The SEC clears the way for tokenization of stocks: repeal of key Reg NMS rules
The U.S. Securities and Exchange Commission (SEC) has taken a bold step by proposing to repeal two pillars of Regulation NMS—Rules 611 and 610(e). In my view, this decision marks a tectonic shift in regulation that could radically reshape the landscape of both traditional markets and cryptocurrencies.
What exactly is changing?
Rule 611, known as the "trade-through rule," has prohibited since 2005 the execution of trades at prices worse than the best quotes on other trading venues. Rule 610(e) restricts the display of quotes that "lock" or "cross" prices on other exchanges. Essentially, these rules were designed to ensure a unified market space, but as SEC Chairman Paul Atkins rightly noted, over time they have created "unintended consequences," stifling innovation.
Why is this important for tokenization?
The key point here is decentralized finance (DeFi). Current rules physically prevent automated market makers (AMMs), which operate based on mathematical formulas, from trading tokenized stocks. An AMM cannot "know" about the best price on Nasdaq and halt a trade—this requires human intervention or complex oracles, which contradicts the very idea of decentralization. Repealing these rules removes this barrier, paving the way for legal trading of tokenized stocks in DeFi pools.
Instead of rigid restrictions, the SEC plans to transition to a more flexible approach based on the "best execution" principle. This will give market participants freedom of choice while maintaining investor protection.
Timeline and prospects
The public comment period will last 60 days after publication in the Federal Register. A final decision is expected in the first quarter of 2027. Before that, the SEC may launch pilot projects on tokenization, granting temporary exemptions. However, it is worth noting: Commissioner Hester Peirce previously warned that the regulator does not plan to allow the issuance of synthetic assets. The focus will be on real tokenized securities.
My analysis: This decision is not just a technical adjustment. It is a strategic maneuver by the SEC that acknowledges DeFi and AMMs are not a temporary phenomenon but the future of financial markets. Repealing Reg NMS could become a catalyst for the mass migration of traditional assets to the blockchain, but only if regulators can find a balance between innovation and protecting the market from manipulation. The industry should prepare for a new era of hybrid markets, where TradFi and DeFi coexist rather than conflict.