The SEC looks at a 1990s fix for crypto markets to allow true “innovation pathway”

A notable development has hit the crypto markets. In a May 8 speech, SEC Chair Paul Atkins said the agency could consider a limited “innovation pathway” for on-chain trading systems in the near future. Meanwhile, the agency will reserve formal notice-and-comment rulemaking to determine how crypto platforms fit inside the exchange definition. Atkins tied that idea directly to the SEC's handling of electronic trading in the 1990s.

The SEC spent years issuing ad hoc no-action letters as electronic trading challenged the exchange framework, then built Regulation ATS in 1998. The rule was a middle path that allowed alternative trading systems to operate as broker-dealers under specific conditions as the market matured. The original adopting release described the framework as designed to “encourage market innovation” while preserving investor protections.

Market Dynamics

Atkins is pointing at that sequence of targeted guidance first, fit-for-purpose architecture second, as a template for on-chain finance. The two-step reading makes the speech different from generic crypto-policy rhetoric. Atkins appears to be preparing the SEC to allow certain on-chain trading systems to operate inside the regulatory perimeter under conditions, while a longer rulemaking process settles how exchange, broker-dealer, clearing, and transfer-agent definitions apply to software-based markets.

For crypto firms that spent years facing enforcement before rules existed, that sequence would represent a genuine departure from recent agency posture. A five-step timeline traces the SEC's regulatory path from 1990s electronic trading through Regulation ATS to Atkins' proposed on-chain innovation pathway. Why on-chain markets force a new architecture Traditional SEC rules were built around separate actors performing separate regulated functions, such as exchanges matching orders, broker-dealers routing and executing them, clearing agencies settling them, and transfer agents recording ownership.

A single on-chain protocol can perform all of those functions automatically, often within seconds, without distinct intermediaries at each step. Applying a rulebook designed for that separation to software that collapses it produces legal uncertainty that firms and regulators alike are trying to escape, and Atkins acknowledged that friction directly. Clean compliance requires the SEC to do more than declare existing rules apply.

Market Impact

Some functions that appear to be exchange activity in on-chain form also resemble broker-dealer or clearing activity, or both simultaneously. A limited pathway is intended to address this problem by giving firms a route to operate inside the perimeter before the more difficult definitional rewrites are complete. Exchange Matches buy and sell orders Executes trades automatically within the protocol Broker-dealer Routes and executes customer orders Routes liquidity and executes transactions through software Clearing agency Clears and settles trades between parties Settles transactions on-chain, often within seconds Transfer agent Maintains records of ownership Updates ownership records directly on-chain This pathway could take the form of exemptive relief, conditional no-action letters, a pilot program, a tailored registration framework, or a registration-lite model for certain on-chain venues.

The sequence is near-term conditional access, then formal rulemaking to future-proof the framework. The SEC has already been operating with temporary tools in this space. 13, the Division of Trading and Markets issued a staff statement offering conditional relief to certain self-custodial crypto interfaces, calling it an “interim step” while broader regulatory questions are considered.

17 and May 4, the SEC's Crypto@SEC page recorded five market structure or tokenization actions, and Atkins' speech serves as the policy frame that connects those operational moves into a coherent sequence. Commissioner Hester Peirce pointed to specific design levers in December 2025, asking whether the SEC should tailor Form ATS for crypto alternative trading systems, revise public-versus-non-public disclosure requirements, and rethink ATS reporting in light of public blockchains. The February FAQ clarified that pairs trading of securities and non-security crypto assets is permissible, confirmed that current ATS forms can accommodate crypto disclosures, and established that broker-dealer ATS operators may perform certain clearing and settlement functions under applicable law.

Crypto markets are watching this development closely as investors weigh its potential impact on prices.