Volatility, flash-crash risks and bigger dark pools are the legacy of the SEC’s Regulation NMS.

IEX, the self-declared anti-high-frequency trading venue praised in Michael Lewis’s 2014 book, “Flash Boys,” has filed an application with the Securities and Exchange Commission to change from a “dark pool” to a full-fledged stock exchange. Good news, one might think. But in so doing, IEX has exposed the regulatory quagmire harming the U.S. securities markets.

To create a “fairer” exchange, IEX has introduced a speed-bump feature: a 350-microsecond delay before member orders can access price quotes, and another 350-microsecond delay in reporting whether a transaction has occurred. IEX asserts that this levels the playing field in the arms race for ever-faster order transmission and trade execution.

Critics argue that the “speed bump” does not comply with the SEC’s Regulation NMS requirement that quotes displayed on exchanges be “immediately and automatically accessible.” Under Reg NMS, such quotes are accorded “protected” status. If the critics are correct and the SEC grants IEX’s application, brokers and exchanges will be forced to send orders to IEX whenever it displays the best available price, even though IEX’s quotations often may no longer be the best price during the artificial delay. Some say this could negatively affect liquidity and competition in the market by undermining confidence in prices.

Making matters worse, others have pointed out that IEX’s proposal would not inflict the speed bump on orders handled by an IEX-owned broker-dealer, thereby creating unfair speed and information advantages over other broker-dealers.

Critics of IEX have raised a number of serious concerns, but the debate about its exchange application is distracting from the fundamental issue before the SEC: Will the agency address equity-market structure concerns comprehensively, as many members of Congress and SEC commissioners say is necessary, or will it make these far-reaching policy decisions in an opaque exchange-application approval process?

Lest we forget, the SEC itself sowed the seeds of today’s distorted equity-market structure when it adopted Reg NMS in 2005 and began enforcing it in 2007. The regulation mandated that stock-market participants prioritize price and speed above all other considerations, regardless of the trader’s preference or other factors like convenience or whether the amount of stock was enough to satisfy the trader’s order.

No other market functions that way and in fast-moving stock markets, the price can change quickly, making it harder to get the stock at the price and quantity that a trader wants. Subsequent informal SEC attempts to fix the problems added to the complexity. Ultimately, the regulation caused the atomization of orders in the market through gamesmanship as small orders proliferated on a variety of exchanges.

As a sitting member of the commission at that time, I opposed the regulation because I firmly believed it would adversely affect competition and innovation in our capital markets. In a joint dissent, then-Commissioner Cynthia Glassman and I warned that Reg NMS was nothing more than a series of unnecessarily complex, nonmarket-based rules inviting exploitation that could create unforeseen market distortions.

Our fears were warranted. Contrary to the false narrative that Reg NMS was the driver of today’s high-tech, efficient markets, investor demand and technology were already driving improvements more than a decade ago. Reg NMS and other convoluted rules actually skewed trading by causing widespread market fragmentation and diminished transparency. Reg NMS has driven order flow away from exchanges toward dark pools, fueled unhealthy trading volatility, and exposed the markets to flash crashes.

As former SEC Commissioner Daniel Gallagher stated last May during the SEC’s first Equity Market Structure Advisory Committee meeting, Reg NMS has become the agency’s “poster child of unintended consequences.”

Fortunately, SEC Chair Mary Jo White has recognized that equity-market structure must be re-examined. It is, however, imperative that this examination and any resulting changes be comprehensive and part of formal rule making. The SEC should take a hard look at Reg NMS and re-examine its effects.

Financial regulators like the SEC tend to prefer Band-Aids over surgery, granting individual firms like IEX exemptions and no-action relief rather than owning up to the infirmity of the regulatory regime they oversee. This approach often leads to unfairness, with some market participants having advantages that others do not.

With the controversy surrounding the IEX application, the SEC has an ideal opportunity to revisit its regulatory mistake 10 years ago—comprehensively, and not via an individual plea. Let’s hope the commission has the courage to find a true cure that fulfills its statutory mission to maintain fair, orderly and efficient markets.

Mr. Atkins, a former SEC commissioner, is CEO of Patomak Global Partners LLC.