DEFINITION of 'Order Protection Rule'
One of the provisions of Regulation NMS that ensures that investors receive an execution price that is equivalent to what is being quoted on any other exchanges where the security is being traded. The order protection rule requires that each exchange establish and enforce policies to ensure consistent price quotation for all NMS stocks, which include those on the major stock exchanges as well as many over-the-counter (OTC) stocks.
The order protection rule is also known as "Rule 611", or the "trade-through rule".
BREAKING DOWN 'Order Protection Rule'
The order protection rule - and Regulation NMS as a whole - was instituted to make today's financial markets more liquid and transparent. Before the regulation was passed, existing "trade-through" rules did not protect investors at all times, especially on limit trades, where investors would sometimes get inferior prices to those being quoted on a different exchange.
The rule aims to protect quotations for a given security across the board, so that all market participants can receive the best possible execution price for orders that can be executed immediately.
Regulation NMS was passed in 2005 by the Securities and Exchange Commission (SEC).