SEC Division Director Highlights Progress on Tokenized Securities
Commentary by Steven Lofchie
SEC Director of the Division of Trading and Markets, Jaimie Selway highlighted recent agency actions on tokenized securities and national market system regulation ("Reg NMS").
In an address to the Security Traders Association of New York, Mr. Selway reported that, to date, the Division issued (i) a “no action” letter to DTC related to a three-year pilot program to tokenize securities, (ii) a staff statement setting out a taxonomy for tokenized securities, and (iii) "a staff statement regarding wallets and other user interfaces that investors may use to engage with these tokenized securities." The Director said the agency is currently working on an “innovation exemption” recommendation "to allow certain trading venues to trade tokenized securities."
Mr. Selway also said the agency is seeking comments on several potential market mechanics reforms under Reg NMS, including access fee caps, quoting in half-cent increments, and modernizing best execution obligations. He noted (i) agency roundtables on Rule 611 of Regulation NMS ("Order Protection Rule") (see also, prior coverage); (ii) a recently published request for exemptive relief from Rule 610 ("Access to Quotations") and Rule 612 ("Minimum Pricing Increment"); (iii) potential changes to market data revenue allocation, and (iv) possible ways to modernize best execution obligations. He said input from market participants is necessary to make sound and lasting policy decisions regarding these market structure updates.
Commentary
The question is generally not whether a rule changes any benefits buy-side or sell-side; both sides include numerous sophisticated entities. The question is whether any particular rule change is good for the markets; that is why so often buy-side and sell-side were agreed in opposition to many of the proposals put forward by the SEC under the prior administration.