House Committee Readies Hearing on Tokenized Securities Trading Rules

According to committee material, the hearing will  “examine how tokenization is being used in our capital markets and whether existing securities laws and regulations adequately govern these activities.” Also on the agenda: whether “potential regulatory gaps, ambiguities, or duplicative requirements… could pose risks to investors or hinder innovation.”

Witnesses listed as of Monday include Kenneth Bentsen, CEO of the Securities Industry and Financial Markets Association (SIFMA); Summer Mersinger, CEO of the Blockchain Association; Christian Sabella, managing director of the Depository Trust & Clearing Corp. (DTCC); and Christian Sabella, EVP of Nasdaq. Other witnesses could be added by the time of the hearing, according to the committee.

The two bills would, in part, codify guidance already issued by regulators. In January, the SEC said tokenized bonds and equities remain subject to securities law, even if stored on a blockchain. Earlier this month, it stated that most native-crypto assets are not securities under the law.

Related: Tokenization is Accelerating. US Oversight Must Keep Pace

Also this month, the SEC and CFTC announced a joint-cooperation agreement to coordinate their respective oversight and enforcement responsibilities where their remits overlap.

The committee is also chasing moves by Nasdaq, NYSE and DTCC to modernize exchange infrastructures to accommodate trading of tokenized securities.

In comments to Decrypt, Austin Campbell, founder of crypto risk and compliance advisory firm Zero Knowledge, called the hearing “one battle in a long war.”  It could move legislation forward, he said, while giving committee members and staff a clearer view of how financial markets are evolving in response to crypto.

However, Andrew Rossow, public affairs attorney and CEO of AR Media Consulting, told Decrypt the witness list “skews heavily toward incumbents and industry trade groups,” which “shapes what the hearing can actually surface.”

Conspicuously missing from the list at least so far, he noted, is any “consumer or investor protection advocate, an academic skeptic, and a DeFi or crypto-native protocol representative.”

The bill to allow regulated financial firms to use blockchain-based records “may sound operational and uncontroversial,” but it isn’t, Rossow warned. Still unaddressed, he noted by Decrypt, are questions around the standards such records must meet, who must prove they are reliable, and how failures such as blockchain reorganizations or lost private keys would be handled, Rossow said.

As for the market modernization bill, Rossow dismissed it as a “delay mechanism dressed as action.

Neither bill, he noted, addresses the fundamental question of whether a tokenized asset is a security as a matter of law, leaving the SEC’s guidance, which could be revoked by a future commission, as the only assurance market participants currently have that their tokenized profits and losses are real.