The SEC has proposed rescinding two pillars of Regulation NMS: the trade-through rule and the prohibition on locked and crossed markets. The proposal, analyzed in a client alert from Skadden, Arps, Slate, Meagher & Flom, targets the provisions that have governed order protection and quotation display in the US equity market since Reg NMS took effect.

The two provisions at issue are embedded in the same rule. The trade-through rule requires trading centers to establish and enforce policies preventing executions at prices inferior to protected quotations displayed elsewhere. The locked and crossed market prohibition sits alongside it, restricting display of quotes that would lock or cross the best prices available on other venues. Rescinding both would remove the core mandate that has shaped order routing, quotation behavior and venue competition for roughly two decades.

The Skadden alert frames the move as "a new era" for equity market structure — a characterization worth interrogating rather than accepting at face value. What is concrete at this stage is procedural: the SEC has issued a proposal. Nothing is mandated yet. Rescission would take effect only after a Commission vote on adoption, publication in the Federal Register and specified compliance timelines, none of which exist today. Desks evaluating routing infrastructure should treat this as a design consideration, not a deployment requirement.

What the proposal would change

The trade-through rule is the mechanism behind the national best bid and offer construct that order routers, smart order routers and best-execution engines consume every session. If the rule disappears, protected quotations lose their regulatory protection. Executing venues would no longer face a mandate to route away, or to police their own executions against better displayed prices elsewhere. Routing decisions would shift from a compliance floor toward venue-specific economics: fee schedules, fill rates and latency.

For buy-side desks, the compliance question changes shape. Best execution obligations under FINRA and the Investment Advisers Act would remain intact regardless of what happens to Rule 611's progeny. Firms that leaned on the trade-through rule as a structural backstop for price improvement would need to document, more explicitly than before, how their routing choices satisfy execution quality standards without that backstop.

The locked and crossed market prohibition carries its own workflow consequences. Under current rules, exchanges and market makers manage quote behavior to avoid locking or crossing competing venues — a constraint that shapes how aggressively they can display size. Remove the prohibition, and displayed liquidity could fragment across overlapping price levels. That cuts both ways: tighter displayed spreads at any single venue, but a harder aggregation problem for systems that compute a consolidated best bid and offer. TCA vendors and order management system providers would need to revisit how they measure effective spreads and capture fill quality against a less tidy quote hierarchy.

Mandated versus proposed

It bears repeating: nothing has changed in the rulebook today. The SEC has put rescission on the table. The comment process, a Commission vote and an adoption order with an effective date all stand between this proposal and any operational reality. Sell-side technology teams face a sequencing question — whether to build optionality now or wait for adoption — and the cost calculus differs sharply between a full rescission and a narrower amendment if comment letters push the Commission toward a middle path.

What the proposal does signal is regulatory direction. A Commission willing to unwind the trade-through rule is questioning whether order protection, as constructed in the mid-2000s, still serves a market where the majority of volume executes off-exchange and displayed quotes compete with non-displayed liquidity. The Skadden analysis positions the proposal in exactly that frame.

Execution desks: what to watch

Three workstreams follow from the proposal, all contingent on adoption. First, routing logic: routers hard-coded around protected quotes would need re-architecting if protection lapses, and the build time for that is measured in quarters, not weeks. Second, best-execution documentation: with the structural rule gone, regulators would scrutinize routing decisions through the general best-ex framework, raising the evidentiary burden on firms. Third, market data: quote aggregation and NBBO-dependent analytics would require review if locked and crossed markets become permissible rather than exceptional.

The open question is whether commenters support full rescission or press for replacement. Market structure proposals of this magnitude rarely emerge unchanged from the comment file. Until the Commission votes, the trade-through rule and the locked and crossed market prohibition remain fully in force, and execution workflows operate under the existing framework.

The next concrete milestone will be the comment period and any Commission action that follows it — and the final text, not this proposal, will determine what compliance desks must actually build.