SEC proposal could free tokenized U.S. stocks for DeFi

The U.S. Securities and Exchange Commission on Thursday proposed rescinding Rules 611 and 610(e) of Regulation NMS and opened a 60‑day public comment period on the proposal and related definitions.

Rule 611 bars executing a trade at a price worse than the best displayed bid or offer on another venue at the time of execution, a practice commonly known as the trade‑through prohibition. Rule 610(e) prevents trading centers from displaying quotations that create locked or crossed markets against the National Best Bid and Offer. Both rules were adopted in 2005.

SEC Chairman Paul Atkins stated the proposal aims to simplify market structure and reduce costs for market participants while allowing competition and innovation to shape the evolution of equity markets.

Participants in crypto and decentralized finance have identified the two rules as barriers to onchain trading of U.S. equities. Alex Thorn, head of firmwide research at Galaxy Digital, wrote that the rescission would be “one of the biggest unlocks yet” for tokenized stocks and said automated market makers, which set prices by bonding curves and execute at block‑time intervals, cannot operate without routinely executing trades that would violate the trade‑through prohibition.

Thorn also noted that automated market makers can produce locked or crossed quotes because they update prices on block intervals rather than at millisecond speeds used by centralized venues. He argued those characteristics make routine compliance with the current NMS provisions impractical for onchain liquidity pools.

If the rules are rescinded, the SEC would rely on FINRA Rule 5310’s best‑execution duty, a broker‑level, principles‑based standard, to govern trading. Thorn wrote that this framework can accommodate automated market makers in ways the current NMS rules cannot, and he described the proposal as preparatory to addressing venue registration through an innovation exemption.

Jaret Seiberg, managing director at TD Cowen’s Washington Research Group, wrote that repealing the rules has been a long‑term priority for Atkins and that the agency is likely to finalize the change in the first quarter of 2027. Seiberg added the SEC may provide exemptive relief for early tokenization pilots before the rule is finalized.

Tokenized U.S. equities would still face other regulatory and operational requirements, including exchange or Alternative Trading System registration, clearance and settlement arrangements, and several rules not written for decentralized or peer‑to‑peer trading. The SEC has indicated it will consider an innovation exemption to address some of those outstanding issues.