As the Securities and Exchange Commission (SEC) reviews the continued application of Rule 603 of Regulation NMS, known as the Vendor Display Rule, Douro Labs urged the agency to rethink how quotation display obligations are structured in today’s markets.
In its comment letter to the SEC, the firm wrote that while the rule once played an important role in strengthening investor protection, its design reflects a technological framework that no longer matches how market data is produced and distributed.
“While the rule historically advanced important investor protection goals by preventing selective quotation display and reinforcing consolidated market transparency,” Douro stated, “its current structure reflects a market architecture designed for a prior technological era.”
Rule 603 requires broker-dealers that provide quotation information to customers in actionable trading contexts to display a consolidated quotation, specifically, the National Best Bid and Offer (NBBO) and consolidated last sale information as disseminated through the Securities Information Processor (SIP). The rule was intended to prevent firms from presenting selective or incomplete market data that could mislead customers making trading decisions, according to the letter.
“The objective, preventing misleading or selectively incomplete quotation display, remains valid,” the letter explained. What the firm questioned was whether mandating reliance on a SIP-based consolidated construct is the only way to achieve that goal.
In an interview accompanying the submission, a Douro spokesperson emphasized that the firm’s proposal was not an argument against consolidated pricing itself, but against tying regulatory compliance to a specific technological mechanism.
“It’s important to distinguish the function of the NBBO from the method by which those prices are determined and delivered,” the spokesperson said. “Historically, the NBBO provided a consolidated national best bid and offer based on SIP processes that aggregate quotations across exchanges.”
The concern, the spokesperson continued, was that “the current Rule 603 ties the regulatory obligation to a specific consolidated construct, the SIP-based NBBO, implicitly privileging a legacy architecture over all others.” According to Douro, reliable and accurate market data can be generated through multiple architectures without undermining investor protection.
“Our proposal, rooted in a principled interpretation of the original policy objective, posits that reliable and accurate market data can be produced through different architectures without sacrificing the core protections the rule is meant to ensure,” the spokesperson said. “Regulatory modernization should focus on rules that are technology-neutral, as long as they require transparency, accuracy, and the non-misleading presentation of prices.”
Douro argued that markets already operate in an environment where multiple consolidated feeds coexist. SIP data, proprietary top-of-book feeds, and alternative consolidated displays used by institutional systems are all present in practice. “We’re already seeing substantial competitive alternative solutions that many brokers rely on in practice because they deliver accurate pricing with lower latency and lower cost than SIP feeds,” the spokesperson said.
The firm said that these systems function within existing disclosure and fair dealing obligations, and that investor protection has not deteriorated as a result. In its view, the rule should articulate the principles that matter, transparency, completeness, and non-misleading presentation, rather than embed a particular historical data architecture into regulatory text.
Under Douro’s proposal, which it called a “Fair Quote Presentation Rule,” displayed prices in actionable contexts would be subject to clear transparency requirements. Firms would need to identify the data source and methodology used to calculate reference prices, provide timestamps and recency information so customers can evaluate data freshness and quality, and ensure that no material price information is omitted in a way that could mislead users, the firm said.
“That level of transparency enables informed decision-making and is intended to preserve retail protection while enabling market infrastructure to evolve,” the spokesperson said. “Modernizing Rule 603 to articulate those underlying investor protection principles rather than embedding a specific historical data architecture simply brings rules into alignment with contemporary market design.”
