SEC Moves to Repeal Reg NMS Rules 611 and 610(e), Potentially Clearing a Path for Tokenized U.S. Stocks

The U.S. Securities and Exchange Commission on June 11 proposed rescinding Regulation NMS Rule 611, the long-running "tradethrough" ban that has shaped stock order routing since 2005, along with Rule 610(e), which prohibits locked and crossed quotes. Market participants now have 60 days to submit public comments before the SEC considers final action. The proposal is being advanced under the SEC's Project Crypto initiative, launched in August 2025 to update the regulatory framework for digital assets and blockchain-based market infrastructure. Galaxy Digital head of research Alex Thorn described the move as "one of the biggest unlocks yet for tokenized stocks," arguing it removes a major structural barrier to trading tokenized U.S. equities via DeFi. Rule 611, often referred to as the Order Protection Rule, bars executing a stock order at a price inferior to the best protected quote available on any other registered exchange, effectively embedding the National Best Bid and Offer (NBBO) across equity venues. That design clashes with DeFi automated market makers (AMMs), which execute against pool pricing derived from constant-product formulas rather than routing to NBBO. Thorn said an AMM pool listing tokenized U.S. equities would "commit tradethroughs constantly and arguably be an illegal trading center." Rule 610(e) adds another obstacle, because AMMs do not pause execution when a better quote exists elsewhere, potentially creating continuous compliance issues. In place of venue-by-venue trade protections, the SEC is proposing a principles-based best execution regime focused on broker-dealers. Under this approach, brokers interfacing with DeFi pools would be expected to maintain policies reasonably designed to achieve best execution for clients overall, without needing to guarantee NBBO compliance on each individual on-chain swap. Commissioner Hester Peirce backed the shift, saying the existing Order Protection Rule had "helped fuel disorder" by encouraging exchange proliferation and constraining innovation. The stakes extend beyond market-structure theory. Tokenized equities are a fast-growing segment of real-world asset (RWA) tokenization, where institutions are building on-chain versions of traditional financial products. Firms including Robinhood and Kraken have been developing tokenized stock offerings. The SEC had reportedly prepared a separate innovation exemption for tokenized versions of exchange-listed U.S. equities backed 1:1 by underlying shares held at a qualified custodian, but delayed it last month after traditional exchange officials raised execution concerns. Eliminating Rule 611 would address the central legal mismatch that made such an exemption difficult to implement. TD Cowen's Washington Research Group expects a final SEC vote on the rescission by Q1 2027, assuming a standard comment-and-reproposal process, a timeline that would coincide with other Regulation NMS modernization efforts. Overseas developments are also adding urgency: Japan's recent move to reclassify crypto assets as financial instruments underscores that other jurisdictions are pressing ahead. In the background, major market incumbents are already investing heavily in tokenization and on-chain settlement rails, including Citi, DTCC, and a growing list of prime brokers. If finalized, rescinding Rule 611 would remove a key regulatory barrier to running AMM-based, tokenized U.S. equity trading at scale.