6,7 Meet 611: Remarks at the Roundtable on Rule 611 of Regulation NMS

Good morning, and welcome. My views are my own as a Commissioner and not necessarily those of the SEC or my fellow commissioners. I want to begin by expressing my sincere gratitude to all the panelists, to the University of Austin for your generous hospitality, and to the Commission staff, especially from the Division of Trading and Markets and the Office of Public Affairs, who pulled together this roundtable in record time. I also want to welcome the students in attendance - your presence adds a valuable perspective to our conversation and may even inspire some of you to dip your toes into the enticing waters of equity market structure.

One important regulatory determinant of market structure in the United States is the order protection rule, also known as the trade-through rule, or Rule 611. If we were ranking whether to revisit Rule 611 on a scale of 1 to 10, with 10 being definitely revisit the rule, my gut gives me the middle schoolers' go-to answer these days: 6 . . . 7. But a 6 or 7 on redoing 611 is an answer without context.

The necessary context consists of several factors. First, the U.S. equity markets are unmatched in depth and liquidity, which raises the stakes of any reform. Second, as many of the September 18 roundtable's panelists noted, the distinctiveness of our markets means that lessons from other jurisdictions may not always be instructive - particularly in areas like best execution and volume thresholds. Third, Rule 611 is intertwined in a complex nest of rules within which equity markets live. Revisiting Rule 611 requires rethinking those other rules too. That message came through loud and clear at the September roundtable. While that roundtable featured robust debate over whether Rule 611 should be repealed, retained, or revised, it also reflected broad agreement that any changes to Rule 611 must be considered alongside related NMS rules, NMS plans, and FINRA regulations. Today we will talk about potential changes to access fee caps, the prohibition on locked and crossed markets, the fair access rule, the SIP revenue allocation model, FINRA's best execution rule, and more.[1] Fourth, how we implement any changes, including how we sequence changes, will matter. Given the expertise our panelists bring, I anticipate that this roundtable will provide the context necessary to boost my interest in reconsidering Rule 611 all the way up from a 6 or 7 to a 10.

I have been a skeptic of Rule 611 since its inception twenty years ago. Dictating how market participants execute trades has never seemed like an exercise for which the SEC is well-suited. People operating in free and transparent markets are good at figuring out how and where to execute trades or finding a professional to help them do so. Rule 611 rests for authority on Section 11A, a 1975 addition to the Securities Exchange Act, which directed the SEC to facilitate the establishment of a national markets system. The mandate is a relic of a time of active government interference in and distrust of markets. Rather than adopting Rule 611 thirty years after Congress gave us this authority, the SEC instead could have deferred to the technology that was eating away at market monopolies and facilitating cross-market arbitrage. Even those of you who disagree with me on this point might agree that Rule 611 has completed its work and may be causing more mischief than good. As emphasized in the previous roundtable, this moment presents a rare opportunity to strengthen our markets. While opinions differ on how well our current market structure serves investors, one trend is undeniable: off-exchange trading volumes are rising, yet new exchanges, many of which replicate existing ones, continue to proliferate. This dynamic points to misaligned incentives and suggests the need for reform.

I am anticipating an organic conversation that requires little prompting, but I have a few questions that panelists may want to address:

• Given that some people view Rule 611 as a best execution backstop, if we eliminate it, how can we craft best execution amendments or guidance to offer clarity without being overly prescriptive?
• Are there any best execution clarifications that are needed now, independent of any changes to Rule 611?
• What is the optimal SIP revenue allocation between quoting and trading activity that will curb unnecessary exchange proliferation without foreclosing innovative new entrants in the exchange space? Is readjusting this allocation an interim step on the way to repealing Rule 611?
• What SEC and FINRA rules would need to be amended if Rule 611 were to be repealed?
• In the event we propose changes to Rule 611, how should changes to these other NMS rules, plans and FINRA rules be sequenced? Which changes must occur concurrently, which can follow, and which should precede any changes to Rule 611?
• As the SEC works with market participants experimenting with tokenization, can we draw any lessons that might be relevant to revisiting Rule 611?

I look forward to a productive discussion. Thank you.