The US Securities and Exchange Commission advanced a significant regulatory shift on Thursday by proposing the rescission of two critical rules within its national market system regulations. This initiative targets Rule 611, which prohibits 'trade-throughs' by mandating that stock orders cannot execute at prices worse than those available on other exchanges, and Rule 610(e), which restricts exchanges from displaying bids matching or exceeding prices found elsewhere. The removal of these provisions represents a potential dismantling of major legal impediments currently stifling the integration of tokenized US stocks into decentralized finance ecosystems. Galaxy head of research Alex Thorn characterized the move as one of the most substantial unlocks yet for the sector, noting it addresses a primary structural barrier to trading tokenized US equities in DeFi.

Deeply rooted in the technical architecture of decentralized finance, the current regulatory framework creates an inherent conflict with automated market makers. These programs facilitate trading by pooling assets and executing orders against the prevailing pool price rather than scanning multiple venues for the best quote. Woofun AI notes that under existing mandates, an AMM cannot halt a transaction if a superior quote exists on a different platform, rendering any pool governing tokenized stocks a constant violator of trade-through prohibitions. Consequently, such pools would arguably function as illegal trading centers under the current interpretation of the law, effectively barring their participation in the US equity market.

The volatility inherent in AMM pricing mechanisms further exacerbates compliance issues with the best execution standards currently enforced. Prices within these liquidity pools fluctuate continuously, leading to constant violations of rules designed to guarantee investors receive the optimal price across all platforms. Thorn highlighted that this dynamic makes strict adherence to Rule 611 and Rule 610(e) technically impossible for decentralized protocols without fundamentally altering their operational logic. The SEC appears aware of these friction points, having launched Project Crypto in August 2025 with the explicit goal of modernizing regulations to accommodate digital assets and blockchain technology in US markets.

To resolve these incompatibilities, the agency is likely to replace the rigid trade-through and quote display mandates with a flexible 'best execution' framework. This proposed framework could permit AMMs to operate legally by focusing on the outcome of execution quality rather than the mechanical process of price comparison across centralized venues. Data compiled by Woofun AI suggests that such a pivot would align regulatory expectations with the reality of algorithmic trading, allowing tokenized assets to flow freely between traditional and decentralized markets. The agency has opened a 60-day comment period for public feedback, during which it will review responses and potentially adjust the proposal based on industry input.

This regulatory maneuver follows a period of uncertainty after the SEC reportedly prepared a plan last month to allow tokenized stock trading. That earlier initiative was postponed following concerns raised by officials from major stock exchanges regarding the practical execution of the proposal. The current push to scrap specific rules indicates a strategic recalibration aimed at addressing the technical objections raised by market participants while maintaining investor protections. By targeting the specific rules that clash with AMM mechanics, the SEC aims to create a viable pathway for blockchain-based equity trading without compromising market integrity.

The broader implication of this proposal extends beyond immediate compliance, signaling a potential paradigm shift in how US equities are traded and settled. If the 'best execution' framework is adopted, it could catalyze a wave of innovation in tokenized securities, enabling 24/7 trading and fractional ownership on a global scale. Woofun AI analysis suggests that the removal of Rule 611 and Rule 610(e) serves as a critical prerequisite for the institutional adoption of tokenized stocks, bridging the gap between legacy financial infrastructure and emerging decentralized protocols. The outcome of the 60-day review period will determine the speed and scope of this transformation in the US financial landscape.