SEC Commissioner Hester Peirce Proposes Regulatory Exemption Framework for Crypto-Related Securities Trading

U.S. Securities and Exchange Commission (SEC) official Hester Peirce proposed a regulatory exemption framework for crypto-related securities trading

The U.S. Securities and Exchange Commission (SEC) is considering a regulatory exemption framework for crypto-related securities trading, aiming to balance investor protection with technological innovation, Commissioner Hester Peirce disclosed on May 8, 2025, at an SEC event in Washington D.C.

Commissioner Peirce highlighted the importance of "sensible regulation" in maintaining the U.S. capital markets' competitiveness. She noted a 20-year decline in public company listings, attributing it partly to overly prescriptive disclosure requirements.

While stressing the need for strong investor protection, Commissioner Peirce argued that overly rigid rules could stifle business growth and deter firms, especially smaller ones, from going public. She suggested scaling regulations for smaller entities to foster competition.

A Key Focus: Tokenized Securities

A significant focus of Commissioner Peirce's keynote was on a proposed exemption order to facilitate the controlled testing of tokenized securities. These are traditional assets, such as stocks, that are digitized and recorded using blockchain technology.

The SEC's Crypto Task Force is currently exploring the possibility of granting temporary relief from certain registration rules to permit firms to experiment more rapidly with new technologies, specifically distributed ledger technology (DLT), for issuing, trading, and settling securities.

Firms operating under this exemption would still be subject to the SEC's anti-fraud provisions, ensuring the protection of investors. They would also be required to fulfill applicable disclosure mandates and maintain financial solvency.

"The contemplated exemption would be integrally conditioned. Exempted entities would comply with market integrity conditions for the prevention of fraud and manipulation," stated Commissioner Peirce at the SEC's 31st International Institute for Securities Market Growth and Development event.

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

This framework, designed for testing and experimentation in a limited capacity, is inspired by global "regulatory sandboxes" where innovators operate in live markets with tailored supervision.

Commissioner Peirce also suggested the possibility of cross-border collaboration to streamline entry for firms targeting multiple jurisdictions. She noted the need for increased regulatory cooperation in today's interconnected financial landscape.

Among the key considerations for the exemption are mandatory risk disclosures to investors, emphasis on operational transparency from the firms involved, and potentially trading volume caps to manage investor exposure.

Before the SEC finalizes the rules, the aim is to solicit feedback from industry stakeholders and the public. The structure of the exemption could adapt as the market for tokenized securities matures, and the technology used to trade these securities becomes more sophisticated.

Capital Markets in the 21st Century

Commissioner Peirce's proposal aligns with the SEC's broader efforts to modernize its regulatory approach without compromising the capital markets' integrity.

The regulator has been increasingly focused on adapting to technological advancements and ensuring optimal protection for investors in an evolving financial landscape.