SEC proposes scrapping key equity trading rules, KPMG eyes market shift

The SEC has reopened one of the most consequential corners of U.S. equity market structure, proposing to scrap Rule 611 and Rule 610(e) of Regulation NMS. For broker-dealers, exchanges and the firms that advise and audit them, the move could force a fresh look at execution quality, best execution reviews, surveillance systems and the controls built around them.

Rule 611 is the trade-through protection at the center of the debate, while Rule 610(e) governs locked and crossed quotations in NMS stocks. The commission said the proposal would also rescind related defined terms and make conforming changes elsewhere in Regulation NMS, signaling that this is not a narrow cleanup but a broad reset of the 2005 framework that still shapes how U.S. equity trades are routed and reported.

SEC Chairman Paul S. Atkins said the agency should review the "unintended consequences" of Rule 611 after two decades, and the SEC said the proposal is meant to simplify market structure and reduce costs. That matters in practice because the current regime requires trading centers to maintain policies and procedures designed to prevent executions at prices inferior to protected quotations displayed by other venues, with exceptions, and only quotes that are immediately and automatically accessible qualify as protected. If those rules change, firms may need to revisit how their routers, venue-selection logic and exception handling actually perform under a different rule set.

The compliance impact reaches well beyond the trading desk. For KPMG teams working with financial institutions, the likely pressure points include regulatory advisory work, transaction surveillance, best execution analysis, technology investment and operating model changes. Clients will also need to decide whether existing vendor arrangements, documentation and governance frameworks still fit if the market stops relying on the same trade-through and lock-cross assumptions that have been in place since Regulation NMS was adopted in 2005 to modernize and strengthen U.S. equity market structure.

The SEC’s fact sheet said the proposal was released June 11 and is expected to move into a 60-day public comment period after publication in the Federal Register. That comment process could become important for firms with real execution data, since the commission has emphasized public input and market evidence. SIFMA said the same day that it appreciated the SEC’s due diligence and was encouraged that the package also includes conforming changes to related provisions.

The historical backdrop helps explain the stakes. The Regulation NMS adopting release was published in the Federal Register on June 29, 2005, after a fight that drew sharp debate over the trade-through rule and even congressional uproar. Two decades later, the SEC is signaling that the old bargain may no longer fit a technology-driven market, and if the proposal advances, the ripple effects could run through controls, reporting and audit work across the market.