During the ETHDenver event yesterday, Securities and Exchange Commission (SEC) Chair Paul Atkins and Commissioner Hester Peirce discussed the promised innovation exemptions around the trading of tokenized securities.
Peirce is known for her vivid analogies and this time compared the expected innovation exemption to buying the contents of an abandoned storage unit blind. She described certain startups expecting to find gold bars among the unit’s contents, while some TradFi entities fear the storage unit “contains a monster that will swallow all of TradFi in one ugly bite.” Instead the exemption will be more modest, adopting an incremental approach that avoids transforming capital markets overnight.
A specific example outlined by Chair Atkins was the potential to trade tokenized securities on permissionless chains via DeFi automated market makers (AMMs) and other decentralized liquidity mechanisms. The exemptions provided would be for some “rules and certain other requirements that may not be relevant in light of how this technology works.” Crucially, this would not be a blanket exemption for all tokens. Instead it would apply where issuers choose to enable tokenization via specialist transfer agents, with the transfer agent whitelisting token holders. Additionally there would be volume limits and the exemption would be temporary. This approach is smart for several reasons.
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