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SEC Committee May Seek Study on Eliminating Best Execution Rule

The SEC’s Equity Market Structure Advisory Committee recently considered review of a trading rule that requires exchanges to send trade orders to venues with the best execution prices. At its recent meeting, the Committee addressed Regulation NMS Rule 611, or the order protection rule, among other market trading topics. The order protection rule requires (absent an exception) trading centers to establish, maintain, and enforce written policies and procedures designed to prevent the execution of trades at prices that are inferior to protected quotations displayed by other trading centers. Commissioner Kara M. Stein in remarks at the meeting noted the dramatic changes in the market since the adoption of Regulation NMS in 2005. “The purpose behind Rule 611 was to ensure that investors do not get inferior prices in a complex, fragmented market,” Stein said and questioned whether investors still needed that protection. A Bloomberg report on the meeting cited a panelist’s concern that elimination of the rule would undermine investor confidence. SIFMA submitted its recommendations to the SEC for review of Regulation NMS and wrote that the SEC could consider an elimination of the best execution rule coupled with enhanced best execution principles or maintaining the status quo.