On December 14, 2022, the U.S. Securities and Exchange Commission (SEC) proposed a rule to require so called “segmented orders” of natural persons in stocks covered by Regulation NMS to be exposed to competition in fair and open auctions before they could be executed internally by any trading center that restricts order-by-order competition (Proposed Rule 615).1 Proposed Rule 615 would dramatically change the way in which most retail investor orders in securities are executed. It would generally require that such orders be exposed on a qualifying exchange or alternative trading system (ATS) that trades national market system (NMS) stocks2 (NMS Stock ATS) that supports a qualified auction. This would significantly limit the ability of wholesale market makers to execute against such orders over the counter (OTC), which is the norm today. According to the SEC, Proposed Rule 615 is designed to benefit individual investors by promoting competition and transparency as well as enhancing the opportunity for their orders to receive more favorable prices than they receive in the current market structure. The SEC also states that Proposed Rule 615 is designed to benefit investors more broadly by giving them opportunities to trade directly with individual investor orders that at present are mostly inaccessible to them.
The comment deadline is March 31, 2023, or 60 days after publication of the Proposal in the Federal Register, whichever is later. Proposed Rule 615 was proposed concurrently with three other SEC proposals that are interrelated and could significantly change practices related to securities order handling and execution.3 The proposals collectively appear to advance the SEC’s view that better prices for investors may result through encouraging competition among trading venues and increasing trading through certain exchanges or ATSs that disseminate quotations rather than against OTC market makers.4
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