The U.S. Securities and Exchange Commission has proposed eliminating core trade-through protections within Regulation NMS (National Market System), which could lift major barriers for tokenized U.S. stock trading in DeFi.

On Thursday, the SEC announced proposed rescissions of Rules 611 and 610(e) of Regulation NMS, established in 2005, to promote the long-term growth of U.S. markets.

"This proposal is intended to simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets," said SEC Chairman Paul Atkins.

Rule 611 prohibits the trade-through of NMS stocks, which means a trading center cannot execute a trade at a price inferior to a protected quotation — the best displayed bid or offer — available on another venue at the time of execution. Rule 610(e) prohibits trading centers from displaying quotations that create locked or crossed quotations in NMS stocks.

The SEC has opened a 60-day public comment period on the proposal, which also includes related definitions in Regulation NMS.

Major DeFi implications

Alex Thorn, head of firmwide research at Galaxy Digital, said this move is "one of the biggest unlocks yet" for tokenized stocks in DeFi.

As Rule 611 prevented executions at prices inferior to protected quotes on other exchanges, it created a structural barrier for onchain trading of tokenized U.S. equities.

"An AMM cannot comply with 611 by construction. It executes against a bonding curve at whatever the pool price is, with slippage, at block-time granularity," Thorn wrote. "An AMM can't route intermarket sweep orders. Can't ingest SIP data with latency guarantees. Can't halt a swap because a better quote exists on Nasdaq. Any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center."

The same issue applies to Rule 610(e), Thorn said. Because AMMs rely on continuous, flow-driven price discovery, their prices routinely lock or cross the displayed National Best Bid and Offer (NBBO), which venues are currently required to prevent.

If the rules are rescinded, the SEC would instead rely on FINRA Rule 5310's best execution duty — a broker-level, principles-based framework that can accommodate AMMs, according to Thorn.

"At a high level, this is the SEC executing the Project Crypto playbook: clear the hardest market structure obstacle via rescission, then handle venue registration issues (at least temporarily) through the innovation exemption," Thorn said.

Expected Q1 2027

Jaret Seiberg, managing director at TD Cowen's Washington Research Group, said in a note on Thursday that the SEC's latest proposal will likely be adopted, as repealing the rules has been a long-term priority for Atkins. Seiberg added that the agency is expected to finalize the rule in the first quarter of 2027.

"This is broadly positive for the tokenization of equity securities as Rule 611 is a barrier to action," Seiberg said. "That said, we do not expect the SEC to wait until this proposal is finalized before it approves tokenization pilots. Instead, we expect the SEC will offer these initial tokenization efforts exemptive relief from Rule 611. We still expect that soon."

Tokenized U.S. equities in DeFi still face other hurdles, including exchange or Alternative Trading System (ATS) registration, clearance and settlement, and other rules not designed for decentralized or peer-to-peer trading.

"We hope many of these will be addressed in the SEC's forthcoming 'innovation exemption,'" Thorn of Galaxy added.

Yogita Khatri contributed reporting.