The Securities and Exchange Commission (SEC) is preparing to dismantle a cornerstone of modern financial market structure. In a highly anticipated move on June 11, the SEC officially proposed rescinding Rule 611 of Regulation NMS, widely known as the trade-through rule. The original rule from 2005 mandates that stock orders must be executed by trading centers according to the best available displayed price at all protected exchanges.
While Wall Street views this as a massive shift in routing economics, the cryptocurrency sector sees it as a major breakthrough for the future of tokenized securities.
Dismantling a Wall Street Pillar
For nearly two decades, Rule 611 has effectively tethered the American stock market to the National Best Bid and Offer system. The original goal was to protect investors from receiving inferior prices. Alongside this rescission, the agency proposed eliminating Rule 610(e), which restricts locked and crossed market quotations. By ripping out these foundational pillars, the government aims to simplify a market that many argue has become overly complex and deeply fragmented.
Clashing with Blockchain Mechanics
The current regulatory framework is built for centralized matching engines like Nasdaq. This poses a massive problem for decentralized finance, which relies heavily on automated market makers. Unlike traditional exchanges, automated pools price trades using mathematical bonding curves rather than an active order book. Because a decentralized liquidity pool cannot simultaneously monitor external stock exchange quotes or route sweep orders with lightning speed, it is physically impossible for an automated market maker to comply with the trade-through restrictions.
A Pathway for Tokenized Equities
If the rule is officially scrapped, the digital asset industry gains a massive path forward. Tokenized stocks—blockchain-based representations of actual company shares—promise around-the-clock trading and instant settlement. Until now, the requirement to constantly cross-reference off-chain quotes stood as the primary barrier preventing these assets from functioning within decentralized pools. Without Rule 611, brokers routing orders to a blockchain could instead rely on broader best execution standards, documenting their routing decisions over time rather than guaranteeing perfection on every single transaction.
The Push for Market Modernization
This proposal is based on long-standing concerns expressed by SEC Chair Paul Atkins regarding the Trade-through rule, which has incentivized the development of excessive number of trading venues and has resulted in significant compliance costs since it was created in 2005. To lower overall connectivity cost, the Commission wants Equity trading to be governed by natural market forces (or ) rather than by Commission imposed regulations and by technological innovation. Many observers believe that this approach is consistent with the commission’s larger objective of seeking new ways to foster innovative technologies through regulatory exemptions such as for distributed ledger technology.
The Remaining Legal Hurdles
Despite the overwhelming optimism from the digital asset community, the death of the trade-through rule will not instantly legalize tokenized equities. Companies must still navigate a complex web of legal questions regarding exchange registration, asset custody, and how traditional shareholder rights operate on a public ledger. Traditional finance groups have welcomed the review but strongly warned that the market is a delicate ecosystem. As the proposal enters its public comment period, regulators will carefully balance the promise of blockchain efficiency against the potential risks for everyday retail investors.
