Key Highlights

  • The SEC proposed eliminating the trade-through rule in June, drawing hundreds of public comments ahead of Monday's deadline.
  • The rule currently requires trading platforms to execute stock orders at the best available price across US exchanges.
  • The number of US stock exchanges has grown to 18 from eight in 2005, a trend the SEC cites as an unintended consequence of the rule.
  • Crypto industry groups support eliminating the rule, arguing it would help pave the way for tokenized stock trading.

Rule Change Draws Broad Investor Opposition

A proposal by securities regulators to eliminate a longstanding rule designed to ensure investors receive the best available price when trading stocks has drawn significant pushback. Hundreds of public comments were filed with the Securities and Exchange Commission ahead of a Monday deadline, submitted by individual investors as well as major Wall Street trade groups warning that the change could harm the broader US stock market.

The rule at the center of the debate, known as the trade-through rule, requires trading platforms to route stock orders to whichever exchange displays the best available price. The SEC proposed eliminating the rule in June, with the agency's chairman arguing the change would simplify market structure and reduce costs for market participants. The chairman, who voted against the rule as a commissioner in 2005, has argued it contributed to a proliferation of small stock exchanges, which now number 18 compared with eight in 2005, most handling less than 1% of total US trading volume.

Industry and Retail Investors Push Back

A major online brokerage told the SEC in a comment that it supported eliminating the rule, arguing its costs in forced connectivity, exchange proliferation, and complexity now outweigh its benefits. However, pension funds, other asset managers, and a large electronic trading firm pushed back strongly. A hedge fund trade group representing members managing more than $4.5 trillion in Assets warned that the proposal represents one of the most sweeping changes to US Equity market structure in decades without adequately demonstrating that its benefits outweigh the risks, and cautioned that eliminating the rule could shift trading activity toward less transparent platforms.

Individual investors also submitted comments opposing the change, with several describing themselves as ordinary Market Participants concerned about losing a key protection. Many of these comments were part of a larger wave of more than 900 submissions that appeared to follow a coordinated format promoted by a retail investor advocacy group formed after a prior period of heightened retail trading activity.

Crypto Industry Sees Opportunity in Rule Change

Some of the strongest support for eliminating the trade-through rule has come from Cryptocurrency firms and blockchain lobbying groups, who argue the change would help pave the way for tokenized stocks that trade on blockchain infrastructure. Crypto industry advocates argue tokenization would bring advantages including continuous trading and instantaneous settlement, and that the trade-through rule is fundamentally incompatible with the decentralized structure of digital asset markets. A blockchain policy group said in a comment letter that current SEC regulations are hindering the development and adoption of tokenized securities.

The SEC faced similar public backlash earlier this summer over a separate proposal that would allow public companies to report financial results twice a year instead of quarterly, and the agency is expected to proceed with that plan despite receiving tens of thousands of opposing comment letters.