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Cryptocurrency ETF: SEC wants to facilitate tokenized products

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The US Securities and Exchange Commission (SEC) wants to facilitate tokenized exchange-traded funds (ETFs), according to Chairman Jay Clayton. The agency is working with other US regulators to determine how to regulate different crypto products.

SEC open to ETF tokenization

SEC Chairman Jay Clayton spoke about the commission’s approach to regulating crypto products at a panel discussion hosted by the Digital Chamber of Commerce earlier this month. The event, titled “Two Sides of the American Coin: Innovation and Regulation of Digital Assets,” also features Acting Comptroller of the Currency Brian Brooks.

The SEC “is actively working on regulations that may one day allow crypto versions of ETFs,” the Financial Times reported Friday, citing Clayton. The SEC is working with other US regulators, such as the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), to determine which regulator has jurisdiction over different crypto products.

Clayton pointed out that the utility of the token is what decides which regulator should take the initiative. While banking regulators should oversee tokens intended specifically for making payments, such as certain stablecoins, Clayton said ETF tokenization should be within the purview of the SEC. Emphasizing that the SEC should and is willing to regulate them, he said:

Our door is wide open, if you want to show how to tokenize the ETF product in a way that adds efficiency, we want to meet you, we want to facilitate that. Of course, you have to register it and do what you would with any other ETF.

“Tokenization enables a designated cryptocurrency asset – similar to bitcoin [BTC] – to represent a single security, such as a stock, or a basket of securities, such as a fund or an ETF, ”explained the Financial Times.

Wisdomtree Investments CEO Jonathan Steinberg told a separate panel at the same event that token investments are “an opportunity to do something better than the ETF.” Franklin Templeton Investments filed documents with the SEC last year for a government money market fund with both traditional and token stocks, according to the publication.

Clayton says the SEC’s regulatory framework “has proven itself … through many innovations.” Noting that today trading is electronic and traders are using digital inputs rather than share certificates as they did 20 years ago, he asserted, “It may very well be that these become all symbolic. ” However, the president warned, “But you have to stay true to the principles,” adding that stock issuers and insiders, for example, all have responsibilities. He described:

One of the problems we had is that we got off on the wrong foot with this innovation… I think now, three years later, four years later, we’re in a much better situation.

“There was the theory that because it was so effective because it could have so much promise, we could put aside some of those principles of accountability and transparency,” he recalled. The president now says, “We see the promise of blockchain technology, distributed ledger technology, bringing efficiencies to what I say is a time-tested framework.”

One of the areas Clayton and Brooks discussed is how to clearly define what a title is. “If you’re not trying to fund your network, you’re not trying to give people feedback on your network, it’s probably not security,” said the SEC chairman. “But if what you’re trying to do is fund the building of your network with your token or provide people with a return for network usage with your token… it’s pretty clear that it’s a security.” He added, “We are working to make it clear where these lines are so people can evolve the payment system.”

The SEC chairman continued, “What we don’t like is when someone says, ‘You know the function is the payment, you should really look beyond the securities laws. ‘ I can’t do that, you know, I wouldn’t do my job.

What do you think from Clayton’s point of view? Let us know in the comments section below.

Image credits: Shutterstock, Pixabay, Wiki Commons

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