SEC Proposes Eliminating Trading Rules That Blocked Tokenized Stocks on DeFi Platforms

Key Takeaways

• The Securities and Exchange Commission has put forward a proposal to eliminate Rules 611 and 610(e) under Regulation NMS, regulations that have shaped equity trading in the United States for nearly two decades
• Rule 611 prohibits trade execution at inferior prices compared to the best available market quote; Rule 610(e) forbids locked or crossed quotations
• Alex Thorn from Galaxy Digital described this development as “one of the biggest unlocks yet” for bringing tokenized equities to decentralized finance ecosystems
• Current regulations made it impossible for automated market makers to operate legally, effectively barring tokenized American stocks from blockchain-based trading venues
• The commission anticipates completing the rulemaking process by the first quarter of 2027, though temporary exemptions for tokenization experiments may arrive earlier

The Securities and Exchange Commission has unveiled plans to eliminate a pair of decades-old trading regulations that industry analysts believe have prevented tokenized American equities from operating on blockchain-based financial platforms.

These regulations — specifically Rules 611 and 610(e) within Regulation NMS — took effect in 2005. Rule 611 prevents trade execution at prices inferior to the National Best Bid and Offer displayed on competing venues. Meanwhile, Rule 610(e) prohibits trading platforms from displaying quotations that lock or cross against prices shown on other exchanges.

The commission has opened a 60-day window for public feedback on the proposal.

Implications for Decentralized Finance

Alex Thorn, who leads research at Galaxy Digital, detailed why existing regulations represented an insurmountable obstacle for tokenized equity trading within cryptocurrency markets.

Automated market makers — the algorithmic systems that facilitate trades on decentralized platforms — function by executing transactions against liquidity reserves at prevailing pool prices. These systems lack the capability to verify pricing across traditional exchanges like Nasdaq. They cannot pause transactions because superior quotes exist on different platforms. This operational reality means Rule 611 would classify virtually every transaction as non-compliant.

Rule 610(e) presented identical challenges. AMMs continuously adjust pricing based on market activity, which means their quoted prices would regularly lock or cross the National Best Bid and Offer — behavior that current regulations explicitly prohibit for registered exchanges.

Looking Ahead

Should these regulations be rescinded, the SEC plans to depend on a “best execution” framework outlined in FINRA Rule 5310 instead. This alternative approach is principles-oriented and applies at the broker level, making it compatible with automated market maker functionality.

Jaret Seiberg, who serves as managing director at TD Cowen’s Washington Research Group, indicated the proposal stands a strong chance of approval. The final rule is projected to take effect during the first quarter of 2027.

However, Seiberg noted that tokenization initiatives may not face delays until that timeline. He anticipates the SEC will grant exemptive relief from Rule 611 to early-stage tokenization ventures before the official rule elimination occurs.

This regulatory proposal forms part of the commission’s expansive “Project Crypto” framework, initiated in August 2025, designed to establish more definitive guidelines for digital assets and distributed ledger technology within American capital markets.

Thorn acknowledged that additional regulatory challenges persist, including exchange registration requirements, clearance and settlement mechanisms, and regulations not designed for decentralized trading environments. He suggested these matters could be resolved through an anticipated SEC “innovation exemption.”

Reports indicate the SEC had intended to publish a comprehensive tokenized stock trading framework last month but postponed the release following objections from traditional stock exchanges regarding trade execution concerns.

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