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I was reading a stock brokerage firm's article on Regulation NMS and Rule 611, which says:

The Order Protection Rule requires trading centers to establish and enforce procedures designed to prevent "trade-throughs"—trade executions at prices inferior to the best-priced quotes displayed by automated trading centers.

According to the SEC final rules (17 CFR § 242.611 - Order protection rule), there is an exception for contracts that are not "regular way":

(b) Exceptions

[...]

    (2) The transaction that constituted the trade-through was not a "regular way" contract.

But what is "regular way"? The SEC final rules document says:

“Regular way” refers to bids, offers, and transactions that embody the standard terms and conditions of a market. Thus, this exception applies to a transaction that was executed other than pursuant to standardized terms and conditions, for instance a transaction that has extended settlement terms.

What does this legalese mean? What is "regular way"? Is normal settlement for stocks (T+2) "regular way"? What about cash settlement for stocks and after-hours trades? What about the sale of stock at nominally low prices as part of a contract or will?

(Relevance to personal finance: I want to make sure that I always buy/sell at a price that is at least as good as the National Best Bid and Offer [NBBO]).

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  • "I want to make sure that I always buy/sell at a price that is at least as good as the National Best Bid and Offer [NBBO]" As a normal "consumer" I'm pretty sure those regulations ensure that you will. I strongly suspect (but will try and confirm) that "executed other than pursuant to standardized terms and conditions" is for institutional-level deals where it will be obvious when the normal rules (the "regular way") doesn't apply. – TripeHound Aug 8 '20 at 11:18
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I want to make sure that I always buy/sell at a price that is at least as good as the National Best Bid and Offer [NBBO].

For a "regular" person, doing "regular" trades, the SEC rules you quote will ensure that this is the case. The "Regular Way" settlement terms (T+2) will apply, and the broker is obliged to find the best price. As far as I can see, you have to explicitly select non-standard settlement terms.

For instance, the page T+1 Early Stock Settlement on InteractiveBrokers talks about the potential benefits of opting for T+1 settlement (potentially avoiding "accidental" Capital Gains tax for certain types of trade), but it seems clear that this is something you have to deliberately choose. It also notes (my emphasis):

  • T+1 Settlement is only available on certain equity securities at our discretion, and these securities may change from time to time. The executing broker reserves the right not to offer T+1 Settlement at any time and for any reason.
  • T+1 Settlement trades generally will be executed against an affiliate of the executing broker, which may profit or lose in connection with the transaction.
  • You may pay a different or worse price for shares you purchase for T+1 Settlement (i.e., for non-regular way settlement you may pay more than the best price offered in the market for regular way settlement). In addition, certain price protection rules that apply to regular way settlement do not apply to T+1 trades.

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