Global Coalition of Stock Exchanges Warns SEC Over Regulatory Relief for Crypto Exchanges

The letter was signed by WFE CEO Nandini Sukumar. The WFE represents more than 250 exchanges and clearing houses around the world, including Nasdaq, the Schenzhen Exchange, CME Group and the Hang Seng.

“[W]e are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenised US stocks,” the letter said. “These products are marketed as stock tokens or the equivalent to stocks when they are not.”

The letter followed an in-person meeting between WFE officials and the SEC in Washington in early November.

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Specifically, the groups emphasize that exemptions from registration requirements would be inappropriate “for trading platforms that simply do not wish to be saddled with the requirements of being an SEC registrant and subject to Exchange Act standards applicable to registrants.”

Prompted by the Trump administration’s pro-crypto agenda, the SEC is currently considering proposals to establish a regulatory “sandbox” that would allow crypto exchanges to experiment with new trading tools and products, including tokenized stocks, without being subject to the full panoply of registration and regulatory requirements that apply to traditional stock exchanges.

Related: Crypto, DeFi Companies Urge White House to Clarify Tax and Trading Rules for Digital Assets

“I encourage market participants that are developing new ways to trade securities using blockchain technology to provide input on where exemptive relief may be appropriate,” then-Acting SEC Chair Mark Uyeda said at an agency roundtable in April. He proposed a “time-limited, conditional exemptive relief framework” that would offer unregistered crypto exchanges the freedom to innovate in areas like tokenized securities before rules and laws are written on the subject.

Such broad exemptive relief, however, “may not receive the type of public scrutiny that an SEC rulemaking would receive,” risking unintended consequences for investors, the WFE letter warned. “[W]e would reiterate our call to not give exemptive relief to firms trying to circumvent established regulatory principles that have existed for decades and for very good reason,” the letter siad. “It would be better to make a public rule filing than to seek to make large scale changes with exemptive relief.”

While WFE said it supports the SEC’s “right to use exemptive relief,” the letter said any such relief should be conditional. In particular, it said, recipients of such relief should remain subject to SEC oversight, maintain robust anti-money laundering safeguards, establish clear governance structures, and demonstrate a commitment to operating fair and orderly markets.

“Exemptive relief from a specific rule or requirement is appropriate where relief is reasonably necessary for a firm to provide a product or service on a level playing field, and where exemptive relief is found to be consistent with the interests of the public and the protection of investors,” the letter added. “ By contrast, exemptive relief would not be appropriate where relief would merely be more convenient or less burdensome or would provide a competitive advantage.”