SEC Proposes Dismantling Key Trade-Through Rule in Favor of Tokenized Stocks

The US Securities and Exchange Commission (SEC) has submitted a proposal to dismantle Rule 611 of Regulation NMS, a trade-through rule that has governed Wall Street for two decades. The rule requires trading centers to prevent stock trades from executing at prices worse than protected quotes displayed elsewhere.

For crypto firms and banks exploring tokenized shares, this change is significant as it targets one of the rules that made blockchain-based stock trading difficult to reconcile with the national market system.

Alex Thorn, Galaxy Digital's head of research, pointed out that Rule 611 was a major structural barrier to DeFi-based trading of tokenized equities. 'An AMM cannot comply with 611 by construction,' he said. It executes against a bonding curve at the pool price, with slippage and block-time granularity.

Rescinding Rule 611 would simplify market structure, reduce costs, and allow competition and innovation to shape equity trading, according to SEC Chairman Paul Atkins. However, tokenized stocks still face many questions regarding exchange/ATS registration, clearance and settlement, and other rules not designed for DeFi or peer-to-peer trading.