Original author: KarenZ, Foresight News
On June 11, the U.S. SEC proposed a market structure reform that appears very TradFi: rescinding Rule 611 and Rule 610(e) under Regulation NMS (National Market System).
The former is the so-called trade-through rule, and the latter restricts locked and crossed quotes. In simple terms, the SEC is considering removing a set of rigid rules that protect the best bid and offer in the U.S. stock market, giving trading venues and brokers more flexibility in order routing, quote display, and trading mechanisms.
This is not yet an effective rule. The SEC has currently issued a proposed rule. The public comment period is 60 days after the proposal is published in the Federal Register.
Why is it drawing attention from the Web3 community? Because the SEC explicitly mentioned in the proposal background that the stock market is moving toward 24/7 trading, and distributed ledger technology enables issuers to tokenize securities as crypto assets, while smart contracts and AMMs introduce new methods for securities trading. At its core, it questions whether the underlying trading rules of the U.S. stock market still align with today’s technological capabilities.
Galaxy Digital's research head, Alex Thorn, called it a "tradfi story" and believes it could be one of the key breakthroughs for tokenized stocks.
What does Rule 611 actually cover?
Rule 611 can be understood as a "don't bypass the better quote" rule in the U.S. stock market.
For example, if a stock has an accessible best ask price of $10 on Exchange A and an ask price of $10.01 on Exchange B, the fundamental principle of Rule 611 is that a trading center cannot bypass the better ask price on Exchange A and execute a buy order at $10.01 on Exchange B without an applicable exception.
The issue is that the market in 2026 is very different from the market in 2005. The SEC states in its proposal that the U.S. equity market is now highly automated, interconnected, fast, and competitively structured. Rule 611 was originally intended to encourage displayed liquidity, but the SEC believes that the proportion of trading shifting to non-displayed liquidity and off-exchange execution continues to rise, and the market has become more fragmented and complex.
According to the SEC, the side effects of Rule 611 include increased compliance costs, restricted options for order handling and execution, incentivized growth in the number of exchanges, heightened market fragmentation, and forcing market participants to invest substantial resources in pursuing lower latency. The SEC also believes that brokers already have an obligation to seek the best execution for their customers under reasonably available conditions, and therefore Rule 611 may no longer be necessary to serve as the same protective safeguard.
What is Rule 610(e)?
Rule 610(e) restricts locked and crossed quotes for NMS stocks, which are stocks in the National Market System.
A locked quote occurs when the bid price displayed on one exchange equals the ask price displayed on another exchange; a crossed quote goes further, occurring when the bid price is higher than the ask price. On a trading screen, a locked quote appears as if buyers and sellers are matched at the same price, while a crossed quote looks like a temporary misalignment of quotes, theoretically creating an arbitrage opportunity.
Rule 610(e) itself does not directly prohibit every locked or crossed quote; rather, it requires exchanges, FINRA, and other self-regulatory organizations to establish, maintain, and enforce rules that require their members to avoid displaying orders that lock or cross protected quotes, and to address such quotes when they occur. As a result, over the past two decades, U.S. equity trading systems have developed various order types and automated price adjustment mechanisms—such as repositioning order prices to avoid locking or crossing the market.
The SEC is now proposing to rescind Rule 610(e), the federal rule requiring the prevention of locking and crossing quotes. According to the SEC, markets have become significantly more automated and interconnected since 2005, and market participants now have greater access to market data, reducing the need to maintain this rule.
The SEC’s main reasons are as follows. First, locked quotes can sometimes be a natural outcome of competitive pricing, and prohibiting them may artificially widen bid-ask spreads; allowing locked quotes could enable narrower spreads on certain stocks, potentially reducing investors’ trading costs. Second, current restrictions encourage exchanges and brokers to design complex order types, automated price-adjustment features, and compliance procedures, increasing system complexity and maintenance costs. Third, even if crossed quotes were to occur in the future, the SEC believes that high-speed trading technologies and arbitrage incentives would drive the market to correct them quickly.
Access fee caps will still be retained. Access fee caps refer to the maximum fee that a trading venue can charge external participants for accessing its quotes and executing trades, preventing the venue from displaying attractive quotes while inflating actual execution costs with excessively high fees.
However, the SEC also acknowledges that rescinding Rule 610(e) could introduce new issues. For example, cross quotations may affect execution quality statistics, leading to longer quote mismatches for less liquid stocks, and retail investors may become confused by locked or crossed quotations displayed on their screens. As a result, this rescission remains open for public comment, and the SEC is requesting market participants to submit data and feedback.
How is this related to tokenized stocks?
What truly deserves the attention of Web3 readers is that it may loosen a layer of centralized coordination logic in the U.S. stock market.
To scale tokenized stocks, solving merely the problem of "mapping stocks to the blockchain" is not enough. The harder challenge lies in the trading structure: on-chain markets naturally favor 24/7 operation, smart contract matching, AMM or hybrid order books, and cross-platform liquidity.
The traditional U.S. stock market is built on exchanges, brokers, quote protection, order routing, SRO rules, and a clearing and settlement system. The rhythms, quoting logic, and technical interfaces of the two systems are not inherently compatible.
The existence of Rule 611 requires trading centers to refrain from easily bypassing protected quotations. This provides protection for traditional stock markets but also forces new trading mechanisms to be designed around the existing quotation protection framework. If the SEC ultimately rescinds this rule, trading venues and ATSs may gain greater flexibility to experiment with order matching mechanisms, auction systems, priority design, and block trading protocols.
But this is still only a possibility. The proposal does not alter securities registration requirements, nor does it address issues such as custody, clearing, shareholder rights, cross-border sales, KYC/AML, or broker responsibilities for tokenized stocks. More critically, even if the SEC rescinds Rule 610(e), existing related rules from exchanges and FINRA will not automatically disappear—they must still decide whether to amend their own rules.
Summary
In its economic analysis evaluating the repeal of Rule 611 and Rule 610(e) of Regulation NMS, the SEC estimated that regulated market participants could save between $54.2 million and $77 million annually in quantifiable costs. These savings primarily stem from exchanges, ATSs, brokers operating smart order routing systems, and OTC market makers, who would no longer need to maintain compliance policies, monitoring processes, order routing logic, and connectivity arrangements related to Rule 611 and Rule 610(e).
These numbers aren't huge, but they illustrate one thing: the SEC isn't just talking about "principles." It views this reform as a market structure simplification aimed at reducing rule-driven complexity, so that trading venues compete for orders based on price, speed, liquidity, and mechanism design.
For tokenized stocks, the most important word may well be “complexity.” The advantages of on-chain assets are often summarized as 24/7 availability, composability, and transparent settlement. But if the underlying securities trading rules still require all innovation to be forced back into a quote protection framework designed in 2005, then on-chain merely adds another layer of packaging. Once regulations are relaxed, what truly matters is whether new trading venues can deliver superior execution quality within a compliant framework—not simply repackaging stocks as tokens.
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