Cryptocurrency ETFs: SEC wants to facilitate tokenized products

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

SEC open to ETF tokenization

SEC President Jay Clayton spoke about the Commission’s approach to crypto product regulation during a panel discussion hosted by the Digital Chamber of Commerce earlier this month. The event, titled “Two Sides of the American Coin: Innovation & Regulation of Digital Assets”, also features currency comptroller Brian Brooks.

The SEC is “actively working on regulations that may someday allow cryptographic 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 token’s utility is what decides which regulator should take the lead. While banking regulators should oversee tokens specifically intended to make payments, such as some stablecoins, Clayton said tokenization of ETFs should be the responsibility 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 this. Of course, you have to register it and do what you would do with any other ETF.

“Tokenization allows for 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, “the Financial Times explained.

Wisdomtree Investments CEO Jonathan Steinberg said during a separate panel at the same event that tokenized 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 tokenized shares, the publication reports.

Clayton says the SEC’s regulatory framework “has been tested over time … through many innovations.” Noting that trading today is electronic and traders are using digital voices rather than stock certificates as they used 20 years ago, he said, “It could be very good that all of these are tokenized.” However, the president warned, “But you have to stay true to principles,” adding that stock issuers and insiders, for example, all have responsibilities. He described:

One of the problems we had was that we got off on the wrong foot in this innovation … I think now, three years later, four years later, we are in a much better position.

“There was the theory that because it was so efficient because it could have so many promises, we could have put aside some of those principles of accountability and transparency,” he recalled. The president now says, “We are seeing the promise of blockchain technology, distributed ledger technology, bring efficiency to what I say is a time-tested framework.”

One of the areas Clayton and Brooks have discussed is how to clearly define what a security is. “If you’re not looking to fund your network, you’re not trying to give people a return on your network, it’s probably not a security,” the SEC president clarified. “But if what you are trying to do is finance the construction of your network with your token or provide people with a return for using the network with your token … it is quite clear that this is a security.” He added, “We are working to clarify where these lines are so that people can mature the payment system.”

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

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

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