Key Takeaways
- The Securities and Exchange Commission has put forward a proposal to eliminate Rules 611 and 610(e) within Regulation NMS, regulations that have shaped US equity markets for nearly two decades
- Rule 611 mandates trade execution at the best available market price; Rule 610(e) prohibits locked or crossed quotations across venues
- According to Alex Thorn from Galaxy Digital, this development represents “one of the biggest unlocks yet” for bringing tokenized securities to decentralized finance
- Decentralized liquidity protocols (AMMs) face structural incompatibility with these regulations, preventing lawful integration of tokenized US stocks on blockchain platforms
- Final implementation is anticipated by Q1 2027, though exemptive relief for experimental tokenization programs may arrive earlier
The Securities and Exchange Commission has unveiled a proposal to remove two decades-old equity trading regulations that industry specialists argue have prevented tokenized American securities from operating on blockchain-based trading platforms.
These regulations — specifically Rules 611 and 610(e) under Regulation NMS — were established in 2005. Rule 611 mandates that transactions must execute at the most favorable price available across all market venues. Meanwhile, Rule 610(e) prohibits trading platforms from displaying quotations that lock or cross against prices shown on competing exchanges.
SEC Chairman Paul Atkins stated that the proposal aims 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.”
The public feedback window will remain open for 60 days.
Implications for Decentralized Finance
Alex Thorn, who leads research at Galaxy Digital, outlined how these regulatory requirements created insurmountable barriers for tokenized equity trading within cryptocurrency ecosystems.
Automated market makers — the algorithmic protocols driving decentralized trading platforms — function by matching transactions against available liquidity pools at the prevailing rate within those pools. These systems cannot reference pricing on traditional exchanges like Nasdaq. They cannot pause transactions because superior pricing exists on another platform. Under the framework of Rule 611, every such transaction constitutes a regulatory breach.
“Any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center,” Thorn explained.
Rule 610(e) presented identical complications. AMMs perpetually adjust pricing based on transaction flow, which means their displayed prices would regularly lock or cross the National Best Bid and Offer — behavior currently forbidden for registered trading venues.
Expected Timeline and Next Steps
Should these regulations be withdrawn, the SEC will likely shift reliance to a “best execution” framework outlined in FINRA Rule 5310. This approach operates on principles-based oversight at the broker level, making it compatible with how automated market makers function.
Jaret Seiberg, who serves as managing director at TD Cowen’s Washington Research Group, indicated the proposal stands a strong chance of approval. Full implementation is projected for the first quarter of 2027.
However, Seiberg suggested that experimental tokenization initiatives may not face such a lengthy wait. He anticipates the SEC will grant early-stage blockchain equity projects exemptive relief from Rule 611 ahead of the official rule elimination.
This regulatory proposal forms part of the SEC’s comprehensive “Project Crypto” framework, initiated in August 2025, designed to establish more defined regulatory standards for digital assets and distributed ledger technology within American financial markets.
Thorn acknowledged that additional regulatory challenges persist, including exchange registration requirements, clearing and settlement procedures, and regulations not designed for decentralized market structures. He suggested these matters could potentially be resolved through an upcoming SEC “innovation exemption.”
The SEC had previously intended to publish a comprehensive tokenized securities trading framework last month but postponed the release following objections from traditional stock exchanges regarding execution protocols.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
