The Blockchain Association has urged the U.S. Securities and Exchange Commission to repeal two Regulation NMS rules that the industry group says could obstruct the development of tokenized securities markets. The request highlights a growing tension between traditional market structure regulations and the emerging world of onchain asset trading.
The Rules in Question
The two rules at issue are Rule 611, known as the Order Protection Rule, and Rule 610(e), which governs access to national exchanges. Both are part of Regulation NMS, the framework that has governed U.S. equity market structure since 2005. The Blockchain Association argues that these rules, designed for traditional equity markets, could create barriers for tokenized securities that trade on blockchain-based platforms.
Rule 611 requires trading venues to route orders to the exchange displaying the best price, a concept known as trade-through protection. While this works well for traditional equities, applying it to tokenized assets could create technical and legal complications, particularly when assets trade across both traditional exchanges and decentralized platforms simultaneously.
Rule 610(e) governs how market participants access exchange services. For tokenized securities, the rule could impose requirements that are incompatible with the peer-to-peer nature of blockchain trading, where direct settlement onchain is a core feature.
Why Tokenization Needs Different Rules
Tokenized securities represent traditional financial assets like stocks, bonds, and fund shares on a blockchain. They can trade 24/7, settle instantly, and be divided into fractional units. These characteristics make them fundamentally different from traditional securities, which trade during market hours, settle in T+1 or T+2, and are typically sold in whole units.
Applying traditional market structure rules to tokenized assets without modification could force blockchain-based trading platforms to adopt the limitations of legacy systems, negating many of the advantages that tokenization offers. The Blockchain Association is arguing that the SEC should create a regulatory pathway that accommodates the unique characteristics of onchain trading while preserving the investor protections that Regulation NMS was designed to provide.
The SEC's Dilemma
The SEC faces a difficult balancing act. On one hand, it needs to protect investors and maintain orderly markets, which are the core objectives of Regulation NMS. On the other hand, it must avoid creating rules that stifle innovation in tokenization, which many see as a significant opportunity for the U.S. financial system.
The tension is not unique to the SEC. Regulators around the world are grappling with how to adapt traditional financial regulations to blockchain-based trading. The EU's MiCA framework and other international efforts represent different approaches to the same problem.
What's at Stake
The outcome of this debate could shape the future of tokenized securities markets in the United States. If the SEC modifies or exempts tokenized assets from Regulation NMS rules, it could accelerate the development of onchain trading infrastructure. If it applies the rules as-is, it could push tokenization activity to more accommodating jurisdictions.
The Blockchain Association's request is part of a broader industry push for regulatory clarity around tokenization. Recent SEC delays around tokenization rules have frustrated the industry, and this latest request underscores the urgency of resolving the regulatory uncertainty.
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