The SEC proposed scrapping Rule 611 and Rule 610(e) of Reg NMS, arguing blockchain-based trading systems can match orders at the NBBO without the trade-through prohibition. 60-day comment period follows.
The SEC on June 11 proposed removing two rules from Regulation NMS that have kept blockchain-based trading platforms from directly accessing the national best bid and offer. The proposal targets Rule 611, the order-protection rule, and Rule 610(e), which governs access fees. Both were written for a world of centralized exchanges and discrete quotes, the agency said in its filing.
Rule 611 requires trading centers to prevent executions at prices worse than protected quotes displayed elsewhere. Rule 610(e) caps access fees and prohibits exchanges from charging rates that effectively block market data. The SEC argued that blockchain-based systems, which maintain a shared continuous ledger of orders, can match trades at the national best bid or offer without needing a trade-through prohibition. Rescinding the rules would let these venues compete on equal footing with traditional exchanges and alternative trading systems, the filing said.
The move addresses a specific friction. Blockchain platforms today must either connect to the NMS feed and comply with Rule 611's routing requirements, or operate outside the NMS ecosystem entirely. That limits their access to order flow. Removing the rule would allow them to execute trades directly against protected quotes without building a separate routing layer.
The proposal does not eliminate all fair-access provisions. The SEC said it intends to keep the prohibition on locking or crossing the market and the requirements for quotation display. The trade-through protection itself would disappear.
Industry reaction has been mixed. The SEC noted in its filing that several comment letters from exchanges and broker-dealers warned that removing Rule 611 could fragment liquidity and harm retail investors who rely on best-execution protections. Blockchain proponents have argued the rule is obsolete in an environment where every participant sees the same distributed ledger.
The proposal is subject to a 60-day public comment period. The SEC will then weigh the feedback before deciding whether to adopt the change. A commission vote is required.
A similar effort in 2023 to update Reg NMS for crypto markets stalled. This time the SEC tied the proposal directly to blockchain-based equity trading, not just digital assets. The agency said it will consider parallel changes to accommodate tokenised securities once the framework is finalised.
Trading volumes on blockchain-based platforms remain small relative to traditional exchanges. The proposal could lower a barrier that has kept them from scaling. If approved, it would be the first major revision to Reg NMS since its inception in 2005. The SEC will accept public comments for 60 days before a commission vote.
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