The Securities and Exchange Commission has proposed to issue an interpretation with respect to the definition of “automated quotation” under Regulation NMS. Rule 611 under Regulation NMS protects the best automated quotations of exchanges by prohibiting other exchanges from allowing trades to be executed at inferior prices, or “traded through.” To be deemed an “automated quotation,” a quotation must be, among other things, immediately executed and/or cancelled, transmitted and displayed, as appropriate. In the adopting release for Regulation NMS, the SEC provided that an “immediate” response meant the fastest response possible without any programmed delay. Any quotation that does not meet the requirements of an automatic quotation is deemed to be a “manual quotation.”

In light of public comments on the national securities exchange application submitted by Investors’ Exchange LLC, the SEC is proposing to grant more flexibility to exchanges with respect to automated quotations. Specifically, the SEC is proposing to interpret “immediate” to include response time delays at exchanges that are de minimis, whether intentional or not.

Interested persons may submit comments until 21 days after the SEC’s proposed interpretation has been published in the Federal Register. The SEC’s proposed interpretation is available here.