The US Securities and Exchange Commission (SEC) has introduced a regulatory proposal that could significantly reshape the framework governing stock trading in the United States. The agency recently put forward plans to eliminate a long-standing trading rule that has been a cornerstone of Wall Street operations for more than two decades. The proposed changes are aimed at removing regulatory provisions that many industry participants believe have limited the development of blockchain-based trading systems and the integration of tokenized assets into the national market structure.
The proposal, formally released by the SEC last week, calls for the removal of Rule 611, commonly referred to as the trade-through rule, along with Rule 610(e), which governs locked and crossed quotations. While the debate surrounding these rules has traditionally focused on execution quality within conventional financial markets, digital asset firms view the proposal as a potentially transformative development for blockchain-powered financial products.
Rule 611 was introduced in 2005 as part of Regulation NMS with the goal of protecting both institutional and retail investors. The rule requires trading venues to execute orders at prices that are no worse than the National Best Bid and Offer (NBBO), ensuring investors receive the most favorable available prices across traditional exchanges.
However, research conducted by Galaxy Digital suggested that the structure of decentralized finance (DeFi) platforms does not align with the operational requirements of Rule 611. According to the firm’s analysis, decentralized trading protocols determine asset prices through mathematical algorithms that operate within predefined blockchain intervals. As a result, automated market makers (AMMs), which are central to many DeFi ecosystems, are inherently unable to satisfy the requirements of the trade-through rule.
Liquidity pools operating on blockchain networks experience price fluctuations influenced by available liquidity and transaction slippage within smart contracts. Unlike traditional exchanges such as Nasdaq and NYSE, blockchain-based systems do not rely on consolidated market data with the same latency standards. Galaxy Digital’s assessment indicated that tokenized stock trading pools functioning under the current framework would frequently violate Rule 611 because their pricing mechanisms can differ from those observed in conventional markets.
Rule 610(e) presents an additional challenge for blockchain-based trading environments. As transactions occur within decentralized liquidity pools, prices continuously adjust, creating circumstances in which on-chain quotations may temporarily lock or cross the NBBO benchmark. Existing regulations prohibit authorized trading venues from operating under such conditions, creating another obstacle for decentralized trading infrastructure.
The SEC’s proposal seeks to remove these regulatory constraints, potentially creating a more accommodating environment for blockchain-based trading systems and tokenized securities.
Tokenized shares, which represent ownership interests or claims tied to traditional company stock through distributed ledger technology, have attracted growing attention across the financial sector. Advocates believe these instruments can provide 24/7 trading access, fractional ownership opportunities, and faster, more efficient settlement processes compared with traditional market systems.
Although the tokenized equities market remains relatively small when compared with the broader US stock market, interest from banks, asset managers, and other financial institutions has increased steadily. Market participants are exploring ways to transfer regulated financial instruments onto both public and permissioned blockchain networks.
Industry representatives from 250 Digital Asset Management stated that Regulation NMS has long represented one of the most significant structural obstacles to the advancement of tokenized financial products. The proposed elimination of Rules 611 and 610(e) could therefore mark a major step toward integrating regulated securities with blockchain technology.
The SEC’s proposal will now proceed through a public comment period, allowing stakeholders to provide feedback before the agency’s commissioners consider the measure for a final vote.
