SEC moves to unwind two key Reg NMS rules — a potential unlock for tokenized U.S. stock trading in DeFi
The U.S. Securities and Exchange Commission on June 11 proposed rescinding two long-standing Regulation National Market System (Reg NMS) rules — Rule 611 and Rule 610(e) — a change that could remove a significant structural barrier to tokenized U.S. stock trading on blockchain-based platforms.
What the rules do
- Rule 611 has prohibited “trade-throughs,” meaning a trading venue cannot execute an order at a worse price when a better protected quote exists on another venue. It has been a central price-protection mechanism since 2005.
- Rule 610(e) governs locked and crossed quotations, requiring trading centers to avoid posting quotes that equal or cross the national best bid and offer.
Why the SEC wants to rescind them
The SEC said the proposal would simplify market structure, reduce costs for market participants and let competition and innovation shape equity markets. Chairman Paul S. Atkins argued that after two decades Rule 611 has produced unintended consequences that may have constrained market growth: “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.”
Practical implications for DeFi and AMMs
Crypto industry voices say the move could be consequential for decentralized finance. Galaxy Digital’s Alex Thorn noted Rule 611 is effectively incompatible with automated market makers (AMMs). AMMs execute trades against on-chain bonding curves and liquidity pools with slippage and block-time granularity — they cannot check every off-chain exchange quote in real time or route orders across markets the way traditional systems do. Thorn also flagged Rule 610(e) as problematic because AMM prices naturally move with trading flow and could frequently lock or cross quotes displayed in traditional markets.
What the proposal actually does — and doesn’t do
- The SEC’s proposal removes the two rules and related definitions in Rule 600 and makes other conforming edits. It opens a 60-day public comment period after the proposal is published in the Federal Register.
- Importantly, rescission does not itself authorize tokenized stock trading. It starts a rulemaking process and invites public input before any final change is adopted.
Remaining hurdles for tokenized equities
Even if Reg NMS trade protections are rolled back, tokenized stocks still face several legal and market challenges, including exchange registration, alternative trading system (ATS) rules, clearing and settlement standards, and ensuring tokenized shares carry investor rights such as dividends and voting.
Regulatory alternatives and next steps
Analysts say removing these Reg NMS protections could shift emphasis to broker-level best execution obligations — for example FINRA Rule 5310, which requires brokers to seek the best available terms for customer orders — a framework that may better accommodate tokenized markets than strict trade-by-trade price-protection rules.
The SEC has separately been studying an “innovation exemption” that might permit trading of tokenized public equities on blockchain platforms, potentially conditioned on tokenized shares carrying the same rights as ordinary shares. Commissioner Hester Peirce has signaled such exemptions will likely be narrow, applying to digital versions of existing public equities rather than synthetic tokens without shareholder rights.
Bottom line
The proposal is a meaningful step in a broader policy shift that could lower one structural barrier to on-chain trading of U.S. equities. But final outcomes will depend on the public comment process, further SEC rulemaking, and how other statutory and market frameworks adapt to tokenized securities.
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