During a speech yesterday, Securities Exchange Commission (SEC) Chair Paul S. Atkins discussed tokenization. The SEC is actively working on a regulatory framework for tokenization, described as quick, careful, creative and workable by SEC Commissioner Hester Peirce at the same Investor Advisory Committee event. Additionally, by 21 December the SEC needs to respond to Nasdaq’s rule change request re tokenization. The stock exchange wants stocks to be traded as they are now, with the tokenization to happen at the post trade level by the DTC.
Chair Atkins didn’t address specific offerings, but outlined three different paths to tokenization. The first is where a company chooses to issue its own stock digitally on a distributed ledger. Secondly, there are third parties who create digital twins of the stocks on chain, that include ownership, which probably encompasses the Nasdaq proposal. A third category was referred to as synthetic tokens, which Commissioner Peirce described as potentially “tokenized structured notes or security-based swaps, but offer no ownership or voting interest in the issuer.”
Peirce noted that the new tokenization framework being developed aims to “provide American investors with the protections they have come to expect when trading U.S. equities. Otherwise, American investors will buy tokenized securities overseas.” That may signal that synthetic offerings structured like the current popular ones from Backed (issuer of xStocks), Ondo Global Markets and Robinhood would be frowned upon. From an investor protection perspective, that’s a positive move.
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