SIFMA Warns SEC Against Broad Exemptions for Tokenized Securities

SIFMA urged the SEC to maintain robust regulatory safeguards for tokenized securities, warning against broad exemptions that could create fragmented markets and erode investor protections.

In a letter to SEC Chair Paul Atkins, SIFMA emphasized that tokenized securities remain securities and should not be exempt from longstanding rules simply because they use novel technology. The association contended that creating parallel, unequal trading ecosystems for substantively identical assets would lead to weaker safeguards, fragmented liquidity, and conflicts of interest. SIFMA highlighted recent stress in crypto markets—where cascading liquidations caused significant value destruction—as evidence of the risks that materialize when established guardrails, like circuit breakers and margin limits, are absent.

SIFMA also advised the SEC to carefully design any "innovation exemption" framework to avoid regulatory arbitrage. The association recommended that any such exemptions be narrowly tailored, time-limited, and subject to strict guardrails such as transaction caps and investor limits. SIFMA stressed that these frameworks should supplement, not substitute for, formal notice-and-comment rulemaking. The association maintained that entities performing functionally equivalent roles—such as facilitating order matching or custody—must be subject to identical oversight to prevent "regulatory bifurcation" that could harm investors and undermine the stability of the U.S. capital markets.