Elimination of Flash Order Exception From Rule 602 of Regulation NMS

The Securities and Exchange Commission ("Commission') is concerned that the exception for flash orders from quoting requirements under the Securities Exchange Act of 1934 ("Exchange Act'), which originated in the context of manual trading floors for quotations that were considered "ephemeral,' is no longer necessary or appropriate in today's highly automated trading environment. Accordingly, the Commission is proposing to amend Rule 602 of Regulation NMS under the Exchange Act to eliminate an exception for the use of flash orders by equity and options exchanges. In general, flash orders are communicated to certain market participants and either executed immediately or withdrawn immediately after communication. If the proposed amendment were adopted, the Commission would apply Rule 301(b) of Regulation ATS under the Exchange Act in a consistent manner with regard to the use of flash orders by alternative trading systems. The Commission also would apply the restrictions on locking or crossing quotations in Rule 610(d) of Regulation NMS in a consistent manner to prohibit the practice of displaying marketable flash orders.