In remarks at the Economic Club of Washington on April 22nd, SEC Chair Paul Atkins said the agency is “on the cusp” of releasing an “innovation exemption” that would let market participants begin facilitating trading of tokenized securities onchain while the Commission works on longer-term rules.

This should matter to anyone involved in any respect with ‘tokenized real world assets’ because it signals movement beyond speeches and theory toward a usable operating lane. While the remarks are meaningful, they aren’t presented in a vacuum, but as close observers may understand, they are part of rigorous and steady set of speeches, statements, and clarifications. These things take time, and they do take some talking through as well.

Grounding this speech with recent events
In March, Commissioner Hester Peirce said SEC staff was already working on a narrower exemption to support limited trading of certain tokenized securities, with explicit questions around disclosure, atomic settlement, intermediary definitions, and how to avoid regulatory arbitrage.

A few weeks later, Trading and Markets Director Jamie Selway said the Division was actively preparing an innovation exemption recommendation for the Commission to allow certain trading venues to trade tokenized securities.

The broader policy stack is getting clearer too. On January 28th, SEC staff published a detailed statement on tokenized securities that drew a sharp line between issuer-sponsored tokenized securities, custodial tokenized securities, and synthetic tokenized securities. That taxonomy is critical because the market has spent too long blurring very different structures under one label. Breaking them down into a coherent taxonomy was an important structural step.

What should the industry watch next?
For starts, look at the scope. The language coming from the SEC suggests a controlled pilot, not a free-for-all. Second, consider ‘market structure’. The hard questions are not about marketing tokenization, but rather focus on

1. Transfer restrictions (something that Vertalo has pioneered for tokenized assets since 2018)

2. Investor protections (tokenized cap tables and asset databases are auditable)

3. Settlement mechanics (is t-0 really a good thing?)

4. Custody (most custodians digital or traditional cannot handle the more complicated equity tokenization standards, at all)

5. Where existing broker-dealer, exchange, and clearing rules fit or fail.

If the exemption lands well, firms that already understand compliant issuance, cap tables, transfer-agent workflows, and permissioned trading mechanics will move first.

The take-away simple: this is not final clarity, but it is the closest the SEC has come to opening a serious onchain path for tokenized securities trading in the US.

Want source material for your own reading? Look below.

Relevant links:

• SEC Chair Paul Atkins remarks: https://www.sec.gov/newsroom/speeches-statements/atkins-keynote-remarks-economic-club-washington-042126

• Commissioner Hester Peirce remarks: https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-iac-031226

• Erik Selway remarks: https://www.sec.gov/newsroom/speeches-statements/selway-remarks-stany-conference-041326

• SEC staff statement on tokenized securities: https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826-statement-tokenized-securities

• Cointelegraph coverage: https://cointelegraph.com/news/sec-tokenized-securities-exemption-nears-release

In her March 16 statement supporting proposed amendments to Rule 15c2-11, she calls the SEC’s post-2020 handling of the rule a bureaucratic mess of the agency’s own making. Yep. Checks out!

The Reader’s Digest Version: Rule 15c2-11 governs what information broker-dealers must verify before quoting a security on OTC markets.

The 2020 amendments updated the rule but left its scope ambiguous. Suddenly the fixed income market was asking whether the rule applied to bonds, and years of no-action letters, temporary relief, and general confusion followed (not to mention legal fees and wasted time).

Now the SEC is proposing to clarify the rule applies only to equity securities, and Peirce is openly inviting comment on 3 specific questions: 1) how “equity security” gets defined, 2) whether and how the rule reaches crypto assets, and 3) what an “expert market” for digital asset securities might look like.

That last one matters most for this audience. What exactly is ‘an expert market’?

The “expert market” concept isn’t new, but its application to digital assets is. The idea is a tiered access structure where unregistered securities can trade among sophisticated parties, without the full issuer disclosure requirements triggered by retail-accessible quoting. Think of it as a regulatory carve-out for informed participants, one that could meaningfully reduce the compliance cost of OTC quoting for tokenized instruments that don’t fit neatly into existing frameworks.

The Whole Statement can be found here.

Here's where it gets practical. If the SEC extends Rule 15c2-11's reach to tokenized or crypto securities quoted on OTC venues, broker-dealers won't just need issuer disclosures, they'll need verified, current ownership and issuance records.

The rule's information requirements point directly upstream to whoever holds the canonical record of who owns what.

That's the transfer agent's job and always has been. Vertalo was built for this inevitability.

The OTC quoting process for any security sits downstream of the cap table. Before a broker-dealer can publish a quote, someone has to have already recorded the issuance, tracked the holders, and maintained the documentation that satisfies "current public information" requirements.

For tokenized securities, that record is on-chain and held by a registered transfer agent. The SEC is drafting rules around a data infrastructure that already exists.

Commissioner Peirce is drawing the regulatory map: Transfer agents are landmarks on it, not footnotes.

The comment period on these proposed amendments is the real opportunity here. If firms building tokenized issuance infrastructure have views on how "equity security" should be defined, or how an expert market for digital assets should be structured, now's the time to write them down and submit them.

The SEC said it wants to hear from you, loyal reader. What's your read: does the "expert market" concept give tokenized securities the right runway, or does it create a two-tier system that the next administration will spend years untangling?

If you’re interested in learning more about the role of a truly-integrated digital transfer agent, reach out to me at Dave.Hendricks@vertalo.ai

6 questions. That's what she put to the Committee. And if you know how to read regulatory signal, those 6 questions are a roadmap.

Have questions about what this means for your securities? Visit Vertalo.ai and ask our chatbot. It's trained on every SEC statement, FAQ, and regulatory development in the tokenization space.

I've been building tokenization infrastructure for 8 years. I watched the Jan 28, 2026 SEC Joint Statement on Securities Tokenization confirm that tokenized securities on DLT are legal. That was the "is it legal?" question, and the answer was yes. Peirce's March 12 remarks shift the conversation entirely. We're now in "how do we build the sandbox?" territory.

Personally, 8 years after we (Vertalo) issued our own Tokenized Reg D/S Vertalo Talos Equity, I’m kind of past the Sandbox phase, but sounds good to me versus the quicksand that was the Gensler SEC!

And I am ecstatic that we are not a Broker-Dealer. Read down to understand why.

Commissioner Peirces 6 Questions - Unwrapped

1. Are existing disclosure requirements already sufficient? The IAC draft called for mandatory disclosures giving tokenized security investors a clear picture of ownership rights. Peirce asked: what exactly is missing from the SEC's existing issuer disclosure framework?

If you can't answer that, maybe nothing's missing.

2. Do broker-dealers and clearing agencies need new disclosure rules when they tokenize security entitlements? She asked why tokenized entitlements should be treated differently than non-tokenized ones.

The implied answer: they probably shouldn't be.

3. Why would atomic settlement need exemptive relief from T+1? This is one of the 2 most important questions. The IAC draft said atomic settlement requires relief from T+1 rules. Peirce's response: atomic settlement is faster than T+1.

Why would you need a waiver to settle faster? She also asked whether atomic settlement would face friction under other existing SEC rules beyond T+1.

4. What happens when there are no intermediaries? This is the other most important question. The IAC assumed tokenized equity trading would have intermediaries subject to best-execution protections. Peirce asked what happens when there are no intermediaries, or when the intermediaries don't fit existing Exchange Act definitions (broker, dealer, exchange, clearing agency).

Does the SEC even have statutory authority to regulate those entities? That question cuts deep.

5. Should the exemption allow multiple tokenization models? The Jan 28 statement identified 5 distinct tokenization models. Peirce asked whether the innovation exemption should allow different models to coexist so the SEC can learn about each one's risks and benefits.

She also asked whether issuers should have to consent before someone creates a tokenized version of their existing securities.

6. What guardrails prevent regulatory arbitrage? Standard caution, but real. What conditions preserve fundamental investor protections without creating a regime so narrow it teaches us nothing?

What Narrowed, What Broadened, What Got Clarified

Narrowed: The exemption itself. The IAC draft floated a blanket exemption. Peirce walked that back immediately. "Much narrower" means targeted, limited, and probably scoped to specific security types or transaction structures.

Broadened: The analytical frame. Questions 3 and 4 open up existential questions about whether traditional market structure even applies to DLT-native settlement. That's a much bigger intellectual space than the IAC was working in.

Clarified: The disclosure burden on issuers. Questions 1 and 2 strongly suggest existing rules may already be sufficient. Issuers don't appear to be facing a new disclosure regime on top of what they already file.

What to Do Right Now, by Audience

Issuers: The exemption is coming. Start the tokenization conversation with your transfer agent now. Based on Questions 1 and 2, existing disclosure requirements likely apply, which means your compliance overhead may be lower than you think. Early movers set the terms.

Investors: The SEC's questions confirm it's building equivalent protections for tokenized securities, not a separate weaker regime. Question 6 is the guardrails question, and Peirce is asking it seriously.

Transfer Agents: Commissioner Uyeda told you on Feb 9 to modernize via DLT. Peirce's Question 5 means the SEC wants platforms that can handle multiple tokenization models. Single-model TAs will not be sufficient. I've written about what DLT means for transfer agent infrastructure and the pressure to modernize is now coming from 2 commissioners.

Broker-Dealers: Question 4 is a direct challenge to your business model. DLT-native settlement may eliminate the intermediary entirely. If you can't operate in a world without traditional broker-dealer definitions, you need to start building or partnering with infrastructure that can. I've covered whether asset management is the killer app for tokenization, and the answer depends on who controls the rails.

The Vertalo Securities Protocol was built to support all 5 tokenization models the SEC identified in January. That wasn't an accident.

Source: Peirce, H. (2026, March 12). Adam's Lib: Remarks at the Meeting of the SEC Investor Advisory Committee. U.S. Securities and Exchange Commission. https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-iac-031226

If you’ve read this far and want to ask Vertalo’s authoritative chatbot questions about Securities Tokenization, Transfer Agency, Regulations, or best practices, click here!

Anyone who's tried to issue or trade tokenized assets has run into this problem firsthand. The "is this a security or a commodity?" question was never academic; it determined which regulatory regime applied, what compliance infrastructure you needed, and which agency you had to satisfy first. The two agencies didn't coordinate well on the boundary cases for years, and that grey zone was expensive in both time and money.

The framing coming out of Project Crypto is "minimum effective dose" regulation, phased rollout, no piling new rules on top of old ones. Both chairs came back repeatedly to competitiveness as a motivation, keeping this market onshore rather than watching it develop in other jurisdictions. On March 10, Selig told the FIA conference that the inter-agency friction is behind them (see CoinDesk) and added that the CFTC is expanding the types of tokenized collateral eligible for margin and clearing purposes. That's a concrete operational change to market infrastructure, not a restatement of intent.

On the legislative side, the CLARITY Act is working its way through Congress with the goal of codifying these jurisdictional lines. If it passes, the taxonomy stops being agency guidance and becomes law.

The day before the Project Crypto event, on January 28, the SEC released its Statement on Tokenized Securities (which I covered in detail here), outlining 5 distinct models for how a security can exist on-chain within the current regulatory framework. The models range from a traditional book-entry security with a blockchain layer attached all the way to fully on-chain issuance, and each maps to a specific place in the SEC's existing rules. Chair Atkins' ETHDenver remarks (covered here) and Commissioner Uyeda's related statements (covered here) fill in useful context on the direction this is all heading.

For issuers, having 5 defined models means the compliance question now has more than one answer. The right model depends on your structure, your investors, and how you want the asset to function on-chain. Vertalo has been an SEC-registered transfer agent since 2019 and has worked with over 100 issuers and 100,000 investors across this space. We've worked through all 5 models in detail. If you're sorting out which approach fits your situation, we're glad to talk it through.

If you’re waiting for clarity before making infrastructure decisions, you’re already behind.

The White House Submission (March 3, 2026)

On March 3, the SEC submitted an interpretive framework to the White House for interagency review at the Office of Information and Regulatory Affairs (OIRA).

The framework may introduce a token taxonomy — a classification system for determining which digital assets qualify as securities under U.S. law. That distinction shapes everything: registration requirements, disclosure obligations, how firms interact with investors.

Here’s the part that matters for legal weight. A commission-level interpretation carries stronger authority than staff guidance and doesn’t require a formal vote. Chair Atkins is moving this forward without waiting for Congress, where broader crypto legislation remains stalled.

This follows his appearance at ETHDenver on February 18, where Atkins floated the idea of an innovation exemption for tokenized securities trading. We covered the transfer agent implications of that speech here.

The framework is now in interagency review. Watch OIRA.

The IAC Draft Recommendations (February 26, 2026)

Five days earlier, the SEC’s Investor Advisory Committee published draft recommendations on tokenized equity securities, prepared for discussion at the March 12, 2026 IAC meeting.

This is a substantive document. Read it. Here’s what it says.

Securities Law Applies. Full Stop.

Tokenized equity securities are crypto assets that meet the definition of a “security” under federal law. Every existing securities rule applies. No carve-outs, no special category, no fresh start.

Native vs. Wrapped: The Distinction That Determines Your Rights

The IAC draws a sharp line between 2 types of tokenized equity:

· Native tokens: Issued directly on a blockchain. The token is the equity security.

· Wrapped tokens: The underlying security is custodied. A token represents an interest in that custodied position.

If you hold a wrapped token issued by a third party unaffiliated with the issuer, you may lack voting rights, dividend rights, and pari passu status in bankruptcy. That’s not a footnote — that’s the core risk the committee is flagging.

Commissioner Uyeda made related points about ownership rights back in February.

Transfer Agents Are Named Critical Infrastructure

The IAC explicitly identifies transfer agents as one of the multiple counterparties in the settlement process. Anonymous trading would, in their words, “pose challenges to issuers and transfer agents in reaching shareholders” for corporate actions and quorum.

The committee isn’t treating the transfer agent as a relic. They’re treating it as load-bearing.

Mandatory Disclosures, Filed on EDGAR

Issuers of tokenized equity must provide investors with a clear disclosure document covering:

· Whether the token carries the same ownership rights as traditional shares

· Voting rights

· Dividend entitlement

· Pari passu status in corporate actions (splits, M&A, spinoffs, bankruptcy)

· The legal arrangement governing the token

· Identity of parties involved

· Infrastructure and transferability restrictions

These disclosures get filed on EDGAR and posted on the issuer’s website. No exceptions for new technology.

KYC, Modernized

KYC requirements stay. But the IAC acknowledges they don’t need to work the way they work today. Cryptographic credentials attached to digital wallets, verified once and reused across services, could streamline the process while preserving the substance. That’s a meaningful opening.

No Blanket Innovation Exemption

Atkins mentioned an innovation exemption at ETHDenver. The IAC just put a fence around it. Their position: narrow exemptions only, with full public notice and comment. Rule-by-rule reform is fine. A blanket waiver of investor protections is not on the table.

The committee also asks the SEC to publicly assess costs and benefits before implementing reforms. That’s a speed bump, but it’s a reasonable one.

Reg NMS Principles Apply to Tokenized Markets

Order protection, fair access, minimum price increments, execution quality reporting. All of it carries over. DeFi trading that bypasses intermediaries could strip investors of best execution protections and post-trade transparency. The IAC flags this directly and says the fundamental goals of Reg NMS can’t be compromised, even as specific rules may get revisited for blockchain-native contexts.

The ADR/VIE Warning

Here’s the most pointed warning in the document: failure to mandate adequate disclosure could create a market analogous to ADRs tied to Chinese companies using Variable Interest Entity structures — where investors hold economic exposure but lack clear, direct legal ownership in the underlying company.

The committee isn’t being abstract. They’re naming a known failure mode.

The Chamath Connection

Chamath Palihapitiya published a detailed piece on equity tokenization that’s worth reading alongside the IAC draft. He covers $150T+ in global equity markets, 3.5x growth in equity token market cap since the start of 2025, and 3 gaps tokenization solves: 24/7 trading, direct ownership, and broader access.

But his central problem statement lands differently after reading the IAC document.

“What a token represents is not always standardized.”

Chamath notes that different issuers design tokens with materially different economic rights. Many tokenized products deliver economic exposure rather than direct ownership. Robinhood’s OpenAI and SpaceX tokens, for example, don’t convey direct ownership — they’re synthetic exposure through SPVs.

90% of Americans say they’re willing to allocate retirement savings to private assets. Most of them don’t know what they’d actually own.

The IAC’s mandatory disclosure framework is a direct response to exactly this problem. The ADR/VIE warning is the cautionary version of the Robinhood token story.

Chamath identifies the gap. The IAC recommendations are the attempt to close it.

Where Vertalo Fits

Vertalo has been an SEC-registered transfer agent since 2019, built from the start to handle both traditional (digital dematerialized) AND tokenized securities in the same cap table.

The IAC draft validates Vertalo’s entire thesis. Transfer agents are critical infrastructure. Disclosure matters. Intermediary oversight is non-negotiable. The ability to manage native and wrapped tokens alongside traditional records isn’t a future feature — it’s the current product.

Vertalo supports all 5 SEC-recognized tokenization models from the January 28, 2026 statement. The platform runs across 4 chains (Ethereum, Aptos, Tezos, Private), serves 100+ issuers, 100K+ investors, and 300K+ securities lots across 6 countries, with 200+ GraphQL endpoints and an API-first architecture.

For firms concerned about counterparty data risk, Vertalo is designed for private/dedicated deployment — client data stays on client infrastructure.

The business model matters too. Software license pricing (no BPS fees, predictable cost structure). No investment products on own account, which means no moral hazard when advising clients. 3 engagement models: Sub-TA, Licensed Platform, and TA of Record.

Read more about Vertalo’s digital transfer agent infrastructure here.

What This Means

The buildout is accelerating on every front simultaneously.

DTC’s no-action letter from December 11, 2025 puts a tokenization pilot on the calendar for H2 2026. Nasdaq and NYSE are both proposing tokenized securities trading platforms. NYSE has started naming “digital transfer agents” in its proposals — a category that didn’t exist in the public vocabulary 18 months ago.

The IAC draft goes to discussion on March 12. The White House framework is in OIRA review now. Chair Atkins is moving the commission-level interpretation forward without waiting for Congress.

The firms that have regulatory-grade infrastructure in place when the market opens capture the market. The firms still in planning mode when the DTC pilot launches are playing catch-up in a game that doesn’t wait.

Read the Sources

· IAC Draft Recommendations on Tokenized Equity Securities (Feb 26, 2026)

· SEC Sends Crypto Securities Framework to White House (March 3, 2026)

· Chamath: Equity Tokenization

· SEC Jan 28 Statement on Tokenized Securities (5 Models)

· Commissioner Uyeda’s Remarks (Feb 9, 2026)

· Chair Atkins, ETHDenver, and Transfer Agents

Dave Hendricks is the CEO of Vertalo, a digital asset infrastructure company focused on regulated securities tokenization. ChainEnabled covers the intersection of blockchain, regulation, and institutional finance.

Where securities regulation meets Tokenization and Transfer Agency. By the team at Vertalo.

As an SEC-registered transfer agent since 2019, purpose-built from the ground up to handle and straddle the divide between ‘digital dematerialized’ and ‘tokenized’ assets, I’m happy that Vertalo stuck to its knitting and built what we did: A Digital Asset Data Management Platform that offers transfer agency and tokenization to issuers and investors, when and how they want it.

Chairman Atkins highlighted his understanding of the gap between ‘what and how’ in this one passage from his speech:

Specifically, I would like to consider how issuers that want to tokenize their securities could work with a transfer agent or other tokenization agent to tokenize their securities so that they can be traded onchain in AMMs or other trading systems, environments, or platforms that offer decentralized liquidity. Under this possible approach, the innovation exemption would limit trading volume and could provide relief from some of our rules and certain other requirements that may not be relevant in light of how this technology works. Buyers and sellers of the tokenized securities would go through a white-listing process. The exemption would be temporary but would last long enough for us to consider developing new rules and amending existing rules to allow such trading to continue under appropriate conditions in the future and to enable any parties that need to do so to register. I would certainly welcome feedback on this potential approach.

Vertalo’s platform is built to accommodate this kind of experimentation. Out of the box, by default.

The rest of their tag-team speech can be found in its entirety below.

If you want to talk about this, please reach out to info@vertalo.com or visit Vertalo.ai

Number Go Down and Other Schadenfreude

Paul S. Atkins, Chairman

Commissioner Hester M. Peirce

ETHDenver

Denver, CO

Feb. 18, 2026

Commissioner Peirce: I am honored to be on stage today with Chairman Paul Atkins. Before we begin, let me remind you that my statements and his are our own in our official capacities and do not necessarily reflect the views of the Commission or our fellow Commissioner. Chairman Atkins needs little introduction, but let me give you a brief bio for him.

Paul S. Atkins was sworn into office as the 34th Chairman of the Securities and Exchange Commission on April 21 of last year. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a consulting firm he founded in 2009. Chairman Atkins previously served as a Commissioner of the SEC from 2002 to 2008. During his tenure, he advocated for transparency, consistency, and the use of cost-benefit analysis at the agency. Chairman Atkins began his career as a lawyer in New York, focusing on a wide range of corporate transactions for U.S. and foreign clients, including public and private securities offerings and mergers and acquisitions. He was resident for 2½ years in his firm’s Paris office and admitted as conseil juridique in France. A member of the New York and Florida bars, Chairman Atkins received his J.D. from Vanderbilt University School of Law and his A.B., Phi Beta Kappa, from Wofford College in 1980. Originally from Lillington, North Carolina, Chairman Atkins grew up in Tampa, Florida. He and his wife Sarah have three sons.

One other interesting fact about Chairman Atkins is that he speaks German and French fluently. He likely is looking for another language to add to his repertoire. Mr. Chairman, have you considered learning Solidity?

Chairman Atkins: No need. Vibe coding works just fine. It is a big step up from the BASIC-PLUS and COBOL I used in college.

Commissioner Peirce: Fair point, Mr. Chairman, but if the smart contract your AI writes starts saying everything is a security, we’ll suspect AI hallucination. A few years ago, if someone had told me that I would be standing at a crypto conference with the Chairman of the SEC, I would have thought that person was hallucinating. But we’re here, so let’s get to some substance. During the past year, the SEC under the leadership of Chairman Atkins and Acting Chairman Uyeda in the early part of the year has taken a lot of steps toward crypto clarity. We have:

• Sought and received written responses to multiple sets of difficult questions covering a wide range of crypto topics;

• Held several in-depth roundtables on discrete topics including the definition of a security, trading, custody, tokenization, DeFi, and privacy;

• Met with many developers and builders in Washington D.C., virtually, and in crypto-on-the-road meetings in cities across the country;

• Provided technical assistance to Congress as it works on crypto legislation;

• Launched a new initiative with the Commodity Futures Trading Commission (CFTC) to build a lasting basis for coordination and cooperation in regulating areas of joint interest, including crypto;

• Ended regulation by enforcement;

• Issued multiple staff guidance documents and frequently asked questions to help people understand what the SEC staff thinks is and is not within the SEC’s jurisdiction (including on issues like mining, staking, meme coins, and stable coins), and how regulated entities engaging with crypto can comply with our existing rules;

• Got rid of unhelpful staff guidance, such as SAB 121;

• Published a staff statement on the custody of crypto asset securities by broker-dealers;

• Issued a cross-divisional staff statement outlining a taxonomy for tokenized securities;

• Approved exchange generic listing standards for crypto ETPs;

• Issued staff no-action letters to several projects, including on tokenization and DePIN; and

• Began the process of designing rules, exemptive relief, and Commission interpretations, which will help to form the basis for a durable regulatory framework.

Mr. Chairman, can you give us a preview of what to expect this year on the crypto regulatory front?

Chairman Atkins: We have a lot on our plate. Not only will we continue to engage with Congress on its important efforts, but, as you noted, we will move forward with our regulatory work through Project Crypto, which is now a joint initiative with the CFTC. As you all know, one of our own, Mike Selig, whom Hester brought to the SEC as Chief Counsel of the Crypto Task Force in my office, is now CFTC Chairman. We are planning great things together – harmonization, joint rulemaking – a common, coordinated approach unlike anything seen before at these two, often sparring agencies. As for the SEC, I expect the Commission and staff to consider the following in the coming weeks and months:

• A Commission framework to explain how we think about crypto assets that are subject to an investment contract. How is such an investment contract formed? And how is it terminated?;

• An innovation exemption to facilitate limited trading of certain tokenized securities on novel platforms with an eye toward developing a long-term regulatory framework;

• A rulemaking proposal to establish common-sense pathways for people to raise capital in connection with the sale of crypto assets;

• No-action letters and exemptive orders to provide additional clarity, including to address wallets and other user interfaces that are not subject to registration under the Exchange Act;

• Rulemaking on custody of non-security crypto assets, including payment stablecoins, by broker-dealers;

• A transfer agent modernization rulemaking which will accommodate the role that blockchain can play in recordkeeping; and

• Additional guidance and no-action letters to help people understand how existing rules apply to their unique factual circumstances.

Commissioner Peirce: Sounds like a lot of work, but for securities nerds like us, this experience is a bit like the Olympics. It’s nearly as exhilarating as hurtling downhill at 80 mph and doing acrobatics after getting big air off the ski jump or doing backflips after a quadruple lutz on ice. While not as dramatic as our talented Olympic champions, we have an unusual opportunity to consider many complex regulatory issues in light of this new technology. This task too will require some acrobatics, and we are not looking to hurt or break anything other than unwarranted regulatory impediments to technological progress.

I want to talk for a minute about an innovation exemption, which has inspired hopes and fears that may need some moderation. Indeed, the way people talk about it now reminds me of the expectations that people have when they buy an abandoned storage unit; they are sure it will contain a rare work of art and a trunk full of gold bars. So too some people are certain the innovation exemption will cure all their regulatory headaches. Some people in TradFi, by contrast, seem to think that the soon-to-be-opened storage unit contains a monster that will swallow all of TradFi in one ugly bite. They fear the innovation exemption will let crypto firms ignore all the rules. Both groups are likely to realize that the innovation exemption is not as monumental as either faction anticipated. It would be an important step toward facilitating the integration of tokenized securities into our existing financial system, but it would not change the entire financial system overnight. We are working incrementally now, as we have always done. The goal is to facilitate the organic incorporation of new technology in a way that enhances the dynamism and resilience of the system so that it can serve investors, companies, and other users of capital effectively. Paul, please describe what you have in mind with the innovation exemption.

Chairman Atkins: I would like to consider an innovation exemption to enable TradFi incumbents and crypto-native firms to experiment. For example, people trading certain tokenized securities through automated market makers, even though no one person or group of persons may be controlling that mechanism. In my view, market participants should be able to engage with decentralized applications on public, permissionless blockchains if they desire. But I expect that many Americans will be more comfortable allowing intermediaries to custody and trade on their behalf. Individual investors, not the SEC, should make the decision. I also would like to consider whether there should be a safe harbor for participants who may be facilitating such trading.

Specifically, I would like to consider how issuers that want to tokenize their securities could work with a transfer agent or other tokenization agent to tokenize their securities so that they can be traded onchain in AMMs or other trading systems, environments, or platforms that offer decentralized liquidity. Under this possible approach, the innovation exemption would limit trading volume and could provide relief from some of our rules and certain other requirements that may not be relevant in light of how this technology works. Buyers and sellers of the tokenized securities would go through a white-listing process. The exemption would be temporary but would last long enough for us to consider developing new rules and amending existing rules to allow such trading to continue under appropriate conditions in the future and to enable any parties that need to do so to register. I would certainly welcome feedback on this potential approach.

Commissioner Peirce: Thanks for giving us a peek into the storage locker. No Picassos, but no scary monsters either. Just an incremental step from which market participants can learn and which may help get us to a fit-for-purpose, long-term regulatory framework. Speaking of new things, you and I have both seen some demos to show us how some of this technology, such as decentralized trading, works. Has anything struck you about what you’ve seen?

Chairman Atkins: One interesting aspect of the technology is the ability to embed compliance into the smart contract’s code. A company’s founders, for example, could code their commitment not to resell their securities for a certain period of time into the smart contract governing tokenized securities. Likewise, we can reimagine communications between issuers and their security-holders through the use of blockchain. And privacy-preserving technologies, such as zero-knowledge proofs, can revolutionize how we achieve the goals of the Bank Secrecy Act. Under this model, Americans would not have to relinquish their privacy wholesale to financial institutions, and these intermediaries would have lower compliance costs.

Commissioner Peirce: That sounds promising. I worry a lot about how embedded financial surveillance is in our financial system. Americans have an opportunity to use this new technology to protect themselves from bad actors while also protecting our nation from our adversaries. We should take advantage of this moment to reacquaint ourselves with how important financial privacy is to the security of the American people.

Now let’s address the elephant in the room: what do you think about the falling crypto prices of late? Is it time to focus our attention on this issue? Should regulators panic or even care that prices are down?

Chairman Atkins: It is not the regulator’s job to worry about the daily swings of the markets; it’s our job to make sure market participants have the disclosures they need to make informed investment decisions. People whose only focus is on the number always going up are likely to be disappointed, whether they are buying stocks, precious metals, or crypto. Markets go up and markets go down in response to many factors. As regulators, the best thing we can do is to ensure that the rules governing the asset classes we regulate enable people to have the information they need to express their market sentiments through decisions about whether to buy, sell, or hold the assets at issue.

Commissioner Peirce: I agree. “Number go down” is the mantra of the moment, and some crypto critics are dancing in the streets. In German, we would call this reaction “Schadenfreude,” which translates as something like “happiness about destruction.” In this context maybe we should call their attitude Ethbelowthreeglee or Bitcoinunderseventylevity. But the best way to respond to these critics is not to look around desperately for some regulatory change that will cause the number to go up again. Sure, regulatory clarity in the form of legislation and regulation can help to create a conducive environment for building. But regulation is not the well from which value springs. You have to build stuff that people want and need. That is the best way to garner support on both sides of the aisle in Washington. If people are actually using something, government will be reluctant to take it away. Mr. Chairman, can you share some lessons from your many years of working in the capital markets about how innovators can successfully engage with the regulatory system?

Chairman Atkins: I agree with you that building useful things that people want and need speaks volumes in Washington. This technology, if developed carefully, could have a transformative effect on the financial system as securities move onchain. Tokenization could transform the financial system as we know it by, for example, shortening settlement cycles, facilitating the movement of collateral and dividends, facilitating proxy voting, or making it easier for people to construct and manage bespoke, diversified portfolios of investments. We stand ready to work with entrepreneurs who are building for a better future.

I hate to repeat an oft-mocked phrase from the last administration, but “Come in and talk to us.” We will not put our thumbs on the scale in favor of any particular asset or technology, nor will we become your spokesmen, but we want our markets to be open to people offering new products and services. Our rulebook should not be the barrier to innovation, but should further our objectives of protecting investors, facilitating capital formation, and fostering fair, orderly, and efficient markets.

Commissioner Peirce: You have captured the balance well. We are not cheerleaders of any new asset or technology, but we want our markets to welcome people who have ideas about how to improve them. The SEC has not always been very welcoming. Regulation, if done wrong, can deny the American people benefits they otherwise would enjoy. For example, an unwillingness to work productively with issuers of tokens led to the perverse result that tokens that gave no meaningful rights to their holders were less likely to attract negative regulatory attention than rights-bearing tokens. As a result, we now live in a world in which most tokens do not give their owners any rights. I would like to get to a place in which project developers would not fear to create tokens that carry some claim on revenue streams and thus are securities. Paul, what would it take to get to a place where people would create tokens that fall unashamedly into the securities bucket?

Chairman Atkins: We need to continue doing what we are doing—providing clarity about how tokenized securities interact with existing regulation and how intermediaries dealing with tokenized securities can trade and custody them on behalf of their clients. This work can only be done in a collaborative fashion, and we welcome input from everyone, even crypto naysayers who are fully immersed in their Schadenfreude. I encourage people in the audience to think about what attributes a token should have to make it useful to people, and then work with us on a regulatory framework that accommodates these attributes without compromising our important regulatory objectives. But this process will take time, and innovators shouldn’t necessarily wait for these changes before they start building. While we have these bigger conversations about whether fundamental changes should be made to our rulebooks, talking to us to see if there’s a way to make the current rules work under your particular facts and circumstances may be a necessary interim step.

Commissioner Peirce: Paul, you’re known for your good cheer even in the face of difficult circumstances. Any words of advice in closing for an audience that is in the throes of a challenging crypto market?

Chairman Atkins: Put your nose to the grindstone and work to build things that matter. That is how you transform Schadenfreude to Freudenfreude – the sense of happiness we feel when others succeed. A little dark chocolate and Diet Coke might help too, but go easy on the Celsius and Zyn.

Commissioner Peirce: Thank you, Paul.

Last Reviewed or Updated: Feb. 19, 2026

Remarks at the Asset Management Derivatives Forum 2026: Treasuries and Tokenization

Commissioner Mark T. Uyeda

Austin, Texas

Feb. 9, 2026

Good morning and thank you, Lindsey [Keljo], for the introduction.[1] I appreciate the turnout—early on a Monday morning—the day after the Super Bowl. For those folks in this room, I know that you find topics like Treasury clearing and tokenizing the securities markets as important as slot formations and nickel coverages. Thus, my remarks will focus on the current status of the SEC’s efforts to implement the Treasury Clearing Rule[2] and facilitate tokenization of the securities markets.

I. Treasury Clearing Update

The U.S. Treasury market remains the cornerstone of global financial stability, supporting everything from mortgage pricing to corporate financing to central bank reserves. With nearly $29 trillion in marketable Treasury debt,[3] it is the deepest and most liquid capital market in the world. Its smooth functioning depends on the coordinated efforts of countless stakeholders—including market participants, clearing agencies, infrastructure providers, and other regulators.

I first became involved in discussions regarding the potential mandatory clearing of Treasuries when I served on detail to the U.S. Department of the Treasury in 2017. Eventually, there would be widespread consensus with respect to the benefits of mandatory Treasury clearing. Using a central counterparty can improve transparency and reduce bilateral exposures. The ability to use netting for offsetting transactions can free up additional cash for market participants, which in turn can reduce liquidity strains. Accordingly, in December 2023, I voted with a majority of SEC Commissioners to adopt standards to mandate central clearing of Treasury securities for transactions in the cash and repo markets.

Recent research by the Office of Financial Research (“OFR”) reemphasizes these benefits of central clearing in the Treasury repo market. In a back-testing analysis of repo and reverse repo positions reported by six global systemically important banks (“G-SIBs”) during the first eight months of 2025, OFR calculated that if the Treasury Clearing Rule had been in effect during this period, each U.S. G-SIB could have freed up an average of $34.5 billion in additional balance sheet space.[4]

In its 2025 Annual Report released by the Trump Administration, the Financial Stability Oversight Council (“FSOC”) underscored the potential benefits of central clearing of Treasury transactions and expressed support for the SEC as it continues working towards the implementation of the Treasury Clearing Rule.[5] So, with that momentum, the SEC continues to undertake extensive outreach to mitigate any issues with the upcoming deadlines.

A. Progress Made

Despite the potential benefits of clearing Treasury transactions, I recognized at the time the SEC adopted the rule, that it would take extensive time, effort, and resources to develop the workflows and processes to integrate market participants into the clearing infrastructure. Given this significant work, it became apparent that the original implementation timeline was too short.

For that reason, upon becoming SEC Acting Chairman, I pushed for a 12-month extension of those deadlines. I was pleased that both of my then-colleagues, Commissioners Hester Peirce and Caroline Crenshaw, unanimously agreed to the extension.[6]

At the time, the February 2025 extension would provide market participants with 22 months to prepare for implementation with respect to cash transactions. Now, that implementation date is less than eleven months away. Thanks to efforts of many, including those who are in this room, we have been able to collectively identify a number of concerns, and the SEC is committed to promptly addressing them.

Our efforts have been focused in three areas:

• First, reviewing applications and proposals aimed at expanding access to, and options for, clearing Treasury securities;

• Second, providing guidance on the scope of the Treasury Clearing Rule, including consideration for providing additional flexibility to ensure that market participants can access liquidity and manage collateral; and

• Third, maintaining a collaborative and transparent approach to implementation.

I will address each of these in turn.

B. Developments in Clearing

New Clearing Agencies

Until recently, there was only a single SEC-registered clearing agency for Treasury securities, the Fixed Income Clearing Corporation (“FICC”). In the last two months, however, the SEC has approved the applications of CME Securities Clearing Inc. and ICE Clear Credit LLC to register as clearing agencies for Treasury securities transactions.[7] These approvals will provide market participants the necessary certainty as to which entities can serve as clearing agencies for Treasury securities and what services they will offer.

Obtaining SEC approval is not an easy process. Section 17A(b)(3) of the Securities Exchange Act of 1934 (“Exchange Act”) sets forth the requirements that an applicant must meet in order to register as a clearing agency.[8] These requirements include whether the entity is so organized and has the capacity to provide the functions of a clearing agency, whether its rules provide for the prompt and accurate clearance and settlement of securities transactions, and whether its rules assure a fair representation of its shareholders or members and participants in the selection of its directors and administration of its affairs. These requirements guide the Commission’s consideration of a clearing agency application, and the Commission must find that an applicant can meet these requirements. In the case of the two new clearing agencies, the Commission made those findings.[9]

Now, with three clearing agencies approved for Treasury securities, market participants will have expanded options for accessing clearing to implement their obligations under the Treasury Clearing Rule. We encourage market participants, who may have questions about the operations of these clearing agencies in relation to their own regulatory obligations, to engage with the central counterparties. If needed, the SEC staff stands ready to be part of those discussions.

Rule Changes in Clearing

Besides reviewing applications from new market entrants, the SEC staff has also been reviewing proposals from FICC to support the Treasury Clearing Rule. On December 22, 2025, the Commission published notice of FICC’s proposed rule change to amend its cross-margining agreement with the Chicago Mercantile Exchange, Inc. (“CME”) to expand its existing cross-margining arrangement with CME to customers. Currently, the arrangement is limited to the proprietary positions of FICC and CME members.[10] Relatedly, the Commission is considering petitions submitted by FICC and CME for exemptive relief from certain provisions of the Exchange Act that would permit expanded cross-margining for customers.[11]

Historically, the Commission has supported and approved cross-margining at clearing agencies and recognized the potential benefits of cross-margining systems. These benefits include freeing up capital through reduced margin requirements, reducing clearing costs by integrating clearing functions, reducing clearing agency risk by centralizing asset management, and harmonizing liquidation procedures. In addition, we understand that certain market participants view an expansion of cross-margining between cash and futures Treasury positions to be an important component of the transition to increased central clearing of Treasury securities. The current proposal from FICC and CME is still outstanding. The Commission must review and consider comments submitted by the public and take them into consideration as it determines whether to approve the proposed rule change.

Additionally, the Commission acted this past December on two proposals from FICC that are aimed at expanding access to clearing ahead of the Treasury Clearing Rule compliance dates. Specifically, the Commission approved a proposed new offering from FICC to establish a “collateral-in-lieu” service as part of the existing sponsored general collateral service.[12] This service would allow FICC to take a lien on the collateral underlying a repo transaction in lieu of charging margin. In most instances, the lien will obviate FICC’s need to collect margin or to obtain a guarantee on the transactions. This service would address what market participants have referred to as “double margining” that increases the costs, and thereby decreases the ability, of a FICC sponsoring member to provide clearance and settlement services to mutual funds and other cash providers. Second, the Commission issued an order approving expansion of FICC’s agent clearing service to include triparty transactions, which should provide an additional option for market participants using that service.[13]

C. Guidance on the Scope of the Treasury Clearing Rule

The SEC has also been engaging with market participants about the scope of the Treasury Clearing Rule. SEC staff has provided guidance in some areas, such as mixed CUSIP triparty repos,[14] but has yet to resolve some other questions.

Flexibility for Inter-Affiliate Transactions

One area where market participants have asked for further regulatory clarity is the application of the Treasury Clearing Rule to inter-affiliate transactions.

When the Commission proposed the Treasury Clearing Rule, the definition of an eligible secondary market transaction provided no exception for inter-affiliate transactions. Commenters, however, asserted that inter-affiliate transactions are important for corporate groups, which use them to achieve efficient risk and capital allocation and to obtain flexibility for addressing customer demands. Further, commenters noted that requiring inter-affiliate transactions to be centrally cleared would impose additional costs but have only limited benefits.[15]

Thus, the final rule included an exemption for inter-affiliate transactions. The Commission recognized that inter-affiliate transactions represent an important tool to transfer liquidity and risk within an affiliated group. The Commission also recognized that, in certain circumstances, the counterparty credit risk posed by inter-affiliate transactions may be less than other transactions.[16]

The inter-affiliate exemption provides that a direct participant of a central counterparty would not have to clear its inter-affiliate transactions if (i) the affiliate was under common control and was either a bank, broker-dealer or a futures commission merchant, and (ii) the direct participant also submitted for clearing the outward-facing transactions of that affiliate.[17]

As the Adopting Release explained, “this [outward facing] condition” was intended to ensure that a direct participant could not rely upon an inter-affiliate transaction to avoid the requirement to clear eligible secondary market transactions. If there were no such condition, a direct participant could simply use inter-affiliate transactions to move securities and funds to affiliates, and the affiliated counterparty could then enter into external transactions with counterparties which, if entered into as a direct participant of a Treasury securities covered clearing agency, would be eligible secondary market transactions. Because the clearing requirement is conditioned on one of the parties being a direct participant, this would undermine the clearing requirement. Under the outward-facing condition, however, the transfer of Treasury securities between a direct participant and its non-direct participant affiliate would only be exempt from the clearing requirement if the non-direct participant affiliate cleared all of its other Treasury repo transactions.

Because the final inter-affiliate exemption had not been exposed to public review, market participants raised a number of concerns, including with respect to the types of entities that can be affiliates for purposes of the exemption and the requirement to clear the outward-facing transactions of the affiliate. SEC staff has been working with market participants to better understand these concerns and how they can be addressed.

Specifically, SEC staff have been considering whether broadening the contours of that exemption could be workable without creating a significant loophole that undermines the purposes of the rule. For example, could the provision that the affiliate be a bank, broker-dealer, or futures commission merchant be modified to allow for more types of entities as affiliates? SEC staff are also considering other potential relief for the inter-affiliate exemption so that market participants can maintain their current business practices for liquidity, treasury, and collateral management. The Commission has received productive feedback from market participants on the inter-affiliate exemption, and my hope is that any potential modifications can be publicly rolled out in the near future, since the compliance date is fast approaching.

Extra-Territorial Reach

The extraterritorial scope of the Treasury Clearing Rule is another area where the SEC staff have engaged in additional outreach efforts. Non-U.S. firms that trade with U.S. counterparties do not typically centrally clear their trades in Treasury securities. Accordingly, it is not surprising that an industry survey on U.S. Treasury central clearing readiness, released last fall, showed lower levels of understanding of the Treasury Clearing Rule amongst non-U.S. firms and lower levels of confidence that these firms would be ready to fulfill their obligations by the extended compliance dates.[18] The SEC is aware that these firms may have larger burdens than U.S. firms in establishing clearing arrangements with intermediaries or central counterparties.[19] SEC staff have been engaging with market participants to understand the jurisdictional issues, and I hope we can address such concerns in the near future.

D. Maintaining a Transparent and Collaborative Approach

There are other areas where implementing the Treasury Clearing Rule has raised questions for market participants about how they should comply with other existing requirements under the federal securities laws.[20] We acknowledge the need for guidance and SEC staff continue to engage with market participants on these questions.

To maximize transparency regarding the SEC’s efforts, we have provided periodic public updates and maintain a comprehensive list of actions taken on a dedicated Treasury Clearing implementation webpage on sec.gov.[21] Materials posted to this dedicated website also are intended to keep market participants informed about the additional work that is underway. Thus, if you see no mention of a particular concern on that website, then it is highly likely that we are not actively working on it—so we strongly encourage firms to identify and raise any remaining challenges or unforeseen issues as we move towards full implementation.

The Commission continues its collaboration with the U.S. Department of the Treasury, the Federal Reserve Board, the CFTC, and international regulators to ensure seamless cross-border implementation. It is in all of our interests to see that the U.S. Treasury securities market remains the deepest, most liquid, and most resilient market in the world.

II. Why Tokenization Matters and Where We Stand

One of the other issues that the Commission is taking a close look at is tokenization, a development that could change the way securities are issued, traded, and managed. It also raises important questions about liquidity, collateral practices, and clearing models, as well as the legal and regulatory frameworks needed to support these changes.

Technology has long shaped the way our markets operate—from paper certificates to dematerialized shares, from physical trading floors to electronic order books. Today, we consider the possibility of migrating securities positions from traditional databases to blockchain-based systems, and tokenization representing these rights and obligations on-chain.

Properly implemented, tokenization can enhance security, transparency, and immutability by encoding rights on digital tokens and recording their provenance on distributed ledgers. It can reduce reliance on intermediaries, streamline transaction lifecycles, and lower operational costs—without sacrificing safeguards that have long protected investors.

Potential technological shifts challenge us to translate existing laws and regulations into new contexts. Today, many of the SEC’s rules assume multi-layered intermediation. However, tokenization offers a pathway to more direct issuer–investor interactions on open, programmable rails. Market demand and confidence should drive whether tokenization becomes reality, and the SEC’s rulebook should not impose unnecessary roadblocks.

A. Innovation with Guardrails

In that sense, SEC rules should be technology-neutral and be focused on outcomes, not solely processes. Tokenized versions of securities remain subject to securities regulation; the shift does not change the legal and regulatory obligations. The challenge is to adapt the rules—on issuance, custody, and trading to name a few—so that those obligations can be met in on-chain environments.

To date, SEC efforts in engagement have been through roundtables, staff statements, and public comment files. Under the Trump Administration, the SEC has ceased using enforcement as the principal method for expressing Commission views on these new technological developments. In that sense, the SEC has returned to its normal approach of providing sub-regulatory guidance and exploring exemptive relief to allow limited-scope pilots to proceed under defined parameters, thereby informing potential future Commission action. This is the same tried-and-true process that gave rise to money market funds and exchange-traded funds in the past.

Tokenization can help modernize capital markets, not only by speeding up the settlement cycle but by making ownership more visible—addressing current challenges in shareholder identification and corporate actions. Visibility and speed are not merely aesthetic improvements; they are core to fair, orderly, and efficient markets, and the Commission should be continually thinking about how these new developments can be incorporated into the markets.

B. Looking Ahead: Opportunities and Responsibilities

Recently, the Commission provided public notice of an exemptive application under the Investment Company Act that demonstrates how tokenization is no longer a theoretical exercise, but is becoming a practical reality.[22] This milestone reflects the Commission’s commitment to innovation without abandoning appropriate guardrails such as ensuring that custody, disclosure, and investor protection standards are in place when assets migrate on-chain. It also exemplifies a pragmatic roadmap—beginning with scoped efforts, learning from the results, and potentially scaling what works.

By moving forward with such applications, the Commission signals that it is open to modernization, provided that it adheres to achieving the objectives of longstanding laws and regulations that govern the securities markets. I hope that these exemptive order applications are not endpoints, but rather waypoints on a journey toward markets that are more fair, orderly, and efficient due to new innovations.

C. First Principles, Enduring Mission

Expectations vary: some predict rapid transformation while others caution that adoption might take years. The Commission’s responsibility is to ensure that its regulations evolve as technology evolves—for the very same reason that the SEC cannot regulate in 2026 in the same manner as in 1934, when the agency was created.

The SEC’s goal should be neither to bless every new innovation nor to resist change reflexively. Rather, it is to use its regulatory tools—including definitional authority and exemptive relief—so that the administration of the federal securities laws can evolve to address new technologies and innovation. Part of this responsibility includes providing transparency as to what is permitted, what requires prior authorization, and what is prohibited.

If financial regulators can carry out this process in an appropriate manner, capital markets will be able to operate in ways that reduce friction, improve price discovery, and serve investors better than ever before. Ultimately, that is the real objective of financial regulation.

Looking ahead, both Treasury clearing and tokenization serve as reminders that modernization is not an abstract goal—it is a practical necessity for resilient, transparent, and efficient markets. These initiatives demand continued engagement with market participants, robust consideration of benefits and costs, thoughtful evaluation of trade-offs among alternative approaches, and a respect for the legal authority governing the SEC’s activities, including the procedural obligations required by the Administrative Procedure Act. These efforts are not simple and may take time, but they are essential. By approaching these changes methodically, the Commission can strengthen market infrastructure, promote responsible innovation, and ensure that America’s capital markets continue to serve investors and the broader economy.

Thank you.

[1] My remarks reflect my individual views as an individual Commissioner and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) or my fellow Commissioners.

[2] The Commission has mandated that covered clearing agencies require their direct participants to clear certain eligible secondary market transactions in U.S. Treasury securities. See Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to U.S. Treasury Securities, Exchange Act Release No. 34-99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) (hereinafter, “Treasury Clearing Rule”).

[3] Federal Reserve Bank of St. Louis, Market Value of Marketable Treasury Debt as of December 2025, available at https://fred.stlouisfed.org/series/MVMTD027MNFRBDAL.

[4] Office of Financial Research, “How Will Central Clearing Impact the Repo Market?” (Jan. 29, 2026), available at https://www.financialresearch.gov/the-ofr-blog/2026/01/29/central-clearing-impact-repo-market/.

[5] Financial Stability Oversight Council, Financial Stability Oversight Council 2025 Annual Report (Dec. 11, 2025), available at https://home.treasury.gov/system/files/261/FSOC2025AnnualReport.pdf.

[6] Extension of Compliance Dates for Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With Respect to U.S. Treasury Securities, Exchange Act Release No. 34-102487 (Feb. 25, 2025), 90 FR 11134 (Mar. 4, 2025).

[7] CME Securities Clearing, Inc.; Order Granting an Application for Registration as a Clearing Agency under Section 17A of the Securities Exchange Act of 1934, Exchange Act Release No. 34-104281 (Dec. 1, 2025), available at https://www.sec.gov/files/rules/other/2025/34-104281.pdf; ICE Clear Credit LLC; Order Granting an Application for Registration as a Clearing Agency under Section 17A of the Securities Exchange Act of 1934, Exchange Act Release No. 34-104762 (Jan. 30, 2026), available at https://www.sec.gov/files/rules/other/2026/34-104762.pdf.

[8] 15 U.S.C. 78q-1(b)(3).

[9] See supra note 7.

[10] Exchange Act Release No. 34-104485 (Dec. 22, 2025), available at https://www.sec.gov/files/rules/sro/ficc/2025/34-104485.pdf. FICC also filed a related advance notice, consistent with its obligations as a systemically important financial market utility under Title VIII of the Dodd-Frank Act. See Exchange Act Release No. 34-104486, available at https://www.sec.gov/files/rules/sro/ficc/2025/34-104486.pdf.

[11] FICC and CME have also submitted petitions to the Commodity Futures Trading Commission (“CFTC”) for exemptive relief from certain provisions of the Commodity Exchange Act. See Exchange Act Release No. 34-104748, available at https://www.sec.gov/files/rules/other/2026/34-104748.pdf; see also CFTC, Press Release, Acting Chairman Pham Announces Implementation of U.S. Treasury Market Reforms: Proposed Order Would Expand CME-FICC Cross-Margining Program to Customers (Dec. 12, 2025), available at https://www.cftc.gov/PressRoom/PressReleases/9155-25.

[12] See Exchange Act Release No. 34-104374 (Dec. 12, 2025), available at https://www.sec.gov/files/rules/sro/ficc/2025/34-104374.pdf.

[13] See Exchange Act Release No. 34-104492 (Dec. 22, 2025), available at https://www.sec.gov/files/rules/sro/ficc/2025/34-104492.pdf.

[14] For example, the Division of Trading and Markets, last fall, issued answers to Frequently Asked Questions regarding the applicability of the Treasury Clearing Rule to certain general collateral triparty repos, which are also referred to as mixed CUSIP triparty repos. The staff expressed the view that, under the circumstances described in the FAQ, such a transaction would not be a transaction that must be cleared under the Treasury Clearing Rule. See Division of Trading and Markets: Frequently Asked Questions – Treasury Clearing Rule (updated as of Dec. 8, 2025), available at https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-treasury-clearing-093025.

[15] See, e.g., Letter from Robert Toomey, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, and Michelle Meertens, Deputy General Counsel, Institute of International Bankers, at 21-22 (Dec. 22, 2022) available at https://www.sec.gov/comments/s7-23-22/s72322-20153420-320842.pdf.

[16] Treasury Clearing Rule, 89 FR 2737.

[17] 17 CFR 240.17ad-22(a) (definition of “eligible secondary market transaction”).

[18] See Press Release, U.S. Treasury Central Clearing Survey: U.S. Firms Have High Degree of Confidence in Readiness While Europe and Asia Lag; Regulatory Clarity is a Key Factor (Nov. 10, 2025), available at https://www.sifma.org/resources/news/press-releases/u-s-treasury-central-clearing-survey-u-s-firms-have-high-degree-of-confidence-in-readiness-while-europe-and-asia-lag-regulatory-clarity-is-a-key-factor/.

[19] See id.

[20] For example, with respect to the Customer Protection Rule, Exchange Act Rule 15c3-3, we have received questions from market participants regarding the potential ability of broker-dealers to reflect a reserve formula debit in instances where customer margin for U.S. Treasury transactions is delivered to a qualified covered clearing agency on a net basis, rather than gross basis as required under the current rule. We have also received questions concerning how the Treasury Clearing Rule applies in the event of the unavailability of a central counterparty or a failed trade, as well as what it means to be “of a type accepted for clearing” as that language is used in the rule’s definition of an eligible secondary market transaction.

[21] See Treasury Clearing Implementation, U.S. Securities and Exchange Commission (updated as of Feb. 2, 2026), available at https://www.sec.gov/featured-topics/treasury-clearing-implementation.

[22] 91 FR 3757 (Jan. 28, 2026).

Following a year - 2025 - fresh off Chokepoint 2.0 and the generally crypto-unfriendly Gary Gensler SEC, a year when we saw the passage of The Genius Act and the release of the 151-page White House Report “Strengthening American Leadership in Digital Financial Technology,” we now have a long-awaited taxonomy for Tokenized Securities.

Below, we have provided the entirety of the Statement as published on SEC.gov (January 28th, 2026). For Vertalo’s analysis and how Vertalo’s platform complies with and provides support for issuers and other affected parties, please visit ‘How Vertalo’s Platform enables Issuers and other parties with SEC Compliant Tokenized Securities Technology and Services.”

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The following is a mirror-image version of The Statement as published on SEC.gov

Introduction

As part of an effort to provide greater clarity on the application of the federal securities laws to crypto assets,[1] the Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets are providing their views[2] on the taxonomies associated with tokenized securities.[3] A tokenized security is a financial instrument enumerated in the definition of “security”[4] under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks. There are a variety of models used to tokenize securities and they vary in terms of structure and the rights afforded to holders. Tokenized securities generally fall into two categories: (1) securities tokenized by or on behalf of the issuers of such securities; and (2) securities tokenized by third parties unaffiliated with the issuers of such securities.[5] This statement is intended to assist market participants as they seek to comply with the federal securities laws and prepare to submit any necessary registrations, proposals, or requests for appropriate action to the Commission or its staff. We stand ready to engage regarding any questions.

Issuer-Sponsored Tokenized Securities

An issuer may tokenize a security by issuing it in the format of a crypto asset.[6] To accomplish this, the issuer (or its agent) integrates DLT into the systems that it uses to record owners of the security (the “master securityholder file”), such that a transfer of the crypto asset on the crypto network results in a transfer of the security on the master securityholder file. Consequently, the only difference between a security issued in this manner and securities issued in traditional format is that instead of maintaining the master securityholder file through conventional, offchain database records, the issuer (or its agent) maintains the master securityholder file on one or more crypto networks, which functionally are onchain database records. As part of this recordkeeping system, the issuer (or its agent) uses onchain database records alongside offchain database records and associates the onchain information (e.g., wallet address, quantity of security owned, and issue date) with relevant offchain information (e.g., security holder name and address).

A single class of securities could be issued in multiple formats, including tokenized format. Similarly, an issuer may permit security holders to hold a security in different formats and convert the security from one format to another. The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.[7] For example, regardless of its format, the Securities Act requires that every offer and sale of a security must be registered with the Commission unless an exemption from registration is available. Similarly, stock is an “equity security” under the Securities Act and the Exchange Act regardless of its format.[8]

On the other hand, the tokenized security could be of a different class of securities from those issued in traditional format. For example, an issuer could issue one class of common stock in traditional format and issue a separate class of common stock as a tokenized security. However, if the tokenized security is of substantially similar character as the security issued in traditional format and holders of the tokenized security enjoy substantially similar rights and privileges, the tokenized security may be considered of the same class as the security issued in traditional format for certain purposes under the federal securities laws.[9]

Alternatively, an issuer (or its agent) may tokenize a security without a crypto network constituting, or being part of, the master securityholder file. Under this model, the issuer issues the security offchain and issues a crypto asset to security holders. The crypto asset does not convey any rights, obligations, or benefits of the security, and the crypto asset and its onchain database records are not directly integrated into the master securityholder file for the security.[10] Instead, the crypto asset may be used indirectly to effect transfers of the security on the master securityholder file. In this case, the transfer of the crypto asset, which is a securities transaction, operates to notify the issuer (or its agent) to record the transfer of ownership of the security on the master securityholder file. Because the offchain database records constitute the master securityholder file, the issuer (or its agent) will use the onchain database records to update the offchain database records to record the transfer of ownership of the security.

Third Party-Sponsored Tokenized Securities

In addition to issuer-sponsored tokenized securities, third parties unaffiliated with an issuer of a security could tokenize the unaffiliated issuer’s security. The models that third parties are using to tokenize securities vary, and the rights, obligations, and benefits associated with the crypto asset may or may not be materially different from those of the underlying security. In addition, the crypto asset may or may not represent an ownership interest in or contractual obligation of the issuer of the underlying security and, as such, may or may not confer upon the holder of the crypto asset any rights as a holder of the underlying security. Further, holders of the crypto asset may be exposed to risks with respect to the third party, such as bankruptcy, to which a holder of the underlying security would not necessarily be exposed.

We have observed two models where a third party tokenizes securities issued by another person: custodial tokenized securities and synthetic tokenized securities. Under the first model, the third party issues a crypto asset representing the underlying security, such as a tokenized security entitlement.[11] The underlying security is held in custody, and the crypto asset evidences the holder’s ownership interest (whether direct or indirect) in the underlying security being held in custody. Under the second model, the third party issues a crypto asset representing its own security that provides synthetic exposure to the underlying security, such as a tokenized linked security or a tokenized security-based swap.[12]

First Model: Custodial Tokenized Securities

Tokenized Security Entitlement

A third party may tokenize a security issued by another person by creating a security entitlement that is formatted as a crypto asset.[13] Similar to the issuer-sponsored model discussed above, the third party may accomplish this by integrating DLT into the systems that it uses to record entitlement holders, such that a transfer of the crypto asset results in a transfer of the security entitlement on the third party’s records. Under this model, the crypto asset represents the holder’s indirect interest in the underlying security via the security entitlement.[14] The format in which the security entitlement is issued does not affect application of the federal securities laws.

Alternatively, a third party may tokenize a security entitlement without a crypto network constituting, or being part of, the systems that it uses to record entitlement holders. Under this model, the crypto asset may nonetheless be used to transfer the security entitlement on the third party’s records similar to the issuer-sponsored model discussed above.[15] Because the records are maintained offchain, the third party will use the onchain database records to update the offchain database records to record the transfer of the security entitlement.

Second Model: Synthetic Tokenized Securities

Linked Security

A third party may tokenize a security issued by another person by issuing a “linked security” formatted as a crypto asset. A “linked security” is a security issued by the third party itself that provides synthetic exposure to a referenced security, but it is not an obligation of the issuer of the referenced security and confers no rights or benefits from the issuer of the referenced security. The return on a linked security is linked to the value of the security it references or events relating to the referenced security. A linked security may be a debt security (such as a structured note[16]) or an equity security (such as exchangeable stock). Under certain circumstances, as discussed below, a linked security may be a security-based swap. The crypto asset representing the linked security is similar to the crypto assets discussed under “Issuer-Sponsored Tokenized Securities” above.

Security-Based Swap

A third party may tokenize a security issued by another person by issuing a security-based swap formatted as a crypto asset.[17] A security-based swap is a security that generally provides synthetic exposure to, among other things, either a referenced security or certain referenced events relating to an issuer of a security. A security-based swap typically does not convey to the holder any equity, voting, information, or other rights with respect to the referenced security. The third party may not offer or sell the crypto asset representing the security-based swap to persons who are not eligible contract participants[18] unless a Securities Act registration statement is in effect as to the crypto asset,[19] and the transactions in the crypto asset are effected on a national securities exchange.[20] The crypto asset representing the security-based swap is similar to the crypto assets discussed under “Issuer-Sponsored Tokenized Securities” above.

The term “security-based swap” is defined in Section 3(a)(68) of the Exchange Act. The definition of “security-based swap” includes any agreement, contract, or transaction that is a swap (as defined in Section 1a of the CEA)[21] and is based on: (1) an index that is a narrow-based security index, including any interest therein or on the value thereof; (2) a single security or loan, including any interest therein or on the value thereof; or (3) the occurrence, nonoccurrence, or extent of the occurrence of an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index, provided that such event directly affects the financial statements, financial condition, or financial obligations of the issuer. If a financial instrument formatted as a crypto asset is a swap and it satisfies one of the three prongs of the definition of “security-based swap,” then the crypto asset may represent a security-based swap. For example, if the crypto asset provides on an executory basis for the exchange, on a fixed or contingent basis, of one or more payments based on the value of a security, but does not also convey a current or future direct or indirect ownership interest in an asset or liability that incorporates the financial risk transferred, that crypto asset may represent a security-based swap.[22] Similarly, if the crypto asset provides for payments that are dependent on the occurrence, non-occurrence or extent of occurrence of an event or contingency that is associated with a potential financial, economic, or commercial consequence, does not fall within one of the specified exclusions, and meets any of the three prongs of the security-based swap definition discussed above, that crypto asset may represent a security-based swap.[23]

Security-based swaps and linked securities are economically similar, although certain additional or different provisions apply to the regulation of security-based swaps under the federal securities laws, including with respect to transactions with persons who are not eligible contract participants as noted above.[24] The assessment of whether a financial instrument is a security-based swap or a linked security depends, in part, on the exclusions from the definition of “swap.” There are several exclusions from the definition of “swap” relating to securities.[25] To the extent a financial instrument falls into one of these exclusions, it is not a swap and, therefore, is not a security-based swap. For example, any note, bond, or evidence of indebtedness that is a security, as defined in Section 2(a)(1) of the Securities Act, is excluded from the definition of swap.[26] Similarly, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof, that is subject to the Securities Act and the Exchange Act, is excluded from the definition of swap.[27] When assessing whether a financial instrument formatted as a crypto asset satisfies one of these exclusions, the economic reality of the instrument rather than the name given to the instrument determines whether it is excluded.[28]

Further Information

If you have inquiries for the Division of Corporation Finance, please submit your questions to the Division’s Office of Chief Counsel using the Corporation Finance Request Form for Interpretive Advice and Other Assistance. If you have inquiries for the Division of Investment Management, please review the Division’s Contact Information page for relevant contacts. If you have inquiries for the Division of Trading and Markets, please call (202) 551-5777 or email tradingandmarkets@sec.gov.

[1] For purposes of this statement: a “crypto asset” is any digital representation of value that is recorded on a cryptographically secured distributed ledger; and a “crypto network” is a blockchain or similar distributed ledger technology (“DLT”) network. In addition, for purposes of this statement, “onchain” refers to transactions or data that are processed and recorded directly on a crypto network and “offchain” refers to transactions or data that are processed and recorded outside of a crypto network. The foregoing definition of “crypto asset” is identical to the definition of “Digital Asset” in Section 2(6) of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, Pub. L. No. 119-27, 139 Stat. 419 (2025).

[2] This statement represents the views of the staff of the Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets. It is not a rule, regulation, guidance, or statement of the U.S. Securities and Exchange Commission (“Commission”), and the Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

[3] Tokenization is the process of creating a digital representation of a tangible or intangible asset using DLT.

[4] The term “security” is defined in Section 2(a)(1) of the Securities Act of 1933 (“Securities Act”), Section 3(a)(10) of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 2(a)(36) of the Investment Company Act of 1940 (“Investment Company Act”).

[5] Both federal and state law govern the activities, transactions, and relationships among the parties involved with tokenizing securities. For purposes of this statement, we assume that the activities and transactions by the parties described in this statement are in compliance with applicable law and any governing documents. For example, we assume that tokenized securities are not subject to any restriction on transfer imposed by the issuer and are properly issued and transferred under applicable state law, and that, in each instance, a transfer of the crypto asset results in a transfer of control of the security or security entitlement and/or ownership of the security or security entitlement via an effective indorsement, instruction, or entitlement order, as the case may be. See Article 8 of the Uniform Commercial Code.

[6] It is possible to tokenize any type of security, including stocks, bonds, notes, investment contracts, options on securities, and security-based swaps. This statement assumes that the crypto asset created to represent the security is not itself a separate security.

[7] An issuer that is subject to the Investment Company Act and issues its securities in different formats, including in tokenized format on different crypto networks, may raise multi-class issues under Section 18 of the Investment Company Act.

[8] See Section 3(a)(11) of the Exchange Act, Rule 3a11-1 under the Exchange Act, and Rule 405 under the Securities Act.

[9] See, e.g., Sections 12(g)(5) and 15(d)(1) of the Exchange Act.

[10] This statement assumes that the crypto asset created to represent the security is not itself a separate security.

[11] We are aware of a tokenization model known as “digital custodial receipt.” Based on our current understanding of this model, we do not view it as separate or distinct from the tokenized security entitlement model and, therefore, do not address it separately in this statement.

[12] Under this model, depending on the facts and circumstances, the third party may be deemed to be an investment company under the Investment Company Act.

[13] For a more fulsome description of the indirect system of ownership, see Concept Release on the U.S. Proxy System, Release No. 34-62495 (Jul. 14, 2010), 75 FR 42982 (Jul. 22, 2010). See also The Depository Trust Company no-action letter (Dec. 11, 2025), available at https://www.sec.gov/files/tm/no-action/dtc-nal-121125.pdf.

[14] This statement assumes that the crypto asset created to represent the security is not itself a separate security.

[15] Id.

[16] See Office of Investor Education and Advocacy, Investor Bulletin: Structured Notes (Jan. 12, 2015), available at https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-76.

[17] This is not the only circumstance in which a tokenized security could result in a security-based swap. Depending upon the facts and circumstances, securities tokenized by or on behalf of the issuers of such securities also could result in a security-based swap.

[18] The term “eligible contract participant” is defined in Section 1a(19) of the Commodity Exchange Act (“CEA”). In 2012, the Commission and the Commodity Futures Trading Commission, in consultation with the Board of Governors of the Federal Reserve System, jointly further defined the term “eligible contract participant.” See Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” Release No. 34-66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012).

[19] See Section 5(e) of the Securities Act. Alternatively, the offer and sale of the crypto asset to eligible contract participants could be conducted pursuant to an exemption from the registration requirements of the Securities Act.

[20] See Section 6(l) of the Exchange Act. Transactions in the crypto asset among eligible contract participants do not need to be effected on a national securities exchange. For example, such transactions could be effected bilaterally or on a security-based swap execution facility.

[21] The term “swap” is defined in Section 1a(47) of the CEA and consists of six prongs and specified exclusions. See Section 1a(47)(A) and (B) of the CEA, respectively. If a crypto asset satisfies one or more of the prongs of the definition of “swap” and does not fall within one of the statutorily specified exclusions, the crypto asset is a swap.

[22] See Section 1a(47)(A)(iii) of the CEA and Section 3(a)(68) of the Exchange Act.

[23] See Section 1a(47)(A)(ii) of the CEA and Section 3(a)(68) of the Exchange Act.

[24] See footnote 18 above and accompanying text.

[25] See Section 1a(47)(B) of the CEA.

[26] See Section 1a(47)(B)(vii) of the CEA. Structured notes typically fall within this exclusion.

[27] See Section 1a(47)(B)(iii) of the CEA.

[28] See Tcherepnin v. Knight, 389 U.S. 332, 336 (1967) (noting that in searching for the meaning and scope of the word “security,” form should be disregarded for substance, and the emphasis should be on economic reality).

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The regulatory landscape for digital assets has long been a source of frustration and uncertainty. The U.S. Securities and Exchange Commission (SEC), known for its often rigid stance on crypto-related innovations, has historically opted for enforcement actions rather than proactive rulemaking. However, a recent move by SEC Commissioner Hester Peirce signals a potential shift in strategy—one that invites the industry to actively shape the future of regulation.

On February 21, 2025, Peirce issued a Request for Information (RFI), seeking public feedback on various aspects of digital asset regulation. Her statement, aptly titled “There Must Be Some Way Out of Here,” underscores the urgent need for clearer, more adaptable regulatory frameworks. In it, she acknowledges that the current approach—largely defined by enforcement actions and ambiguous guidance—has stifled innovation, driven businesses offshore, and left investors in a precarious position.

A Call for Industry Participation

Peirce’s RFI represents a rare opportunity for industry participants—founders, developers, investors, legal experts, and other stakeholders—to voice their concerns and recommendations directly to the SEC. Unlike previous regulatory actions that have often left companies reacting to enforcement rather than engaging in constructive dialogue, this initiative provides a platform to advocate for policies that support responsible innovation.

The RFI seeks insights on several key areas, including:

• Market Structure Considerations for Digital Assets: What adjustments should be made to existing market regulations to accommodate digital assets? Are current trading, clearing, and settlement mechanisms compatible with blockchain technology?

• Custody and Safekeeping of Tokenized Securities: How can custodial standards be modernized to reflect the unique properties of digital assets? What safeguards are necessary to ensure security and compliance?

• Disclosure Requirements and Transparency: How can disclosure frameworks be tailored to provide meaningful transparency without imposing unnecessary burdens on issuers?

• Potential Modifications to Existing Regulations: What regulatory exemptions, amendments, or new frameworks are necessary to foster innovation while maintaining investor protection?

The Stakes: Will the SEC Finally Embrace Regulatory Clarity?

Peirce has long been a proponent of a more balanced approach to digital asset regulation. Her dissenting opinions in numerous SEC enforcement actions reflect her belief that the agency’s approach has been reactive rather than constructive. The RFI signals her continued effort to push the Commission toward a regulatory model that is predictable, transparent, and conducive to growth.

The digital asset industry has been at a crossroads. While innovation continues at a rapid pace—driven by advancements in tokenization, decentralized finance (DeFi), and blockchain infrastructure—U.S. regulatory uncertainty has forced many businesses to relocate to more crypto-friendly jurisdictions. This exodus of talent and capital poses a long-term risk to America’s leadership in financial technology.

If industry stakeholders seize this moment and provide robust, well-reasoned responses to the RFI, the SEC may be compelled to reconsider its approach. A well-crafted regulatory framework could pave the way for:

• Greater institutional adoption of blockchain-based assets

• A more competitive U.S. digital asset market

• Enhanced investor protections without stifling innovation

• A departure from the current reliance on regulation by enforcement

How to Get Involved

For those who have long been frustrated by the SEC’s approach, now is the time to act. This is one of the most direct opportunities to influence policymaking at the Commission.

• Submit Your Input Here: SEC Public Comment Portal

• Request a Meeting with SEC Staff: Meeting Request Form

• Read Peirce’s Full Statement: SEC Website

Final Thoughts

Commissioner Peirce’s RFI could be a turning point for digital asset regulation, but only if the industry steps up and makes its voice heard. The alternative is continued regulatory ambiguity, stifled innovation, and a persistent game of enforcement cat-and-mouse.

If you care about the future of blockchain and digital assets in the U.S., take this opportunity to engage. A more thoughtful, innovation-friendly regulatory framework won’t emerge on its own—it requires proactive industry participation.

The SEC is listening. The question now is: will the digital asset community speak up?

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While the rest of the world is focused on the drama between Binance, FTX, and Sam Bankman-Fried and their now-defunct merger, some news came out that we believe will have more material impact and meaning for the entire crypto market. Let’s break down exactly what happened, what the judgement highlights, who this might impact, and what implications it has on the market going forward.

If you’d like to read the full report yourselves as we go through the points made, you can find it here: SEC vs. LBRY Ruling.

Please note, this represents our (admittedly) limited understanding of our judicial system, We are not lawyers nor do we claim to be experts in legal proceedings. Our purpose in this piece is to highlight the potential impact this case could serve if this stands to establish precedent and influence future rulings within the crypto space. The reality for us is that the ruling raises more questions than it does provide answers, due to the nature of the ruling.

Binding vs. Persuasive Authority

Before we begin, an important note on this ruling and the types of rulings that come to influence our legal system and establish precedent for future rulings. Broadly speaking, rulings like the one at hand fall under two categories of classification:

• Binding Authority

• Persuasive Authority

Binding Authority, also referred to as mandatory authority, refers to cases, statutes, or regulations that a court must follow because they bind the court. Persuasive authority refers to cases, statutes, or regulations that the court may follow but does not have to follow.

The SEC vs. LBRY judgement falls under Persuasive Authority, and is therefore not wholly binding for future rulings. The question that comes to mind comes down to timing. We are skeptical that this case will have nothing to do with future cases, especially the ongoing SEC vs. Ripple Labs case. While we don’t have hard evidence to support this, we must ask if the SEC’s apparent stonewalling and dragging of their feet didn’t have something to do with this case against LBRY, specifically the timing thereof, and its subsequent ruling. Should future courts look to this case as firm precedent, it could mean much more influence and control over crypto markets overall for the SEC, a position that Commissioner Gensler has not been shy about.

That said, this case was not one of mandatory ruling, this was not a congressional law nor was it fully binding in the eyes of the federal government.

Additionally, the LBRY case was heard in the U.S. First District, which means the LBRY decision does not necessarily have a direct impact on the SEC v. Ripple case currently being heard in the Second District. Many, myself included, believe the SEC will refer to the LBRY decision in its Ripple arguments despite this difference.

With that clearly stated, we can dig into the case more fully.

Disclaimer: We are not attorneys, broker-dealers, investment advisors, or wealth advisors. Nothing presented herein is nor should it be considered as legal, professional, business, investment, or any other kind of advice. The information presented herein is done so for educational, informational, and entertainment purposes only. Always consult a licensed professional before taking professional, investment, or legal action.

Let’s set the stage.

LBRY is a decentralized file storage company, similar to Filecoin, Zilliqa, Storj, Theta, among many others, who’s mission was to create a platform and ecosystem that decentralizes ownership, returning power to content creators a la publishing and ownership rights. Their website bears the headline, “LBRY does to publishing, what Bitcoin did to money.”

Bold claim, we’ll give them that.

LBRY performed an initial coin offering, the famed “ICO” as it has been come to be known, in June of 2016, which the summary judgement references. The core question on the table was whether or not the LBC “credits”, bearer asset tokens, were securities? Before we dig in, here are some additional elements that are important in this ruling.

LBRY created 1 Billion LBC tokens, with the following distribution schedule:

According to CoinMarketCap however, the total supply of LBC tokens currently stands at 1,083,202,000. Where the additional 83M coins came from is not clear.

The pre-mine split meant that 40% of the total initial supply of LBC tokens were maintained by LBRY as an entity. This is extremely important, since one of the main points the SEC makes has to do with the tokens being pre-mined themselves. Also note, LBRY raised capital from angel investors, obtained $500K in debt financing, including offering 2M LBC credits as part of the exchange for the debt financing, and used roughly 142 million LBC tokens as payment “to incentivize users, software developers, and software testers, as well as compensate employees and contractors.”

At the time of the lawsuit being filed, they note that roughly half of the 100 million units set aside for the operational fund had been expended.

Now, the ruling is clear that LBRY is not contending that they sold LBC tokens, including a pre-mine and schedule set out above, only that LBC tokens are not securities, nor were they given fair notice that they needed to register the offering, or an exemption, with the SEC. In concluding that LBC tokens are securities, they contend that no fair notice is needed since the laws for securities registrations and exemptions are and have existed for many years.

The Howey Test

The judgement cites the Howey Test, the famous case from 1946 that brought us the formal definition of a security. Per the Howey Test, there are four elements up for consideration when looking at an offering to determine whether it is an investment contract, and therefore subject to securities laws:

1. An investment of money

2. In a common enterprise

3. With the expectation of profits

4. Where the profits are derived from the efforts of the promoter (the common enterprise mentioned) or a third party

Regarding LBRY and their LBC token:

1. Did an investment of money occur? Yes. Money changed hands when investors purchased LBC tokens.

2. In a common enterprise? Yes. LBRY, an incorporated company, is the central issuing entity behind the LBC tokens and LBRY blockchain.

With those points clearly satisfied, the SEC moves on to three & four: the expectation of profits, derived from the efforts of the promoter.

The basis for the SEC’s lawsuit: why was this a securities offering?

“The focus of the inquiry is on the objective economic realities of the transaction rather than the form that the transaction takes.” (pg 7)

“Thus, the issue to be decided is whether the economic realities surrounding LBRY’s offerings of LBC led investors to have “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” (pg 8)

Here the SEC is being very clear that the nature of the transaction is not what matters to them (eg a blockchain-based ICO for tokens vs. plain-Jane fiat changing hands), but that the issue on the table is whether investors had an expectation of profits derived from the efforts of LBRY.

Now, the first point being made by the judgement is that LBRY, on a number of occasions, tout the potential value that these tokens could hold should they succeed in making LBRY a successful and widely used product. They cite emails and other forms of communication as the basis of this point. Some of the highlights include:

“What LBRY did claim to know though was “that the long-term value proposition of LBRY is tremendous, but also dependent on our team staying focused on the task at hand: building this thing.” It then closed the post by announcing a policy of neutrality with respect to LBC's price but plainly stating that “[o]ver the long-term, the interests of LBRY and the holders of [LBC] are aligned.””(pg 10)

Further, LBRY COO Josh Finer made the following comments that are included in the memorandum:

“In August 2016, the COO of LBRY, Josh Finer, emailed a potential investor explaining that the company was “currently negotiating private placements of LBC with several [other] investors” and asked the recipient to write him back “if there is interest” so the two could “chat.” The thrust of the email (subject line: “LBRY Credits Now Trading – LBC”) is clear.

He called it a “private placement”. It doesn’t get more clear that this was an investment, both to him as an operator and director of LBRY, as well as to the investor.

After briefly noting that the platform was up and running, the COO explained how LBC are being traded on “major crypto exchanges” and that trading volume is moving at a healthy clip. The “opportunity is obvious,” wrote the COO, “buy a bunch of credits, put them away safely, and hope that in 1-3 years we’ve appreciated even 10% of how much Bitcoin has in the past few years.” He wraps up by pitching LBRY’s commitment to building its Network: “[i]f our product has the utility we plan, the credits should appreciate accordingly.”” (pgs 10-11)

If the recent cases against Kim Kardashian and Floyd Mayweather have taught us anything, it’s that the promotion of instruments that look like investment contracts is not something that can be done lightly. There’s a reason registered investment advisors on CNBC don’t recommend buying equities; it’s not a buy recommendation, it’s that they “like the stock.” Now, most of us recognize this for what it is, but still, the wording around investment instruments is and will continue to be something that is highly scrutinized. Another example - those who engage in Investor Relations for public companies undergo months of full-time training to prevent insider trading or improper disclosures.

According to the SEC, “LBRY has - at key moments and despite its protestations - been acutely aware of LBC’s potential value as an investment. And it made sure potential investors were too.” (pg. 9)

Aligned Incentives

In January 2018, LBRY’s CEO penned a public article citing how blockchain tokens can be used to align incentives.

“Because a blockchain token ‘has value in proportion to the usage and success of the network,’ developers are incentivized to work to develop and promote new uses for blockchain. As Kauffman put it:

“It means that the people who discover and utilize a new protocol or network when it’s just getting off the ground can reap substantial value by being there first. This solves the incentive problems around being a first-mover and softens the pain of using a service that probably won’t be as feature-rich or slick as established competitors’ options. It provides a source of funding for the development of the protocol. The creators can use the token to pay for the salaries and equipment required to get it started.” (pg 13)

We’ll reiterate that punch line - “it provides a source of funding for the development of the protocol.”

So does raising capital via equity fundraising.

Between the pre-mine and comments from the operators, LBC tokens sure look like an equity investment in a startup. One of the most attractive reasons selling equity to angel and venture investors has been a primary funding method for startups, is exactly what this case cites - the incentives are properly aligned. If the company does right by the market, their customers, and their investors, everyone should win as product-market fit is achieved and the value of the equity increases. It’s this alignment that the SEC has really honed in on.

The SEC continues, describing the nature of the statements made publicly about LBC tokens with this, “These statements are representative of LBRY’s overall messaging about the growth potential for LBC, and thus the SEC is correct that potential investors would understand that LBRY was pitching a speculative value proposition for its digital token. LBRY’s messaging amounts to precisely the “not-very-subtle form of economic inducement” the First Circuit identified in SG as evidencing Howey’s “expectation of profits.”” (pg 14)

Further, the SEC clarifies that “a disclaimer cannot undo the objective economic realities of a transaction.” As much as those of us who operate in this space would like it to, this feels to us as though they are restating the old adage, “If it looks like a duck, quacks like a duck, and acts like a duck, it’s probably, in fact, a duck.”

“LBRY made no secret in its communications with potential investors that it expected LBC to grow in value through its managerial and entrepreneurial efforts. But even if it had never explicitly broadcast its views on the subject, any reasonable investor who was familiar with the company’s business model would have understood the connection.” (pg 15)

Bold of this judge to assume crypto traders are reasonable, but that’s not what’s up for debate.

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Social Media Mentions

One final thing to note regarding public comments about LBC tokens as potential investment instruments, this case cites both Reddit & Twitter posts. We can’t access the referenced Tweets or Reddit posts (damn paywall) but we can assume the posts referenced price action, price increase, or some other potential where the price per token was concerned. While there are many forums online for discussing price action, stocks, bonds, and other financial products, the online mentions here seem particularly important in emphasizing and furthering the idea that LBC tokens were an investment product, and that the market at large considered them as such.

(“[W]hile the subjective intent of the purchasers may have some bearing on the issue of whether they entered into investment contracts, we must focus our inquiry on what the purchasers were offered or promised.”). pg. 18

We must also wonder if LBRY’s lack of refutation against these online comments, bolstered by the fact that their chief officers were talking about these as having the potential for investment, was a factor in the SEC’s position.

Implications for Crypto Companies

The obvious implication here is that other cryptocurrencies whose issuers fulfill both criterion set out by the SEC (pre-mine and/or pre-issuance of some sort to the controlling entity which meant incentives were aligned + comments that make token purchases look like investments) could be found guilty of conducting unregistered securities offerings.

While we don’t have access to private communications for the operators of the following companies, here are some of the largest cryptocurrencies with centralized entities behind them who conducted ICO’s that included large percentages of the total supply of coins being pre or instantly mined:

• Ethereum

• XRP

• Solana

• Avalanche

• Binance

• Chainlink

• Cardano

• Polkadot

• Algorand

• Cronos

• Hedera

• Tron

• Stellar

Conversely, here are some of the largest and most well-known cryptocurrencies, that were not pre-mined or pre-issued in some way:

• Bitcoin*

• Litecoin**

• Monero

• Doge

• Shiba

*Bitcoin had no pre-mine or angel investors but Satoshi Nakamoto was the first miner on the network, meaning that they ended up with a large swath (nearly 1M BTC) for themselves. We exclude Bitcoin here because in order for the Bitcoin network to launch there had to be early adopters handling the mining, which meant that some of those early adopters were able to pick up large amounts of BTC at practically no expense. Today, Bitcoin is sufficiently decentralized in a global manner such that even the SEC is comfortable stating that Bitcoin looks more like a commodity than a security.

**Litecoin came with a 150 LTC pre-mine for the genesis block of that blockchain, but with a total supply of 84 Million, We’re also comfortable excluding Litecoin as a crypto that was pre-mined since it was a functional requirement to kickstart their chain.

A quick aside, on a macro level, the primary focus for regulators seems to come down the nature of a fluctuating price against the US dollar. One example we often refer to is World of Warcraft, which sells gold coins as in-game currency for purchases of armor or other utilities as players need them. Billions of dollars have been processed through the WoW marketplace, but the SEC has never once batted an eye at Blizzard Entertainment, the creators of World of Warcraft, since the underlying USD value is and has always been, pegged and stable.

Additional Fallout

Now, if we were one of the companies who conducted ICO’s with a pre-mine, insta-mine, or pre issuance of some sort, we would be highly concerned at the criteria laid out in this case. Not only do they cite private communications between executive officers, but as noted above, they also cite online communications, include tweets on Twitter and community posts on Reddit where retail investors could have been led to believe that these instruments were investment contracts with a reasonable expectation of profit.

A quick look at r/Solana on Reddit shows 4 of the top 10 posts this year mentioning price action, specifically the word “investment”. We have no doubt we could find similar mentions or posts on r/Ethereum, r/Ripple, r/Algorand, or others. The top “hot” post on the Algorand subreddit as of this writing is the following meme about dollar cost averaging and still being down on your investment.

Investors clearly consider cryptocurrencies financial instruments, and anyone with any kind of access to social media can see that.

Disgorgement

The ruling states that investors who invested in LBC tokens would be eligible for disgorgement under the law. Disgorgement is defined as:

Disgorgement is the legally mandated repayment of ill-gotten gains imposed on wrongdoers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, often with interest and/or penalties to those affected by the action. Disgorgement is a remedial civil action, rather than punitive civil action. That means it seeks to make those harmed whole rather than to excessively punish wrong-doers.

The question this raises immediately, since the ruling does not make it explicitly clear, is whether or not this repayment would need to happen in kind or not. We would absolutely assume, as would most people, that a USD cash repayment would be expected here, especially considering that LBRY market cap is roughly $12.5M, down 99% from its all-time high when it had touched $1.2B back in July of 2016, but again, it’s not clearly stated. The question this elicits is what if a company that had issued a cryptocurrency was up from their initial issuance price? Ethereum for example, was $0.25 / coin at their ICO, and as of this writing it’s trading around $1100 USD.

A large liquidation of ETH, to return capital to those who participated in the ICO, could flood the market with ETH and cause the price to crash. What would happen to the circulating supply of remaining tokens? After all, plenty who operate in the crypto market live abroad in jurisdictions outside the SEC’s responsibility, and it certainly wouldn’t be fair to them to lose value due to a liquidation needed to pay disgorgement expenses. We have absolutely no idea how the SEC might consider this, since usually their enforcement actions come from investors being hurt, not benefitting, from illegal activity.

We’re also reminded of the infamous Mt. Gox collapse and subsequent lawsuits. Mt. Gox was ordered to return capital as part of their settlement, which was initially set to be handled via USD. This was well after the price of Bitcoin had skyrocketed, and since Mt. Gox still had roughly 1/4 the total Bitcoin thought to be lost on their balance sheet, they had the ability to disperse it, but wanted to return the capital in the form of USD, which would have netted them a huge sum due to their ability to keep the remaining Bitcoin for themselves. This led to a number of lawsuits, including a class action suit which was ultimately rejected last year.

Implications for Crypto Exchanges

Will the SEC use this ruling as the basis for pursuing action against the crypto exchanges who offered this product? The selling of an unregistered security is punishable via fine from the SEC, but our questions come down to whether or not the SEC intends to pursue this action, or grandfather in those who committed these actions with a symbolic slap on the wrist.

A cursory look on FINRA’s BrokerCheck gives us an idea of fines levied against large players for simple violations. A recent one from Wells Fargo came in at $4M for the improper handling of information. Another was $1.2M to JP Morgan for improper handling of customer account around Rule 201 of Regulation S-ID, which refers to broker’s needs to verify customer account types, specifically around the “covered account” designation.

In 2019 however, we also saw the SEC bring a suit resulting in a $16 Million fine (the full amount raised plus interest) against a company called ICOBox for enabling, not conducting, unregistered securities sales.

According to the SEC’s complaint, ICOBox raised funds in 2017 to develop a platform for initial coin offerings by selling, in an unregistered offering, roughly $14.6 million of “ICOS” tokens to over 2,000 investors. The complaint alleges that defendants claimed the tokens would increase in value upon trading and that ICOS token holders would be able to swap them at a discount for other tokens promoted on the ICOBox platform. See the full SEC statement here.

If every exchange who sold LBC tokens was to be visited with similar fines, you might see enforcement action against the following exchanges, forcing them to make restitution or pay disgorgement:

• Bittrex

• Hotbit

• CoinEx

• MEXC

It’s not a large list compared to other cryptocurrencies, but what if individuals were also pursued? We’ve previously cited a fascinating example where the SEC sued individuals trying to sell securities on eBay back in 1999. Peer-to-peer transfers of securities is not legal in the United States. Would the SEC seek remediation against all those who transferred LBC tokens to others in a peer-to-peer manner?

Furthermore, what about tax, Know-Your-Customer, or Anti-Money Laundering implications? You’d never pay someone in an exchange with the deed to your home, you sell your home, then use the proceeds to pay the counterparty for whatever goods or services they’re offering.

(side note, we’re of the opinion that this is most likely why Tesla stopped accepting Bitcoin as tender for their cars, not because Musk didn’t believe in the technology, but because it’s an accounting nightmare based on how the government currently classifies Bitcoin as an asset. After all, they don’t accept coffee futures as payment for a Tesla either)

Conducting securities transactions without KYC/AML is also illegal, the enforcement and punishment of which is handled by FinCEN, the Financial Crimes Enforcement Network. The ironic thing about their name is that the enforcement arm of FinCEN is actually the IRS. Reminds us of the gangsters of Chicago…they can’t get you for racketeering, murder, or money laundering, so they nail you for tax evasion.

To quote Joker from the animated Batman series:

Market Implications

The United States has and continues to set the standards for capital markets globally. Our concern with this case, and with some sort of sweeping regulation like what current regulators are asking for, would be the discouragement of innovation and development here in the US, instead pushing the cutting edge development and ideation overseas.

Currently US Senators John Boozman (R, AR), Debbie Stabenow (D-Mich.), and Sherrod Brown (D-OH) (who is the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs) all share the opinion that the Digital Commodities Consumer Protection Act of 2022 should be pushed through immediately, following the collapse and spectacular drama of the FTX debacle. See their statements here:

• Ranking Member Boozman Statement on Digital Commodities Consumer Protection Act of 2022

• Statement of Chairwoman Debbie Stabenow Senate Agriculture, Nutrition and Forestry Committee

• Brown Statement on FTX

We’re reminded of LIBOR as one of the world’s most important interest rates, and the fact that it exists outside the United States. We’re in full support of competition when it comes to global capital markets, please don’t misunderstand, but we must wonder here if the departure of crypto, blockchain, and decentralized finance innovations could have broad implications a la LIBOR and it’s history. The abstract from this staff report from the Federal Reserve Bank of New York states:

As of 2013, LIBOR underpins more than $300 trillion of financial contracts, including swaps and futures, in addition to trillions more in variable-rate mortgage and student loans. LIBOR’s volatile behavior during the financial crisis provoked questions surrounding its credibility. Ongoing regulatory investigations have uncovered misconduct by a number of financial institutions. Policymakers across the globe now face the task of reforming LIBOR in the aftermath of the scandal and crisis.

We would much prefer that America focus on legislation that fosters stability, growth, and prosperity rather than discouraging innovation domestically due to over-regulation. How many companies refuse to operate in New York because the requirements behind the notorious Bit License are too stringent?

See also, “Kill the Bit License.” CoinDesk, Oct 19, 2021.

Consistency: the cornerstone of economic activity.

Thomas Sowell, one of our favorite authors and economists, highlights the need for consistency in his seminal book, Basic Economics. One of the most important things that market participants can do to grant stability is to maintain the consistent treatment of customers, partners, or other actors as necessary. What’s fascinating, is that the consistency within certain classes is what is most important in producing stability and allowing markets to flourish - even if it’s unfair or provides preferential treatment to some group or class of people over another.

Sowell cites the differences between white Italian or Irish immigrants and Chinese immigrants in his book. If you were Chinese, you were not treated as well as a white Italian immigrant, that is clear within history books. However, from one Chinese citizen to the next, or in other words, within the class of Chinese immigrants as a whole, the treatment was remarkably consistent, which allowed economic activity to flourish. Despite the differences in treatment of the different racial groups in colonial and post-Revolutionary War America, the consistency within groups was a driver for extensive economic growth during this period.

Now, we are categorically and utterly opposed to the mistreatment of anyone because of their race, ethnic class, skin color, religion, sexual orientation, or any other similar characteristic, we want that to be perfectly clear.

So why bring this up?

Well, one approach might be to simply grandfather in existing crypto issuers, even despite the preferential treatment of giving those who were here early a pass. Regulators could do this with an eye towards producing a simple digital asset framework for those seeking to enter the space in the future. Yes, it would mean more stringent regulation for those entering from here on out, but it would also hopefully be encouraging to those here currently, without destroying value for those who were here early. The downside to this would be that investors who have been harmed would not have recourse to recoup their losses, something we can’t imagine the SEC would be comfortable with.

Based on this, and other rulings the SEC and CFTC have imposed, we don’t think it’s realistic to hope the SEC will grandfather in existing crypto companies, we think it’s far more likely for them to enforce against bad actors where investors have been demonstrably hurt.

This case could mark the beginning of a regulatory enforcement spree against companies who meet these standards and whose investors have lost their funds without fully knowing or understanding the risks involved in buying assets like these. After all, the primary directive of the SEC is to protect investors.

Personally, we believe this case will serve as precedent in the SEC vs. Ripple Labs case, the ruling of which will then be a mandatory one and will provide the SEC with binding authority to further prosecute crypto issuers and bad actors in the space. This is all conjecture, but the timing and criteria established here raise too many questions in our mind for it be inconsequential.

Conclusion

We don’t believe the implications of this case are fully clear to anyone, our intent in sharing these thoughts was to lay out some of the questions it provoked, and consider the implications of this case should it stand as precedent for future rulings.

With regards to regulating the crypto space, and digital asset securities, there is not consensus and agreement for the best method forward, both within regulatory bodies as well as between those like the SEC, CFTC, OCC, FinCEN, or others. Concerning legislation generally, what governing body these assets fall under, how to approach regulations going forward, what sort of enforcement should be applied - the opinions of these things differ from one regulator to the next. Hester Pierce, for example, has been quite forthcoming when she has disagreed with enforcement action that has been taken by Gary Gensler or the Commission overall.

This case could come to define crypto and blockchain-based assets as a whole, or it could fall by the wayside as just another judgement against some bad actors. Indeed brokers face fines every day for compliance missteps, perhaps this case will look like those and not serve to influence future rulings. Our hope is that we can come together around the treatment of these assets and create frameworks, regulations, and enforcement action that make sense and allow innovation and markets to grow and flourish, maintaining the United States as a beacon for blockchain, crypto, digital asset securities, and emerging use cases thereof.

Till next time.

Disclaimer: We are not attorneys, broker-dealers, investment advisors, or wealth advisors. Nothing written here is nor should it be considered as legal, professional, business, investment, or any other kind of advice. The information presented herein is done so for educational, informational, and entertainment purposes only. Always consult a licensed professional before taking professional, investment, or legal action.

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