U.S. SEC Proposes to Abolish Trade-Through Rule, Tokenized Stock Platforms Could Be Major Beneficiaries
Miles Bennett
The SEC has proposed abolishing the nearly 20-year-old order-protection rule. Tokenized-stock trading platforms are seen as the most direct beneficiaries — the rule was the single biggest structural barrier to completing trades on their own venues.
What is the order-protection rule, and why scrap it?
The order-protection rule — requiring that no stock trade execute at a price worse than the national best bid or offer — has been in force since 2005, binding exchanges, alternative trading systems, and all other market participants.
This means → every stock order must first be compared across every venue nationwide for the best quote before it can fill. Speed became the defining competitive edge of electronic trading.
In plain terms = the rule handed dominance to high-frequency trading firms: whoever posts quotes fastest at the microsecond level wins the order flow.
SEC Chair Paul Atkins has long argued the rule overweights price while ignoring other execution-quality metrics such as the likelihood of getting a fill.
Why do crypto platforms benefit the most?
Tokenized stocks — digital versions of equities issued and traded on a blockchain — currently must route orders to whichever traditional exchange offers the best quote. That makes it nearly impossible for crypto platforms to complete trades on their own venues.
This means → as long as the rule stands, any crypto platform trading regulated stocks would continuously violate it. Galaxy Digital head of research Alex Thorn put it bluntly: such platforms "would arguably become illegal trading centers."
Bloomberg Intelligence market-structure research head Larry Tabb said: "Tokenized equities are really hard to do if there's an order-protection rule. These markets move in microseconds."
What other measures is the SEC preparing?
The SEC is drafting an "innovation exemption" that would let decentralized-finance (DeFi) platforms list tokens without complying with certain requirements, including the order-protection rule.
After the rule change, trading firms must still deliver best execution for investors — but that standard is less stringent than the order-protection rule.
In plain terms = regulators are not removing all guardrails. They are downgrading from "must price-check every venue nationwide" to "reasonably best execution" — opening just enough room for new platforms to operate.
What are traditional exchanges and crypto firms racing to build?
Bullish, the crypto exchange run by former NYSE president Tom Farley, recently agreed to acquire transfer agent Equiniti for $4.2 billion.
The NYSE is building a blockchain-based trading venue for tokenized stocks and ETFs. Nasdaq is developing a token design that gives listed companies more control over their tokenized shares.
Coinbase on Tuesday announced plans to launch tokenized-stock trading outside the U.S. CEO Brian Armstrong said: "For the first time, these are real tokenized equities, backed 1:1 by assets. What you own on-chain is a real piece of equity in the company."
How far is this from becoming reality?
The SEC will open a 60-day public comment period on the proposal, then incorporate feedback into the final version.
The final measure still requires another SEC vote before taking effect.
This means → the direction is clear, but months remain between proposal and implementation. The market is betting on certainty of direction, not on a specific timeline.
Content is for reference only, not financial advice.