Market maker giant Citadel: Tokenized securities are not an innovation safe harbor and should be strictly guarded against regulatory arbitrage.
Bloomberg reported that Wall Street market maker Citadel Securities this week sent an open letter to the cryptocurrency working group of the U.S. Securities and Exchange Commission (SEC), strongly urging regulators not to provide exemptions for tokenized securities and to maintain regulatory standards consistent with traditional securities markets. The letter clearly states:
In short, while we strongly support technological innovations that can genuinely address market inefficiencies, attempting to use regulatory arbitrage to issue 'similar' securities is not innovation.
Citadel stated that they are concerned that tokenized assets will draw liquidity away from traditional markets, fragment them, and confuse investors about the sources of such products. The company also mentioned: 'This move could provide private companies with another option for raising funds, further shrinking the already sluggish IPO market.'
As one of the largest market makers in the world, Citadel's statement carries weight and represents the traditional finance's tough stance on asset tokenization.
SEC Expected Exemption: Is Tokenized Equity Innovation or a Regulatory Loophole?
Citadel's concerns are not without reason. Crypto-friendly SEC commissioner Hester Peirce stated several weeks ago that tokenized securities still fall within the category of securities and should be subject to existing securities laws, suggesting that market participants discuss with the SEC to explore the possibility of 'appropriate exemption clauses.'
On the other hand, SEC Chairman Paul Atkins has also repeatedly expressed support for researching the 'innovation exemption' for tokenized securities, emphasizing that the SEC should not obstruct market innovation by replacing rules with enforcement and hopes to promote the revival of the IPO market.
As crypto companies rush in, who can stand on equal footing with traditional brokers?
Equity tokenization refers to issuing traditional stocks as digital tokens via blockchain, allowing users to trade 24/7 and benefiting from fast settlement and fractional investment among other advantages. Platforms like Coinbase, Kraken, and Robinhood have successively expressed support or launched such services, with some operators even focusing on private tokens for unlisted companies like OpenAI or SpaceX.
Further Reading
Two major exchanges launch on-chain U.S. stocks! 60 tokenized stocks available for purchase, accessible to global users.
Once approved, this will allow crypto companies to offer blockchain-based traditional stock trading and compete directly with traditional financial brokers, which inevitably raises concerns among Wall Street giants about the dilution of traditional market liquidity and the rigor of anti-money laundering (AML) and know your customer (KYC) measures in the tokenized market.
Last month, the Securities Industry and Financial Markets Association (SIFMA) also warned the SEC not to hastily approve requests from crypto companies to issue tokenized securities. Citadel also suggested that a public roundtable forum be held to incorporate opinions from various industry stakeholders and carefully assess the costs and benefits of policies.
Next Steps in On-Chain Finance: How Can Innovation and Regulation Coexist?
Even with the rising opposition from Wall Street, the development of on-chain finance seems difficult to stop.
A few days ago, as crypto giants like Circle and Ripple actively applied for trust bank licenses, several U.S. banks and credit union associations also jointly urged the Office of the Comptroller of the Currency (OCC) to hit the brakes, arguing that crypto companies lack the capacity and experience to operate trust businesses, highlighting the concerns of TradFi giants regarding the rapid advancement of crypto companies.
Now, the balance between financial innovation and systemic stability also falls into the hands of the SEC.
This article is republished with permission from: (Chain News)
Original title: (Market Maker Citadel Warns SEC: Tokenized Stocks Will Siphon Liquidity from Traditional Markets, Regulatory Standards Must Be Consistent)
Original author: Crumax
'Citadel warns: Tokenized securities will siphon liquidity from traditional markets; regulatory arbitrage must be strictly guarded against!' This article was first published in 'Crypto City.'
