Last week, SEC Commissioner Hester Peirce issued a statement on tokenization and the firms are pursuing digital assets that are deemed to be securities.
Commissioner Peirce is leading the SEC’s Crypto Task Force, which is caucusing with industry participants to help craft rules that support digital asset innovation while protecting consumers. Peirce has long been one of the most thoughtful supporters of financial innovation at the Commission in memory.
The comment follows the advent of the Republic’s “Mirror Tokens,” which are securities issued under Reg CF that track private securities held by the platform. Offerings under Reg CF require a notice filing and are available to retail investors.
Republic launched its Mirror Tokens product with digital assets paired with SpaceX shares or SpaceXr. The platform then went on to announce several other tokenized offerings.
While Commssioner Peirce did not mention anyone or any firm by name, the timing of the token statement was not serindipitous.
Commissioner Peirce stated that tokenized securities are still securities and market participants must consider and adhere to current securities laws. She said:
“Sometimes an issuer tokenizes its own security. For example, an operating company or an investment company could tokenize its shares. Alternatively, an unaffiliated third party with custody of securities issued by another entity might, for instance, issue a new tokenized security tied to the securities it holds or may tokenize the “security entitlements” that investors hold against the custodian. Purchasers of these third-party tokens may face unique risks, such as counterparty risks.”
Commissioner Peirce said that market participants must consider the implications of securities laws and that a “token that does not provide the holder with legal and beneficial ownership of the underlying security could be a “security-based swap” that cannot be traded off exchange by retail persons.”
While not exactly a shot off the bow, the statement was more of a polite warning for potential tokenized security swap issuers to come in and chat.
“… we stand ready to work with market participants to craft appropriate exemptions and modernize rules,” said Peirce.
If I had to guess, Republic will be in DC for Crypto Week and a trip to F Street.