Citadel Securities urges SEC to reconsider proposal to scrap key stock-trading rule

Citadel Securities, the market-making firm founded by Ken Griffin, has urged the U.S. Securities and Exchange Commission (SEC) to reconsider its proposal to eliminate a key regulation that requires stock trades to be executed at the best available price. This regulation, known as the "order protection rule," has sparked significant debate in recent years due to its central role in stock market trading.

In June, the SEC unanimously proposed to scrap the order protection rule, claiming it increased costs and complexity and was no longer necessary. If implemented, this proposal, led by SEC Chairman Paul Atkins, would represent a major shift in the U.S. securities market structure, similar to the Trump administration's broader efforts to overhaul the market.

Citadel Securities' managing director and global head of government and regulatory policy, Stephen John Berger, criticized the SEC's proposal as "fatalistically flawed" in a letter to the commission. He argued that the SEC had not demonstrated that the benefits of scrapping the rule would outweigh its potential risks, pointing out that the projected compliance savings of $250,000 per trading day were insignificant compared to the size of the U.S. stock market.

The order protection rule, enacted in 2005, was designed to prevent "trade-throughs," where a trade occurs at a price worse than what is quoted on another exchange. By removing this rule, Citadel Securities warned, brokers could more easily bypass the best displayed exchange prices, leading to increased internalization of customer orders or routing them to alternative trading venues. This, in turn, could weaken incentives for market participants to provide competitive quotes and potentially diminish price discovery.

Furthermore, Citadel Securities cautioned that eliminating the rule could benefit platforms offering tokenized equities, which might execute trades without matching better prices displayed elsewhere in the market. This could expose investors to weaker protections compared to those provided by public exchanges.

In their letter to the SEC, Citadel Securities urged the commission to reconsider the proposal, suggesting a less risky alternative: imposing a minimum volume threshold for exchanges to receive protected quote status.