SIFMA submitted a comment letter to the Securities and Exchange Commission (SEC) on the Commission’s recently published Innovation Exemption. In its letter, SIFMA sets out an initial set of questions and recommendations on how the Innovation Exemptive Order will work in practice.
“Tokenization has real potential to modernize our markets, but getting the foundations right from day one is essential,” said Kenneth E. Bentsen, Jr., president and CEO of SIFMA. “Issuers, investors and intermediaries need clarity on how the Innovation Exemption will operate as trading begins over the coming weeks, and we urge the Commission to act quickly on resolving the outstanding our members have identified.”
SIFMA notes that, because the Innovation Exemption took effect as soon as it was published, issuers and market participants did not have an opportunity to comment on its structure or how it would work in practice. Several Tokenized Securities Venues (TSVs) have already published notices and may begin operating within 30 days, and issuers have begun receiving Issuer Notices. Because the exemptive relief lasts five years, early design choices will shape market practice well before any permanent framework is adopted, which makes it important to resolve open questions now.
SIFMA’s letter focuses on four areas that need immediate attention and offers recommendations for each:
- Issuer notice and consent, including how issuers are notified and what level of control they have over the tokenization of their securities;
- Investor protection, illicit finance, oversight and enforcement, to ensure existing safeguards carry over to tokenized markets;
- Trading volume limits, including how they apply on individual venues and in aggregate across the market; and
- Beneficial ownership, corporate actions and transferability, to protect shareholder rights and the integrity of the ownership record for tokenized shares.
SIFMA suggests in its letter that the Commission address how the Innovation Exemption will operate, either through FAQs or guidance. Other recommendations would require the Commission to amend the Order, possibly requiring affirmative issuer consent, lengthening the objection period, and creating a universal issuer opt-out.
SIFMA also signaled its support should the Commission determine that additional time is needed before venues begin operating, whether to address these questions or to allow for further industry engagement, in order to ensure that activity conducted under the Innovation Exemption begins in an orderly manner and without unintended harm to investors, core equity markets, or issuers. Additionally, SIFMA noted its appreciation for statements by SEC Chairman Atkins and SEC Commissioner Uyeda outlining their expectation that formal notice-and-comment rulemaking will be issued. SIFMA is ready to work with the Commission as it evaluates the impact of activities conducted under the Innovation Exemption on investors and core equity markets and develops a rulemaking proposal informed by that experience. Finally, SIFMA requests that, as the Commission works toward rulemaking, it considers the other interconnected, significant changes coming to equity markets and how these changes will interact with and impact equity markets.
The full comment letter is available at https://www.sifma.org/advocacy/letters/sec-innovation-exemption-for-tokenized-nms-stocks-and-distributed-ledger-trading-venues.
Source: SIFMA
