Blockchain Association Urges SEC to Repeal Two Trading Rules
The Blockchain Association submitted a letter to the SEC supporting the repeal of Rule 611 and Rule 610(e) of Regulation NMS, arguing that the structure of the U.S. securities market should adapt to tokenized securities and on-chain trading.
Rule 611, known as the "Order Protection Rule," requires trading centers to avoid executing orders at prices inferior to protected quotes from other trading centers; Rule 610(e) prohibits exchanges from displaying locked or crossed quotes. Both rules have been significant constraints on order routing in the U.S. stock market since 2005.
The SEC proposed to repeal the two rules on June 11, citing the rapid evolution of market structure and the different trading methods introduced by distributed ledgers, automated market makers, and tokenized securities compared to traditional exchange quoting mechanisms; the deadline for comments is August 17.
The core argument of the Blockchain Association is that on-chain trading venues typically do not produce continuously, fixed, publicly comparable quotes in the traditional sense, making the cross-market best quote protection of Rule 611 difficult to apply directly. After repeal, investor protection will rely more on brokers' best execution obligations rather than mandatory routing to the national best bid and offer.
A joint opinion submitted by Douro Labs and the Hyperliquid Policy Center on the same day suggested that the SEC should recognize "qualified reference prices" as a measure of execution quality for on-chain securities trading; this price should be contributed by independent participants, possess anti-manipulation mechanisms, have publicly available data sources and calculation logic, and be regularly verified against SIP data and external sources.
The letter also suggested allowing investors to preset maximum slippage parameters in smart contracts: when the execution price deviates from the specified threshold, the transaction is automatically canceled. This mechanism transforms the traditional external routing constraint of "orders must not cross the best quote" into execution protection conditions directly set by users at the contract level.
From a market mechanism perspective, repealing Rule 611 and 610(e) would reduce the rigid interconnection requirements of traditional stock order routing, providing greater design space for 24/7, instant settlement, AMM, and tokenized equity trading; however, it would also weaken the mechanical protection under a unified quote. Beneficiaries would be on-chain trading venues, tokenized securities issuers, DEX infrastructure, and service providers offering on-chain price oracles; those under pressure would be brokers, exchanges, and retail investors relying on NBBO, SIP, and traditional exchange quote protections. The ultimate strength of protection will depend on whether the best execution rules, reference price standards, and smart contract slippage parameters are verifiable.
Source: Public Information
ABAB AI Insight
Rule 611 originated in the traditional stock market of 2005: trading is dispersed among multiple registered exchanges, alternative trading systems, and broker internalization platforms, with regulation preventing orders from executing at worse prices through the national best bid and offer (NBBO). If tokenized securities settle instantly on-chain, trading records, liquidity pools, and price formation methods no longer naturally connect to SIP and NBBO, leading to misalignment in the definitions of "quotes," "trading venues," and "regular settlement" under the existing rules.
The focus of capital pathways will shift from order routing to price benchmarks and clearing control. In traditional markets, exchanges, SIPs, brokers, and central clearinghouses collectively determine quote visibility and execution quality; in on-chain markets, AMM curves, oracles, liquidity providers, smart contracts, and wallets determine actual execution. The qualified reference price proposed by Douro Labs is essentially a competition for a new compliance benchmark entry: whoever can provide an on-chain reference price recognized by brokers and regulators may become a key infrastructure for tokenized securities trading.
This can be contrasted with the structural reforms in traditional securities markets outside of Europe's MiCA: traditional trading markets reduce information asymmetry through centralized quotes and best execution rules, while DeFi replaces some intermediaries with transparent ledgers, automated matching, and slippage limits. The core difference between the two is not "centralized or decentralized," but whether the pre-trade quotes and post-trade settlements share the same credible data standards. The current phase is still a rule rewriting period; the SEC has only proposed repeal and has not completed the final rule-making; nor has it confirmed any specific on-chain price services will be adopted.
Essentially, this is about the transfer of pricing power: after the repeal of unified quote protection, the assessment of execution quality will shift from the single public benchmark of NBBO to being jointly determined by brokers, reference price service providers, liquidity pools, and user slippage settings. The mechanism is that on-chain markets can match at any time and in any smart contract, but fragmented liquidity may lead to different prices for the same security appearing simultaneously; without a unified, auditable price and best execution framework, trading freedom will increase, and investors' comparison costs and risks of adverse execution will also rise.
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