Securities Regulation Daily Wrap Up, EXCHANGES AND MARKET REGULATION—SEC proposes rescission of trade-through prohibition, (Jun 12, 2026)
The Commission says unintended consequences of Reg NMS Rules 611 and 610(e) have hindered the growth of the markets.
The SEC is proposing to rescind the trade-through rule and the provision regarding locking and crossing quotations for NMS stocks. The proposed rescission of Rules 611 and 610(e) of Regulation NMS is in response to the evolution of the markets since the adoption of the rules in 2005. The Commission says that the rules are no longer needed and that rescinding them would reduce costs for market participants Comments will be due sixty days after publication in the Federal Register (The Trade-Through Rule and Locked and Crossed Markets Provisions of Regulation NMS, Exchange Act Rule 34-105655 (June 11, 2026)).
Trade-throughs and locked markets. Adopted in 2005 as part of Regulation NMS, Rule 611 provides intermarket protection against trade-throughs for all national market system stocks. A trade-through occurs when a trading center executes an order at a price lower than a protected quotation displayed by another trading center. Adopted at the same time, Rule 610(e) restricts the locking and crossing of quotations in NMS stocks. A market is locked when the best bid price equals the best offer price, and crossed when the best bid exceeds the best offer.
According to the Commission, the structure of the U.S. markets has evolved significantly since 2005 to become highly competitive, interconnected, and automated. Rules 611 and 610(e) are not needed and have even become a hindrance to competition and innovation, the proposal says, noting that commenters have wondered whether the rules are partly to blame for the substantial increase in the number of exchanges and excessive fragmentation of liquidity among trading venues and the accompanying increases costs and complexity for participants.
The rules were adopted at a time when exchanges were not as well-connected as they are today and when the existing linkages were slow. New technologies with respect to order handling, access, and routing have made Rule 611 unnecessary and the rule is also no longer needed as a backstop to a broker's duty of best execution. The proposal points out that a goal of Rule 611 was to incentivize displayed liquidity, but since 2005 the percentage of orders interacting with non-displayed liquidity on- and off-exchange has consistently increased. The rule would be removed and reserved.
Increases in automation and interconnectivity similarly obviate the need for Rule 610(e), which would be rescinded in its entirety. As relevant here, Rule 610(e) requires exchanges and national securities associations to implement rules requiring members to avoid displaying quotations that lock or cross protected quotations with a goal of encouraging trading against displayed quotations. The proposal observes that the Commission's concerns about investor confusion resulting from crossed or locked markets are no longer prevalent, and that rescinding the rule could reduce unnecessary complexity caused by its requirements.
Other changes. The proposal would also make conforming changes to Regulation NMS and other rules reflecting the rescission of Rule 611 and 610(e). Certain definitions currently in Rule 600(b) would no longer be necessary if the proposed rescissions occur and would be removed. Other rules in Regulation NMS and elsewhere that cross-reference Rules 611 and 610(e) would also be amended.
"After two decades of Rule 611, it is high time that the Commission review its unintended consequences that have hindered—rather than enhanced—the long-term growth of our markets," said SEC Chairman Paul S. Atkins. "This proposal is intended 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."
The proposal was unanimously approved. Commissioner Peirce wondered if the rules were ever necessary but said that no matter what, the impetus behind their adoption is long gone and that they currently "fuel disorder by encouraging the proliferation of exchanges, dampening innovation within them, and inspiring ever more complex order types on those exchanges." Commissioner Uyeda indicated that this proposal is just the beginning of reforms to the equity market-structure rules. Removing Rule 611, he said, would raise questions but may also "lead to a market structure that is more adaptive, resilient, and better aligned with how trading actually occurs today."
The release is No. 34-105655.
RegulatoryActivity: ExchangesMarketRegulation GCNNews SECNewsSpeeches