The US Securities and Exchange Commission (SEC) has proposed a partial repeal of a two-decade-old equity market structure rule, reopening a debate over whether prescriptive intermarket price protection remains suited to the way US equities now trade.
The proposal would rescind Rule 611 of Regulation National Market System (Reg NMS), the trade-through rule, and Rule 610(e), which restricts locked and crossed quotations. It would also remove related defined terms in Rule 600 and make conforming changes to associated provisions. The SEC has not finalised the repeal. The proposal remains subject to public comment and further rulemaking.Rule 611 was adopted as part of the 2005 Reg NMS framework. In broad terms, it requires trading centres to maintain policies and procedures reasonably designed to prevent trades through protected quotations displayed elsewhere, subject to specified exceptions.
SEC Chairman Paul Atkins has framed the proposal as a response to unintended consequences. In his statement at the 11 June open meeting, Atkins said Rule 611 had long been a concern and described it as a “grave misstep”. He argued that, while the rule was intended to incentivise displayed liquidity, trading activity has increasingly moved elsewhere over the past two decades. In his view, the rule has contributed to venue proliferation, fragmented liquidity and a market that is “increasingly complex, costly, and opaque” for order execution.
Routing Governance
That rationale goes to the heart of the current market-structure debate. US equities are no longer organised around a relatively simple set of displayed exchange quotes. Liquidity is dispersed across exchanges, alternative trading systems, wholesalers, internalisers and algorithmic execution channels. Smart order routers manage large volumes of routing decisions across price, speed, liquidity, fees, rebates, venue access and order-type constraints.
For trading firms, broker-dealers and compliance teams, the operational issue is not whether the removal of Rule 611 would reduce execution obligations. It would not. The more practical question is whether firms can evidence that routing decisions remain reasonable, reviewed and consistent with best-execution duties in a less prescriptive market-structure regime.Control Evidence
Where firms currently operate within a framework that includes a specific trade-through prohibition for protected quotations, a post-Rule 611 environment would place more emphasis on the quality of internal routing governance. Firms would need to show how smart order routers are configured, how venue-ranking logic is reviewed, how fee and rebate economics are controlled, and how exceptions are identified and escalated.
That would bring execution surveillance, transaction-cost analysis and venue-performance monitoring closer to the centre of the control framework. Compliance and trading oversight teams may need to reassess whether existing reports are designed mainly to detect rule-based trade-through issues or whether they provide a broader view of execution quality. Internal audit and governance committees may also need clearer evidence of periodic challenge over routing tables, venue access decisions and order-type usage.
Market Data and Connectivity
The proposal also raises market-data and connectivity questions. One of Atkins’ arguments is that Rule 611 has contributed to a costly and complex market infrastructure by encouraging firms to maintain broad venue connectivity to avoid trading through protected quotations. If the trade-through rule is rescinded, some firms may reconsider whether all current exchange connections, market-data feeds and routing paths remain necessary.
That does not mean firms can simply disconnect from venues without consequence. Any reduction in connectivity would still need to be assessed against execution quality, client outcomes, liquidity access and supervisory expectations. A lower prescriptive requirement could reduce some operational complexity, but it may also increase the need for evidence that any revised access model does not weaken execution outcomes.
Industry debate is likely to turn those issues. SIFMA welcomed the SEC’s review of Regulation NMS and the proposed rescission package, reflecting a long-running broker-dealer and market-structure concern that the current framework may have embedded unnecessary complexity. Investor-protection advocates are likely to focus on whether removing the trade-through rule could weaken price protection, particularly for less sophisticated investors whose orders depend on intermediaries’ routing choices.
Comment Period
During the 60-day comment period, industry groups, investor advocates and market-structure specialists will test the SEC’s case for simplification against concerns over price protection, routing incentives and execution quality. Initial industry reaction, including from SIFMA, has welcomed a review of Regulation NMS. But the caution for firms is clear: repeal would not remove best-execution duties, only shift more of the evidence burden onto routing governance and surveillance controls.
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