SEC's advisory group backs tokenized securities push, outlines how to keep it safe

AI Summary4 min read

TL;DR

The SEC's Investor Advisory Committee recommends moving forward with tokenized securities regulations, emphasizing mandatory reporting and fair customer orders. SEC Chairman Paul Atkins confirms the agency is already working on formal rules to allow regulated tokenization while maintaining investor protections.

Key Takeaways

•The SEC's Investor Advisory Committee voted to recommend regulations for tokenized securities that include mandatory disclosures and fairness requirements.
•Tokenized securities would allow faster settlement by eliminating traditional intermediaries, but come with risks that must be managed.
•SEC Chairman Paul Atkins said the agency is working toward formal regulations and expects to consider an innovation exemption for limited trading of tokenized securities.
•Tokenized securities still qualify as securities under existing law and require parallel safeguards to traditional markets.
•The committee's recommendations aim to balance innovation with investor protection through supervision and transparency requirements.

U.S. SEC headquarters in Washington (Jesse Hamilton/CoinDesk) — An advisory group for the U.S. Securities and Exchange Commission made recommendations on tokenized securities. (Jesse Hamilton/CoinDesk)

What to know:

The U.S. Securities and Exchange Commission is pushed by its Investor Advisory Committee to move forward on tokenized securities regulations.
The committee voted for recommendations that outline how such rules should proceed, citing needs for mandatory reporting and fairness in customer orders.
SEC Chairman Paul Atkins said the process is already underway to issue some direction to the industry to allow regulated tokenization.

The U.S. Securities and Exchange Commission is pushed by its Investor Advisory Committee to move forward on tokenized securities regulations.
The committee voted for recommendations that outline how such rules should proceed, citing needs for mandatory reporting and fairness in customer orders.
SEC Chairman Paul Atkins said the process is already underway to issue some direction to the industry to allow regulated tokenization.

A committee that advises the U.S. Securities and Exchange Commission recommended the agency move forward on a tokenized-securities policy that would allow traders to cut out the kind of go-between settlement that Wall Street investment firms have relied on for decades.

The SEC's Investor Advisory Committee voted Thursday to recommend narrow exemptions for the blockchain-based innovation for the trading of stocks, as long as the activity comes with mandatory disclosures, routine outside supervision and "a requirement that the trading of tokenized equity securities seeks to ensure that all investors receive the best terms for their orders."

These crypto assets still meet the definition of securities under the law, as SEC Chairman Paul Atkins has regularly contended, which means the activity needs parallel safeguards to the traditional system. Atkins said his agency is working toward formal regulations on tokenization. Now this work has the backing of an official recommendation from the committee, whose members include veterans from major trading firms, institutional investors and academics.

The traditional approach to stock trading features brokers, transfer agents and centralized settlement databases and can take a day or more to execute, but in placing that same stock on-chain, "the delivery of the tokenized security and the payment can happen as a single transaction, with ownership records embedded directly into a single blockchain."

The group told the commission that the newer approach doesn't come without risks:

"The most significant risk associated with the tokenization of equity securities is that these reforms or grants of exemptive relief could introduce new risks that investors do not understand and impose higher costs that outweigh the benefits of tokenization," according to the recommendation document approved by the committee.

In remarks on Thursday, Atkins praised the committee for its "recognition that tokenization can enhance settlement efficiency, reduce settlement risk, and eliminate unnecessary intermediaries.

"I expect the Commission to soon consider an innovation exemption to facilitate limited trading of certain tokenized securities with an eye toward developing a long-term regulatory framework," he said.

The European Union’s new MiCA regulations are reshaping the region’s crypto industry by raising regulatory and operational standards, which could reduce the number of lightly regulated platforms.
SwissBorg, which recently secured a MiCA license and plans to shift its European operations to a newly authorized French entity, aims to expand into major EU markets as some global exchanges scale back in the bloc.
SwissBorg’s COO expects yield and staking products, particularly those linked to stablecoins, to move toward clearer disclosures and more standardized, transparent structures as regulators push for stricter rules and institutions gradually increase their participation.

Disclosure & Polices: CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. CoinDesk has adopted a set of principles aimed at ensuring the integrity, editorial independence and freedom from bias of its publications. CoinDesk is part of Bullish (NYSE:BLSH), an institutionally focused global digital asset platform that provides market infrastructure and information services. Bullish owns and invests in digital asset businesses and digital assets and CoinDesk employees, including journalists, may receive Bullish equity-based compensation.