A potential exemption order is currently being evaluated by the U.S. Securities and Exchange Commission (SEC), which would permit companies to issue and trade securities through the use of distributed ledger technology (DLT).
SEC Commissioner Hester Peirce disclosed this initiative during her May 8 address at the agency’s International Institute for Securities Market Growth and Development.
SEC’s Draft Framework for Crypto Regulation
According to Peirce, the SEC’s Crypto Task Force is currently exploring a conditional order designed to reduce regulatory burdens for platforms dealing in tokenized securities.
The proposed measure would allow eligible firms to use distributed ledger technology (DLT) for trading, clearing, and settling securities without registering under conventional SEC regulatory frameworks.
Peirce acknowledged that existing regulations, including those under the Regulation National Market System, impose significant challenges on firms pursuing automated market-making models. These companies may need to register as broker-dealers, clearing agencies, or exchanges, which subjects them to extensive and costly compliance procedures.
The existing obstacles and the limited availability of tokenized securities and suitable trading platforms have deterred many firms from participating in the sector.
Peirce believes that a customized exemption could reduce these challenges and give the SEC a chance to develop revised regulations compatible with blockchain technologies.
Exemptive relief could help resolve this chicken-and-egg problem. It also would afford the SEC time to develop and adopt durable adaptations to its existing rules to accommodate DLT.
She said:
At the same time, the proposed rule change would come with important safety checks. Peirce stressed that any company getting this kind of relief must follow strict rules to stay clear, handle money responsibly, and keep investors safe.
In addition, firms must disclose how their platforms operate, provide detailed information about wallet and custody structures, and identify any risks specific to blockchain technology. The SEC will supervise these entities and require them to maintain sufficient capital to support their operational responsibilities.
Peirce also said the agency is looking at ways to stop fraud and market abuse. These steps could include clear rules for customer information and strong systems to watch market activity.
This sketch of a potential exemption is a work-in-progress. The goal is to formulate a commercially feasible approach that protects investors, including by ensuring that they have the benefit of cutting-edge technologies for trading, clearing, and settling securities. I welcome feedback from market participants and other interested parties.
She concluded:
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