SEC Proposes Ending Rule 611 With Implications for Tokenized Stocks

SEC Proposes Rescinding Rule 611 – Potential Structural Shift for Tokenized US Stocks

Key Takeaways

• The US Securities and Exchange Commission has proposed rescinding Rules 611 and 610(e) of Regulation NMS.
• Rule 611 requires trading venues to prevent trade-throughs and to respect the national best bid and offer.
• A 60-day public comment period will follow publication in the Federal Register.
• Galaxy Digital’s Alex Thorn describes the repeal as a major structural change for tokenized US equities in decentralized finance.
• If Rule 611 is removed, broker-level best execution under FINRA Rule 5310 would govern order handling.

SEC Proposal Targets Core Elements of Regulation NMS

The US Securities and Exchange Commission has proposed rescinding Rules 611 and 610(e) of Regulation NMS, a framework that has shaped US equity market structure since 2005. Rule 611, widely known as the Order Protection Rule, requires trading venues such as stock exchanges and broker-dealers to prevent so-called trade-throughs. A trade-through occurs when an order is executed at a worse price even though a better price is available on another exchange.

In practice, trades in national market system stocks must respect the national best bid and offer, commonly referred to as the NBBO. This mechanism is designed to ensure that investors receive the best displayed price across trading venues.

Rule 610(e), also included in the SEC’s proposal, addresses locking and crossing quotations in US equity markets. These provisions require venues to avoid displaying quotes that lock or cross the NBBO.

According to SEC Chairman Paul Atkins, the proposal aims to simplify market structure and reduce costs for market participants while allowing competition and innovation to shape the evolution of US equity markets. Once the proposal is published in the Federal Register, a 60-day public comment period will begin.

Implications for Tokenized US Equities and DeFi Trading Models

The proposal has drawn attention from participants in the digital asset sector, particularly those involved in tokenized stocks. Alex Thorn, Head of Firmwide Research at Galaxy Digital, described Rule 611 as one of the biggest structural barriers to tokenized US equities trading in decentralized finance.

Tokenized stocks that reference national market system equities face specific technical challenges under the current rules. Thorn explained that automated market makers, or AMMs, cannot comply with Rule 611 by design. AMMs execute trades against liquidity pools and bonding curves at prices determined by available liquidity, including slippage, and operate at block-time granularity.

According to Thorn, AMMs cannot route intermarket sweep orders, cannot ingest Securities Information Processor data with latency guarantees, and cannot halt a swap because a better quote exists on another venue such as Nasdaq. As a result, a liquidity pool for a tokenized national market system stock would frequently commit trade-throughs under the current framework and could arguably be considered an illegal trading center.

He added that Rule 610(e) presents similar issues. Because AMM prices adjust continuously based on trading flow, they could routinely lock or cross the displayed NBBO, which traditional venues are required to prevent.

Shift From Trade-By-Trade Protection to Principles-Based Best Execution

If Rule 611 is rescinded, order handling would instead be governed by the broker-level best execution duty under FINRA Rule 5310. Thorn noted that this standard is principles-based rather than enforced on a trade-by-trade basis.

Under this approach, brokers must seek best execution for customer orders, but the rule does not impose the same mechanical requirement to prevent every trade-through relative to the NBBO. Thorn argued that this framework could accommodate automated market makers, whereas the current system does not.

For platforms exploring tokenized US equities, this distinction is operationally significant. A principles-based best execution standard could allow more flexibility in how liquidity is sourced and priced, compared with a system that mandates strict intermarket price protection.

However, Thorn also emphasized that rescinding Rule 611 would not resolve all regulatory questions around tokenized national market system stocks. Open issues remain regarding exchange and alternative trading system registration, as well as clearance and settlement. He expressed hope that a forthcoming innovation exemption from the SEC would address many of these matters.

Public Consultation Will Test Market Support

The SEC’s proposal initiates a formal rulemaking process. Following publication in the Federal Register, market participants will have 60 days to submit comments. The comment period will indicate whether exchanges, broker-dealers, technology providers, and other stakeholders support or oppose dismantling a rule that has been in place for two decades.

Chairman Atkins stated that the Commission intends to take a careful and deliberative approach to avoid repeating past mistakes. He framed the review as a reassessment of unintended consequences that may have hindered long-term market growth.

For digital asset market participants and platforms considering tokenized equities, the outcome of this process may influence how US-listed stocks can be represented and traded in decentralized environments. The proposal does not itself authorize tokenized stock trading, but it addresses a rule that some industry participants consider incompatible with decentralized liquidity models.

Our Assessment

The SEC’s proposal to rescind Rules 611 and 610(e) represents a potential structural change to US equity market regulation. Rule 611 has required strict adherence to the national best bid and offer for nearly 20 years, shaping how trades are executed across exchanges and broker-dealers.

According to statements cited from Galaxy Digital’s Alex Thorn, the removal of this rule could reduce a key regulatory barrier for tokenized national market system stocks operating through automated market makers. At the same time, questions related to venue registration, clearance, and settlement would remain unresolved. The 60-day public comment period will determine how market participants respond to the proposed shift from trade-by-trade price protection to a principles-based best execution framework.