SEC Moves to Scrap Two-Decade "Trade-Through" Rule, Potentially Opening the Door to Tokenized Equities

The U.S. Securities and Exchange Commission has voted to propose repealing a cornerstone of modern U.S. equity market structure: Rule 611 of Regulation NMS, better known as the "trade-through" or Order Protection Rule. The proposal also targets Rule 610(e) (locking/crossing restrictions) and related definitions. A 60-day public comment period is now underway. The changes are not final, but the policy direction is clear. Rule 611, in effect since 2005, requires each trading venue to prevent executions at prices worse than protected quotes displayed on other exchanges. In practice, it ties executions in NMS stocks to the National Best Bid and Offer (NBBO) at the moment of trade. That framework has been one of the largest structural obstacles for tokenized U.S. equity trading in DeFi. Automated market makers (AMMs) price trades along a bonding curve and execute at block-time intervals, which naturally produces slippage and pool-determined pricing that can diverge from the NBBO. AMMs also cannot send intermarket sweep orders, cannot rely on SIP data with latency guarantees, and cannot "cancel" a swap because a better quote appears on Nasdaq. As a result, liquidity pools for tokenized NMS stocks would routinely generate "trade-throughs" and could be viewed as operating an unregistered trading venue. Rule 610(e) poses a similar problem. As AMM pricing moves with flows, pools can frequently lock or cross the displayed NBBO—behavior that existing trading venues are explicitly prohibited from allowing. If Rule 611 is eliminated, what replaces it? The SEC's direction points to a shift toward a best-execution framework. Best execution obligations sit primarily with broker-dealers under FINRA Rule 5310 and are principles-based, rather than imposing mandatory compliance trade by trade. Under that model, broker-dealers could route orders to on-chain liquidity pools and review execution quality periodically. This is the type of structure that can accommodate AMMs, unlike the existing regime. Even so, tokenized NMS shares would still face major hurdles beyond Rule 611, including exchange/ATS registration, clearing and settlement constraints, and regulatory frameworks not built for DeFi or peer-to-peer execution. The brief notes expectations that some of these issues may be addressed through the SEC's forthcoming "Innovation Exemption" approach. From a broader policy perspective, the proposal is framed as consistent with the SEC's "crypto project roadmap": first remove the most rigid market-structure constraints by repealing key rules, then tackle venue registration through innovative exemptions, at least initially. The sequencing matters because U.S. equity market structure has been anchored to Rule 611 for two decades. The proposal also carries a notable historical backdrop. Chair Atkins voted against adopting Regulation NMS when he served as a commissioner in the early 2000s, and the current repeal proposal closely tracks the objections he raised at the time. In June 2005, Atkins and Commissioner Cynthia Glassman filed a 44-page written dissent after Reg NMS was approved on a 3–2 vote. They argued that Congress intended competition—not prescriptive regulation—to shape the national market system, and that Rule 611 substituted the SEC's view of "optimal" structure for the market itself. Their dissent cited SEC research suggesting demonstrated "trade-through" was only a 1% to 2% phenomenon. Estimated losses were put at $3.21 billion against $16.8 trillion in annual trading volume for the same period, which they characterized as a "negligible rounding error." They also warned that Rule 611 would not funnel liquidity onto public exchanges, but would encourage traders to hide large orders off-exchange. The SEC's current data, cited in the proposal, is presented as supporting that prediction. Over-the-counter trading volume is reported at 51.9% for Nasdaq-listed stocks and 47% for NYSE-listed stocks. Within exchanges, the median share of volume executed against hidden orders has nearly doubled, rising from 16% in 2015 to more than 30% in 2025. The 2005 dissent proposed an alternative: improve quote access, strengthen interoperability, and rely on broker best-execution duties rather than rule-by-rule control over every execution. The SEC's new proposal adopts essentially that framework and even cites the 2005 dissent directly. The SEC also draws explicit links to crypto market design. The proposal discusses tokenized securities and "smart contracts that underpin automated market makers," citing research that argues mandatory requirements like Rule 611 have prevented stock markets from developing AMMs, intent-based execution, or atomic settlement mechanisms. The brief emphasizes that the move is not simply deregulation for its own sake. It characterizes the proposal as the chair implementing arguments he made more than two decades ago, now reinforced by the SEC's accumulated market data. Regardless of one's view of the policy, it argues the administrative record is extensive. The groundwork was laid well in advance. In July 2025, the SEC announced plans to hold a roundtable on the topic, stating that "Reg NMS and its Rule 611 have not benefited investors or broker-dealers; instead, they have caused market distortions and been exploited by various parties through strategic gaming..." The agency later held two public roundtables (September in Washington, D.C., and December at the University of Austin) and solicited broad feedback before releasing the proposal. Public comments remain open during the current 60-day period. This content is provided for reference only and does not constitute investment advice. 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