The SEC is holding a trade-through roundtable looking to repeal or amend Rule 611, also known as the Order Protection Rule (OPR), which the SEC’s new Chair Atkins as long been against. Global Trading got hold of comments from the FIA Principal Traders Group (PTG), which represents the biggest American market makers, supporting a repeal of the rule.
Stakeholders have had their say: McKay Brothers argues calibration, and market veterans are split over whether Rule 611 still serves investors or now stands in the way of innovation and more efficient markets.
“A long time ago, in a galaxy not far away, the NYSE Empire was the dominant stock exchange in the universe,” is how Georgetown professor James J. Angel opens his submission for the SEC’s trade-through roundtable. It sets the tone: technology and competition, not regulation, dismantled the old network advantage.
FIA Principal Traders Group (FIA PTG) will publicly support repealing Regulation NMS Rule 611 – the trade-through prohibition, in forthcoming comments. The group, which represents the biggest market makers from Citadel Securities to Jane Street, Hudson River Trading, IMC and Wolverine, makes the case that the rule has outlived its purpose, inflated costs, and distorted incentives around quoting, fees, and venue proliferation. It also advocates for amendments to how securities information processor (SIP) revenues are shared, in order for exchange competition to focus on execution quality rather than regulatory protection.
Georgetown University’s Angel believes the OPR is redundant with brokers’ best-execution duty, and states that most developed markets function without it, while retail execution would be unaffected as it is already internalised in most cases. He thinks policy should move beyond the national best bid offer (NBBO) and look to consider the depth of the consolidated order book using an indicative best bid offer (IBBO) and an effective best bid offer (EBBO) to reflect available liquidity.
SEC staff data presented as documentation to the roundtable adds momentum to reformers’ case. Measured trade-throughs are already minimal, suggesting a blanket, venue-agnostic prohibition may no longer be necessary.
Market-infrastructure firm McKay Brothers/Quincy Data wants to keep OPR, but to have this feature be earned by exchanges rather than due to them. They also say the feature should only be available to immediately accessible quotes to the detriment of exchanges / venues offering speed bumps. They also suggest requiring exchanges to have a small but sustained market-share threshold (proposed at 2.5%). Finally, they propose changing SIP revenues allocation toward executions to reward displayed liquidity that actually trades and put a stop to exchange proliferation. Looking to the future of latency arbitrages, they propose an Observer BBO to account for geographical latency.
Cboe backs a “do no harm” approach that preserves a reliable NBBO and curbs venue proliferation by conditioning protected status and quote credits for new exchanges on demonstrated demand through market shares, but stress that options market dynamics differ from equities and should not be subject to the same changes.
Opponents of the rollback argue Rule 611 still disciplines routing and protects investors. Market structure advocate R.T. Leuchtkafer, anonymous but ever present in SEC comments, cautions that weakening Rule 611 would privilege speed advantages and erode competition, pointing to benefits he says have saved investors money over time.
