Finance Group Urges SEC Reject Tokenized Equities Exemptions

An industry trade group is urging the US securities regulator to reject a wave of relief requests from crypto companies seeking to offer tokenized stocks. 

The Securities Industry and Financial Markets Association (SIFMA), which consists of securities issuers and finance firms, said in a letter on Monday that it has a “significant concern” about reports of crypto firms submitting no-action or exemptive relief to allow them to offer tokenized equities or securities.

No-action relief would mean the SEC wouldn’t recommend taking enforcement action against a firm over products it launches. Exemptive relief allows the SEC to exclude some products from securities laws to test them.

In the letter to the Securities and Exchange Commission’s Crypto Task Force, SIFMA claimed that if such reliefs were granted, then crypto firms could offer securities to the public “outside of the regulatory structure established by the federal securities laws and from which many critical investor protections flow.”

“The SEC should reject such requests to make significant changes to the regulatory structure for the securities markets under the federal securities laws through immediate no-action or exemptive relief in lieu of a more substantive notice and comment process,” SIFMA said.

“These policy questions are simply too important to be addressed purely through immediate no-action or exemptive requests, and such requests should be rejected.”

SEC considering tokenized securities rule change

SIFMA’s letter comes after SEC Commissioner and Crypto Task Force leader Hester Peirce said in May that the regulator is “considering a potential exemptive order” for firms using blockchain to “issue, trade, and settle securities.”

She said companies looking to create platforms for tokenized securities may have to register with the SEC, which many could consider too expensive and could mean companies don’t issue tokenized securities due to the limited platforms they could trade on.

“Exemptive relief could help resolve this chicken-and-egg problem,” Peirce said.

She added that firms should “not have to comply with inapt regulations, which, in many cases, were developed well before the technologies being tested existed.”

TradFi won’t “share power lightly”

Alexander Grieve, the vice president of government affairs at venture firm Paradigm, wrote to X on Wednesday that SIFMA members “want to protect their market position,” as tokenized securities could see many more platforms offer trading on what are essentially stocks.

He added that for every regulation topic and technological advancement, “there’s incumbent opposition,” such as banks broadly opposing stablecoins and crypto derivatives having traditional finance counterparts in markets like that from CME Group.

“The old gods of finance do not share power lightly.”

Bill Hughes, a lawyer and the global regulatory lead at blockchain software firm Consensys, said on X that “SIFMA’s primary argument is procedural and a reasonable one at that.”

“If we are going to be changing substantive rules on how retail participants can access securities — specifically publicly traded stock, then we should be doing that through notice and comment rulemaking and not particularized exemptive relief or no-action assurances.”

“It seems pretty clear, having certain assets with one foot in the less intermediated and controlled crypto world and the other in the heavily intermediated and controlled tradfi capital market is a regulatory policy mess,” Hughes said. 

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“Conundrums abound. We got a lot to figure out,” he added.

Coinbase and Kraken eye tokenized stocks

Crypto exchanges Coinbase and Kraken have looked to launch tokenized securities trading in the US with SEC approval.

Coinbase’s chief legal officer, Paul Grewal, reportedly said the exchange was seeking approval for “tokenized equities,” and that this was a “huge priority” for Coinbase.

On Monday, Kraken began offering tokenized stock trading on its platform, serving up tokens fully backed by shares in major US stocks such as Apple and Microsoft.

However, Kraken didn’t make the service available for users in the US, Canada, the EU, the UK or Australia.

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