Key Takeaways
- SEC moves to eliminate Rules 611 and 610(e), clearing a path for AMM-based tokenized stock trading.
- Galaxy's Alex Thorn calls the proposal a massive structural unlock for DeFi integration with equities.
- AMMs currently can't comply with trade-through rules, making tokenized securities pools illegal.
- A 60-day public comment period opens; 'best execution' framework likely to replace old rules.
What Happened
The SEC proposed scrapping Rules 611 and 610(e) that ban trade-throughs and restrict quote displays. These rules currently prevent automated market makers from legally handling tokenized US equities in DeFi. Galaxy head of research Alex Thorn said the move removes one of the biggest structural barriers for tokenized stocks. The proposal is part of the agency's Project Crypto, launched in August 2025, aiming to rewrite regulations for digital assets and blockchain in US markets. If adopted, AMM pools could trade tokenized stocks without constantly violating order protection rules.
The Numbers
The SEC aims to rescind two specific regulations: Rule 611, which prohibits trade-throughs where an order gets a worse price than available elsewhere, and Rule 610(e), which bans displaying a bid at or above another venue's quote. The proposal enters a 60-day public comment period. Project Crypto, the SEC's strategic push to integrate digital assets, was unveiled in August 2025. Thorn estimates that AMMs would commit trade-through violations on every trade under current rules, making any tokenized stock pool effectively illegal.
Why It Happened
The SEC's broad initiative to undo crypto-restrictive rules drives this proposal. AMMs—which execute trades at pool price—cannot comply with trade-through rules designed for centralized order books. Any pool trading tokenized securities would break the rule constantly. By removing these requirements, the SEC acknowledges DeFi's structural differences. A 'best execution' standard is the likely replacement, aligning traditional markets with automated liquidity models. The move follows months of reports that the agency was preparing to allow tokenized stock trading, delayed by exchange pushback.
Broader Impact
Rescinding Rules 611 and 610(e) could bridge TradFi and DeFi, unlocking a wave of tokenized equity trading on AMMs. Exchanges that raised concerns before may again resist, creating uncertainty. A finalized rule could set a precedent for how securities law adapts to decentralized infrastructure.
What to Watch Next
- Monitor the 60-day comment window for industry feedback and potential modification requests.
- Watch for SEC's official 'best execution' framework details—these will define the compliance path for AMMs.
- Expect pushback from stock exchanges that previously stalled tokenized trading plans.
This article is for informational purposes only and does not constitute financial advice.
