On June 11, the SEC announced proposed amendments to Regulation NMS that would rescind Rules 611 and 610(e), rescind related defined terms in Rule 600(b), and make conforming changes to related provisions. Rule 611 contains the trade-through prohibition for national market system stocks. Rule 610(e) contains restrictions on locking and crossing quotations in national market system stocks. The proposal states that Rule 611 was adopted in 2005 and established intermarket protection against trade-throughs. It describes trade-throughs as occurring when a trading center executes an order at a price inferior to a protected quotation displayed by another trading center. The proposal frames Rule 610(e), also adopted in 2005, as restricting locked markets, where the best bid equals the best offer, and crossed markets, where the best bid exceeds the best offer.

In explaining the proposal, the SEC notes that U.S. equity markets have changed significantly since 2005 and are now highly automated, interconnected, fast and competitive. The agency asserts that Rules 611 and 610(e) have contributed to increased costs, market structure complexity, exchange proliferation, trading fragmentation, and limited order handling and execution choice. The proposal states that Rule 611 is no longer needed as a backstop to brokers’ best execution obligations. It maintains that rescinding Rule 610(e) could reduce complexity and compliance costs associated with locked and crossed market restrictions. Taken together, the SEC contends that rescinding the rules could allow more order handling and routing flexibility, and allow competition, innovation, and other market forces to shape the continued evolution of U.S. equity markets. Comments on the proposal must be submitted by August 17.