A reform of TradFi, why Web3 is also watching.

Written by: KarenZ, Foresight News

On June 11, the U.S. SEC proposed a market structure reform proposal that seems very TradFi: the rescission of Rule 611 and Rule 610(e) in Regulation NMS (National Market System Regulation).

The former is the so-called trade-through rule, while the latter restricts locked quotes and crossed quotes. In simple terms, the SEC is considering removing a set of hard rules that protect the best quotes in the U.S. stock market, allowing trading venues and brokers more flexibility in order routing, quote display, and trading mechanisms.

This is not yet a new regulation in effect. The SEC currently published a proposed rule. The public comment period is 60 days after the proposal is published in the Federal Register.

Why is it being watched by the Web3 community? Because the SEC explicitly mentions in the background of the proposal that the stock market is approaching 24-hour trading, distributed ledger technology can allow issuers to tokenize securities as crypto assets, and smart contracts and AMMs have also brought new ways of trading securities. It is truly discussing whether the underlying trading rules of the U.S. stock market are still suitable for today's technological conditions.

Alex Thorn, head of research at Galaxy Digital, called this matter a “tradfi story” and believes it could be one of the significant breakthroughs for tokenized stocks.

What does Rule 611 govern?

Rule 611 can be understood as a rule in the U.S. stock market that states "do not bypass better quotes."

For example, if a stock has an accessible sell price of $10 on exchange A, while exchange B has a sell price of $10.01, the basic logic of Rule 611 is: trading centers cannot bypass A's better sell price to execute a buy order directly at $10.01 on B without applicable exceptions.

The problem is that the market in 2026 is very different from that in 2005. The SEC stated in the proposal that the U.S. stock market is now highly automated, interconnected, fast, and competes fully. Rule 611 was originally intended to encourage the display of liquidity, but the SEC believes that the proportion of trading shifting to non-displayed liquidity and off-exchange execution is still increasing, leading to a more fragmented and complex market.

According to the SEC’s description, the side effects of Rule 611 include: increasing compliance costs, restricting order processing and execution options, driving the expansion of the number of exchanges, exacerbating trading fragmentation, and causing market participants to invest substantial resources to chase lower latency. The SEC also believes that brokers already have a duty to execute at the best price, which means they should seek the most favorable terms for clients under reasonable conditions; thus, Rule 611 may no longer need to serve as the same protective backing.

What is Rule 610(e)?

Rule 610(e) restricts locked quotes and crossed quotes for stocks in the national market system, i.e., NMS stocks.

Locked quotes refer to a scenario where a trading venue displays a buy price equal to another venue's sell price; crossed quotes go further, meaning the displayed buy price is higher than the displayed sell price. When viewed on a trading screen, the former looks like the buyers and sellers are "standing firm" at the same price, while the latter appears as a temporary misalignment of quotes, theoretically creating arbitrage opportunities.

The current Rule 610(e) does not directly prohibit every locked or crossed quote; rather, it requires exchanges, FINRA, and other self-regulatory organizations to develop, maintain, and enforce related rules, requiring their members to avoid displaying orders that would lock or cross protected quotes and to process such quotes when they occur. Therefore, over the past twenty years, the U.S. stock trading system has developed several order types and automatic repricing mechanisms around this requirement, such as readjusting order prices to positions that do not lock or cross the market.

What the SEC is now proposing to rescind is exactly this set of federal rules that prevent locked and crossed quotes under Rule 610(e). According to the SEC, the market is now more automated and interconnected than it was in 2005, and the ability of market participants to obtain market data has also strengthened, decreasing the need to retain this rule.

The SEC provided three main reasons. First, locked quotes can sometimes be a natural result of competitive quotes, and prohibiting them may artificially widen the bid-ask spread; allowing locked quotes might narrow the spreads of certain stocks, which could potentially reduce trading costs for investors. Second, the existing restrictions encourage exchanges and brokers to design complex order types, automatic repricing functions, and compliance processes, increasing system complexity and maintenance costs. Third, even if crossed quotes occur in the future, the SEC believes that high-speed trading technology and arbitrage incentives will prompt the market to correct more quickly.

However, access fee caps will still be retained. Access fee caps refer to the upper limit on fees that trading venues can charge external participants for accessing their quotes and executing trades, preventing trading venues from displaying seemingly attractive quotes while raising the actual transaction costs with excessively high fees.

Nonetheless, the SEC also acknowledges that rescinding Rule 610(e) could create new issues. For example, crossed quotes might affect the execution quality statistics, and some illiquid stocks might experience prolonged quote misalignments, potentially confusing ordinary investors regarding the locked or crossed quotes appearing on their screens. Therefore, this rescindment is still in the public comment phase, with the SEC also requesting market participants to submit data and feedback.

What is the relationship to tokenized stocks?

The truly noteworthy aspect for Web3 readers is that it may loosen a layer of centralized coordination logic in the U.S. stock market.

To expand the market for tokenized stocks, it is not enough to only resolve the problem of "mapping stocks onto the chain." The more challenging aspect is the trading structure: on-chain markets are naturally inclined towards 24-hour operation, smart contract matching, AMMs, or hybrid order books, and cross-venue liquidity.

In contrast, the traditional U.S. stock market is built on exchanges, brokers, quote protections, order routing, SRO rules, and clearing and settlement systems. The rhythm, quote logic, and technical interfaces of these two systems are not inherently compatible.

The existence of Rule 611 requires trading centers not to easily bypass protected quotes. This has protective significance for the traditional stock market but also forces new trading mechanisms to be designed around the existing quote protection system. If the SEC ultimately rescinds this rule, trading venues and ATS could gain greater experimental space for matching mechanisms, auction mechanisms, priority design, and block trading mechanisms.

But this remains a possibility. The proposal does not change securities issuance registration requirements and does not address the custody, clearing, shareholder rights, cross-border sales, KYC/AML, broker liability, and other issues related to tokenized stocks. More critically, even if the SEC rescinds Rule 610(e), the existing related rules of exchanges and FINRA will not disappear automatically; they still need to decide whether to amend their own rules.

Conclusion

In its economic analysis assessing the repeal of Regulation NMS's Rule 611 and Rule 610(e), the SEC estimates that the repeal could save relevant market participants approximately $54.2 million to $77 million annually in quantifiable costs. These savings primarily come from trading centers, ATS, brokers operating smart order routing systems, and OTC market makers: they would no longer be required to maintain certain compliance policies, monitoring processes, order routing logic, and connection arrangements related to Rule 611 / Rule 610(e).

These figures are not enormous, but they indicate one thing: the SEC is not merely discussing “principles.” It views this reform as a market structure simplification aimed at reducing complexity driven by rules, allowing trading venues to compete for orders based on price, speed, liquidity, and mechanism design.

For tokenized stocks, perhaps the most important term is "complexity." The advantages of on-chain assets are often summarized as being available around the clock, composable, and transparently settled. However, if the underlying securities trading rules still require all innovations to fit back into the quote protection framework designed in 2005, on-chain is merely an added layer of packaging. Once the rules loosen, the real test is whether new trading venues can provide better execution quality within a compliant framework, rather than just converting stocks into Token forms.

Reference source:

https://www.sec.gov/newsroom/press-releases/2026-54-sec-proposes-rescission-regulation-nms-rules-611-610e

https://www.sec.gov/files/rules/proposed/2026/34-105655.pdf