SEC Proposes Rule Changes Seen as Major Boost for Tokenized Stocks

On the 11th of June, the U.S. Securities and Exchange Commission (SEC) moved to abolish restrictions in the national market system (NMS). Analysts believe the overhaul could benefit tokenized stocks.

Speaking after rescinding the rules, 611 and 610(e) of Regulation NMS, SEC chair Paul Atkins said the policies have hindered rather than expanded markets.

After two decades of Rule 611, it is high time that the Commission review its unintended consequences that have hindered — rather than enhanced — the long-term growth of our markets.

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Atkins added that the proposal to amend the above rules would help avoid past mistakes that hindered the equity markets.

This proposal is intended to simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets.

Notably, Rule 610(e) mandated crossed-market restrictions, while Rule 611 required every trading venue to prevent execution if prices fell below the protected quotes on other exchanges.

Reacting to the update, Alex Thorn, head of research at crypto exchange Galaxy Digital, said the Rule 611 is one of the “biggest barriers” to tokenized stocks.

This is one of the biggest structural barriers to tokenized US equities trading in DeFi today. An AMM cannot comply with 611 by construction. It executes against a bonding curve at whatever the pool price is, with slippage, at block-time granularity.

Most DeFi pricing depends on capital flows and could easily lock or decouple from the strict price levels dictated by the current framework.

According to Thorn, if the new proposal is adopted, it could be the “biggest unlock” for tokenized stocks trading across DeFi front-ends.

This is a tradfi story, yes, but this is also one of the biggest unlocks yet for tokenized stocks. The proposed framework can accommodate an AMM. The old one never could.

However, Thorn added that the proposal only solves one problem. There are other issues, such as clearance, settlement, and exchange registration for venues that handle tokenized stocks.

For Thorn, these other issues will likely be addressed in the upcoming ‘innovation exemption’ framework.

Worth pointing out that the exemption plan was delayed last month amid growing pushback from traditional players.

That said, the segment’s market has reached $3.5B, with nearly $5B in monthly transfer volume, marking a 44% increase over the past month. With 357K holders, the tokenized stocks have growing adoption.

• SEC has proposed to abolish the previous market structure restriction on stock trading.
• Galaxy Digital viewed the move as one of the ‘biggest unlocks’ for tokenized stocks trading across DeFi.