SEC Set to Hold Roundtable on Reforming Trade-Through Prohibitions in NMS Markets
Commentary by Glen Barrentine
An SEC roundtable on "Trade-Through Prohibitions in the National Market System" is scheduled for September 18, 2025, at the Commission's headquarters in Washington, DC.
The SEC said the roundtable will focus on Rule 611 of Regulation NMS ("Order Protection Rule") and the NMS plan trade-through prohibition (applicable to listed options).
On the importance of holding the roundtable, SEC Chair Paul S. Atkins explained: "It is incumbent upon the Commission to give the public an opportunity to weigh in on items in our rulebook that deserve a refresh, and I look forward to the input we will receive on various aspects of the Rule 611 trade-through prohibition applicable to NMS stocks and the analogous NMS plan trade-through prohibition applicable to listed options."
Commentary
The restrictions imposed on trade-throughs by Rule 611 of Regulation NMS, which apply to NMS Stocks and listed options, have been in place since 2005 and are fundamental to the structure of the U.S. equity and option markets. Changes to Rule 611 hold the promise of significantly impacting market structure, including market fragmentation and displayed liquidity, and market participants, including exchanges, high frequency trading firms and other trading venues.
While a roundtable is merely the first step in a process that may or may not lead to substantive changes to Rule 611, it is significant that the notice announcing the roundtable quotes SEC Chair Paul Atkins as stating that “Reg. NMS and its Rule 611 have not served investors or broker-dealers well, given the market distortion and resulting gamesmanship by those that seek to take advantage of the Reg. NMS structure.”
This quote is in keeping with Chair Atkin’s long standing view of Rule 611. Indeed, in 2005, as a then SEC Commissioner, Mr. Atkins, together with then SEC Commissioner Cynthia A. Glassman, issued a “strong dissent” to the Commission’s original approval of Regulation NMS generally and Rule 611, in particular. This took the form of a 44 page dissent to the Commission’s adoption of Regulation NMS, and focused principally on the shortcomings of the trade-through rule. Chair Atkin’s dissent, which is perhaps summarized in the quote included in the roundtable announcement, suggests that the roundtable is likely to be the first step in a much longer process of substantively amending, if not eliminating, the trade-through rule.