Comment Letter Regarding the Proposed Rescission of Rule 611 of Regulation NMS

By Ben Calev

We respectfully submit this comment in strong opposition to the proposal to rescind Rule 611 of Regulation NMS, the Order Protection Rule.

The commission has identified legitimate concerns regarding the costs, complexity, and unintended consequences associated with Rule 611. Those concerns deserve serious consideration. But the appropriate response is to modernize the rule, not eliminate one of the principal structural protections against inferior executions and assume that existing best-execution obligations can fill the gap.

Rule 611 and best execution serve different functions and should not be treated as substitutes. Best execution is fundamentally a principles-based obligation requiring broker-dealers to establish and follow reasonable policies and procedures designed to obtain the most favorable terms reasonably available. Rule 611 provides a more specific, objective, order-level protection against trading through protected quotations. It places a concrete constraint on the execution itself rather than requiring regulators, customers, or arbitrators to determine after the fact whether a broker’s routing process was reasonable.

If the commission repeals Rule 611, an investor who receives an inferior execution may instead have to establish that a broker’s routing decision violated its best-execution obligation. That inquiry can involve complex questions concerning routing policies, liquidity, execution probability, latency, price improvement, order characteristics, and conflicts of interest. The commission should not make investor protection depend upon an investor’s ability to reconstruct those decisions after the trade has occurred. The better approach is to preserve an objective regulatory floor while permitting brokers substantial flexibility above it.

The commission has also pointed to the sophistication of modern trading technology and the increasingly automated and interconnected nature of equity markets. But technology cuts both ways. While sophisticated market participants can identify and access liquidity more efficiently, trading firms can also make routing decisions at speeds and levels of complexity that ordinary investors cannot independently monitor. Rather than treating technological developments as a reason to eliminate Rule 611, the commission should use them as an opportunity to modernize it, for example, by simplifying protected-quotation definitions, modernizing exceptions and compliance requirements, reducing unnecessary connectivity and data burdens, adapting the rule to current order types and market structure, and strengthening execution-quality and routing transparency.

Rule 611 is particularly important for retail investors. Retail investors generally do not control how their orders are routed and cannot realistically monitor every venue, quotation, routing decision, and execution alternative available to a broker at the precise moment an order is executed. Removing Rule 611 risks shifting that burden from the trading system to the individual investor.

If the commission believes best execution should play a larger role, they should strengthen best execution before eliminating Rule 611. A modernized framework should include clear requirements concerning access to superior displayed prices; meaningful consideration of price, execution probability, speed, size, and transaction costs; robust conflict-of-interest requirements; greater disclosure of routing practices; order-level and aggregate execution-quality reporting; effective supervision and recordkeeping; and meaningful enforcement and remedies.

Even a strengthened best-execution framework should not necessarily replace Rule 611. The two requirements can operate together: Rule 611 can provide a minimum objective protection against trade-throughs, while best execution can address the broader factors necessary to obtain the best overall result for customers.

Before removing Rule 611, the commission should also demonstrate empirically that investors will be at least as well protected. The analysis should examine the expected frequency and economic impact of trade-throughs, effects on displayed liquidity and off-exchange execution quality, the extent to which existing best-execution obligations prevent trade-throughs, the frequency and effectiveness of enforcement, and whether anticipated compliance savings will actually benefit investors.

Accordingly, we urge the commission to withdraw the proposal to rescind Rule 611. At a minimum, they should defer rescission until they have adopted a substantially strengthened and objectively enforceable best-execution framework and demonstrated through empirical analysis that investors will receive protections at least equivalent to those Rule 611 provides today.

The commission can address legitimate concerns about cost and complexity without sacrificing investor protection. The better path is to modernize Rule 611, strengthen best execution, increase transparency, and collect empirical data before considering further changes. Their objective should be a market structure that combines competition, innovation, efficient execution, and investor protection, not one that achieves simplicity by removing an important protection and shifting the resulting risk to investors.