The Securities and Exchange Commission has published a 267-page proposal to eliminate the Order Protection Rule that has been in place since 2005. According to the latest reports from Investing.com, the current version of this rule requires trades to be executed at the best available price regardless of trading venue. The proposal would repeal Rule 611 and Rule 610(e), which restricts locking and crossing quotations in national market system stocks. This measure has helped ensure individual investors receive fair treatment in their transactions, but the SEC acknowledges it may have benefited retail investors while hurting institutional investors. The SEC said on June 11 that it proposed rescinding Rules 611 and 610(e) of Regulation National Market System, with the proposal removing related definitions from Rule 600 and making other matching changes. As reported by The Block, the SEC announced the proposed rescissions on Thursday, stating that 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.
SEC Chairman Paul Atkins has been a critic of the rule since its inception, having dissented against it when he was a Republican commissioner. As reported by Investing.com, Atkins expressed concerns that the rule forces brokers to focus solely on the price a trade executes at rather than other factors such as speed or preferred trading venue. Chairman Atkins said the plan aims to simplify equity market structure after two decades of Rule 611, stating that the rule may have created problems that limited market growth. "After two decades of Rule 611, it is high time that the Commission review its unintended consequences that have hindered — rather than enhanced — the long-term growth of our markets," Atkins said. The proposal represents a long-term priority for SEC Chair Paul Atkins, with TD Cowen noting that it is rare for the SEC to go from proposal to final rule in less than six months. The firm expects the rule to be finalized in the first quarter of 2027, with the agency likely to finalize the repeal in early 2027.
The rule elimination represents a significant breakthrough for tokenized US stocks trading in decentralized finance (DeFi). According to Galaxy Digital's Head of Firmwide Research Alex Thorn, the rule is "one of the biggest structural barriers" to tokenized US equities trading in DeFi. Thorn explained that automated market makers (AMMs) cannot comply with these rules by design, as they execute against bonding curves at whatever price liquidity dictates, with slippage at block-time granularity. The issue is that DeFi pools cannot check every stock exchange quote in real time before each swap, and they also cannot route orders across markets in the same way as traditional trading systems. Without Rule 611, the broker-level best execution duty under FINRA Rule 5310 would govern order handling, which is principles-based rather than enforced trade-by-trade, accommodating automated market makers where the previous system could not. Rule 610(e) creates similar issues, as AMM prices move with trading flow, meaning tokenized equity pools could often lock or cross displayed quotes in the traditional market. Thorn noted that if the new proposal is adopted, it could be the "biggest unlock" for tokenized stocks trading across DeFi front-ends, stating this is "a tradfi story, yes, but this is also one of the biggest unlocks yet for tokenized stocks." As reported by The Block, Thorn said this move is "one of the biggest unlocks yet" for tokenized stocks in DeFi, noting that an AMM cannot comply with 611 by construction and that any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center.
According to the proposal, market participants would no longer be required to connect to every exchange, which the SEC said should reduce connectivity, market data, routing and compliance costs. As reported by Investing.com, the proposal could reduce the number of existing exchanges as they would no longer be guaranteed to collect connectivity and market data fees. Broker-dealers would still be required to seek best execution, though that may include factors other than price such as order size, the difficulty of completing the trade, execution speed and clearing costs. The SEC economists found that wholesalers will trade through unprotected odd-lot quotes between 15% to 18% of the time, suggesting the trade-through rule remains relevant in today's market. The proposal does not approve tokenized stock trading by itself but starts a rulemaking process and gives market participants a chance to comment before the agency decides whether to finalize the rescission. As reported by The Block, the SEC has opened a 60-day public comment period on the proposal, which also includes related definitions in Regulation NMS.
The proposal is open for 60 days of public comment upon publication in the Federal Register before incorporating feedback into a final version. According to Investing.com, if the rescission is finalized, it may impact efforts underway at the Financial Industry Regulatory Authority, which regulates brokers. Finra has said it plans to 'modernize best execution guidance' for brokers. The SEC will accept public comment on the proposal for 60 days before incorporating feedback into a final version of the measure, which must be voted on again. As noted by Thorn, the comment period will reveal whether market participants oppose dismantling a 20-year-old pillar of US trading. The proposal adds a new step to the SEC's wider policy shift, which includes studying an innovation exemption that could allow tokenized public stocks to trade on blockchain platforms. Thorn added that the proposal only solves one problem, noting there are other issues such as clearance, settlement, and exchange registration for venues that handle tokenized stocks, which will likely be addressed in the upcoming 'innovation exemption' framework. As reported by TD Cowen's Jaret Seiberg, the SEC's latest proposal will likely be adopted, as repealing the rules has been a long-term priority for Atkins, with the agency expected to finalize the rule in the first quarter of 2027.
