The SEC's proposed elimination of Rule 611 would remove a significant regulatory barrier for tokenized US stocks trading on decentralized exchanges, according to Galaxy Digital's Alex Thorn.
Rule 611, known as the Order Protection Rule, currently requires market participants to prevent trades that execute at prices worse than the national best bid or offer. The rule applies broadly across US equity markets and creates compliance friction for traditional trading systems. Applied to decentralized platforms, it creates near-impossible technical requirements.
Thorn argues that scrapping the rule would allow tokenized stock protocols to operate without retrofitting their systems to enforce centralized price checks. Decentralized exchanges operate without a single arbiter, making real-time price protection inherently difficult. The rule essentially assumes a centralized market structure that DEXs reject by design.
The move reflects growing SEC acknowledgment that different market structures require different rulebooks. Tokenized stocks represent a genuine use case for blockchain infrastructure. Companies like Broadridge and Polygon have already launched tokenized stock platforms targeting institutional investors. Removing this friction could accelerate adoption.
However, the elimination carries real tradeoffs. Rule 611 exists to protect retail investors from getting picked off on bad prices. Without it, DEX users could theoretically execute trades at stale prices if the blockchain network is congested or if arbitrageurs haven't yet corrected pricing. The protection benefit becomes asymmetric.
Galaxy's framing highlights the regulatory pragmatism required for tokenized assets. The SEC cannot force decentralized platforms to operate like traditional exchanges. Instead, policymakers must ask whether rules designed for centralized systems make sense when applied to distributed networks. For tokenized stocks, the answer appears to be no.
This signals the SEC may be softening its stance on crypto infrastructure at the margin. Rule 611 elimination would be minor compared to broader approvals like spot Bitcoin ETFs