WASHINGTON, D.C.—Benjamin Schiffrin, Director of Securities Policy for Better Markets, issued the following statement on the filing of Better Markets’ comment letter to the SEC in response to Nasdaq’s proposal to initiate tokenized stock trading:

“Tokenization—trading securities on a blockchain—will benefit the crypto industry. However, the SEC must recognize the threats to investor protection that tokenization poses.

“The biggest risk is the possible exemption of tokenized stocks from some of the rules governing stock trading—a top item on the crypto industry wish list. SEC Commissioner Hester Peirce has recognized that tokenized securities are securities. Still, it seems as though the SEC is contemplating an ‘innovation exemption’ that would render some of the laws applicable to securities inapplicable to tokenized stocks. The fact that tokenized securities are recognized as securities will not matter if the rules applicable to securities do not apply to them, leaving investors in danger when it comes to tokenized stocks.

“Other risks include:

• Investors in tokenized stock may receive a different price than in the traditional stock
• Crypto exchanges where tokenized stocks trade are unregulated
• Tokenized stock investors do not receive the same rights as shareholders

Nasdaq’s proposal seems designed to mitigate some of these risks, but it fails to justify the need to tokenize securities in the first place. Nasdaq suggests that tokenization may improve the clearance and settlement process, but it admits that that system already works extraordinarily well. Nasdaq offers no good reason for facilitating tokenized securities trading on its exchange, let alone a defense that makes it worth the risks to investors.

“It is not clear that investors want or need tokenized securities. That is what should matter to the SEC. The SEC’s job is to protect investors, not do what the crypto industry wants.”

You can find the comment letter here.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.