SEC Proposes Repealing 20-Year Core Rule: The Biggest Barrier to Tokenized US Stocks Is Disappearing
The U.S. Securities and Exchange Commission (SEC) has voted to propose repealing Rule 611 of Regulation NMS, the "order protection rule" that has been a cornerstone of U.S. equity market structure since 2005. This move, while a story of traditional finance, represents a major potential policy shift for tokenized U.S. stocks, removing a key structural barrier.
Rule 611 mandates that trading centers cannot execute trades at prices inferior to protected quotes displayed on other exchanges. This framework is fundamentally incompatible with Automated Market Makers (AMMs) used in decentralized finance (DeFi). AMMs execute trades along bonding curves with price slippage and cannot comply with the rule's real-time, price-by-price requirements, meaning any tokenized stock liquidity pool would be in violation.
The proposed repeal would replace the prescriptive rule with a principles-based "best execution" obligation on broker-dealers. This allows brokers to route orders to on-chain liquidity pools like AMMs, fulfilling their duty through periodic review rather than per-trade enforcement.
The proposal is backed by significant historical context. SEC Chair Atkins, who voted against Reg NMS in 2005 alongside Commissioner Glassman, is now acting on his decades-old dissent. They argued Rule 611 would distort markets and push liquidity into dark pools rather than improve transparency—a prediction validated by current SEC data showing nearly half of trading now occurs off-exchange.
The SEC's proposal explicitly connects to the crypto industry, citing academic work that Rule 611 has prevented innovation like AMMs and atomic settlement in stock markets. The process has been deliberate, following public roundtables and comments. While tokenized securities face other regulatory hurdles, this repeal is seen as a critical first step in clearing the path for next-generation market structure innovation.
marsbit06/15 09:09
