The U.S. Securities and Exchange Commission proposed removing two key Regulation NMS rules, opening a new debate over tokenized U.S. stocks and DeFi trading.
Summary
- SEC proposed removing Rules 611 and 610(e), changing long-standing trade protections for U.S. equities markets.
- Analysts say the move could help DeFi market makers support tokenized U.S. stock trading.
- Tokenized equities still face registration, settlement, clearing, and investor-rights questions under U.S. securities rules.
The SEC said on June 11 that it proposed rescinding Rules 611 and 610(e) of Regulation National Market System. The rules have shaped U.S. equity trading since 2005.
Rule 611 blocks trade-throughs in national market system stocks. In simple terms, a trading venue cannot execute a stock trade at a worse price when a better protected quote is available on another venue.
Rule 610(e) deals with locked and crossed quotations. These rules require trading centers to avoid quotes that equal or cross the national best bid and offer in U.S. stocks.
The SEC said the proposal would also remove related definitions from Rule 600 and make other matching changes. The public comment period will stay open for 60 days after the proposal appears in the Federal Register.
SEC Chairman Atkins says rule change could cut costs
SEC Chairman Paul Atkins said the plan aims to simplify equity market structure after two decades of Rule 611. He said the rule may have created problems that limited market growth.
“After two decades of Rule 611, it is high time that the Commission review its unintended consequences that have hindered — rather than enhanced — the long-term growth of our markets,” said SEC Chairman Paul S. Atkins.
“This proposal is intended to simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets,” Atkins added.
The proposal does not approve tokenized stock trading by itself. It starts a rulemaking process and gives market participants a chance to comment before the agency decides whether to finalize the rescission.
Analysts point to tokenized stocks
Galaxy Digital’s Alex Thorn said the proposal could remove a major barrier for tokenized U.S. equities in DeFi. He argued that automated market makers cannot easily follow Rule 611 because they execute trades through liquidity pools and bonding curves.
“An AMM cannot comply with 611 by construction. It executes against a bonding curve at whatever the pool price is, with slippage, at block-time granularity,” Thorn wrote.
The issue is that DeFi pools cannot check every stock exchange quote in real time before each swap. They also cannot route orders across markets in the same way as traditional trading systems.
Thorn also said Rule 610(e) creates similar issues. AMM prices move with trading flow, which means tokenized equity pools could often lock or cross displayed quotes in the traditional market.
Tokenized equities still face other rules
If the SEC removes the rules, analysts say broker-level best execution duties may play a larger role. FINRA Rule 5310 requires brokers to seek the best available terms for customer orders.
That framework may fit tokenized markets better than trade-by-trade price protection rules. Still, tokenized stocks face other hurdles, including exchange registration, ATS rules, clearing, settlement, and investor rights.
As previously reported, the SEC has been studying an innovation exemption that could allow tokenized public stocks to trade on blockchain platforms. The plan may require tokenized shares to carry the same rights as normal shares, including dividends and voting rights.
Moreover, as reported by crypto.news, Commissioner Hester Peirce has also said any exemption may stay limited in scope. She said it would likely apply to digital versions of existing public equities, not synthetic stock tokens without shareholder rights.
The SEC proposal adds a new step to that wider policy shift. It could reduce one market structure barrier, but the final rules will depend on the comment process and further agency action.
