SEC's 2005 Best-Price Rule Repeal Faces Wall Street Backlash

The SEC's plan to repeal Rule 611, the 2005 trade-through rule that protects best-price execution, drew backlash from Wall Street and retail investors as the public comment period closed August 17.

Citadel Securities, the largest U.S. market maker, urged the SEC to reconsider the proposal, arguing the rule's removal would erode execution quality for retail investors, according to a comment filed in docket S7-2026-20.

The SEC proposed eliminating Rule 611 on June 11 alongside Rule 610(e), which restricts locked and crossed quotations. Chairman Paul Atkins has opposed the rule since its adoption more than two decades ago, arguing it contributed to fragmented liquidity and produced an increasingly complex and costly system for executing stock trades.

Repealing the rule would remove a structural obstacle to continuous, 24/7 trading on blockchain-based venues, but critics say it would also strip a core investor protection from the U.S. equity market, potentially increasing trading costs for retail investors.

Rule 611, adopted as part of Regulation NMS in 2005, generally prevents trading venues from executing transactions at prices inferior to protected quotations displayed elsewhere. The framework established the National Best Bid and Offer, or NBBO, as a critical reference point for U.S. stock execution. The SEC's proposal says technological improvements and stronger connections among trading venues have reduced the need for the rule and that maintaining it could inhibit new technologies, products and services.

Blockchain Markets Don't Fit the NBBO Model

Hyperliquid Policy Center and Douro Labs submitted a joint comment on August 17 supporting the repeal, arguing that the traditional definition of the "best" available price does not translate effectively to blockchain-based markets. Traditional exchanges continuously publish bids and offers that can be aggregated through securities information processors to determine the NBBO. Automated market makers do not necessarily operate that way — prices can instead emerge algorithmically from liquidity pools at the moment a transaction executes.

Blockchain markets also operate continuously, including overnight, weekends and holidays when conventional U.S. securities markets and their consolidated feeds may not be functioning. Settlement introduces another mismatch: traditional market-data systems can update quotations in microseconds, while blockchain transactions ultimately settle according to block production and network finality.

Douro Labs, a core contributor to Pyth Network, has separately argued that execution quality should account for more than displayed price. Its proposed framework considers factors including execution certainty, privacy, atomicity, finality, slippage and total transaction costs. The company has also advocated allowing verifiable decentralized price feeds such as Pyth to serve as alternatives to centralized market-data infrastructure where appropriate.

What's at Stake for Tokenized Equities

The debate is particularly consequential for tokenized equities. If securities increasingly trade on public blockchains, regulators must determine whether those markets should reproduce the infrastructure of conventional exchanges or satisfy investor-protection requirements through different technological mechanisms. Hyperliquid Policy Center and Douro Labs favor the latter approach, supporting principles-based best-execution requirements rather than prescriptive routing rules, while maintaining that tokenized U.S. stocks should remain subject to applicable investor protections.

Repealing Rule 611 would not itself authorize unrestricted blockchain trading of securities. Broker-dealers, exchanges and tokenized securities would remain subject to other federal securities requirements. But eliminating the trade-through rule could remove a major structural obstacle to markets that operate continuously and settle directly onchain.

The SEC must now decide whether a rule designed to connect fragmented stock exchanges in 2005 still improves execution in a market increasingly experimenting with blockchains, automated liquidity and 24/7 trading. The last time the SEC overhauled Regulation NMS was in 2005, when the rule was first adopted — a period when the U.S. equity market was far less automated and fragmented than today.

This article is for informational purposes only and does not constitute investment advice.