The potential repeal of SEC Rule 611 and the emergence of tokenized equities could drive significant changes across equity market infrastructure, requiring firms to rethink execution technology, operational workflows and market connectivity, according to Bob Cioffi, Global Head of Equities Product Management at ION Markets.
While the two developments are often discussed separately, Cioffi said both highlight the growing importance of technology and infrastructure in supporting evolving market structures.
According to Cioffi, the SEC’s proposal to eliminate Rule 611, the Order Protection Rule introduced under Regulation NMS, would have significant implications for best-execution practices.
Cioffi said that, rather than relying on routing logic designed primarily to satisfy trade-through requirements, firms would need technology capable of showing not only where an order was routed, but why that decision made sense for the client.
“From a trading technology perspective, the implications are significant,” Cioffi told Traders Magazine.
Smart order routers, execution algorithms, venue-scoring models and transaction cost analysis (TCA) tools will all need to adapt to a more judgment-based best-execution environment, he said.
Although tokenized equities continue to attract attention, Cioffi said tokenization itself is no longer the difficult part.
“Tokenization in its basic form – creating a digital representation of an asset – is no longer the hard part,” he said.
Cioffi said the market has already shown it can issue a token, represent ownership and record transfers, with those capabilities demonstrated across bonds, funds and early equity pilots.
“The hard part is making tokenized equities work inside the trading, clearing, settlement, custody, and reconciliation infrastructure institutional firms already rely on,” Cioffi said.
He said the ability to scale tokenized equities beyond isolated pilots will depend on successfully integrating those assets into existing market infrastructure.
Drawing on experience from other asset classes, Cioffi said the technical challenges are solvable.
He added the more significant issues are regulatory clarity, legal recognition of ownership, shareholder rights, settlement finality and integration with existing market processes.
Existing workflows face pressure
Cioffi said the impact of tokenized equities extends beyond trading venues and into the operational workflows supporting markets.
Many existing buy-side and sell-side processes still assume fixed trading days, batch-based processing and conventional settlement windows, he said.
On the buy-side, Cioffi said, allocation, confirmation, settlement instructions, reporting, compliance and reconciliation processes will need to support both traditional and tokenized forms of the same asset.
Getting that reconciliation right “quietly and reliably” will require significant operational effort, he said.
On the sell-side, routing systems will need to assess liquidity across more venues and settlement options while applying consistent risk controls, regulatory checks and best-execution logic, he added.
More broadly, Cioffi said tokenized equities could erode the industry’s “quiet window” – the overnight and weekend periods when firms reconcile positions, apply corporate actions, manage exceptions and run end-of-day processing.
Those processes are highly automated, he noted, but were designed around existing market infrastructure. If trading and settlement move closer to continuous operation, that window could shrink or disappear, requiring those controls to operate live, he said.
He added that the current push toward extending equity trading hours is a step in that direction.
Avoiding another layer of fragmentation
US equity markets are already fragmented, with trading activity distributed across multiple venues beyond primary listing exchanges.
Cioffi warned that tokenized trading venues could add another layer of fragmentation if they operate independently.
“If a tokenized version of a stock trades in its own isolated pool, you get an island of liquidity,” he said.
In that scenario, buyers and sellers cannot efficiently interact across markets, potentially affecting price discovery and execution quality, he said.
Cioffi said more effective proposals would keep tokenized trading within regulated markets while ensuring the token remains fully exchangeable with the underlying share.
Multiple venues can trade the same stock effectively, he said, when they are connected through common rules, market data, clearing and settlement standards. The issue arises when markets become separated from one another, he said.
Cioffi said interoperability goes beyond the technology underneath a token.
According to Cioffi, it requires exchanges, clearing houses, custodians, brokers, infrastructure providers and regulators to converge on common operating models.
Those participants will need agreed standards for normal processing, exception handling, settlement failures, recovery procedures and dispute resolution, he said.
Without that level of coordination, Cioffi warned that tokenization risks creating parallel market infrastructure rather than a more efficient market structure.
Institutional adoption will determine success
Looking ahead, Cioffi said tokenized equities will become part of mainstream market structure when institutions treat them as ordinary financial instruments.
“The strongest indicator would be serious institutional participation, not just more retail holders,” he said.
Cioffi said success will come when market makers, brokers, asset managers, custodians and clearing infrastructure treat tokenized equities as normal business, and investors no longer see them as a separate digital asset category but simply as another way to own, trade and settle shares.
He said tokenization also represents a reversal in the traditional pattern of capital markets innovation.
Cioffi noted that, for decades, equities led advances in automation, electronic trading and market structure, with other asset classes later adopting those developments.
With tokenization, he said, adoption has gained momentum first in areas such as Treasuries, money market funds and private credit, leaving equities in the unusual position of adapting innovations that matured elsewhere.
“The opportunity with tokenization is not simply creating a new digital version of an existing asset,” Cioffi said.
“The real opportunity is building a market structure where those assets can operate within the same ecosystem of trading, clearing, settlement and custody that institutions already trust,” he said.
