SEC takes aim at 20 year old rule, opening door for tokenized equities
The Securities and Exchange Commission wants to scrap a stock trading rule that has been around for about 20 years. Sounds dry. It is not. On June 11, the agency proposed rescinding Rule 611 of Regulation NMS, a trade through rule that has made life awkward for DeFi teams trying to connect tokenized stocks to the U.S. market system. My take: this is not a crypto headline dressed up as market structure. It is market structure finally catching up to a crypto problem.
For much of Wall Street, this is a fight over market plumbing: routing, protected quotes, execution quality, and whether investors get a fair fill. For crypto firms and banks working on tokenized shares, it is more immediate. Rule 611, adopted in 2005, was meant to stop trades from going through at worse prices than the National Best Bid and Offer, or NBBO. The trouble is simple: automated market makers do not behave like stock exchanges. AMMs are software pools. They price trades with formulas, not with a live order book checking every national quote on Nasdaq or another protected venue.
Alex Thorn, Galaxy Digital’s head of research, put it bluntly: “An AMM cannot comply with 611 by construction.” The mechanics back him up. AMMs execute against bonding curves at pool prices. They have slippage. They settle on block time. They cannot easily route intermarket sweep orders or stop a swap because a better quote appeared on Nasdaq for a second. Why does this matter? Because under the current setup, an on-chain pool trading a tokenized NMS stock could appear to violate the trade through rule again and again. That is not a paperwork nuisance. It affects whether these products can operate at scale, not whether they make for a neat demo.
The proposal also targets Rule 610(e), which limits locked and crossed quotations. AMM prices move when liquidity moves, so an on-chain price could lock or cross the displayed NBBO without anyone trying to game the system. Add that to Rule 611, and the U.S. problem for tokenized equities becomes easier to understand. Christopher Perkins, CEO of 250 Digital Asset Management, said rescinding Rule 611 would be “a whole new ballgame” and called it a “major unlock for DeFi.” I’ll be honest: I would hold off on the victory lap. Still, his point is fair. The blocker has not only been code. It has been rules written for a different kind of market. For Coinbase (COIN), Galaxy Digital, and exchanges studying tokenized assets, this is worth watching.
If Rule 611 goes away, the focus moves to “best execution,” the broker dealer duty to seek favorable terms for customers. Thorn argues that this approach fits blockchain trading better than per trade NBBO protection. Most market structure commentary treats best execution as softer than a hard trade through rule. That is only half right. A broker could route to an on-chain pool, then review execution quality over time, compare venues, and keep records explaining the choice. Thorn said, “That framework can accommodate an AMM. The old one never could.” I think that is the key sentence in the whole debate. It gives tokenized assets a cleaner path, although it still depends on how strict the SEC is when firms try to use it.
The proposal could also affect other market structure fights, including asymmetric speed bumps used by some trading venues. Max Resnick, lead economist at Anza, a Solana focused development firm, said Rule 611 made those models harder to approve. The SEC says it wants simpler market structure, lower costs, more competition, and more room for innovation. Counter to the usual advice, crypto firms should not read that as blanket permission. They should read it next to talk of an innovation exemption for tokenized securities trading through AMMs. Thorn sees a pattern here, tied to what he calls a “Project Crypto” playbook: remove the biggest obstacles first, then deal with venue registration.
What this means
This matters, but it is not a switch flipping from no to yes. If the SEC rescinds Rule 611, tokenized versions of NMS stocks would have one fewer rule in the way. That could help real world asset tokenization platforms, especially the ones trying to bring public market exposure on-chain without pretending securities law does not apply. Liquidity could improve. Institutions may pay closer attention. Is this instant approval? No. And anyone treating the June 11 proposal that way is getting ahead of the facts.
The caveats are still large. Rescinding Rule 611 would not automatically legalize tokenized equities. Firms still have to deal with registration, trading venue rules, custody of the underlying shares, corporate actions, shareholder rights, and settlement. Anthony Bassilli of Coinbase Asset Management called the proposal a “clearing hurdle,” which sounds right. It clears something, not everything. Yes, this sounds like I am pulling back after saying the proposal matters. Bear with me: both things can be true. Investors should watch the public comment period. Critics will likely argue that removing Rule 611 could fragment markets or weaken displayed quotes. Crypto supporters will argue that best execution and market design can do the job better. The next things to watch are the close of the comment period and the SEC’s follow up, because those steps will say more about timing than the June 11 proposal alone.