PTG set to endorse the public reversal of the trade-through prohibition ban
The Securities and Exchange Commission (SEC) is considering a potential repeal or amendment of Rule 611, also known as the Order Protection Rule (OPR), a regulation designed to prevent trades from being executed at inferior prices. The proposal has sparked a lively debate among industry stakeholders, with various parties expressing their views on the matter.
One of the key supporters of the proposed repeal is the FIA Principal Traders Group (PTG), an organisation representing some of the biggest American market makers, including Citadel Securities, Jane Street, Hudson River Trading, IMC, and Wolverine. The FIA PTG argues that Rule 611 has outlived its purpose, inflated costs, and distorted incentives around quoting, fees, and venue proliferation.
The new SEC Chair, Gary Gensler's Atkins, has also been vocal in his opposition to Rule 611. Atkins has expressed concerns about the rule's potential impact on market competition and efficiency.
Cboe, a leading market operator, supports a "do no harm" approach that preserves a reliable National Best Bid and Offer (NBBO) and curbs venue proliferation by conditioning protected status and quote credits for new exchanges on demonstrated demand through market shares. Cboe also advocates for a flexible approach to the Onwards rule, advocating for clear, consistent, and practicable regulations that enhance market transparency and integrity.
Market-infrastructure firm McKay Brothers/Quincy Data proposes several changes to the OPR. They suggest requiring exchanges to have a small but sustained market-share threshold (proposed at 2.5%) to earn the OPR feature, and limiting it to immediately accessible quotes. They also propose an Observer BBO to account for geographical latency in the future of latency arbitrages. Additionally, they suggest changing SIP revenues allocation towards executions to reward displayed liquidity that actually trades and stop exchange proliferation.
Georgetown University's James J. Angel believes the OPR is redundant with brokers' best-execution duty. He also suggests considering the depth of the consolidated order book using an indicative best bid offer (IBBO) and an effective best bid offer (EBBO) to reflect available liquidity. Angel also points out that most developed markets function without the OPR, and retail execution would not be affected by changes to the OPR, as it is already internalised in most cases.
However, not everyone is in favour of the proposed changes. Market structure advocate R.T. Leuchtkafer cautions that weakening Rule 611 would privilege speed advantages and erode competition, pointing to benefits he says have saved investors money over time. Opponents of the rollback argue that Rule 611 still disciplines routing and protects investors, and a venue-agnostic prohibition may still be necessary to maintain fair and efficient markets.
As the SEC continues to consider the potential repeal or amendment of Rule 611, the debate is likely to continue, with various parties presenting their perspectives on the potential impact on market structure, competition, and investor protection.
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