Benchmark Equity Research has identified the U.S. Securities and Exchange Commission’s (SEC) June 11 proposal to eliminate two long-standing market structure regulations as the most significant U.S. crypto-related regulatory development of the year. The firm posits that rescinding Rules 611 and 610(e) of Regulation NMS could remove a critical impediment to trading tokenized equities on automated market makers (AMMs) and other decentralized platforms.
Key Takeaways
- Benchmark considers the SEC’s proposal to rescind Regulation NMS Rules 611 and 610(e) the year’s most consequential U.S. crypto regulation.
- The proposal is expected to remove a key barrier to the trading of tokenized equities on AMMs.
- Securitize is identified as a primary potential beneficiary, with Coinbase and Galaxy Digital also noted.
- Significant regulatory questions regarding registration, custody, and settlement for decentralized trading remain.
The SEC’s proposal aims to abolish Rule 611, the Order Protection Rule, and Rule 610(e), which have governed the routing and execution of U.S. equity trades since 2005. The agency has stated that these changes are intended to streamline market structure, reduce operational costs, and foster greater competition and innovation. Benchmark’s analysis suggests that this move would dismantle a primary legal hurdle preventing tokenized stocks from being traded on AMMs.
Rule 611 mandates that trading venues execute trades at prices no inferior to protected quotations available on other venues, ensuring adherence to the national best bid and offer (NBBO) at the time of execution. Rule 610(e) prohibits “locked” and “crossed” markets, where quotations overlap, thus maintaining a clear price hierarchy. According to Benchmark analyst Mark Palmer, these provisions have historically stifled decentralized finance (DeFi) trading models, particularly AMMs, which rely on continuous pricing curves rather than traditional order books and do not integrate with intermarket price protection systems like the NBBO.
The removal of these trade-through constraints is anticipated to allow tokenized equity exchanges and similar platforms to more closely align with established equity market infrastructure. Benchmark specifically highlighted Securitize, a regulated tokenization platform and issuer infrastructure provider involved in initiatives like BlackRock’s BUILD, as a direct beneficiary. Additionally, the firm pointed to Coinbase Global and Galaxy Digital, owing to their involvement in trading infrastructure, brokerage services, and digital asset market-making, as entities likely to benefit.
Potential Regulatory Precedent and Unanswered Questions
The potential rescission of these rules could set a significant precedent for the integration of traditional securities onto blockchain-based trading systems. By adapting established market structure rules, the SEC may be signaling a willingness to accommodate new technological paradigms within existing legal frameworks, provided that investor protection and market integrity are maintained. This could pave the way for broader adoption of tokenized assets and the development of more sophisticated DeFi applications for traditional financial instruments.
However, Benchmark also noted that several complex regulatory issues remain unresolved. These include the requirements for exchange and alternative trading system registration, the frameworks for custody, clearance, and settlement specifically for peer-to-peer or DeFi-native trading of tokenized securities. The crypto industry is reportedly looking towards a forthcoming innovation exemption to address these outstanding concerns.
The SEC has initiated a 60-day public comment period for the proposal, with Benchmark forecasting a potential vote on the rescission to occur in early 2027.
Based on materials from : www.theblock.co