SEC Commissioner Peirce: Innovation exemption is tailor-made for on-chain stock trading, drawing a clear line with DeFi.

BlockBeats news, September 17 — U.S. Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce issued a statement on the Commission-approved "innovation exemption." The exemption is a temporary, conditional arrangement that allows "tokenized securities venues" (TSVs) to trade NMS "National Market System" stocks on-chain: TSVs provide automated market maker liquidity pools and set participant admission standards, and are exempt from the "exchange" definition under the Exchange Act; specific providers supplying liquidity to TSVs are exempt from the "dealer" definition. Issuers that do not want their stocks traded on a TSV may opt out. The exemption is directed at U.S. persons, and both existing institutions and new entrants may participate. Peirce emphasized that the Commission does not presume that parties relying on the exemption necessarily constitute an "exchange" or "dealer," but instead wants to first observe who is using it and how they are using it before making regulatory judgments.

Peirce clearly delineated the boundaries of the order: this is not about decentralized finance. Truly decentralized systems driven by automated software would not raise the fundamental securities-regulation concern that the intermediary in which investors place trust may be foolish, careless, or compromised; investors using permissionless smart contracts for peer-to-peer transactions simply do not need an exemption. TSV is only one model for on-chain securities trading, and the Commission is open to other models; on-chain trading models that can comply with existing Exchange Act requirements may not need an exemption at all.