The Order Protection Rule: Is an Equity Market Structure Shake-Up Ahead?

As brokers and asset managers look ahead to 2026,  the Securities and Exchange Commission is reconsidering the Order Protection Rule under Regulation NMS – a move that could reshape U.S equity market structure and redefine order routing rules.

For the past two decades, OPR – also known as Rule 611 or the “trade-through rule” – requires trading centers (i.e., exchanges) to establish procedures to prevent executing a trade at a price inferior to a better, immediately available, automated quotation displayed on another exchange. While the rule does not explicitly require orders to be routed to the best price, it prevented exchanges and brokers from ignoring better priced protected quotes on competing venues.

Why OPR is Under Fire

On the SEC’s September roundtable on “trade-through prohibitions,” market participants offered divided opinions. Supporters say OPR acts as a backstop for best execution, especially for retail investors. Critics blame the rule for causing venue proliferation, fragmentation of liquidity, and high connectivity costs as it requires brokers to connect to each new exchange even if they have one-or-two percent market share. Now the industry has reached consensus that something is going to happen to OPR.

At the Security Trader Association’s (STA) market structure conference in October, over 800 participants gathered, where SEC Chair Paul Atkins cited the need to revisit the Order Protection Rule, which he had voted against 20 years ago. In his remarks, Atkins referred to Rule 611 as “the order discrimination rule,” which market participants interpreted as a sign that change is ahead.

Larry Tabb, Head of Market Structure Research at Bloomberg Intelligence, said he thinks “the SEC wants to kill OPR.” He pointed to three reasons why the Commission is moving quickly. “The SEC Chair  is not a big proponent of Reg NMS. Second, OPR makes it easy for a new exchange to succeed, and the third –  which is less obvious – is that removing the rule enables the SEC to bring the crypto exchanges into the SEC framework – the Exchange Act.”

Tabb maintains the SEC is preparing for the tokenization of U.S. equities, which could trade on digital asset exchanges and settle in real-time on the blockchain. “To a certain extent that’s the real reason because if it wants to see to bring these exchanges into the auspices of the SEC and to list equity-like products they need similar equity-like trading rules,” said Tabb.

The Clock is Ticking

At  the SIFMA Equity Market Structure Conference on November 20, Jamie Selway, Director of the Division of Trading and Markets at the SEC, shed light on how the Commission is thinking about the Order Protection Rule and its other interrelated rules. “We heard at the roundtable loud and clear that 611 needs to change. It needs to be modernized, and whether that’s sort of full repeal or some change, but it needs to change.” Selway told market participants that the Commission would hold another roundtable on OPR before year end.

According to Selway, three areas will be in focus: best execution, Rule 610 – including locked and crossed markets, along with market data, which could include revenue allocations from the consolidated fee (SIP) received by exchanges. When asked about the timeline, Selway said, though the SEC lost a little time during the government shutdown, that a proposal would be a 2026 event.

The SEC scheduled a second roundtable on December 16 at the University of Austin to discuss Rule 611 of Reg NMS and other associated rules and regulatory requirements.

Complexity vs. Retail Protection

Speaking at STA on the panel Retail Investing: New Tools, New Rules, Matt Billings, Vice President of Robinhood Brokerage and President of Robinhood Financial, said: “We’re for the recission of 611 because we believe there should be competition driving the marketplace and not regulatory restrictions.” He also reminded firms that the Equity Market Structure Advisory Committee (EMSAC) in 2015 had urged the SEC to address complexity.

When the SEC approved Reg NMS in 2005, there were eight exchanges; now there are 17 with 24Xexchange going live in October, and three more exchanges planned for 2026, not to mention thousands of order types, said Billings. “It just makes it more challenging to manage order flow, not to mention the costs associated with the number of exchanges,” he said.

“Rules like 611 are part of that complexity,” said Billings, adding, that “to reduce that complexity, it is worth thinking about the recission.” If the SEC were to eliminate Rule 611, Billings said that FINRA Rule 5310 would guide brokers on best execution with order handling, adding “it has served the test of time.”  Billings said that Robinhood would be in favor of removing OPR and let competition do its job and take away these regulatory restrictions.

Other industry participants have urged caution.

Alex Coffey, Senior Trading and Derivatives Strategist at Charles Schwab, commented that OPR had increased retail investor confidence and participation in the market, reflecting the risk of changing the rule. “If there’s going to be change or elimination of the rule, we need to be very careful that we don’t disrupt and whatever replaces or changes it is at least the same experience or a better experience for the end client,” said the executive. “We want fair, liquid and equitable marketplaces,” said the retail executive, who noted that Schwab saw this through clients’ eyes.

Best Execution

Another key issue that the SEC will assess is best execution, and how to define that concept in the future. At STA, Jacob Rappaport, Global Head of Equities at StoneX Financial, who moderated the retail panel, noted that 97% of retail orders are receiving price improvement, referring to retail orders that brokers route to wholesale market maker platforms. “Equity markets are super-centralized on one metric – that’s the NBBO. As a market maker, we are held to very exacting standards by retail firms,” he said. If OPR were to go away, Rappaport questioned whether that would still be the yardstick, “or if the industry would find other metrics – such as speed, resiliency and reliable liquidity.”

But the NBBO itself has raised concerns. At the SEC’s roundtable, Maureen O’Hara, finance professor at Cornell University’s SC Johnson Graduate School of Management, said that the NBBO is now the “National Pretty Good Best Bid and Offer” or NPGBBO, noting that 50% of stock trading volume is on-exchange and 50% is off-exchange. “The amount of non-displayed liquidity is huge – both with respect to the odd-lot quotes but also with respect to the non-displayed hidden liquidity (on exchanges),” said O’Hara.

Meanwhile, institutional investors may want to ignore the protected quotes, preferring to execute in the dark, or at non-protected prices to get more size done.

Remedies: Thresholds and SIP Allocations

That doesn’t mean it’s going to be easy to remove OPR. On an STA panel, Exchanges and ATSs: Balancing Competition and Innovation, panelists debated the issues surrounding OPR. “It’s one among many interrelated rules. If there is no OPR, you must look at locked and crossed markets – the tenets of NMS, and how orders are handled,” said an exchange executive.

Under Reg NMS, there is a ban on locked and crossed markets. A locked market occurs when the best bid and best offer is the same price, and the spread is zero. In a crossed market, the highest bid price is greater than the lowest offer price, which inverts the normal pricing of buy low/sell high. Tabb said the reason for the locked and crossed ban “is that they thought the buyer and seller would be confused. If you could buy and sell at the same price, there is no spread.” If the decision is to remove OPR, some experts have said that in a low-latency trading ecosystem that locked and crossed markets would resolve through arbitrage opportunities.

Another issue is the rise in costs related to the proliferation of small exchanges. Citadel Securities estimated that the industry cost is about $375 million per year for connectivity, market data, and the options regulatory fees, indirectly subsidized by OPR, said Joe Mecane, Head of Execution Services on the panel. The firm ran these calculations after looking at every exchange with less than 2% market share for equities and for options exchanges with less than 4% (to factor in that there is no-off exchange trading in options).

However, even if the SEC unravels OPR, it doesn’t mean that those costs will go away. On the STA panel, Mecane said, “Nothing will materially change at the outset because firms are already connected to these venues and those that do agency routing have a best execution obligation making it difficult to disconnect from these venues.”

Mecane added, “What the SEC could consider to address cost is to modify the split of the SIP revenue allocation between trades and quotes by shifting it more toward trading activity. Another change could be to introduce a minimum volume threshold for participating in the SIP revenues or capping the fees that a venue can charge until it reaches a certain size.”

Tabb said SIP fees are allocated back 50/50 trades and 50/50 on best prices, but they could shift more to executed shares. The SEC also needs to decide what it wants to do with tick sizes and access fees, he said. After a court ruled in the SEC’s favor to implement the amended rules, the agency extended the deadline until November 2026.  “The SEC postponed the tick size and access fees for a year to figure out how order protection, tick sizes and access fees play together,” he said.

However, not everyone wants the order protection rule to go away and is concerned about the unintended consequences.

Adam Cohn, Director of Trading Operations at TradeStation Securities, who attended the STA conference, said he was a trader in the pre-order protection rule paradigm. “Markets were messy,” he said. “There were times you had a resting limit order, and you couldn’t get a fill. That’s a frustrating place to be for traders who have become accustomed to their orders being filled.”

While the fate of OPR is uncertain, the SEC is seeking industry consensus rather than imposing its own policy decisions. “We will [seek]  consensus on things like best execution, access-fees and all of that, and fragmentation in the marketplace and how to address that so that competition is strong, so that we are not picking winners and losers,” said Atkins.