WASHINGTON, June 11 - The U.S. Securities and Exchange Commission on Thursday unanimously advanced a proposal to eliminate a long-standing regulation that requires stock trades to be executed at the best available price. Officials presenting the plan told the five-member bipartisan commission that the rule, commonly called the "order protection rule," has become burdensome and is no longer necessary in the modern market environment.
The regulation, initially adopted in 2005 to prevent so-called trade-throughs - instances where a trade executes at a price worse than another venue's quoted bid or offer - has required market participants to implement systems to avoid such executions. At the agency's public meeting, commissioners said that changes in technology and U.S. market structure have reduced the rule's usefulness while increasing costs for compliance and connectivity.
"I’ve opposed the trade-through rule since its inception and have elaborated on my concerns from this very stage," said SEC Chair Paul Atkins during the session. Atkins also has a previous record of opposition: he voted against the rule in 2005 while serving as a commissioner.
Officials argued that the rule now drives up operational complexity for broker-dealers and trading venues without delivering commensurate benefits. They emphasized that other regulatory obligations that require price transparency from broker-dealers and trading platforms would remain in place if the proposal moves forward.
The proposal was unanimous among commissioners present at the meeting. The commission currently is composed of five seats, and officials noted it now has three Republican members and no Democrats. Agency staff framed the removal as consistent with broader efforts by the administration to remake aspects of securities market structure - a change that would take effect only if the proposal is formally adopted following the rulemaking process.
Supporters at the SEC characterized the move as a response to the changing technological and structural landscape in U.S. markets, citing compliance and connectivity costs and increased market complexity as reasons for reconsidering the rule. The agency did not say the order protection rule had been replaced by any new rule; rather, it pointed to existing transparency requirements that would persist regardless of this proposal's outcome.
Key points
- The SEC unanimously proposed removing the order protection rule, which was adopted in 2005 to prevent trade-throughs.
- Officials say technological advances and changes in U.S. market structure have made the rule more costly and complex to comply with, while other price transparency rules would remain.
- If adopted, the proposal would represent another step in the Trump administration's efforts to reshape securities market structure.
Risks and uncertainties
- It remains uncertain whether the proposal will be adopted through the formal rulemaking process.
- Claims that the rule increases compliance and connectivity costs may be contested by stakeholders, and the net effect of removal on markets is not settled in the presentation.
- The commission's current composition - three Republican members and no Democrats - frames the procedural context for decision-making but does not guarantee a specific final outcome.