Blockchain Association urges SEC to drop 2 trading rules
The Blockchain Association urged the U.S. Securities and Exchange Commission to rescind two provisions of Regulation NMS, arguing that rules written for conventional stock exchanges could restrict tokenized securities markets.
Summary
- Blockchain Association urged the SEC to rescind Regulation NMS Rules 611 and 610(e) as proposed.
- Rule 611 prevents trades through protected quotations displaying better prices across registered U.S. trading venues.
- Rule 610(e) restricts national exchanges from displaying quotations that lock or cross protected markets nationwide.
- The Association argues existing rules can obstruct tokenized markets using automated and continuous blockchain settlement.
- The SEC comment deadline was August 17, while commissioners have not approved any final rescission.
The Washington based industry group published its comment letter on Aug. 18 supporting the proposed repeal of Rules 611 and 610(e). The SEC issued the proposal on June 11 under file number S7-2026-20.
The proposal remains under consideration. Neither rule has been repealed, and the Commission has not announced a date for voting on a final version.
Blockchain Association backs repeal of both rules
Rule 611, commonly called the Order Protection Rule, generally prevents trading venues from executing transactions at prices worse than protected quotations displayed elsewhere.
The rule was adopted in 2005 to connect fragmented U.S. equity markets and protect displayed prices across exchanges. It requires trading centers to maintain policies designed to prevent prohibited trade throughs, subject to exceptions.
Rule 610(e) addresses locked and crossed quotations. A locked market occurs when the best bid equals the best offer. A crossed market occurs when a bid exceeds an available offer.
The provision requires national securities exchanges and associations to maintain rules reasonably designed to prevent members from displaying quotations that lock or cross protected quotations.
The Blockchain Association’s letter supports removing both provisions. It argues that trading systems have become faster, more automated and more interconnected since the rules were adopted.
The group also said the rules assume trading through conventional order books where displayed price serves as the main measure of execution quality. Tokenized markets can operate differently by combining execution, ownership records and settlement through blockchain systems.
Group says price should not be the only measure
The Blockchain Association argued that the best displayed price may not always produce the best overall result for an investor. Other factors can include transaction fees, execution certainty, settlement speed, liquidity and counterparty exposure.
Blockchain venues can also execute and settle transactions together rather than separating the trade from a settlement process that occurs later. The Association said regulation should allow firms to consider those differences when evaluating execution.
“Public blockchains can enable 24/7 trading, faster settlement, greater transparency, interoperability, and new models for executing trades,” the Association said.
These are claims about potential benefits. Blockchain settlement can still face liquidity limitations, smart contract risks, network congestion and different investor protection requirements.
The group asked the SEC to modernize best execution guidance alongside any rescission. Removing Rule 611 would not eliminate a broker’s wider duty to seek favorable terms for customer orders.
SEC Commissioner Mark Uyeda also said removing the rules would raise questions about best execution, transparency, trading mechanics and investor confidence. He described the proposal as the beginning of a broader market structure review rather than its endpoint.
Tokenized securities remain covered by U.S. law
The letter does not ask the SEC to exempt tokenized securities from federal securities laws. It argues that compliant onchain trading systems should be able to satisfy regulatory duties through methods suited to their technology.
Blockchain Association said the Commission should recognize tokenized securities trading as capable of meeting requirements for execution, transparency and investor protection. The exact obligations would depend on the asset, venue and intermediaries involved.
As previously reported, SEC officials have maintained that tokenized securities remain subject to existing securities laws. Recording a stock or entitlement on a blockchain does not change its legal status.
U.S. tokenization projects have nevertheless continued expanding within regulated structures. In related coverage, Ondo Finance placed a BlackRock ETF and Micron shares on Ethereum while retaining the underlying securities through traditional custody arrangements.
Kraken backed xStocks has also launched an onchain engine for more than 70 tokenized equities. Its products operate across Ethereum and Solana, although availability and investor rights vary by jurisdiction.
These products show why the interaction between blockchain execution and existing market rules has become a live regulatory issue. They do not establish that removing Rules 611 and 610(e) would automatically permit every tokenized trading model in the United States.
SEC proposal would change traditional equity markets
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.
Chairman Paul Atkins said the review was intended to simplify market structure, reduce costs and allow competition to shape U.S. equity markets.
Atkins said the proposal is “intended to simplify market structure and reduce costs,” but the SEC has not established that those results will occur.
The proposing release examines potential benefits and risks. Without Rule 611, venues could gain more flexibility in routing and execution, but investors could also receive trades at prices inferior to displayed quotations elsewhere.
Some public commenters opposed the repeal because they view Rule 611 as an objective price protection for retail investors. They argued that relying more heavily on brokers’ best execution assessments could increase conflicts involving order routing.
The Blockchain Association takes the opposite position. It argues that a rigid focus on displayed price can prevent investors from choosing venues offering faster settlement, lower total costs or other benefits.
What happens next for Regulation NMS
The formal comment deadline for the proposal was Aug. 17, following publication in the Federal Register on June 17. The Association announced its submission one day after the listed deadline, although its statement says the letter was submitted to the Commission.
SEC staff will review the comments before deciding whether to recommend a final rule, modify the proposal or leave the existing provisions in place. The Commission may also request further information.
Any final rescission would require another Commission vote and publication in the Federal Register. The SEC would need to specify an effective date and any transition requirements.
The Association also wants updated best execution guidance that addresses tokenization and extended trading. FINRA is separately accepting comments through Sept. 25 on possible changes to its best execution guidance following the SEC proposal.
