SIFMA Urges SEC to Reject Crypto Firms' Tokenized Stock Requests

The Securities Industry and Financial Markets Association (SIFMA), a prominent industry trade group, has called on the US Securities and Exchange Commission (SEC) to reject requests from crypto companies seeking to offer tokenized stocks. In a letter addressed to the SEC's Crypto Task Force, SIFMA expressed significant concerns over the potential for crypto firms to bypass established regulatory frameworks by seeking no-action or exemptive relief.

No-action relief would prevent the SEC from taking enforcement action against firms launching new products, while exemptive relief would allow certain products to be excluded from securities laws for testing purposes. SIFMA argued that granting such reliefs could enable crypto firms to offer securities to the public without adhering to the regulatory structure established by federal securities laws, thereby compromising critical investor protections.

SIFMA urged the SEC to reject these requests, emphasizing that the policy questions involved are too important to be addressed through immediate no-action or exemptive requests. The group advocated for a more substantive notice and comment process to ensure thorough consideration of the regulatory implications.

This development follows comments made by SEC Commissioner Hester Peirce in May, who indicated that the regulator is considering a potential exemptive order for firms using blockchain to issue, trade, and settle securities. Peirce suggested that exemptive relief could help resolve the "chicken-and-egg problem" faced by companies looking to create platforms for tokenized securities, which may need to register with the SEC.

Peirce also noted that firms should not have to comply with regulations that were developed before the technologies being tested existed, highlighting the need for regulatory flexibility. However, SIFMA's stance reflects a broader concern within the traditional finance industry about the potential disruption caused by tokenized securities.

Alexander Grieve, the vice president of government affairs at venture firm Paradigm, suggested that SIFMA members are motivated by a desire to protect their market position. He pointed out that for every regulation topic and technological advancement, there is often opposition from incumbents, such as banks opposing stablecoins and crypto derivatives having traditional finance counterparts.

Bill Hughes, a lawyer and the global regulatory lead at blockchain software firm Consensys, supported SIFMA's procedural argument, stating that changes to how retail participants can access securities should be made through notice and comment rulemaking rather than particularized exemptive relief or no-action assurances. Hughes also highlighted the regulatory challenges posed by assets that straddle both the crypto and traditional finance worlds.

Crypto exchanges Coinbase and Kraken have shown interest in launching tokenized securities trading in the US with SEC approval. Coinbase's chief legal officer, Paul Grewal, reportedly stated that the exchange was seeking approval for "tokenized equities," considering it a "huge priority." Kraken began offering tokenized stock trading on its platform, providing tokens backed by shares in major US stocks such as Apple and Microsoft. However, the service was not made available to users in the US, Canada, the EU, the UK, or Australia.