The SEC paves the way for stock tokenization: repeal of key Reg NMS rules
The U.S. Securities and Exchange Commission (SEC) has taken a decisive step toward modernizing market infrastructure by proposing to repeal two fundamental rules of Regulation NMS. These are Rules 611 and 610(e), which have shaped the structure of stock trading in the U.S. for 20 years but, according to the regulator, have now become a barrier to innovation.
Rule 611, known as the "trade-through rule," prohibited executing trades at prices worse than the best quotes on other venues. Rule 610(e) restricted the display of quotes that lock or cross prices on alternative exchanges. As SEC Chairman Paul Atkins noted, these rules created "unintended consequences" that hinder market development, particularly in the context of new technologies.
DeFi and Tokenized Stocks: The Main Beneficiary
The true significance of this initiative extends far beyond traditional finance. Leading crypto analysts, particularly from Galaxy Digital, have called this decision a crucial step for the development of the DeFi sector. Current rules physically prevent automated market makers (AMMs) from trading tokenized stocks. Decentralized protocols operate based on mathematical formulas and cannot account in real-time for liquidity on external centralized venues like Nasdaq. As Galaxy Digital's Head of Research Alex Thorn explained: "An AMM cannot stop a trade because the price on Nasdaq is better. After the rules are repealed, tokenized stocks will be able to legally trade in DeFi pools."
Instead of rigid restrictions, the SEC plans to implement a flexible approach based on the principle of "best execution" for trades. This means brokers and protocols will be required to achieve the best outcome for the client but will not be constrained by archaic prohibitions.
Timelines and Pilot Projects
The public comment period for the proposal will last 60 days after publication in the Federal Register. A final decision is expected in the first quarter of 2027. Until then, the SEC may launch pilot projects on tokenization, granting participants temporary exemptions from current rules. However, it is important to recall recent statements by Commissioner Hester Peirce, who urged the industry to temper expectations: the regulator does not plan to allow the unlimited issuance of synthetic assets.
My analysis: This is one of the most significant regulatory shifts for the convergence of TradFi and DeFi. The repeal of Rule 611 is not just a technical adjustment but a recognition that on-chain liquidity can no longer be ignored. For the tokenized RWA market, this is a "green light" at the institutional level, although implementation details and the stance on synthetic assets will remain key points of tension.