SIFMA submitted comments to the SEC on its proposal to rescind Rule 611 and related Rule 610(e) provisions, highlighting potential market structure impacts.

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SIFMA and SIFMA’s Asset Management Group (SIFMA AMG) today submitted comments to the Securities and Exchange Commission (SEC) on its proposal to rescind Rule 611, the trade-through rule under Regulation NMS, along with the related prohibition on locked and crossed quotations under Rule 610(e). While SIFMA supports the SEC’s efforts to reduce regulatory-driven complexity and venue proliferation, it noted that eliminating Rules 611 and 610(e) without addressing downstream effects across the broader market structure framework could raise new questions for investors and broker-dealers alike. “SIFMA appreciates the Commission’s reassessment of Regulation NMS and its focus on reducing unnecessary complexity, venue proliferation, and forced connectivity,” said Katie Kolchin, CFA, managing director and head of equity and options market structure at SIFMA. “SIFMA’s recommendations aim to ensure that rescission of Rules 611 and 610(e) delivers those benefits—by reconciling the rules and plans that continue to depend on protected, automated, and manual quotations and the NBBO, by establishing a workable best execution framework in coordination with FINRA before effectiveness, and by describing how the resulting market structure, including for tokenized securities, is expected to operate.” As such, SIFMA’s comment letter focuses on the downstream considerations it believes are most important to helping the SEC reach its stated goals. SIFMA’s specific recommendations include, among others: Best Execution: While best execution is a FINRA rule, SIFMA believes the SEC and FINRA should work together to develop and publish a post-rescission best execution framework, affording market participants the opportunity to evaluate that framework well before Rule 611 rescission takes effect. That guidance should confirm that a broker-dealer may reasonably decline to connect to, or disconnect from, a venue – including national securities exchanges – for legitimate reasons, that doing so is not presumptively inconsistent with best execution, and that best execution remains a principles-based, facts-and-circumstances obligation. The National Best Bid and Offer (NBBO): While rescinding Rule 611 leaves the NBBO in place as the reference benchmark, the SEC should address the growing divergence between the market-wide NBBO and the prices a given broker-dealer can actually access, along with the many rules, SRO rules, and NMS plans that reference the NBBO. To maintain the quality and informational values of the NBBO, the SEC should establish a minimum volume threshold a venue must meet for its quotations to count toward the NBBO, a clear and uniform standard requiring that a quotation be immediately accessible to be included, and a requirement limiting quote-based market data revenue to quotations meeting those standards. Together, these would narrow the NBBO to meaningful quotations, reduce the number of displayed prices firms must evaluate, and cut the incentive to launch venues whose quotes aren’t practically reachable. Finally, while the SEC isn’t proposing to change Rule 603(c), the Vendor Display Rule, that the proposal creates problems if broker-dealers must display quotations to customers that the firm knows aren’t actually accessible. The SEC should reconcile Rule 603(c) with optional connectivity, clarify display obligations for firms that have disconnected from a venue, and support investor-facing disclosures, including mobile-friendly ones, which explain inaccessible, locked, or crossed quotations, ideally through a joint SEC/FINRA investor education campaign rather than leaving that burden to broker-dealers alone. Market Data: The SEC should consider whether additional quoting, accessibility, or execution standards should apply to any displayed quotation that helps set the NBBO, whether displayed on an exchange or through the Alternative Display Facility. The SEC should also re-examine the SIP revenue allocation methodology overall to not reward displayed quotations that contribute little meaningful liquidity and the revenue allocation formula that splits consolidated market data revenue evenly between quoting and trading activity, including whether executed volume should be weighted more heavily than quoting. Finally, broker-dealers will likely still need to consume consolidated market data from every venue for best execution and execution-quality reporting, even after disconnecting from that venue for trading. SIFMA wants the SEC to confirm this, since it means the proposal likely won’t reduce market data costs or complexity as intended. Locked and Crossed Markets: Current data doesn’t reliably predict how locked and crossed markets will behave after rescission, since order types that slide, hide, reprice, or post-only currently suppress locking/crossing orders, and access fees and rebates preserve spreads that might otherwise unwind through arbitrage. The SEC should publish uniform reporting and display conventions, transition disclosures, and exam expectations before Rule 610(e) rescission takes effect, clarify whether an exchange can lock or cross its own quotes, and include investor education on locked/crossed markets. Tokenized Securities: SIFMA has requested clarity on how U.S. equity market structure would function for tokenized NMS stocks and on-chain trading venues under the proposal, including whether a tokenized version of a stock is fungible with its street-name equivalent given differences in clearance and settlement. The full letter is available at the following link: https://www.sifma.org/advocacy/letters/the-trade-through-rule-and-locked-and-crossed-markets-provisions-of-regulation-nms