The US Securities and Exchange Commission (SEC) has taken a significant step towards reevaluating the country's equity market structure by proposing to repeal the trade-through rule, a regulation that has been in place since the mid-2000s. This move is expected to reduce legacy equity-market routing complexity and may indirectly benefit tokenized equity and blockchain-based Alternative Trading Systems (ATS) builders. The proposal, which is still open to public comment, aims to simplify the execution framework and promote competition among trading venues.
At the heart of the proposal is the repeal of Rule 611, also known as the trade-through rule, which prevents trading centers from executing orders at prices inferior to protected quotations displayed by other venues. While this rule was designed to protect investors, it has also created a complex web of routing obligations, protected quotes, and compliance checks. By rescinding this rule, the SEC hopes to reduce the complexity and promote a more flexible market structure. Additionally, the proposal includes the repeal of Rule 610(e), which deals with locked and crossed quotations, and related defined terms.
Implications for Tokenized Equity Platforms
The SEC's proposal may have significant implications for tokenized equity platforms, which have been trying to enter the market with a simpler and more efficient execution framework. These platforms offer faster settlement, programmable ownership, fractional access, and trading infrastructure that can operate differently from legacy exchanges. However, they have faced challenges in navigating the existing market-structure rulebook. The repeal of the trade-through rule could reduce some of the friction around alternative execution models and create a more level playing field for these platforms.
While the proposal is not a direct endorsement of tokenized equities, it suggests that the SEC is willing to revisit rules that were built before the advent of on-chain settlement, smart contracts, and 24/7 digital-asset markets. This direction of travel is significant for crypto-native firms, which have been advocating for a more flexible and adaptable market structure. The proposal is still subject to public comment, and market incumbents are likely to push competing views. However, the SEC's willingness to challenge traditional assumptions and promote innovation is a positive development for the industry.
