SIFMA: SEC Tokenized Securities Exemption May Harm Investors

SIFMA warned that an SEC order exempting Tokenized Securities Venues ("TSVs") from exchange registration could fragment markets and harm investors.

In a statement responding to the SEC's innovation exemption, SIFMA said the relief could allow multiple tokenized versions of U.S.-listed securities to trade in parallel, lightly regulated markets. The association said the structure could lead to investor confusion and harm, along with price and liquidity fragmentation in the listed securities market.

The SEC order grants conditional, five-year exemptions for TSVs from the definition of an exchange under Exchange Act Section 3 ("Definitions and application"), and for liquidity providers on those venues from dealer registration (see prior coverage). The relief allows the venues to trade Tokenized NMS Stock using automated market makers.

SIFMA said any innovation exemption should be narrowly drawn, open to all market participants, technology-neutral, and subject to appropriate guardrails, including duration, customer, and transaction limits. While SIFMA acknowledged that the SEC's order includes some of these safeguards, the association said it was unclear whether they are sufficiently robust to protect investors and market quality.

The association noted that the SEC is soliciting public comment on the exemption and referenced the SEC Chair's statement that the interim measure must be followed by durable rulemaking. SIFMA urged the Commission to begin the formal notice-and-comment rulemaking process promptly, arguing that broad public input and economic analysis are needed to give tokenized securities markets regulatory certainty.