Order protection rule

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
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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).

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO) can trade at the old NBBO for one second.
Any trades that execute at Benchmark Compliant Prices are not trade throughs under Rule 611. However, prices inferior to the Benchmark Quote may be accessed with the use of an Intermarket Sweep Order (ISO) (Chakravarty et al., 2012).
To better integrate the various exchanges trading equities and to encourage the display of liquidity, the SEC adopted the Order Protection Rule, Rule 611, in 2005.
These orders may be executed at Benchmark Compliant Prices under SEC Rule 611.
opened the court to public comment on Rule 611 of the Michigan Rules of
witnesses." (172) Rule 611 creates the type of wholly discretionary
amendment to Rule 611 because it would "allow judges to
(13) See Order Amending Rule 611 of the Michigan Rules of Evidence