The US stock market relies on it to safeguard fairness, but the crypto world still doesn't have it? This rule can save you from the "Long Wick Candle" crisis!

Original Title: To Avoid Being “Long Wick Candle”, the Crypto Market May Need This “Treasure”

Original Author: Daii, X

Reprint: White55, Mars Finance

I have always said: the current crypto market is more like a “wild west.”

The most glaring evidence is the “Long Wick Candle.” It is not metaphysics, but the result of deep thinness + leveraged chain liquidations + the preference of on-site matching: the price is violently smashed to your stop-loss level in crucial milliseconds, your position is wiped out, leaving only that long and thin “candle wick” in the K-line — like a long wick candle suddenly piercing down.

In this environment, what is lacking is not luck, but the bottom line. Traditional finance has long written this bottom line into the system—prohibiting trade-through (Trade-Through Rule). Its logic is very simple, yet very powerful:

When there are clearly better public prices in the market, no broker or exchange should turn a blind eye, nor should they execute your order at a worse price.

This is not a moral persuasion, but a legally enforceable hard constraint. In 2005, the U.S. Securities and Exchange Commission (SEC) clearly wrote this bottom line into Reg NMS Rule 611: all market participants (where trading centers must not penetrate protected quotes, and brokers have a best execution obligation under FINRA 5310) must fulfill “order protection,” prioritizing the best available prices, and must leave a traceable, verifiable, and accountable record of routing and execution. It does not promise “market stability,” but ensures that your transactions are not arbitrarily “deteriorated” in the midst of volatility—if better prices are available elsewhere, you cannot be randomly “matched” at this venue.

Many people will ask: “Can this rule prevent Long Wick Candle?”

To speak plainly: it cannot eliminate long wicks, but it can cut off the damage chain of “long wicks trading against you.”

Imagine a scene that is easy to understand:

At the same time, exchange A experienced a Long Wick Candle, instantly driving BTC down to $59,500;

Exchange B still has $60,050 in valid buy orders hanging.

If your stop-loss market order is executed “on-site” at A, you will exit at the long wick candle price; with order protection, the router must send your order to the better buy price at B, or refuse to execute at the inferior price at A.

Result: The long wick candle is still on the chart, but it is no longer your execution price. This is the value of this rule – it’s not about extinguishing the long wick candle, but rather preventing the long wick candle from hitting you.

Of course, the triggering of contract liquidation requires supporting governance of “long wick candle generation” including the mark price/index, volatility bands, bidding restart, anti-MEV, etc. However, in terms of transaction fairness, the bottom line of “prohibiting transaction penetration” is almost the only immediate means to enhance experience, implementable, and auditable.

Unfortunately, the crypto market has no such bottom line to date. A picture is worth a thousand words:

By looking at the above BTC perpetual contract quote table, you will find that none of the quotes from the top ten exchanges with the highest trading volume are the same.

The current landscape of the crypto market is highly fragmented: hundreds of centralized exchanges, thousands of decentralized protocols, prices are disconnected from each other, and the decentralization of cross-chain ecosystems along with the dominance of leveraged derivatives make it extremely difficult for investors to find a transparent and fair trading environment.

You might be curious as to why I am bringing up this question now.

On September 18, the U.S. Securities and Exchange Commission (SEC) will hold a roundtable meeting to discuss the gains and losses of the rule prohibiting trade-throughs in the National Market System (NMS) and its future.

This matter seems to be related only to traditional securities, but in my opinion, it also serves as a wake-up call for the crypto market: if the trading protection mechanisms need to be reconsidered and upgraded in the highly concentrated and well-established U.S. stock system, then ordinary users in the more fragmented and complex crypto market require the most basic protection even more.

The providers of the crypto market (including CEX and DEX) must not ignore better public prices at any time and must not allow investors to be transacted at worse prices in situations that could have been avoided. Only in this way can the crypto market move from the “Wild West” to true maturity and trust.

This matter now seems like a fantasy, and it would not be an exaggeration to say it is the delusion of a madman. However, when you understand the benefits that the establishment of the prohibition of trading through rules brings to the U.S. stock market, you will realize that even if it is difficult, it is worth a try.

1. How is the Trade-Through Rule established?

Looking back, the establishment of this rule went through a complete chain: from legislative authorization in 1975, to the interconnection experiments of the Inter-Exchange Trading System (ITS), to the comprehensive digital transition in 2005, and finally phased implementation in 2007. It is not meant to eliminate volatility, but to ensure that investors can still obtain better prices amid the fluctuations.

1.1 From Fragmentation to Unified Market

In the 1960s and 1970s, the biggest problem facing the US stock market was fragmentation. Different exchanges and market-making networks operated independently, making it impossible for investors to determine where they could obtain the “best available price” across the entire market.

In 1975, the U.S. Congress passed the Securities Act Amendments, which first clearly proposed the establishment of a “National Market System (NMS)” and required the SEC to lead the construction of a unified framework that could connect various trading venues, aiming to enhance fairness and efficiency [Congress.gov, sechistorical.org].

With legal authorization, the regulatory authorities and exchanges have launched a transitional “interconnection cable” - the Inter-Exchange Trading System (ITS). It acts like a dedicated network cable that connects exchanges, allowing different locations to share quotes and routes, avoiding the situation where better prices next door are ignored when a worse price is executed at the current exchange [SEC, Investopedia].

Although ITS has gradually faded with the rise of electronic trading, the concept of “no ignoring better prices” has already been deeply ingrained.

1.2 Regulation NMS and Order Protection

Entering the 1990s, the internet and decimalization made trading faster and more fragmented, leaving the old semi-manual system completely unable to keep up. In 2004-2005, the SEC introduced historic new regulations—Regulation NMS. It includes four core provisions: Fair Access (Rule 610), Prohibition of Trade-Throughs (Rule 611), Minimum Price Variation (Rule 612), Market Data Rules (Rule 603)【SEC】.

Among them, Rule 611, also known as the “Order Protection Rule,” can be explained in simple terms as follows: when better protected quotes are already listed in other venues, you cannot match orders at a worse price here. The so-called “protected quotes” must be executable automatically and immediately; they cannot be slow orders that are processed manually【SEC Final Rule】.

To make this rule truly actionable, the U.S. market has also established two key “foundations”:

NBBO (National Best Bid and Offer): combines the best buy and sell prices from all exchanges to create a unified measure of whether there is a “penetration”. For instance, in the above figure, 25.27 from Exchange 3 is the best buy price, while 25.28 from Exchange 2 is the best sell price.

SIP (Securities Information Processor): responsible for real-time aggregation and publication of this data, becoming the “single source of truth” for the entire market [Federal Register, SEC].

Reg NMS (Regulation National Market System) took effect on August 29, 2005, and was initially implemented on May 21, 2007, for 250 stocks under Rule 611. It was fully rolled out to all NMS stocks on July 9 of the same year, ultimately establishing an industry-wide practice of “not crossing better prices” [SEC].

1.3 Controversies and Significance

Of course, it hasn't been smooth sailing all the way. Back then, SEC commissioners Glassman and Atkins raised objections, arguing that focusing only on displayed prices might overlook the net costs of trading and could even weaken market competition【SEC Dissent】. However, most commissioners still supported this rule, and the reasoning is clear: even amidst debates over costs and efficiency, “prohibiting trade-through” at least ensures a fundamental baseline —

Investors will not be forced to accept inferior prices when there are clearly better prices available.

This is why, to this day, Rule 611 is still regarded as one of the cornerstones of the “best execution ecosystem” in the U.S. securities market. It transformed the slogan “better prices cannot be ignored” into a tangible rule that can be regulated and audited, allowing for accountability afterward. This baseline is precisely what the crypto market lacks, yet it is the most worthy aspect to draw from.

2. Why does the crypto market need this “bottom line rule” more?

Let’s put the issue plainly: In the crypto market, at the moment you place an order, there may not be anyone “watching the entire scene” for you. Different exchanges, different chains, and different matching mechanisms are like isolated islands, with prices singing their own tunes. The result is that—clearly there are better prices elsewhere, but you end up being “matched on the spot” at a worse price. This is explicitly prohibited in the U.S. stock market by Rule 611, but there is no unified “safety line” in the crypto world.

2.1 The Cost of Fragmentation: Without a “Full Market Perspective”, It Is Easier to Be Executed at Inferior Prices.

Looking at the present, there are easily over a thousand registered crypto trading venues globally: CoinGecko's “Global Chart” alone shows tracking of over 1,300 exchanges (as shown in the figure below); CoinMarketCap's spot rankings have long displayed more than two hundred actively reporting - not including various derivatives and the long tail of on-chain DEX venues. This landscape means that no one can naturally see the “best price across the entire market.”

Traditional securities rely on SIP/NBBO to synthesize the “best price band in the market”; however, in encryption, there is no official merged price band, and even the institutions that do the data openly state that “there is no 'official CBBO' in crypto.” This makes it a matter of discovering “where it is cheaper / more expensive” only after the fact. (CoinGecko, CoinMarketCap, coinroutes.com)

2.2 Derivatives Dominate, Volatility Amplified: Long Wick Candles are more likely to occur and have a greater impact.

In crypto trading, derivatives account for a large portion.

Multiple industry monthly reports indicate that the proportion of derivatives fluctuates between ~67% and 72% year-round: for instance, the CCData series of reports has provided readings of 72.7% (March 2023), ~68% (January 2025), and ~71% (July 2025).

The higher the proportion, the more likely it is to experience instantaneous extreme prices (“Long Wick Candle”) under the push of high leverage and funding rates; once your platform does not compare prices or calculate net prices, it may be executed at a worse price “on the spot” at the same moment when a better price is available.

On-chain, MEV (Maximum Extractable Value) adds another layer of “implicit slippage”:.

According to the European Securities and Markets Authority (ESMA) 2025 report statistics, in just 30 days from December 2024 to January 2025, sandwich trading reached 1.55 million transactions, with profits of 65,880 SOL (approximately 13.4 million USD); (esma.europa.eu)

Academic statistics also show that there are more than 100,000 attacks in a single month, with related Gas costs in the millions of dollars.

For ordinary traders, these are real “execution losses”. (CoinDesk Data, CryptoCompare, The Defiant, CryptoRank, arXiv)

If you want to understand how MEV attacks occur, you can take a look at my article “A Comprehensive Analysis of MEV Sandwich Attacks: The Fatal Chain from Ordering to Flash Swap,” which details how an MEV attack caused traders to lose $215,000.

2.3 There is technology, but lacks “principle underpinning”: turning “best price” into a verifiable commitment.

The good news is that the market has developed some native technologies for “self-rescue”:

Aggregation and smart routing (such as 1inch, Odos) will scan multiple pools / multi-chain, split orders and factor in Gas and slippage into the “real transaction cost”, striving to achieve a better “net price”; (portal.1inch.dev, blog.1inch.io)

Private “Best Price Band” (such as CoinRoutes' RealPrice/CBBO) synthesizes the depth and costs of dozens of venues in real time into a “tradable, billed reference net price,” and has even been adopted by Cboe for indices and benchmarks. This proves that “finding better prices” is technically feasible. (Cboe Global Markets, Cboe, coinroutes.com)

But the bad news is: there is no bottom line for “no penetration”; these tools are just a voluntary choice, and the platform can completely match your order “on the spot” without checking or comparing.

In traditional securities, best execution has long been written as a compliance obligation—considering not only price but also weighing speed, likelihood of execution, costs / commissions, and conducting “regular, rigorous” quality assessments of execution; this is the spirit of FINRA Rule 5310. Introducing this “principle + verifiability” into encryption is the key step in turning the slogan “better prices cannot be ignored” into a commitment.

In one sentence:

The more fragmented, 24/7, and derivative the crypto market becomes, the more ordinary people need a baseline rule of “not to ignore better public prices.”

It does not necessarily have to replicate the technical details of the US stock market; however, at the very least, it should elevate the “non-penetration” to an explicit obligation, requiring the platform to either provide a better net price or give verifiable reasons and evidence. When “better price” becomes a verifiable and accountable public commitment, the unjust losses caused by the Long Wick Candle may truly be mitigated.

3. Can the Trade-Through Rule really be implemented in the crypto market?

Short answer: Yes, but it cannot be applied rigidly.

The mechanical version of “NBBO+SIP+mandatory routing” copied from the US stock market is almost unfeasible in encryption; however, elevating the principle of “not ignoring better publicly available prices” to a mandatory obligation, coupled with verifiable execution proof and market-based merged pricing, is completely feasible and there are already “semi-finished products” running in the public sphere.

3.1 The first step is to look at reality: Why is the crypto market difficult?

There are three main difficulties:

There is no “Consolidated Tape” (SIP/NBBO). The reason why US stocks can prevent penetration is that all exchanges feed their data into the Securities Information Processor (SIP), and the entire market has a national best bid and offer (NBBO) as a “common benchmark”; meanwhile, the crypto market lacks an official price feed, and prices are fragmented into many “information islands”. (The market data and consolidated tape under Reg NMS were continuously refined from 2004 to 2020. (Federal Register, U.S. Securities and Exchange Commission ))

The settlement “finality” is different. Bitcoin commonly uses “6 confirmations” for relative security; Ethereum PoS relies on epoch finality, which requires time to “pin down” the blocks. When you define “protected quotes that can be executed immediately,” the meanings and delays of “executable / final on-chain” must be rewritten clearly. ( Bitcoin Encyclopedia, ethereum.org)

Extreme fragmentation + derivatives dominance. CoinGecko alone tracks over 1,300 exchanges, while CMC's spot rankings typically have around 250; adding in DEXs and long-tail chains makes it even more fragmented. Derivatives consistently account for 2/3–3/4 of trading volume, with volatility amplified by leverage, resulting in more frequent “Long Wick Candle” and instant deviations. (CoinGecko, CoinMarketCap, Kaiko, CryptoCompare)

3.2 Step Two: Look for Opportunities: Ready-made “components” are actually already in motion.

Don't be intimidated by the “no official price band” - there is already a prototype of the “merged price band” in the private sector.

CoinRoutes RealPrice/CBBO: Synthesizes the depth, fees, and quantity constraints of over 40 exchanges in real-time to create a tradable merged best price; Cboe signed an exclusive license as early as 2020 for digital asset indices and benchmarks. This means that “routing dispersed prices to a better net price” is technically mature. (Cboe Global Markets, PR Newswire)

Aggregators and Smart Routing (as shown in the figure above): will split orders, find paths across pools / chains, and include Gas and slippage in the real transaction cost; UniswapX further utilizes auctions / intent aggregation for on-chain + off-chain liquidity, bringing in zero-cost failures, MEV protection, and scalable cross-chain capabilities, essentially pursuing “verifiable better net prices.” (blog.1inch.io, portal.1inch.dev, Uniswap documentation )

3.3 Step Three: Look at the rules: Don't force a “single bus”, establish a “bottom line principle”.

Unlike the US stock market, we do not forcibly create a global SIP, but instead advance in three layers:

Principle First (Same Compliance Circle): Establish a clear obligation of “not to penetrate better public prices/net prices” among compliance platforms/brokers/aggregators within a single jurisdiction. What is meant by “net price”? It not only looks at the nominal price on the screen but also includes fees, rebates, slippage, Gas, and costs of failed retries. Article 78 of the EU MiCA has already written “best results” into a statutory list (price, cost, speed, execution and settlement possibilities, scale, custody conditions, etc.); this principled approach can fully serve as an anchor for “crypto version anti-penetration.” (esma.europa.eu, wyden.io)

Market merger price band + random inspection verification: Regulators recognize multiple private “merger price bands / reference net prices” as one of the compliance baselines, such as the aforementioned RealPrice/CBBO; the key is not to designate a “single data source,” but to require methodological transparency, comprehensive disclosure, conflict explanation, and conduct random comparisons / external inspections. This not only avoids “monopoly by one entity” but also provides practitioners with a clear verifiable benchmark. (Cboe Global Markets)

“Best Execution Proof” and Periodic Reconciliation: The platform and brokers must leave a trace: which venues/routes were searched at the time, why a better nominal price was abandoned (for example, due to settlement uncertainty, high Gas fees), the final transaction net price versus the estimated difference. Referring to traditional securities, FINRA Rule 5310 requires “individual or 'periodic and strict'” execution quality assessment (at least quarterly, by category), and encryption should also adopt the same level of self-certification and disclosure. (FINRA)

3.4 Step Four: Look at the Boundaries: Innovation should not be “stifled.”

The principle is “not to ignore better public prices,” but the implementation path must be technology-neutral. This is also the insight from the U.S. reopening of Rule 611 roundtable: even in the highly concentrated U.S. stock market, order protection is being reconsidered for upgrades, and there cannot be a “one-size-fits-all” approach in the crypto market. ( U.S. Securities and Exchange Commission, Sidley)

So, what will the landing look like? Here’s a very “hands-on” picture for you to imagine:

You are placing an order under a compliant CEX/ aggregator. The system first queries multiple venues / multiple chains / multiple pools, referencing private merged pricing. It accounts for rates, slippage, Gas, and expected final time for each candidate path; if a certain path has a better nominal price but does not meet the finality / cost standards, the system clearly states the reason and retains evidence.

The system selects the route with a better comprehensive net price that can be executed in a timely manner (splitting orders if necessary). If it does not route you to a better net price at that time, the subsequent report will show a red flag, becoming a compliance risk point, and if audited, you will need to provide an explanation or even compensation.

You can see a concise execution report: optimal available net price vs actual net price, path comparison, estimated vs actual slippage / fees, execution time and on-chain finality. Even the novices who are most sensitive to “Long Wick Candle” can judge based on this: Am I being “priced down on the spot”?

Finally, let's clarify the “worry points”:

“No global NBBO means you can't do it?” Not necessarily. MiCA has already implemented the “best execution” principle for crypto asset service providers (CASP), emphasizing multiple dimensions such as price, cost, speed, execution/settlement possibilities; the self-certification and sampling methods of the US stock market can also be applied. By using multiple merged price bands and auditing reconciliation, a “consensus price band” can be established, rather than forcing a “central magnetic band.” (esma.europa.eu, FINRA)

“Is there MEV on-chain, will there still be slippage?” This is precisely the issue that protocols like UniswapX (as shown in the image above) aim to solve: MEV protection, zero-cost failures, and cross-source bidding, returning as much as possible of the margins originally taken by “miners/validators” back as price improvements. You can think of it as a “technical version of order protection.” ( Uniswap documentation, Uniswap ).

In conclusion:

In the crypto space, implementing “anti-penetration” is not about copying the machine rules of the U.S. stock market, but rather anchoring it to principles and obligations at the level of MiCA/FINRA, combined with private merger price bands and on-chain verifiable “best execution proof.” We should start within the same regulatory fence and gradually expand outward. As long as we turn the commitment that “better public prices cannot be ignored” into something auditable and accountable, even without a “global bus,” we can mitigate the harm of “Long Wick Candle” and try to recover every penny that retail investors deserve from the system.

Conclusion | Turning “Best Price” from a Slogan into a System

The crypto market is not lacking in clever code; what is lacking is a bottom line that everyone must abide by.

Prohibiting trade penetration is not about tying down the market, but about clarifying responsibilities: the platform either delivers you to a better net price or provides verifiable reasons and evidence. This is not “restricting innovation”; rather, it paves the way for innovation—when price discovery is fairer and execution is more transparent, truly efficient technologies and products will be amplified.

Don't treat the “Long Wick Candle” as the fate of the market anymore. What we need is a set of technology-neutral, verifiable results, and a layered approach to the crypto version of “order protection.” Turn “better prices” from possibility into an auditable commitment.

Only better prices “must not be ignored” for the crypto market to be considered mature.