Last week, a deeper examination was initiated by the U.S. Securities and Exchange Commission’s (SEC) Crypto Task Force into the ways in which public blockchain technology can be utilized to facilitate the issuance and exchange of tokenized securities.
Separate meetings were conducted by the group with Nasdaq, Plume Network, and Etherealize to discuss the potential methods through which securities could be issued and traded using public blockchain networks.
The concept of a regulatory sandbox was proposed as a result of all three meetings.
Nasdaq Pushes for Venues Supporting Digital Assets
As documented in the log of a May 21 meeting, it was recommended by Nasdaq executives that tokenized shares, bonds, and exchange-traded funds (ETFs) should continue to be governed by the current registration regulations.
In addition, a request was made by Nasdaq executives for approval to establish a new trading venue referred to as “ATS-Digital,” where firms would be permitted to list both digital asset investment contracts and commodity-like tokens.
Regulators were also urged by the exchange operator to establish a joint safe harbor, in coordination with the Commodity Futures Trading Commission (CFTC), for digital assets whose regulatory classification remains unclear.
This concept, commonly referred to as a “regulatory sandbox,” would permit issuers to self-certify the classification of their assets while adhering to simplified disclosure requirements. Support for this initiative was indicated by SEC Commissioner Mark Uyeda in April.
It was emphasized by Nasdaq that tokenization should not be allowed to diminish the safeguards provided by the national market system, and that any transition toward atomic settlement must be approached with a careful balance between liquidity needs and operational risks.
Plume Proposes Regulatory Sandbox for On-Chain Markets
During a meeting held on May 22, the SEC was informed by Arbitrum-based Plume Network that permissionless blockchains are believed to be the most suitable framework for the tokenization of real-world assets. Additionally, the creation of a regulatory sandbox encompassing the provisions of the 1933 Securities Act and the 1934 Exchange Act was proposed.
The agenda put forth by the company includes a request for safe harbor provisions that explicitly take into account the operational dynamics of decentralized finance and the principle of “credible neutrality,” along with mechanisms designed to tailor regulatory requirements for both primary token offerings and secondary trading conducted on-chain.
In their concise meeting summary, guidance was requested by Plume regarding the tokenization of both U.S. and international equities that fall under the Regulation National Market System and other applicable regulatory frameworks.
Etherealize Calls for Reform of Transfer Agent Regulations
A focus was placed by Etherealize and the policy firm MetaLeX on back-office infrastructure, informing the Task Force that existing transfer agent regulations compel issuers to maintain parallel off-chain ledgers, thereby undermining the operational efficiencies offered by blockchain technology.
A transfer agent is defined as a financial institution that is tasked with maintaining records of a company’s shareholders.
A proposal was submitted requesting that the SEC formally recognize secure blockchains as legitimate share registries, grant exemptions from transfer agent registration for issuers utilizing decentralized tokenization protocols, and establish an expedited approval process for agents that specialize in handling tokenized securities.
A pilot program was also recommended to evaluate the effectiveness of smart contract-based alternatives for executing corporate actions, including dividend payments and shareholder voting processes.
Emerging Consensus
Throughout the meetings, requests were made by industry participants for the development of a clear asset classification system, modular regulatory frameworks, and the implementation of phased pilot programs.
In addition, technology-specific adjustments were proposed by each group, though none disputed the SEC’s fundamental mandate to protect investors.
The materials were taken under advisement by the Task Force staff, with indications given that forthcoming rule proposals might consider sandbox frameworks, specialized trading platforms, and revised obligations for transfer agents.
 Crypto Task Force into the ways in which public blockchain technology can be utilized to facilitate the issuance and exchange of tokenized securities.){kind=link}