The Securities and Exchange Commission (SEC) is dismantling the stock trading rule that has governed Wall Street for two decades.
On June 11, the agency issued a proposal that would repeal Rule 611 of Regulation NMS, the trade-through rule that requires trading centers to avoid executing stock trades at prices that are worse than protected prices displayed elsewhere. It would also eliminate Section 610(e), which restricts locked and crossed citations, along with related definitions.
For most of Wall Street, the proposal is a battle over market structure over routing, exchanges, wholesalers, quotes displayed and quality of execution.
For crypto companies and banks exploring tokenized stocks, it’s a little more specific: The SEC is taking aim at one of the rules that made it difficult to unify blockchain-based stock trading with the national market system.
A rule built for routed markets
Rule 611 was adopted in 2005 as part of Regulation NMS, a broad overhaul of U.S. stock market rules. The aim was to protect investors from executing their orders at lower prices while a better represented price was available on another exchange.
In practice, that system linked share trading to the National Best Bid and Offer (NBBO), the best displayed bid and offer price in protected locations. Broker routers, exchanges and trading firms built systems around that obligation.
However, that framework is more difficult to apply to automated market makers (AMMs), the software-based trading pools that power much of decentralized finance.
AMMs don’t work like Nasdaq, NYSE or Cboe. They price trades via liquidity pools, bonding curves, slippage and block-time execution.
Alex Thorn, head of research at Galaxy Digital, pointed out that the rule was one of the biggest structural barriers to DeFi-based trading in tokenized stocks.
“An AMM cannot comply with 611 in terms of construction,” Thorn said. It is run against a bonding curve at the pool price, with slippage and block time granularity.
The problem is not merely a technical inconvenience. An on-chain pool cannot easily relay intermarket sweep orders, process consolidated market data with the latency guarantees expected in US equities, or stop a swap because a better listing appears briefly on Nasdaq.
Under the current framework, a pool trading a tokenized version of an NMS stock could repeatedly push prices that differ from protected off-chain rates. This poses the risk that the pool will be seen as a continuing violation of the trade-through rule or as an illegitimate trading center.
Section 610(e) raises a related problem. AMM prices can fluctuate as liquidity shifts and transactions move through a pool. That means on-chain prices could lock or exceed the displayed NBBO, something current market rules are intended to prevent.
Why crypto is seeing an opening
Tokenized shares are blockchain-based representations of company shares or equity-linked claims. Proponents argue they could allow 24-hour trading, fractional ownership, faster settlement, collateral mobility and broader international access.
The market has been small compared to traditional stocks, but interest has increased as banks, crypto exchanges and asset managers look for ways to bring regulated financial instruments onto public or sanctioned blockchains.
Christopher Perkins, CEO of 250 Digital Asset Management, said Regulation NMS and the NBBO are among the biggest obstacles to unlocking tokenized equities. If Rule 611 is repealed, he said, “it’s a whole new game.”
He added:
“Big Unlock for DeFi. The Incumbents Won’t Be Happy.”
This response reflects a view spreading among digital asset companies: tokenized stocks don’t need a technological breakthrough so much as a regulatory pathway. Effects are already largely electronic.
In the US, ownership is registered through a system of custodians, brokers and transfer agents. Tokenization would change the ledger and settlement architecture, not the economic concept of a stock.
The more difficult question is whether this new architecture can meet the obligations laid down in securities law and market structure rules.
That’s where the SEC proposal becomes important. If the trade-through rule is eliminated, the focus will likely shift more heavily toward best execution, the obligation between broker and dealer to exercise reasonable care to obtain favorable terms for customers under prevailing market conditions.
In fact, Thorn said the framework is more compatible with blockchain trading than a per-transaction NBBO protection requirement. A broker sending to an on-chain pool can assess execution quality over time, compare locations, and document the routing process.
He said:
“That framework can accommodate an AMM. The old one could never do that.”
A broader market structure battle
Meanwhile, the proposal also extends beyond tokenized shares.
Max Resnick, chief economist at Anza, a Solana-focused development firm, said repealing Rule 611 could impact long-running debates over exchange design, including asymmetric speed bumps.
Speed bumps are delays used by some trading platforms to reduce the advantage of ultra-fast market participants. Asymmetric speed bumps treat different types of orders or market participants differently, which has made them controversial in the US market structure.
Resnick said Rule 611 made it more difficult to approve these models because a location with an asymmetrical speed bump could post sharper rates than locations without a speed bump. If these prices were included in the consolidated tape, other exchanges could be forced to match prices that they cannot economically support.
His point underlines why the SEC action is not just about crypto. Rule 611 has impacted how venues compete, how liquidity is displayed, and how companies route orders. Removing it would change the incentives for exchanges and stock market brokers.
SEC Chairman Paul Atkins has framed the proposal as an overdue overhaul of a rule that he says has unintended consequences. The agency said the change is intended to simplify market structure, reduce costs and ensure competition and innovation shape stock trading.
This language has caught the attention of tokenization advocates because it overlaps with the SEC’s broader digital assets agenda.
Atkins and Commissioner Hester Peirce previously discussed an innovation exemption that could allow limited experimentation with tokenized securities trading through automated market makers and other on-chain systems.
Such a waiver could include safeguards such as volume limits, whitelisting, and a temporary framework while the agency considers permanent rule changes.
Thorn said the order is important. According to him, the SEC is first trying to remove one of the most difficult obstacles to market structure and then address location registration issues through an innovation exemption.
At a high level, he said, the agency appears to be following the “Project Crypto” playbook.
The caveats remain significant
Despite these potential regulations, the risk for investors is that tokenized shares could mean many different things.
A token can represent a direct stock, a custodial claim, a certificate of custody, a derivative, or a synthetic instrument that tracks a stock price without giving the holder voting rights, dividends, or a claim to the underlying security. These differences matter even if the token is trading at a price close to the public share.
That is why repealing Rule 611 would not in itself legalize tokenized equity. Companies would still have to answer questions about whether the product is registered, where it is traded, who owns the underlying asset, how corporate actions are settled, whether investors get shareholder rights and how settlement works.
Thorn stated:
“Tokenized NMS stock continues to face a host of other questions re: exchange/ATS registration questions, approval and settlement, and many other rules not designed for defi or peer-to-peer trading.”
In light of this, Anthony Bassilli of Coinbase Asset Management described the SEC proposal as an obstacle to tokenizing equities in the US, while adding that the process remains important to monitor.
This caution is shared by traditional market groups. SIFMA, the trade group representing broker-dealers, investment banks and asset managers, Welcome the SEC assessment but cautioned that the US market structure consists of many interconnected parts.
It said regulators should study the effect of any changes on investors, the quality of execution, transparency and the development of overnight trading and tokenized securities.
These concerns will likely shape the public comment period. Critics might argue that eliminating Rule 611 could fragment markets, dilute the prices shown, or make it harder for ordinary investors to know whether they have received a fair price.
On the other hand, crypto proponents will argue that best execution, competition, and better market design can replace a rule they view as overly rigid.