Hester Peirce, SEC Commissioner, commented that although blockchains are novel technologies, it does not exclude them from existing regulations. Peirce was addressing the question of tokenized stocks and the regulatory frameworks and practices that informed their use. The SEC Commissioner stressed the need for tokenized stocks to comply with existing regulations. Her comments, however, do not necessarily represent the SEC’s current practices. Tokenized stocks have erupted recently with various exchanges offering stablecoin versions of stocks, pegged at a one-to-one ratio to the current price. Peirce described the new tokenized stocks as models that represent securities.
Tokenized equities allow traders to buy and sell stocks in a format that is akin to regular cryptocurrencies. The underlying company distributes tokens through an exchange. These tokenized assets follow similar practices to stablecoins, with many exchanges promising one-to-one correspondence with actual stocks. Traders can buy the tokenized stocks, but they are merely buying a representation of the actual stocks. Hester Peirce, SEC Commissioner, warned there could be new risks with these tokenized stocks. The pegged tokens, for example, could suffer a security breach and may disrupt the underlying representation of the original stock. However, for many traders, the benefits far outweigh the risks because they can conveniently buy and sell the tokens with their private crypto wallets. Peirce has been cautious about the new tokenized stocks. However, Paul Atkins, SEC Chair, said that the SEC should encourage innovation when discussing tokenized equities. Coinbase has said they are ready to embrace tokenized stocks as soon as the SEC gives it the go-ahead.
Professional traders have been asking the SEC to permit them to trade tokenized securities on American and European markets. Peirce has been replying to these demands and, in part, has answered their questions, stating that tokenized securities are still securities and go by the same pre-existing laws. Robinhood Exchange penned a letter to the SEC outlining the benefits of tokenized stocks. Robinhood has a growing number of crypto traders who use its service. The SEC has replied favorably to the exchange and has plans further to add clarity about the status of tokenized equities.
Gary Gensler, former SEC Chair, maintained the position that businesses should come in and talk with the SEC if they are considering crypto products and services. Peirce seems to be making similar comments by stating that pre-existing regulations will govern tokenized securities. This position may not be consistent with the current Chair, Paul Atkins, who has a more favourable view towards cryptocurrencies and has stated that he wishes to introduce regulations that deregulate the market. The drastic changes that have occurred are the result of a new Trump administration promoting crypto businesses. However, exchanges like Robinhood wish to extend their tokenized stock market to Europe, which would require a thorough understanding of SEC regulations. Peirce stated that the agency was willing to change the rules for cryptocurrencies if the rules were outdated or not applicable to digital assets.
Coinbase is one such company that wishes to deploy tokenized stocks on its platform. The current political climate is perfect for deploying such a complex fusion of traditional finance with blockchain innovations. There is a long list of benefits in trading tokenized stocks that exchanges are aware of. Hester Peirce, SEC Commissioner, is also the head of the crypto task force, which means her comments are especially relevant for crypto exchanges. Peirce has made various comments in the past that have been supportive of the crypto industry. Overall, Peirce supports the current administration’s goal of limiting regulations that impede financial innovation. Tokenized stocks, however, are being opposed by traditional institutions that believe the new technology should not be fast-tracked. There is a real fear that tokenized equities could be a disaster waiting to happen.
