In a speech, U.S. Securities and Exchange Commission Commissioner Hester M. Peirce said the SEC is revising its approach to crypto regulation and that the SEC’s Crypto Task Force is considering a potential exemptive order to support tokenization of traditional securities. The concept would allow firms to use distributed ledger technology (DLT) to issue, trade, and settle eligible tokenized securities under calibrated conditions, drawing on “regulatory sandbox” models used in other jurisdictions. The potential exemption would provide conditional relief from certain SEC registration requirements and associated rules for firms using innovative trading systems for tokenized securities, including where automated market making models face challenges complying with Regulation National Market System or where registration as a broker-dealer, clearing agency, or exchange may otherwise be required. Peirce outlined possible conditions covering fraud and manipulation protections, user disclosures on platform operations, conflicts and risks including smart contract risks, recordkeeping and reporting, SEC staff monitoring and examinations, and adequate financial resources. Additional requirements were contemplated for crypto custody services, alongside risk-mitigating limits on the number and types of tokenized securities or trading volumes, with the possibility of increasing ceilings based on successful performance. Peirce described the exemption as a work in progress and invited feedback from market participants and other stakeholders, noting that the Crypto Task Force’s work is informed by a February request for comment. She also advocated cross-border cooperation, including bilateral arrangements that could allow participants in foreign sandbox regimes to run parallel market experiments in the United States supported by information sharing and other supervisory coordination.

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