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SEC Roundtable on Trade-Through Prohibitions — September 18, 2025

October 6, 2025 Uncategorized

SECURITIES & EXCHANGE COMMISSION  

Roundtable on Trade-Through Prohibitions

For questions on the note below, please contact the Delta Strategy Group team. 

On September 18, the Securities and Exchange Commission (SEC) held a roundtable to discuss trade-through prohibitions in the National Market System (NMS) stock and listed options markets.  The agenda and panelists can be found here, and public comments submitted are available here. 

Below is a summary of the roundtable prepared by Delta Strategy Group, which includes several high-level takeaways and overviews of each panel. 

Key Takeaways

The following is a summary of the main topics explored in the roundtable. 

  • High-level topics and themes of discussions across the panels regarding the trade-through prohibition from Rule 611 raised compliance costs, market structure complexity, unintended consequences of prohibitions, and alignment of best execution obligations as topics for further examination by the Commission.    
  • Panel I focused on market participants’ experiences with trade-through prohibitions, including any associated costs and unintended consequences, and how best execution has been impacted by Rule 611.  Discussions questioned the effects of trade-through prohibitions on retail and institutional trading, alongside varying positions on trade-through prohibitions in the equity market compared to the options market.    
  • Panel II raised whether a trade-through prohibition is necessary and what objectives it achieves, asking about its relationship with the fulfillment of best execution obligations and whether a trade-through prohibition creates unnecessary complexity within the current market structure.  Panelists also discussed how Rule 611 affects market fragmentation and competition, in addition to increased compliance burdens and connectivity costs resulting from Securities Information Processor (SIP) fees, market data, and exchange proliferation.   
  • Panel III centered on potential paths forward for trade-through prohibitions, such as what changes could be made and what market benefits would result from modifications to Rule 611.  Discussions touched on what market structure requirements would need to change if Rule 611 were modified, potential unintended consequences of modifying Rule 611, how any changes might affect exchange consolidation or proliferation, and whether similar modifications should apply to options markets.  

OPENING REMARKS 

Chairman Paul Atkins 

What I believe to be by far the most problematic provision of Reg NMS is Rule 611, or the trade-through rule, whose deceptively benign name can do little to disguise the distortions it has wrought. Left to market forces, I believe that the trends necessitating Rule 611 at a time of considerable transformation would have steered NMS toward an outcome far more favorable than what the trade-through rule has delivered.  Congress rightly expressed in the Securities Acts Amendments of 1975 that competition, not regulation, ought to guide the evolution of our markets.  The Commission rebuffed that contention, and while the markets were still developing, the SEC decided to dictate how to “fix” them.  The stated purpose of the Trade-through Rule was “to increase displayed depth and liquidity in the NMS and thereby reduce transaction costs for a wide spectrum of investors, particularly institutional investors that must trade in larger sizes.”  In practice, however, the rule restricted the price at which investors could trade by mandating execution at or within the National Best Bid and Offer (NBBO). This led the industry to treat price as the only factor when considering “Best Execution.”  If left to their own judgment, participants could favor one exchange over another due to speed, the likelihood of execution, or the attributes of various order types.  Exchanges could have continued to innovate along many of these dimensions, but instead, the trade-through rule reduced every consideration to a single characteristic: price.  I have long and vigorously supported Regulation NMS’s overarching goal of enhancing the efficiency of our markets.  The fragmentation that has followed Reg NMS is now obvious. Unfortunately, the economic analysis in the original adopting release failed to grapple with the risks of fragmentation, its adverse impact on competition, or frankly any costs beyond implementation.  This was a gross oversight that informed a myopic approach to regulation.  At the time, this short-sightedness was evident and our dissent argued that it would have been better “to improve access to quotations, enhance connectivity among markets and market participants, clarify the broker’s duty of best execution, and reduce barriers to competition.”  The Commission chose to reject our arguments and that choice precipitated a highly fragmented market governed by rules that invite gamesmanship.  Ironically, a rule intended to strengthen liquidity has instead splintered it among an unprecedented number of venues.  The result is a marketplace with more trading platforms than ever, but fewer broker-dealers and traditional market makers to knit it together.  Those intermediaries have succumbed to a combination of increasing technology costs, exploding regulatory costs, and more competition for a shrinking active trading clientele as passive investment vehicles have become more popular and flexible.  We are twenty years out from the troubled promulgation and implementation of Reg NMS; what will things look like in another twenty years if the status quo remains?  The fallout of the Trade-through Rule also extends to forcing institutional investors to exhaust the often-limited amount of liquidity available at the NBBO before they can access the larger pools necessary to execute substantial block trades, potentially revealing their intentions to a market eager to pounce on any information leakage. None of these outcomes is a hallmark of the worthy goals of a fair, orderly, and efficient market.  I am quite pleased that the staff is engaging in a reassessment of Reg NMS as it has fundamentally reshaped our markets, and the Commission has layered two decades of rules upon its flawed foundation.  That is not to say that things cannot be improved.  Many of the problems that we face today in the markets stem directly from the unintended consequences of regulatory policies.  This sort of situation usually results when policymakers substitute their own judgment for that of the markets.  Regulations must evolve alongside the markets, and I am committed to ensuring that a future Commission is not saddled with the same challenges we left for ourselves two decades ago. 

Commissioner Hester Peirce 

The rule was controversial enough when it was adopted in 2005 to prompt a lengthy 44-page dissent from Commissioners Cynthia Glassman and Paul Atkins.  Ten years later, in 2015, Rule 611 was the subject of the very first meeting of the Commission’s Equity Market Structure Advisory Committee, which featured some of the panelists and moderators that we have here today.  Ten years later we are here today, and the topline arguments are familiar.  Critics of the rule blame it for increasing complexity, fragmentation, and costs, while defenders credit it for increasing competition and protecting investors.  The insights gained from today’s discussions should help the Commission determine whether to move forward with amendments to Rule 611, and if so, what form those amendments should take. Should Rule 611 be retained, repealed outright, or amended, so as to apply only to exchanges above a certain volume threshold?  If a volume threshold is appropriate, what should that threshold be?  If Rule 611 is amended or repealed, should other NMS rules, such as the access fee cap in Rule 610 or the minimum tick size in Rule 612, also be changed?  Should our thinking on the trade-through rule apply equally with respect to the joint industry plan equivalent in the options market?  Does that market’s experience with its trade-through rule mirror the experience of the equity market?  Our markets are dynamic systems and this complexity keeps our markets vibrant and competitive, but it makes the task of writing, amending, or repealing rules that regulate this market structure challenging.  Compounding this challenge is the rapid pace of technological innovation, which alters the markets in ways that we cannot foresee.  Any amendments we undertake must try to account for technological changes that we can anticipate, such as currently ongoing efforts regarding tokenization, as well as changes that we cannot anticipate.  That the task is a hard one should not foreclose the Commission from taking action, but it does underscore the need for us to be careful, deliberate, and collaborative in any changes that we make.  Only then can we create durable and beneficial change in our markets. 

Commissioner Caroline Crenshaw

The Commission discussed in the adopting release for Rule 611 that many of the investors whose market orders are executed at inferior prices may not, in fact, be aware that they received an inferior price from their broker or executing market release.  In order for the SEC to fulfill its three-part mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, we must continually reevaluate our approach to market regulation, making adjustments as needed to respond to changes.  Assessing the interests of such investors and obtaining best execution on an order-by-order basis is a vitally important objective that warrants adopting OPR.  Given the important role that OPR has been playing as a backstop for broker-dealers’ duty of best execution, I am particularly interested in hearing more from today’s panelists about how trade-through prohibitions intersect with the fulfillment of best execution obligations.  I believe that a market intermediary’s duty of best execution is a cornerstone of our investor protection regime.  The idea that a market intermediary must seek the best deal for its customers is fundamental to ensuring that investors can have confidence when they engage in the market.  Without that investor confidence, the markets cannot serve their purpose as a place for investors to grow their savings while providing companies with needed capital.  However, I also understand the reality that the proliferation of execution venues has increased market complexity, which may make things more complicated for market participants.  I urge you to keep in mind the important role of the equity markets as a place where Americans can invest and grow their savings.  In order for the markets to serve this purpose, investors must have confidence in trading venues and market intermediaries.  This requires well-regulated, well-functioning markets that are efficient, competitive, and transparent.  

PANEL I: MARKET PARTICIPANTS’ EXPERIENCE WITH TRADE-THROUGH PROHIBITIONS 

Moderators 

  • Michael Piwowar (Milken Institute)  
  • Jamie Selway (Director, SEC Division of Trading and Markets) 

Panelists 

  • Julie Andress (Securities Traders Association and KeyBanc Capital Markets) 
  • Ari Burstein (IntelligentCross) 
  • Peter Haynes (TD Securities) 
  • Chris Isaacson (Cboe Global Markets, Inc.) 
  • Katie Kolchin (Securities Industry and Financial Markets Association) 
  • Dave Lauer (Urvin Finance and We the Investors) 
  • Joe Mecane (Citadel Securities) 
  • Maureen O’Hara (Cornell, SC Johnson Graduate School of Management) 
  • Pankil Patel (Bank of America) 
  • Chris Solgan (MIAX Exchange Group) 

Discussion 

  • Burstein highlighted how the trade-through prohibition framework has created artificial limitations, with market participants failing to route to better-priced non-protected quotes, even though IntelligentCross often displays the best price.  He outlined how they sought a proposed rule change through FINRA to have their quotes as protected quotes.  He noted how the continued inability for Intelligent Cross’ quotes to be considered protective quotes has stifled the introduction of innovation and competition, and has involved the Commission in the exact types of subjective judgments around protected quotes warned about in the past.  
  • Burstein asserted it is fair for the Commission to consider whether trade prohibitions are still needed, whether there are other obligations such as BestEx, that offer a better balancing of the goals of competitive markets, execution quality, and customer choice, or if the Commission determines to keep the trade-through prohibition in place, how to modernize the rule to reflect today’s markets.  He emphasized the need to look at best execution as a factor.  He noted that the minimum threshold is one point and asked how, if and when they have a protected quote, is it representative of the overall market volume, and questioned how to define it.   
  • Haynes opened saying that rules do have best before dates, and how important market structure tenets in place for a long time and taken for granted, such as Rule 611, are worthy of review.  He noted how order routing complexity has increased substantially as markets evolved in speed, which has led to brokers incurring significant connectivity and market data costs. 
  • He outlined three options, with the first as to leave Rule 611 as is as the least appealing of the options.  He said that if the goal of 611 was to ensure competition amongst markets or exchanges, that mission has been accomplished.  His second option is the threshold rule, a notion drawn from Canada, which instituted a threshold policy in 2016. He cited how proponents argue that it achieved the goal of stopping non-differentiated markets from launching.  Haynes said the third option of full elimination of trade-through rules has merit, while also noting that the threshold rule should be considered as well, with no easy answers for the implications of relying specifically on BestEx for routing purposes.  He added that it is also important to think about a no trade-through rule when considering the possibility of a whole new avenue of trading equities in token form outside the current infrastructure, which might result in a complete decentralization of trading. 
  • Isaacson emphasized that markets thrive through innovation and competition, not regulation, and how it important to proceed cautiously and to fully analyze the potential impacts of any reform as he noted it is worth discussing whether or not the threshold makes sense.  He said that Rule 611’s practical impact is clear and that a central goal of this discussion must be to maintain a strong NBBO and public price formation in order to foster continued trust and participation in markets, particularly among retail investors. 
  • Isaacson raised that if changes to trade-through rules are pursued, Cboe recommends a measured approach that also considers other aspects of Reg NMS and market structure that may need to be revisited in concert to foster greater innovation and competition, such as best execution expectations, the prohibition on locked markets, and access fee caps in equities.  He suggested that it is worth looking at why the off-exchange market is growing because of Rule 611 and the costs associated with it, noting that maybe focus can be shifted there. 
  • Isaacson highlighted that U.S. options market is incredibly unique, with not many traders, no off-exchange trading, and quote-driven structure.  He emphasized to do no harm within the options market and how the equities market is more in need of review, but that they should be reviewed separately. 
  • Kolchin highlighted that before making any changes, it is important to identify and analyze interconnected market structure pieces and ask probing questions regarding intent, unintended consequences and cumulative effects, and the harms needed to be eliminated, particularly to prohibitions on trade-throughs. 
  • Kolchin raised how markets have changed substantially, and with that, order routing complexity has increased, as have compliance costs for brokers.  She explained that brokers potentially have to connect to up to sixteen exchanges as well as all the other trading venues offering liquidity, thereby incurring connectivity and market data costs.  
  • Kolchin noted that BestEx is not just about the best price and whether that is protected or not, as well as how it can be argued that BestEx underpins the investor experience because it is not just regulatory.  She added that a few years ago, both the UK and the EU eliminated the formal published reviews of BestEx reports because they found they were not used by investors and were very costly and difficult to produce, with the absence of cost-benefit analysis.  
  • Lauer cited the massive increase in fragmentation as fragmentation without innovation, with copycat exchanges approved that serve little purpose but to extract rents for data and connectivity.  He talked about how Reg NMS has caused extreme fragmentation, latency arbitrage, rent extraction, market maker concentration, and erosion of best execution enforcement, particularly harming retail investors and further employing the maker-taker model.  He outlined the increase in complexity and interlinkages between exchanges and complex order types, tied to Rule 611 as well as the ban on locked and crossed markets.  He stated that there is no incentive for exchange consolidation, and exchange monopoly power has resulted in excessive costs for connectivity and data as another form of rent extraction. 
  • Lauer discussed how it is hard to separate out the effects of a single rule versus the entirety of Reg NMS.  He stated that Rule 611 has become the standard for best execution, but the current state of best execution is neither enforced nor enforceable.  He emphasized that if any changes to order protection are made, the implications of best execution must be considered, as well as what the retail experience will be when a trade price cannot be guaranteed.  
  • Lauer said the unintended consequences of 611 include a complete erosion of best execution, with OPR effectively replacing, not serving as a substitute for best execution. He added that the current BestEx regime is unenforceable, emphasizing that any changes to reduce trade-through protection, such as a market share threshold, must be accompanied by an enforceable BestEx standard or an order-by-order standard. 
  • Mecane raised concerns that removing the trade-through rule would be very complex, potentially disruptive, especially to retail investors, and the unintended consequences would not warrant the risk.  He stated that with changes to Rule 611, all the other rules such as access fees, BestEx, market data, quoting increments, Rule 605, SIP operation, Reg SHO, NBBO calculation, and the exchange balance of benefits and obligations, would also have to be accounted for.   
  • Mecane cited the increased costs at $1.5 million per exchange for onboarding between execution and clearing, with $200,000 annually for maintenance.  He stated that any action to reduce those costs and frictions to investors would require direct action as he discussed BestEx obligations, which makes it very difficult to disconnect from a venue and save the cost, framing the elimination the trade-through rule as not the fix.   
  • Mecane gave several recommendations, which included shifting the SIP more towards trading activity, introducing a minimum volume threshold before participating in SIP revenue, and capping the amount that can be charged for fees until a venue reaches a certain size. He said that even if the trade-through rule is removed, there is nothing stopping any exchange from charging whatever they want for those same costs, and that issue would remain. He clarified that the suggestion of a market share threshold was for economic benefits, not for protected quote benefits, because using it for protection would be confusing and difficult to administer. 
  • On options, Mecane noted there is nothing fundamentally different between options and equities with respect to the trade-through rule, stating that it is not more or less relevant or impactful in one versus the other, and taking it out does not necessarily yield improvement. 
  • O’Hara argued that the NBBO is misnamed and often functions as a “national pretty good bid and offer,” since many odd-lot orders at better prices remain unprotected.  She stated that best execution does not occur for a large fraction of trades, especially in higher-priced stocks.  She added that markets may be better off without the trade-through rule, but if it remains, dramatic changes are needed.  
  • O’Hara noted that OPR dramatically increased order complexity and that trade-through does not guarantee best execution.  She cautioned that if trade-through protections are removed, the major concern becomes ensuring robust best execution, including through the SIP. 
  • Patel raised that while Reg NMS and Rule 611 provided a framework for modernization, they also triggered an even more sophisticated technology arms race.  He noted that participants with superior infrastructure sought to exploit latency and regulatory arbitrage opportunities, taking advantage of exchange proximity, matching speeds, and how fast quotes were being disseminated.  He cited the increased cost to the industry from small equity and options venues is about $375 million a year, but removing OPR would not do much to impact that cost.  He said it is time to take a fresh look at 611 and other structural rules, as unintended consequences have led to enormous costs, fragmentation, and unnecessary complexity that continues to balloon. 
  • Patel raised the fiduciary responsibility to provide the best execution, and that in a majority of markets, there is no order protection.  He contrasted the European Best Bid and Offer (EBBO) with the U.S.’ synthetic NBBO, emphasizing that irrespective of whether there is order protection or not, they are providing best execution.  He outlined that there are seven to eight levers that leveraged as part of one’s best execution philosophy, and Rule 611 is only one of those levers, but not in all marketplaces. 
  • On the Consolidated Audit Trail (CAT), Patel cited how ninety percent of all CAT messages are options-related, and how they have blown out the costs of CAT as he called for collective assessment.  He stated that protection in this space is not the issue, but that there is a significant undue cost and complexity introduced by having so many options exchanges. 
  • Solgan outlined how MIAX supports examining old regulations to ensure that they still work for the markets, and that MIAX believes that the trade-through rule has been generally good for the markets and has helped to promote displayed liquidity and price protection.  He stated that MIAX believes that the trade-through rules should be retained but potentially modernized to reflect changes in the marketplace since first adopted over twenty years ago.  He encouraged for any changes, whether tweaking or possibly repealing, to consider the value of a displayed quote in the marketplace, the importance of the NBBO, and the need for on-exchange liquidity. 
  • Solgan highlighted that the equities and options markets are fundamentally different, and MIAX’s agreement with Cboe that any consideration of potential changes to applicable trade-through prohibitions should be reviewed separately.  For options, he said he believes there is less of a need for change.  

PANEL II: A TRADE-THROUGH PROHIBITION’S ROLE IN TODAY’S MARKET STRUCTURE 

Moderators

  • Andre Owens (WilmerHale) 
  • Jamie Selway (Director, SEC Division of Trading and Markets) 

Panelists

  • Jim Angel (Georgetown University) 
  • Allison Bishop (Proof Trading) 
  • Hubert De Jesus (BlackRock) 
  • Armando Diaz (PureStream) 
  • Jonathan Kellner (MEMX) 
  • Kevin Kennedy (Nasdaq) 
  • Matt MacKenzie (Optiver) 
  • Chris Nagy (Healthy Markets Association) 
  • Adam Nunes (Hudson River Trading) 
  • Jeff Starr (Schwab) 

Discussion 

  • Angel raised that one overlooked cost is the cost to the limit order that is allegedly traded through, as he called for the SEC to use CAT data to determine who is being traded through, and if they are being harmed at all.  He emphasized that before making any decisions, the real costs, if any, or real harms from trade throughs are present. 
  • Angel stated that while 611 is not best execution, in the context of BestEx obligations and execution quality, the NBBO plays a role, and that in comparing executions against the NBBO and weighing changes, it must be known how that is going to translate into evaluation of retail best execution. 
  • On data of connectivity costs for brokers in particular, Bishop raised how the market has worked around the issue of all brokers having to connect to all venues and provided various market solutions, including direct market access, as she emphasized how market forces bringing those connectivity costs down. She noted that even if one is getting market data from a competing consolidator in the potential new SIP plan, that cost can only come down as much as that initial bill that is still due back to the SIP operator.  She highlighted that maintaining the quality and improving the quality of the SIP and affordability greatly support effective competition among brokers. She discussed concerns about exchanges being profitable from SIP revenue and how SIP revenue may be out of proportion to costs, she raised how controlling that would reduce a lot of these negative effects that potentially would be blamed on OPR.  
  • Bishop raised how fragmentation is not only in terms of the number of venues but also in terms of time, with increased and longer periods of time for liquidity posing a threat to the quality of the NBBO if natural liquidity must be spread out over longer periods.  She agreed that the right focus is on shoring up the NBBO across time, and emphasized that fragmentation occurs in time as well as venues, with increased and longer periods of time for liquidity as a threat to the quality of the NBBO if natural liquidity is spread out over longer periods of time. 
  • De Jesus framed how Reg NMS, and in particular Rule 611, have been very instrumental and beneficial in integrating independent marketplaces into the cohesive market system.  He noted that while certain aspects of Rule 611 may contribute to market fragmentation and increased costs in today’s market environment, BlackRock thinks the trade-through prohibition is very closely connected to a number of other provisions in Reg NMS, with the need to adjust other rules in Reg NMS to ensure unintended consequences by eliminating or modifying Rule 611 are not introduced.   
  • De Jesus called for the SEC to consider a balanced approach where Rule 611 could be refined to address fragmentation and costs by introducing a market share threshold, but accompanied by corresponding adjustments to other rules that would address additional economic incentives for exchange proliferation and market fragmentation. He noted that some order types would not exactly go away with the elimination of Rule 611 unless prohibition in locking across markets and other aspects of market structure, like short sale bid tests, are dealt with.  He noted that collecting market data revenues from the SIP or connectivity fees charged are additional factors that need to be addressed holistically to really address exchange proliferation and market fragmentation. 
  • Diaz discussed how, in PureStream’s experience, trade-throughs occur exclusively off-exchange, and how they filter every trade occurring off-exchange for trade-throughs.  He stated that markets do not suffer from price discovery issues, but from throughput, as he called for the focus to be on throughput and liquidity depth rather than distinctions between lit and dark.  He noted that liquidity is off balance in the ratio between volume and price point, and how the rules must be addressed at a minimum.  He framed how locked markets serve no function and are nonsensical, citing how a locked market is the function of a slower exchange, not refreshing the non-display liquidity and the faster exchange locking that market. 
  • Kellner discussed that if 611 is kept as is, or even with some targeted exceptions, then more modest market structure changes like implementing the approved tick size changes may suffice.  He noted that if Commission votes to remove 611, then it will need to evaluate ancillary rules like access fees and locked and cross markets, as well as broader market structure rules like fair access.  He stated that MEMX is supportive of either path so long as the SEC takes care to ensure that its overall regulatory regime continues to promote a robust displayed market. 
  • Kellner stated that removing 611 does not take care of the problem of the inability to compete on-exchange, with other rules like fair access or how fair access has been interpreted by the Commission, preventing competition in off-exchange pools under Reg ATS.  He said that MEMX is concerned about competition but does not think that changing 611 will help move dark liquidity on-exchange, suggesting consideration of how to continue to foster a strong NBBO, as he called for the focus to be on allowing exchanges to compete effectively and fostering the display of liquidity.  
  • Kennedy highlighted Nasdaq’s alignment with the Commission’s goals of reducing complexities and regulatory burdens, with simplifying rules and moving away from prescriptive fee setting as the means to foster greater competitiveness and lower regulatory burdens.  He cited the problem of off-exchange trading and how it stifled innovation, stating the preference for regulation by prevention, not regulation by punishment.  He also raised how options markets need customer priority protection, especially during periods of market stress.  
  • MacKenzie said on contemplating changes to market structure rules, Optiver believes the options market would be better suited to digest the repeal of 611, and on the equity side, it should be a do-no-harm approach with a focus on the way the trade-through rule is threaded throughout NBBO and BestEx.  He stated that the value proposition is in lit liquidity and trading on-exchange, calling to avoid changes that would disincentivize liquidity provision on-exchange.  
  • MacKenzie cited Optiver’s prior commentary on the options regulatory fee, noting their support for the work that Nasdaq and SIFMA Options (SIO) has done to move forward on it.  He described the fee as an impediment to growth that should be addressed concurrently if the Commission undertakes options market structure reform. He commented that, because the options market is fully exchange-traded with Options Price Reporting Authority (OPRA), the elimination of the trade-through rule would not undermine price formation, with NBBO derived from market data and reflected in the consolidated tape, which he noted the market could bear.    
  • Nagy framed OPR as meeting the need for a backstop for best execution and how trade-throughs are rare.  He discussed how the rules could be improved to mitigate negative impacts on data, access costs, and potential information leakage.  He emphasized that any weakening of Rule 611 must be accompanied by improvements to best execution such as implementing Rules 605 and 606 first, requiring disclosure of trade-throughs on confirmations, and adding ADA orders to the SIP.   
  • Nagy stated that Rule 611 is about best execution and, while an imperfect prophylactic protection, it worked and still works, and if it is removed without strengthening disclosure and best execution, things will gravitate toward the lowest common denominator.  He also noted that repealing 611 would not necessarily reduce market data connectivity costs, which have risen due to the flawed SEC process for reviewing and approving SRO fee filings and the short-circuit expedited process created by Section 916 of Dodd-Frank. 
  • Nunes stated that at the time of NMS, there was not a strong rationale for OPR and trade-through rule, with the rationale today is even weaker and that if trade-through is supposed to be the thing that protects displayed liquidity, it is not working.  He argued that if there must be continued layering of exceptions onto a rule, the rule is broken fundamentally, as it should not require so many exceptions to make it workable.  He noted that some of the exceptions that exist around ISOs and self-help are more practical and needed, calling for systems that are designed to comply on the front end.  He suggested exploring rewarding displayed orders on markets that execute, since the current market data revenue-sharing formula only rewards quotes and has created distortions.  
  • Starr raised how locked and cross markets for retail clients, regardless of odd or round lot status, are almost non-issues in the market today.  He noted how the cost and complexity of connections have led to a model where firms leverage market makers for order routing, using those firms and their connections to get orders executed.  He highlighted the need to be conscious that market data costs are too high for retail clients and that in looking at evolving market structure, it must be done in a way that brings those costs down.  He noted that brokers’ use of market makers for connectivity allows one to leverage the technology investments of those firms rather than entering the technology arms race, as well as increases competition between on-exchange and off-exchange, with the statistics on execution quality and price improvement showing how such competition has worked to the benefit of retail clients. 

PANEL III: FORWARD THINKING 

Moderators

  • Elad Roisman (Cravath, Swaine & Moore) 
  • Jamie Selway (Director, SEC Division of Trading and Markets) 

Panelists

  • Robert Battalio (University of Notre Dame) 
  • Matt Billings (Robinhood) 
  • Robert Colby (FINRA) 
  • Daniel Gerhardstein (FIA Principal Traders Group and Jump Trading Group) 
  • Jon Herrick (New York Stock Exchange) 
  • Vlad Khandros (OneChronos) 
  • Mehmet Kinak (T. Rowe Price) 
  • Joe Saluzzi (Themis Trading) 
  • Andrew Smith (Virtu Financial) 
  • Cameron Smith (Texas Stock Exchange) 
  • Debbie Toennies (J.P.Morgan) 

Discussion 

  • Billings discussed how innovation and intelligent regulation can and should go hand in hand, reasoning that it is time to consider the rescission of Rule 611 with a measured approach to foment competition across markets.  He outlined his support rescinding for 611, letting the SEC return to allowing competitive forces between price and improved technologies to shape market structure as unnecessary and restrictive regulations are removed.  He stated that given the cost and complexity imposed on market participants and the downstream impact on retail investors, it is worth questioning 611’s relatively limited benefits and justifications for its continued existence.  He framed how the recission of 611 would result in the reduction in complexity and costs while supporting the interplay of competitive forces on exchanges.  
  • Colby addressed how best execution is the fundamental and foremost principle of fair markets, and it is what all market structure rules should be designed to support.  He argued it is not true that the SEC does not have best execution rules, and how market structure can make best execution more or less simple to enforce.  He stated that without clear standards, best execution will be applied either through staff interpretations or through exams and enforcement actions, with the latter as not ideal.  He highlighted the need for more guidance on best execution in the options markets as they have evolved, and called for clear standards in any market structure changes that support BestEx enforcement. 
  • Gerhardstein outlined how advancements in technology, changing market dynamics and evolving participant needs since 2005 present an opportunity to modernize the regulatory framework, with thoughtful reforms and targeted updates to Rule 611 to enhance market efficiency, reduce unnecessary costs, and deliver better outcomes for investors.  He stated how PTG believes Rule 611 should be repealed and replaced with a modernized, principles-based best execution framework, accompanied by enhanced FINRA BestEx requirements and public disclosure of routing policies to empower market participants to make informed decisions while maintaining broker dealer accountability.   
  • Gerhardstein framed how new BestEx disclosures would deliver required transparency while offering detailed data on price improvement, size improvement, and execution quality metrics, thereby reducing complexity by limiting the need for industry participants and exchanges to operate and maintain elaborate systems solely for trade-through compliance.  He emphasized that such enhancements would promote innovation and competition based on execution quality and other factors rather than regulatory compliance. 
  • Gerhardstein discussed how Rule 611 creates artificial incentives for establishments of new exchanges, and how the protected status provides exchanges with guaranteed revenue through the forced connectivity, market data, and access fees without regard to whether new  value is delivered to market participants.  He also discussed how the SIP revenue allocation formula currently rewards quoting activity, even for venues with minimal trading activity, which creates a subsidy mechanism that encourages venue proliferation, absent true innovation.  He highlighted that repealing 611 would hopefully prompt a rationalization of the exchange landscape, with venues required to justify their existence through genuine value creation rather than merely meeting regulatory requirements and leveraging existing exchange technology, resulting in a more efficient market structure with less fragmentation as those unable to provide meaningful differentiation would likely consolidate or exit.  
  • Herrick said that if 611 is rescinded or any significant modifications are made, the SIP revenue share construct must be assessed and displayed trades should be incentivized as a means to improve market efficiency and transparency.   
  • Khandros discussed how firms are locked in a high-tech arms race for speed directly attributable to provisions of NMS and that 611 is only exacerbating it.  He outlined three areas to shortlist as BestEx, block exemption, and Reg SCI that would result in improved execution quality, added innovation, and reduced burden.  He noted how the idea of a block exemption would make a lot of sense, and on the Reg SCI front, how there are venues that artificially stay below 1% of the market to avoid compliance due to the significant burden with no commensurate benefit. He highlighted that streamlining SCI makes sense in general and allows more innovation, reduces costs for investors, and aids in capital formation.  
  • Kinak stated that OPR has created more detriment to markets than it has benefited, and that it is no longer necessary, negating the assertion that OPR encouraged displayed liquidity and arguing that trade-throughs do not really exist now with automated and efficient markets.  He cited that if OPR is removed, firms still have to report under 605, and brokers are monitored for performance relative to the prevailing NBBO.  He stated that trade-through is not detrimental enough to justify OPR, and how eliminating OPR gives more flexibility to compete. SIP and NBBO need to be present, and how the SIP is derived in the future must be determined if there is no OPR. Thresholds can address fragmentation by reducing the number of protected exchanges, but Kinak noted he is not a fan of thresholds.  
  • Kinak stated removing OPR would reduce incentives for new exchanges, address the one-size-fits-all best execution regime, and lead to more innovation in both lit and dark markets.  He said proliferation within ATSs has brought innovation and uniqueness, while exchange proliferation has brought little innovation, with new applicants offering nothing unique.  He added that when people say they achieve best execution, they often equate it with OPR and best price, without clearly defining BestEx.  He asserted that U.S. markets are the envy of the world, not because of OPR, but in spite of it. 
  • Saluzzi stated that Reg NMS is unnecessarily complex and outlined how it invites gamesmanship, induces widespread market fragmentation, disperses liquidity, and diminishes transparency.  He framed how Reg NMS drives order flow away from exchanges, fuels unhealthy trading volatility, and exposes the markets to flash crashes because its rules have led to atomization as orders explode across off-exchange, on-exchange, and hidden on-exchange.  He said that he does not think OPR is responsible for fragmentation, and that the answer is not to get rid of OPR.  He noted that OPR is a way of keeping BestEx responsibilities intact and that it should be extended, as OPR is solely coincidental to the problem.  
  • A. Smith stated that it is important to look closely at the range of costs and other factors, including changes in trust and confidence in the markets and investor confusion, if significant changes are made.  He argued that scaling back Rule 611 for competition or cost savings are not good arguments as he emphasized the need to change the incentives to change the problem, calling for a universal bench mark.  He cited exchange proliferation as the problem and that it is driven by SIP revenue, and addressing the SIP revenue issue is more important than breaking the compass, as SIP integrity relies on having a universal North of a true NBBO.  He suggested a surgical approach toward SIP revenue instead of a blunt approach that could be more costly or disruptive.  
  • C. Smith framed how most retail trades off-exchange, and that NBBO is in many ways a last resort price.  He stated that he is OPR being removed, but eliminating OPR will not make a big impact in terms of fragmentation or the creation of exchanges.  He said that OPR by itself is not really driving the creation of new exchanges, citing a proliferation of ATSs that do not have OPR as well as demand for new venues.  
  • Toennies stated that while NBBO is not driven by 611, it is the enforcement and measurement tool for BestEx, with 611 as one component of BestEx.  She discussed how having a minimum threshold of one percent for protected status might be beneficial, and as well as support for selective refinements.  She raised how it will be resource-intensive and carries short-term potential risks to market depth and resilience if all the affected rules cannot be altered simultaneously with removing OPR.  She warned that if OPR were to be removed without such changes, it would put healthy markets at risk.