The Rule 611 Hearing: A Necessary Debate with Two Glaring Omissions

Last week, Congress held its most consequential hearing on equity market structure in years. Five witnesses testified. The discussion was substantive, technically credible, and long overdue. And it missed two things that matter more than anything else discussed.

The first: not one buy-side firm testified. Not one pension fund, endowment, mutual fund manager, or institutional asset manager — the entities that deploy the retirement savings of 165 million Americans — had a seat at the table. The word retail appeared throughout the testimony. But the retail investor described at the hearing was a specific and narrow figure: someone placing a small marketable order through a zero-commission app. That is one kind of retail participant. It is not the most economically significant one, and it is not the one bearing the costs that Rule 611 has enabled for twenty years.

The second: no one talked about what replaces Rule 611. Multiple witnesses called for its repeal or substantial revision. One — PTG Markets’ Matt MacKenzie — came closest to describing a path forward, using the phrase outcomes-based best execution standard. Rule 611 is a keystone rule. Pull it without a replacement and you don’t simplify the market — you destabilize it. The conversation about whether to repeal Rule 611 is almost beside the point. The real question is what comes next. That conversation has not started. It needs to.

I. Retail Is Not Who You Think It Is

There are two kinds of retail participants in U.S. equity markets. The first is the active trader — the zero-commission app user, the person placing a marketable order that gets internalized in microseconds at or within the NBBO. Last week’s hearing was almost entirely about this person. The second is the passive investor — 165 million Americans whose retirement savings sit in 401(k)s, IRAs, pension funds, and mutual funds, deployed by institutional managers working large orders across fragmented, latency-sensitive markets over days and weeks. This person was not mentioned. Not once.

For the active trader, the relevant cost is the spread on a single transaction. That cost has genuinely fallen — decimalization, zero commissions, and wholesaler competition have compressed it dramatically over the past two decades. “Retail investors have never had it better” is a defensible claim, for that investor, for that transaction. But for the passive investor whose retirement savings are deployed by a fund manager working a multi-thousand-share order across dozens of sequential trades, the cost structure is entirely different. Each trade signals direction. Each signal allows latency-sensitive participants to reprice before the next order. The cost isn’t the spread on one trade — it’s the spread on many trades, plus compounding market impact, plus the information-leakage premium extracted by participants who identified the order flow and moved against it. None of that appears in any metric that measures the spread on a single retail transaction.

At the hearing, it was said more than once that commission-free trading is proof that retail investors have never been better served. This is a distraction. What commission-free trading actually represents, in terms of market structure protection, is a rule that prevents the worst execution — not one that guarantees the best. The active trader gets a Pyrrhic victory: an assurance that they won’t do worse than the NBBO. That benefit is real but narrow, and holding it up as evidence that the system works obscures the far larger cost imposed on the second group. Pointing to zero-commission trading as evidence that equity markets serve retail investors is like pointing to cheap gasoline and declaring the transportation system is fine — while 165 million people can’t get to work because the roads are broken. The costs borne by passive investors don’t show up in Rule 605 reports. They don’t appear in wholesaler price improvement data. They compound silently in every pension statement, every 401(k) balance, every retirement account that came in a little short of where it should have been.

This is not an accident. As explored in an earlier piece on regulatory capture, Mancur Olson’s framework predicts exactly this outcome: concentrated interests with high per-participant stakes will always out-organize diffuse interests with low per-participant awareness. Last week’s witness list was a near-perfect illustration. The concentrated interests were fully represented — high-speed trading firms, wholesale market makers, and, importantly, the incumbent exchange operators themselves. NYSE and Nasdaq are not public utilities operating for the benefit of long-term investors. They are publicly traded companies operating for the benefit of their shareholders. Their revenue model depends on access fees, connectivity charges, and market data sales — all of which are structurally sustained by Rule 611’s mandatory routing architecture. They have a direct financial interest in how this debate is resolved, and they had a seat at the table. The 165 million did not.

II. The Current System Is Pre-Trade — And It Doesn’t Do What People Think It Does

It is worth being precise about what Rule 611 actually guarantees, because the precision matters for any replacement conversation. Rule 611 is a pre-trade routing rule. It requires that before executing an order, a broker’s systems verify that no registered exchange is displaying a better price — and if one is, the order must be routed there first. What this guarantees is a floor on bad outcomes: no execution worse than the NBBO. It does not guarantee the best execution available. It guarantees only that the investor won’t do worse than the national best displayed price at the moment of routing. That is a meaningful but narrow floor — and even that floor has cracks, because the quote a routed order is directed to is often gone before the order arrives.

The vast majority of retail marketable order flow never reaches a lit exchange at all. It is captured by a small number of large wholesalers — principal trading firms that purchase order flow from retail brokers and execute it off-exchange. These firms internalize the order at or within the NBBO, collecting the spread in the process. They are then armed with the directional information embedded in that order flow — the aggregate signal from thousands of retail transactions daily — and they use it to trade on the exchange, where they are simultaneously among the largest displayed liquidity providers. The retail investor’s order never interacted with the exchange. The information in that order did. Rule 611 says nothing about this. The rule was built to protect price. It has no mechanism addressing the value extracted from information. PTG Markets’ MacKenzie pointed toward the answer: move from a rigid protected-quotation hierarchy to an outcomes-based framework, enforced through robust post-trade transparency. The diagnosis is right. But the prescription needs to be built out. What would a genuine post-trade, market-discipline model actually require?

III. What a Market-Based Replacement Could Look Like

There are fundamentally two ways to protect investors in an equity market. The first is pre-trade: mandate routing architecture that directs orders to the best displayed price before execution. That is what Rule 611 does. It is expensive, complex, gameable, and — as the hearing established — no longer well-calibrated to the market it governs. The second is post-trade: require robust public reporting of actual executions, and let competitive and reputational discipline enforce quality. The post-trade model is simpler in concept. The infrastructure exists to make it real.

The SIP already processes, timestamps, and distributes trade and quote data across all venues. What is currently done with that infrastructure is pre-trade price dissemination: telling the market continuously what the order book looks like right now. What it could be used for — with no new pipes, no new hardware, no new architecture — is post-trade execution reporting: telling the market what actually happened, across every venue, for every trade, reported within seconds of execution.

One specific building block: every executed trade should carry a unique transaction identifier, assigned at execution, attached to both the buyer and the seller, and reported into a public or regulatory-accessible data stream within seconds. This is not a novel concept — the Consolidated Audit Trail already captures this information for regulatory surveillance purposes. The question is whether that data can be made sufficiently public, sufficiently fast, and sufficiently standardized to function as a market discipline mechanism, not merely an enforcement tool. If every counterparty to every trade must report against a unique identifier that reconciles both sides, fabrication and selective reporting become structurally difficult.

There is a further step that builds directly on infrastructure already in operation. The SIP today computes and disseminates the NBBO continuously — in microseconds, from timestamped quote data across all venues. That same computing power, applied to execution reports rather than quote updates, could produce a continuously updated volume-weighted average price for each security, published by the SIP in real time. That VWAP — calculated from actual executions, not displayed quotes — becomes the meaningful benchmark against which execution quality is measured. It is transparent, market-generated, and already computable with existing infrastructure. Every trade confirmation could carry it. Every investor — retail or institutional — would immediately know whether their execution beat, met, or lagged the actual market average at the moment of their trade. That is a more honest and more useful form of investor protection than a rule that merely prevents the worst outcome.

IV. The Conversation That Needs to Happen

The debate about Rule 611 has reached consensus on one point: the rule is broken. Chair Atkins said it. The principal trading firms said it. The retail brokers said it. Even Nasdaq, which has the most to lose from structural reform, acknowledged that evaluation is justified. But here is the problem: a repeal conversation conducted without a replacement conversation doesn’t lead to reform. It leads to paralysis — and, ultimately, to preservation of the status quo. The moment a serious repeal proposal reaches the table with no credible replacement in view, every concentrated interest in the room will object that repeal is reckless, that the market will break, that investors will be harmed. And they won’t be entirely wrong. Something does need to fill the gap. Rule 611 is a keystone. The arch doesn’t stand without it — unless what takes its place has already been engineered.

The only way to make repeal viable is to make the replacement conversation happen first. Not after. Not in parallel. First. That is what was missing last week. That is what the market needs to be talking about now.

This is the sixth in a series of articles examining U.S. equity market structure and the case for reform.