Commissioner Hester Peirce Unveils SEC’s Flexible Framework for Tokenized Securities

SEC Mulls Regulatory Sandbox to Test Tokenized Securities Amid Industry Push

Commissioner Hester Peirce emphasized the need for “sensible regulation” to maintain U.S. capital markets’ global competitiveness, citing a 20-year decline in public company listings as a motivator for revisiting disclosure requirements. She argued overly rigid rules risk stifling business growth and deterring firms from going public, while scaled regulations for smaller entities could foster competition.

Central to her remarks was a proposed exemption order allowing firms to test tokenized securities—traditional assets like stocks digitized via blockchain—under controlled conditions. The SEC’s Crypto Task Force is considering temporary relief from certain registration rules, enabling firms to experiment with distributed ledger technology (DLT) for issuing, trading, and settling securities.

Exempted entities would adhere to anti-fraud measures, disclosure mandates, and financial safeguards. “The contemplated exemption would be conditional. Exempted entities would comply with market integrity conditions for the prevention of fraud and manipulation,” Peirce stated at the SEC’s 31st International Institute for Securities Market Growth and Development event.

Peirce added:

Additional conditions might include requirements to provide material and relevant disclosures to users about a platform’s products, services, operations, conflicts of interest, and risks, including smart contract risks; comply with recordkeeping and reporting requirements; be subject to monitoring and examination by SEC staff; and have adequate financial resources for operations.

The framework draws inspiration from global “regulatory sandboxes,” where innovators operate in live markets with tailored oversight. Peirce suggested cross-border collaboration could ease entry for firms targeting multiple jurisdictions, though such efforts would require enhanced regulatory coordination.

Conditions for exemption include mandatory risk disclosures, operational transparency, and trading volume caps to mitigate investor exposure. The SEC aims to gather feedback before finalizing the rules, which could adapt as the tokenized securities market matures.

Peirce concluded that dynamic regulation supporting innovation while curbing risks is critical to ensuring capital markets serve broader economic goals. The proposal aligns with the SEC’s ongoing efforts to modernize oversight without compromising market integrity.