ChainCatcher reported that Alex Thorn, head of research at Galaxy Digital, wrote on X that the U.S. Securities and Exchange Commission has proposed repealing two parts of Reg NMS: Rule 611, known as the order protection rule, and Rule 610(e), which covers locked and crossed market restrictions. The proposal, as described by Thorn, targets rules that sit at the center of U.S. equity market structure.
Rule 611 and U.S. equity market structure
According to Thorn, Rule 611 requires each trading center to prevent trades from being executed at prices worse than protected quotations displayed by other exchanges. He noted that the rule has been a core part of U.S. stock market structure since 2005, because it governs how trading centers must treat better displayed protected quotes available elsewhere in the market.
Rule 610(e), also mentioned in Thorn’s post, concerns locked and crossed market restrictions. While he referred to both rules in connection with the SEC proposal, his main focus was Rule 611 because of its direct relationship with how tokenized stocks would trade in decentralized finance environments.
Why Thorn links the proposal to tokenized stocks in DeFi
Thorn said Rule 611 is one of the biggest barriers to trading tokenized stocks in DeFi. In his view, automated market makers cannot comply with the rule. Under the current framework, any liquidity pool for tokenized stocks would be in constant violation of the requirements and would, in substance, operate as an illegal trading center.
He added that if Rule 611 is repealed, it would be replaced by the principle of “best execution.” Thorn described best execution as a broker-level obligation and a rules-based framework, rather than a trade-by-trade review. For that reason, he said the framework can be compatible with automated market makers.
Thorn also characterized the move as part of the SEC’s execution of its “crypto project” plan. As he described it, the sequence is to first remove the most difficult market structure obstacle, and then address venue registration through an “innovation exemption.” His post connected the proposed repeal of Reg NMS Rule 611 with tokenized stocks, DeFi trading mechanisms, automated market makers, and later questions around venue registration.