"" The Blockchain Association has submitted a comment letter to the SEC supporting the proposed repeal of Rules 611 and 610(e) under Regulation NMS. The rules, adopted in 2005, prevent trading venues from executing transactions at prices worse than protected quotations displayed elsewhere and address locked and crossed quotations.
The Association argues that these rules were written for conventional stock exchanges and do not account for the differences in trading systems that have emerged since their adoption. Tokenized markets can operate differently by combining execution, ownership records, and settlement through blockchain systems, which may not always result in the best displayed price for an investor.
The Association suggests that the SEC should modernize best execution guidance alongside any rescission of the rules. It also argues that compliant on-chain trading systems should be able to satisfy regulatory duties through methods suited to their technology.
The proposal remains under consideration, and neither rule has been repealed. The SEC has not announced a date for voting on a final version.
The Blockchain Association's letter does not ask the SEC to exempt tokenized securities from federal securities laws. Instead, it argues that these securities can meet requirements for execution, transparency, and investor protection through methods suited to their technology.
The SEC's proposal covers national market system stocks generally, not only blockchain-based products. Any final rescission would affect conventional exchanges, alternative trading systems, brokers, and market makers.
The Association's position is that a rigid focus on displayed price could increase conflicts involving order routing and may not always result in the best overall result for an investor. Instead, the Association suggests that regulation should allow firms to consider those differences when evaluating execution.
The proposal has sparked public comment, with some opposing the repeal because they view Rule 611 as an objective price protection for retail investors. The Blockchain Association takes the opposite position, arguing that the rules should be updated to reflect the differences in trading systems that have emerged since their adoption.
The SEC has maintained that tokenized securities remain subject to existing securities laws, and recording a stock or entitlement on a blockchain does not change its legal status. However, U.S. tokenization projects have continued to expand within regulated structures, and some products have been launched on-chain for more than 70 tokenized equities.
The review is intended to simplify market structure, reduce costs, and allow competition to shape U.S. equity markets. However, the SEC has not established that those results will occur, and the proposing release examines potential benefits and risks.
Some potential benefits of removing the rules include faster trading, greater transparency, and new models for executing trades. However, there are also potential risks, including liquidity limitations, smart contract risks, network congestion, and different investor protection requirements.
The Association's letter does not ask for exemptions for tokenized securities from federal securities laws. Instead, it argues that these securities can meet requirements for execution, transparency, and investor protection through methods suited to their technology.
The proposal remains under consideration, and the SEC has not announced a date for voting on a final version. The Blockchain Association's letter highlights the need for the SEC to update its rules to reflect the differences in trading systems that have emerged since their adoption.
Modernizing Market Structure
The Blockchain Association's proposal highlights the need for the SEC to modernize its rules to reflect the differences in trading systems that have emerged since the adoption of Rules 611 and 610(e). The Association argues that these rules were written for conventional stock exchanges and do not account for the differences in trading systems that have emerged since their adoption.
Benefits of Removing the Rules
Removing the rules could result in faster trading, greater transparency, and new models for executing trades. However, there are also potential risks, including liquidity limitations, smart contract risks, network congestion, and different investor protection requirements.
Next Steps
The proposal remains under consideration, and the SEC has not announced a date for voting on a final version. The Blockchain Association's letter highlights the need for the SEC to update its rules to reflect the differences in trading systems that have emerged since the adoption of Rules 611 and 610(e).
Conclusion
The Blockchain Association's proposal highlights the need for the SEC to update its rules to reflect the differences in trading systems that have emerged since the adoption of Rules 611 and 610(e). The Association argues that these rules were written for conventional stock exchanges and do not account for the differences in trading systems that have emerged since their adoption.
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