A major TradFi group is urging the SEC to reject special treatment for tokenized stocks, calling for equal oversight through the standard regulatory process.
According to a trade association for the banking sector, tokenized stock offerings ought to go through the “notice and comment process” rather than receiving an exemption from the Securities and Exchange Commission.
An industry trade association is urging the US securities regulator to deny a slew of relief requests from cryptocurrency companies that want to sell tokenized stocks.
In a letter on Monday, the Securities Industry and Financial Markets Association (SIFMA), which is made up of finance companies and securities issuers, expressed “significant concern” over reports that cryptocurrency companies are seeking exemptive or no-action relief to enable them to sell tokenized securities or stocks.
The SEC wouldn’t advise pursuing enforcement action against a company for items it introduces if it granted no-action relief. The SEC can test certain items by exempting them from securities regulations thanks to exemptive relief.
If such reliefs were provided, SIFMA argued in a letter to the Securities and Exchange Commission’s Crypto Task Force, crypto companies could sell securities to the general public “outside of the regulatory structure established by the federal securities laws and from which many critical investor protections flow.”
“Instead of a more substantive notice and comment process, 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,” SIFMA stated.
“These policy questions are simply too important to be addressed purely through immediate no-action or exemptive requests, and such requests should be rejected.”
The SEC is considering changing the regulation of tokenized securities.
The statement from SIFMA follows Hester Peirce, the head of the Crypto Task Force and SEC Commissioner, who stated in May that the agency is “considering a potential exemptive order” for companies that use blockchain to “issue, trade, and settle securities.”
According to her, businesses wishing to develop platforms for tokenized securities could have to register with the SEC, which many might find too costly. This could result in companies not issuing tokenized securities because of the restricted trading platforms available.
Peirce said, “Exemptive relief could help resolve this chicken-and-egg problem.”
Businesses shouldn’t be forced to abide by “inappropriate regulations, which, in many cases, were developed well before the technologies being tested existed,” she continued.
SIFMA members “want to protect their market position,” according to a letter written to X on Wednesday by Alexander Grieve, the vice president of government affairs at venture capital company Paradigm, as many more platforms may provide trading on tokenized securities that are essentially stocks.
He says, “There’s incumbent opposition” to every regulatory problem and technology innovation. For example, banks generally oppose stablecoins, and crypto derivatives have traditional finance counterparts in exchanges like the CME Group.
“The old gods of finance do not share power lightly.”
“SIFMA’s primary argument is procedural and reasonable at that,” stated Bill Hughes, a lawyer and worldwide regulatory lead at blockchain software company Consensys, on X.
“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’s pretty obvious that having some assets in the heavily regulated and controlled TradFi capital market and another in the less regulated and controlled crypto world is a regulatory policy mess,” Hughes stated.
There are several puzzles. We have a lot to work out,” he continued.
Kraken Eye and Coinbase tokenized stocks.
With SEC approval, cryptocurrency exchanges Coinbase and Kraken have sought to introduce tokenized securities trading in the US.
Paul Grewal, the chief legal officer at Coinbase, allegedly stated that the exchange was requesting approval for “tokenized equities,” calling this a “huge priority” for Coinbase.
Kraken launched tokenized stock trading on its platform on Monday, providing tokens fully backed by shares of well-known US companies like Apple and Microsoft.
Nevertheless, Kraken did not allow users from the US, Canada, the EU, the UK, or Australia to access the service.
