TLDR
SEC confirms tokenized securities are subject to federal laws, regardless of blockchain use.
Coinbase and Kraken’s tokenized stocks must comply with SEC’s traditional securities rules.
SEC’s Hester Peirce: Tokenization doesn’t change asset nature, regulatory laws still apply.
Senate concerns over tokenization bill could let firms bypass SEC regulations on asset tokenization.
The U.S. Securities and Exchange Commission (SEC) is making it clear that tokenized securities remain under federal securities laws, despite increasing interest from crypto firms in tokenizing traditional assets.
Hester Peirce, a commissioner at the SEC, recently emphasized that the technology behind tokenization does not change the nature of the asset itself. This statement comes as discussions about blockchain’s potential to reshape financial markets continue to grow.
Tokenized Securities Must Comply with Federal Laws
Peirce’s remarks come as a response to growing interest from firms like Coinbase and Kraken, which are looking to introduce tokenized stocks in the U.S. market.
According to Peirce, “Tokenized securities are still securities,” and therefore, these assets must adhere to the same rules that govern traditional securities. She stressed that blockchain technology does not change the underlying nature of the asset, even though it introduces new ways of trading and holding it.
Peirce’s clarification is important for companies that might be considering tokenizing stocks or other traditional assets. It signals that the SEC will continue to regulate tokenized securities in line with its existing frameworks for asset regulation. Firms will need to ensure compliance with disclosure obligations and other securities regulations if they plan to offer tokenized versions of traditional stocks.
SEC’s Stance on Tokenization and Market Efficiency
The SEC has taken a cautious approach to the growing interest in tokenization. While Peirce’s statement reinforces that tokenized securities must comply with federal laws, other SEC officials, including Chair Paul Atkins, have voiced support for innovations in the financial markets. During a CNBC interview last week, Atkins referred to tokenization as an “innovation” that could potentially lead to more efficient market operations.
However, despite the potential for greater market efficiency, the demand for tokenized securities remains unclear. As of now, it remains to be seen whether there will be a substantial shift toward blockchain-based trading of traditional stocks. Firms that pursue tokenization will need to navigate both the technical and regulatory complexities involved.
Senate Concerns Over Tokenized Securities
The debate around tokenized securities is also taking place in legislative circles. During a recent Senate Banking Committee hearing, Senator Elizabeth Warren raised concerns about a crypto market structure bill, known as the Clarity Act, which is expected to be voted on soon. Warren expressed worries that the bill could allow non-crypto companies to tokenize their assets and bypass SEC regulations.
The Clarity Act, according to Warren, could enable companies like Meta or Tesla to tokenize their stocks on the blockchain, potentially escaping SEC oversight. These comments highlight ongoing concerns over how blockchain technology might be used to sidestep existing regulatory frameworks, particularly for traditional financial markets.
In response, Peirce’s statement made it clear that any company looking to distribute tokenized securities must still meet its obligations under federal securities laws. This includes complying with rules around disclosure, reporting, and other legal requirements that apply to traditional securities.
Warnings for Companies and Protocols Pursuing Tokenization
James Seyffart, an analyst at Bloomberg Intelligence, commented on Peirce’s statement, calling it a “warning” to companies planning to build systems for tokenizing securities. He pointed out that the SEC is not taking a hands-off approach to tokenization, and firms will need to pay attention to regulatory requirements. Although the SEC has been more accommodating toward the crypto industry, it has not abandoned its role in enforcing securities laws.
Peirce’s comments serve as a reminder that tokenized securities will not be treated as a free pass for firms to avoid SEC regulation. The SEC is likely to continue monitoring developments in this space and take enforcement actions if necessary to ensure that the rules are followed.
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