On September 18, the U.S. Securities and Exchange Commission (SEC) hosted a roundtable to discuss trade-through prohibitions in the National Market System stock and listed options markets. Eleven panelists took part in Panel Three – Forward Thinking to debate the future of Rule 611 under Regulation NMS.
The rule has been around for almost 20 years, originally designed to protect investors and keep markets fair. But with all the changes in the market since then, panelists were asked whether Rule 611 still makes sense today.
The conversation made it clear there’s no simple answer, and opinions were mixed. While many believe the rule needs serious reconsideration, there’s no clear agreement on how to approach it.
Is Rule 611 Outdated?
Matt Billings, Vice President of Brokerage and President of Robinhood Financial and Robinhood Securities, said markets have changed so much that Rule 611 is now more of a burden than a help. Trading costs are lower than ever, more people participate, and technology has advanced to the point where the rule’s original purpose feels less relevant. Billings argued that Rule 611 forces brokers and exchanges to manage a complicated web of protections and connections that add cost—costs that ultimately fall on everyday investors.
“I think we’re at a point where market forces should take over,” Billings said. “We don’t need rules that pick winners and losers anymore.”
Daniel Gerhardstein of FIA Principal Traders Group and Jump Trading Group, agreed that Rule 611 is “too rigid”. It treats all orders the same, ignoring factors like speed, order size, and liquidity, which matter to investors. In his view, the rule can lead to worse outcomes because it overlooks these differences.
Gerhardstein suggested a principles-based best execution framework, where brokers are responsible for delivering the best overall outcome—not just the best protected price. He stressed that more transparency and reporting from FINRA could help investors better understand execution quality.
Concerns About Liquidity and Fragmentation
Mehmet Kinak, Global Head of Equity Trading at T. Rowe Price, argued bluntly: “We should just get rid of it.” He questioned whether Rule 611 truly improves liquidity or market quality. Kinak noted that sometimes being “traded through” isn’t a bad thing—if someone else offers a better price, why not take it? He also warned the rule might encourage more exchanges to pop up, increasing fragmentation and complexity.
“Without the rule, the number of exchanges could easily double or more over the next decade,” Kinak said.
But not everyone agreed. Joe Saluzzi, partner and co-founder of Themis Trading, raised concerns that removing Rule 611 might hurt retail investors, whose limit orders could be ignored or traded through more often. Saluzzi also disputed that Rule 611 is a major driver of exchange proliferation, pointing instead to factors like market data and complex order types.
Saluzzi suggested a compromise: keep Rule 611 but apply it only to exchanges that reach certain thresholds, similar to Canada’s approach. That way, smaller venues wouldn’t be shielded by the rule, but protections would remain for bigger players.
Virtu Financial’s Andrew Smith also defended the rule, emphasizing the National Best Bid and Offer (NBBO) as a “north star” for price transparency. He worried that without Rule 611, the NBBO could break down, confusing retail investors and possibly increasing costs if exchanges decide to charge more without protected status.
“There’s a real risk that costs could go up for investors if the NBBO falls apart,” Smith said. He doubted scrapping Rule 611 would make things cheaper for brokers or traders.
Debbie Toennies, Managing Director and Head of Regulatory Affairs at J.P. Morgan, echoed those concerns, warning that removing Rule 611 without a clear plan for other regulations would create a “messy transition.” The rule supports best execution enforcement, and removing it could introduce uncertainty and risk.
Looking Beyond Rule 611: Exchanges, Revenue, and Market Structure
The discussion then shifted to how changes to Rule 611 might affect exchanges and the overall market structure.
Jon Herrick of the New York Stock Exchange emphasized that if Rule 611 is changed or removed, regulators must closely examine how market data revenue is shared through the SIP (Securities Information Processor) system. Exchanges currently have financial incentives to promote displayed trades because of how that revenue is allocated.
Removing the protected/unprotected framework could encourage exchanges to innovate more and “put their money where their mouth is,” Herrick said.
He also highlighted non-displayed trades, which make up about half the daily volume but are less transparent and slower to show up.
“We should be looking at these trades and how we can improve market efficiency and transparency overall,” Herrick said.
He added historical context, noting the current exchange landscape developed over decades, with industry groups forming new venues to meet demand.
“This is a shared problem,” Herrick said. “It’s not going to fix itself without regulators stepping in and providing guidance.”
Cameron Smith, Global Head of Trading and Co-President of the Texas Stock Exchange, took a different view on fragmentation. He wasn’t convinced Rule 611 drives the creation of new exchanges. Many Alternative Trading Systems (ATSs) have emerged despite lacking order protection.
Cameron said building a new exchange is about proving value, not relying on regulatory protections. New exchanges often start with limited order flow routed through them but can build direct connections over time if they add value.
“I don’t think we’re seeing exchanges popping up just because of Rule 611,” he said. “Fragmentation is way more complicated and tied to things like antitrust history and market forces.”
What’s Next?
The SEC’s roundtable showed how complex the debate over Rule 611 is. Many agree the rule is outdated and causes challenges, but there’s no consensus on how to move forward.
Herrick stressed a holistic approach: “If we rescind 611, we have to look at the SIP revenue share construct. We need to incentivize displayed trades and improve transparency.”
Toennies warned of unintended consequences: “Removing 611 without adjusting related rules risks destabilizing a healthy market.”
Virtu’s Smith highlighted investor trust: “Pulling the thread on 611 risks unraveling important parts of market structure. Without a universal benchmark like the NBBO, investor trust could suffer.”
The message was clear: any changes need to balance encouraging innovation with protecting investors and maintaining market transparency. The SEC faces a difficult task updating these rules without causing new complications.
