Individual investors primarily use marketable orders when they instruct their broker to buy or

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FACT SHEET
Proposed Rule to
Enhance Order
Competition

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2

Why This Matters
Individual investors primarily use marketable orders when they instruct their broker to buy or
sell an NMS stock. These orders seek to trade immediately at the best available prices in
the  market.  Currently,  retail brokers  route  more  than  90  percent  of  marketable  orders  of
individual  investors  to  a  small  group  of  off-exchange  dealers,  known  as  wholesalers.
Wholesalers typically execute these orders internally without providing any opportunity for
other  market  participants,  including  institutional  investors,  to  compete  to  provide  more
favorable prices for these orders.
The  routing of  individual  investors’  marketable  orders  to  wholesalers  occurs  because  the
orders  impose  lower  costs  on  liquidity  providers  than  the  order  flow  routed  to  national

The  Securities  and  Exchange  Commission  proposed a  rule  to  enhance competition for  the
execution of marketable orders of individual investors. The rule would require certain orders of
individual investors to be exposed to competition in fair and open auctions before they could be
executed internally by any trading center that restricts order-by-order competition.
The  rule  would  apply  to  “segmented  orders,”  which  would  be orders for stocks  listed  on  U.S.
securities exchanges (NMS stocks) made for an account:
●    Of  a  natural  person  or  an  account  held  in  legal  form  on  behalf  of  a  natural  person  or
group of related family members; and
●    In which the average daily number of trades executed in NMS stocks was less than 40
in each of the six preceding calendar months.
Exceptions would be provided for:
●    Segmented orders received and executed when no qualified auction was being operated
for such orders;
●    Segmented orders with market values of at least $200,000;
●    Segmented orders executed at prices that are equal to or more favorable for the orders
than  the  midpoint  of  the  national  best  bid  and  offer  (NBBO) when  the  orders  were
received;
●    Segmented orders with customer-selected limit prices that are equal to or more favorable
for the orders than the midpoint of the NBBO when the orders were received; and
●    The  fractional  share  portion  of  a  segmented  order  received  and  executed  when  no
qualified  auction  was  being  operated  for  such  order  that  would  accept  the fractional
share portion.

FACT SHEET | Proposed Rule to Enhance Order Competition

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2
securities exchanges. These costs are known as “adverse selection costs” and reflect the
extent to which prices move against the liquidity provider after executing an order. While the
lower adverse selection order flow of individual investors allows wholesalers to execute their
orders with price improvement, Commission analysis of trading data indicates that the level
of price improvement offered by wholesalers does not fully reflect the much lower cost. The
amount of this “competitive shortfall” is estimated to be 1.08 basis points per dollar traded
by wholesalers, with an estimated total annual amount of $1.5 billion.
The  proposal  is  designed  to  benefit  individual  investors  by  promoting  competition  and
transparency  to  enhance  the  opportunity  for  their  orders  to  receive  more  favorable  prices
than they receive in the current market structure, and to benefit investors generally, including
institutional investors, by giving them opportunities to trade directly with individual investor
orders that are mostly inaccessible to them in the current market structure.

How This Rule Would Apply
The proposal would apply to “restricted competition trading centers,” which would be trading
venues other than any national securities exchange and those alternative trading systems
that meet proposed requirements for an “open competition trading center.” Open competition
trading centers would be those national securities exchanges or alternative trading systems
that meet proposed requirements for transparency, access, and volume.
Absent  an  exception,  a  restricted  competition  trading  center  would  be  prohibited  from
executing internally a segmented order for an NMS stock unless the order first was exposed
to  competition  in  a  qualified  auction  operated  by  an  open  competition  trading  center. The
proposal would establish requirements for qualified auctions, including:
●    Auction messages would be widely disseminated in consolidated market data;
●    The duration of auctions would be between 100 milliseconds and 300 milliseconds;
●    The minimum pricing increment would be no less than $0.001 for segmented orders
and auction responses with prices of $1.00 or more per share;
●    No fee could be charged for submission of a segmented order. Any permissible fees
and rebates would be capped at $0.0005 per share for segmented orders and auction
responses with prices of $1.00 or more per share; and
●    Execution priority requirements would, among other things, prohibit giving priority to
the  fastest  auction  response  or  to  the auction  response  submitted  by  the  broker-
dealer that routed the segmented order to the auction.
If a segmented order does not receive an execution in the qualified auction at a specified
limit price or better, then a restricted competition trading center may, as soon as reasonably
possible,  execute  the  order  internally  at  a  price  that  is  equal  to  or  more  favorable  for  the
segmented order than the specified limit price.

Additional Information:
The public comment period will remain open until March 31, 2023, or until 60 days after the date of publication
of the proposing release in the Federal Register, whichever is later.

FACT SHEET 
Proposed Rule to 
Enhance Order 
Competition  

 

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2 

 

 
Why This Matters 
Individual investors primarily use marketable orders when they instruct their broker to buy or 
sell an NMS stock. These orders seek to trade immediately at the best available prices in 
the market. Currently, retail brokers route more than 90 percent of marketable orders of 
individual investors to a small group of off-exchange dealers, known as wholesalers. 
Wholesalers typically execute these orders internally without providing any opportunity for 
other market participants, including institutional investors, to compete to provide more 
favorable prices for these orders. 

The routing of individual investors’ marketable orders to wholesalers occurs because the 
orders impose lower costs on liquidity providers than the order flow routed to national 

 
The Securities and Exchange Commission proposed a rule to enhance competition for the 
execution of marketable orders of individual investors. The rule would require certain orders of 
individual investors to be exposed to competition in fair and open auctions before they could be 
executed internally by any trading center that restricts order-by-order competition. 
The rule would apply to “segmented orders,” which would be orders for stocks listed on U.S. 
securities exchanges (NMS stocks) made for an account:  

● Of a natural person or an account held in legal form on behalf of a natural person or 
group of related family members; and 

● In which the average daily number of trades executed in NMS stocks was less than 40 
in each of the six preceding calendar months. 

Exceptions would be provided for:  
● Segmented orders received and executed when no qualified auction was being operated 

for such orders; 
● Segmented orders with market values of at least $200,000; 
● Segmented orders executed at prices that are equal to or more favorable for the orders 

than the midpoint of the national best bid and offer (NBBO) when the orders were 
received; 

● Segmented orders with customer-selected limit prices that are equal to or more favorable 
for the orders than the midpoint of the NBBO when the orders were received; and 

● The fractional share portion of a segmented order received and executed when no 
qualified auction was being operated for such order that would accept the fractional 
share portion.  

 



FACT SHEET | Proposed Rule to Enhance Order Competition 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2 

securities exchanges. These costs are known as “adverse selection costs” and reflect the 
extent to which prices move against the liquidity provider after executing an order. While the 
lower adverse selection order flow of individual investors allows wholesalers to execute their 
orders with price improvement, Commission analysis of trading data indicates that the level 
of price improvement offered by wholesalers does not fully reflect the much lower cost. The 
amount of this “competitive shortfall” is estimated to be 1.08 basis points per dollar traded 
by wholesalers, with an estimated total annual amount of $1.5 billion. 

The proposal is designed to benefit individual investors by promoting competition and 
transparency to enhance the opportunity for their orders to receive more favorable prices 
than they receive in the current market structure, and to benefit investors generally, including 
institutional investors, by giving them opportunities to trade directly with individual investor 
orders that are mostly inaccessible to them in the current market structure. 

 

How This Rule Would Apply 
The proposal would apply to “restricted competition trading centers,” which would be trading 
venues other than any national securities exchange and those alternative trading systems 
that meet proposed requirements for an “open competition trading center.” Open competition 
trading centers would be those national securities exchanges or alternative trading systems 
that meet proposed requirements for transparency, access, and volume. 

Absent an exception, a restricted competition trading center would be prohibited from 
executing internally a segmented order for an NMS stock unless the order first was exposed 
to competition in a qualified auction operated by an open competition trading center. The 
proposal would establish requirements for qualified auctions, including:  

● Auction messages would be widely disseminated in consolidated market data; 
● The duration of auctions would be between 100 milliseconds and 300 milliseconds; 
● The minimum pricing increment would be no less than $0.001 for segmented orders 

and auction responses with prices of $1.00 or more per share; 
● No fee could be charged for submission of a segmented order. Any permissible fees 

and rebates would be capped at $0.0005 per share for segmented orders and auction 
responses with prices of $1.00 or more per share; and 

● Execution priority requirements would, among other things, prohibit giving priority to 
the fastest auction response or to the auction response submitted by the broker-
dealer that routed the segmented order to the auction. 

If a segmented order does not receive an execution in the qualified auction at a specified 
limit price or better, then a restricted competition trading center may, as soon as reasonably 
possible, execute the order internally at a price that is equal to or more favorable for the 
segmented order than the specified limit price. 

 

Additional Information: 
The public comment period will remain open until March 31, 2023, or until 60 days after the date of publication 
of the proposing release in the Federal Register, whichever is later. 


	Why This Matters
	How This Rule Would Apply
	Additional Information: