Integrity requires more transparency from the SEC on Tokenized Assets and DeFi
Fidelity Investments told the US Securities and Exchange Commission (SEC) on Friday that it must continue to develop a regulatory framework for broker-dealers to offer, maintain and trade securities.
The letter from the US's third-largest asset manager was in response to a call from the watchdog's Crypto Task Force earlier this month.
Fidelity said it is “crucial” for the SEC to provide a comprehensive regulatory framework and clear road rules for the trading of tokenized securities, including trading rules for tokenized securities issued by third parties.
Tokenized devices have different directory structures, legalities and valuation models, the letter says. For example, simulated real-world assets (RWAs) contain completely different asset classes, such as stocks, real estate, bonds or personal credit.
“Tokenization models differ greatly in terms of structure and rights granted to holders,” the letter says. The company explained:
“In some models, the crypto asset represents an indirect interest in the underlying security held through a security right, while in others, the crypto asset can be a collateral-based swap that can only be offered to contract participants.
Fidelity also urged the SEC to end the regulatory divide between centralized and decentralized trading systems to “consider how centralized and decentralized trading positions can evolve and coexist,” wrote the company's general counsel, Roberto Braceras.
This includes revising existing reporting rules to reflect that decentralized finance (DeFi) trading platforms and other “disparate” systems cannot provide the detailed financial reporting required by the SEC because there is no central authority.
In addition, Fidelity recommended that the SEC issue guidance allowing broker-dealers to use distributed ledger technology for ATS and other recordkeeping purposes.
Modifying reporting requirements to reflect this technological reality would eliminate the “disproportionate burden” of a decentralized system, the letter said.
The Securities and Exchange Commission, under the leadership of Chairman Paul Atkins, has repeatedly shown support for 24/7 capital markets and has given regulatory approval to financial companies to experiment with token trading.
Related: SEC interpretation of crypto rules ‘beginning, not end,' Atkins says
US regulators say that tokenized securities are subject to the same capital rules as underlying assets
Tokenized securities, which include stocks, debt securities, real estate investment trusts (REITs) and other protected assets, are subject to the same bank capital requirements as the underlying assets they hold.
This view was shared in a joint policy statement from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) in March.
“Technologies used to extract and trade securities generally do not affect capital management,” the agencies said.
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