US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has revealed that the SEC's Cryptocurrency Working Group is studying a potential registration exemption scheme that would allow businesses to issue, trade, and settle securities through distributed ledger technology (DLT). This exemption will waive some SEC registration requirements and support companies in using innovative trading systems to process eligible tokenized securities.
The exemption mechanism comes with strict conditions: exempt entities will comply with market integrity conditions to prevent fraud and manipulation. Other conditions may include requiring significant and relevant disclosures to be provided to users regarding platform products, services, operations, conflicts of interest, and risks (including smart contract risks); Comply with record keeping and reporting requirements; Accept supervision and inspection by SEC staff; And have sufficient operational financial resources. Additional requirements for participants providing cryptocurrency custody services may include disclosing custody arrangements and risks to clients, as well as requiring the implementation of policies and procedures or substantive requirements related to blockchain and wallet security. Restricting the quantity, types, or trading volume of tokenized securities that can be listed or traded can reduce the risks for investors and the market. For companies that operate successfully within their initial limitations, the SEC can increase these limits.
