SEC proposal to scrap NMS rules could unlock tokenized U.S. stocks in DeFi

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SEC NMS proposal for DeFi stocks

Highlights

SEC proposes rescinding Regulation NMS Rules 611 and 610(e), aiming to simplify market structure and foster equity market innovation.
Eliminating these rules could enable tokenized U.S. stock trading in DeFi by removing structural barriers for automated market makers and relying instead on FINRA Rule 5310.
TD Cowen expects the SEC to finalize the changes in Q1 2027, though tokenized equities in DeFi will still face registration and settlement hurdles.

Regulatory shift and DeFi trading implications

As reported by the U.S. Securities and Exchange Commission, the agency has proposed rescinding Rules 611 and 610(e) of Regulation NMS, a framework adopted in 2005, saying the changes are meant to simplify market structure, lower costs for participants and let competition and innovation shape the equity market's evolution.

SEC Chairman Paul Atkins says the proposal is designed to remove complexity from the market's structure. Rule 611 currently bars trade-throughs in NMS stocks, meaning a trading venue cannot execute an order at a price worse than the best protected quotation displayed elsewhere at that moment. Rule 610(e) also prevents venues from displaying quotations that would lock or cross quotes in NMS stocks.

Alex Thorn, head of firmwide research at Galaxy Digital, says the move is one of the biggest unlocks yet for tokenized stocks in DeFi. He says Rule 611 has created a structural barrier to on-chain trading because automated market makers cannot easily operate when executions must constantly defer to protected quotes on other exchanges.

Thorn says Rule 610(e) creates a similar problem because AMMs depend on continuous, flow-driven price discovery, and their pricing can routinely lock or cross the displayed National Best Bid and Offer, a result current rules require venues to avoid. If the SEC scraps the provisions, he says the agency would instead rely on FINRA Rule 5310's best execution duty, a broker-level framework that could better accommodate AMM-based trading.

Adoption outlook and remaining obstacles

Jaret Seiberg, managing director at TD Cowen's Washington Research Group, says in a Thursday note that the proposal is likely to be adopted because repealing the rules has been a long-term priority for Atkins. He adds that the SEC is expected to finalize the rule in the first quarter of 2027.

Even if the changes are adopted, tokenized U.S. equities in DeFi still face other barriers. Those include exchange or Alternative Trading System registration, clearance and settlement requirements, and other rules that are not built for decentralized or peer-to-peer trading.

In our earlier coverage of the Senate Banking Committee’s hearing on artificial intelligence, we outlined lawmakers’ rising concerns that unregulated AI could threaten U.S. national security and financial stability. The discussion also highlighted risks tied to AI chips reaching China, Big Tech’s debt-funded AI spending, and potential labor-market disruption, alongside proposals such as taxing AI-related gains to fund education and job creation.

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