TL;DR
- the second It proposed repealing NMS Rules 611 and 610(e), both of which are tied to the structure of the U.S. stock market.
- The proposal is not a cryptocurrency rule, and the SEC has not placed it under a blockchain or token stock measure.
- Industry analysts say the change could be important for tokenized shares given the difficulty of reconciling existing routing and quoting rules with on-chain trading models.
- The proposal is open for public comment and still faces a long rulemaking process before any final change.
The US Securities and Exchange Commission has proposed eliminating two NMS rules that determine how traditional US stock markets are oriented and offer orders, a move that could also become important for the future structure of tokenized shares.
The SEC’s proposal focuses on Rule 611, known as the order protection or trade-through rule, and Rule 610(e), which restricts cross-lock and cross-quotes. These are stock market structure rules, not cryptocurrency rules, and the SEC’s press release does not describe the proposal as designed for blockchain markets.
However, the proposed rollback is attracting the attention of observers of digital asset market structure because token stocks and real-world asset platforms must ultimately fit into the same broader stock market framework.
What the SEC is proposing
Rule 611 was adopted in 2005 and generally prohibits trading centers from executing trades at prices lower than protected prices quoted elsewhere. Rule 610(e) addresses locked or cross-place bids, where cross-place bids and offers create conflicts in the market structure.
Securities and Exchange Commission Chairman Paul S. Atkins said the rules introduced unintended complexity after two decades of market development. The agency said the proposal aims to simplify the structure of the traditional stock market, reduce trading complexity, and reduce costs for market participants.
The SEC estimated that removing the rules could save exchanges, alternative trading systems, brokers and over-the-counter market makers between $54.2 million and $77 million annually in infrastructure compliance, monitoring and routing costs.
The proposal will be open for a 60-day public comment period after publication in the Federal Register. This means that they are not final, and the market will still have time to evaluate them before adopting any changes to the rules.
Why tokenized stocks are entering the conversation
The coding angle is not part of the SEC’s stated rationale, so it needs to be addressed carefully. The potential importance comes from how cross-chain trading systems work compared to traditional stock venues.
Automated market makers, or AMMs, execute trades against liquidity pools using pricing formulas rather than routing each order through traditional venues to verify the best national bid and offer. Under a strict trading framework, this model may be difficult to reconcile with tokenized issues of US stocks.
In other words, if a token share AMM executes a trade at a price that does not match protected quotes elsewhere, this could create compliance issues under current market structure rules. In theory, a shift away from strict per-trade routing requirements could make it easier to design compliant stock trading systems based on blockchain technology.
This does not mean that token shares suddenly become legal everywhere if the SEC finalizes the proposal. Exchanges, brokers, alternative trading systems, custodial providers, and token asset platforms will still need to meet a long list of securities law requirements.
What still needs to happen
The most important caveat is that the SEC’s proposal is still a proposal. It must go through a comment process, and the agency can revise, narrow its scope, or abandon parts of it before adopting any final rule.
There are also remaining exchange-level and FINRA rules that may require separate updates. Changing NMS regulation will not automatically remove all barriers facing token stocks or real-world asset markets.
For cryptocurrency investors, the importance is indirect but real. Traditional market structure rules help determine the types of trading systems that can legally operate in the U.S. securities markets. If these rules become more flexible, it may become easier to plot the path of tokenized stocks.
The SEC is not proposing a tokenization system for cryptocurrencies here. But by rethinking outdated stock market systems, the agency may open a broader conversation about what modern, automated and potentially on-chain markets should look like.
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