“The SEC should avoid granting exemptions to firms attempting to bypass regulatory principles that have safeguarded markets for decades,” WFE CEO Nandini Sukumar told Reuters in a report posted Wednesday (Nov. 26).
SEC Chair Paul Atkins has said that the agency is developing an exemption from securities laws that would allow crypto companies to try new business models, according to the report.
Currently, companies that want to sell tokenized stocks in the U.S., but are not registered as broker-dealers, need a no-action letter or exemption from the SEC, the report said.
The debate over the potential exemption comes at a time when several crypto companies are looking to sell tokenized stocks, which are crypto tokens linked to listed equities, per the report.
James Auliffe, who runs the WFE’s technology working group, told Reuters, per the report: “We and the crypto platforms should be competing on a level playing field, we should be subject to the same rules.”
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The WFE said in an Aug. 26 press release that it had written to the SEC’s Crypto Task Force to warn of investor protection risks linked to the third-party tokenization of equities by unregulated brokers and crypto-asset trading platforms.
The organization said in the release that these tokens could mimic equities without providing the same rights or safeguards.
“The WFE supports innovation, particularly when done based on exchange traded products,” Sukumar said in the release. “However, these mimicked products do not meet the high standards which investors are used to. What we are seeing is a blatant attempt to circumvent regulation, with some firms seeking ‘no action’ relief from regulators or deliberately operating through legal grey areas.”
On Nov. 11, the International Organization of Securities Commissions (IOSCO) issued a report warning of potential risks associated with tokenization.
“While tokenization may enhance efficiency and transparency, it also introduces new risks — or amplifies existing ones — that regulators must understand and address to protect investors,” the group said at the time in a press release.
