I’ve been watching market-structure debates for years, and every so often a filing lands that makes you sit up a little straighter. This week it was a joint letter from the Hyperliquid Policy Center and Douro Labs. They told the Securities and Exchange Commission, without any hedging, that Regulation NMS Rule 611 should be repealed entirely. Not tweaked. Not modernized in pieces. Gone. And they made the case that the rule, born in 2005, simply cannot stretch to cover automated market makers, continuous onchain order books, and trading that never sleeps.
Why the Old Trade-Through Rule Feels Out of Place
Rule 611 is the one people still call the trade-through rule. In plain terms, it tells trading centers they generally cannot execute an order at a price worse than a protected quotation showing a better price somewhere else in the linked U.S. system. The whole machine runs on consolidated market data that produces the National Best Bid and Offer. That framework worked reasonably well when most liquidity lived in firm displayed quotes on traditional exchanges that closed at 4 p.m. Eastern.
Onchain markets do not behave that way. An automated market maker calculates an execution price from the state of a liquidity pool at the exact moment an order arrives. Some onchain central limit order books do show bids and offers, yet those prices never feed into the consolidated tapes that generate the NBBO. Markets run twenty-four hours. Network fees, atomic settlement, and the risk of transaction ordering all sit outside the original rule’s imagination.
I’ve found that the mismatch becomes obvious the moment you try to force an onchain venue into the old quotation model. The displayed reference price may not even capture the final cost a customer actually pays once protocol charges and market impact are included. That is not a small technicality. It is a structural gap.
What the Joint Letter Actually Asked For
The twenty-two-page comment letter arrived on the final day of the public comment period. The groups supported the Commission’s June proposal to rescind Rule 611 and the related restriction on locked and crossed quotations. They did so without qualification. Then they went further.
They asked regulators to recognize qualifying independent reference prices in situations where the NBBO either does not exist or fails to reflect onchain conditions. Those benchmarks, they said, should rely on transparent methodologies and resist manipulation. One model they pointed to involves aggregated pricing data drawn from exchanges and trading firms actively involved in price formation, then published onchain. Importantly, they did not ask the Commission to anoint any single provider as mandatory.
They also urged coordination with the Financial Industry Regulatory Authority on principles-based guidance for onchain execution. Existing best-execution expectations, they argued, do not fully address network fees, atomic settlement, transaction-ordering risks, or markets that operate when traditional consolidated data is unavailable.
The stock market’s rulebook was built for 2005’s technology. Retiring the trade-through rule and relying on best execution—a duty that follows the order to any venue, at any hour—offers a cleaner path forward.
That framing feels right to me. Best execution is already a core broker obligation. It travels with the order. It does not depend on a protected quotation existing at a particular second on a particular tape.
Tokenized Equities Stay Inside the Securities Framework
One of the sharper points in the letter concerns tokenized versions of NMS stocks. The groups asked the Commission to confirm that these instruments remain inside Regulation NMS and the broader best-execution regime. Investor protections should not hinge on whether ownership records sit on a blockchain.
That request arrives at a moment when tokenized stock products are expanding. Different legal structures appear. Some represent claims against an issuer or special-purpose vehicle rather than direct ownership of the underlying shares. The legal form still matters. The blockchain used for trading or settlement does not rewrite the securities analysis.
In my view, this is the part of the conversation that will matter most over the next few years. If tokenized equities proliferate while the regulatory perimeter stays clear, brokers and platforms can innovate without creating a two-tier protection system. If the perimeter blurs, everyone loses confidence.
How Best Execution Might Evolve for Onchain Venues
Repealing Rule 611 would not erase a broker’s duty to seek favorable terms for customers. The letter treats that duty as the primary investor-protection standard going forward. The question becomes how to apply it when the market never closes and the price formation process itself is algorithmic.
The groups suggested evaluating the effective execution price after accounting for protocol charges, network fees, and the market movement caused by the order itself. Settlement speed and reduced counterparty settlement risk could also factor into the assessment. That approach feels more realistic than pretending every onchain trade can be measured against a traditional NBBO that may not exist at that hour.
Perhaps the most interesting aspect is the recognition that one displayed reference price may never capture the final cost. Onchain venues often price according to order size and available liquidity at the precise moment of execution. The old quotation model assumes firm, static interest. The new model is dynamic and path-dependent.
- Network fees become part of the true cost calculation
- Atomic settlement reduces certain counterparty risks
- Transaction ordering can affect the final price a customer receives
- Markets operating outside traditional hours lack a live NBBO
Any guidance that ignores those realities will feel incomplete the first time a retail order hits an automated market maker at 2 a.m.
The Broader Market-Structure Context
The Commission proposed the repeal in June. The agency also suggested removing related definitions and making conforming changes elsewhere in Regulation NMS. Chairman comments at the time emphasized simplification and cost reduction, while promising a careful review of public feedback. The existing rules remain in force until a final vote and adopting release.
Not every commenter supports removal. Some filings warned that dropping the objective price-protection standard could place heavier reliance on individual brokers’ routing systems. Others raised questions about transparency and investor confidence. Those concerns are legitimate and deserve serious attention.
I’ve watched similar debates play out before. When technology moves faster than the rulebook, the choice is rarely between perfect protection and no protection. It is between a rule that no longer maps to reality and a more flexible standard that still holds intermediaries accountable. Best execution has always been that flexible standard. The letter simply asks the Commission to lean on it more deliberately.
Independent Reference Prices as a Practical Bridge
One concrete proposal stood out. When the NBBO is unavailable or does not reflect onchain conditions, regulators could recognize independent reference prices that meet certain quality thresholds. Transparency of methodology and resistance to manipulation would be essential.
The letter cited an existing model that aggregates pricing information from firms active in price formation and publishes the result onchain. It stopped short of requesting official endorsement of any single source. That restraint is useful. Markets need reliable benchmarks, yet locking in one provider creates its own set of risks.
In practice, such benchmarks could help brokers demonstrate that an execution was reasonable even when traditional consolidated data was silent. They could also give compliance teams a clearer audit trail. Whether the Commission ultimately adopts that idea remains open, but the suggestion itself shows how policy can adapt without inventing an entirely new framework from scratch.
Settlement Exceptions and Regular-Way Trading
The letter also floated an interpretive point. Onchain transactions may already qualify for an existing exception in Rule 611 that covers trades not executed on regular-way settlement terms. The groups asked the Commission to confirm that reading if repeal is delayed or declined. This remains their legal position, not an official determination.
Atomic settlement is one of the clearer advantages of onchain venues. Counterparty risk shrinks when delivery and payment happen in the same transaction. Traditional rules built around multi-day settlement cycles do not always capture that benefit. Clarifying the exception, even as a temporary measure, would reduce uncertainty while the larger repeal process continues.
What Happens Next at the Commission
The comment period closed on the same day the joint letter was filed. The Commission now reviews the full set of responses from exchanges, investment firms, trade associations, and other participants. Any final decision requires a Commission vote and an adopting release that sets the effective date and final text.
No timetable has been announced. That is normal. Market-structure changes of this magnitude rarely move overnight. Yet the direction of travel is clearer than it was a year ago. Technology has already created continuous, automated, and globally accessible trading venues. The question is whether the regulatory framework will catch up or continue to measure those venues against a 2005 template.
I tend to think the better path is the one the letter sketches: retire the rule that no longer fits, keep the duty of best execution firmly in place, and give brokers and platforms clear principles for applying that duty in an onchain environment. Investor protection does not disappear. It simply travels with the order instead of depending on a protected quotation that may not exist.
Practical Implications for Brokers and Platforms
If the repeal moves forward, brokers will need to update internal policies and surveillance systems. Routing logic that currently checks for trade-throughs against the NBBO will require adjustment. Documentation of best-execution reviews will likely place greater weight on effective price, total cost, and settlement characteristics.
Platforms operating onchain venues will face their own set of questions. How do they demonstrate that their pricing methodology is fair and transparent? How do they handle periods when traditional market data is thin or unavailable? Clear answers to those questions will matter for both regulatory comfort and customer trust.
I’ve seen firms underestimate the operational lift that follows a major rule change. Training desks, updating compliance manuals, and recalibrating surveillance alerts all take time. Starting that work early, even while the Commission deliberates, is simply prudent.
Investor Confidence and the Long View
Some market participants worry that removing an objective price-protection rule could erode confidence. That concern deserves respect. At the same time, a rule that produces frequent technical exceptions or simply does not apply to a growing share of trading activity can itself undermine confidence. Clarity and consistency usually serve investors better than a formal standard that no longer matches how markets actually function.
Best execution has proven durable across decades of technological change. It is principles-based. It requires reasonable diligence under the circumstances. Those circumstances now include continuous markets, algorithmic pricing, and settlement that can be instantaneous. Updating the surrounding rules to reflect that reality does not weaken the core obligation. It may actually strengthen it by removing an outdated overlay.
The letter from the Hyperliquid Policy Center and Douro Labs is one data point among many. Yet it crystallizes a tension that has been building for years. Markets have moved. The rulebook is still catching up. Whether the Commission ultimately votes to repeal Rule 611 or seeks a different path, the conversation itself is healthy. It forces everyone to ask what investor protection should look like when the trading day never ends and the price is calculated by code rather than by a specialist on a floor.
In the end, the most useful standard may be the one that follows the order wherever it goes, at whatever hour it arrives, and judges the outcome by the total experience the customer receives. That is not a radical idea. It is simply best execution applied to the market we actually have rather than the market we had twenty years ago.
Looking Ahead Without Overpromising
No one should assume the proposal will sail through unchanged. Public comments cut both ways. Commissioners have already flagged legitimate questions about transparency, trading mechanics, and confidence. The deliberative process exists for a reason.
Still, the direction of the discussion has shifted. Continuous onchain markets are no longer hypothetical. Tokenized versions of traditional equities are already trading. Automated market makers process real volume. Pretending those venues can be forced into a 2005 quotation model does not serve anyone well. Acknowledging the mismatch and updating the framework does.
I’ve found that the most durable regulatory solutions tend to be the ones that keep the core investor-protection principle intact while letting the surrounding machinery evolve. Best execution is that principle. Rule 611 was a tool designed for a different environment. Tools can be retired when they stop fitting the job. The obligation to treat customers fairly does not retire with them.
That, more than any single policy preference, is the point worth carrying forward. Markets will keep changing. The duty of care should remain steady. Everything else is implementation detail—and implementation is exactly what the Commission must now decide.
The joint letter did not invent the tension between old rules and new technology. It simply stated the tension clearly and offered a coherent way through it. Whether that path is the one ultimately chosen, the conversation itself has already moved the ball. For anyone who cares about both innovation and investor protection, that movement is worth watching closely.
Market structure rarely makes headlines for long. Yet the rules that govern how orders are handled shape outcomes for every participant, from the largest institution to the smallest retail account. Getting those rules right for an era of continuous, automated, and globally accessible markets is not a side project. It is core work. The filing submitted on the final day of the comment period is one contribution to that work. The next steps belong to the Commission.
Until a final decision appears, the existing framework remains in place. Brokers continue to operate under current trade-through obligations. Platforms continue to design systems around the rules as they stand. Preparation for possible change, however, can begin now. Policy, technology, and market practice rarely move in perfect lockstep. The firms that stay slightly ahead of the curve usually fare better when the lockstep finally occurs.
That practical reality may be the quiet takeaway from this entire episode. Rules matter. Technology moves. Investors still need protection that actually works in the environment they trade in. Aligning those three elements is the ongoing task. The letter simply made the misalignment harder to ignore.
