The U.S. Securities and Exchange Commission (SEC) has proposed rescinding two core provisions of Regulation National Market System (Reg NMS) — Rule 611 and Rule 610(e) — in a move that could significantly alter U.S. equity market structure and competition among alternative trading venues.
What the proposal entails
Reg NMS, adopted in 2005, established a framework intended to promote fair and efficient access to quotations and to protect investors from inferior executions across fragmented markets.
- Rule 611 (Order Protection Rule): Commonly known as the “trade-through” rule, it requires trading centers to prevent executions at prices worse than the best publicly displayed quotations, reinforcing the National Best Bid and Offer (NBBO) across exchanges.
- Rule 610(e): A related provision under Reg NMS governing access and trading practices designed to protect displayed quotes and maintain orderly intermarket trading.
The SEC’s proposal would eliminate these requirements, subject to public comment and a subsequent Commission vote on final adoption.
Why it matters for market structure
Rolling back the Order Protection Rule would ease mandatory intermarket routing to the NBBO, potentially changing how brokers source liquidity and how trading venues compete for order flow. Key areas to watch include:
- Displayed liquidity and spreads: With fewer protections for the NBBO, incentives to post and execute against displayed quotes could shift, affecting price discovery and quoted depth.
- Routing and execution quality: Brokers would continue to owe best execution duties, but the mechanics of meeting those obligations could evolve without Rule 611’s trade-through prohibition.
- Venue competition: Exchanges, wholesalers, and alternative trading systems (ATSs) may adapt pricing, order handling, and routing strategies to attract flow under a more flexible regime.
Implications for ATSs and digital asset-linked firms
Alternative trading venues that match orders off-exchange could benefit from greater flexibility in execution, potentially intensifying competition with lit markets. Broker-dealers and ATS operators that engage with both equities and digital asset markets may reassess technology, routing logic, and execution policies to align with any new SEC framework, even though Reg NMS applies to NMS stocks rather than crypto assets.
Next steps
The proposal will proceed through the SEC’s rulemaking process, including a public comment period. Any final rule would require a separate Commission vote and could involve phased implementation. Market participants should monitor the docket for comment deadlines and guidance on compliance timelines.