SEC Proposes Rescission of Regulation NMS Rules, CFTC Proposes Event Contracts Review Framework and OCC Confirms Preemption for National Trust Bank

The SEC proposed amendments to rescind Rules 611 and 610(e) of Regulation NMS, which could have significant implications for the trading of tokenized securities. The CFTC published a notice of proposed rulemaking that would establish a structured framework for evaluating whether event contracts involve an activity enumerated in Section 5c(c)(5)(C) of the Commodity Exchange Act and, if so, whether the contract is contrary to the public interest. The OCC issued an interpretive letter confirming that an uninsured national trust bank providing crypto custody, trade execution and other digital asset services can engage in such federally authorized activities in any state without the need to hold or obtain a state money transmitter license or satisfy a state law exemption. In Congress, the House Ways and Means Committee held a legislative hearing on a package of digital asset tax discussion drafts, and more than 200 crypto firms and trade groups urged Senate leaders to schedule a floor vote on the CLARITY Act. The New York Department of Financial Services proposed a regulation to align the state’s existing stablecoin framework with the federal requirements of the GENIUS Act.

Regulatory Updates

SEC Proposes Rescission of Regulation NMS Rules 611 and 610(e)

• On June 11, the SEC proposed rescinding Rule 611 and Rule 610(e) of Regulation NMS. Rule 611, also known as the Order Protection Rule, was adopted by the SEC in 2005 and requires trading centers — including exchanges, ATSs and wholesalers — to establish policies to prevent trade-throughs, or executing a trade at prices inferior to protected quotes displayed on an exchange during regular trading hours. Rule 610(e) of Regulation NMS contains restrictions on locking and crossing quotations in national market system stocks. Comments should be received within 60 days of publication in the Federal Register.
• SEC Chairman Paul Atkins stated that the proposal “is intended to simplify market structure and reduce costs for market participants.” Commissioner Mark Uyeda described the proposal as the beginning of a broader effort to reform the Commission’s equity market structure rules.
• The proposal may carry implications for the trading of tokenized securities, as these rules were written for centralized exchanges that route orders to one another, a model that does not fit assets traded directly on a blockchain

CFTC Proposes Framework for Reviewing Event Contracts Involving Enumerated Activities

• On June 10, the CFTC published a notice of proposed rulemaking seeking comment on amendments to CFTC Regulation 40.11 and a new Appendix F to part 40. The proposal would establish a structured framework for evaluating whether an event contract involves an activity enumerated in Section 5c(c)(5)(C) of the Commodity Exchange Act, which covers terrorism, assassination, war, gaming or conduct that is unlawful under federal or state law, and, if so, whether the contract is contrary to the public interest. Comments must be received by July 27.

OCC Confirms National Bank Act Preempts State Money Transmitter Licensing

• On June 9, the OCC issued Interpretive Letter 1192, confirming that an uninsured national trust bank providing crypto custody, trade execution and other digital asset services can engage in such federally authorized activities in any state without the need to hold or obtain a state money transmitter license or satisfy a state law exemption. The letter concludes that such state laws are preempted by the National Bank Act because they prevent or significantly interfere with a national trust bank’s exercise of its federally authorized powers.

SEC Commissioner Peirce Delivers Farewell Remarks

• On June 9, SEC Commissioner Hester Peirce delivered remarks at the U.S. Chamber of Commerce Capital Markets Summit ahead of her departure from the Commission. Peirce reviewed recent Commission actions she characterized as efforts to regulate within the boundaries drawn by Congress and the Constitution, including the Commission’s work over the past year and a half to tie its crypto regulatory and enforcement activities to the statutes it administers.

Federal Financial Regulators Establish Joint Data Standards

• On June 8, the SEC and the CFTC each announced the establishment of joint data standards as required under the Financial Data Transparency Act of 2022, which directs federal financial regulators to adopt common standards for the data they collect.

Congressional Updates

Ways and Means Committee Holds Legislative Hearing on Digital Asset Taxation

• On June 9, the House Ways and Means Committee held a full committee legislative hearing on digital asset taxation to examine a package of discussion drafts developed by Chairman Jason Smith (R-MO). Smith stated: “America needs clear tax rules of the road to remain the crypto capital of the world.”

More Than 200 Crypto Organizations Urge Senate Floor Vote on the CLARITY Act

• On June 8, more than 200 digital asset companies, trade associations and grassroots organizations sent a letter to Senate Majority Leader John Thune (R-SD) and Minority Leader Chuck Schumer (D-NY) urging them to bring the CLARITY Act to the floor “without delay.” The bill would establish a comprehensive federal framework for digital asset markets, clarify regulatory responsibilities, create registration pathways and maintain protections for software developers.

Additional Updates

New York DFS Proposes Stablecoin Regulation to Align With GENIUS Act Requirements

• On June 9, the New York Department of Financial Services proposed a regulation to align the state’s existing stablecoin framework, including its June 2022 stablecoin guidance, with the federal requirements of the GENIUS Act. Under the Act, stablecoin issuers with less than $10 billion outstanding may opt for oversight by a state regime certified as “substantially similar” to the federal framework by the Stablecoin Certification Review Committee. A 10-day preproposal comment period began June 9, to be followed by a 60-day formal comment period upon publication in the State Register.

Prediction Markets Platform Announces Market Integrity Measures

• On June 9, a CFTC-regulated prediction markets platform announced that enhanced risk measures, including certain employment verification measures, were adopted for certain prediction markets with heightened risks.