SEC's Peirce and Atkins outline 'incremental' path forward for tokenized securities as agency readies innovation exemption

Securities and Exchange Commission leadership unveiled details of a proposed innovation exemption for onchain securities, describing it as an incremental step to integrate tokenization technology into U.S. capital markets.

On stage Wednesday at ETHDenver in a question-and-answer format, SEC Commissioner Hester Peirce and Chair Paul Atkins shed light on what an innovation exemption could look like. Atkins has said he plans to unveil a plan to fast-track crypto products in the near future.

The tokenization exemption would "facilitate limited trading of certain tokenized securities on novel platforms with an eye toward developing a long-term regulatory framework," Atkins said on Wednesday. 

Over the past year, both crypto firms and traditional finance players, including Nasdaq and the Depository Trust and Clearing Corporation (DTCC), have explored tokenized equities. If approved by the SEC, crypto companies could offer blockchain-based trading of traditional stocks, potentially putting them in direct competition with conventional brokerages.

This comes as global interest in tokenized stocks surges, with Kraken reporting some $25 billion worth of lifetime trading volume in its xStock product. Likewise, Robinhood's real-world-asset-focused blockchain has reportedly generated over four million transactions in its first week of operation. 

While the SEC, under Chair Atkin, is accelerating its crypto-related rule-making, it has taken a more cautious approach to onchain securities trading and issuance in the U.S. Prominent SEC Commissioner Peirce previously said that “tokenized securities are still securities.”

In December, DTCC was authorized to tokenize certain highly liquid assets on pre-approved blockchains under a three-year authorization period. Last month, the New York Stock Exchange said it was developing a platform for the trading and onchain settlement of tokenized securities, which could allow for 24/7 trading. 

Measured stance

On Wednesday, Peirce noted that some TradFi skeptics of tokenization argue a future innovation exemption could allow crypto firms to bypass existing rules. However, the commissioner voiced a more measured stance. 

"Both groups are likely to realize that the innovation exemption is not as monumental as either faction anticipated," Peirce said. "It would be an important step toward facilitating the integration of tokenized securities into our existing financial system, but it would not change the entire financial system overnight." 

Atkins said people should be able to trade certain tokenized securities through automated market makers or other decentralized platforms that use algorithms to facilitate trading. 

"In my view, market participants should be able to engage with decentralized applications on public, permissionless blockchains if they desire," Atkins said. "But I expect, however, that many Americans will be more comfortable allowing intermediaries to custody and trade on their behalf." 

People should make that decision, not the SEC, Atkins added.