Key Takeaways
- • Alex Thorn, Head of Firmwide Research at Galaxy Digital, warns that the SEC's proposed repeal of Regulation National Market System (Reg NMS) rules could significantly impact the trading of tokenized stocks, particularly Rule 611 which currently prevents compliance by automated market makers (AMMs).
- • Galaxy Digital has tokenized its own stock through Superstate, a fintech startup in its venture portfolio, positioning itself as a first-mover in the tokenized securities space and signaling institutional confidence in the asset class.
- • Rule 611 of Reg NMS is identified as a critical regulatory obstacle: AMMs cannot comply with the rule, and any liquidity pool for tokenized stocks would continuously violate it under current regulations, effectively rendering DeFi trading venues illegal for these assets.
- • Galaxy Digital is actively engaging with the SEC to advocate for allowing tokenized securities to trade on AMMs without requiring exchange registration, pushing back against traditional Wall Street regulatory frameworks.
- • The SEC's updated crypto taxonomy represents a significant shift in regulatory posture; Thorn characterizes it as putting "the final nail" in the Gensler-era approach, though passage of the CLARITY Act remains necessary to fully codify these changes.
Summary
Galaxy Digital's research leadership is flagging a critical regulatory bottleneck that could determine whether tokenized equities become a viable trading mechanism in decentralized finance. Alex Thorn, Head of Firmwide Research at Galaxy Digital, has identified Regulation National Market System Rule 611—a provision originally designed to prevent trading ahead of better prices—as incompatible with automated market maker (AMM) infrastructure. According to Thorn's analysis, any liquidity pool for tokenized stocks would continuously violate Rule 611, effectively classifying decentralized trading venues as illegal under current regulatory frameworks.
The regulatory challenge carries practical implications as institutional players move beyond theoretical interest into implementation. Galaxy Digital has already tokenized its own equity through Superstate, a financial-technology startup housed in its venture portfolio, creating a real-world test case for institutional tokenized securities trading. This move signals that market participants view tokenization as operationally viable and sufficiently secure to deploy at the company level, even while regulatory clarity remains incomplete.
Galaxy Digital's advocacy position reflects a broader institutional shift in SEC regulatory posture. The firm is urging the SEC to permit AMMs to trade tokenized securities without requiring traditional exchange registration—a structural change that would bifurcate equity trading between registered venues and decentralized protocols. Thorn's characterization of the SEC's revised crypto taxonomy as the "final nail" in the Gensler-era regulatory framework suggests significant momentum toward more accommodative crypto policies, contingent on Congressional passage of the CLARITY Act. The interplay between SEC rulemaking and Congressional action creates a compressed timeline for tokenized equity infrastructure to be deployed before regulatory windows shift again.
The regulatory challenge carries practical implications as institutional players move beyond theoretical interest into implementation. Galaxy Digital has already tokenized its own equity through Superstate, a financial-technology startup housed in its venture portfolio, creating a real-world test case for institutional tokenized securities trading. This move signals that market participants view tokenization as operationally viable and sufficiently secure to deploy at the company level, even while regulatory clarity remains incomplete.
Galaxy Digital's advocacy position reflects a broader institutional shift in SEC regulatory posture. The firm is urging the SEC to permit AMMs to trade tokenized securities without requiring traditional exchange registration—a structural change that would bifurcate equity trading between registered venues and decentralized protocols. Thorn's characterization of the SEC's revised crypto taxonomy as the "final nail" in the Gensler-era regulatory framework suggests significant momentum toward more accommodative crypto policies, contingent on Congressional passage of the CLARITY Act. The interplay between SEC rulemaking and Congressional action creates a compressed timeline for tokenized equity infrastructure to be deployed before regulatory windows shift again.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.