The US SEC has proposed rescinding key Regulation NMS "trade-through" rules from 2005, a move analysts call a major unlock for trading tokenized stocks in DeFi. The rules are structurally incompatible with DeFi's Automated Market Makers (AMMs). The proposal is open for a 60-day comment period and is expected to be finalized by Q1 2027, though other regulatory hurdles remain.
SEC Regulation NMS rescission proposal
- ▪Regulation NMS, which includes the "trade-through" rule, has shaped the U.S. equity market structure since 2005
- ▪The U.S. Securities and Exchange Commission (SEC) has proposed rescinding Rules 611 and 610(e) of Regulation NMS
- ▪SEC Chairman Paul Atkins stated the proposal is intended to simplify market structure, reduce costs, and promote competition and innovation
- ▪The SEC has opened a 60-day public comment period for the proposal
DeFi tokenized stocks implications
- ▪The proposal is considered a major step toward enabling the trading of tokenized U.S. stocks in decentralized finance (DeFi)
- ▪Alex Thorn of Galaxy Digital described the existing Rule 611 as "one of the biggest structural barriers" to tokenized U.S. equities in DeFi
- ▪If the rules are rescinded, the SEC would likely rely on FINRA Rule 5310's "best execution" duty, a framework more compatible with AMMs
AMM structural compliance barriers
- ▪Automated Market Makers (AMMs) are structurally unable to comply with Rule 611 as they execute trades against a liquidity pool's price curve
- ▪Rule 611, the "trade-through" rule, prohibits executing a trade at a price inferior to the best displayed bid or offer on another venue
- ▪An AMM cannot halt a trade if a better quote exists elsewhere, which would cause a tokenized stock pool to constantly commit "trade-throughs."
Q1 2027 finalization timeline
- ▪Seiberg anticipates the SEC will offer initial tokenization pilots exemptive relief from Rule 611 before the rule is finalized
- ▪Jaret Seiberg of TD Cowen's Washington Research Group expects the SEC to finalize the rule in the first quarter of 2027
Remaining regulatory hurdles
- ▪Remaining hurdles for tokenized equities include exchange or Alternative Trading System (ATS) registration, and clearance and settlement rules
- ▪The SEC reportedly postponed a plan to allow tokenized stock trading in May 2026 after stock exchanges raised concerns
- ▪The SEC launched "Project Crypto" in August 2025 with the goal of creating rules for the use of digital assets and blockchain
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