The U.S. Securities and Exchange Commission (SEC) is considering a groundbreaking exemption that could pave the way for broader adoption of distributed ledger technology (DLT) in securities markets. This move aims to ease the path for firms wanting to trade, clear, and settle securities on blockchain platforms without having to register under existing, often burdensome, SEC regulations.
Announced by SEC Commissioner Hester Peirce during a May 8 address at the agency’s International Institute for Securities Market Growth and Development, the proposal signals a potential shift in how financial markets interact with blockchain innovations.
Cutting Through the Red Tape
At present, companies exploring tokenised securities face a thicket of regulatory challenges. Platforms operating in this space may need to register as broker-dealers, exchanges, or clearing agencies — all of which require time-consuming and costly compliance efforts.
Commissioner Peirce acknowledged that these requirements often discourage new entrants. She pointed out that current rules, especially those under the Regulation National Market System, aren’t built for the flexible, automated market-making models that blockchain technology enables.
The proposed conditional exemption could temporarily ease these requirements, giving startups a chance to innovate while the SEC works on more permanent rule adaptations tailored for DLT systems.
Investor Safeguards Still a Priority
While the exemption may lighten the regulatory load, it won’t be a free pass. Peirce made clear that any firm operating under this relief must meet strict conditions to ensure transparency and investor safety.
Firms would be required to fully disclose how their platforms operate, including wallet structures, custody solutions, and the specific risks tied to blockchain systems. They must also maintain adequate financial reserves and operate under close SEC oversight.
To combat potential abuse, the SEC is exploring rules to deter fraud and manipulation, including customer transparency mandates and ongoing monitoring protocols.
Solving the Chicken-and-Egg Problem
One of the core challenges in the tokenised securities space is that innovation is often stalled by regulation — but regulatory updates are hard to justify without active use cases. Peirce sees the exemption as a way to break this cycle.
“Exemptive relief could help resolve this chicken-and-egg problem,” she said, emphasising the need for flexible pathways that enable growth while preserving investor trust.
The Commissioner invited feedback from market participants and stakeholders, suggesting that the framework is still under development but geared towards a “commercially feasible” outcome that balances innovation with responsibility.
