The SEC Wants to Drop the Rule Behind 17 Stock Exchanges. Follow the Fees.

The SEC is close to killing the rule that tells stock exchanges they must honor each other's prices. A top SEC official said this week it is likely a first-quarter 2027 event. The headline fight is whether investors get worse prices. I think the bigger fight is about fees, because the SEC says it will rewrite the access fee cap, the tick size and the market data formula at the same time. Whoever wins that package gets paid.

Key Highlights

• The timing: SEC trading director Jamie Selway said Rule 611 is "a Q1 event in all likelihood," referring to the first quarter of 2027, after the SEC reviewed about 1,200 comments.¹
• The package: Selway said staff will make recommendations on access fee caps and minimum pricing increments "coincident with any change to Rule 611," and that market data revenue formula changes should come by the end of next year.²
• The scale: The proposal says 17 exchanges trade U.S. stocks, the three largest hold over 30% of dollar volume, and 10 of the other 14 trade under 1%.³
• The cost estimate: The SEC puts total annual benefits at $54.2 million to $77.0 million, with about $6.2 million of lost annual revenue at five small exchanges.³
• The idea: Cboe Global Markets (CBOE) traded near $338.92 on Friday, and North American equities are about 16% of its net revenue.^{4, 5}

Here is the sentence to hold on to. The SEC proposed in June to scrap Rule 611, the trade-through rule, and its trading director now says the decision lands early next year. The same official says the access fee cap, the tick size and the market data formula will be decided at the same time. A simple repeal is not what is coming. A package is.

The surface story

Rule 611 is called the Order Protection Rule. It says a trading venue cannot execute a stock trade at a price worse than the best automated quote displayed on another exchange, unless an exception applies.³ It dates from 2005.

On June 11, 2026 the SEC proposed to rescind Rule 611, along with Rule 610(e), which limits locked and crossed quotes. Chairman Paul Atkins said that after two decades it is "high time" to review the rule's "unintended consequences".⁷ Atkins dissented from the 2005 version of Regulation NMS as a commissioner, so this is a long-held view finally getting a vote.³

The comment period closed in August. On October 14, Selway told a Security Traders Association conference the Division is analyzing more than 1,200 comment letters, plus two roundtables.² Six days later at the SIFMA annual meeting he put a calendar on it: first quarter of 2027.¹

The mechanism

Think of the rule as a mandate that every exchange's best quote counts. If one exchange shows a stock at $50.00 and you try to buy at $50.01 elsewhere, the venue holding the $50.00 quote has to be dealt with first, or your trade is a violation. That sounds like a plain consumer protection. It is also a license to quote.

The SEC's own release explains why. Because a protected quote has to be honored, the SEC says Rule 611 effectively guaranteed "that market participants must connect to" every exchange and "subscribe to their market data feeds".³ Seventeen exchanges now trade U.S. stocks, and three more are approved but not yet operating. There are also 33 stock ATSs and a large off-exchange market.³

The market data is where the money sits. The SEC says the consolidated data formula sends half of market data revenue to quoting and half to trading, and that exchanges received more than $300 million of that pool in 2024. Critics say the quoting half subsidizes venues that quote but rarely trade.³ A rule that forces everyone to connect also forces everyone to buy the data. That is how a small exchange survives with a sliver of volume.

The SEC estimates a broker connected to every exchange pays about $5.7 million a year for market data and connectivity under two use cases.³ The agency calls out that cost as a reason to repeal.

Winners and losers

Small exchanges lose the most. The SEC expects about four small to mid-sized broker-dealers to disconnect from each of five small exchanges, saving about $10 million a year while costing those exchanges about $6.2 million in revenue. It says it does not expect any exchange to exit, but it does expect small and new ones to find it harder to gain share.³

Large exchange families gain on the margin. The proposal says larger exchanges could gain volume if orders concentrate on them. In January 2026 the three largest exchanges had over 30% of all dollar volume, while 10 of the other 14 exchanges held under 1%.³

Brokers save. The SEC puts the saving at about $307,000 a year for each exchange a broker disconnects from, counting market data and connectivity fees.³

Retail investors are the contested group. The SEC says it does not expect a significant change in average execution quality for marketable retail orders, while admitting some orders could get worse prices.³ Citadel Securities urged the SEC to keep the rule and argued investors could pay for repeal.⁸ Better Markets asked the SEC to withdraw the proposal.⁹ Senators Van Hollen, Reed, Warren, Blunt Rochester and Alsobrooks wrote that repeal would increase costs for retail investors.¹⁰

The numbers

The best evidence on what happens without the rule comes from a place where the rule did not apply. The SEC looked at odd-lot trades in high-priced stocks, where a better-priced quote sat inside the national best bid and offer but was not protected.

For a one-share trade the SEC found a trade-through rate of 5.5% on exchanges and 35.6% off exchange. For a 40-share trade it was 1.6% on exchange and 11.5% off exchange. For a 100-share trade the gap closes to 0.3% on exchange and 0.1% off exchange.¹¹ The cost per trade is small. Off-exchange trades of five to 40 shares cost 0.32 to 0.84 basis points outside the best quote.³

That is the honest summary. Where nobody has to honor the best quote, a lot of small trades miss it, and the average miss is under one basis point. Both sides can quote this table. Defenders say a one-in-three miss rate for tiny retail orders is the future. The SEC says the cost is tiny and falls with size.

The benefits side is also modest. The release totals monetized annual benefits of $54.2 million to $77.0 million, against one-time costs of about $48.2 million.³ For a market that traded over $20 trillion in January, that is a rounding error. The SEC is not repealing this rule for the savings. It is doing it because it thinks the rule shaped market structure in a way it dislikes.

Meanwhile the quieter rules are where the sums are. The 2024 rule that cut the access fee cap to $0.001 a share from $0.003 for protected quotes was pushed from November 2026 to November 2027 in an order issued the same day as the repeal proposal.^{3, 12} Atkins also directed staff to review the fee cap and tick size by year-end.¹³ Selway now says those recommendations will land alongside any change to Rule 611.²

The free-market read

Let me start with the best case against my position. The trade-through rule is a price-priority promise. A retail investor cannot audit a routing decision, and a promise that no venue will fill you worse than the best displayed quote is something you can understand. Better Markets argues that repeal leaves the best-execution duty as the only backstop and that the proposal does nothing to strengthen it.⁹ SIFMA asked the SEC and FINRA to publish a post-611 best-execution framework before any repeal takes effect.⁸ Those are fair points. Even Cboe asked FINRA for guidance that trading outside the national best bid and offer without sufficient justification is inconsistent with best execution.¹⁴

I still land on repeal. A federal rule that forces every broker to connect to every exchange is a mandate that props up exchanges whether or not they add value. The SEC itself says it increased the number of venues to monitor and the cost of connectivity, data and compliance.³ A market works when price signals decide where liquidity goes, not when a rule hands every quote a guaranteed audience. Repeal returns that decision to brokers who are legally obligated to get customers the best deal and who face real competition for doing so.

But pro-market is not pro-incumbent, and incumbents on both sides are playing for the fine print. The exchanges want the rule gone, but they also want the rest of the framework to stay friendly. Nasdaq supports rescission yet told the SEC that adopting the proposal alone will harm displayed markets and the national best bid and offer, and asked it to rescind or reformulate the access fee cap and reform the data revenue formula.¹⁵ NYSE supports rescission as well, and wants the SEC to address best execution, the national best bid and offer, the data revenue split and access fees at the same time.¹⁶ Read plainly, the exchanges want the freedom to compete without losing the regulated fee schedule they compete under. The wholesalers are doing the same thing from the other side. Citadel, a major retail wholesaler, has a commercial stake in the answer too.

My test is simple. A good reform lets any venue win flow on price and speed, and lets any broker route to it. A bad reform repeals the one rule that annoys exchanges while keeping the fee cap and the data formula that pay them. Selway's statement is encouraging on that point. He said the data revenue formula should change by the end of next year to provide effective incentives "to increase displayed liquidity".² I would go further and let exchanges and brokers set access fees by contract. But a package that tackles all three together is better than a repeal alone.

The bear case

Here is how this goes wrong, and I think the risks are real.

First, the national best bid and offer could weaken. Cboe told the SEC in 2025 that eliminating the trade-through rule may degrade the NBBO, and that orders setting the quote would lose their execution advantage.⁹ If displayed quotes stop earning priority, liquidity could drift off exchanges and into private venues.

Second, the SEC could pair repeal with new best-execution rules that are heavier than the rule it removes. Selway said coordination with best execution is "critical" and that FINRA could issue guidance alongside SEC action.¹ The deregulatory headline could come with a new compliance bill.

Third, the date could slip. Selway said "in all likelihood" and he is a staff official speaking in his own capacity, not the Commission.² The commission can still change course.

Fourth, the fee cap could go the wrong way for exchanges. The 2024 rule cuts the cap to $0.001 a share. If the review lands on a lower cap, venues that rely on access fees for revenue lose. If it goes up, brokers pay more.

The Idea

Cboe Global Markets (CBOE). I want to be careful here. Cboe is an options company first. In the second quarter its options business earned $473.9 million of $731.6 million of net revenue, and North American equities earned $114.7 million, or 15.7% of the total by my arithmetic.⁵ That is about one-sixth of the story, not the whole thesis.

Still, equities is the segment with the policy lever. Net revenue there rose 17% in the second quarter, and Cboe wrote in its June volume briefing that Rule 611 "contributes to unnecessary market fragmentation".^{5, 17} It runs four U.S. stock exchanges, and two of them, BYX and EDGA, are among the eight with volume below 1% according to a Healthy Markets filing.¹⁸ A repeal that concentrates flow on scaled venues should help the larger two and might push Cboe to simplify the smaller ones. That is my read, not a company statement.

CBOE traded at $338.92 on Friday morning, with a market value of $35.4 billion and a 52-week range of $227.15 to $371.18.⁴ The forward price-to-earnings ratio was 23.2. The stock was up about 3.4% on Friday morning after the board authorized an additional $550 million of buybacks, which was not a policy story.¹⁹ The average analyst target is $319.50, below the current price.⁴

What might the market be missing? It is pricing Cboe on options volume and 0DTE trading, as it should. It is not pricing the chance that the SEC resets equity market structure, fees and data in one move in early 2027. If that package favors scaled lit venues, the equities line gets a second leg of growth. If it does not, the downside is limited to a segment that is 16% of revenue.

The thesis is wrong if North American equities net revenue falls year over year in the third quarter (it was $103.5 million in the third quarter of 2025), if the SEC pairs repeal with a lower fee cap that cuts exchange capture, or if flow moves off exchange after repeal.⁵ I keep score on every idea here, winners and losers. See the Free Markets Report Idea Scorecard. No price target.

What to watch next

Four dates matter, and I track them on the Deregulation Investor's Catalyst Calendar.

First, Cboe reports third-quarter results before the open on October 30, and analysts expect adjusted earnings of about $3.41 a share.^{20, 21} Look at the equities line first.

Second, the 23-hour, five-day trading schedule begins December 6 for exchanges, which Selway says will move corporate actions into a one-hour pause and test overnight price protections.¹

Third, the first quarter of 2027, when Selway expects the Commission to act on Rule 611 together with access fees and tick sizes.¹ The new consolidated market data plan becomes operative next April.²

Fourth, FINRA best-execution guidance, which could arrive alongside the SEC action.¹

The SEC is close to repealing a rule that built a market of 17 exchanges. Do not mistake that for the main event. The main event is who gets paid after the rule is gone.

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