SEC Commissioner Peirce: Tokenized Securities Must Comply With Existing Regulations

Hester Peirce, a Commissioner at the Securities and Exchange Commission (SEC), has emphasized that tokenized securities, despite being based on novel blockchain technology, are still subject to existing regulatory frameworks. Peirce, who is also the head of the SEC’s Crypto Task Force, addressed the issue of tokenized stocks and the regulatory practices that govern their use. She underscored the importance of compliance with current regulations for tokenized stocks, noting that these digital assets represent securities and must adhere to the same legal standards as traditional securities.

Tokenized equities enable traders to buy and sell stocks in a format similar to regular cryptocurrencies. The underlying company issues tokens through an exchange, and these tokenized assets follow practices akin to stablecoins, with many exchanges promising a one-to-one correspondence with actual stocks. However, Peirce warned that these tokenized stocks could introduce new risks, such as security breaches that might disrupt the underlying representation of the original stock. Despite these risks, many traders find the convenience of buying and selling tokens with their private crypto wallets to be a significant benefit.

Peirce has been cautious about the new tokenized stocks, but Paul Atkins, the current SEC Chair, has expressed a more favorable view towards cryptocurrencies. Atkins has stated that the SEC should encourage innovation in the realm of tokenized equities. Coinbase, a major cryptocurrency exchange, has indicated its readiness to embrace tokenized stocks as soon as the SEC provides regulatory clarity. Professional traders have been advocating for the SEC to permit the trading of tokenized securities on American and European markets, and Peirce has responded by stating that these digital assets are still subject to the same pre-existing laws as traditional securities.

Robinhood Exchange, which has a growing number of crypto traders, has outlined the benefits of tokenized stocks in a letter to the SEC. The SEC has responded favorably to the exchange and plans to provide further clarity on the status of tokenized equities. Gary Gensler, the former SEC Chair, has maintained that businesses considering crypto products and services should engage with the SEC. Peirce’s comments align with this position, stating that pre-existing regulations will govern tokenized securities. However, this stance may not be consistent with the current Chair, Paul Atkins, who has a more favorable view towards cryptocurrencies and has expressed a desire to introduce regulations that deregulate the market.

The current political climate, influenced by a new administration promoting crypto businesses, has created an environment conducive to the deployment of tokenized stocks. Exchanges like Robinhood are aware of the numerous benefits of trading tokenized stocks and wish to extend their tokenized stock market to Europe. Peirce has stated that the SEC is willing to change the rules for cryptocurrencies if the existing regulations are outdated or not applicable to digital assets. Coinbase is one of the companies eager to deploy tokenized stocks on its platform, leveraging the fusion of traditional finance with blockchain innovations. Peirce’s support for the current administration’s goal of limiting regulations that impede financial innovation is well-known, but traditional institutions remain opposed to the fast-tracking of tokenized equities, citing concerns about potential risks and disasters.