SEC Moves to Roll Back Key Reg NMS Rules, Potentially Clearing a Path for Tokenized U.S. Stocks in DeFi

The U.S. Securities and Exchange Commission on June 11 proposed repealing two long-standing Regulation National Market System (Reg NMS) provisions—Rule 611 and Rule 610(e)—a shift that could remove a major market-structure obstacle for tokenized U.S. stock trading on blockchain-based venues. Rule 611, in place since 2005, bars "trade-throughs" by preventing a venue from executing an order at an inferior price when a better protected quote is available elsewhere. Rule 610(e) addresses locked and crossed quotations, requiring trading centers to avoid posting quotes that match or cross the national best bid and offer. The SEC said eliminating the rules would streamline market structure, lower costs for participants, and allow competition and innovation to drive the evolution of U.S. equity markets. Chairman Paul S. Atkins said Rule 611 has generated unintended effects over two decades and may have constrained market growth, adding: "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." Market participants in crypto and DeFi view the proposal as potentially significant. Galaxy Digital's Alex Thorn argued Rule 611 is effectively incompatible with automated market makers (AMMs), which execute trades against onchain liquidity pools and bonding curves with slippage and block-time constraints. AMMs cannot continuously reference offchain quotes or route orders across venues in the way traditional equity systems do. Thorn also pointed to Rule 610(e) as a friction point because AMM pricing naturally shifts with order flow and could repeatedly lock or cross quotes displayed in conventional markets. Under the proposal, the SEC would remove Rules 611 and 610(e) along with related definitions in Rule 600, and make other conforming edits. A 60-day public comment period would begin after publication in the Federal Register. The agency emphasized that repealing the provisions would not, by itself, authorize tokenized stock trading; it initiates a rulemaking process and solicits input before any final changes are adopted. Tokenized equities would still face substantial hurdles even if these trade protections are rolled back, including exchange registration requirements, alternative trading system (ATS) rules, clearing and settlement standards, and ensuring tokenized shares confer investor rights such as dividends and voting. Analysts say scaling back Reg NMS price protections could shift more responsibility to broker-level best execution duties, including FINRA Rule 5310, which requires brokers to seek the best available terms for customer orders—an approach some view as more workable for tokenized markets than strict, trade-by-trade price-protection rules. Separately, the SEC has been examining an "innovation exemption" that could allow tokenized public equities to trade on blockchain platforms, potentially contingent on tokenized shares carrying the same rights as ordinary shares. Commissioner Hester Peirce has indicated any such exemptions would likely be narrow, focused on digital versions of existing public equities rather than synthetic tokens lacking shareholder rights. The proposal marks a notable step in a broader policy shift that could reduce one structural barrier to onchain trading of U.S. equities. Final outcomes will hinge on the public comment process, additional SEC rulemaking, and how other legal and market frameworks adapt to tokenized securities.