SEC seeks to rescind 20-year trade-through rule

The Securities and Exchange Commission on June 11 proposed rescinding Rule 611 of Regulation NMS and Rule 610(e), which together tie stock executions to the National Best Bid and Offer and bar locked or crossed quotations. The agency said the change would remove long-standing NBBO-based limits that have affected off-chain and on-chain trading systems.

Rule 611, adopted in 2005, requires trading centers to avoid executing trades at prices worse than protected quotes displayed on other venues. Rule 610(e) prevents quotations that lock or cross the consolidated best bid or offer. Broker-dealers, exchanges and routing systems were built around those obligations.

The SEC proposal notes that automated market makers, the liquidity pools used in many blockchain applications, do not operate like traditional order books. AMMs use bonding curves, pooled liquidity and block-time settlement, which can produce slippage and prices that differ from a per-trade NBBO. Galaxy Digital’s head of research has argued an AMM cannot meet Rule 611’s per-trade requirement because it executes against pool prices and cannot route to other venues in the same way a broker can.

Crypto firms, some banks and asset managers pursuing tokenized equities said removing the NBBO constraint would address a major structural barrier. Executives backing tokenized stocks said they expect the change to make it easier to test trading that offers continuous hours, fractional ownership, faster settlement and broader cross-border access, subject to legal and regulatory limits.

SEC leadership described the review as overdue and said simplifying market structure could lower costs and allow new execution models to compete. Commissioner Hester Peirce and others have discussed limited experiments or an innovation exemption that would permit controlled testing of tokenized securities on AMMs and other on-chain systems with safeguards such as volume caps, whitelists and temporary windows.

Economists and market designers noted broader effects on market structure. Rescinding Rule 611 could alter incentives for routing, displayed liquidity and exchange design, including debates over asymmetric speed bumps that treat some order types differently. Firms that run routing systems and exchanges may reassess how they post quotes and compete on price and speed.

Regulatory and practical questions remain. Rescinding the trade-through rule would not by itself legalize tokenized equities. Tokens can represent direct shares, custodial claims, depositary receipts, derivatives or synthetic instruments, and each form raises separate issues about registration, custody of underlying assets, shareholder rights, corporate actions and settlement.

Trade groups representing broker-dealers and asset managers urged careful study of investor protection, execution quality and transparency before changes take effect. A spokesperson from a large digital-asset manager said the proposal clears one regulatory hurdle but that many issues must be resolved for tokenization to scale in the U.S.

The SEC proposal will enter a public comment period. Market participants, exchanges and advocacy groups are expected to weigh whether a shift from NBBO-based trade-through protections toward a focus on best execution will fragment liquidity, affect displayed quotes or change competition in equity trading.