SEC Explores Exemption to Boost Tokenized Securities
By: Eva Baxter
The U.S. Securities and Exchange Commission (SEC) is evaluating the potential implementation of an exemption framework to facilitate the trading of tokenized securities via distributed ledger technology (DLT). This initiative was detailed by SEC Commissioner Hester Peirce in a recent speech, highlighting a proposed conditional order that could alleviate regulatory challenges for platforms focused on such financial innovations.
Peirce, an advocate for modernizing regulations to align with technological advancements, expressed that the proposed exemption would encourage qualified companies to leverage blockchain technology for trading, clearing, and settling securities without adhering to the traditional SEC registration that usually applies to broker-dealers and exchanges. She argued that the existing rules pose significant hurdles which discourage the adoption of automated market-making models, limiting the broader market's ability to engage with tokenized securities.
In addition to lowering entry barriers, the commissioner believes that an exemption would provide the SEC with necessary leeway to refine its regulatory approaches in tandem with technological advancements, particularly in utilizing blockchain's potential to enhance transparency and efficiency in financial transactions. There is a clear emphasis on maintaining strict guidelines to ensure transparency, financial responsibility, and protect investors, with measures that include detailed disclosures about platform operations, wallet and custody arrangements, and potential blockchain-specific risks.
Furthermore, Peirce made it clear that the safeguard measures under consideration include robust protocols to deter fraud and market manipulation, such as mandatory customer disclosures, and diligent monitoring systems. The SEC's stance reflects an understanding of the evolving financial technology landscape and aims to create a balance between innovation and investor protection. The move has been welcomed with interest by industry participants awaiting a more flexible and accommodating regulatory environment that allows for the secure proliferation of tokenized securities trading while safeguarding the market's integrity.
