SEC Moves to Scrap Rule 611: Here’s What It Means for Tokenized Stocks

The US Securities and Exchange Commission (SEC) has proposed rescinding Rules 611 and 610(e) of Regulation NMS, the trade-through rule that has shaped US equity market structure since 2005.

Galaxy Digital’s Head of Firmwide Research, Alex Thorn, called the rule “one of the biggest structural barriers” to tokenized US equities trading in decentralized finance (DeFi).

SEC Plans to Drop Rule 611 

Rule 611, commonly known as the Order Protection Rule, is part of the US Securities and Exchange Commission’s (SEC) Regulation NMS framework. 

The rule requires trading venues, such as stock exchanges and broker-dealers, to prevent “trade-throughs,” instances in which an order is executed at a worse price when a better price is available on another exchange.

Thorn explained that in practice, every trade in a national market system (NMS) stock must respect the national best bid and offer (NBBO).

The SEC also proposed scrapping Rule 610(e). It concerns locking and crossing quotations in US equity markets. A 60-day public comment period follows publication in the Federal Register.

“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. I look forward to reviewing public comments as we take a careful, deliberative approach to avoid repeating the same mistakes that brought us here,” SEC Chairman Paul Atkins said.

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Galaxy’s Alex Thorn Calls SEC Rule Repeal A Breakthrough For Tokenized Stocks

Thorn argued that this is “one of the biggest unlocks yet for tokenized stocks.” He noted that automated market makers (AMMs) cannot comply with these rules by design. Pools execute against bonding curves at whatever price liquidity dictates, with slippage, at block-time granularity.

“An AMM can’t route intermarket sweep orders. can’t ingest SIP data with latency guarantees. can’t halt a swap because a better quote exists on Nasdaq. any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center,” he stated. 610(e) is the same story. AMM prices drift continuously with flow and would routinely lock or cross the displayed NBBO, which venues are currently required to prevent.”

Without Rule 611, the broker-level best execution duty under FINRA Rule 5310 would govern order handling. That standard is principles-based rather than enforced trade-by-trade.  He argued that this framework can accommodate automated market makers (AMMs), whereas the previous system could not.

However, he noted that tokenized NMS stocks still face open questions on exchange and ATS registration, clearance, and settlement. Thorn hopes the SEC’s forthcoming “innovation exemption” will address many of these issues.

Thorn described the sequencing as the SEC executing its Project Crypto playbook. The agency clears the hardest market structure obstacle first, then handles venue registration through exemptive relief. The comment period will reveal whether market participants oppose dismantling a 20-year-old pillar of US trading.

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