Tokenized Stocks Gain Boost As SEC Proposes NMS Changes

by · Blockonomi

TLDR

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  • SEC proposed rescinding Rules 611 and 610(e).
  • The proposal targets trade-through and quotation restrictions.
  • Galaxy said the move could help tokenized stocks in DeFi.
  • TD Cowen expects final SEC action in Q1 2027.
  • Tokenized equities still face ATS and settlement hurdles.

The U.S. Securities and Exchange Commission has proposed removing two market structure rules that affect equity trading. The proposal targets Rules 611 and 610(e) of Regulation NMS, which govern trade execution and quotation practices. Market participants said the changes could create new opportunities for tokenized U.S. stocks on decentralized finance platforms.

SEC Moves To Reshape Regulation NMS Framework

According to the SEC, the proposal seeks to rescind Rules 611 and 610(e) of Regulation NMS. The agency said the changes would simplify market structure requirements and lower compliance costs. SEC Chairman Paul Atkins said the proposal supports competition and innovation across equity markets. The agency also opened a 60-day public comment period. Related definitions within Regulation NMS are included in the review.

Rule 611 currently prevents trade-throughs in NMS stocks. Trading venues cannot execute transactions at prices worse than protected quotations elsewhere. Rule 610(e) prevents trading centers from displaying locked or crossed quotations. Both provisions have formed part of U.S. market structure since 2005. The SEC now seeks feedback before determining next steps.

Atkins explained the agency’s reasoning in a public statement. “This proposal is intended to simplify market structure and reduce costs for market participants,” he said. He added that competition and innovation should help shape future market development. The SEC has not proposed a final implementation date. Public comments will help inform the agency’s decision process.

Industry Participants Highlight DeFi Opportunities

Galaxy Digital head of research Alex Thorn described the proposal as a major development. Thorn said Rule 611 creates structural challenges for tokenized stock trading in DeFi. Automated market makers, or AMMs, execute trades through liquidity pools rather than traditional exchanges. As a result, they cannot comply with certain trade-through requirements. Thorn argued that the rule limits onchain trading models.

According to Thorn, AMMs cannot route intermarket sweep orders or guarantee compliance with protected quotations. He also said AMMs cannot continuously monitor quote conditions across traditional exchanges. “An AMM cannot comply with 611 by construction,” Thorn wrote. He argued that tokenized stock pools could otherwise face regulatory issues. Those concerns stem from the design of decentralized trading systems.

Thorn also pointed to challenges under Rule 610(e). AMMs use continuous price discovery that may produce prices matching or crossing national quotations. Traditional venues must prevent those quotation conditions. Thorn said rescinding the rule could remove another technical obstacle. He added that decentralized systems operate differently from conventional trading venues.

Analysts Expect Further Progress On Tokenization

Thorn said FINRA Rule 5310 could become more relevant if the proposal advances. That rule relies on a principles-based best execution framework. According to Thorn, the approach can accommodate decentralized trading models more effectively. He said the SEC is following a market structure strategy focused on innovation. Thorn also referenced the agency’s planned innovation exemption framework.

TD Cowen managing director Jaret Seiberg expects the proposal to move forward. In a research note, Seiberg said repealing the rules has remained a priority for Atkins. He expects the SEC to finalize the proposal during the first quarter of 2027. Seiberg also said tokenization pilots could receive exemptive relief before final approval. “We still expect that soon,” he wrote.

Despite the proposal, tokenized equities still face other regulatory requirements. Exchange registration and alternative trading system registration remain unresolved issues. Clearance and settlement requirements also continue to apply. Thorn said the SEC’s future innovation exemption may address some concerns. The agency has not yet released details regarding that exemption.

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