SEC Issues Regulation NMS Adopting Release, Starting the Clock on Sweeping Overhaul of the National Market System

SEC Issues Regulation NMS Adopting Release, Starting the Clock on Sweeping Overhaul of the National Market System




On April 6, 2005, the Securities and Exchange Commission (“SEC” or “Commission”) voted 3-2 to approve Regulation NMS, which will implement several major market structure reforms, as well as update and consolidate the existing national market system (“NMS”) rules adopted under Section 11A of the Securities Exchange Act of 1934 (“Exchange Act”) into a single regulation. [1] The SEC issued the adopting release on June 9, 2005. [2]

The intensity of debate on the need for and form of Regulation NMS may best be captured by statements from the Adopting Release itself. While the Commission majority believes that “[b]y modernizing and strengthening the nation’s regulatory structure, the rules [of Regulation NMS] are designed to assure that the equity markets will continue to serve the interests of investors, listed companies, and the public for years to come,” [3] The dissenting Commissioners believe that “the majority’s statutory interpretations and policy changes are arbitrary, unreasonable and anticompetitive.” [4]

Regulation NMS has undergone a contentious approval process. The SEC initially proposed Regulation NMS on February 26, 2004, [5] then held a public hearing on April 21, 2004, [6] after which it published a supplemental release asking for additional comments specifically in the context of fully automated markets, and extending the comment period to June 30, 2004. [7] After news of an impending final rule adoption became public, the SEC, amidst uproar from various groups and from members of Congress(primarily concerning the scope and application of the proposed trade-through rule), reproposed Regulation NMS for comment on December 16, 2004. [8]

Much of the debate surrounding Regulation NMS concerned the need for and scope of any rule prohibiting or limiting the occurrence of trade-throughs. Institutional investors, industry participants, and various members of Congress took both sides of this debate. [9] While some called for the elimination of any trade-through rule, [10] the Commission Staff continued to advocate for trade-through protection. [11] The divisiveness of the trade-through rule is reflected in the 3-2 Commission vote, in which Commissioners Glassman and Atkins strongly criticized the rule and ultimately provided their written dissent. Chairman Donaldson subsequently defended the trade-through rule in the Financial Times, asserting that the rule “should promote better outcomes for investor orders, enhanced liquidity, and innovation” [12] and in testimony before the Senate on May 19, 2005. [13] Even now, after the adoption of Regulation NMS, the Commission remains noticeably divided on the decision. [14]

The new NMS rules fall into four broad categories: the Order Protection Rule, the Access Rule, the Sub-Penny Rule, and the Market Data Rules. We discuss each of these in detail below.

Order Protection Rule


The Order Protection Rule (Rule 611, formerly known as the “trade-through” rule), requires trading centers (which includes national securities exchanges, exchange specialists, alternative trading systems (“ATS”), OTC market makers, and block positioners) to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution of trades at prices inferior to protected quotations displayed by other trading centers, or, if relying on one of the Rule’s applicable exceptions, that are reasonably designed to assure compliance with the exception. Trading centers must surveil regularly to ascertain the effectiveness of their policies and procedures and to take prompt action to remedy deficiencies. [15] The SEC is considering a rule proposal that would require trading centers to disclose publicly standardized and comparable statistics on trade-throughs that do not fall within an exception to the Rule. [16]

The Rule establishes intermarket price protection against trade-throughs for (1) automated quotations (2) displayed by an automated trading center (3) that are the top-of-book (i.e., the best bid or offer) of an exchange, Nasdaq, and the NASD’s Alternative Display Facility (“ADF”). [17] This protection will apply to trades in NMS stocks, that is, stocks listed on a national securities exchange and stocks included in either the National Market or SmallCap tiers of Nasdaq.

An automated quotation is one displayed by a trading center that permits an incoming order to be marked as immediate-or-cancel (“IOC”) and immediately and automatically: (1) executes an order marked as IOC against the displayed quotation up to its full size; (2) cancels any unexecuted portion of an order marked as IOC without routing the order elsewhere; (3) transmits a response to the sender of an order marked as IOC indicating the action taken with respect to such order; and (4) displays information that updates the displayed quotation to reflect any change to its material terms. [18] Consequently, a quotation will not qualify as “automated” if any human intervention after the time an order is received is allowed to determine the action taken with respect to the quotation.

Only automated trading centers are eligible to have their quotations protected. [19] To qualify as an automated trading center, a trading center must have implemented the systems, procedures, and rules necessary to render it capable of displaying quotations meeting the action, response, and updating requirements set forth in the automated quotation definition. [20] A trading center must identify all quotations other than automated quotations as “manual” quotations, and must immediately identify its quotations as manual quotations whenever it has reason to believe that it is not capable of displaying automated quotations. [21] The trading center also must adopt reasonable standards limiting when its quotations change status from automated to manual, and vice-versa, to specifically defined circumstances that promote fair and efficient access to automated quotations and are consistent with the maintenance of fair and orderly markets. [22] The SEC believes these requirements will promote efficient interaction between hybrid markets and other trading centers. [23]


Although the SEC ultimately decided against a general “opt-out” exception that would have allowed market participants to disregard displayed quotations, as well as exceptions for block trades and 100-share quotations, the new Order Protection Rule does contain several tailored exceptions to accommodate various trading strategies and order types that are useful to investors. [24]


Trading centers may avail themselves of the self-help remedy if another trading center experiences a failure, material delay, or malfunction of its systems or equipment. This sort of material delay occurs when the trading center repeatedly fails to provide an immediate response (within one second) to incoming orders attempting to access its quotes. A trading center making use of the exception must notify the non-responding trading center immediately after (or at the same time as) electing self-help pursuant to reasonable and objective standards contained in its policies and procedures. Unlike the requirement in the Reproposal, the trading center invoking the self-help remedy need not provide the non-responding trading center prior notice, but must assess whether the problem lies with its own systems and appropriately address any such problems. [26]

Intermarket Sweep Orders[27]

Under the intermarket sweep order exception, a trading center may execute immediately any order identified as an intermarket sweep order [28] without regard for better-priced protected quotations displayed at one or more other trading centers. The exception also authorizes a trading center itself to route intermarket sweep orders and thereby clear the way for immediate internal executions at a price inferior to a protected quotation at another trading center. The trading center, broker, or dealer responsible for routing an intermarket sweep order (whether it routes through its own systems or sponsors access through a third-party vendor’s systems) must take reasonable steps to establish that orders are properly routed in an attempt to execute against all applicable protected quotations. [29] The SEC notes that this exception particularly will facilitate the immediate execution of block orders by dealers on behalf of their institutional clients. [30]

Flickering Quotes[31]

This exception is available if the trading center displaying the protected quotation that was traded through had displayed, within one second prior to execution of the trade-through, a best bid or offer, as applicable, for the NMS stock with a price that was equal or inferior to the price of the trade-through transaction. This exception provides a “window” to address false indications of trade-throughs that in actuality are attributable to rapidly moving quotations. [32]

Single-Price Openings, Reopenings, and Closing Transactions[33]

A transaction that constituted the trade-through is excepted from the Order Protection Rule if it was a single-priced opening, reopening, or closing transaction by the trading center. The SEC has emphasized that this exception applies only to single-priced reopenings and therefore requires a trading center to conduct a formalized and transparent process (pursuant to its rules or written procedures) for executing orders during reopening after a trading halt that involves the queuing and ultimate execution of multiple orders at a single equilibrium price. In addition, the trading center must have formally declared a trading halt pursuant to its rules or written procedures. Therefore, the exception would not include a situation where a trading center merely spread its quotations or switched back to automated quotation mode from manual quotation mode. [34]

Benchmark Trades[35]

Trading centers may execute volume-weighted average price (“VWAP”) orders, as well as other types of orders [36] that are not priced with reference to the quoted price of the NMS stock at the time of execution and for which the material terms were not reasonably available at the time the commitment to execute the order was made. The SEC declined to include in the exception categories of transactions described as “arbitrage” transactions or transactions priced with reference to derivatives.

Stopped Orders[38]

The exception applies to the execution by a trading center of a stopped order for the account of a customer when the price of the execution of the order was lower (for a buy order) than the national best bid at the time of execution or was higher (for a sell order) than the national best offer at the time of execution. The customer must have agreed to the stop price on an order-by-order basis.

Transactions Other Than “Regular-Way” Contracts[39]

Transactions that are executed other than pursuant to standardized terms and conditions, such as transactions that have extended settlement terms, also are excepted from the Order Protection Rule.

Crossed Quotations[40]

Transactions executed at a time when protected quotations were crossed are excepted from the Order Protection Rule. This exception does not apply when a protected quotation crosses a non-protected (e.g., manual) quotation.

Order Protection Rule and Best Execution Obligations

The SEC has emphasized that the Order Execution Rule does not lessen a broker-dealer’s duty of best execution, and has declined to remove manual quotations from the national best bid or offer (“NBBO”) or from the benchmark used for calculating execution quality statistics under Rule 605 (previously Rule 11Ac1-5). [41] The SEC has stated, however, that when the market for a stock is dominated by trading centers displaying automated quotations, and a trading center that is not a dominant market for the stock displays manual quotations, a broker-dealer reasonably could decide, in the course of its regular and rigorous review of execution quality, to bypass such a market if prior experience demonstrated that attempting to access that market would not be in its customers’ best interest. The broker-dealer may consider the likelihood of receiving an execution at displayed prices and the potential cost to its customers in making this determination. [42]

The SEC’s Rationale for the Order Protection Rule

The SEC believes the Order Protection Rule, with its protection of the best displayed and
accessible prices, will: (1) assure investors, particularly retail investors, that orders will be filled at the best prices available, thereby increasing investors’ confidence that they will be treated fairly when they participate in the equity markets; [43] (2) promote deep and stable markets that will minimize investor transaction costs and improve market liquidity by encouraging limit orders; and [44] (3) appropriately balance competition among individual markets and competition among individual orders. [45]


Compliance with the Order Protection Rule will occur in two phases:

Phase I

The first phase-in of NMS stocks subject to the Order Protection Rule will begin one year after publication of Regulation NMS in the Federal Register. Continuing until the beginning of Phase II, all trading centers must begin trading 100 NMS stocks of each of Networks A and C, and 50 NMS stocks of Network B, pursuant to the requirements of the Order Protection Rule. [46] Phase I’s primary purpose is to allow market participants to verify the functionality of their systems and procedures to ensure compliance with the Rule.

Phase II

Phase II will begin nine weeks after the beginning of Phase I. As of this date, trading centers must begin trading all NMS stocks pursuant to the requirements of the Rule.

Access Rule


Fair and Non-Discriminatory Access

The Access Rule (Rule 610) remains substantially the same as proposed. The Rule requires SRO trading facilities [47] (i.e., the trading facilities of each of the exchanges as well as the Nasdaq Market Center) to provide fair and non-discriminatory order execution access to their quotations for any person indirectly obtaining access to those quotations through members, subscribers, or customers of those trading facilities. [48] The unfair discrimination standard, including access fees charged, applies only to access to quotations, not the other services that markets generally provide only to their members. [49] These other services are subject to the more general fair access provisions applicable to SROs and large ECNs, as well as the statutory provisions governing SRO rules. [50] In addition, differential fees, such as those with volume-based discounts, are permissible so long as they do not vary based on the non-member status of a person obtaining indirect access to quotations. [51] The Rule enables access through the use of private linkages, rather than mandating a collective linkage facility such as the Intermarket Trading System (“ITS”) Plan.

In addition, all trading centers that choose to display quotations in an SRO display-only quotation facility [52] (which currently means only the ADF) must “provide a level and cost of access to such quotations that is substantially equivalent to the level and cost of access to quotations displayed by SRO trading facilities in that stock.” [53] These additional connectivity requirements arise only if a trading center displays its quotations in the consolidated data stream and does not provide access through an SRO trading facility. The NASD affirmatively must determine prior to implementation of the Access Rule that existing ADF participants are in compliance with the Rule’s requirements, and will be responsible for halting publication of the participant’s quotations until the participant comes into compliance. [54] In addition, quotations displayed through an SRO display-only facility are subject to the same fair and non-discriminatory access requirements as are quotations of SRO trading facilities. [55]

Access Fees

The Access Rule also limits the fees any trading center can charge, or allow to be charged, for accessing its protected quotations, both displayed and reserve size, to no more than $0.003 per share. [56] The Rule also applies this fee limitation to quotations other than protected quotations that are the best bids or offers of an SRO, the ADF, or Nasdaq (e.g., for manual quotations at the best bid or offer). [57] Fees not triggered by the execution of orders against protected quotations or best bid or offer quotations, such as periodic fees (e.g., monthly or annual fees) generally are not subject to the Rule. [58]

The SEC has explained that a trading center is responsible for ensuring that any time lag between prices in its internal systems and its quotations in the consolidated quotation system do not cause fees to be charged that violate the fee limitation. This determination aims to address the concern that a market participant intending to interact with a protected quotation may in fact execute against a non-protected quotation. [59] The SEC does not believe a trading center that charges higher fees for quotations not subject to the fee cap could be in compliance with the Access Rule unless it provides a mechanism to enable market participants to avoid ever being charged inadvertently a fee above the fee cap. [60]

The SEC believes that such fee limitations will address the potential distortions caused by substantial disparate fees and preclude trading centers from taking advantage of the order protection requirements and a system based on private linkages. [61]

Locked and Crossed Quotations

In addition, the Access Rule requires SROs to establish, maintain, and enforce written rules that: (1) require their members reasonably to avoid displaying quotations that lock or cross protected quotations in NMS stocks or displaying manual quotations that lock or cross any quotation in an NMS stock disseminated pursuant to an effective national market system plan; (2) are reasonably designed to assure the reconciliation of locked or crossed quotations in an NMS stock; and (3) prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross automated quotations of other trading centers. [62]

Trading centers are permitted to display automated quotations that lock or cross manual quotations. SROs are permitted to include in rules implemented pursuant to the Access Rule exceptions to the prohibition against locking and crossing quotations that are equivalent to those included in the Order Protection Rule. If an SRO’s rules provide for reasonable exceptions to the locking and crossing requirements, the prohibition against locking and crossing protected quotations will not apply. [63]

Regulation ATS Fair Access Requirements

The SEC also is modifying the fair access requirements of Regulation ATS [Rule 301(b)(5)] to lower the threshold that triggers such requirements from the current 20% of the average daily volume in a security to 5%. [64] Aside from lowering the threshold, the substantive requirements of Rule 301(b)(5) are left unchanged. [65]


Compliance with the Access Rule will be phased-in in accordance with the phase-in process for the Order Protection Rule (see above). The compliance date for the amendment to Rule 301 of Regulation ATS will be 60 days after the publication of Regulation NMS in the Federal Register.

Sub-Penny Rule


The Sub-Penny Rule (Rule 612) also remains substantially the same as proposed. The Rule prohibits market participants from displaying, ranking, or accepting a bid or offer, an order, or an indication of interest in NMS stocks priced in an increment less than $0.01 if that bid or offer, order, or indication of interest is priced equal to or greater than $1.00 per share. If the price of the quotation is less than $1.00 per share, the minimum permissible increment is $0.0001.

A market participant also is prohibited from accepting a sub-penny order or quotation that is not permitted under the Rule, even if it rounds the order or quotation to the nearest permissible pricing increment. [66] The Rule does not prohibit a sub-penny execution resulting from a midpoint or volume-weighted algorithm or from price improvement, however, “so long as the execution does not result from an impermissible sub-penny order or quotation.” [67]

The SEC has declined to extend the Rule to options, [68] but it does intend to consider during the implementation period whether actively traded exchange-traded fund shares (“ETFs”) such as QQQQs, should be exempt from the Rule. [69] The Commission also has stated that it would consider a request for exemptive relief that would permit one-to-one negotiations of sub-penny trades through an ATS, and plans to study the issue further during the implementation period. [70]


The compliance date for the Sub-Penny Rule will be 60 days after publication of Regulation NMS in the Federal Register. [71]

Market Data Rules and Plans


Revised Revenue Allocation Formula

The amendments to the Market Data Rules (Rules 601 and 603) and the joint industry plans (“Plans”) [72] similarly are substantially the same as proposed. The new Plan formula allocates revenues to the various SROs based on both trades and quotations, rather than on only trades as previously. The new formula also eliminates any allocation of revenues for manual quotations. Through the revised Plan formula, the SEC aims to reward the contribution quotes make to public price discovery and to discourage such practices as wash sales and trade shredding. [73] It also aims to promote an allocation of revenues that “more closely reflects the usefulness to investors of each SRO’s market information.” [74]

The SEC has postponed its review of market data fee levels until it considers the issue of SRO funding as a whole. It has requested comment on this issue in its recent concept release on SRO structure. [75] Instead, the SEC believes the adoption of the revised Plan formula is an appropriate step to improve the current model while the issue of SRO funding receives further review.

Establishment of Advisory Committee

The Market Access Rules broaden participation in Plan governance by requiring the creation of non-voting advisory committees composed of non-SRO representatives (i.e., persons not employed by or affiliated with an SRO participant). The advisory committee must be comprised of, at a minimum, one or more representatives associated with: (1) a broker-dealer with a substantial retail investor base; (2) a broker-dealer with a substantial institutional investor customer base; (3) an ATS; (4) a data vendor; and (5) an investor. Each SRO participant is entitled to select an additional committee member.

Distribution and Display of Market Data

The amendments to the Market Access Rules also authorize markets to distribute their own data independently and streamline requirements for the display of market data to investors. At the same time, markets must continue to provide their best quotations and trades for consolidated dissemination through the Plans. All SROs must act jointly through the Plans and through a single processor per security to disseminate consolidated market information in NMS stocks. [76]

In addition, the SEC has reduced and simplified the consolidated display requirements by reducing the data required to be displayed and limiting the display requirements to trading and order-routing contexts. [77] The new definition of “consolidated display” is limited to the prices, sizes, and market center identifications of the NBBO and the “consolidated last sale information.” [78] Additional data may be included but is not required.


The compliance date for the amendments to the Market Data Rules and Plans, other than the allocation formula amendment, will be 60 days after the publication of Regulation NMS in the Federal Register. The compliance date for the amendment to the allocation formula will be September 1, 2006.

Dissent of Commissioners Glassman and Atkins

Commissioners Glassman and Atkins, who were both vehement in their opposition to Regulation NMS throughout the proposal and approval process, particularly the Order Protection Rule, issued an accompanying dissent to Regulation NMS focusing on the Rule. [79] In their dissent, they express their belief that Regulation NMS runs contrary to Congress’ goal of protecting competition within the national market system, establishes a redundant layer of regulatory costs and burdens, and unnecessarily exposes the markets to unforeseen consequences. Instead, they argue, improving access to quotations, enhancing connectivity among markets and market participants, clarifying broker-dealers’ duty of best execution, and reducing barriers to competition would have more effectively improved market efficiency for all investors.


The approval of Regulation NMS, followed shortly by the announcements of the New York Stock Exchange’s (“NYSE”) proposed merger with the Archipelago Exchange (“ArcaEx”) and Nasdaq’s proposed merger with Instinet, raised some concerns that Regulation NMS would facilitate the creation of a “duopoly” within the national market system and negatively impact market competition and innovation. [80] In a recent hearing by the Senate Committee on Banking, Housing, and Urban Affairs concerning Regulation NMS and these market developments, some industry participants expressed concern that Regulation NMS would raise barriers to entry for new market participants, stunt innovation and market growth, and permit the new NYSE/ArcaEx and Nasdaq/Instinet entities to dominate the market. [81] Chairman Donaldson refuted the potential negative effects of Regulation NMS, asserting that it “is pro-competitive for large markets and small markets….NYSE will have to battle to maintain its market share, given the expanded opportunities for fully electronic markets to compete in NYSE stocks after the implementation.” [82]

Regulation NMS will require close attention by the Commission and market participants alike to ensure that the new rules improve the system without generating unintended consequences that could negatively impact US capital markets, particularly in light of the proposed mergers. Such cooperation will become increasingly important during Phase I of the implementation process, when the opportunity to identify significant implementation issues and potential market effects arises before the application of the Order Protection and Access Rules to all NMS stocks.

In the near term, firms will need to evaluate their operational capacities to comply with the Rules. Especially in the Nasdaq market, such an evaluation will entail a reconsideration of various order routing mechanisms. In this regard, we expect that some sort of implementation working group will emerge from the Commission, the NASD, and probably the Securities Industry Association to address the ongoing questions, similar to the process that emerged regarding the implementation of Regulation SHO.

For further information or assistance, please feel free to contact anyof the authors listed above.

[1] On June 2, 2005, President George W. Bush nominated Representative Christopher Cox to replace resigning Commission Chairman William Donaldson as a Commissioner and Chairman of the Commission. The nomination has raised questions about the future of Regulation NMS. See, e.g., Ron Oral and Donna Block, Cox: Don’t Expect Big Changes, Daily Deal (June 3, 2005), available Notwithstanding such speculation, as of the date of this writing there is no indication that Regulation NMS will not go forward as adopted.

[2] Regulation NMS, Exchange Act Release No. 51808 (June 9, 2005) (“Adopting Release”).

[3] Adopting Release at 7.

[4] Dissent of Commissioners Cynthia A. Glassman and Paul S. Atkins to the Adoption of Regulation NMS (June 9, 2005), available

[5] Regulation NMS, Exchange Act Release No. 49325 (Feb. 26, 2004), 69 Fed. Reg. 11126 (Mar. 9, 2004) (“Initial Proposal”).

[6] A full transcript of the NMS hearing, as well as an archived video and audio webcast, is available

[7] Regulation NMS Extension of Comment Period and Supplemental Request for Comment, Exchange Act Release No. 49749 (May 20, 2004), 69 Fed. Reg. 30142 (May 26, 2004).

[8] Regulation NMS, Exchange Act Release No. 50870 (Dec. 16, 2004), 69 Fed. Reg. 77424 (Dec. 27, 2004) (“Reproposal”).

[9] Regulation NMS and Recent Market Developments: Hearing Before the Senate Comm. on Banking, Housing, and Urban Affairs (May 18, 2005) (statement of Senator Wayne Allard, U.S. Senate Comm. on Banking, Housing and Urban Affairs), available at

[10] See, e.g., Peter J. Wallison, Don’t Tell Investors How Much to Pay for Equities, Fin. Times, Jan. 5, 2005, available at

[11] See, e.g., Annette Nazareth, Remarks before the SIA Market Structure Conference (May 20, 2005), available

[12] William Donaldson, Simple New Rule that Gives Investors Priority, Fin. Times, Apr. 7, 2005, available (“Donaldson Article”).

[13] Regulation NMS and Recent Market Developments: Hearing Before the Senate Comm. on Banking, Housing, and Urban Affairs (May 19, 2005) (testimony of William Donaldson, Chairman, Securities and Exchange Commission), available at FuseAction=Hearings.Home (“Donaldson Senate Testimony”).

[14] See, e.g., Glassman Remains Concerned About Impact of Trade-Through Rule, Securities Regulation & Law Report 37 (May 16, 2005); Cynthia Glassman, SEC in Transition: What We’ve Done and What’s Ahead (June 15, 2005), available

[15] Adopting Release at 24.

[16] Id. at 150.

[17] Rule 600(b)(57). The SEC had considered adopting a depth-of-book alternative, which would have applied the Order Protection Rule to the full depth-of-book of a market center on a voluntary basis, but determined that the top-of-book alternative would appropriately balance competition between markets with competition among orders and be less difficult and costly to implement. Adopting Release at 24.

[18] Rule 600(a)(3).

[19] Adopting Release at 97-98.

[20] Rule 600(b)(4)(i).

[21] Rules 600(b)(4)(ii) and (iii).

[22] Rule 600(b)(4)(iv).

[23] Adopting Release at 94.

[24] The SEC plans to request that all NMS trade reporting plans consider collecting and disseminating special modifiers for all trades executed pursuant to an exception from the Order Protection Rule. Id. at 150-151 n.317.

[25] Rule 611(b)(1).

[26] Adopting Release at 99. The trading center experiencing problems has primary responsibility for notifying other trading centers and market participants of the problems and their resolution. Rule 600(b)(4)(iii).

[27] Rules 611(b)(5) and (b)(6).

[28] An intermarket sweep order is defined as a limit order that (1) is identified as an intermarket sweep order when routed to a trading center; and (2) simultaneously with the routing of the limit order, one or more additional limit orders (also identified as intermarket sweep orders) are routed to execute against all better-priced protected quotations displayed by other trading centers up to their displayed size. Rule 600(b)(30).

[29] Rule 611(c).

[30] Adopting Release at 153.

[31] Rule 611(b)(8).

[32] Adopting Release at 152.

[33] Rule 611(b)(3).

[34] Adopting Release at 96.

[35] Rule 611(b)(7).

[36] This exception includes, for instance, the execution of an order that is benchmarked to a market’s single-priced opening. Adopting Release at 155.

[37] Adopting Release at 124.

[38] Rule 611(b)(9).

[39] Rule 611(b)(2).

[40] Rule 611(b)(4).

[41] Adopting Release at 159, 284.

[42] Id. at 162.

[43] Id. at 11.

[44] Id. at 11, 21.

[45] Id. at 12.

[46] The particular NMS stocks will be chosen by the primary listing market, in conjunction with SEC staff, to be reasonably representative of the range of each Network’s securities. Id. at 306.
[47] Rule 600(b)(72).

[48] Rule 610(a). This prohibition applies to the entire depth of book of an SRO trading facility, including reserve size as well as displayed size at each price. Adopting Release at 199.

[49] This includes practices such as reducing an order’s priority based on the identity of a member’s customer, for instance. Adopting Release at 200.

[50] Id. at 170.

[51] Id. at 170.

[52] Rule 600(b)(71).

[53] Rule 610(b)(1). As a result, trading centers that display quotations in the NASD’s ADF may incur additional costs to enhance the level of access to their quotations and lower the cost of connectivity for market participants. “Substantially equivalent” is not evaluated in terms of absolute dollar costs, but instead compares the costs to an ADF participant’s relative degree of trading volume. The cost of access to an ADF participant therefore must be substantially equivalent to the cost of access to SRO trading facilities on a per transaction basis. Adopting Release at 179.

[54] Id. at 181.

[55] Rule 610(b)(2).

[56] Rule 610(c). If the price of a protected quotation is less than $1.00, the fee cannot exceed 0.3% of the quotation price. Id.

[57] In the final rule, the SEC extended the fee cap to apply to any quotation that is the best bid or offer of an exchange, the ADF, or the Nasdaq Market Center (rather than protected quotations only) to preclude any incentive for trading centers to display manual quotations as a means to charge a higher access fee. In addition, the SEC recognized that, at present, a trading center’s execution quality statistics will be evaluated against the NBBO, whether that quotation is manual or automated. Adopting Release at 190-91.

[58] Id. at 205.

[59] Id. at 192.

[60] Id. at 193.

[61] Id. at 183, 187.

[62] Rule 610(d).

[63] Rule 610(d)(3).

[64] Rule 301(b)(5).

[65] Adopting Release at 208.

[66] Id. at 232.

[67] Id. at 231.

[68] Id. at 234.

[69] Id. at 223.

[70] Id. at 235-36.

[71] The majority of the exemptions previously granted by the SEC, allowing certain exchanges to accept sub-penny orders and quotations and to disseminate them in rounded, penny increments without a rounding identifier, expire by their terms on June 30, 2005. Id. at 236. The exemptive relief for Nasdaq, which has no sunset provision, expires by the implementation date of the Sub-Penny Rule. Id. at 233 n.547.

[72] The three joint industry plans are (1) the Consolidated Tape Association (“CTA”) Plan, which disseminates transaction information for exchange-listed securities; (2) the Consolidated Quotation (“CQ”) Plan, which disseminates consolidated quotation information for exchange-listed securities; and (3) the Nasdaq Unlisted Trading Privileges (“UTP”) Plan, which disseminates consolidated transaction and quotation information for Nasdaq-listed securities.

[73] Id. at 31.

[74] Id. at 31.

[75] Concept Release Concerning Self-Regulation, Exchange Act Release No. 50700 (Nov. 18, 2004), 69 Fed. Reg. 71256 (Dec. 8, 2004).

[76] Rule 603.

[77] Id.

[78] Rule 600(b)(13).

[79] See Dissent.

[80] See, e.g., Meyer “Sandy” Frucher, Duopoly Alert!, Wall St. J., June 13, 2005 at A12.

[81] Regulation NMS and Recent Market Developments: Hearing Before the Senate Comm. on Banking, Housing, and Urban Affairs (May 18, 2005) (testimony of Meyer “Sandy” Frucher, Chairman and CEO, Philadelphia Stock Exchange), available at

[82] Donaldson Senate Testimony. See also William Donaldson, Remarks Before the Council on Foreign Relations (May 19, 2005), available