SEC clears the way for tokenization of stocks: repeal of key Reg NMS rules
The U.S. Securities and Exchange Commission (SEC) has officially proposed repealing two fundamental rules from Regulation NMS—Rules 611 and 610(e). This decision could radically reshape the landscape of the American stock market and, crucially for the crypto industry, open the door to legal tokenization of stocks.
Rule 611, known as the "trade-through rule," prohibits executing trades at prices worse than the best available quotes on other trading venues. Rule 610(e) restricts the display of quotes that cross prices on alternative exchanges. Both rules were introduced in 2005 to ensure market fairness and transparency, but over 20 years, they have become a barrier to innovation.
Why This Matters for DeFi and Tokenization
SEC Chairman Paul Atkins directly stated that the rules have created "unintended consequences" hindering market development. The key issue here is the incompatibility of these rules with decentralized protocols. Automated market makers (AMMs) operate on strict mathematical formulas and physically cannot check liquidity on Nasdaq or NYSE in real time. This made tokenized stocks in DeFi pools legally vulnerable.
Alex Thorn of Galaxy Digital called this decision "one of the most significant breakthroughs for tokenized stocks." After the repeal, AMMs will be able to legally trade tokenized securities without fear of violations. Instead of rigid restrictions, the SEC plans to implement a flexible "best execution" principle for trades, which will account for the specifics of blockchain infrastructure.
Timeline and Prospects
The public comment period will last 60 days after publication in the Federal Register. The final decision is expected in the first quarter of 2027. Meanwhile, the SEC may launch pilot projects for tokenization, granting temporary exemptions to market participants.
It is worth noting that SEC Commissioner Hester Peirce previously urged the crypto industry not to raise expectations—the regulator does not plan to allow the issuance of synthetic assets. However, the repeal of Reg NMS is precisely the infrastructural shift needed to integrate traditional finance and DeFi.
My analysis: This is truly a historic moment. The SEC is effectively acknowledging that 20-year-old rules do not work in the blockchain era. For the tokenized asset market, this opens the path to institutional recognition. However, investors should be cautious: the repeal of rules is not an automatic permission but the creation of a legal framework. Real tokenization will only begin after the launch of pilot projects and the final vote.