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Citadel Securities urges SEC to rethink scrapping order protection rule
Citadel Securities warned that ending the order protection rule could divert retail order flow away from public exchanges, weaken displayed quote incentives, and reduce market liquidity.
Citadel Securities, the market maker founded by billionaire Ken Griffin, urged the U.S. Securities and Exchange Commission to reconsider a proposal to scrap the longstanding order protection rule, which requires stock trades to be executed at the best available price, according to Yahoo Finance citing Reuters. The firm said the SEC proposal has become a major U.S. market structure issue because the rule sits at the center of how stocks are traded, and it argued the change could divert trading from public exchanges, harm retail investors, and reduce liquidity. Citadel Securities pointed to the SEC's June decision, when the agency unanimously proposed eliminating the rule, saying it raised costs and complexity and was no longer necessary. The firm also said the SEC economic analysis supporting the move is “fatally flawed,” and argued the proposal’s projected benefits do not outweigh its risks.
Citadel Securities noted the order protection rule was adopted in 2005 to prevent “trade-throughs,” where a trade executes at a worse bid or offer than prices quoted on another venue. It added that removing the rule could make it easier for brokers to bypass best displayed exchange prices, potentially increasing internalization or routing to alternative trading venues rather than public exchanges, which it said could diminish price discovery.