SEC Explores Registration Exemption for DLT-Based Securities

According to PANews, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce has revealed that the SEC's cryptocurrency task force is examining a potential registration exemption. This exemption would allow companies to issue, trade, and settle securities using distributed ledger technology (DLT) while bypassing certain SEC registration requirements. The initiative aims to support businesses in adopting innovative trading systems for eligible tokenized securities. The proposed exemption comes with stringent conditions to ensure market integrity and prevent fraud and manipulation. Entities benefiting from the exemption would need to provide significant disclosures to users about platform products, services, operations, conflicts of interest, and risks, including those associated with smart contracts. They would also be required to adhere to record-keeping and reporting standards, submit to SEC staff supervision and inspections, and maintain adequate operational financial resources. Additional requirements for participants offering cryptocurrency custody services may include disclosing custody arrangements and risks to clients, as well as implementing policies and procedures related to blockchain and wallet security. Restrictions on the number and type of tokenized securities listed or traded, as well as trading volume limits, could mitigate risks to investors and the market. For companies that successfully operate under these initial restrictions, the SEC may consider raising these limits.