The Securities and Exchange Commission published a formal proposal on Thursday to eliminate the Order Protection Rule that currently obliges trades to be executed at the best price available across trading venues.
The proposal, contained in a 267-page document, would repeal Rule 611 and Rule 610(e) - the latter of which limits locking and crossing quotations in national market system stocks. Under the change, firms would no longer be required to connect to every exchange, a move the SEC said should reduce costs tied to connectivity, market data, routing and compliance.
Regulatory changes under the proposal could alter the economics of running an exchange. The SEC observed that exchanges would no longer be guaranteed the flow of orders necessary to collect connectivity and market data fees. As a result, the proposal could lead to a reduction in the number of existing exchanges, a consequence driven by the elimination of guaranteed routing and the associated revenue streams.
Importantly, the proposal does not remove broker-dealers' duty to seek best execution. Instead, the SEC would make clear that best execution may incorporate criteria beyond strict price alone. The agency highlighted that brokers could weigh order size, the complexity or difficulty of completing a trade, execution speed and clearing costs when determining how to route and execute orders.
The agency is soliciting public comment for 60 days following publication of the proposal in the Federal Register. That comment period will be the formal window for market participants and other stakeholders to submit feedback before any final action.
Market research firm TD Cowen commented on timing, stating that the SEC will likely finalize the repeal in early 2027. The firm noted the repeal has been a long-standing priority for SEC Chair Paul Atkins and suggested the rule is expected to be finalized in the first quarter of 2027. TD Cowen also observed that it is uncommon for the SEC to move from proposal to final rule in fewer than six months.
The SEC acknowledged within the proposal that Rule 611 may have produced distributional effects, potentially benefiting retail investors while imposing costs on institutional investors. TD Cowen additionally said the proposed repeal should be positive for the tokenization of equity securities, while noting that exemptive relief remains necessary for tokenized equity to develop under the current regulatory framework.
Key next steps include the 60-day comment period and subsequent rulemaking milestones the SEC will follow toward a final determination. The proposal preserves the core duty of best execution but broadens the set of acceptable execution factors, explicitly allowing non-price considerations to play a role in routing decisions.
The proposal presents material implications for multiple market participants - exchanges, broker-dealers, institutional investors and proponents of tokenized equity - and sets a timeline for potential finalization that market participants are watching closely.