Why is Web3 also watching a TradFi revolution?
Written by: KarenZ, Foresight News
On June 11, the U.S. SEC proposed a market structure reform that seems very similar to TradeFi: repealing Rule 611 and Rule 610(e) in Regulation NMS (National Market System Regulations).
The former is the so-called trade-through rule, while the latter restricts locked quotes and cross quotes. Simply put, the SEC is considering removing a set of rigid rules that protect the best quote in the U.S. stock market, giving exchanges and brokers more flexibility in order routing, quote display, and trading mechanisms.
This is not yet a new rule that has taken effect. The SEC is currently publishing a proposed rule. The public comment period is 60 days after the proposal is published in the Federal Register.
Why is it attracting attention in the Web3 community? Because the SEC explicitly stated in the background of its proposal that the stock market is approaching 24-hour trading, distributed ledger technology allows issuers to tokenize securities as crypto assets, and smart contracts and AMMs have brought new ways of securities trading. What it's really discussing is whether the underlying trading rules of the US stock market are still suitable for today's technological conditions.
Galaxy Digital's research director, Alex Thorn, called it the "tradfi story" and believes it could be one of the major breakthroughs in tokenized stocks.
What exactly does Rule 611 govern?
Rule 611 can be understood as a rule in the US stock market: "Don't go around a better offer."
For example, if a stock has an automatically accessible asking price of $10 on exchange A, while the asking price on exchange B is $10.01, the basic logic of Rule 611 is that an exchange cannot, without applicable exceptions, bypass the better asking price on exchange A and directly execute a buy order on exchange B at $10.01.
The problem is that the market in 2026 will be very different from the market in 2005. The SEC states in its proposal that the U.S. stock market is now highly automated, interconnected, fast-paced, and highly competitive. Rule 611 was originally intended to encourage visible liquidity, but the SEC believes that the proportion of trading shifting to non-visible liquidity and off-exchange execution is still rising, and the market is becoming more fragmented and complex.
According to the SEC, the side effects of Rule 611 include: increased compliance costs, limited order processing and execution options, increased exchange expansion, exacerbated trading fragmentation, and market participants investing significant resources in pursuing lower latency. The SEC also argues that brokers already have an obligation to execute at the best available price, meaning they must seek the most favorable terms for their clients within reasonably available conditions; therefore, Rule 611 may not necessarily need to continue providing the same protection.
What is Rule 610(e)?
Rule 610(e) restricts the locking and cross-quoting of National Market System (NMS) stocks.
A locked quote refers to a bid price displayed on one trading platform being equal to a ask price displayed on another; a cross quote goes a step further, indicating that the bid price is higher than the ask price. On a trading screen, the former appears as if buyers and sellers are "holding" at the same price, while the latter appears as if the quotes are temporarily misaligned, theoretically creating an arbitrage opportunity.
The current Rule 610(e) does not directly prohibit every lock-in or cross-market offer. Instead, it requires exchanges, self-regulatory organizations such as FINRA to develop, maintain, and enforce relevant rules, requiring their members to avoid displaying orders that would lock in or cross-market offers, and to handle such offers when they occur. As a result, over the past two decades, the US stock trading system has developed numerous order types and automatic price adjustment mechanisms around this requirement, such as readjusting order prices to positions that do not lock in or cross-market offers.
The SEC is now proposing to repeal Rule 610(e), a federal rule that prevents locking and cross-quoting. According to the SEC, markets are now more automated and interconnected than in 2005, and market participants have greater access to market data, making the need to retain this rule less significant.
The SEC gave three main reasons. First, locked quotes can sometimes be a natural result of competitive pricing, and prohibiting them could artificially widen bid-ask spreads; allowing locked quotes could narrow spreads for some stocks, potentially reducing transaction costs for investors. Second, current restrictions force exchanges and brokers to design complex order types, automatic price adjustments, and compliance processes, increasing system complexity and maintenance costs. Third, even if cross-quotes emerge in the future, the SEC believes that high-speed trading technology and arbitrage incentives will drive faster market corrections.
Access fee caps will remain in place. Access fee caps refer to the maximum fees that a trading venue can charge external participants for accessing its quotes and executing trades. This prevents trading venues from displaying seemingly attractive quotes while simultaneously inflating the actual cost of execution through excessively high fees.
However, the SEC also acknowledged that revoking Rule 610(e) could introduce new problems. For example, cross quotes could affect execution quality statistics, some less liquid stocks might experience longer quote misalignments, and ordinary investors might be confused by locked or cross quotes appearing on the screen. Therefore, this revocation is still in the consultation phase, and the SEC is requesting data and feedback from market participants.
What is the connection between this and tokenized stocks?
What Web3 readers should really pay attention to is that it may loosen a layer of centralized coordination logic in the US stock market.
For tokenized stocks to grow significantly, it's not enough to simply solve the problem of "mapping stocks onto the blockchain." The more challenging aspect is the transaction structure: on-chain markets naturally favor 24/7 operation, smart contract matching, AMM or hybrid order books, and cross-venue liquidity.
The traditional US stock market is built upon exchanges, brokers, quote protection, order routing, SRO rules, and clearing and settlement systems. The rhythm, pricing logic, and technical interfaces of the two systems are not inherently compatible.
The existence of Rule 611 requires that trading centers cannot easily bypass protected quotes. This is beneficial for traditional stock markets, but it also necessitates that new trading mechanisms be designed around the existing quote protection system. If the SEC ultimately repeals this rule, trading venues and ATSs may gain greater room for experimentation in matching mechanisms, auction mechanisms, priority design, and block trading mechanisms.
However, this remains only a possibility. The proposal does not change the registration requirements for securities offerings, nor does it address issues such as custody, liquidation, shareholder rights, cross-border sales, KYC/AML, and broker liability for tokenized shares. More importantly, even if the SEC rescinds Rule 610(e), the existing rules of exchanges and FINRA will not automatically disappear; they will still have to decide whether to amend their own rules.
summary
In its economic analysis assessing the repeal of Regulation NMS by Rules 611 and 610(e), the SEC estimated that the revocation would result in quantifiable cost savings of approximately $54.2 million to $77 million annually for relevant market participants. These savings would primarily come from trading centers, ATSs, brokers operating intelligent order routing systems, and OTC market makers: they would no longer need to maintain certain Rule 611/Rule 610(e) related compliance policies, monitoring processes, order routing logic, and connectivity arrangements.
These numbers aren't huge, but they illustrate one thing: the SEC isn't just talking about "principles." It sees this reform as a way to deburrow into market structure, aiming to reduce rule-driven complexity and allow exchanges to compete for orders based on price, speed, liquidity, and mechanism design.
For tokenized stocks, perhaps the most important word is "complexity." The advantages of on-chain assets are often summarized as 24/7 availability, composability, and transparent settlement. However, if the underlying securities trading rules still require all innovations to be crammed back into the quote protection framework designed in 2005, on-chain is just adding another layer of packaging. With the rules loosened, what can truly be tested is whether new trading venues can provide better execution quality within a compliant framework, rather than simply replacing stocks with tokens.
Reference source:
https://www.sec.gov/newsroom/press-releases/2026-54-sec-proposes-rescission-regulation-nms-rules-611-610e
https://www.sec.gov/files/rules/proposed/2026/34-105655.pdf
