Order protection rule

Order protection rule

A provision of the National Market System that forces trading centers to quote equivalent and consistent execution prices for a security on all exchanges that allow trading of that security. Also known as Rule 611 after its designation in the Federal Register, the Order Protection Rule is designed to prevent trade-throughs, or trades executed at prices other than the best-quoted price for that security. Rule 611 applies to all stocks on major indices and most over-the-counter stocks.

Order Protection Rule

A rule requiring investors to receive a price for a security that is at least equivalent to the price for the same security on another exchange. That is, the order protection rule forbids an order from being executed at a price below the price on another exchange. There are various exceptions; notably limit orders and IOC orders do not necessarily abide by the order protection rule. The rule is a provision of Regulation NMS and is designed to help integrate American exchanges and to protect investors from bad deals. It is also called Rule 611.

Order protection rule.

The order protection rule, part of Regulation NMS -- for National Market System -- adopted by the Securities and Exchange Commission (SEC) in 2005, requires that every stock trading center establish and enforce a policy that ensures no transaction will be traded-through, or executed at a price that's lower than a protected quotation in that security displayed by another trading center.

A protected quotation is one that's immediately and automatically accessible. The order protection rule, also called Rule 611, does allow certain exceptions, which apply to limit orders, immediate-or-cancel (IOC) orders, and intermarket sweep orders (ISOs).

References in periodicals archive ?
In addition, in response to feedback received from customers through the public comment process for the proposed changes, Alpha will operate as an unprotected market under the Order Protection Rule (OPR).
The Order Protection Rule generally requires that trading centers trade at the best-quoted prices or route orders to the trading centers quoting the best prices.
Specifically, we use data from US equity markets in 2008 to investigate the US Securities and Exchange Commission's (SEC) "Flickering Quote Exception" to the Regulation National Market System (Reg NMS) Order Protection Rule that defines the benchmark price for evaluation of trade throughs and provides a one second look back exception.
Section I provides an overview of the SEC Reg NMS Order Protection Rule and the Benchmark Quote Exception and describes the quote-arbitrage trading strategy.
Thematric and cause examinations focused on trading issues associated with alternative trading systems, information barriers, the SEC's market access rule and amendments to FINRA's order protection rule.
At the most basic level, the Reg NMS Order Protection Rule will require firms to update their order routing rules and put compliance monitoring processes in place.
The ISE Stock Exchange introduced its displayed market on December 8, 2006, and has aggressively added securities in advance of the March 5, 2007 implementation date for the Reg NMS Order Protection Rule.
One of the looming questions broker-dealers are pondering is the amount and type of data they will need to produce to demonstrate that they have complied with the order protection rule and other requirements," said Tim O'Connell, a senior manager with BearingPoint.
NEW YORK -- TABB Group in a new report released today, "The Reg NMS Order Protection Rule: Preparing for the Impact," says implementing the Securities and Exchange Commission's Regulation NMS Order Protection Rule 611 will have an unprecedented and drastic impact on the equities markets.
Enhancements to our surveillance systems, like the one announced today, enable NASD Market Regulation to protect investors by closely monitoring trading to ensure that firms comply with the SEC's Limit Order Display Rule and the NASD Limit Order Protection Rule," said Mary Schapiro, President, NASD Regulation.
The NAC also found that by engaging in this type of conduct and violating the NASD's limit order protection rule, Jawitz abdicated his fiduciary responsibility by not protecting the customers' limit orders.