Order Protection Rule (Rule 611)
The term Order Protection Rule refers to a market requirement that ensures traders receive an execution price equivalent to the best that is offered on all exchanges that trade in the security. The Order Protection Rule is a provision of Regulation National Market System.
Also known as Rule 611, the Order Protection Rule requires markets to create and enforce processes that prevent “trade-through” transactions, which are trades that execute at a price that is not the best price displayed by automated trading centers. A provision of Regulation National Market System (Regulation NMS), Rule 611 aims to add greater liquidity and transparency in the market.
The Order Protection Rule applies to all NMS stocks, which can include over-the-count (OTC) securities in addition to those traded on larger exchanges. The rule requires the exchange not only to create processes to ensure traders get the best possible price available on their securities, but also enforcement policies.
Unfortunately, Rule 611 does not eliminate all trade-throughs. There are a number of exceptions to this rule. This means the exchange must look for patterns of abuse versus those trades that qualify for an exception.