SEC proposal targets rules blocking tokenized stocks

TLDR

The SEC has proposed scrapping two core US equity trading rules that have effectively blocked tokenized US stocks from operating on public blockchains, especially in DeFi.

1. The proposal would rescind Regulation NMS Rules 611 and 610(e), long standing trade routing and quote rules, and is now in a 60 day comment period.
2. Analysts say removing these rules would lift a major legal barrier for tokenized US equities on automated market makers and other crypto style venues, but other securities rules still apply.
3. The real impact depends on the final rule text, likely best execution replacements, and whether the SEC grants early exemptions or pilots before an expected 2027 implementation.

Deep Dive

1. What The SEC Actually Proposed

The SEC has proposed rescinding Regulation NMS Rules 611 and 610(e), which since 2005 have required trades in US stocks to respect the national best bid and offer and avoid locked or crossed quotes across venues. Under Rule 611, venues must prevent trade throughs, meaning executing at a worse price than the best available quote elsewhere, while Rule 610(e) restricts quoting at prices that lock or cross the national best price grid. The proposal is formally published, with a 60 day public comment window and an expected rulemaking completion around Q1 2027, according to multiple summaries of the rescission proposal.

2. Why This Matters For Tokenized Stocks And DeFi

Current NMS rules are fundamentally incompatible with automated market makers (AMMs), which set prices via on chain liquidity pools and do not route orders or check external quotes. Galaxy Digitals Alex Thorn argues that any AMM pool in a tokenized NMS stock would commit trade throughs constantly and be treated as an illegal trading center under Rule 611, with similar issues under Rule 610(e) for quote behavior, making tokenized US stocks effectively non viable on DeFi venues today. The SEC is expected to lean instead on broker level best execution duties, such as FINRA Rule 5310, which are more principles based and could be applied in ways that accommodate AMMs and on chain liquidity models while still protecting investors as outlined in several analyses.

3. What To Watch Next For Crypto Users

Comment letters over the next two months will signal how traditional exchanges, brokers and tokenization projects line up for or against the change, and how aggressive the final framework might be. Analysts expect the SEC to finish rulemaking by early 2027, but note that targeted exemptive relief or innovation exemptions could allow limited tokenized equity pilots sooner, especially within the SECs broader Project Crypto agenda on modernizing digital asset rules. Even with 611 and 610(e) gone, any tokenized US stock must still satisfy securities registration, exchange or ATS rules, custody, clearing and investor rights, so near term growth is likely in regulated, KYC venues that bridge into DeFi rather than fully permissionless trading.

Conclusion

The SEC is not directly legalizing tokenized stocks, but it is moving to remove two structural rules that made DeFi style trading of US equities nearly impossible. If the proposal survives comment and is paired with sensible best execution and targeted exemptions, it could shift tokenized stocks from legal edge case to a formally supported, though still tightly regulated, bridge between traditional markets and crypto infrastructure.