I still remember the first time someone tried to explain to me why a rule written in 2005 could stop a completely digital trade from settling in seconds instead of days. It sounded almost absurd until you looked at the fine print. That is exactly the tension the Blockchain Association just put in front of the Securities and Exchange Commission. On the surface it is a simple request: drop two provisions of Regulation NMS. Underneath it sits a much larger argument about whether U.S. equity markets should stay locked into the architecture of the early 2000s or finally make room for tokenized securities that move at blockchain speed.
Why Two Old Rules Suddenly Matter Again
The Association’s comment letter, submitted as the formal window closed, focuses on Rule 611 and Rule 610(e). Most people outside the trading desks have never heard of them. Yet these two paragraphs of text still shape how every share of Apple or any other listed stock can be bought or sold across the country.
Rule 611 is the Order Protection Rule. In plain language it says a trading venue cannot execute a customer order at a price worse than a better price already displayed somewhere else in the national market system. It was designed to stop brokers from ignoring a better quote just because that quote lived on a different exchange. At the time, that made sense. Markets were fragmented, technology was slower, and displayed prices needed real protection.
Rule 610(e) tackles locked and crossed markets. A locked market happens when the best bid equals the best offer. A crossed market appears when a bid is actually higher than an available offer. The rule requires exchanges and associations to keep their members from posting quotes that create those situations. Again, the goal was orderly, transparent pricing.
Both rules assumed a world of continuous order books, human or electronic market makers, and settlement that took days. Tokenized securities do not live in that world. On a public blockchain the trade, the ownership record, and the settlement can collapse into a single atomic step. That changes the math of what “best execution” even means.
The Case Against Rigid Price Protection
The Blockchain Association does not claim that price no longer matters. It claims that price should not be the only thing that matters. I’ve found that this distinction is easy to miss if you still think in traditional market terms. When settlement is instantaneous, counterparty risk drops. When ownership is recorded on a shared ledger, transparency rises. When trading can run 24 hours a day, liquidity can appear at hours that used to be dead zones.
In that environment an investor might rationally accept a slightly worse displayed price in exchange for faster finality, lower total fees, or reduced exposure to an intermediary that could fail overnight. Under the current Rule 611 framework, a venue that offers those advantages can still be blocked from completing the trade if a better price is showing somewhere else in the national system. The Association calls that outcome outdated.
Public blockchains can enable 24/7 trading, faster settlement, greater transparency, interoperability, and new models for executing trades.
That sentence from the letter is not marketing fluff. It is a description of capabilities that already exist in limited form. Several platforms have already placed tokenized versions of familiar equities and ETFs on public chains while keeping the underlying securities in traditional custody. The legal status of those tokens remains tied to the original security. The technology simply changes how the claim moves from one wallet to another.
What the SEC Actually Proposed
The Commission floated the idea of rescinding both rules in a proposal released in June. The formal comment period ran through mid-August. Staff will now review the letters, including the Association’s, and decide whether to recommend a final rule, a modified version, or no action at all. Any actual change would still need a Commission vote and an effective date with transition rules.
Chairman Paul Atkins has framed the review as an effort to simplify market structure and lower costs so that competition, rather than rigid mandates, shapes how trading works. That language is carefully neutral. It does not promise that tokenized markets will suddenly become the dominant venue. It simply opens the door for experimentation that the 2005 rules currently make difficult.
Commissioner Mark Uyeda has been more cautious in public remarks. He noted that removing the rules would immediately raise fresh questions about best execution obligations, transparency, and investor confidence. In his view the proposal is the start of a broader conversation, not the finish line. That feels right to me. Markets do not rewire themselves overnight just because two rules disappear.
Best Execution Still Exists Without Rule 611
One of the quieter but important points in the Association’s letter is that brokers would still owe customers a duty of best execution. That duty lives in broader regulatory expectations and in FINRA guidance, not solely in Rule 611. Removing the automatic price-protection mechanism would simply give firms more room to weigh factors beyond the displayed quote.
FINRA has already opened its own comment process on possible updates to best-execution guidance. That parallel track matters. If the SEC steps back from the rigid order-protection rule, the industry still needs clear expectations about how brokers should document and justify their routing decisions when settlement speed or total cost becomes part of the equation.
In my experience, the most practical risk is not that investors suddenly receive terrible prices. The risk is that the new flexibility gets used unevenly. Large institutional desks will adapt quickly. Smaller brokers and retail-focused platforms may need clearer examples and updated compliance tools before they feel comfortable routing away from the traditional national best bid or offer.
Tokenized Securities Are Still Securities
Nothing in the Association’s request asks for an exemption from federal securities laws. That is worth underlining. Recording a share of a company on a blockchain does not turn it into something other than a security. The same disclosure rules, the same antifraud provisions, and the same registration requirements still apply. The letter simply argues that compliant on-chain systems should be allowed to satisfy those obligations in ways that match their technology.
Several live experiments already operate inside that reality. One platform has tokenized a well-known ETF and shares of a major semiconductor company while keeping the underlying assets with traditional custodians. Another has launched an on-chain trading engine covering dozens of tokenized equities across two major public networks. Availability still depends heavily on jurisdiction, and investor rights can differ from ordinary shares. Those limitations are real. They also show that the regulatory conversation has moved past pure theory.
The Traditional Market Angle
It would be a mistake to treat this proposal as a crypto-only story. Any final rescission would rewrite the operating rules for every national securities exchange, every alternative trading system, every broker, and every market maker that handles ordinary stocks. The benefits and the risks would land on conventional equity trading first.
Without Rule 611, venues gain flexibility in how they route and match orders. Investors might sometimes receive executions that look worse on a pure price basis but better once fees, speed, and certainty are counted. Some commenters have already warned that retail investors could lose an objective form of price protection and become more dependent on brokers’ subjective judgments about “best” execution. That concern is legitimate. The Association’s counter-argument is that a rigid focus on displayed price can itself prevent investors from capturing other advantages that technology now makes possible.
Perhaps the most interesting aspect is how the two sides talk past each other. One side sees Rule 611 as a necessary safeguard that has protected retail investors for two decades. The other side sees it as a technological straightjacket that freezes market structure at the moment when continuous blockchain settlement is becoming practical. Both can be true at the same time, which is why the Commission’s eventual decision will be watched so carefully.
What Happens After the Comment Letters
Staff will now sort through the submissions. They may ask for more information. They may recommend modest changes rather than full rescission. Or they may decide the current framework still serves its purpose and leave the rules intact. Any final action requires another formal vote and publication. Transition periods would almost certainly be part of the package so that firms have time to adjust systems and compliance programs.
In the meantime the Association has asked for something broader than simple deletion of two rules. It wants the Commission to modernize best-execution guidance so that the guidance itself recognizes tokenization and extended trading hours. That request is practical. Rules do not operate in isolation. Guidance, enforcement priorities, and industry practice all travel together.
Risks That Still Need Attention
Even the strongest supporters of the proposal acknowledge that blockchain settlement is not risk-free. Liquidity on many tokenized products remains thinner than in traditional markets. Smart-contract bugs can still surface. Network congestion can delay finality at inconvenient moments. Investor-protection regimes built for intermediaries may need recalibration when the intermediary is partly replaced by code. None of those issues disappear if Rules 611 and 610(e) are removed.
I’ve found that the healthiest conversations treat these risks as engineering and governance problems rather than reasons to freeze progress. Markets have absorbed technological shifts before. Electronic trading, decimalization, and high-frequency strategies each forced regulators and firms to update their assumptions. Tokenization is the next iteration of that process.
A Practical Look at Execution Quality
Think about what an investor actually cares about when placing an order. The headline price is obvious. But so is the likelihood that the trade will complete, the total cost after fees and spreads, the speed at which ownership becomes final, and the residual risk that an intermediary will fail before settlement. Traditional markets score well on some of those dimensions and less well on others. Blockchain-based venues reverse some of the trade-offs.
If regulation continues to force every venue to behave as if price is the only measurable factor, then the venues that improve the other factors are systematically disadvantaged. That is the core of the Association’s argument. It is not an argument that price should be ignored. It is an argument that the regulatory definition of quality should expand to match the technology now available.
- Displayed price remains important but is no longer the sole metric
- Settlement finality can reduce overnight and counterparty risk
- 24-hour trading windows create new liquidity patterns
- On-chain transparency changes how investors verify ownership
- Interoperability between chains and traditional systems is still evolving
None of those points require belief that blockchain is magic. They simply require recognition that the infrastructure of 2005 is not the infrastructure of 2026.
How Market Structure Actually Evolves
Every major shift in U.S. equity market structure has followed a similar pattern. First a technology or business model appears that does not fit the existing rulebook. Then industry groups and regulators begin a slow conversation about whether the rulebook should bend. Eventually either the rules change or the new model finds a compliant niche that does not trigger the old constraints. Tokenized securities are currently in the middle of that cycle.
The difference this time is the speed of the underlying technology. Settlement that once took three business days can now occur in minutes or seconds. Ownership records that once lived in separate silos can live on a shared ledger visible to every participant. Those capabilities do not automatically improve investor outcomes, but they do change the set of possible outcomes. Regulation that freezes the set of possible outcomes at 2005 levels will eventually look anachronistic.
That does not mean every experiment should be waved through. It means the burden of proof should shift. Instead of asking whether a new model can perfectly replicate the old safeguards, the more useful question is whether the new model produces equal or better overall results for investors once all factors are counted.
The Quiet Role of Best Execution Guidance
Even if Rules 611 and 610(e) disappear, the obligation to seek the most favorable terms reasonably available for a customer order remains. That obligation is flexible by design. It already allows brokers to consider factors beyond price when those factors are material. Updated guidance that explicitly addresses tokenization, continuous trading, and atomic settlement would simply make the existing flexibility more usable and more consistent across firms.
Without that guidance, firms that want to route toward faster settlement or lower total cost may hesitate. Compliance teams prefer clear examples. Examiners prefer documented policies. Ambiguity slows adoption even when the underlying technology is ready. That is why the Association’s request for parallel modernization of best-execution expectations is more than a secondary footnote.
Investor Confidence and the Transparency Trade-Off
Some observers worry that removing automatic price protection will reduce the transparency that retail investors have come to expect. In traditional markets the national best bid and offer acts as a public benchmark. If that benchmark becomes less binding, the argument goes, investors will have a harder time judging whether they received a fair deal.
There is force to that concern. At the same time, on-chain systems can make certain aspects of a trade more transparent than traditional systems ever could. The final ownership record, the exact timestamp of settlement, and the sequence of prior transfers can all be verified by anyone with access to the ledger. The form of transparency changes. Whether the new form is better or worse depends on the specific design of the venue and the quality of the tools available to ordinary investors.
I tend to think the industry still has work to do on the user-experience side of that transparency. A blockchain explorer is not the same thing as a clear confirmation screen that shows a retail investor exactly what happened and why. Bridging that gap is part of the practical work that must accompany any regulatory shift.
Looking Ahead Without Overpromising
It is easy to overstate how quickly tokenized securities will reshape daily trading. Liquidity, custody arrangements, tax treatment, and cross-border recognition all still constrain growth. The Association’s letter does not claim those constraints have vanished. It claims that two specific rules written for a different technological era should not be allowed to freeze the next stage of development.
Whether the Commission agrees remains an open question. The proposal is still under review. Comments have been collected. Staff analysis is underway. The eventual decision will tell us something important about how U.S. regulators view the relationship between market structure rules and technological change.
For now the practical takeaway is straightforward. Tokenized securities are already operating inside the existing legal framework. The question is whether the framework will continue to force those securities to behave as if they lived on the infrastructure of twenty years ago, or whether it will allow them to use the capabilities that the new infrastructure actually provides. The Blockchain Association has made its preference clear. The next move belongs to the Commission.
In the months ahead, watch for two signals. First, any formal recommendation that emerges from the staff review. Second, the tone of updated best-execution guidance that FINRA and the SEC may issue in parallel. Those two documents together will shape how far and how fast tokenized trading can move while still remaining fully compliant with U.S. securities law. The conversation that began with a comment letter about two obscure rules is, in reality, a conversation about the future shape of American equity markets.
