Hyperliquid, Douro Labs urge SEC to repeal Rule 611 for DeFi

Hyperliquid Policy Center and Douro Labs want the SEC to scrap a trade-through rule written for centralized exchanges, arguing it does not fit onchain markets.

Hyperliquid Policy Center and Douro Labs, a Pyth Network core contributor, urged the SEC to repeal Rule 611, the Regulation NMS trade-through rule, for onchain markets.

The letter argues Rule 611, which requires trading centers to prevent trade-throughs so investors receive the best available price, was built for centralized quote systems that onchain markets do not use. In automated market makers, prices are set by liquidity pools at the moment of execution rather than aggregated quotes, the groups said.

Instead, the groups propose the SEC develop principles-based best execution guidance tailored to onchain trading, while keeping tokenized U.S. stocks subject to existing investor protection rules regardless of settlement model. The request lands as the SEC has paused its own crypto rulemaking — the agency canceled a planned open meeting on its Reg Crypto proposal and an innovation exemption, with sources citing concerns that action could complicate Clarity Act negotiations ahead of a Senate cloture vote scheduled for Sept. 15.

A repeal would remove a compliance burden that treats onchain markets under rules designed for centralized exchanges, potentially lowering execution costs and supporting DeFi trading volumes. The SEC's response, expected after the Clarity Act's fate becomes clearer, will set a precedent for how U.S. securities law applies to decentralized trading infrastructure.

Why Rule 611 Does Not Fit Onchain Markets

Rule 611, part of Regulation NMS adopted in 2005, requires trading centers to establish policies preventing trade-throughs — executions at prices inferior to the best available quote. The framework assumes a centralized quote aggregation model where exchanges publish and compare quotes to determine the national best bid and offer.

Onchain markets operate differently. Automated market makers price assets through liquidity pools at the exact moment of execution, while onchain order books function outside the conventional centralized quote architecture Rule 611 was built to regulate. Applying the rule to these systems would be impractical and could stifle innovation, the letter said, calling for guidance that provides clarity without imposing outdated infrastructure requirements on decentralized systems.

A Paused SEC and a Pending Senate Vote

The comment letter adds to a crowded regulatory calendar. The SEC last week canceled a planned open meeting that would have launched formal rulemaking on Regulation Crypto Assets, a framework for token fundraising, and unveiled a long-delayed innovation exemption. Sources told CoinDesk the White House asked the agency to stand down over concerns that action could complicate negotiations on the Digital Asset Market Clarity Act, which addresses both crypto fundraising and tokenized securities.

Wall Street trade group SIFMA, which has lobbied against broad regulatory relief for crypto and tokenized securities, discussed the possibility of legal action if the SEC exceeded its statutory authority, according to two people familiar with the matter. The Senate is scheduled to hold a cloture vote on the Clarity Act on Sept. 15, with DeFi and developer protections, stablecoin yield provisions, and ethics rules still outstanding.

For traders and platforms in the onchain space, the SEC's decision on Rule 611 will be closely watched. A repeal could remove a significant compliance burden and allow more efficient execution, while new guidance would give decentralized markets the regulatory clarity many have sought for years. As more traditional instruments become tokenized, the need for coherent, adaptable rules grows more urgent — and the SEC's response to this letter will shape how U.S. securities law treats blockchain-based markets.

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