Agency Seeks to Rescind Rules 611 and 610(e), Arguing Markets Have Evolved Beyond 2005 Framework
The U.S. Securities and Exchange Commission (SEC) has proposed eliminating two cornerstone provisions of Regulation National Market System (Regulation NMS), arguing that modern equity markets have become sufficiently competitive, automated, and interconnected to function effectively without the decades-old rules.
The proposal would rescind Rule 611, commonly known as the “Order Protection Rule” or “trade-through rule,” and Rule 610(e), which restricts locked and crossed quotations in National Market System (NMS) stocks. SEC officials say the changes are intended to reduce compliance costs, simplify market structure, and allow competition and innovation to drive the future evolution of U.S. equity markets.
SEC Says Market Structure Has Changed Dramatically
According to the SEC’s proposal, the U.S. equity market has undergone significant transformation since Regulation NMS was adopted in 2005.
The agency noted that today’s markets are highly automated, interconnected, and technologically advanced compared with the fragmented trading environment that existed two decades ago. As a result, SEC officials argue that some of the original justifications for Rules 611 and 610(e) may no longer apply.
SEC Chairman Paul Atkins said the proposal is designed to “simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets.”
What Rule 611 and Rule 610(e) Currently Do
Rule 611 was introduced as part of Regulation NMS to prevent “trade-throughs,” which occur when a trading venue executes an order at a worse price than one available on another exchange.
The rule effectively requires brokers and exchanges to route orders to the venue displaying the National Best Bid and Offer (NBBO), ensuring investors receive the best available quoted price.
Rule 610(e), meanwhile, restricts locked and crossed markets.
- A locked market occurs when the best bid equals the best offer.
- A crossed market occurs when the best bid exceeds the best offer.
The SEC originally implemented these restrictions to improve market efficiency and reduce pricing conflicts across exchanges.
Why the SEC Wants to Remove the Rules
In its proposal, the SEC argues that the rules have produced unintended consequences over the past two decades.
According to the agency, Rules 611 and 610(e) have contributed to:
- Increased market complexity
- Higher compliance costs
- Greater exchange fragmentation
- Reduced flexibility in order handling
- Additional routing and connectivity expenses
The SEC stated that modern technology now enables market participants to access and process market information much more efficiently than when the rules were first adopted. As a result, regulators believe competition and broker best-execution obligations may provide sufficient investor protection without these specific mandates.
Industry Groups Welcome the Proposal
The proposal has received early support from several market participants and industry organizations.
The Securities Industry and Financial Markets Association (SIFMA) praised the SEC for reviewing the rules and said it supports efforts to simplify market structure while reducing costs for brokers, exchanges, and investors.
Supporters argue that eliminating the rules could lower:
- Market data expenses
- Exchange connectivity fees
- Order-routing costs
- Regulatory compliance burdens
They also contend that fewer regulatory constraints could encourage innovation in trading technology and execution models.
Critics Warn About Investor Protection Concerns
Not everyone supports the proposal.
Critics argue that Rule 611 has long served as a key investor-protection mechanism by ensuring traders receive the best publicly available prices.
Opponents warn that removing the trade-through prohibition could allow some orders to be executed at less favorable prices if market participants prioritize other factors such as speed, liquidity, or routing arrangements.
The SEC acknowledged in its proposal that Rule 611 may have benefited certain investor groups, particularly retail traders, even while imposing costs on institutions and market operators.
Potential Impact on Tokenized Stocks and Digital Assets
The proposal has also attracted attention from the digital asset industry.
Several market observers, including analysts at crypto-focused firms, argue that Rule 611 has historically created structural challenges for tokenized equity trading and decentralized finance-based stock markets.
Because automated market maker (AMM) systems generally do not operate under the traditional National Best Bid and Offer framework, removing Rule 611 could potentially make it easier for tokenized stock platforms to operate within U.S. regulatory structures.
While the SEC proposal does not specifically address tokenized equities, industry participants have highlighted the change as a potentially important development for blockchain-based financial markets.
Public Comment Period Now Open
The SEC has opened a 60-day public comment period following publication of the proposal in the Federal Register.
During that period, exchanges, broker-dealers, institutional investors, retail investor advocates, and other market participants will have an opportunity to submit feedback before the Commission decides whether to adopt the changes.
Market observers expect significant debate over the proposal given the central role that Regulation NMS has played in shaping U.S. equity markets since 2005.
What Happens Next?
If ultimately approved, the rescission of Rules 611 and 610(e) would represent one of the most significant U.S. equity market structure reforms in years.
Supporters believe the move could modernize trading infrastructure, reduce costs, and encourage innovation. Critics, however, argue that weakening trade-through protections could introduce new risks for investors and market transparency.
For now, the proposal marks the latest effort by the SEC under Chairman Paul Atkins to reassess longstanding market regulations and determine whether they remain appropriate in an increasingly digital and technology-driven financial system.
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