A policy advocacy group linked to one of crypto's fastest-growing trading platforms has formally backed a U.S. Securities and Exchange Commission proposal to repeal a decades-old stock trading rule, arguing that the regulation designed for 2005 market structure does not fit onchain markets.
The Hyperliquid Policy Center and Douro Labs submitted a joint comment letter to the SEC on August 17 supporting the proposed repeal of Regulation NMS Rule 611, commonly known as the trade-through rule. The rule, adopted in 2005, prevents trading centers from executing orders at prices worse than protected quotations available through other connected venues, using the National Best Bid and Offer as the benchmark.
Why the Rule Does Not Fit Onchain Markets
The Hyperliquid Policy Center and Douro Labs argued in their 22-page letter that the quotation-based framework assumes executable interest appears as firm quotations collected by securities information processors. Onchain markets work fundamentally differently. Automated market makers calculate execution prices from liquidity pools when orders are placed, rather than displaying firm quotes that can be compared against a national benchmark.
Some onchain central limit order books do display bids and offers, but those prices are not currently incorporated into the consolidated feeds used to calculate the NBBO. This creates a structural mismatch: the rule designed to protect investors by ensuring they get the best available price cannot function when the prices it is meant to compare are generated through entirely different mechanisms. For more on how DeFi protocols are engaging with regulators, see our coverage of SEC regulatory actions affecting crypto markets.
The Case for Best Execution Standards
Repealing Rule 611 would not remove brokers' obligation to seek favorable execution terms for their customers. The groups argued that this best execution duty should remain the central investor protection standard, but that existing guidance does not fully address the realities of onchain trading. Their letter asked the SEC to coordinate with the Financial Industry Regulatory Authority on principles-based guidance for onchain execution.
Specifically, the filing identified gaps in current guidance around network fees, atomic settlement, transaction ordering risks, and markets operating when the NBBO is unavailable. Onchain venues may calculate prices based on order size and available liquidity at execution time, meaning a displayed reference price may not capture the final cost a customer receives. The groups proposed evaluating the effective execution price after accounting for protocol charges, network fees, and market movement caused by the order itself.
Independent Reference Prices for Onchain Markets
When the NBBO does not exist or does not reflect onchain conditions, the groups asked regulators to recognize qualifying independent reference prices. They suggested such benchmarks should use transparent methodologies and resist manipulation, citing Pyth Network — which receives pricing information from exchanges and trading firms involved in price formation and publishes aggregated data onchain — as one possible model, without requesting that the SEC endorse it as mandatory.
Douro Labs is a core contributor to Pyth Network, which creates a potential conflict of interest that the groups did not address explicitly in the letter. However, their broader argument — that onchain markets need pricing benchmarks that reflect their actual trading mechanics — raises legitimate questions about how traditional securities regulations apply to decentralized trading infrastructure.
Tokenized Stocks and Regulatory Clarity
The filing also asked the SEC to confirm that tokenized versions of NMS stocks remain within Regulation NMS and the broader best execution framework. Under this approach, investor protections would not depend on whether ownership records use a blockchain or a traditional settlement system. The request comes as tokenized stock products expand across crypto networks, with platforms launching trading for more than 70 tokenized equities across Ethereum and Solana. For context, read our reporting on Robinhood Chain's tokenization push.
The groups also argued that onchain transactions may qualify for Rule 611's existing exception for trades that do not use regular way settlement terms, asking the SEC to confirm that interpretation if the full repeal is delayed or rejected. This remains their legal position, not an SEC determination.
What Happens Next
The public comment period for the proposal closed on August 17. The SEC will now review responses before deciding whether to adopt, revise, or withdraw the proposal. A repeal would require a final Commission vote and an adopting release establishing the final text and effective date. Not all commenters support removing the rule — some responses warned that repeal could weaken an objective price protection standard and place greater reliance on individual brokers' routing systems.
SEC Commissioner Mark Uyeda acknowledged those concerns in a June statement, noting that removing Rule 611 could raise issues involving best execution, transparency, trading mechanics, and investor confidence. The next decision rests with the SEC, and no final vote, adoption date, or implementation timetable has been announced.
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