Trade restriction repeal endorsement announced by PTG in public setting
In the world of financial markets, a significant debate is unfolding regarding the future of Rule 618, also known as the Order Protection Rule (OPR). This rule, which ensures that trades occur at the National Best Bid and Offer (NBBO), is under scrutiny by various stakeholders.
One of the leading voices in this discussion is market-infrastructure firm McKay Brothers/Quincy Data. They propose a shift in the OPR, suggesting it should be earned by exchanges rather than being a default feature. Moreover, they advocate for an Observer BBO to account for geographical latency in the future of latency arbitrages. Additionally, they propose a small but sustained market-share threshold (2.5%) for exchanges to maintain the OPR.
Another notable contributor to the debate is Georgetown professor James J. Angel. He believes the OPR is redundant with brokers' best-execution duty and suggests considering the depth of the consolidated order book using an indicative best bid offer (IBBO) and an effective best bid offer (EBBO) to reflect available liquidity. Professor Angel also argues that most developed markets function without the OPR.
The FIA Principal Traders Group (PTG), representing major American market makers, supports a repeal of the rule. They argue that Rule 611 has inflated costs and distorted incentives around quoting, fees, and venue proliferation. The FIA PTG also advocates for amendments to how securities information processor (SIP) revenues are shared.
Institutional investors and some trading firms support modifying or dismantling Regulation NMS Rule 611. They argue that the rule can restrict market efficiency and innovation by enforcing rigid trade-through protections that may limit competition and price improvement opportunities.
However, opponents of the Rule 611 rollback argue that the rule still disciplines routing and protects investors. Cboe, for instance, notes that options market dynamics differ from equities and should not be subject to the same changes. Cboe supports a "do no harm" approach that preserves a reliable NBBO and curbs venue proliferation by conditioning protected status and quote credits for new exchanges on demonstrated demand through market shares.
The new SEC Chair Atkins has been against Rule 611, adding another layer of intrigue to this ongoing debate. As the discussion continues, it remains to be seen how the future of the OPR will unfold.
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