Today the House Financial Services Committee is holding a hearing about tokenization. It is simultaneously introducing a draft bill that allows most types of intermediaries to use blockchains for record keeping. These intermediaries include brokers, dealers, transfer agents, national securities exchanges, investment advisors and investment companies. While the SEC has already clarified the situation for transfer agents, we don’t believe it has for others. The move would prevent a future administration from walking back any related SEC rules.
Another short bill requests a report by the SEC and CFTC into how market infrastructure needs to evolve to support tokenization.
Various industry participants submitted written testimony in advance of the hearing, including the DTCC and Nasdaq, which have both received SEC no action letters relating to tokenization. A key point made in both testimonies is that blockchain might drive more interest in direct stock issuance models, where the issuer controls the records via its transfer agent, versus the indirect entitlement model that currently dominates US equities. In that model, stocks are held in custody by the DTC’s Cede & Co and tokens in this model are digital representations of those DTC entitlements.
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