Key Takeaways
- The Securities and Exchange Commission has put forward a proposal to remove Rules 611 and 610(e) from Regulation NMS, provisions that have shaped equity trading in the United States for nearly two decades
- Rule 611 prevents execution of trades at inferior prices compared to the best available market quote; Rule 610(e) prohibits quote locking or crossing
- Alex Thorn from Galaxy Digital described this development as “one of the biggest unlocks yet” for bringing tokenized equities into decentralized finance
- Current regulations make it legally impossible for automated market makers to handle tokenized US stocks, effectively shutting them out of decentralized trading venues
- The regulatory agency anticipates finalizing these changes during the first quarter of 2027, though exemptions for experimental tokenization programs could arrive earlier
The Securities and Exchange Commission has unveiled plans to dismantle two established equity trading regulations that industry analysts believe have prevented tokenized American stocks from operating within decentralized finance ecosystems.
These provisions — specifically Rules 611 and 610(e) within Regulation NMS — were established in 2005. Rule 611 prohibits trade execution at prices inferior to the optimal quote available across all exchanges. Meanwhile, Rule 610(e) forbids trading venues from displaying quotes that lock or cross against quotations on competing platforms.
Paul Atkins, Chairman of the SEC, stated the initiative 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.”
Stakeholders now have a 60-day window to submit public feedback on the proposal.
Implications for Decentralized Finance
Alex Thorn, who leads research at Galaxy Digital, clarified why these regulations have functioned as an absolute barrier to tokenized equity trading within cryptocurrency ecosystems.
Automated market makers — the algorithmic systems that facilitate decentralized exchange operations — function by executing transactions against liquidity pools at whatever rate those pools currently provide. These systems cannot reference Nasdaq pricing. They cannot pause a transaction because superior pricing exists on another platform. Under the framework of Rule 611, every such transaction constitutes a regulatory violation.
“Any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center,” Thorn explained.
Rule 610(e) presents an identical challenge. AMMs perpetually adjust pricing based on transaction flow, which means their quotations would regularly lock or cross the National Best Bid and Offer — behavior that current regulations mandate exchanges to avoid.
Looking Ahead
Should these regulations be eliminated, the SEC plans to depend on a “best execution” framework outlined in FINRA Rule 5310 instead. This approach operates on principles rather than prescriptive rules and applies at the broker level, making it compatible with AMM operations.
Jaret Seiberg, who serves as managing director at TD Cowen’s Washington Research Group, indicated the proposal will likely gain approval. The rule is projected to reach final form during the first quarter of 2027.
However, Seiberg suggested that tokenization experiments may not need to wait for full implementation. He anticipates the SEC will grant preliminary tokenization initiatives exemptive relief from Rule 611 prior to the rule’s official elimination.
This regulatory proposal forms part of the SEC’s comprehensive “Project Crypto” program, which launched in August 2025, designed to establish more transparent guidelines for digital assets and blockchain technology within American financial markets.
Thorn acknowledged that additional obstacles persist, including exchange registration requirements, clearance and settlement procedures, and regulations not designed for decentralized trading environments. He indicated these matters may be resolved through an upcoming SEC “innovation exemption.”
The SEC had allegedly intended to publish a framework for tokenized stock trading last month but postponed the release following objections from traditional stock exchanges regarding execution concerns.
