SEC Crypto Task Force Holds Talks on Securities Tokenization with Nasdaq and DeFi Startups

The Crypto Task Force of the US Securities and Exchange Commission (SEC) ramped up its research last week into how public blockchain technology can facilitate the creation and exchange of tokenized securities.

Meetings were held with Nasdaq, Plume Network, and Etherealize, focusing on the framework for issuing and trading securities on public blockchains.

Discussions in all three sessions led to the idea of implementing a regulatory sandbox.

Nasdaq advocates for digital asset-friendly spaces

In a meeting logged on May 21, Nasdaq representatives encouraged the Task Force to maintain existing registration standards for tokenized shares, bonds, and exchange-traded funds (ETFs).

They also proposed the establishment of a new “ATS-Digital” platform for listing investment contracts related to digital assets and other commodity-like tokens.

The exchange operator urged regulators to consider a collaborative safe harbor with the Commodity Futures Trading Commission (CFTC) for assets with ambiguous classifications.

This proposal, frequently referred to as a “regulatory sandbox,” would enable issuers to self-certify categorization while adhering to streamlined disclosure requirements. SEC Commissioner Mark Uyeda expressed support for this initiative in April.

Nasdaq emphasized that the process of tokenization should uphold national market system protections and that any transition towards atomic settlements should be balanced with liquidity and operational considerations.

Plume promotes a sandbox for on-chain transactions

During a meeting with the SEC on May 22, Plume Network, based on Arbitrum, argued that permissionless blockchains are optimal for tokenizing real-world assets. They also proposed a regulatory sandbox that encompasses the 1933 Securities and 1934 Exchange Acts.

The firm’s agenda calls for safe harbor provisions that take into account decentralized finance mechanics and “credible neutrality,” alongside mechanisms to align regulations for primary offerings and on-chain secondary trades.

In their meeting notes, Plume requested clarification on the tokenization of both US and non-US equities regulated under the National Market System and other frameworks.

Etherealize aims to revise transfer agent regulations

Etherealize, in collaboration with policy firm MetaLeX, addressed back-office processes and informed the Task Force that outdated transfer agent regulations compel issuers to maintain parallel off-chain records, undermining blockchain efficiencies.

A transfer agent functions as the financial entity responsible for managing a company’s shareholder records.

Their proposal encourages the SEC to acknowledge secure blockchains as official share registries, exempt issuers using decentralized tokenization methods from transfer agent registration, and create an expedited process for agents specializing in tokenized securities.

They also advocated for a pilot initiative to evaluate smart contract equivalents for corporate actions, such as dividend payments and shareholder voting.

Common themes emerging