SEC member Hester Peirce shared her assessments regarding cryptocurrency law, regulations, and tokenized stocks.
Peirce explained that creating a clear and workable legal framework for the cryptocurrency market is a long and difficult process, but said that the crypto market structure bill progressing in Congress provides an important foundation in this regard.
Peirce, recalling his previous experience in the Senate, pointed out that drafting and passing such comprehensive legislation through consensus is extremely difficult. Nevertheless, he stated that the bill was positive in that it provided a foundation upon which regulations could be built.
One of the most debated topics on the program was which institution would oversee crypto assets. Peirce stated that even if securities are tokenized, they remain under the SEC’s jurisdiction. “When you tokenize a security, it’s still a security,” Peirce argued, asserting that the SEC’s role remains unchanged.
However, Peirce stated that crypto assets, being commodities, should be regulated by the CFTC rather than the SEC, saying, “This is not our area of expertise, and we don’t want to spend our time there.” Peirce also noted that the majority of crypto assets are not securities and therefore do not fall under the SEC’s regulatory purview.
Peirce stated that companies offering tokenized shares should be subject to the same basic rules as traditional share issuers, but noted that technology necessitates a rethinking of some rules. He said Congress has given the SEC flexible powers in this regard, and that they are working on where the current rule set needs to be adapted.
Peirce stated that fundamental transparency standards must be maintained in transaction and clearing processes, adding that tokenization could alter the way these processes operate and that regulations should reflect this. He also said that the goal is not to have tokenized and non-tokenized versions of the same security traded on separate markets, but rather a single, unified market structure.
The program also addressed news that the NYSE is working on a new blockchain-based platform for 24/7 trading of tokenized stocks and ETFs. Peirce stated that the 24-hour availability of crypto markets is pushing traditional finance in this direction, but that this is a positive development for global investors.
However, he added that in the 24/7 trading world, there are serious operational questions about how to handle issues such as volatility pauses and the market’s need to “breathe” during times of crisis.
Peirce also touched on enforcement policy in the crypto space, stating that the SEC will continue to combat malicious actors within its jurisdiction. However, arguing that lessons should be learned from past mistakes, Peirce said, “Making up and applying rules after the fact is extremely unfair. The right thing to do is to write clear rules first, and then impose sanctions on those who violate them.”
*This is not investment advice.
