A committee advising the U.S. Securities and Exchange Commission recommended the agency advance a tokenized securities policy that would allow traders to eliminate the type of middleman agreement that Wall Street investment firms have relied on for decades.
The SEC’s Investor Advisory Committee voted Thursday to recommend narrow exemptions for blockchain-based innovation for stock trading, as long as the activity comes with mandatory disclosures, routine outside oversight, and “a requirement that trading in tokenized equity securities seek to ensure that all investors receive the best terms for their orders.”
These cryptoassets still meet the definition of securities under the law, as SEC Chairman Paul Atkins has regularly argued, meaning the activity needs safeguards parallel to the traditional system. Atkins said his agency is working toward formal regulations on tokenization. This work is now supported by an official recommendation from the committee, whose members include veterans from leading trading firms, institutional investors and academics.
The traditional approach to stock trading involves brokers, transfer agents, and centralized settlement databases and can take a day or more to execute, but by placing that same stock on-chain, “delivery of the tokenized value and payment can occur as a single transaction, with ownership records integrated directly into a single blockchain.”
The group told the commission that the new approach is not without risks:
“The most significant risk associated with the tokenization of equity securities is that these reforms or exemption grants 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.
Speaking on Thursday, Atkins praised the committee for its “recognition that tokenization can improve settlement efficiency, reduce settlement risk, and eliminate unnecessary intermediaries.”
“I hope that the Commission will soon consider an innovation exemption to facilitate limited trading in certain tokenized securities with a view to developing a long-term regulatory framework,” he said.
