The U.S. Securities and Exchange Commission (SEC) has announced plans to rescind Rules 611 and 610(e) from Regulation National Market System (NMS), a significant shift that could reshape the trading landscape for U.S. equities. These rules have been integral to market operations since their introduction in 2005.
Rule 611, known as the Order Protection Rule, mandates that trading venues, including stock exchanges and broker-dealers, must prevent “trade-throughs.” These are situations where orders are executed at less favorable prices when better prices are available on other exchanges. Key to this rule is the requirement that all trades in National Market System (NMS) stocks adhere to the national best bid and offer (NBBO).
In addition to Rule 611, the SEC is also looking to eliminate Rule 610(e), which addresses locking and crossing quotations in U.S. equity markets. This latest proposal is set to go through a 60-day public comment period following its publication in the Federal Register.
SEC Chairman Paul Atkins emphasized that the intention behind these proposals is to simplify market structures and reduce costs for participants while fostering competition, innovation, and other market dynamics. He has expressed eagerness to review public feedback, aiming for a careful approach to avoid past mistakes that led to the current regulatory landscape.
Alex Thorn, Head of Firmwide Research at Galaxy Digital, hailed the SEC’s move as a critical breakthrough for tokenized equities trading, particularly within decentralized finance (DeFi) frameworks. According to Thorn, automated market makers (AMMs)—a staple of DeFi—struggle to comply with existing regulations because they execute trades based on liquidity pricing rather than adhering to fixed quotes, which could potentially make them illegal trading platforms under current laws.
Thorn shared that without Rule 611, the duty of best execution for brokers would be governed by FINRA Rule 5310. This more principles-based standard offers flexibility compared to the current stringent requirements, potentially accommodating AMMs more effectively. However, he acknowledged that tokenized NMS stocks still face significant uncertainties regarding exchange and alternative trading system (ATS) registration, as well as clearance and settlement procedures. Thorn expressed hope that the SEC’s upcoming “innovation exemption” could provide needed clarity on these issues.
He framed this regulatory shift as part of the SEC’s broader “Project Crypto” strategy, which aims to tackle major obstacles in market structure before addressing venue registration through exemptive relief. The response from market participants during the upcoming comment period will be crucial, as it may determine the future of these long-standing trading regulations.
