Hyperliquid Policy Center and Pyth core contributors urge the SEC to repeal Chain Market Rule 611

The Hyperliquid Policy Center and Pyth core contributors jointly call on the SEC to abolish Section 611 in online markets

The Hyperliquid Policy Center and Douro Labs, a core contributor to Pyth Network, jointly submitted an opinion with the U.S. Securities and Exchange Commission (SEC) advocating the abolition of Section 611. The two organizations also urged the SEC to develop clear guidance for on-chain markets, arguing that current rules no longer apply to a decentralized trading environment.

Why is Article 611 in question?

Article 611 belongs to the rules of the national market system and aims to regulate traditional financial markets, requiring exchanges to summarize quotes to determine optimal prices. However, the two organizations believe that the framework does not apply to on-chain markets with completely different pricing mechanisms. In automated market makers, prices are determined by the liquidity pool at the time of execution, rather than through a centralized bidding system. Similarly, the way in which on-chain order books operate goes beyond the traditional centralized quotation system regulated by Section 611.

submission emphasized that applying Section 611 to on-chain markets is not only impractical, but may also hinder innovation. Instead, the two organizations recommended that the SEC develop principles-based optimal execution guidance specifically designed for on-chain trading environments. Such guidance would provide clarity without imposing outdated infrastructure requirements on decentralized systems.

Investor protection remains a priority

Despite calls for regulatory flexibility, the submission also emphasized that tokenized U.S. stocks should still comply with existing investor protection rules. The two organizations believe that whether using on-chain settlement or traditional settlement models, these assets should not be exempt from the protection measures applicable to traditional assets. This distinction is crucial to promoting innovation while maintaining market integrity.

The SEC's current evolving attitude towards cryptocurrencies and digital assets adds new content to the growing dialogue between industry participants and regulators. The results of this rule-making may have a significant impact on how the U.S. chain market operates and may set a precedent for future regulatory approaches to decentralized finance.

What it means for the industry

For traders and platforms operating in the on-chain domain, the SEC's decision on Section 611 will be of great concern. Repealing the provision could eliminate a significant compliance burden, allowing for more efficient execution and innovation. However, the call for new guidance also suggests that the regulatory clarity that the industry has been demanding for years remains an urgent need.

The opinion also highlights a broader trend: promoting regulatory frameworks that recognize the unique characteristics of the blockchain market. As more and more traditional financial instruments are tokenized, developing consistent and adaptable rules becomes increasingly urgent.

Conclusion

The joint opinion from the Hyperliquid Policy Center and Douro Labs represents a focused effort to align U.S. securities regulation with the reality of on-chain trading. By advocating for the repeal of Section 611 and adopting principle-based guidance, the two organizations aim to create a more appropriate regulatory environment for decentralized markets while maintaining investor protection. The SEC's response will play a key role in shaping the future of U.S. chain finance.

Frequently Asked Questions

Question 1: What is SEC Section 611?
Section 611 is a provision in the rules of the national market system that requires trading centers to establish, maintain and implement policies to prevent trade crossings and ensure that investors receive the best available prices. This clause is specifically designed for traditional centralized exchanges.

Question 2: Why is Section 611 considered inappropriate for online markets?
On-chain markets use automated market makers and order books, which operate outside of a centralized quotation system. Prices are determined by the pool of liquidity at the time of execution, which makes the section 611 aggregation model impractical and may harm efficiency.

Question 3: What alternatives have the two organizations proposed?
They recommended that the SEC repeal Section 611 and develop principles-based optimal execution guidance for on-chain markets, while ensuring that tokenized U.S. stocks remain subject to existing investor protection rules.