SEC working on ‘narrower’ exemption for tokenized securities: Hester Peirce

U.S. Securities and Exchange Commission’s Hester Peirce stated today that the agency is developing an innovation exemption for tokenized securities, but in a more restrictive manner.

“Commission staff is working on an innovation exemption to facilitate limited trading of certain tokenized securities—much narrower than the ‘blanket’ exemption mentioned in the draft recommendation,” Commissioner Peirce said during a SEC Investor Advisory Committee meeting on Thursday, which discussed the subject matter.

The IAC, which advises the commission on regulatory priorities, recommended that the SEC not establish a sweeping “blanket” innovation exemption from existing securities rules for tokenized securities. Such crypto assets remain classified as securities under federal law.

In a Feb. 26 letter, the IAC’s market structure subcommittee noted that such an approach could erode core investor protections, including clear disclosures of ownership rights, oversight of intermediaries, and order protections similar to those in traditional equity markets.

The subcommittee instead suggested a targeted, “rule-by-rule” reform approach, subject to public notice and comment before adoption.

“We further note that our recommendation focuses on high-level issues and principles, as the tokenization of equity securities remains at a very early stage and involves complex technological developments,” the IAC wrote. “In our view, a principles-based recommendation is most practical and beneficial at this stage.”

Still, the IAC acknowledged several benefits tied to tokenized securities, such as “atomic settlement” that reduces delay and intermediary risks in the settlement process, and the potential to close information gaps between the companies and shareholders through direct, real-time information.

SEC Chair Paul Atkins, speaking at the same meeting, said he expects the agency to “soon consider” an innovation exemption, which would grant the commission enough time to craft a long-term regulatory framework.

Tokenized securities are currently fully subject to U.S. federal securities laws, required to comply with existing registration, disclosure, oversight, and settlement practices. The innovation exemptions may allow controlled experimentation with more advanced or decentralized trading models while preserving the necessary guardrails for investors.

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