- The SEC proposed to scrap two rules that currently prevent trading at inferior prices across different markets.
- Analysts say this could remove a major legal barrier for trading tokenized U.S. stocks on decentralized finance platforms.
- The rules conflict with how automated market makers function, as they execute trades against a pool price and cannot check for better quotes elsewhere.
- The agency will review public feedback on the proposal for 60 days before potentially finalizing the changes.
The U.S. Securities and Exchange Commission on Thursday proposed to rescind two key rules that have acted as a legal blockade for tokenizing stocks. This move directly supports the agency’s broader Project Crypto initiative to modernize regulations for blockchain in markets.
Specifically, the regulator aims to eliminate Rule 611, which bans trade-throughs, and Rule 610(e). Consequently, this could unlock new trading models for digital assets.
Alex Thorn, head of research at Galaxy, said the proposal is “one of the biggest unlocks yet for tokenized stocks”. He argued current rules create an insurmountable barrier for decentralized trading.
Thorn explained automated market makers cannot comply with trade-through rules. Their nature is to execute orders against the existing pool price without checking other venues.
Any tokenized stock pool under current regulations would therefore violate rules constantly. Meanwhile, the fluctuating prices of AMMs would also breach the best-price guarantee.
The SEC is likely to replace these rules with a “best execution” framework. This new approach could legally permit automated market makers to operate.
The agency has opened a 60-day public comment period for its proposal. It will then review feedback and may adjust its plan before finalization.
This development follows reports that the SEC postponed a related tokenized stock plan last month. Stock exchange officials had reportedly raised concerns over execution details.
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