According to ChainCatcher, Galaxy Digital head of research Alex Thorn posted 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. Thorn connected the proposed repeal to the regulatory barriers faced by tokenized stocks when they are traded through DeFi mechanisms.
Rule 611 and the protection of displayed quotes
In Thorn’s explanation, Rule 611 requires every trading center to prevent executions at prices worse than protected quotations displayed by other exchanges. He described the rule as a core component of U.S. equity market structure since 2005. The same SEC proposal also covers Rule 610(e), the provision tied to locked and crossed market restrictions.
Thorn said Rule 611 is one of the biggest obstacles for tokenized stocks in DeFi. His reasoning is that automated market makers cannot comply with the rule. In his view, any liquidity pool containing tokenized stocks would be in continuous violation and would essentially amount to an illegal trading center. The issue he described is the conflict between the trade-by-trade order protection design of the equity market rule and the operating model of automated market makers.
Best execution and the innovation exemption route
Thorn stated that, after the repeal of Rule 611, the replacement would be the principle of best execution. He noted that best execution applies at the broker level and is a rule-based framework rather than a review of every individual trade. On that basis, he said the framework can be compatible with automated market makers, unlike the current Rule 611 structure as applied to tokenized stock liquidity pools.
Thorn also said the move is part of the SEC’s execution of its “crypto project” plan. He summarized the sequence as first removing the hardest market-structure obstacle, and then using an “innovation exemption” to address venue registration issues. His post framed the matter around the proposed Reg NMS rule changes, tokenized stock trading in DeFi, and the fit between automated market makers and securities market rules.