From Rigid Routing To Best Execution: SEC Proposal Could Reshape Listed Equities And On-Chain Markets

In Short

The Situation: On June 11, 2026, the Securities and Exchange Commission (the "SEC") proposed the rescission of Rule 611 (the trade-through prohibition) and Rule 610(e) (the locked and crossed markets prohibitions) of Regulation NMS.

The Change: By eliminating the restrictive market structure rules, the SEC would remove a traditional backstop and instead rely on competitive market forces and broker-dealers' existing best execution obligations under FINRA Rule 5310 to govern order handling in the national market system. The SEC seeks to reduce costs from compliance and complexity while permitting further innovation.

Looking Ahead: If adopted, the SEC's proposed rescission could pave the way for trading of tokenized equity securities, including on decentralized exchanges and other decentralized finance ("DeFi") protocols. The SEC's proposal continues its Project Crypto mandate, which aims to modernize markets and allow markets to move on-chain.

Overview of Rules 611 and 610(e)

Adopted in 2005, Rules 611 and 610(e) of Regulation NMS together mandate intermarket price connectivity across all exchanges displaying protected quotes.

• Rule 611 prohibits "trade-throughs" of protected quotations in exchange-listed securities for which consolidated market data is disseminated ("NMS stocks"), with certain exceptions. A trade-through occurs when a trading center executes an order at a price inferior to the best displayed bid or offer available on another exchange. Under Rule 611, a trading center cannot "trade through" (i.e., ignore or pass on) a better-priced quotation displayed by another trading center. In practice, Rule 611 hardwires the National Best Bid and Offer ("NBBO") price into transactions in NMS stocks, requiring a trading center to prevent transactions on that venue at a worse price than the price of a protected quotation on another exchange by, for example, routing orders (i.e., intermarket sweep orders) to the exchanges displaying better prices for execution. This is intended to help customers receive the then-current NBBO on their trades, regardless of where their broker-dealers route their orders.

• Rule 610(e) requires exchanges and national securities associations to maintain rules preventing their members from displaying quotations that lock (match) or cross (surpass) a protected quotation on their venue or another venue. A locked quotation occurs, for example, where the displayed bid equals the displayed offer, and a crossed quotation would occur where the displayed bid exceeds the displayed offer. The prohibition on displaying locked or crossed quotations forces venues to manage their displayed quotes relative to one another in real time, adding operational complexity and requiring continuous monitoring of cross-market pricing.

Effect of Rules 611 and 610(e) on Markets Since 2005

When adopting Regulation NMS, the SEC described intermarket price protection as the centerpiece of the rules, stating that Rule 611 was "designed to assure that public investors are able to obtain the best price for securities." The SEC intended the rule to encourage the display of limit orders, improve price discovery, and minimize the extent to which investor orders were executed at inferior prices. Rule 610(e)'s restrictions on locking and crossing quotations would supplement Rule 611 to "encourage trading against displayed quotations and enhance the depth and liquidity of the markets."

The market has changed significantly since 2005, including as a result of Regulation NMS. While eight national securities exchanges traded NMS stocks in 2005 (plus Nasdaq, which did not become an exchange until 2006), today, 17 operating exchanges trade NMS stocks, with three more approved for trading. Rule 611 has effectively guaranteed that new exchanges displaying protected quotes would receive order flow and connectivity revenue, because broker-dealers are practically required to connect to every such venue. This has incentivized exchange proliferation, has increased connectivity costs, and has fragmented liquidity. Furthermore, the market has experienced a steady shift of trading to off-exchange venues such as alternative trading systems (or ATS), non-displayed "dark pools," single-dealer platforms, and wholesalers, whose share of overall volume has regularly exceeded 50% since the end of 2024, with the proportion of trading executed against non-displayed liquidity increasing both on and off exchanges.

The Reasons for Rescission

SEC Chairman Paul S. Atkins has long opposed Regulation NMS and has stated that "it is high time that the Commission review [Rule 611's] unintended consequences that have hindered—rather than enhanced—the long-term growth of our markets." In its proposal, the SEC asserts that U.S. equity markets in 2026 are fundamentally different from 2005—trading is electronic, routing is automated, and market data is widely available, allowing investors to monitor whether they are receiving the best available prices and, ultimately, decreasing the need for the protections afforded by Rule 611. Further, because broker-dealers would no longer be required to first route to execute against any locking contra-side interest, the proposed rescission of Rule 610(e) would give market participants more flexibility to post their trading interest on trading centers that have a consistently higher volume of order flow, more reliable speed of execution, or lower adverse selection costs. The SEC further believes that rescission of these rules will give trading centers more flexibility to compete for order flow.

Importantly, the proposal also reflects a broader deregulatory agenda. Weeks after issuing the proposal, in remarks at the Economic Club of New York, Chairman Atkins signaled that the rescission fits within the SEC's modernization push, stating that "Through what we're calling Project Crypto, we are taking historic steps to modernize our rules and regulations to facilitate markets' moving on-chain." Chairman Atkins also recently stated that the Commission is "providing clarity as to how market participants can custody and facilitate trading of tokenized securities on-chain." The Commission expects rescission to reduce costs, eliminate artificial incentives for exchange creation, and allow competition to shape market evolution.

Why This Matters for Tokenized Securities

Rule 611 is structurally incompatible with automated market makers ("AMMs") used in DeFi protocols. AMMs execute trades against liquidity pools at algorithmically determined prices. As such, AMMs cannot route intermarket sweep orders, ingest consolidated market data with latency guarantees, or halt a swap because a better quote exists on another exchange. Any AMM pool used to trade tokenized NMS stocks would be constantly at risk of committing trade-throughs. The SEC highlighted innovations created outside of the equity markets without the roadblock of Rule 611. These included innovations "such as intents-based trading, automated market makers, decentralized price oracles, or atomic cross-domain settlement," which are provided in DeFi markets.

Furthermore, the standards imposed by Rule 611 would not work well within an interoperable traditional and DeFi system. Some DeFi platforms would complete the trades of tokenized equities only once validators include such transactions in blocks recorded on the blockchain; this could implicate trade-throughs because batched orders would not be able to route to other traditional venues with better quotations just before execution. Conversely, traditional brokers may not be able to execute orders on-chain if the best available price momentarily arises within an automated market maker with prices continuously fluctuating based on supply, demand, and liquidity constraints.

Without Rule 611, the governing framework shifts to broker-level best execution under FINRA Rule 5310. The FINRA standard requires reasonable diligence to ascertain the best market for a security and to buy or sell so that the resulting price is as favorable as possible under prevailing market conditions, based on several non-exclusive factors including the character of the market for the security (such as price, volatility, and relative liquidity), the size and type of transaction, the number of markets checked, the accessibility of the quotation, and the terms and conditions of the order. A reasonable diligence standard is more compatible with AMM-based trading because it can allow for slippage and programmatic trading. The proposed rescission has the potential to increase the size and scope of tokenized equity trading on-chain.

Three Key Takeaways

1. Tokenized securities platforms and DeFi protocols: If finalized, the rescission removes one of the primary regulatory obstacles to AMM-based trading of NMS stocks, opening a viable path for on-chain markets for equities.
2. Broker-dealers and market makers would rely on a best-execution-only framework under the proposed rescission, which would affect current routing obligations, connectivity costs, and the competitive landscape.
3. The SEC continues its Project Crypto agenda with the rescission proposal. The SEC will likely continue to regulate under Project Crypto as traditional institutions and markets seek to harness DeFi innovations. The SEC may also receive a mandate to promulgate related regulations if relevant legislation is passed.