U.S. SEC moves to pursue 'limited regulatory exemptions' for tokenized securities

It has been confirmed that the U.S. Securities and Exchange Commission (SEC) is developing an innovation exemption measure to support trading in tokenized securities (ST). However, rather than the sweeping regulatory carve-out some in the market had hoped for, the approach is expected to be highly limited and premised on investor protection.

On the 12th (local time), SEC Commissioner Hester Peirce, speaking at the SEC Investor Advisory Committee (IAC) meeting held the previous day, said, “SEC staff are preparing an innovation exemption framework to facilitate limited trading in certain tokenized securities,” adding that “it will be far narrower in scope than the ‘comprehensive exemption’ referenced in the draft recommendation.”

The IAC, which advises on the SEC’s regulatory priorities, also drew a line at applying a broad exemption from existing securities laws to tokenized securities. With digital assets still classified as securities under federal law, the view is that regulation on par with traditional markets is necessary.

Last month, the IAC’s Market Structure Subcommittee said in a letter dated the 26th that “a comprehensive regulatory exemption could undermine core investor-protection safeguards, including clear disclosures of ownership, oversight of intermediaries, and order protections comparable to those in traditional equity markets.” Instead, the committee proposed tailored, rule-by-rule reform as an alternative, following advance public notice and the solicitation of comments.

“The tokenization of equity securities is still in its early stages and entails complex technical challenges,” the committee said, adding that “at this stage, principle-based recommendations, rather than detailed rules, are the most practical and beneficial.”

The IAC also highlighted the technological benefits tokenized securities could bring. It viewed positively the potential to sharply reduce settlement delays and intermediation risk through “atomic settlement (simultaneous settlement),” as well as the potential to narrow information gaps between companies and shareholders through real-time data provision.

SEC Chair Paul Atkins also said at the meeting, “To buy time to refine a long-term regulatory framework, we expect the Commission will soon consider introducing an innovation exemption measure.”

Tokenized securities in the United States are currently fully subject to federal securities laws and must strictly comply with existing registration, disclosure, supervision, and settlement practices. If the SEC introduces an innovation exemption going forward, it is expected to enable limited experimentation with more advanced decentralized trading models, while maintaining essential investor-protection ‘guardrails’ (safety measures).