Author: KarenZ, Foresight News
On June 11, the U.S. SEC proposed a market structure reform that seems very TradFi: rescinding Rule 611 and Rule 610(e) from Regulation NMS (National Market System Regulation).
The former is the so-called trade-through rule, and the latter restricts locked and crossed quotations. In simple terms, the SEC is considering removing a set of hard rules that protect the best quotations in the U.S. stock market, giving trading venues and broker-dealers more flexibility in order routing, quotation display, and trading mechanisms.
This is not yet an effective new rule. The SEC has currently issued a proposed rule. The public comment period is 60 days after the proposal is published in the Federal Register.
Why is it being noticed by the Web3 community? Because the SEC explicitly mentions in the proposal's background that the stock market is moving towards 24/7 trading, distributed ledger technology allows issuers to tokenize securities in the form of crypto assets, and smart contracts and AMMs have brought new ways of trading securities. What it's truly discussing is whether the underlying trading rules of the U.S. stock market are still suitable for today's technological conditions.
Galaxy Digital's Head of Research, Alex Thorn, called this a "tradfi story" and also believes it could be one of the significant breakthroughs for tokenized stocks.
What Exactly Does Rule 611 Govern?
Rule 611 can be understood as a rule in the U.S. stock market that says "don't bypass better quotations."
For example, if a stock has an automatically accessible offer of $10 on Exchange A, and the offer on Exchange B is $10.01, the basic logic of Rule 611 is: trading centers cannot, without applicable exceptions, bypass the better offer on A and directly execute a buy order on B at $10.01.
The problem is that the market in 2026 is very different from the market in 2005. The SEC states in the proposal that the U.S. stock market is now highly automated, interconnected, fast, and sufficiently competitive. While Rule 611 originally aimed to encourage displayed liquidity, the SEC believes that the proportion of trading shifting to non-displayed liquidity and off-exchange execution continues to rise, and the market has also become more fragmented and complex.
In the SEC's description, the side effects of Rule 611 include: increased compliance costs, limitations on order handling and execution choices, driving the proliferation of exchanges, exacerbating trading fragmentation, and causing market participants to invest significant resources in pursuing lower latency. The SEC also believes that broker-dealers already have a best execution obligation, meaning they must seek the most favorable terms reasonably available for their clients, so Rule 611 may no longer be necessary to serve as the same protective backstop.
What is Rule 610(e) Then?
Rule 610(e) imposes restrictions on locked and crossed quotations for NMS stocks.
A locked quotation occurs when a trading venue displays a bid price equal to the offer price displayed by another trading venue; a crossed quotation goes a step further, where the displayed bid price is higher than the displayed offer price. Looking at a trading screen, the former appears as if buyers and sellers are "touching" at the same price, while the latter looks like a brief misalignment of quotes, theoretically creating an arbitrage opportunity.
The current Rule 610(e) does not directly prohibit every locked or crossed quotation, but rather requires exchanges, FINRA, and other self-regulatory organizations (SROs) to establish, maintain, and enforce rules requiring their members to avoid displaying orders that would lock or cross protected quotations, and to handle such quotations when they occur. Therefore, over the past two decades, the U.S. stock trading system has developed numerous order types and automatic price-adjustment mechanisms around this requirement, such as re-pricing orders to a level that does not lock or cross the market.
What the SEC now proposes to rescind is precisely this set of federal rules under Rule 610(e) that require the prevention of locked and crossed quotations. According to the SEC, the market is now more automated and interconnected than in 2005, and market participants' ability to access market data is stronger, reducing the necessity of retaining this rule.
The SEC gives three main reasons. First, locked quotations can sometimes be a natural result of competitive quoting; prohibiting them may artificially widen bid-ask spreads; allowing locked quotations could potentially narrow spreads for some stocks, possibly lowering trading costs for investors. Second, current restrictions incentivize exchanges and broker-dealers to design complex order types, automatic repricing functions, and compliance processes, increasing system complexity and maintenance costs. Third, even if crossed quotations appear in the future, the SEC believes high-speed trading technology and arbitrage incentives will drive the market to correct relatively quickly.
Access fee caps would remain. Access fee caps refer to the upper limit on fees that trading venues can charge external participants for accessing and executing against their quotations, preventing venues from displaying seemingly good quotes while raising the actual execution cost with excessively high fees.
However, the SEC also acknowledges that rescinding Rule 610(e) could bring new problems. For example, crossed quotations might affect execution quality statistics, some less liquid stocks might experience longer-lasting quote misalignments, and ordinary investors might be confused by locked or crossed quotes appearing on their screens. Therefore, this rescission is still in the comment stage, and the SEC is also requesting data and feedback from market participants.
Where is the Connection to Tokenized Stocks?
The part truly worth Web3 readers' attention lies in its potential to loosen a layer of centralized coordination logic in the U.S. stock market.
For tokenized stocks to scale, simply solving the problem of "mapping stocks onto the chain" is not enough. The harder part is the trading structure: on-chain markets are naturally more inclined towards 24/7 operation, smart contract matching, AMM or hybrid order books, and cross-venue liquidity.
The traditional U.S. stock market, however, is built on a foundation of exchanges, broker-dealers, quotation protection, order routing, SRO rules, and clearing and settlement systems. The rhythms, quotation logic, and technical interfaces of these two systems are not inherently compatible.
The existence of Rule 611 requires trading centers not to easily bypass protected quotations. While this has protective significance for the traditional stock market, it also forces new trading mechanisms to be designed around the existing quotation protection system. If the SEC ultimately rescinds this rule, trading venues and ATSs may gain greater experimental space in matching mechanisms, auction mechanisms, priority design, and block trading mechanisms.
But this is still only a possibility. The proposal does not change securities registration requirements, nor does it address issues like custody, clearing, shareholder rights, cross-border sales, KYC/AML, or broker-dealer responsibility for tokenized stocks. More crucially, even if the SEC rescinds Rule 610(e), existing related rules at exchanges and FINRA will not automatically disappear; they would still need to decide whether to modify their own rules.
Summary
In the economic analysis evaluating the repeal of Rule 611 and Rule 610(e) of Regulation NMS, the SEC estimates that after rescission, quantifiable annual cost savings for relevant market participants could be approximately $54.2 million to $77 million. These savings mainly come from trading centers, ATSs, broker-dealers operating smart order routing systems, and OTC market makers: they would no longer need to maintain certain Rule 611 / Rule 610(e) related compliance policies, monitoring processes, order routing logic, and connectivity arrangements.
These numbers aren't huge, but they illustrate one thing: the SEC is not just discussing "principles." It views this reform as a market structure simplification, aiming to reduce rule-driven complexity and allow trading venues to compete for orders based on price, speed, liquidity, and mechanism design.
For tokenized stocks, the most important word might be precisely "complexity." The advantages of on-chain assets are often summarized as 24/7, composability, and transparent settlement. But if the underlying securities trading rules still require all innovation to be forced back into the 2005-designed quotation protection framework, on-chain is just an extra layer of packaging. After rules are loosened, what can truly be tested is whether new trading venues can provide better execution quality within the compliance framework, rather than merely converting stocks into a token form.
References:
https://www.sec.gov/newsroom/press-releases/2026-54-sec-proposes-rescission-regulation-nms-rules-611-610e
https://www.sec.gov/files/rules/proposed/2026/34-105655.pdf
