SEC proposes eliminating trade-through rule

Investing.com -- The Securities and Exchange Commission proposed removing a rule designed to ensure investors receive better prices for their transactions.

The trade-through rule, which has been in effect since 2005, prevents exchanges, alternative trading systems and wholesalers such as Citadel Securities and Virtu Financial Inc. from executing trades below the national best bid or offer price.

SEC Chairman Paul Atkins opposed the rule when it was first introduced during his time as a Republican commissioner. He said the measure forces brokers to focus only on execution price instead of other factors like speed or preferred trading venue.

"I'm concerned that the rule incentivized a proliferation of trading venues," Atkins said Thursday before the commission voted on the plan. He added it created an increasingly complex, costly and opaque market for order execution.

The agency also proposed removing another rule that prevents trading venues from exceeding a protected quote.

Removing these rules could change how brokers route orders to exchanges and other trading venues. SEC officials said at the meeting that rescinding them could simplify trade execution and reduce exchange data and market connectivity costs. An official noted the action could result in worse prices for some large retail orders, though staff did not expect the vast majority of retail orders to be significantly affected in price.

The SEC will accept public comment on the proposal for 60 days. The agency will then incorporate feedback into a final version of the measure, which must be voted on again.

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