Hester Peirce Says SEC Working on Limited Innovation Exemption for Tokenized Securities

• Hester Peirce said the SEC staff is working on a narrow innovation exemption to enable limited trading and experimentation with tokenized securities.
• The SEC’s Investor Advisory Committee warned that any exemption should remain limited.

SEC Commissioner Hester Peirce has signaled a more cautious approach to blockchain innovation, recommending that the agency pursue an innovation exemption to allow limited trading and experimentation with tokenized securities within the present regulatory framework.

On March 12, the SEC Investor Advisory Committee meeting was held, where Commissioner Peirce stated, “Commission staff is working on an innovation exemption to facilitate limited trading of certain tokenized securities—much narrower than the “blanket” exemption mentioned in the draft recommendation.”

Meanwhile, the SEC’s Investor Advisory Committee also warned against implementing a broad blanket innovation exemption for tokenized securities. The committee observed that such crypto assets are still subject to federal securities laws and should continue to be subject to existing regulatory restrictions, even as policymakers look for methods to encourage blockchain-based financial innovation.

According to a letter dated February 26, the IAC’s market structure subcommittee proposed that changes to existing SEC regulations might be achieved through a limited or narrow innovation exemption or through rule-by-rule amendments. 

However, it highlighted that any such measures must go through the regular notice and public comment period. The panel also stated that its suggestions are based on broad principles, recognizing that the tokenization of equities is still in its early stages and requires extensive technological developments.

Further, the IAC also spoke about the advantages associated with tokenized securities, such as potentially increasing settlement efficiency by enabling atomic settlement, in which payment and ownership transfers occur instantly on a blockchain, lowering settlement risk, and removing the delays associated with the present T+1 method. It reduces dependency on middlemen for actions such as dividends and proxy voting and may enable 24-hour trading. 

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