An industry association is urging U.S. securities regulators to reject a series of exemption requests from cryptocurrency companies seeking to issue tokenized stocks.
The Securities Industry and Financial Markets Association (SIFMA), composed of securities issuers and financial firms, expressed "deep concern" in a letter on Monday regarding reports of cryptocurrency companies submitting "no-action" or "exemptive relief" requests to allow them to issue tokenized stocks or securities.
The term "no-action" refers to the SEC not recommending enforcement action against the relevant products launched by the company; while "exemptive relief" allows the SEC to temporarily exclude certain products from the scope of securities laws for testing purposes.
In its letter to the SEC's cryptocurrency working group, SIFMA pointed out that if such exemptions were approved, cryptocurrency companies could issue securities to the public "outside the regulatory framework established by federal securities laws and the many critical investor protection measures that result from it."
"SIFMA believes that the SEC should not make significant adjustments to the regulatory framework of the securities market through immediate no-action or exemptive relief, bypassing more substantive announcements and comment processes. These policy issues are extremely important and should not be handled solely based on immediate no-action or exemption requests, which should be denied."
Before SIFMA sent the letter, SEC Commissioner and cryptocurrency working group leader Hester Peirce stated in May that the agency was "considering potential exemption orders for companies utilizing blockchain to issue, trade, and settle securities."
She noted that companies planning to create tokenized securities platforms may need to register with the SEC, but many businesses find the cost prohibitive, and the limited number of tradable platforms may lead to reluctance in issuing tokenized securities.
"Exemptive relief helps address this 'chicken or egg' problem," Peirce said.
She added that companies "should not be required to comply with regulatory provisions that were established before the relevant technology emerged and are not applicable."
Alexander Grieve, Vice President of Government Affairs at Paradigm Venture Capital, stated on X on Wednesday that SIFMA members "want to protect their market position," as the emergence of tokenized securities will lead to more platforms offering trading that is essentially equivalent to stocks.
He added that in the face of every regulatory issue and technological advancement, "there is always resistance from vested interests," such as banks generally opposing stablecoins, and that traditional financial markets like CME also have corresponding products for crypto derivatives. "The old gods of finance will not easily share power."
Bill Hughes, Global Head of Regulatory Affairs at blockchain software company Consensys, stated on X: "SIFMA's main argument is procedural, which is reasonable. If we are to change the substantive rules for retail participation in securities, especially publicly traded stocks, it should be done through a rulemaking process that includes publishing and soliciting comments, rather than through specific exemptions or commitments not to take enforcement action."
Hughes pointed out: "It is clear that certain assets exist in a low-intermediation, lightly regulated crypto world on one hand, and are connected to highly intermediated, strictly regulated traditional financial capital markets on the other, creating significant confusion in regulatory policy."
"The challenges are numerous, and we have many issues to resolve," he added.
Cryptocurrency exchanges Coinbase and Kraken are seeking to launch tokenized securities trading in the U.S. after obtaining SEC approval.
Reportedly, Coinbase's Chief Legal Officer Paul Grewal stated that the exchange is seeking approval for "tokenized stocks," which is "an extremely important priority" for Coinbase.
On Monday, Kraken launched tokenized stock trading on its platform, with the issued tokens fully backed by shares of major U.S. listed companies such as Apple and Microsoft.
However, Kraken has not made this service available to users in the U.S., Canada, the EU, the UK, or Australia.
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Original: “Traditional Financial Institutions Urge SEC to Reject Special Treatment for Tokenized Stocks”
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