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SEC Proposes Repealing Rule 611, Opening the Door to Tokenized Stocks

The SEC wants to remove two core rules from Regulation NMS, which could help clear the way for tokenized U.S. stocks. The consultation is still ongoing, but the impact on DeFi trading is already clear.

By Finst News
• 2 min read
SEC Proposes Repealing Rule 611, Opening the Door to Tokenized Stocks

Key Takeaways

  • The SEC wants to repeal Rules 611 and 610(e) of Regulation NMS, rules that have shaped the U.S. stock market since 2005.
  • Rule 611 requires traders to respect the national best bid and offer, and Galaxy Digital says it is a barrier to tokenized U.S. stocks in DeFi.
  • The SEC says the proposal is meant to simplify market structure, but after a 60-day consultation, questions about registration, clearing, and settlement still remain.

The U.S. Securities and Exchange Commission (SEC) has put forward a proposal to repeal Rules 611 and 610(e) of Regulation NMS. These rules, which have shaped the structure of the U.S. stock market since 2005, are meant to prevent so-called "trade-throughs," where an order gets filled at a worse price even though a better price is available elsewhere.

Impact of Removing Rule 611

Rule 611, also known as the Order Protection Rule, requires trading platforms and broker-dealers to make sure orders are not executed at a worse price than what is available elsewhere in the market. That means every trade in a stock within the national market system has to respect the national best bid and offer (NBBO).

Galaxy Digital’s head of research, Alex Thorn, calls this rule one of the biggest structural barriers to trading tokenized U.S. stocks in decentralized finance (DeFi). Automated market makers (AMMs), which trade through bonding curves and use available liquidity to set prices, cannot comply with this rule. Because prices move constantly and there are no latency guarantees, AMMs cannot ensure they do not cause trade-throughs, which under current rules would make them illegal trading venues.

Modernizing Market Structure

The SEC says repealing these rules is meant to simplify market structure and lower costs for market participants. According to SEC Chair Paul Atkins, this should make room for competition, innovation, and other market developments. The proposal will be followed by a 60-day public comment period.

Without Rule 611, the duty to seek best execution at the broker level, as laid out in FINRA Rule 5310, would govern trading. This rule is more principles-based and is not enforced on a per-trade basis, which Thorn says fits how AMMs work much better.

Even though removing Rule 611 is a big step, there are still open questions around registration, clearing, and settlement for tokenized stocks. Thorn expects a future SEC "innovation exemption" could address many of these issues.

Relevance for European Market Participants

This development in the U.S. could also matter for European investors and market participants who are interested in tokenized stocks and DeFi. It shows that regulators around the world are looking for ways to adapt traditional market rules to new technologies and trading models. European regulators may watch this move as an example of how market structures can evolve to support innovation while still trying to protect investors.

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