 611).

150

See

First TTR Roundtable Transcript at 21-23 (Dan Mathisson, Commission, Division of Trading and Markets, Office of Analytics and Research) (discussing the Division of Trading and Market's analysis that showed that an overwhelming majority of firms outsource some or all of their routing and fewer than 20 firms directly connect to/trade on every exchange). While fewer than 20 firms have such direct connections, the practical effect of Rule 611 for nearly all trading centers has been that they incur costs for routing capabilities to reach all trading centers with protected quotes, whether directly or indirectly through a connectivity provider.

See also supra

notes 121 and 139-140 and accompanying text (costs of connecting to trading centers with protected quotes).

151

See

Jane Street Letter at 2.

152

See, e.g.,

Rule 605 of Regulation NMS, 17 CFR 242.605 (requiring certain reporting entities to publicly disclose order execution quality statistics).

The widely-available and fast routing capabilities and linkages in today's equity markets contrast with the period before the adoption of Regulation NMS, when exchanges and market participants were not as well connected and many linkages that did exist were relatively slow.

153

Because of the advances in these technologies and the competition among liquidity providers since Regulation NMS's adoption in 2005,

154

Rule 611 is no longer necessary to address the Commission's concerns in 2005. As discussed above, while Rule 611 may have served a historical function, it also has resulted in adverse consequences in the equity markets.

155

As technological advancements have changed how the U.S. securities markets operate since the adoption of Regulation NMS, to remain effective, the Commission must continuously monitor the market environment and, as appropriate, adjust and modernize our rules, regulations, and oversight tools and activities. At this point, Rule 611 is unnecessary to the functioning of our equity markets, and the continued maintenance of the rule may inhibit innovation and the development of new technologies, products, and services that could enhance competition in the U.S. equity markets to the benefit of investors.

156

153

See

NMS Adopting Release at 37538-59 (describing linkages in 2005 for exchange-listed stocks through the Intermarket Trading System, or “ITS”, Plan, with “receiving markets generally having up to 30 seconds to respond”).

154

See, e.g.,

J. Angel Letter at 12-13; O'Brien Letter at 5; Jane Street Letter at 2; First TTR Roundtable Transcript at 62-64 (Katie Kolchin, SIFMA), at 216, 234 (Mehmet Kinak, T. Rowe Price).

155

See supra

section II.B.2. (discussing market structure complexity, exchange proliferation and fragmentation, and costs to market participants).

156

See also

IntelligentCross Letter at 3 (“The elimination of the trade-through prohibitions would . . . foster a more competitive playing field among lit venues, and more easily facilitate the introduction of innovation to the displayed markets.”); Duoro Labs Paper (describing generally how the crypto market has evolved and innovated in the absence of prescriptive regulatory requirements and stating that, because of prescriptive rules like the trade-through rule, the equity markets “have not embraced mechanisms such as intents-based trading, automated market makers, decentralized price oracles, or atomic cross-

domain settlement, which all emerged naturally in crypto”).

b. Rule 611 Is Not Needed as a Backstop to Best Execution

When adopted, Rule 611 was “designed to assure that public investors are able to obtain the best price for securities” given the absence of robust intermarket linkages at the time.

157

The Commission was concerned that investors “often may have difficulty monitoring whether their orders receive the best available prices.”

158

The Commission stated that “furthering the interests of these investors in obtaining best execution on an order-by-order basis is a vitally important objective that warrants adoption of [Rule 611.]”

159

The Commission further stated, in adopting Rule 611, that Rule 611 “will backstop a broker's duty of best execution on an order-by-order basis by prohibiting the practice of executing orders at inferior prices, absent an applicable exception.”

160

157

See

NMS Adopting Release at 37499, n.13.

158

Id.

at 37511.

159

Id.

160

Id.

at 37516.

A broker-dealer has a legal duty to seek best execution of customer orders.

161

The duty of best execution predates the Federal securities laws and is derived from an implied representation that a broker-dealer makes to its customers.

162

The duty of best execution is incorporated into SRO rules and, through judicial and Commission decisions, the antifraud provisions of the Federal securities laws.

163

This obligation requires that a “broker-dealer seek to obtain for its customer orders the most favorable terms reasonably available under the circumstances.”

164

In other words, broker-dealers should execute trades “at the best reasonably available price.”

165

And, as the Commission has recognized, price is a critical concern for investors.

166

In addition, the Commission has described a non-exhaustive list of factors that may be relevant to broker-dealers' best execution analysis. These factors include the size of the order,

167

speed of execution, clearing costs, the trading characteristics of the security involved, the availability of accurate information affecting choices as to the most favorable market center for execution and the availability of technological aids to process such information, and the cost and difficulty associated with achieving an execution in a particular market center.

168

FINRA Rule 5310 requires broker-dealers to use reasonable diligence to ascertain the best market for a security such that the price the customer receives is as favorable as possible under the prevailing market conditions.

169

161

See, e.g., Newton

Merrill, Lynch, Pierce, Fenner & Smith, Inc.,

135 F.3d 266, 269-70, 274 (3d Cir.),

cert. denied,

525 U.S. 811 (1998).

162

See id.

135 F.3d at 270.

163

See supra

note 73.

164

See id.

(noting that a broker-dealer's duty of best execution requires the execution of customer trades at the best reasonably available price, recognizing several terms in addition to price as relevant to best execution, and stating that a broker-dealer must also take into account order size, trading characteristics of the security, speed of execution, clearing costs, and the cost and difficulty of executing an order in a particular market).

See also

Robinhood Letter at 7 (stating that “[u]nlike any other moment in history, retail investors today have easy access to tools and platforms, educational resources, real-time market data and investment analytics”).

175

As further discussed in section VI.C.2.

infra,

retail brokers route most of their customers' marketable orders to off-exchange wholesalers, who usually internalize the order (

i.e.,

execute the order in a principal capacity). As a consequence, most marketable retail orders do not directly interact with protected quotes. The majority of marketable retail orders are instead internalized off-exchange.

176

See

First TTR Roundtable Transcript at 26-29 (Arun Manoharan, Commission, Division of Trading and Markets, Office of Analytics and Research) (discussing analysis of trade-through rates during the second quarter of 2025, including that trade-through rates during periods when Rule 611's requirements did not apply (such as for odd-lot trades and pre- and after-market trading sessions) remained relatively low, at 2.4% or less); OAR Roundtable Analysis.

See also infra

section VI.C.1.c. (discussing analysis of trade-throughs of odd-lot quotes inside the NBBO for high-priced stocks, showing trade-through rates of 1-5% for trades that occur on exchange and trade-through rates of 11-19% for trades that occur off-exchange and are larger than one share).

For the reasons discussed above, the Commission proposes to rescind Rule 611 in its entirety.

C. Request for Comment

The Commission generally requests comment from the public on the proposed rescission of Rule 611. More specific requests for comment are set forth below. Responses supported by empirical data are particularly helpful.

1. Do commenters agree with the Commission's proposed rescission of Rule 611? Why or why not? Are there benefits to maintaining Rule 611?

2. If Rule 611 is rescinded, should any other rules (of Regulation NMS or otherwise) be modified or rescinded in addition to what the Commission is proposing herein?

3. Rather than rescinding Rule 611, should the Commission instead modify Rule 611? If so, please be specific and describe how Rule 611 should be modified. What advantages or disadvantages are there to such a modification in comparison to the proposed rescission? Please also describe how such a modification would address the adverse consequences the Commission has identified in section II.B.2.

4. Would the rescission of Rule 611 affect investor confidence? Why or why not? If it were to decrease investor confidence, how could that effect be mitigated?

5. Given best execution obligations and the current level of automation and interconnectedness of the U.S. equity markets, is Rule 611 still needed? Will a broker-dealer's processes to fulfill its best execution obligations be affected by rescission of Rule 611? What steps should be taken by the Commission and/or SROs with respect to best execution if the Commission were to rescind Rule 611? Is there a need for additional best execution guidance concerning retail order handling? Institutional order handling? If so, what should that guidance include and should that guidance be principles-based or more prescriptive?

6. What impact has Rule 611 had on complexity in the equity markets, including but not limited to order types, exchange proliferation, and fragmentation? Will rescinding Rule 611 reduce the complexity in our equity market structure that has occurred since its adoption in 2005? Will rescinding Rule 611 reduce fragmentation of liquidity in the equity markets? Will rescinding Rule 611 reduce costs on market participants? If so, which costs and by how much?

7. What impacts have market technologies, including those relating to routing and connectivity, had on Rule 611? Have market technologies advanced to such a degree that Rule 611 is no longer needed? Why or why not?

8. Are the concerns regarding equity market structure that the Commission expressed when it adopted Rule 611 still relevant? Is Rule 611 necessary to the current functioning of our equity markets? Would the continued maintenance of Rule 611 inhibit innovation and the development of new technologies?

9. What is the impact of Rule 611 on the number of equity exchanges? What would be the impact of the rescission of Rule 611 on the number of equity exchanges? Would rescission of Rule 611 result in fewer or more equity exchanges? Why or why not?

10. What is the impact of Rule 611 on displayed liquidity? Would the rescission of Rule 611 result in more displayed liquidity, or instead more non-displayed liquidity? Why or why not? What steps, if any, should be taken to bolster displayed liquidity if Rule 611 were to be rescinded? How would the availability of displayed liquidity and the quality of the NBBO be impacted by the rescission of Rule 611?

11. What steps (if any) would broker dealers, exchanges, and other market participants need to take to implement a rescission of Rule 611? Are there any implementation concerns if the Commission were to rescind Rule 611? For example, if Rule 611 is rescinded how long should the implementation period be? Should implementation be done in phases or tranches (and if yes, please be specific to describe what should be phased and when)? Should the timing for implementation be tied to the timing for implementation rescission of Rule 610(e), if applicable? If so, in what way?

12. Are there any NMS Plan amendments that would be necessary or desirable if Rule 611 is rescinded? If so, which ones, why, and in what way?

13. Are there any amendments to SRO rules that would be necessary or desirable if Rule 611 is rescinded? If so, which ones, why, and in what way?

III. Rule 610(e)

As discussed above,

177

the adoption of Regulation NMS included the adoption of Rule 610, often referred to as the “Access Rule.” Broadly, Rule 610 was designed to promote fair and non-discriminatory access to quotations displayed by NMS trading centers through a private linkage approach for all NMS stocks.

178

As originally adopted, Rule 610 primarily addressed: (1) the means of access to quotations; (2) the fees for accessing protected quotations and any other quotations that are the best bid or offer of a national securities exchange or national securities association; and (3) locking and crossing quotations.

179

177

See supra

section I.

178

NMS Adopting Release at 37497.

179

Id.

at 37539.

In conjunction with the proposed rescission of Rule 611, the Commission is also proposing to rescind paragraph (e) of Rule 610, which sets forth restrictions on locking and crossing quotations. Advancements in the marketplace, including increased automation and interconnectivity, that have occurred since the time the rule was adopted may have rendered the rule no longer necessary. In addition, rescinding Rule 610(e) could reduce unnecessary complexity in the U.S. equity markets stemming from the rule's requirements. Recission of Rule 610(e) would also facilitate the benefits of the rescission of the trade-through prohibition in Rule 611. The Commission is also proposing conforming changes to Rule 610(c) to reflect the proposed rescission of Rule 611 and the elimination of the concept of “protected quotations,” as discussed in section IV.B. below.

A. Description of Rule 610(e)

Rule 610(e) of Regulation NMS addresses the locking and crossing of quotations.

180

Specifically, Rule 610(e) requires each national securities exchange and national securities association to establish, maintain, and enforce written rules that: (1) require their members to reasonably avoid displaying quotations

181

that lock or

cross any protected quotation in an NMS stock, and displaying manual quotations

182

that lock or cross any quotation in an NMS stock disseminated pursuant to an effective NMS Plan;

183

(2) are reasonably designed to assure the reconciliation of locked and crossed quotations in an NMS stock;

184

and (3) prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross any protected quotation in an NMS stock, or from displaying manual quotations that lock or cross any quotation in an NMS stock disseminated pursuant to an effective NMS Plan, other than displaying quotations that lock or cross any protected or other quotation as permitted by an exception contained in its rules established pursuant to Rule 610(e)(1).

185

The rule does not prohibit trading centers from displaying automated quotations that lock or cross the manual quotations of other trading centers.

186

Of note, Rule 610(e) also does not itself impose prohibitions on the locking and crossing of markets, but rather requires SROs to establish, maintain, and enforce rules that comply with the rule's requirements. Throughout this discussion, we refer to Rule 610(e)'s requirements generally as “locked and crossed market prohibitions.”

180

See supra

note 32 (explaining locking and crossing quotations). The other paragraphs of Rule 610, broadly relating to access, are described generally in section I.

supra

note 31 and accompanying text.

181

As with respect to Rule 611, by its terms, Rule 610(e) only applies to round lots, as a result of the definition of “quotation.”

See supra

note 25.

182

Rule 600(b)(54) provides that a “manual quotation” means “any quotation other than an automated quotation.” 17 CFR 242.600(b)(54).

183

Rule 610(e)(1); 17 CFR 242.610(e)(1). In this regard, the rule distinguishes between protected automated quotations and manual quotations.

184

Rule 610(e)(2); 17 CFR 242.610(e)(2). For example, the Commission stated that an SRO's rules must require the market participant responsible for displaying the locking or crossing quotation to take reasonable action to resolve the locked or crossed market. NMS Adopting Release at 37550.

185

Rule 610(e)(3); 17 CFR 242.610(e)(3). Rule 610(e)(3), together with the reasonable avoidance directive of Rule 610(e)(1), was designed to recognize that locked and crossed markets may occur accidentally (such as during updating of quoting), and that SRO rules could include “ship and post” procedures that would require a member to first attempt to execute against a relevant displayed quotation while posting a quotation that could lock or cross such a quotation. NMS Adopting Release at 37550.

186

NMS Adopting Release at 37503.

Adoption of Rule 610(e) was driven by concerns over the rise in the incidence of locked and crossed markets at the time due to market fragmentation coupled with limitations on the level of interconnectivity among markets.

187

In addition, the economic incentives created by access fee and liquidity rebate strategies at the time, as well as differences in the speed or certainty of access among market centers, were believed to be contributing to the increase in the frequency of locked markets.

188

The Commission believed that the practice of displaying quotations that lock or cross previously displayed quotations was inconsistent with fair and orderly markets and detracted from market efficiency.

189

Moreover, the Commission believed that reducing the instance of locked and crossed quotations would promote capital formation by providing market participants a clear picture of the true trading interest in a stock.

190

187

See

NMS Proposing Release at 11154-56. In establishing the NMS, Congress stated that “market fragmentation becomes of increasing concern in the absence of mechanisms designed to assure that public investors are able to obtain the best price for securities regardless of the type or physical locations of the market upon which his transaction may be executed.” NMS Adopting Release at 37499, n.13 and accompanying text (citing H.R. Rep. 94-123, 94th Cong., 1st Sess. 50 (1975).

188

NMS Proposing Release at 11154-56. It was thought, for example, that market participants' unwillingness to pay the fee on the locked market, and preference to instead wait to receive the maker rebate, was a contributor to locked markets.

See id.

at 11156-57. Additionally, some believed that electronic communications network (“ECN”) access fees exacerbated locked markets and that certain ECNs programmed their systems to lock the quote of other market participants automatically instead of routing to the other quote to force the contra-party to be a liquidity taker and thereby collect the associated access fee rebate for themselves.

See id.

at 11158.

189

NMS Adopting Release at 37547. In particular, the Commission stated that “an automated quotation is entitled to protection from locking or crossing quotations” and that “[w]hen two market participants are willing to trade at the same quoted price, giving priority to the first-displayed automated quotation will encourage posting of quotations and contribute to fair and orderly markets.”

Id.

190

NMS Adopting Release at 37596. For example, prior to the prohibition there could be an offer to sell at a certain price displayed on one market at the same price as an offer to buy on another market, but the orders could not meet because the two markets were not linked. As a result, some market centers at the time would perceive the quotes to be stale.

See

NMS Proposing Release at 11155.

B. Proposed Rescission of Rule 610(e)

The Commission proposes to rescind Rule 610(e) in its entirety. Based on its assessment of the national market system,

191

the Commission believes that the rescission of Rule 610(e) could benefit market participants by allowing for narrower spreads and improving price discovery.

192

Furthermore, rescinding Rule 610(e) should reduce the prevalence of certain order types designed to automatically avoid displaying orders that lock or cross quotations thereby reducing market complexity, as well as burdensome compliance costs. Additionally, the concerns the Commission sought to address in 2005 with the adoption of Rule 610(e), namely concerns about the level of automation and interconnectivity in the marketplace at that time, as well as the potential for investor confusion when markets become locked or crossed, are no longer prevalent in today's trading environment. As such, rescission of Rule 610(e) would appear to be in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets in that removing the prohibitions on locked and crossed markets may allow for more economically efficient executions of securities transactions, remove impediments to competition, and improve the quality and availability of information with respect to trading interest.

193

Rescission of Rule 610(e) would also facilitate the benefits of rescinding Rule 611, due to the connection between the two and the concept of “protected quotations.”

194

191

See supra

note 46 and accompanying text.

192

See infra

section VI.C.2.a. (discussing the potential for narrower spreads for some stocks, including the possibility of a quoted spread of zero, which may, for some stocks, be closer to economic fundamentals).

193

See supra

note 2 (discussing section 11A);

infra

sections III.B.1., B.2. and B.3. (discussing, among other things, the potential for more efficient price discovery and opportunities for competition if Rule 610(e) is rescinded).

194

Some market participants expressed a similar view about the interconnectedness of the rules.

See, e.g.,

MEMX Letter at 17 (stating that the prohibition on locked and crossed markets is directly tied to trade-through protections); Nasdaq Letter I at 2-3 (stating that the prohibition against locked and crossed markets would be impacted by rescinding Rule 611); First TTR Roundtable Transcript at 43-44 (Chris Isaacson, Cboe Global Markets, Inc.), at 129-130 (Jonathan Kellner, MEMX), at 144 (Chris Nagy, Healthy Markets Association).

See also

First TTR Roundtable Transcript at 166 (Adam Nunes, Hudson River) (stating that Rule 611 and 610(e) are effectively the same rule “from an implementation and compliance standpoint”). Others stated that removing the prohibitions on locked and crossed markets was necessary to get the full benefit of rescinding the trade-through rule.

See, e.g.,

Second TTR Roundtable Transcript, at 55-56 (Brett Redfearn, Panorama Financial Markets Advisory) (stating, that if eliminating Rule 611, it does make sense to eliminate the locked and crossed market provisions), at 58-59 (Oliver Sung, Cboe Global Markets) (stating that it seems logical to remove the locked and crossed prohibition to get the full benefit of 611 removal).

1. Evolution of Market Structure and Investor Sophistication

Since the adoption of Regulation NMS, equity market structure has changed due, in part, to the many technological advancements that have altered the speed and nature of trading.

195

Computer-assisted trading tools are common and include smart order routing systems that are designed to deal with the large number of trading centers in the fragmented U.S. equity

market structure. These tools also include trading systems with automated functionalities that enable orders to be submitted to the marketplace in ways that are far beyond the manual capacities of a human trader.

196

As the Commission has previously recognized, the U.S. securities markets have become almost entirely electronic and highly dependent on sophisticated trading and other technology, including complex and interconnected routing, market data, regulatory, surveillance and other systems.

197

At the same time, retail investor participation in the equity markets has significantly increased,

198

as has investor access to market data and execution quality information.

199

When the Commission proposed Rule 610(e), it recognized that, as automated executions become more prevalent, there may be less reason to lock a displayed quote.

200

Given the evolution of the U.S. equity markets since 2005, Rule 610(e) may be no longer necessary and the concerns it sought to address in 2005 may be no longer relevant. For example, increases in market fragmentation at that time, and a lack of interconnectivity, resulted in a reduction in the interaction between orders displayed in competing market centers; and there were greater differences in speed among market centers than exist currently (

i.e.,

there were more markets that relied heavily on human traders to quote and trade, and which may not have adjusted their quotations as quickly as automated markets).

201

These kinds of inefficiencies are no longer prevalent.

202

While the equity markets continue to be highly fragmented, with the greater automation and interconnectivity in today's equity market structure, and increased access to market data and execution quality information, market participants now have the tools necessary to better navigate them.

195

Securities Exchange Act Release No. 99679 (Mar. 6, 2024), 89 FR 26428, 26429 (Apr. 15, 2024) (“Rule 605 Amendments Adopting Release”) (citing Securities Exchange Act Release No. 96493 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) (Rule 605 Amendments Proposing Release) at 3787-88 (Jan. 20, 2023)).

196

“Equity Market Structure Literature Review Part II: High Frequency Trading Staff of the SEC Division of Trading and Markets,” SEC, Mar. 14, 2014, available at

https://www.sec.gov/marketstructure/research/hft_lit_review_march_2014.pdf.

197

Securities Exchange Act Release No. 73639 (Nov. 19, 2024), 79 FR 72252 (Dec. 5, 2014) (“Regulation SCI Adopting Release”) at 72254.

See also supra

notes 146 and 150 and accompanying text (discussing technological developments since the adoption of Regulation NMS).

198

See, e.g.,

Caitlin McCabe, “New Army of Individual Investors Flexes Its Muscle,” The Wall Street Journal (Dec. 30, 2020),

available at https://www.wsj.com/articles/

new-army-of-individual-investors-flexes-its-muscle-11609329600.

199

See, e.g.,

Understanding the Market for U.S. Equity Market Data

(Aug. 31, 2018),

available at https://www.sec.gov/comments/4-729/4729-4545881-176154.pdf

at 3-8 (discussing available equity market data products and their uses).

See also

200

NMS Proposing Release at 11159.

201

See, e.g., id.

at 11159.

202

See, e.g., infra

section VI.B.4.b. (discussing, among other things, the speed at which market participants are able to react in today's equity markets).

In addition, the potential for investor confusion that could result from removing the locked and crossed market prohibitions would be limited and, to the extent that it does occur initially, would diminish over time as market participants adjust their behavior in response to the new trading environment.

203

Today's investors have significantly greater access to market data, execution quality information, and trading technologies,

204

giving them the tools and market information necessary to navigate the equity markets even when they are locked. Also, any confusion from crossed markets should be mitigated by today's routing technology, speed of execution, and the resulting rate at which crossed markets are resolved.

205

203

See infra

note 241 and accompanying text; section VI.C.2.b. (discussing investor confusion as a potential cost associated with rescission of Rule 610(e)). Some commenters also stated that rescission of the crossed markets prohibition could lead to investor confusion.

See, e.g.,

Second TTR Roundtable Transcript at 64-65 (Dmitry Bulkin, Bernstein) (stating that retail brokers may need to take some time to educate their clients), at 65 (Mehmet Kinak, T. Rowe Price) (stating that self-directed or retail investors may not be confused by a locked market, but that crossed markets could lead to some investor confusion). Other commenters did not think that rescission would lead to investor confusion.

See, e.g.,

First TTR Roundtable Transcript at 145-147 (Adam Nunes, Hudson River).

204

See

supra note 199 and accompanying text.

205

See, e.g.,

Phil Mackintosh and Eugenio Piazza,

Locked, Crossed and Barrel

(Dec. 11, 2025) (analyzing the significance of locked and crossed markets to investors), available at

https://www.nasdaq.com/articles/locked-crossed-and-barrel;

Second TTR Roundtable at 57 (Mehmet Kinak, T. Rowe Price), at 59 (Oliver Sung, Cboe Global Markets) (stating that in a crossed market arbitrage opportunities would clear out crosses quickly).

Additionally, eliminating restrictions on trading through protected quotations and displaying orders that lock or cross quotations would provide broker-dealers greater freedom when determining how to handle their customers' orders, including where to route those orders to achieve best execution.

206

Among other things, if the Commission were to rescind the locked and crossed market prohibitions, and to the extent permitted by SRO rules,

207

market participants would have more flexibility to post their trading interest on trading centers that have a consistently higher volume of order flow, more reliable speed of execution, or lower adverse selection costs, if they are not constrained by requirements to first route to execute against any locking contra-side interest. In turn, trading centers would have more flexibility to compete for order flow.

206

See supra

section II.B.3.b.

207

Under Rule 610(e), the Commission requires exchanges to have rules that prohibit locked and crossed markets. As a result, if the Commission rescinds Rule 610(e), the exchanges would still have those rules and would need to decide whether to eliminate them.

See also infra

note 224.

2. Potential for Improved Price Discovery and Competition

Rescission of Rule 610(e) could also lead to improved price discovery and tighter spreads and foster competition among trading venues, which could benefit investors. Specifically, allowing locked markets could strengthen public price formation to the extent that locked markets are a natural consequence of competitive quoting, and that disallowing locked markets (as is the case currently) may arbitrarily widen spreads.

208

Locked markets may be indicative of fair and efficient markets, and allowing them could lead to more advantageous pricing and cost savings for some investors.

209

Additionally, a quotation that would qualify as a locking quotation for purposes of the prohibition may in fact not be a locking quotation if one were to consider the price with fees.

210

In this regard, the

prohibition on display of locked quotations may be preventing the display of trading interest that would not be considered locking interest based on the net price (

e.g.,

if the exchange fees associated with taking the locking offer would cause the order's effective price to be higher than its displayed price).

208

See, e.g.,

Cboe Letter I at 4-5. (stating that locked markets are a natural consequence of competitive quoting, provide optimal pricing for investors, and contribute to fair markets and that allowing locked markets would narrow or, in some cases, eliminate spreads to the benefit of investors); Second TTR Roundtable Transcript at 56-57 (Mehmet Kinak, T. Rowe Price) (stating that trading at the market is true price discovery and has benefits: there is no spread, no adverse selection, no information leakage).

209

See infra

section VI.C.2.a. (discussing the potential benefits of rescinding Rule 610(e), including the potential for more advantageous pricing and a reduction in transaction costs for some stocks).

See also

Cboe Letter II at 6. This commenter stated that that locked markets occur naturally when quoting is competitive, are indicative of fair and efficient markets, and allowing them would lead to optimal pricing and cost savings to investors. This commenter also stated that the artificially wide spreads resulting from the prohibition on locked markets creates an opportunity for off-exchange venues to execute orders at better prices between such spreads that would not otherwise exist.

Id.

210

See

NMS Proposing Release at 11159 (stating, at the time Rule 610(e) was proposed, that in addition to accidental locks, which are often resolved quickly, quotes also may lock because one or both quotes have an access fee attached, which increases the net price of trading with that quote,

and creates an undisclosed spread). Some market participants make a similar observation.

See, e.g.,

Second TTR Roundtable Transcript at 56-57 (Oliver Sung, Cboe Global Markets).

See also

FIA PTG Paper at 6 (stating that “[w]hile we are likely to see more locked markets in the absence of a prohibition, these prices represent the true state of supply and demand, accounting for the cost of access and other potential market frictions.”).

Moreover, allowing locked markets could foster competition between exchanges and other trading centers.

211

A significant portion of trading in NMS stocks has migrated off exchange in recent years.

212

The structure of the OTC market that permits the execution of orders more readily in finer increments has been a factor that contributes to this result.

213

Allowing locked markets means that the NBBO spread may, in some cases, be tightened to zero. Competition may drive OTC market makers to provide even better prices in the event of locked markets than they otherwise would currently. Allowing locked markets could also remove an impediment to competition in that market participants would have fewer restrictions on their selection of trading centers that best meet their trading objectives and trading centers could better compete for order flow based more fully on the merits of their system.

211

See infra

sections VI.D.2.c. (discussing that rescission of Rule 610(e) may improve liquidity on exchanges for some stocks) and VI.D.2.e. (discussing that improved efficiency and liquidity on exchanges could, in turn, allow exchanges to better compete with off-exchange market makers for order flow).

212

See supra

notes 39-41 and accompanying text.

213

See

2024 Regulation NMS Amendments at 81643.

See also

Securities Exchange Act Release No. 96494 (Dec. 14, 2022), 87 FR 80266 (Dec. 29, 2022) (proposing release for the 2024 Regulation NMS Amendments) at 80273-74 (describing how the combination of the requirements of Rule 612 and differences in the underlying regulatory framework for exchanges, ATSs, and OTC market makers gives OTC market makers the ability to more readily trade in finer increments than exchanges and ATSs). In the 2024 Regulation NMS Amendments, the Commission stated that under Rule 612 as amended, the OTC Markets would continue to be able to trade more readily in comparatively smaller increments than exchanges and ATSs. As stated by one commenter, “the current prohibition on locked markets artificially widens spreads, creating an opportunity for off-exchange venues to execute orders at better prices between an artificially wide spread that would otherwise not exist.” Cboe Letter II at 6.

In fact, when the Commission originally proposed Rule 610(e), the Commission requested comment on the extent of the concerns arising from locked markets in particular, recognizing that some market participants stated that locked quotes convey

useful

price information, and that the ability to lock quotes enables markets to efficiently communicate their trading interest.

214

In addition, the Commission stated that the problem of apparent locked markets resulting from quotes with access fees attached may be reduced by the adoption of other access provisions of Regulation NMS.

215

For example, the Commission stated that if quoting market centers and quoting market participants have fair access to each other's quotations, and access fees are limited to

de minimis

levels, the economic incentives that currently encourage locked markets may diminish.

216

The Commission also recognized that as automated executions become more prevalent, there may be less reason to lock a displayed quote,

217

and specifically requested comment on the necessity of adopting restrictions on locked markets in the light of its proposed provisions governing intermarket access and access fees.

218

As discussed, the equity markets have become more automated and interconnected, diminishing the need for Rule 610(e).

214

See

NMS Proposing Release at 11159.

215

Id.

216

Id.

217

Id.

218

Id.

Locked markets may occur naturally when quoting is competitive, and may represent greater price transparency, fairer competition, and more efficient markets that provide optimal pricing for investors.

219

Currently, even with the requirements of Rule 610(e), the NBBO may appear locked or crossed for part of each trading day; however, such occurrences are rare.

220

If locked markets were allowed, the Commission believes that spreads could narrow to zero for some securities, which could result in cost savings to investors.

221

219

See infra

section VI.C.2.a. (discussing that locked markets can be a natural consequence of competitive quoting and that in certain circumstances the potential reduction in transaction costs from allowing locked markets could be significant).

220

See infra

section VI.B.3.

See also

Mackintosh and Piazza,

supra

note 205 (reporting that while the NBBO may appear locked or crossed for part of each trading day, such occurrences are rare and more commonly involve the appearance of a

locked

market, and providing data that shows the appearance of locked and crossed markets happens much more frequently in lower-priced, tick-constrained stocks, and that locks and crosses resolve quickly).

Id.

This data includes an analysis of S&P 500 stocks and shows that on average, each stock is locked for around 2.5 seconds each day, and that markets are crossed far less—with an average of just 4.2 milliseconds each day. According to this market participant, the current rules mostly make the NBBO unlock “much faster than a human can blink” and they have evidence that market makers and arbitrageurs act very quickly to uncross markets. Their data also shows that latency in both time to report and dissemination of SIP data appearing to be major contributing factors.

Id.

221

See infra

section VI.C.2.a.

See also supra

note 209 and accompanying text.

3. Reduction in Complexity and Compliance Costs

Rescinding Rule 610(e) could reduce both unnecessary complexity in the marketplace and compliance costs. Notably, Rule 610(e) does not itself prohibit locked and crossed markets. Rather, the rule requires SROs to establish, maintain, and enforce rules for their members that require the avoidance of such behavior and the reconciliation of locked and crossed quotations, and all 20 of the exchanges approved to trade NMS stocks and FINRA have adopted such rules.

222

These rules generally require members to avoid entering orders that would create a locked or crossed market and, in some cases, mandate specific handling procedures for such orders, as discussed further below.

223

222

See supra

note 207.

223

See, e.g.,

NYSE Rule 7.37 (requiring, with certain exceptions, the exchange and its members to reasonably avoid displaying, and prohibiting the exchange and its members from engaging in a pattern or practice of displaying, any quotations that lock or cross the protected best bid or protected best offer); Nasdaq Rules 4702 and 4703 (providing order types and order attributes designed to prevent the locking or crossing of protected quotations, as well as orders on the Nasdaq book); FINRA Rule 6240 (requiring FINRA members, with certain exceptions, to reasonably avoid displaying, and not engage in a pattern or practice of displaying, any quotations that lock or cross a protected quotation, and any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective NMS Plan); Cboe BYX Rule 11.20(b) (the BYX system shall not make available for dissemination, and BYX users shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, any quotations that lock or cross a protected quotation, and any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective national market system plan).

The Commission believes that the requirements of Rule 610(e) have contributed to the proliferation of order types and attributes that cause the orders to be repriced, displayed at a price that does not represent the market participants' true trading interest, or that otherwise prohibit the acceptance of such orders, and which introduce complexity in the equity markets.

224

Some of these order types and attributes include re-pricing features that automatically adjust the order's displayed price to avoid locking or crossing quotations, such as “price-to-comply” and other re-pricing order types, and provide market participants with the ability to execute only on that market, and in some instances only against later arriving interest in order to ensure that the market participant entering such order will be the provider of liquidity.

225

These repricing features may mask a market participant's true trading interests by, among other things, resulting in the display of the market participant's order at a price lower (for a buy order) or higher (for a sell order) than the price at which the market participant is willing to trade, primarily to avoid locking or crossing the market. For these reasons, the Commission believes that rescission of Rule 610(e) could allow more unconstrained competition among trading centers and among orders, could provide greater price transparency, and would provide more freedom to market participants to make trading and order handling decisions based on the unique characteristics of their order flow.

226

224

Some market participants expressed a similar view.

See, e.g.,

FIA PTG Paper at 4, 6 (citing the prohibition on locked and crossed markets as a factor in the proliferation of complex order types, such as price-to-comply orders); First TTR Roundtable at 166-69 (Adam Nunes, Hudson River Trading; Matt Mackenzie, Optiver) (discussing that a lot of the order types designed for compliance are

related to the lock-cross prohibitions), at 168-69 (Matt Mackenzie, Optiver) (stating that their firm uses approximately 50 complex order types and that the firm has to develop strategies to use such orders); Second TTR Roundtable at 59-60 (Oliver Sung, Cboe Global Markets) (stating that currently it is necessary to have order types to hide and price slide orders that would otherwise lock the market and discussing, as an exchange operator, the number of order types and mechanisms created to, for example, prevent locking the market), at 60 (Kevin Tyrrell, New York Stock Exchange) (stating that it, an exchange operator, would be able to get rid of a lot of the order types that lead to investor confusion if Rule 610(e) were eliminated).

See also infra

sections VI.B.3. (discussing the development of specialized order types to comply with the prohibition on locked and crossed markets) and VI.C.2.a. (discussing potential benefits that could flow from elimination of such order types).

225

See, e.g.,

Cboe BYX Rule 11.9(g)(1) Display-Price Sliding (allowing an order that, at the time of entry, would create a violation of Rule 610 by locking or crossing a protected quotation of an external market, to be ranked at the locking price in the BYX book and displayed at one minimum price variation below the current NBB (for bids) or to one minimum price variation above the current NBO (for offers)); Nasdaq Texas Rules 4702 (b)(1)(A), (2)(B), and (4)(A) (describing the characteristics of the exchange's Price to Comply Order, Price to Display Order, and Post-Only Order types, respectively, and their design for compliance with Rule 610's locked and crossed market prohibitions).

See also

Rosenblatt Order Type Report at 10-36 (discussing various pricing mechanisms, including those that re-price to prevent locking or crossing the market and to keep interest on an exchange's order book). This report also states that the behavior of order types like the Post Only order type creates actionable information that “isn't inherently nefarious, but [that] a sophisticated

trader

can use to make a meal out of an

investor

who doesn't have the time, money or inclination to achieve an equal level of sophistication”).

Id.

226

As discussed above in the context of the proposed rescission of Rule 611, market participants should be more free to compete on merit, and not based on their ability to maneuver around regulatory strictures.

See supra

section II.B.1.

See also infra

section VI.B.4.f. (discussing potential impact on market participants' routing strategies and interference costs resulting from Rule 610(e)) and section VI.C.2.a (discussing how reduced complexity could reduce costs to broker-dealers associated with their order routing logic).

Importantly, rescission of Rule 610(e) would not create a requirement that SROs rescind their rules designed to comply with Rule 610(e)'s current prohibitions. Rather, market forces and consistency with the Exchange Act would dictate which rules and practices, if any, SROs and, as applicable, other trading centers, would seek to rescind or modify.

227

The Commission anticipates, however, that most, if not all, SROs would seek to amend rules originally designed for compliance with Rule 610(e). Recognizing that some of these rules are reliant upon defined terms that the Commission is proposing to rescind from Regulation NMS (

e.g.,

“protected quotation”),

228

however, the Commission is requesting comment on whether such defined terms should be retained or modified, even if Rules 611 and 610(e) are rescinded, as proposed.

229

227

SROs would be required to file any proposed changes to their rules with the Commission pursuant to 15 U.S.C. 78s(b) (section 19(b) o

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