I’ve been watching the slow dance between regulators and blockchain builders for years, and every so often something shifts that feels bigger than the usual back-and-forth. Last week one of those shifts landed quietly on the final day of a public comment window. The Blockchain Association filed a letter urging the Securities and Exchange Commission to finish what it started in June: scrap two aging pieces of Regulation NMS that have governed U.S. equity markets since 2005. The group’s argument is simple and, in my view, hard to ignore. Those rules were written for a different era of trading technology. Keeping them in place now risks slowing the arrival of tokenized securities that can settle almost instantly on public blockchains.
Why Two Old Rules Suddenly Matter Again
Regulation NMS arrived two decades ago with the goal of creating a more connected and fair national market system. Rule 611, often called the Order Protection Rule, stopped trading venues from filling an order at a worse price when a better one sat protected on another exchange. Rule 610(e) went further by limiting the display of quotations that locked or crossed those protected prices. A locked market means the best bid equals the best offer. A crossed market means the bid is higher than the offer. Both situations were treated as problems that needed strict policing.
For years the rules worked more or less as intended in traditional electronic markets. Speed increased, spreads tightened, and retail investors saw better fills. Yet technology did not stop in 2005. Markets became faster, more automated, and more fragmented. Now a new layer is forming on top of everything that already exists: the ability to represent ownership of real-world securities as tokens on public blockchains. That change forces a second look at rules designed for a world of continuous matching engines and inter-exchange linkages.
The SEC itself opened the door in June when it proposed repealing both Rule 611 and Rule 610(e), along with related definitions in Rule 600. Chair Paul Atkins noted that two decades of experience had revealed unintended costs and complexity. The agency said the move would simplify market structure, lower expenses, and let competition and technology play larger roles in how orders find their counterparties. The public comment period closed on August 17. The Blockchain Association’s letter arrived right on the deadline.
What the Association Actually Argued
The filing does not merely cheer the proposal. It digs into why the rules have outlived their usefulness and how their removal would clear space for tokenized markets. The association states that Rules 611 and 610(e) have failed to deliver their original promises while imposing substantial, unnecessary costs for twenty years. Trading technology has evolved dramatically. Blockchain infrastructure now offers another way to issue, transfer, and settle securities. Continuing to force every transaction through the old framework risks freezing innovation in place.
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.
That sentence sits near the top of the letter and sets the tone. The group then connects the dots to tokenized securities. Existing Regulation NMS requirements can interfere with the development of markets that execute and settle on public blockchain networks. The same logic that supports removing the rules also supports giving market participants more flexibility when they evaluate tokenized transactions. Execution quality, the association argues, should account for more than the quoted price alone. Blockchain markets can deliver other benefits that traditional venues struggle to match.
I find this framing useful. Price is important, of course. But instantaneous settlement, atomic delivery-versus-payment, reduced intermediary layers, and programmable compliance features are not trivial side benefits. They change the risk profile of a trade. Treating them as irrelevant because a rule written in 2005 never contemplated them feels shortsighted.
How Tokenized Securities Actually Work in Practice
Tokenization is not a vague future concept anymore. Several projects have already moved real U.S. securities onto public chains while keeping the underlying assets inside regulated custody. One structure records securities interests as tokens on Ethereum yet leaves the actual shares with traditional broker-dealers and transfer agents. The tokens represent beneficial ownership rather than replacing the legal claim. Investors still hold the same rights they would hold in a conventional account. The difference is speed of transfer and the ability to use the token inside other onchain applications.
In another recent example, a company tokenized its own common stock across two public blockchains at the moment it began trading on a major exchange. The blockchain versions were designed as direct representations of the same shares rather than a separate class of equity. These experiments sit at the edge of current rules. They test whether blockchain records can operate inside the existing securities system without rewriting the legal rights attached to the underlying asset.
The Blockchain Association wants the SEC to go one step further. Beyond simply repealing the two NMS rules, the group asks the agency to update its approach to best execution. Broker-dealers already carry an obligation to seek favorable terms for customer orders. The association argues that execution standards should account for features available through blockchain infrastructure. In plain language, completing a trade on a public network should be recognized as a compliant way to achieve fair and efficient execution when the overall outcome benefits the customer.
The SEC should recognize employing an onchain execution mechanism as a compliant means of achieving fair and efficient execution.
That request matters. Best execution is not a single bright-line test. It is a principles-based obligation that already considers factors beyond pure price. Adding settlement certainty, operational resilience, and reduced counterparty risk to the list of relevant factors would give firms clearer permission to explore tokenized venues without fearing second-guessing later.
The Broader Regulatory Backdrop
The NMS proposal does not exist in isolation. Over the past year the Commission has examined several pathways for bringing blockchain-based versions of conventional securities under U.S. market rules. One idea under discussion involved an innovation exemption that would let platforms offer tokenized versions of publicly traded shares under defined conditions. Later comments from a commissioner narrowed the expected scope, suggesting any such relief would focus on digital representations of equities that investors can already buy in secondary markets.
Separately, firms have sought no-action relief for specific structures that keep underlying assets in regulated custody while issuing blockchain tokens as representations. These requests ask staff to confirm they would not recommend enforcement action against carefully designed models. The common thread is an attempt to map existing legal concepts onto new technology rather than force technology to pretend it is still 2005.
Commissioner Mark Uyeda raised important questions when the NMS proposal first appeared. Removing Rule 611 could affect best execution analysis, transparency, trading mechanics, and investor confidence. Those concerns are legitimate. Markets need clear rules of the road. Yet the same commissioner and others have also noted that technology changes can reduce the original problems the rules were meant to solve. Market connectivity is far denser today than it was twenty years ago. The case for rigid order protection looks weaker when information moves at the speed of light across multiple venues and when settlement can occur in seconds instead of days.
Practical Benefits Beyond Price Discovery
Let’s step back from the rule text for a moment. Why should anyone outside the industry care whether two subsections of Regulation NMS survive or disappear? Because the answer shapes how capital markets will function for the next decade.
Tokenized securities can settle almost instantly. That shortens the window during which either party carries counterparty risk. It also frees up capital that currently sits idle during the traditional settlement cycle. For institutions that move large blocks, the difference compounds quickly. For smaller investors the benefit appears as lower friction and fewer failed trades.
Programmability is another quiet advantage. Smart contracts can enforce transfer restrictions, dividend payments, or voting rights automatically. Compliance checks that once required teams of intermediaries can run in code. None of this replaces the need for regulation. It simply moves certain operational steps onto rails that are faster and more transparent by design.
Of course risks remain. Smart contract vulnerabilities, oracle failures, and custody mistakes can still cause losses. Regulatory clarity does not eliminate those dangers. It does, however, reduce the legal uncertainty that currently discourages many traditional firms from experimenting at scale. When the rules are clearer, more capital and more talent tend to follow.
What Happens After the Comment Period
The comment window is now closed. The Commission will review the submissions, including the Blockchain Association letter and whatever other views arrived before the deadline. Staff will prepare recommendations. Commissioners will eventually vote. The process is deliberate by design. No one should expect overnight change.
Still, the direction of travel is visible. Two long-standing rules are under serious review. Market participants have been invited to explain how technology has altered the original assumptions. A major industry group has linked the discussion explicitly to the future of tokenized securities and onchain execution. Those facts alone move the conversation forward.
In my experience, regulatory progress rarely arrives as a single dramatic announcement. It arrives as a series of technical adjustments that, taken together, change the feasible set of market designs. Repealing Rules 611 and 610(e) would be one such adjustment. Recognizing onchain mechanisms as potentially compliant with best-execution duties would be another. Both would lower the barriers that currently sit between traditional securities and public blockchain infrastructure.
Looking Ahead Without Overclaiming
Tokenized markets will not replace conventional exchanges tomorrow. Liquidity still concentrates where it has always concentrated. Investor habits change slowly. Custody and identity solutions need further maturation. Yet the direction is clear. Ownership interests in real assets will increasingly exist as programmable tokens. Settlement will move closer to the moment of trade. Intermediaries will specialize in the functions that remain valuable rather than those that technology can automate.
The Blockchain Association’s filing is one data point in that longer story. It does not invent the technology. It simply asks the regulator to stop applying twenty-year-old constraints to a market that no longer looks like the one those constraints were written for. That request feels reasonable. Whether the Commission ultimately agrees will shape how quickly the next phase of market infrastructure can develop.
For now the record is open, the arguments are public, and the rules themselves sit under formal review. Anyone who cares about the intersection of traditional finance and blockchain systems should pay attention to what comes next. The details will be technical. The consequences will not be.
Key Points Worth Watching
- The SEC proposed repealing Rule 611 and Rule 610(e) of Regulation NMS in June
- The Blockchain Association filed supporting comments on the final day of the public window
- The group linked the rule changes to greater flexibility for tokenized securities markets
- It also asked the Commission to recognize onchain execution as potentially compliant with best-execution duties
- Several real-world tokenizations of U.S. equities and funds have already tested hybrid custody models
None of these developments guarantees a smooth path. Markets and regulators move at different speeds. Yet the conversation has shifted from whether tokenization belongs in regulated markets to how the existing rulebook should adapt. That shift alone is progress. The next steps will determine how much of that progress turns into working infrastructure that investors can actually use.
I keep returning to one practical observation. Rules written for continuous, high-frequency electronic markets struggle when settlement can occur in the same transaction that executes the trade. Forcing every new design to contort itself around protections designed for a different architecture creates friction that serves no one particularly well. Removing outdated constraints while preserving core investor protections feels like the more durable path. The Blockchain Association has made that case. The Commission now has the record in front of it.
Whether the final decision lands exactly where the association hopes remains to be seen. What is already clear is that the old assumptions about market structure are no longer taken as permanent. Technology has moved. The rules are being asked to catch up. For anyone building or investing at the edge of traditional finance and blockchain systems, that is a development worth tracking closely.
The coming months will show how seriously the Commission takes the technological arguments that arrived during the comment period. If the two rules are ultimately rescinded and best-execution guidance evolves, tokenized securities will face fewer artificial barriers. If the status quo largely holds, the experiments will continue at the margins. Either outcome will tell us something important about the pace of institutional change. For now the only certainty is that the conversation is no longer theoretical. Real filings, real proposals, and real market experiments are already on the table.
