Blockchain Association Advocates for SEC to Repeal NMS Rules on Tokenized Markets

The Blockchain Association is urging the U.S. Securities and Exchange Commission (SEC) to repeal Rules 611 and 610(e) of Regulation National Market System (NMS), adopted in 2005. The association argues that the elimination of these rules would facilitate the trading of tokenized securities on public blockchains.

Call for Repeal of NMS Rules

In a comment letter submitted on August 17, the last day of the SEC’s public comment period, the Blockchain Association resonated with the SEC’s proposal aimed at rescinding the two rules. They maintain that the current provisions impose unnecessary costs and restrict the marketplace for tokenized securities, which are evolving with technology.

Rule 611 prevents trading venues from executing certain orders at inferior prices when better-priced quotations are available elsewhere, while Rule 610(e) prohibits exchanges from displaying locked or crossed quotations. The association contends that these rules are outdated given the rapid advancements in trading technology over the past two decades.

Modernizing Market Infrastructure

As noted in their filing, the Blockchain Association emphasized that trading technology has significantly evolved since the implementation of these rules, making the current regulatory framework less applicable. They stated, “Today’s markets have evolved dramatically since 2005, and a revolutionary shift is now underway: the representation of traditional assets on public blockchains.” They believe removing these regulations would empower the growth of tokenized securities markets.

Connection to Tokenization and Compliance

Tokenization is central to the Blockchain Association’s argument, highlighting that current NMS regulations interfere with markets that issue and settle securities on blockchain networks. The group advocated for a regulatory shift that accommodates more flexibility in the assessment of tokenized securities transactions, allowing on-chain execution to be recognized as an acceptable method for achieving compliant trades.

In line with these regulatory reforms, the Blockchain Association has also requested that the SEC re-evaluate its execution requirements to include blockchain-based infrastructure, thus ensuring that public networks can be compliant venues for the fair execution of securities transactions.

Context of Regulatory Review

The SEC’s proposal to reconsider these NMS rules was announced on June 11, and the deadline for public comments was set for August 17. This is part of a broader examination by the agency into how modern trading practices have shifted, including the reconsideration of best execution and transparency concerns originally addressed by these rules.

With the SEC also exploring ways to incorporate blockchain-based securities into U.S. market regulations, the discussions around repealing these rules are aligned with ongoing innovations in the financial space. Examples include projects such as Ondo Finance, which seeks SEC clearance to tokenize interests on Ethereum, while maintaining compliance with existing custody arrangements.

The Blockchain Association’s recommendation to rescind these outdated rules reflects a growing recognition of the potential for blockchain technology to reshape traditional securities trading in a compliant and efficient manner.