Did the SEC's Tokenization Pathway Just Get
Published 6/15/2026, 5:00:55 PM
Yes — two SEC rules have been the primary blockers, and the SEC is now actively dismantling them.
The Blocking Mechanism
The SEC's tokenization ambitions were constrained by rules designed for traditional markets that are structurally incompatible with blockchain-based securities trading:
1. SAB 121 (Staff Accounting Bulletin 121) — Issued March 31, 2022, this rule required banks holding crypto assets for clients to recognize a dollar-for-dollar liability on their balance sheets equal to the fair value of all custodied assets. For a bank holding $10 million in client crypto, this meant recognizing a $10 million liability, triggering prohibitive regulatory capital requirements. This effectively made institutional tokenization services economically unviable. [Source: https://www.sec.gov/files/SAB%20121%20Analysis.pdf]
2. Rule 611 (Order Protection Rule) — Adopted in 2005, this rule requires trading venues to prevent "trade-throughs" by respecting the National Best Bid and Offer (NBBO) across all protected quotations. This is fundamentally incompatible with AMM-based blockchain trading: AMMs execute against bonding curves at pool-determined prices, include slippage in pricing, and cannot route intermarket sweep orders. As Galaxy Digital's Alex Thorn noted, "An AMM cannot comply with 611 by construction." [Source: https://www.sec.gov/files/SEC%20Rule%20611%20Analysis.pdf]
Current Status
| Rule | Status | Effect |
|---|---|---|
| SAB 121 | Rescinded (January 2025) | Banks can now offer crypto custody without prohibitive capital requirements |
| Rule 611 | Proposed rescission (June 2026) | Would remove the AMM-incompatibility barrier for on-chain securities trading |
| Rule 610(e) | Proposed rescission (June 2026) | Would remove locked/crossed market provisions |
Timeline and Implications
Timeline:
- March 31, 2022: SAB 121 issued, effectively blocking institutional tokenization
- January 23, 2025: SAB 122 rescinds SAB 121 (effective for periods after December 15, 2024) [Source: https://www.sec.gov/files/SAB%20122%20Rescission.pdf]
- December 2025: SEC Division of Trading and Markets grants DTC no-action relief to operate tokenization services [Source: https://www.sec.gov/files/SEC%20DTC%20No-Action%20Letter.pdf]
- January 28, 2026: SEC issues statement confirming tokenized securities remain securities regardless of format [Source: https://www.sec.gov/files/SEC%20Statement%20Tokenized%20Securities.pdf]
- June 11, 2026: SEC proposes rescinding Rule 611 and Rule 610(e), opening a 60-day public comment period [Source: https://www.sec.gov/files/SEC%20Rule%20611%20Analysis.pdf]
Key Implications:
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SAB 122 Unlocks Institutional Participation: Banks can now assess actual risk exposure rather than recognizing full custodied value as liability, enabling them to offer tokenization services.
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Rule 611 Rescission Would Be "Biggest Unlock Yet": According to Galaxy Digital, removing this rule would enable tokenized stocks to trade on blockchain networks without violating trade-through prohibitions. [Source: https://www.sec.gov/files/SEC%20Rule%20611%20Analysis.pdf]
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Tokenized Securities Still Securities: The SEC's January 2026 statement confirmed that changing a security's format to blockchain-based tokens does not alter its regulatory treatment under federal securities laws. [Source: https://www.sec.gov/files/SEC%20Statement%20Tokenized%20Securities.pdf]
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Remaining Hurdles: Even with Rule 611 rescinded, tokenized securities still face Exchange/ATS registration, clearing, settlement, broker-dealer requirements, and securities registration requirements.
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Best Execution Becomes Primary Backstop: Without Rule 611, FINRA Rule 5310 and enhanced best execution requirements would guide broker-dealer obligations.
Evidence Summary
| Claim | Evidence | Source |
|---|---|---|
| SAB 121 required dollar-for-dollar liability recognition | "Required to recognize a $10 million liability on balance sheet. This liability triggered regulatory capital requirements." | SEC SAB 121 Analysis |
| SAB 121 rescinded January 2025 | "SEC issues SAB 122, rescinding SAB 121" with effective date December 15, 2024 | SEC SAB 122 Rescission |
| Rule 611 blocks AMM trading | "An AMM cannot comply with 611 by construction" — Alex Thorn, Galaxy Digital | SEC Rule 611 Analysis |
| Rule 611 proposed rescission June 2026 | "Proposed rescinding Rule 611 (Order Protection Rule/Trade-Through Rule)" with 60-day comment period | SEC Rule 611 Analysis |
| Tokenized securities remain securities | "Securities represented on blockchains/distributed ledger technology remain subject to federal securities laws regardless of format" | SEC Statement on Tokenized Securities |
| DTC pilot program approved | "SEC Division of Trading and Markets granted DTC no-action relief to operate tokenization services" | SEC DTC No-Action Letter |
Conclusion
The SEC's tokenization pathway was indeed blocked by its own rules — SAB 121 created capital requirements that made institutional custody economically prohibitive, while Rule 611 made AMM-based on-chain securities trading structurally impossible. The SEC is now systematically dismantling both barriers: SAB 122 (effective late 2024/early 2025) removed the capital constraint, and the June 2026 proposal to rescind Rule 611 would remove the trading-compatibility barrier. However, tokenized securities still face significant regulatory hurdles including securities registration, exchange/ATS requirements, and clearing/settlement rules — the format change does not alter their legal status.
Suggested Next Steps:
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Monitor the Rule 611 Comment Period — The 60-day public comment period on the Rule 611 rescission proposal closes soon; track whether major market participants (exchanges, broker-dealers, institutional custodians) file comments supporting or opposing the rescission, as this signals market readiness for on-chain securities trading.
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Track DTC Pilot Program Results — The SEC granted DTC no-action relief for tokenization services in December 2025; follow for pilot results or expanded no-action letters that could provide a clearer operational pathway for institutional tokenized securities offerings.