The U.S. Securities and Exchange Commission has proposed eliminating two core rules of Regulation National Market System, aiming to loosen long-standing protections around quoted prices and reduce compliance costs across equity markets. The agency estimates annual savings of $54.2 million to $77 million if the changes are adopted.
The proposal targets Rule 611, known as the trade-through rule, and Rule 610(e), which governs locked and crossed quotes. A 60-day public comment period is now open, after which the SEC will decide whether to proceed.
Shift toward modern market structure
The SEC said the changes reflect how trading has evolved, pointing to automated systems, highly interconnected venues, and emerging technologies such as distributed ledger systems and smart contracts. The regulator argued that older, centralized protections may no longer suit current market dynamics.
Removing these rules would reshape how orders are routed and how quotes are displayed, giving trading venues more flexibility in execution and pricing.
Rethinking the trade-through rule
Rule 611 requires trading venues to avoid executing orders at prices worse than those displayed elsewhere, provided those quotes are accessible. Introduced in 2005, it was designed to promote price transparency and visible liquidity.
The SEC now argues that separate best execution obligations already ensure order quality, making the rule potentially redundant. Critics have long said the requirement increases costs, contributes to market fragmentation, and encourages latency-driven trading strategies.
Without the rule, routing systems could prioritize factors such as execution speed or fill probability over strictly matching the best displayed price.
Ending restrictions on locked and crossed quotes
Rule 610(e) prevents quotes that would result in locked or crossed markets, where bid and ask prices overlap or invert. Exchanges and organizations like FINRA are currently required to enforce these restrictions.
The SEC said these constraints have led to increasingly complex order types and automated adjustments, raising both operational and compliance costs. Removing the rule could allow more direct competition between quotes and potentially tighter bid-ask spreads.
The agency added that modern arbitrage and trading technology can correct pricing discrepancies quickly, reducing the need for strict federal controls.
Risks and safeguards remain
The SEC acknowledged potential downsides, including temporary pricing inefficiencies and challenges interpreting market data, particularly in less liquid securities. It is seeking detailed input and data from market participants before making any final decision.
Certain safeguards would remain unchanged. Access fee caps will stay in place, and requirements around securities registration, identity verification, clearing, and custody structures would not be affected.
Implications for trading venues and new technologies
The cost savings outlined in the proposal are expected to benefit exchanges, alternative trading systems, and broker-dealers running order routing infrastructure. These firms would face fewer technical and monitoring requirements tied to the current rules.
More broadly, the move signals a shift toward allowing trading venues to compete on execution quality, speed, and liquidity rather than complying with overlapping regulatory protections.
The SEC’s reference to blockchain-based systems also highlights a longer-term goal. By removing legacy coordination rules, regulators may be opening the door for more flexible models, including on-chain trading mechanisms and continuous, 24/7 markets for tokenized equities within U.S. frameworks.
Explore how tokenized equities could leverage streamlined market rules, bridging traditional securities with blockchain-based trading innovation.
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