The SEC has just proposed to abolish Rule 611 of Reg NMS—this "transaction crossing rule" has defined the structure of the U.S. stock market since 2005.

This is certainly a story of traditional finance, but it is also the most significant policy relaxation regarding tokenized stocks to date.

The SEC committee voted to propose the abolition of Rule 611 (order protection rule) and Rule 610(e) (lock/cross market restrictions), as well as related definitions. The public comment period is 60 days. It is still in the proposal stage and has not been finalized—but the policy direction is already clear.

Rule 611 requires that each trading center, when executing trades, must not execute at prices worse than the protected quotes displayed by other exchanges. In practice, every trade of any NMS stock must reference and comply with the National Best Bid and Offer (NBBO) at the time of execution.

This represents one of the biggest structural obstacles facing tokenized U.S. stock trading in today's DeFi. AMMs (automated market makers) cannot comply with Rule 611 from a design perspective—they execute trades along a bonding curve at block time granularity, experiencing slippage, with transaction prices dependent on pool prices.

AMMs cannot send intermarket sweep orders, cannot access SIP data under delay guarantees, nor can they halt a swap due to better quotes existing on Nasdaq. Any liquidity pool for tokenized NMS stocks will continuously generate "transaction crossing" and may thus constitute illegal trading activity at a legal level.

Rule 610(e) is similar. The prices of AMMs will drift constantly with capital flow, frequently locking or crossing displayed NBBOs, which is explicitly prohibited in all current trading venues.

So, what will replace Rule 611 if it is abolished? The answer is the best execution obligation. This obligation falls on brokerage firms (FINRA 5310) and is principle-based rather than a mandatory requirement per transaction. Brokers can route orders to on-chain liquidity pools, fulfilling this obligation through periodic reviews. This framework can accommodate AMMs—while the old framework could never do so.

Tokenized NMS stocks still face many other issues, including exchange/ATS registration, clearing and settlement, and a host of regulations not designed for DeFi or peer-to-peer transactions. We hope many of these issues will be resolved in the SEC's upcoming "innovation exemption" framework.

But from a macro perspective, this reflects the SEC's execution of the "crypto project roadmap": by abolishing rules to clear the most challenging structural market barriers, then addressing venue registration issues through innovation exemptions (at least temporarily). The order of this policy advancement is crucial.

For the past twenty years, the stock market structure has been built around one rule, and now the SEC is proposing to abolish it. This is an important step toward clearing obstacles for the next phase of innovation in stock securities trading.

Another important background to note is that current Chair Atkins, during his tenure as a commissioner in the early 2000s, voted against the passage of Reg NMS, and the content proposed for abolition yesterday aligns closely with his dissenting opinions from those years.

In June 2005, Atkins and Commissioner Cynthia Glassman co-signed a 44-page written dissent regarding the 3 to 2 voting result on Reg NMS. They argued that the intent of Congress was to let competition (rather than regulation) shape the national market system, whereas Rule 611 effectively replaced the market itself with the SEC's subjective judgment on optimal market structure.

Their empirical evidence was highly compelling. The SEC's own research showed that, based on presented scale, "transaction crossing" is merely a phenomenon of 1% to 2% magnitude. Estimated losses amounting to $321 million occurred during a period with trading volumes as high as $16.8 trillion—they referred to it as "a trivial rounding error."

They also predicted that Rule 611 would not direct liquidity toward the open market, but rather incentivize traders to hide large orders and keep them secret. The current reality is that the proposal released by the SEC yesterday cites data from its own staff, showing that off-market trading volumes have reached 51.9% of Nasdaq-listed stocks and 47% of NYSE-listed stocks.

Even within exchanges, the median share of volume from executing hidden orders has nearly doubled, rising from 16% in 2015 to over 30% in 2025. The regulatory data accumulated by the SEC itself has now validated the core predictions in their dissent back then.

So, what was the alternative they proposed in 2005? Improving quote accessibility, enhancing interoperability, and relying on brokers' best execution obligations rather than governmentally mandated control over each transaction. This is precisely the framework that the SEC proposed to adopt yesterday. The proposal text even directly quoted that dissent from 2005.

The proposal also clearly points out its relevance to the crypto industry. It specifically discusses tokenized securities and "smart contracts supporting automated market makers," referencing a paper that argues that it is rules like Rule 611 that have prevented the stock market from developing AMMs, intent mechanisms, or atomic settlement mechanisms.

Therefore, this is not a relaxation of regulations for the sake of relaxation. This is the SEC Chair implementing the dissenting opinions he held 21 years ago—and the data from the SEC's own staff now substantiates the arguments he made in 2005. Regardless of your stance on this proposal, its administrative record is solidly supported.

This pertains not only to tokenized securities; the current SEC believes that the legislative basis for Rule 611 was never sufficient, predicting it would hinder rather than promote market development, supported by empirical data.

Of course, it is also beneficial for tokenized securities—as I mentioned, timing is equally crucial.

Finally, it should be pointed out that all of this did not happen suddenly. Back in July 2025, the SEC announced it would hold a roundtable on this topic and explicitly stated that "Reg NMS and its Rule 611 have not benefited investors or brokers but instead led to market distortions, which have been exploited by all parties through gamesmanship..."

Subsequently, the SEC held two public roundtables (one in September in Washington D.C., and another in December at the University of Austin), collecting extensive feedback before proposing this current proposal. The entire process was not a hasty decision but rather a carefully planned and thoroughly communicated initiative. The entire industry had opportunities to express opinions at every stage. And now, regarding this proposal, the market can continue to submit comments.

*The content of this article is for reference only and does not constitute any investment advice. The market has risks; investment requires caution.

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