The first meeting of the Securities and Exchange Commission’s newly formed equity market structure committee, set for next month, will focus on the so-called “order protection rule.”
The regulator isn’t wasting any time and jumping right into the market structure debate, opting to discuss Rule 611 (the order protection rule) first at it meets May 13, according to the regulator’s website and market sources who have spoken with Traders.
Rule 611 requires trading centers to have policies and procedures designed to prevent “trade throughs” – trades at prices that are inferior to displayed and immediately accessible quotations at other trading centers.
“Enhancing our equity market structure remains a top priority,” said SEC Chair Mary Jo White in a release.“As we continue to make progress in this important area, the committee’s experience and diverse viewpoints will provide valuable insight as we work together to further strengthen our overall market structure.”
The demand put forth by Rule 611, one trader told Traders, was the reason there is so much order routing complexity and that has pushed the buyside’s recent call for fewer order types and order routing transparency.
In February, the FIA’s Principal Traders Group put out a position paper on Rule 611 that stated that the order protection rule added complexity and contributed to the fragmentation of the equities trading markets.
“The Position Paper recommends eliminating the order protection rule (Regulation NMS Rule 611) and the requirement to avoid displaying locked and crossed markets (Regulation NMS Rule 610(d)) which according to the Position Paper, would reduce “complexity and fragmentation” in U.S. equity markets,” the paper said.
The PTG added that these rules (Rule 611) add significant complexity by requiring trading venues to collect and process data from displayed trading venues to determine whether incoming orders would trade-through, lock or cross a protected order, encouraging trading venues to develop numerous order types that address how orders are to be handled if they appear to lock or cross a protected order (e.g., hide-not-slide), and contributing to the growth in the number of trading venues in recent years, many of which account for minimal trading volumes.
The group also called for clarification of Rule 605 and 606.
The full agenda of the SEC meeting:
9:30 a.m. Introductory Remarks by Chair White, Commissioners and the Director of the Division of Trading and Markets
10:00 a.m. Self-Introduction of Committee Members
10:50 a.m. Review and Consideration of Proposed Bylaws
11:00 a.m. Presentation on Rule 611 by SEC staff
11:30 a.m. Lunch/Administrative Session
1:00 p.m. Presentation and Q&A on Rule 611
2:00 p.m. Break
2:15 p.m. Presentation and Q&A on Rule 611- Continuation
3:15 p.m. Committee Discussion of Rule 611
4:30 p.m. Discussion of Next Steps
The SEC has also solicited comments on Rule 611 and they are available on the regulator’s website.
