Citadel Securities urges SEC to reconsider scrapping order protection rule
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Citadel Securities on Monday urged the U.S. Securities and Exchange Commission to reconsider its June proposal to scrap the order protection rule, saying the change could divert trading from public exchanges and harm retail investors. The market maker, founded by Ken Griffin, called the SEC's economic analysis "fatally flawed" and said projected compliance savings were modest.
Key Facts
- In June, the SEC voted unanimously to propose scrapping the order protection rule, citing higher costs and complexity.
- Citadel Securities said the SEC's projected compliance savings of roughly $250,000 per trading day are modest compared with the U.S. equity market.
- The rule, adopted in 2005, prohibits trade-throughs, where a trade occurs at a price worse than the best quote displayed on another venue.
- Stephen John Berger, Citadel Securities' global head of government and regulatory policy, called the SEC's economic analysis "fatally flawed."
The SEC Proposal
The SEC voted unanimously in June to propose scrapping the order protection rule, citing higher costs and complexity. The rule, first adopted in 2005, prohibits trade-throughs, which occur when a trade executes at a price worse than the best quote displayed on another venue. SEC Chairman Paul Atkins' commission is pursuing the change as part of the Trump administration's plan to remake securities market structure. If adopted, the proposal would mark another step away from the rule that sits at the center of how U.S. stocks are traded.
Citadel's Objections
Citadel Securities called the SEC's economic analysis "fatally flawed" in a letter signed by Stephen John Berger. The firm said projected compliance savings of about $250,000 per trading day are modest compared with the size of the U.S. stock market. Citadel argued the SEC failed to show the proposal's benefits outweigh its risks. The market maker urged the Commission to consider a far less risky alternative: imposing a minimum volume threshold for exchanges to receive protected quote status.
Impact on Trading
Removing the 2005 order protection rule would allow brokers to bypass the best displayed exchange prices more easily, Citadel Securities said. The firm argued that more customer orders would be internalized or routed to alternative trading venues rather than public exchanges. Citadel said the change would weaken incentives to display competitive quotes and could diminish price discovery. The firm also said eliminating the rule could benefit platforms offering tokenized equities, potentially exposing investors to weaker protections.
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Citadel Securities urges SEC to reconsider scrapping order protection rule
