The U.S. Securities and Exchange Commission has proposed rescinding two cornerstone rules of Regulation NMS – the trade-through rule and the locked/crossed quotations ban – in a move that could reshape how stock orders are routed and executed. The proposal, announced by the agency under its current leadership, is not yet final and is open for public comment, inviting a wave of feedback from exchanges, brokers, high-frequency trading firms, and alternative trading systems.
Why the trade-through rule is under fire
Rule 611, known as the trade-through rule, requires trading centers to avoid executing orders at prices worse than protected quotations displayed on other venues. In practice, it forces brokers to route orders around a web of exchanges to secure the best displayed price, adding layers of compliance checks and routing complexity. Critics have long argued that the rule, written when trading was slower and markets were less fragmented, now imposes unnecessary costs and delays. The SEC's proposal suggests that eliminating it could reduce those frictions.
What the proposal does and doesn't say
The proposal also targets Rule 610(e), which prohibits locked or crossed markets – situations where bid and ask prices overlap or invert. The ban was meant to prevent confusion, but today's algorithmic traders often work around it with speed. The SEC does not frame the rescission as a direct boost to any specific type of trading platform, and the text makes no mention of tokenized equities. Still, the practical effect could be significant for newer market models that rely on continuous, 24/7 order books.
Potential beneficiaries: tokenized equities
Tokenized equity platforms – which offer faster settlement, programmable ownership, and fractional access – operate on a different infrastructure than traditional exchanges. They often struggle to fit inside the strict routing and quoting obligations of Reg NMS. If the trade-through rule disappears, these platforms could find it easier to execute orders without having to check every protected quote across dozens of venues. The SEC under its current chair has shown willingness to revisit rules written before on-chain settlement and round-the-clock digital-asset markets existed. While the proposal doesn't name them, the simplification of execution frameworks could indirectly lower barriers for tokenized platforms.
Incumbents prepare for a fight
Market incumbents – including major exchanges, broker-dealers, and high-frequency trading firms – are expected to flood the comment period with competing views. Some will argue that removing the trade-through rule could harm retail investors by allowing worse prices if brokers stop seeking the best available quote. Others will claim it frees up capital and reduces latency. The comment period gives each group a chance to shape the final rule, and the outcome is far from certain. The SEC has not set a deadline for comments, but the window is open.
