SEC Proposes Tokenization Exemption, Benchmark Calls It Most Consequential

The Securities and Exchange Commission (SEC) has formally proposed to rescind Rule 611 of Regulation NMS on June 11, marking a significant regulatory milestone for cryptocurrency and tokenized securities. According to reports from CoinDesk, this trade-through prohibition, which has governed stock order routing since 2005, along with Rule 610(e) that bans locked and crossed quotations, represents the biggest regulatory unlock yet for tokenized stocks. The proposal is now open for a 60-day public comment period before the SEC moves toward a final rule. As reported by Tekedia, the Order Protection Rule, often referred to as Rule 611, currently requires trading venues to prevent "trade-throughs" by ensuring that orders are executed at the best displayed price across national exchanges. Its removal would effectively unwind a core mechanism designed to enforce price priority and intermarket fairness in fragmented equity markets, moving away from strict price-time protection toward a more flexible, potentially competition-driven execution environment.

Despite the crypto sector's years-long wait for permanent policy certainty, SEC Chairman Paul Atkins has signaled that the agency will pursue an innovation exemption rather than formal rulemaking. As reported by CoinDesk, Atkins described the incoming policy as "an innovation exemption to facilitate limited trading of certain tokenized securities with an eye toward developing a long-term regulatory framework." He emphasized that it would be "limited in time and scope, but long enough so that we can craft more durable rules that harness the full potential of these new technologies." Commissioner Hester Peirce, who has led much of the agency's crypto work since the start of last year, explained that "It doesn't have to be done as a rulemaking" and noted the SEC has exemptive authority that it routinely uses. Former SEC lawyers acknowledge that while exemptions may not carry the highest force of SEC authority, they'd still be difficult to reverse, particularly given the increasing participation in digital asset markets.

Galaxy Digital's head of research Alex Thorn called the proposal "one of the biggest unlocks yet for tokenized stocks" and described it as "one of the biggest structural barriers to tokenized US equities trading in DeFi." As reported by CoinDesk, the current framework creates fundamental incompatibility where DeFi AMMs price trades algorithmically against pool prices rather than routing to the National Best Bid and Offer (NBBO). Under the existing Order Protection Rule, any AMM pool offering tokenized US stocks would "commit trade-throughs constantly and arguably be an illegal trading center." The SEC's proposed replacement introduces a principles-based best execution framework applied at the broker-dealer level, allowing brokers interfacing with DeFi pools to demonstrate policies reasonably designed to achieve best execution for clients overall. According to Tekedia, removing the Order Protection Rule would lower regulatory barriers for regulated tokenized equity markets to emerge within the U.S. framework, enabling exchanges and alternative trading systems to experiment with unified liquidity pools or cross-platform settlement without being obligated to continuously reconcile displayed best prices across disparate venues in real time.

Commissioner Hester Peirce argued in her supporting statement that the existing Order Protection Rule had "helped fuel disorder" by encouraging exchange proliferation and suppressing innovation rather than protecting investors. As reported by CoinDesk, Wall Street is not debating tokenization anymore, it is building the rails, with Citi, DTCC, and a growing roster of prime brokers already deep into on-chain settlement infrastructure. The removal of Rule 611 clears the last major regulatory obstacle for AMM-based tokenized US equity trading to operate at scale, while Japan's recent reclassification of crypto assets as financial instruments signals that competing jurisdictions are not waiting for Washington to act. According to Tekedia, critics of the current regime argue that the Order Protection Rule has contributed to excessive complexity in routing logic, fragmented liquidity across dozens of venues, and increased reliance on intermediaries such as payment for order flow brokers and high-frequency market makers. Supporters of deregulation argue that modern market technology has already outgrown the assumptions underlying Regulation NMS, with high-speed data distribution, smart order routing, and consolidated tape systems arguably mitigating many of the inefficiencies the rule was designed to solve.

Benchmark expects a vote on the rescission to occur in early 2027, following the current 60-day public comment period. However, even with the rescission proposal, several harder questions remain unanswered, including exchange and alternative trading system registration, custody, clearance and settlement frameworks for peer-to-peer or DeFi-native trading. The crypto industry is counting on a forthcoming innovation exemption to address these remaining regulatory uncertainties. As reported by The Block, the SEC's proposal is intended to simplify market structure and reduce costs while allowing competition and innovation to shape the evolution of U.S. equity markets, representing what industry observers describe as the most significant regulatory development for tokenized securities trading in recent years.