SEC’s Peirce says market will sort out winners in tokenization

Market forces will ultimately prove which forms of tokenizing securities and other real-world assets will win out, Securities and Exchange Commission member Hester Peirce said Tuesday. 

“We’re willing to work with people who are taking different approaches,” Peirce said about tokenization in an interview on Bloomberg Television. “We’re looking forward to working with folks to try those different models out and see what the markets like.”

Peirce noted it will remain critical that companies properly disclose the nature of the assets being tokenized. “It may be a security with different characteristics and that’s something that needs to be conveyed to investors,” she said.

A tokenized security is a digital representation of a security — but not direct title to the asset itself — that can be traded on a blockchain network, rather than in a brokerage account. 

By cutting stocks or other assets into smaller pieces, they can be more affordable to own. Proponents note that trading tokenized securities on blockchain technology would also support 24/7 trading, unlike on traditional exchanges that shutter overnight and on holidays. 

Peirce, dubbed “Crypto Mom” by the digital assets crowd, indicated in a statement in July that traditional securities laws would generally still apply to tokenized securities, whether issued directly by a company or by a third-party. 

Robinhood Markets Inc. is among the most prominent companies pushing for broader adoption of tokenization and announced earlier this year that some of its European-based customers could start trading tokens that represent shares of US equities. Robinhood CEO Vlad Tenev has since said the firm was in discussions with regulators about the development.  

Other groups have recently called for a cautious and deliberate approach on tokenization. Trading behemoth Citadel Securities raised concerns about the potential for regulatory arbitrage if the SEC doesn’t delineate clear rules for companies that want to tokenize assets to follow.  

Wall Street stalwarts, including JPMorgan Chase & Co., have noted that broad adoption in tokenizing bonds and other traditional assets hasn’t taken off. The market for it is currently valued at just $25 billion, with much of the activity in the space driven by crypto-forward firms rather than traditional banks, brokers and publicly-traded companies, according to a JPMorgan strategists.

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