Key facts
- The SEC proposed to rescind rules that ban 'trade-throughs' and prevent exchanges from displaying inferior prices.
- Galaxy's Alex Thorn believes this change is a major unlock for tokenized US stocks.
- Current crypto automated market makers (AMMs) cannot comply with the existing trade-through rules.
- The SEC is likely to implement a 'best execution' framework to replace the rescinded rules.
- The proposal is subject to a 60-day public comment period.
The U.S. Securities and Exchange Commission (SEC) has proposed to rescind two rules within its national market system regulations, a move that could significantly facilitate the trading of tokenized U.S. stocks on decentralized platforms. The proposal targets Rule 611, which prohibits 'trade-throughs' (executing an order at a worse price than available elsewhere), and Rule 610(e), which prevents exchanges from displaying bids at prices inferior to those available on other platforms.
Alex Thorn, head of research at Galaxy, described the proposal as "one of the biggest unlocks yet for tokenized stocks," asserting that it would remove a substantial structural barrier to trading tokenized U.S. equities within decentralized finance (DeFi).
Thorn explained that current automated market makers (AMMs) in the crypto space cannot adhere to trade-through rules because they execute orders based on the pool's current price. He noted that AMMs also lack the ability to halt trades if a better quote exists elsewhere, meaning any tokenized stock pool operating under the existing rules would likely be in violation and considered an illegal trading center. Furthermore, the constantly fluctuating prices from AMMs would also contravene the rule designed to ensure investors receive the best available price across all trading venues.