ICLE Comments to the SEC on Rule 611
I. Introduction
The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan research center that applies economic analysis to legal and regulatory questions. These comments respond to the Securities and Exchange Commission’s request for comment in File No. S7-2026-20 concerning Rule 611 and Rule 610(e) of Regulation NMS. ICLE welcomes the Commission’s reconsideration of Rule 611. The rule is a notably prescriptive form of mandated market integration. It can constrain execution choices and turn connectivity, data, and access to protected venues partly into regulatory purchases. These are legitimate reasons for liberalization.
However, the record supports broadening exceptions and exemptions more clearly than it supports immediate universal rescission. Rule 611’s rescission could transfer discretion to brokers and other order-handling intermediaries whose incentives and choices may be difficult for customers to observe or evaluate after the fact. The Commission acknowledges uncertainty about displayed liquidity and exchange entry, as well as customer prices and transfers between retail investors and intermediaries.[1]
ICLE’s principal recommendation is that the Commission consider limited Rule 611(d) relief for alternative execution mechanisms, including DLT-enabled models. Such relief could be structured as a pilot or class exemption. The case is prospective rather than based on a large existing market already burdened by Rule 611. It could allow covered trading centers to test new architectures while preserving the existing market as a comparator. The Commission may also wish to consider targeted relief for large trades and low-share venues.
We do not comment on the proposed rescission of Rule 610(e).
II. Targeted Relief Is a Better First Experiment Than Universal Rescission
Rule 611 need not remain permanent merely because universal rescission is premature. However, full rescission would make the entire national market system the experiment while weakening the benchmark needed to measure the result.
We note that a coalition of 15 asset managers and institutional investors representing more than $1.45 trillion in assets under management supports a narrower experiment. As an alternative to universal rescission, their letter suggests a venue-share threshold, giving 1% as an example, and a trial period during which a new exchange could receive protected status. The trial period addresses the concern that a threshold could entrench incumbent exchanges before an entrant can attract order flow.[2]
Large trades present a further setting in which targeted relief may be appropriate. An investor may rationally accept a committed price outside the NBBO to avoid execution-induced price movement and information leakage. The Council of Institutional Investors notes that ISO and benchmark exceptions accommodate some blocks. But an ISO still requires better protected quotations to be cleared, while the benchmark exception generally applies only when the price is not based directly or indirectly on the quoted price at execution and the material terms were not reasonably determinable when the commitment was made. Neither necessarily accommodates a committed principal block where a small away quotation is economically immaterial relative to the complete order.[3]
The Commission could consider whether the existing exceptions leave a material residual problem for certain large trades. Any additional relief could be conditioned on safeguards the Commission considers appropriate to preserve best execution and deter evasion.
III. The DLT Case Is Prospective and Architectural
Tokenization alone does not create a distinctive Rule 611 problem. While security remains a security when represented onchain, Rule 611 turns on whether the instrument is an NMS stock, whether a covered trading center executes it, and whether an away quotation is protected.[4] In the Nasdaq model approved by the Commission, tokenized and conventional forms share instrument identifiers and an order book; execution priority and market data are unchanged. The tokenization instruction is principally a post-trade election communicated to DTC.[5]
The stronger concern is prospective: covered trading centers may seek to use DLT-enabled or other mechanisms in which price, quantity, or completion depends on order-specific or conditional processes, or in which execution and settlement are closely linked. In some designs, Rule 611 could require routing or other modifications that materially alter the mechanism to address a comparatively small protected quotation elsewhere [6]
While we do not propose a catalogue of qualifying features, relevant considerations could include whether Rule 611 would prevent or materially distort an otherwise lawful design and whether existing exceptions are adequate. The Commission could define eligibility by reference to functional features rather than blockchain use alone, and decide how to treat comparable non-DLT mechanisms as the record develops.
Rule 611(d) expressly permits the Commission to grant conditional relief by order.[7] The Commission is best placed to determine the appropriate form of relief, covered entities and transactions, and participation conditions. Any order should remain limited to the specified Rule 611(a) constraint and should not displace other applicable regulatory requirements.
IV. Relief Should Not Expand Rule 611’s Existing Perimeter
Any exemption should be drafted so that it does not imply that Rule 611 reaches DLT activity beyond its existing definitions. Professor J.W. Verret argues that Rule 611 does not itself impose duties on unregistered decentralized protocols because those protocols are not trading centers and their prices are not protected quotations. He expressly excludes tokenized instruments traded on registered exchanges or ATSs from that conclusion.[8] Any relief could therefore focus on entities already subject to Rule 611, without resolving the status of decentralized protocols or other actors.
The Commission need not endorse every possible characterization of a decentralized system or its associated actors. It should instead make clear that the exemption neither decides nor expands those questions. This caution is familiar in experimental DLT relief.[9] A Commission order is legally different, but the same drafting discipline is appropriate.
V. Any Relief Should Be Limited and Informative
The Commission should retain flexibility to develop any pilot or other conditional relief in light of the record and potential participants. Participants should identify covered activity and provide enough information to explain the basis for relief and evaluate material risks and outcomes.
The Commission could tailor recordkeeping and reporting to the mechanism. Evidence could include execution quality for the order size, total costs, completion and settlement, price impact, information leakage, and operational incidents. These factors should support a contextual comparison with conventional execution where feasible, not a mandatory formula or connectivity obligation. The Commission should determine the method and level of detail.
Relief would remove only the specified Rule 611 constraint; it would not authorize a venue or determine status under other regimes. Best execution requirements would remain separate.[10] Participation should neither confer protected status on a DLT quotation nor require other brokers to connect.
VI. Conclusion
The Commission need not choose between preserving Rule 611 and universal rescission. On this record, targeted, reversible relief is the better first experiment. We recommend considering limited relief for covered trading centers testing alternative architectures, including DLT-enabled models, with proportionate safeguards and reporting. The Commission can determine form, scope, eligibility, duration, and procedure while preserving Rule 611’s perimeter and avoiding any implication that relief expands jurisdiction over decentralized systems. Large trades and low-share venues may warrant separate consideration.
[1] Securities and Exchange Commission, The Trade-Through Rule and Locked and Crossed Markets Provisions of Regulation NMS, Exchange Act Release No. 34-105655, at 76–77, 158–72, 231–33 (June 11, 2026) [hereinafter Trade-Through Rule Proposal].
[2] Acadian Asset Management LLC et al., Comment Letter on File No. S7-2026-20, at 1–3 (Aug. 12, 2026).
[3] Securities and Exchange Commission, Trade-Through Rule Proposal, supra note 1, at 102–04, 163–66, 249; Council of Institutional Investors, Comment Letter on File No. S7-2026-20, at 3–6 (Aug. 13, 2026).
[4] Securities and Exchange Commission & Commodity Futures Trading Commission, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020, at 23–24 (Mar. 17, 2026); 17 C.F.R. §§ 242.600(b), 242.611.
[5] Securities and Exchange Commission, Order Approving a Proposed Rule Change to Enable the Trading of Equity Securities in Tokenized Form, Exchange Act Release No. 34-105047, at 3–7, 11–13 (Mar. 18, 2026).
[6] Solana Policy Institute, Comment Letter on File No. S7-2026-20, at 2–4 (Aug. 13, 2026); Ondo Finance Inc., Comment Letter on File No. S7-2026-20, at 1, 3–8, 11–12 & annex A (Aug. 11, 2026).
[7] 17 C.F.R. § 242.611(d); Securities and Exchange Commission, Regulation NMS, Exchange Act Release No. 34-51808, at 520 (June 9, 2005).
[8] J.W. Verret, Comment Letter on File No. S7-2026-20, at 3 (Aug. 13, 2026).
[9] Securities and Exchange Commission, Division of Trading and Markets, No-Action Letter re DTC Tokenization Services, at 6–7 (Dec. 11, 2025).
[10] Trade-Through Rule Proposal, supra note 1, at 40–42; FINRA, FINRA Requests Comment on Modernizing FINRA’s Best Execution Guidance, Regulatory Notice 26-15, at 6–8, 16–17 (July 24, 2026).