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On June 17th, 2026, the Securities and Exchange Commission (SEC) proposed amendments to rescind rule 611 of Regulation National Market System (NMS). This proposal should be considered a positive development that will help address increasing fragmentation in U.S. equity market structure and deregulate the securities exchange ecosystem. Americans for Tax Reform applauds the SEC for formulating this proposal to better serve investors and broker-dealers.
Rule 611, also known as the trade-through rule, was adopted in 2005 by a 3-2 vote as part of regulation NMS. The goal of the rule was to protect investors by ensuring investors obtain the best possible price for equities by prohibiting brokers from executing trades at prices that are considered inferior to the “best possible price” available on a listed exchange. To neglect the nationally protected price or quote for a stock, would be considered “trading through” that price. The trade through rule ignores other aspects that factor into the quality of trade execution such as the probability that the order is filled, speed, and preventing information leakage.
Since regulation NMS was adopted, the number of nationally listed exchanges has nearly doubled from around nine venues to sixteen. The increasing fragmentation of equity trading venues has material consequences. Brokers are forced to collect live data and connect to each exchange that can potentially offer a nationally protected price for a stock to avoid accidentally trading through the best price. The fees associated with connecting to exchanges add up. The New York Stock Exchange charges tens of thousands per month for broker-dealers and enterprises for data licensing. Meanwhile, the rule does not necessarily guarantee investors the best price available.
Market liquidity, measured by the volume of available shares for a specific price point, determines whether or not an order can be fulfilled at a certain price. This means that if a pension fund or institutional investor wanted to buy 10,000 shares of a certain stock, the broker on their behalf needs to find 10,000 shares being sold and route their order accordingly. However, under the trade through rule, large orders can potentially go unfulfilled since the order has to be routed to the exchange with the best possible price even if liquidity at that price point is insufficient to fulfill the entirety of the buy order. This causes large orders to inadvertently reveal themselves, creating opportunities for other market actors to take advantage and act on that information, pushing prices up and ultimately causing orders to end up being filled at a worse price due to information leakage.
The trade through rule mistakenly elevates and prioritizes price over all other aspects of trade execution, which ironically can lead to outcomes where investors obtain worse prices than if they were not subject to the trade through rule. The SEC’s policy demonstrates why government interference in markets under the guise of investor protection often backfires.
Concerns that a rescission of the rule would weaken investor protections and make investors worse off is unfounded. Brokers are subject to other rules such as FINRA rule 5310 which requires broker-dealers to use reasonable diligence to ascertain the best price of a security so that the resulting price is as favorable as possible under prevailing market conditions.
The FINRA rule is worded more flexibly to enable broker-dealers to best serve clients. It does not mandate that broker-dealers find the best possible price at the time a trade is ordered and ignore other factors but rather use reasonable due diligence to find the best possible price outcome. Market competition among broker-dealers is also fierce. One paper finds that retail orders filled internally by broker-dealers for an average S&P 500 stock sees “price improvement amounting to 47% of the quoted spread. In comparison, exchanges offer only 3% price improvement in the full sample and 5% in S&P 500 stocks”. Market forces already ensure that quotes or spreads for securities reflect supply and demand and deliver the best possible price for investors.
Chairman Atkins is right to correct this mistake in equity market regulation. The trade through rule is an overstep by the SEC that makes investors worse off and adds unnecessary costs for broker-dealers and investors. Americans for Tax Reform supports the SEC’s proposal to move ahead with the rescission of the trade through rule.