Good morning, everyone! It’s truly a pleasure to be here. I want to clarify that the opinions I express today are my own as a Commissioner and do not necessarily reflect those of the SEC or my fellow commissioners. First and foremost, I’d like to extend my heartfelt thanks to all our panelists, the University of Austin for their generous hospitality, and the Commission staff—particularly those from the Division of Trading and Markets and the Office of Public Affairs—who worked tirelessly to bring this roundtable together in such a short timeframe. A special welcome to the students present; your participation is invaluable to our discussion and may even spark some interest among you in exploring the fascinating world of equity market structure.
One key regulatory element that shapes market structure in the United States is the order protection rule, commonly referred to as the trade-through rule or Rule 611. If I were to rate the need to reevaluate Rule 611 on a scale from 1 to 10, where 10 signifies a strong necessity to review it, I would say it sits around a 6 or 7 in my estimation. However, a score of 6 or 7 is just a starting point—it requires further context to fully understand.
The context for this discussion includes several critical factors. To begin with, the U.S. equity markets boast unparalleled depth and liquidity, meaning any potential reforms carry significant implications. Additionally, as many insightful panelists pointed out during the roundtable on September 18, the unique characteristics of our markets suggest that lessons learned from other countries might not always apply—especially concerning best execution and trading volume thresholds. Rule 611 is also deeply woven into a complex web of regulations under which equity markets operate. Therefore, any consideration to amend Rule 611 must include a comprehensive rethink of these interconnected rules. This point was emphasized during our previous discussions, where there was a lively debate about whether Rule 611 should be repealed, retained, or revised. Yet, there was a consensus that any alterations to Rule 611 should be contemplated alongside related National Market System (NMS) rules, NMS plans, and FINRA regulations. Today, our conversation will cover possible adjustments to access fee limits, the bans on locked and crossed markets, the fair access rule, the revenue allocation model for Securities Information Processors (SIPs), FINRA’s best execution standards, and various other topics.
Moreover, the manner in which we implement any changes—including the order in which they are executed—will play a crucial role in their effectiveness. Given the expertise our panelists bring to the table, I am hopeful that today’s discussions will elevate my interest in reexamining Rule 611 from a tentative 6 or 7 to a resounding 10.
Since its introduction two decades ago, I have approached Rule 611 with skepticism. The idea of regulating how traders execute their transactions feels misaligned with the SEC's role. In an environment where markets are free and transparent, participants typically know how and where to execute trades or can find a professional who can assist them. Rule 611 derives its authority from Section 11A of the Securities Exchange Act, a provision added in 1975 that directed the SEC to support the establishment of a national market system—a mandate that reflects a time of considerable government involvement and skepticism towards markets. Instead of implementing Rule 611 thirty years after Congress granted us this authority, the SEC might have chosen to trust the technological advancements that were already eroding market monopolies and facilitating arbitrage across markets. Even those who hold differing views on this matter might concede that Rule 611 has fulfilled its purpose and could be doing more harm than good at this stage. As highlighted in our previous roundtable, we now face a unique opportunity to enhance our markets. While there is debate over how effectively our current market structure serves investors, one undeniable trend is that off-exchange trading volumes are increasing, while new exchanges continue to emerge—many of which merely replicate what already exists. This situation hints at misaligned incentives and underscores the urgent need for reform.
I anticipate that our dialogue will flow naturally, but I do have some questions for our panelists to consider:
- Some people regard Rule 611 as a safety net for best execution. If we were to abolish it, how can we develop amendments or guidance on best execution that provides clarity without becoming overly restrictive?
- Are there any immediate clarifications needed regarding best execution that are separate from any alterations to Rule 611?
- What would be the ideal way to allocate SIP revenue between quoting and trading activities to manage unnecessary exchange proliferation while still welcoming innovative entrants into the exchange market? Could adjusting this allocation serve as a temporary measure before we repeal Rule 611?
- Should Rule 611 be repealed, what modifications to SEC and FINRA regulations would be necessary?
- If we decide to propose changes to Rule 611, how should we prioritize adjustments to these related NMS rules, plans, and FINRA regulations? Which changes should happen simultaneously, which should follow, and which should precede any modifications to Rule 611?
- As the SEC engages with market participants exploring tokenization, can we glean any valuable insights that might be applicable to our reconsideration of Rule 611?
I look forward to an engaging and productive discussion today. Thank you for being here.
