The SEC has just proposed repealing Reg NMS Rule 611 — the 'trade-through rule' that has defined the structure of the US stock market since 2005.
This is, of course, a story from traditional finance, but it is also the most significant policy loosening to date for tokenized stocks.
The SEC Commission voted to propose repealing Rule 611 (the Order Protection Rule) and Rule 610(e) (the Locked/Crossed Markets Restrictions), along with related definitions. The public comment period is 60 days. This is still a proposal, not final — but the policy direction is clear.
Rule 611 requires each trading center, when executing a trade, not to execute at a price inferior to the protected quotations displayed by other exchanges. In practice, every trade in an NMS stock must reference and comply with the National Best Bid and Offer (NBBO) at the moment of execution.
This is one of the biggest structural obstacles facing tokenized US stock trading in today's DeFi. An Automated Market Maker (AMM) is inherently unable to comply with Rule 611 by design — it executes trades along a bonding curve on a block-time granularity, has slippage, and the execution price depends on the in-pool price.
An AMM cannot send intermarket sweep orders, cannot access SIP data with guaranteed latency, and cannot abort a swap because a better quote exists on Nasdaq. Any liquidity pool for tokenized NMS stocks would continuously generate 'trade-throughs,' potentially constituting a non-compliant trading venue at a legal level.
The same logic applies to Rule 610(e). The price of an AMM drifts continuously with fund flows and would frequently lock or cross the displayed NBBO — precisely what current rules explicitly prohibit for all trading venues.
So what would replace Rule 611? The answer is the best execution obligation. This obligation falls on broker-dealers (FINRA Rule 5310), is principles-based, not a mandatory, trade-by-trade rule. A broker routing orders to an on-chain liquidity pool could fulfill this obligation through periodic review. This framework can accommodate AMMs — the old framework never could.
Tokenized NMS stocks still face many other issues, including exchange/ATS registration, clearance and settlement, and numerous regulations not designed for DeFi or peer-to-peer trading. We hope many of these can be addressed under the SEC's forthcoming 'innovation exemption' framework.
But at a macro level, this is the SEC executing on its 'crypto project roadmap': clearing the most difficult market structure hurdles first by repealing rules, then handling venue registration via innovation exemptions (at least provisionally). This sequence of policy progression is critical.
Two decades of stock market structure have been built around one rule, and now the SEC is proposing to scrap it. This is a crucial step in clearing the path for the next phase of innovation in equity securities trading.
One important piece of background is worth adding. When Chairman Atkins served as a commissioner in the early 2000s, he voted against the passage of Reg NMS, and yesterday's proposal to repeal largely aligns point-for-point with his dissent from that time.
In June 2005, Atkins and Commissioner Cynthia Glassman filed a 44-page written dissent to the 3-2 vote on Reg NMS. They argued that Congress intended competition, not regulation, to shape the national market system, and that Rule 611 essentially substituted the SEC's subjective judgment of optimal market structure for that of the market itself.
Their empirical arguments were devastating. The SEC's own research showed that 'trade-throughs,' measured by displayed size, were a phenomenon on the order of 1% to 2%. The estimated loss was $321 million, against an annual trading volume at the time of $16.8 trillion — they called it 'a rounding error of a rounding error.'
They also predicted Rule 611 would not drive liquidity to public markets but instead incentivize traders to hide large orders in the dark, not displaying them. Today's reality? The proposal released by the SEC yesterday cites its own staff data showing off-exchange volume now accounts for 51.9% of trading in Nasdaq-listed stocks and 47% for NYSE-listed stocks.
Even within exchanges, the median share of volume executed against hidden orders has nearly doubled, rising from 16% in 2015 to over 30% in 2025. The regulatory data accumulated by the SEC itself now validates the core predictions of that dissent.
So what was their proposed alternative in 2005? Improve quote access, enhance intermarket linkages, and rely on broker-dealers' best execution obligation, not government-mandated control over every single trade. This is precisely the framework the SEC proposed adopting yesterday. The proposal text even directly quotes from the 2005 dissent.
The proposal also explicitly highlights the connection to the crypto industry. It specifically discusses tokenized securities and 'smart contracts that power automated market makers,' citing an academic paper arguing that mandatory rules like Rule 611 are why equity markets have failed to develop AMMs, intent-based mechanisms, or atomic settlement.
So this isn't deregulation for its own sake. It's the SEC Chair, 21 years later, putting into action his own dissenting views — with the SEC's own staff data now corroborating the arguments he made in 2005. Whatever your stance on the proposal, its administrative record is well-founded.
This isn't just about tokenized securities; the current SEC believes Rule 611's original legislative justification was never adequate, predicted it would hinder rather than help market development, and now has the empirical data.
Of course, it also benefits tokenized securities — as I said, timing is also critical.
Finally, it's important to note that none of this happened suddenly. As early as July 2025, the SEC announced it would hold a roundtable on this topic, stating explicitly that 'Reg NMS and its Rule 611 have not benefited investors or broker-dealers, but instead have created market distortions and been gamed by various parties...'
Subsequently, the SEC held two public roundtables (September in Washington, D.C., and December at the University of Texas at Austin) and solicited broad feedback before issuing this proposal. The process was not hasty but carefully planned and well-telegraphed. The entire industry had the opportunity to provide input at every stage. And now, the market can still submit comments on this very proposal.
*This content is for reference only and does not constitute any investment advice. Markets involve risks; investment requires caution.
