Hester Peirce: The Three Types Of Tokenized Securities Explained (What To Expect)

Transcript

How do we maintain this pace? Because, you know, the SEC is very open-minded and and willing to collaborate with industry partners and and establish best practices. Some of these definitions are starting to become formed in the taxonomy. And and so, you've, you know, accelerated the pace of regulatory change in in the SEC in, you know, this current regime. As you transition, how do we ensure that we don't go backwards and we we continue to to accelerate the pace of the regulatory regime?

>> Well, I think as long as Chairman Atkins is here, that the the pace will continue. He's very committed to getting clear rules in place and and, you know, he's someone who's spent a lot of time thinking about what good financial regulation looks like. So, he has a real appreciation for the need for people to be able to do things that are commercially viable, but also he has a, you know, a high commitment to achieving the the goals of the commission, which are protecting investors, facilitating capital formation, and fostering market integrity. So, I think that piece will will will be fine as long as he's here.

I I would also say, and this is the message I give everywhere and all the time, and so it's a bit of a, you know, a repeat, but build things that people want and need, and then it it will be the kind of thing that is more likely to stay around because people want and need them, and so they'll be they'll speak up if a regulator tries to take them away. >> Yeah. Yeah, that that makes complete sense. We're we're seeing those products come to market in real time. Another thing that we, you know, are are very very excited about, as we've been talking about, is this innovation exemption. Just want to double-click on it.

For the sake of, you know, we we've talked about the Clarity Act as well and how we kind of understand the the typical process of how this becomes more established. You know, it passes the house, it passes the Senate, goes to the president's desk, he signs it, you know, and and it's it becomes a law. When it comes to the proposed innovation exemption, how does this progress? You know, ultimately, who are the stakeholders that have to sign off on this before it becomes established and and concrete in the regulation? >> Existing laws already give us the ability to to create exemptions. We can do that by rule or by order. And so, it's a commission decision. It doesn't

require input from Congress because they already gave us the permission to do this. So, it's it's really an internal process but as we discussed before, there are a lot of complicated issues here and we want to make sure that we we get it right. So, that's um that's what what we're working on. >> Awesome. And as we think about some some of the the foundations that being laid and and you know, moving forward, you mentioned sort of the classifications of tokenized securities. They you know, may fall into this you know, tokenized by directly by the issuer or you know, on their behalf and then this

third party. Um We're in the midst of this mega IPO season. You know, as we're recording this, SpaceX went went and and went live just hours ago. And so, this has been another catalyst in this area of tokenized equities and there's all kinds of SPV wrappers around some of these some of these company shares. How how can we think about the the third-party tokenization because that's generally you know, kind of one of the two classifications here and you know, we've been talking about innovation exemptions uh for that first class of of tokenized equities on behalf of the issuer

themselves. >> Well, there are actually three categories. So, I point people back to the staff statement and and one is um the natively natively tokenized. The second is you can have an entitlement where there's actually a share being custodied um on behalf and the the token represents that. And then you've got the third category, which is the synthetic category. Um And so, yeah, with respect to the third category, that's that's um one where again, people can register those kinds of securities, but it's important for people who hold No, it's important for people who are holding securities that way to understand that they're getting economic exposure to the asset, but they're not

actually holding the asset itself. And so, that's the that's the the piece that um you know, if you were to register something like that in the United States, you would have to really explain that to your to your uh to your investors. >> Right. And And so, you know, you had put out a post again trying to clarify some of these misconceptions where, you know, you appreciated the interest in but not the hyperbole of the the innovation exemption and as it pertains to to some of these classifications, was there something in particular that, you know, you had intended where, you know, maybe, you know, some of the more egregious examples of things that people were claiming uh was effectively you know, around some of this third-party

tokenization and, you know, there was this maybe broad exemption for those, but you've made it clear that's not the case. And so, could we just could you just explain a little bit more, you know, how based on based on the feedback that you've gotten on this proposed exemption so far, how narrow or broad you would anticipate this exemption when it ultimately becomes >> again, it's it's not out, but as I as I said, I had never envisioned it as involving that third category, which is synthetics, which are which are um securities held in an SPV, but then then someone can get economic exposure to the securities through that SPV. That's not what I had been thinking. Um so Again, I may not be here when the

innovation exemption comes out. So so um I think it's important to say it's it's a conception um and uh so we'll have to see what the final looks like, but um I think there was there's a lot of hyperbole about again arguing that it's it's much broader than it is. And as you said, some people are going to be disappointed because it's it's it's actually pretty traditional, right? It's it's it's on-chain finance. It's it's it's it's a step um to see how tokenized securities will trade. It is not um you know, it's it's it's not I think

it's not even that big of a step, frankly. I think it's important, but it's not that big of a step.