Blockchain Association urges SEC to repeal two trading rules

The Blockchain Association urges the U.S. Securities and Exchange Commission to repeal two articles of the NMS Regulation

The Blockchain Association urges the U.S. Securities and Exchange Commission (SEC) to repeal two articles of the Regulation NMS Regulation, arguing that rules for traditional stock exchanges may restrict the development of tokenized securities markets.

Abstract

The Blockchain Association calls on the SEC to repeal NMS Regulations 611 and 610(e). Section 611 prohibits trading at registered U.S. trading venues at quotations that are superior to those displayed at other venues. Section 610(e) restricts national exchanges from displaying quotes that lock in or cross nationally protected quotes. The association believes that existing rules may hinder the development of tokenized markets that use automation and blockchain for continuous settlement. The SEC has an August 17 deadline for comment, but commissioners have not yet approved any final repeal decisions.

The Blockchain Association supports the repeal of two rules

The Washington-based industry group issued a comment letter on August 18 supporting the repeal of Rules 611 and 610(e). The SEC filed the proposal on June 11 under document number S7-2026-20. The proposal is still under review, neither rule has been repealed, and the committee has not announced a voting date for the final version.

Section 611, commonly referred to as the "Order Protection Rule", mainly prohibits trading venues from performing transactions at worse prices than protected quotes displayed elsewhere. The rule was passed in 2005 and aims to connect the fragmented U.S. stock market and protect quotes displayed on exchanges. It requires trading centers to maintain policies to prevent illegal trading under certain exceptions. Section 610(e) deals with lock-in and cross-quotes: lock-in markets where the best bid price equals the best ask price, and cross-market where the bid price is higher than the available ask price. The clause requires national stock exchanges and associations to establish reasonable rules to prevent members from displaying quotes that lock in or cross protected quotes.

The Association believes that price should not be the only measure.

The Blockchain Association pointed out in its letter that since the rules were implemented, trading systems have become faster, more automated, and more interconnected. These rules assume that transactions are conducted through traditional order books, showing that price is the primary criterion for measuring the quality of execution. The tokenized market can operate in different ways through a blockchain system that combines execution, ownership recording and settlement. The association believes that best displayed prices do not always provide investors with the best overall results, and other factors include transaction costs, execution certainty, settlement speed, liquidity and counterparty risk. Blockchain platforms can also complete transaction execution and settlement simultaneously, rather than separating transactions from subsequent settlement processes. Regulation should allow companies to consider these differences when assessing the quality of execution, the association said.

"Public blockchains can enable round-the-clock transactions, faster settlements, greater transparency, interoperability and new transaction execution models," the association said. These are claims about potential advantages, but blockchain settlements may still face liquidity restrictions, smart contract risks, network congestion and different investor protection requirements. The association asked the SEC to update best practice guidance while repealing the rules. Repealing Section 611 will not eliminate brokers 'broad responsibility to seek the best conditions for customer orders.

SEC commissioners say broader implications need to be considered.

SEC Commissioner Mark Uyeda also said repealing the rules would raise questions about best enforcement, transparency, trading mechanisms and investor confidence. He described the proposal as the beginning, not the end, of a broader review of market structure. Tokenized securities remain subject to U.S. law. The letter does not require the SEC to exempt tokenized securities from federal securities laws, but advocates that compliant on-chain trading systems should be able to meet regulatory obligations through means appropriate to their technology. The Blockchain Association stated that the committee should recognize that tokenized securities trading can meet enforcement, transparency and investor protection requirements, and specific obligations depend on the relevant assets, trading platforms and intermediaries.

As mentioned earlier, SEC officials have insisted that tokenized securities remain subject to existing securities laws. Recording stocks or interests on the blockchain will not change their legal status. Despite this, U.S. tokenization projects continue to expand within regulated frameworks. Related reports show that Ondo Finance has placed BlackRock ETFs and Micron shares on Ethereum, while retaining the underlying securities through traditional custody arrangements. Kraken-backed xStocks has also launched an on-chain engine covering more than 70 tokenized stocks, and its products run on Ethereum and Solana, but availability and investor rights vary by jurisdiction. These products demonstrate that the interaction between blockchain enforcement and existing market rules has become a real regulatory issue, but this does not prove that repealing sections 611 and 610 (e) will automatically allow all tokenized transaction models to be carried out in the United States.

SEC proposal will affect traditional stock markets

The SEC's proposal covers stocks in the national market system, not just blockchain-based products. Any eventual abolition decision will affect traditional exchanges, alternative trading systems, brokers and market makers. Chairman Paul Atkins said the review aims to simplify market structures, reduce costs and allow competition to shape the U.S. stock market. Atkins said the proposal "aims to simplify market structures and reduce costs," but the SEC has not yet determined whether those results will be achieved. The proposal release document analyzes the potential benefits and risks. Without Section 611, trading platforms might gain more flexibility in routing and execution, but investors might also get worse trading prices than displayed elsewhere. Some public commentators oppose repeal because they believe section 611 provides objective price protection for retail investors. They believe that relying more on brokers 'best execution assessments may increase conflicts involving order routing. The Blockchain Association takes the opposite stance, arguing that a rigid focus on displayed prices may prevent investors from choosing trading platforms that offer faster settlements, lower total costs, or other advantages.

Next step for the NMS Regulations

The formal comment deadline for the proposal is August 17, after being previously published in the Federal Register on June 17. The association announced the submission of opinions one day after the deadline, but its statement stated that the letter had been submitted to the committee. SEC staff will review the comments and then decide whether to recommend final rules, amend the proposal, or retain existing terms. The committee may also request more information. Any final repeal decision would require a second vote by the committee and publication in the Federal Register. The SEC needs to specify an effective date and any transition requirements. The association also hopes to update its best execution guidance to cover tokenization and extended trading times. Following the SEC proposal, FINRA is accepting separate comments on possible changes to its best execution guidance with a deadline of September 25.