On June 11, the SEC proposed a significant market structure reform targeting the repeal of Rule 611 and Rule 610(e) within the National Market System Regulation. These regulations, established in 2005, currently enforce strict order routing protocols and prohibit locked or cross-quotations to protect best available prices. The proposal seeks to dismantle these legacy constraints, granting exchanges and brokers greater flexibility in order execution and price display. Although currently in a 60-day public comment period following publication in the Federal Register, the initiative signals a potential paradigm shift in U.S. equity market architecture.

The proposal has garnered intense scrutiny from the Web3 sector because the SEC explicitly linked the regulatory change to the evolution toward 24-hour trading and the tokenization of securities. The agency acknowledged that blockchain technology, smart contracts, and automated market makers introduce novel trading paradigms that may conflict with 2005-era rules. Alex Thorn, research director at Galaxy Digital, characterized the move as a critical juncture for traditional finance, suggesting it could serve as a vital breakthrough for the integration of tokenized stocks into the mainstream ecosystem. Woofun AI notes that this regulatory pivot addresses whether current trading infrastructures remain viable in an era of high-frequency automation and digital asset interoperability.

Rule 611, commonly known as the trade-through rule, mandates that traders cannot execute orders at inferior prices when better quotes exist elsewhere. For instance, if a stock trades at $10 on one exchange and $10.01 on another, the rule prevents execution at the higher price without specific exceptions. The SEC argues that the market landscape of 2026 differs fundamentally from 2005, characterized by high automation, interconnectivity, and fragmentation. The agency contends that the original intent of encouraging liquidity display is now counterproductive, as non-liquid and over-the-counter executions have increased, complicating market dynamics.

According to the SEC, the side effects of maintaining Rule 611 include elevated compliance costs, restricted order processing options, and an artificial proliferation of exchanges. The agency posits that brokers already possess a statutory obligation to secure best execution, rendering Rule 611 redundant as a protective mechanism.

Concurrently, Rule 610(e) restricts locked quotations, where bid and ask prices match across exchanges, and cross-quotations, where bids exceed asks. While not directly prohibiting these states, the rule forces exchanges and self-regulatory organizations like FINRA to implement complex prevention and resolution mechanisms.

The SEC's rationale for repeal rests on three pillars: competitive bidding naturally creates locked quotes, and banning them artificially widens spreads; current restrictions have necessitated costly, complex order types and adjustment algorithms; and modern arbitrage incentives can resolve cross-quotations rapidly. Data compiled by Woofun AI shows the SEC estimates annual cost savings between $54.2 million and $77 million for market participants, including exchanges, alternative trading systems, and brokers utilizing smart order routing. These savings derive from eliminating the need to maintain specific compliance policies, monitoring processes, and connection arrangements tied to the old rules.

Despite the projected efficiencies, the SEC acknowledges potential risks, including degraded execution quality for low-liquidity stocks and confusion among retail investors regarding price misalignments. The proposal remains in the feedback stage, inviting market participants to weigh in on these trade-offs. Crucially for the digital asset sector, the reform targets the centralized coordination mechanisms of the U.S. stock market, which are often incompatible with the 24-hour, smart contract-driven nature of blockchain-based trading.

If the SEC proceeds with the repeal, exchanges and alternative trading systems will gain latitude to experiment with new matching mechanisms, auction formats, and block trading procedures.

However, the proposal does not alter securities issuance requirements, custody protocols, or KYC/AML obligations for tokenized assets.

Furthermore, existing exchange and FINRA rules will not vanish automatically, requiring separate institutional decisions on modification. Woofun AI analysis suggests that while this reform reduces regulatory complexity, true innovation in tokenized stocks depends on whether new trading mechanisms can deliver superior execution quality beyond mere tokenization of legacy assets.