SEC’s Rule 611 Repeal Could Unlock Tokenized US Stocks

SEC Proposes Scrapping Key Rule, Paving Way for Tokenized Stocks in DeFi

The U.S. Securities and Exchange Commission (SEC) has taken a significant step that could fundamentally alter the landscape for tokenized stocks and decentralized finance (DeFi) by proposing to rescind Rule 611 of Regulation NMS. This move, announced on June 11, targets the trade-through prohibition that has dictated stock order routing since 2005, alongside Rule 610(e), which prohibits locked and crossed quotations.

The implications for tokenized equities are immediate and profound. Alex Thorn, head of research at Galaxy Digital, described the proposal as “one of the biggest unlocks yet for tokenized stocks,” removing what he characterized as “one of the biggest structural barriers to tokenized US equities trading in DeFi.”

The proposal is now subject to a 60-day public comment period before the SEC considers a final rule.

The SEC stated that the proposed rescission of Rules 611 and 610(e) aims to reduce costs for market participants and foster competition and innovation, allowing market forces to shape the evolution of U.S. equity markets.

This action is part of the SEC’s broader Project Crypto initiative, launched in August 2025 to modernize the regulatory framework for digital assets and blockchain technology in U.S. markets. If finalized, the repeal of Rule 611 would represent the most impactful development within this initiative to date.

Rule 611, known as the Order Protection Rule, was a cornerstone of Regulation NMS when adopted in 2005. It prevents trades from being executed at a price inferior to the best protected quote available on any other registered exchange, effectively embedding the National Best Bid and Offer (NBBO) into every equity transaction across all trading venues.

However, this rule presents a structural challenge for tokenized equities within the current framework. DeFi’s Automated Market Makers (AMMs) price trades algorithmically based on the pool price at the moment of execution, typically using a constant-product formula, rather than routing to the NBBO. Thorn explained that any AMM pool offering tokenized U.S. stocks would “commit trade-throughs constantly and arguably be an illegal trading center.” Rule 610(e) exacerbates this issue, as AMMs cannot halt trades when a better quote exists elsewhere, leading to continuous violations.

The SEC’s proposed alternative is a principles-based best execution framework applied at the broker-dealer level, rather than on each individual trade across venues. This shift would enable AMM-based tokenized equities by requiring brokers interacting with DeFi pools to demonstrate policies reasonably designed to achieve best execution for clients overall, without mandating NBBO compliance on every atomic swap.

Commissioner Hester Peirce, in her supporting statement, argued that the existing Order Protection Rule had “helped fuel disorder” by encouraging exchange proliferation and stifling innovation, rather than genuinely protecting investors.

Tokenized equities are a rapidly growing segment within the broader real-world asset (RWA) category, attracting institutional capital focused on creating on-chain versions of traditional financial instruments. Companies like Robinhood and Kraken have been developing tokenized stock capabilities. The SEC had reportedly prepared a separate innovation exemption for authentic tokenized versions of exchange-listed U.S. equities, backed 1:1 by underlying shares held by a qualified custodian, but postponed its release last month following concerns raised by traditional exchange officials regarding execution.

The rescission of Rule 611 addresses the fundamental incompatibility that made such an exemption legally precarious. Policy analysts at TD Cowen’s Washington Research Group anticipate a final SEC vote on the rescission by the first quarter of 2027, assuming a standard comment and reproposal cycle. This timeline aligns with other market structure reforms under the broader Regulation NMS modernization.

International regulatory developments are also increasing pressure. Japan’s recent reclassification of crypto assets as financial instruments indicates that other jurisdictions are not waiting for Washington to act.

The competitive landscape is shifting rapidly. Wall Street is actively building the infrastructure for tokenization, with institutions like Citi and DTCC, along with a growing number of prime brokers, already engaged in on-chain settlement infrastructure. The removal of Rule 611 effectively clears the last major regulatory hurdle for AMM-based tokenized U.S. equity trading to operate at scale.