Ondo Finance – which operates a transaction platform for tokenised assets – has added its support to a Securities & Exchange Commission (SEC) proposal to roll back the long-standing ‘trade through rule” related to Regulation NMS. The SEC’s motivation is that it now believes the rule leads to market fragmentation and increased costs, while Ondo is asking that a future market structure treats on-chain and traditional markets alike, so that increased liquidity is readily available.
The existing trade through rule – implemented in 2005 and officially known as Rule 611 – requires exchanges to route orders to whichever venue within the 17-exchange National Market System (NMS) presents the best displayed price for equities at the time of the order. While it was introduced to provide best execution for a continuous marketplace, its detractors, notably including current SEC Chair Paul Atkins who has characterised it as a “a grave misstep,” believe that new trading technology has rendered it obsolete and that its complexity needs to be removed.For its part, Ondo says that tokenised and traditional securities now trade “side by side” and that markets need to interact to best serve investors. Indeed, it notes that its Ondo Stocks platform already routes orders directly into existing order books rather than creating separate liquidity pools. This design is driven by its belief that “tokenised markets work best on the same competitive terms as the markets they’re built on, not on lesser ones.”
Specifically, while supporting the rollback of Rule 611, Ondo is asking the SEC to:
- Recognise the same execution standards for on-chain and off-chain markets alike, allowing for disparate liquidity pools to be readily tapped
- Allow request-for-quote execution as well as continuous market maker approaches, so tokenised securities orders get priced and filled competitively
- Confirm that neutral execution infrastructure can operate without registering as a broker-dealer or exchange, so no single venue decides how trades connect and allowing decentralised markets to emerge
Citing a bigger picture, Ondo also makes the case that on-chain trading in US-listed stocks is growing, and that much of its growth is overseas. It argues that in setting post-Rule 611 market structure, there is an opportunity to bring that activity back onshore.
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