SEC plans to abolish the 20-year core rule: the biggest obstacle to tokenizing U.S. stocks is disappearing

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The SEC has just proposed to eliminate Rule 611 of Reg NMS—this "trade-through rule" has defined the structure of the U.S. stock market since 2005.

While this is a story rooted in traditional finance, it also marks the most significant policy relaxation for tokenized stocks to date.

The SEC Commission has voted to propose the repeal of Rule 611 (Order Protection Rule) and Rule 610(e) (Locking/Crossing Market Restrictions), along with related definitions. The public comment period is 60 days. Currently, it remains in the proposal stage, not yet finalized—but the policy direction is clear.

Rule 611 requires each trading center to execute trades at prices no worse than protected quotes displayed on other exchanges. In practice, every trade of NMS stocks must reference and comply with the National Best Bid and Offer (NBBO) at the time of execution.

This is one of the biggest structural barriers faced by tokenized U.S. stock trading in DeFi today. AMMs (Automated Market Makers) are inherently unable to comply with Rule 611—they execute trades along bonding curves at the block time granularity, resulting in slippage, with prices depending on the pool’s internal price.

AMMs cannot send intermarket sweep orders, cannot access SIP data with latency guarantees, and cannot halt a swap due to a better quote on Nasdaq. Liquidity pools for tokenized NMS stocks will continue to produce "trade-throughs," potentially constituting violations of trading center regulations at the legal level.

Similarly, Rule 610(e) faces the same issues. AMM prices drift with capital flows and frequently lock or cross the displayed NBBO, behaviors explicitly prohibited across all current trading venues.

So, what replaces Rule 611 if it’s abolished? The answer is the best execution obligation. This duty falls on broker-dealers (FINRA 5310), is principle-based, and not a strict per-trade regulation. Brokers route orders to on-chain liquidity pools and can fulfill this obligation through periodic reviews. This framework can accommodate AMMs—something the old framework could never do.

Tokenized NMS stocks still face many other issues, including exchange/ATS registration, clearing and settlement, and numerous regulations not designed for DeFi or peer-to-peer trading. We hope many of these issues will be addressed in the SEC’s upcoming "Innovation Exemption" framework.

But on a macro level, this reflects the SEC’s implementation of the "cryptocurrency project roadmap": removing the most difficult market structure barriers through rule repeal, then addressing venue registration issues via innovation exemptions (at least for now). The sequence of policy advancement is crucial.

Twenty years of stock market structure have revolved around a single rule, and now the SEC aims to abolish it. This is a significant step toward clearing the way for the next phase of stock securities innovation.

Another important context worth mentioning: current Chair Atkins, when serving as a commissioner in the early 2000s, voted against the passage of Reg NMS, and the content proposed for repeal yesterday nearly aligns point-for-point with his past objections.

In June 2005, Atkins and Commissioner Cynthia Glassman co-signed a 44-page written dissent on the 3-2 vote approving Reg NMS. They argued that Congress intended to let competition (not regulation) shape the national market system, and that Rule 611 effectively replaced market-driven processes with SEC’s subjective judgment of optimal market structure.

Their empirical evidence was compelling. SEC’s own research showed that, measured by displayed size, "trade-throughs" accounted for only 1-2% of volume. Estimated losses were $321 million, against a total annual trading volume of $16.8 trillion—deemed "negligible rounding errors."

They also predicted that Rule 611 would not attract liquidity to public markets but instead incentivize traders to hide large orders in dark pools. Today’s reality confirms this: yesterday, the SEC’s proposal cited internal staff data showing off-exchange trading volume reaching 51.9% for Nasdaq-listed stocks and 47% for NYSE-listed stocks.

Even within exchanges, the median share of executions involving hidden orders nearly doubled—from 16% in 2015 to over 30% in 2025. The SEC’s own regulatory data now validates the core predictions made in their 2005 dissent.

What was their alternative proposal back then? Improving quote accessibility, enhancing interconnectivity, and relying on broker-dealer best execution obligations rather than government-mandated controls on each trade. This is precisely the framework the SEC proposed yesterday. The proposal even directly cites that 2005 dissent.

The proposal explicitly links to the crypto industry. It discusses tokenized securities and "smart contracts supporting AMMs," citing a paper arguing that mandatory rules like Rule 611 have prevented stock markets from developing AMMs, intent mechanisms, or atomic settlement.

So, this isn’t about relaxing regulation for its own sake. It’s the SEC Chair implementing his own 21-year-old dissent—supported now by the agency’s own data, which validates his 2005 arguments. Regardless of your stance on this proposal, its administrative record is solid.

This isn’t just about tokenized securities; the current SEC believes that the original legislative basis for Rule 611 was never sufficient, that it would hinder rather than promote market development, and that empirical data supports this view.

Of course, it also benefits tokenized securities—as I said, timing is equally critical.

Finally, it’s important to note that none of this happened suddenly. As early as July 2025, the SEC announced a roundtable on this topic, explicitly stating that "Reg NMS and Rule 611 do not benefit investors or broker-dealers, but instead distort markets and are exploited through strategic behavior..."

Subsequently, the SEC held two public roundtables (September in Washington, December at the University of Texas at Austin), and after broad consultation, proposed this rule. The entire process was carefully planned and well-telegraphed. Industry stakeholders had opportunities to comment at every stage. And now, the market can still submit feedback on this proposal.