SEC Happenings
September was an active month at the Securities and Exchange Commission, with several developments that could have significant implications for the structure and operation of U.S. markets.
Tokenized Stocks Move Closer to Reality
Perhaps the most significant development came on September 17, when the SEC issued what it calls an “Innovation Exemption” designed to facilitate on-chain trading of tokenized NMS stocks.
The temporary, conditional relief allows qualifying Tokenized Securities Venues, or TSVs, to bring together buyers and sellers of tokenized NMS stocks through permissioned automated market makers and liquidity pools without registering as national securities exchanges. The exemption includes a number of conditions, and the SEC is seeking public comment as it considers a more permanent regulatory framework.
The action is another step in the Commission’s broader effort to develop a regulatory framework for digital assets and tokenized securities. Chairman Paul Atkins described the exemption as an interim measure while the Commission considers additional rulemaking for on-chain markets.
Read the SEC’s Innovation Exemption and Request for Comment
SEC Takes a Hard Look at 24-Hour Trading
Also on September 17, the SEC held a full-day roundtable devoted to preparations for 24-hour trading in U.S. equities. The discussion brought together representatives from exchanges, broker-dealers, asset managers, clearing organizations, technology providers and regulators. STA President and CEO Jim Toes participated as a moderator.
Topics included overnight liquidity and surveillance, closing-price processes, clearing and settlement, Regulation SCI, cybersecurity, market-data continuity, staffing, system resiliency and the infrastructure changes that could eventually be required for 24x7 trading.
Division of Trading and Markets Director Jamie Selway noted that the marketplace is preparing to extend operating hours “to the fullest extent possible,” signaling that extended-hours trading remains very much on the SEC’s agenda.
View the SEC’s 24-Hour Trading Roundtable page, agenda and webcast
Rule 611 Debate Continues
Meanwhile, the debate over the future of Rule 611 and the Order Protection Rule continued during September. The SEC has proposed rescinding Rule 611’s trade-through prohibition, along with Rule 610(e), which addresses locked and crossed markets, and making related changes to Regulation NMS.
Industry participants continue to engage with the Commission over whether the current trade-through framework remains appropriate for today’s increasingly fragmented and technologically sophisticated markets.
View the SEC’s Rule 611/Regulation NMS proposal and public comments
Modernizing Transfer Agent Rules
The Commission also proposed a substantial modernization of its rules governing registered transfer agents. The rules have not been comprehensively updated in decades, and the proposal is intended to reflect today’s electronic recordkeeping, communications and securities-processing environment.
The proposal also intersects with the Commission’s broader work on tokenization, where transfer agents could play an increasingly important role as securities ownership and recordkeeping move toward distributed-ledger infrastructure. Comments are due November 1st.
Read the SEC’s proposed Transfer Agent Rules
STANY Continues the Conversation with the SEC
STANY will have an opportunity to discuss many of these issues directly with the Commission in October. A group of STANY Board members will meet with the Commission on October 15 while in DC for the STA Conference.
The meeting will give STANY representatives an opportunity to share perspectives from across our membership, including exchanges, the buy side, professionals across multiple assets classes and regulatory professionals. We expect the discussion to include several of the market-structure issues currently before the Commission.
What to Watch
Taken together, September’s activity underscores just how quickly the market-structure conversation is evolving. Tokenization, extended trading hours, Rule 611 and the modernization of market infrastructure are increasingly interconnected rather than separate regulatory issues.
STANY will continue to follow these developments closely, engage with regulators on issues affecting our members as the SEC considers the next generation of U.S. market structure.
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