A fight over two old U.S. market-structure rules could decide how far tokenized securities are allowed to run on public blockchains.
- Blockchain Association backs SEC repeal plan
- Rules 611 and 610(e) are the target
- Tokenized equities need legal clarity, not hype
- Best execution remains the real test
The Blockchain Association has filed a comment letter backing a U.S. Securities and Exchange Commission proposal to repeal two Regulation NMS rules, arguing the move could open the door for tokenized securities to trade more cleanly on public blockchains.
The SEC proposal, issued on June 11 and assigned file number S7-2026-20, would rescind Rule 611 and Rule 610(e). The public comment period ended on Aug. 17.
That may sound like obscure market plumbing. It is. But it’s the kind of plumbing that decides whether blockchain-based securities are a real market structure upgrade or just another crypto demo with a glossy deck and too much caffeine.
Regulation NMS is the SEC framework that governs how U.S. national market system stocks are quoted and traded across venues. The rules under review were adopted in 2005, long before tokenized equities, onchain settlement, or public-blockchain market rails were part of the conversation.
Rule 611 is the trade-through rule. In plain English, it generally requires brokers and trading venues to avoid executing at a worse price when a better protected quote is available on another market.
Rule 610(e) restricts locked and crossed quotations. A market is locked when the best bid equals the best offer. It is crossed when the best bid is higher than the best offer. That can create confusion and signal that market data or routing is getting messy.
The SEC says the proposal is meant to simplify U.S. equity market structure, lower costs, and allow more competition and technology in order execution. SEC Chair Paul Atkins has said two decades of experience with Rule 611 gave the regulator reason to look for unintended consequences.
The Blockchain Association’s argument is blunt: those rules no longer fit a market that is increasingly automated and now trying to bring real-world assets onchain. In its comment letter, the group said Rules 611 and 610(e) have failed to achieve their stated purposes and have instead imposed “substantial, unnecessary costs” on market participants for “the past two decades.”
It also said the SEC should recognize onchain execution as a compliant means of achieving fair and efficient execution. That is the heart of the issue. If a blockchain can help execute and record a securities trade cleanly, the question is whether the law will treat that as a legitimate market rail or as an awkward exception begging for paperwork.
There is a real case for modernization here. Tokenization means representing ownership or economic rights in an asset as a blockchain token. Done properly, it can reduce settlement friction, improve interoperability, and potentially cut some of the middleman drag that still slows traditional finance to a crawl.
But there is also a very unsexy truth: tokenization does not magically erase securities law, custody requirements, or investor protections. A tokenized stock is not the same thing as a free-floating crypto asset. Most serious structures still rely on broker-dealers, transfer agents, and regulated custody. The chain may be the new rail; the legal reality still sits underneath it.
That is exactly why Ondo Finance’s model matters. In July, Ondo put U.S. securities onchain using a structure that kept the underlying assets in regulated custody and issued blockchain-based representations through a registered transfer agent. The initial deployment included BlackRock’s iShares Core S&P 500 ETF and Micron Technology shares on Ethereum.
Ondo said the tokens were backed 1:1, meaning each token was intended to correspond directly to an underlying asset interest held in the traditional system. Ondo also said the securities never leave the traditional regulated custody chain.
That is the kind of detail that separates a real product from crypto theater. The structure is not pretending that ownership rights vanish into some mystical blockchain void. It keeps the legal assets where the law already knows how to handle them, while using blockchain for issuance, transfer, and recordkeeping.
Ondo’s model is not a full replacement for traditional market infrastructure. It is a wrapper around it. And that is not a criticism. It is the point. The serious version of tokenization is usually less “Wall Street dies” and more “Wall Street gets a new database and a faster settlement layer.”
Still, the SEC is right to be cautious. Commissioner Mark Uyeda said removing Rule 611 could raise questions involving best execution, transparency, trading mechanics, and investor confidence. That is not anti-innovation hand-wringing. It is the basic question regulators are supposed to ask before letting a new execution model loose on investors.
Best execution means broker-dealers must seek the most favorable terms reasonably available for a customer order. A tokenized market venue may sound efficient, but if it fragments liquidity or makes price protection harder to verify, the end result could be worse for investors, not better.
That is where the hype runs into the wall. A blockchain can be fast and transparent in theory, but securities markets are not just about speed. They are about fairness, routing, liquidity, custody, disclosure, and who gets stuck holding the bag when something breaks.
At the same time, the SEC is clearly not ignoring the tokenization trend. Commissioner Hester Peirce has narrowed expectations around a possible tokenized equities exemption, saying it would be limited to digital representations of equity securities investors can already buy in public secondary markets. That is a narrow lane, but a meaningful one.
In other words, the SEC may be willing to experiment, but it is not ready to let anybody turn public markets into a Wild West with prettier interfaces.
The Blockchain Association’s position is easy to understand. Regulation NMS was built for a different market era, and some of its protections can become friction in an age of automated execution and tokenized settlement. If public blockchains can provide fairer or cheaper trading mechanics, the old rules should not survive just because they are old.
That said, tokenized securities are not a magic fix for broken market structure. They can still depend on centralized gatekeepers. They can still be wrapped in legal complexity. And they can still be used as marketing paint on top of the same old financial plumbing if regulators do not draw the lines clearly.
There is also a bigger policy question hanging over all of this: how much of traditional equity market structure can move onchain without changing the legal rights tied to the underlying asset? That is the real battleground, not the branding war over who gets to say “future of finance” with a straight face.
The SEC is now being forced to answer a practical question rather than a theoretical one: can public blockchains function as compliant execution venues for securities, or do the old rules still need to stand guard?
Key questions and takeaways
-
Why does Rule 611 matter so much?
Rule 611 is the trade-through rule, so it helps protect investors from worse-priced executions when a better quote exists elsewhere. If the SEC repeals it, tokenized securities may have more room to use onchain execution models, but investor protection becomes a bigger concern.
-
What does Rule 610(e) do?
It limits locked and crossed markets, where the best bid equals or exceeds the best offer in a problematic way. That rule is meant to keep quotes orderly and reduce market confusion.
-
Are tokenized securities already being tested?
Yes. Ondo Finance put U.S. securities onchain using Ethereum, with BlackRock’s iShares Core S&P 500 ETF and Micron Technology shares in its initial deployment. The model keeps the underlying assets in regulated custody and uses blockchain for representation and transfer.
-
Does tokenization mean stocks are becoming fully decentralized?
No. Most tokenized securities still rely on broker-dealers, transfer agents, and regulated custody. The blockchain may handle the recordkeeping or execution layer, but the legal structure is still anchored in the traditional system.
-
What is the biggest regulatory hurdle?
Best execution, transparency, trading mechanics, and investor confidence. The SEC needs to know that onchain execution can match or improve existing market quality, not just look innovative.
-
Could the SEC create a tokenized equities exemption?
Possibly, but likely in a narrow form. Hester Peirce has indicated any carveout would probably be limited to digital representations of equity securities that investors can already buy in public secondary markets.
The bottom line is simple: the debate is no longer about whether tokenization is possible. It is about whether it can survive contact with securities law without becoming just a shinier version of the same old middlemen.
Further reading
A few useful regulatory and market-structure references for anyone tracking where tokenized securities may run into the guardrails.
- Blockchain Association urges SEC to drop NMS rules
- SEC proposal on The Trade-Through Rule and Locked and Crossed Markets
- Updated SEC Division of Corporation Finance statement
- SEC filing on The Trade-Through Rule and Locked and Crossed Markets
- SEC proposal rescinding Regulation NMS’s trade-through rule
- Blockchain Association urges SEC to drop old trade rules as tokenized markets gain ground
- SEC reworks CAT audit trail as market structure changes could affect tokenized securities
- SEC targets tokenized securities as SEC-CFTC crypto turf war continues
