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Hearing Entitled: Tokenization and the Future of Securities: Modernizing Our Capital Markets
Recorded: March 25, 2026 Duration: 4:27:09Space Recording
Full Transcription
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. The Committee for Financial Services will come to order.
Without objection, the Chair is authorized to declare a recess at any time.
Today's hearing is entitled, Tokenization and the Future of Securities, Modernizing
Our Capital Markets.
Without objection, all members will have five legislative days within which to submit extraneous materials to the conclusion of the record.
I now recognize myself for four minutes for an opening statement. Good morning. We stand at the threshold of a significant transformation in our financial
landscape. Currently, early adoption efforts in the tokenization of assets are changing the ways
that securities are issued, traded, and recorded. By leveraging distributed ledger technology to
represent financial instruments and their ownership,
tokenization has the potential to streamline processes and introduce entirely new ones,
promising greater efficiency, transparency, and accessibility.
However, as tokenization becomes more prevalent in our capital markets,
it raises very important legal and regulatory policy questions.
We must ensure that our existing security laws are equipped to govern these modern,
emerging technologies without stifling the very progress they offer.
Today's hearing provides members with an opportunity to identify regulatory gaps
and inefficiencies that could create risk or hinder investor protection and orderly market objectives.
We must foster an environment that supports growth while maintaining investor protections,
which are the bedrock of our system.
As we move forward, we must also consider the broader impact of tokenization on market integrity,
capital formation, while examining how it can enhance transparency,
efficiency for investors, regulators, market participants
by upgrading the very certain complex compliance functions themselves.
Evaluating this impact will help the committee better understand both the opportunities
and the risks associated with this emerging technology.
Today's discussion is vital to shaping the future of our capital markets
and guiding policy and legislative approaches that can support innovation and the growth of U.S.
capital markets while maintaining our position in the world and our strong investor protections.
The United States has led the world in financial innovation and it's essential that we continue
to pave the way for future advancements in a manner that are responsible and supported
by clear, effective regulatory frameworks.
In doing so, we can help ensure innovation serves the broader public interest, strengthens
market integrity, and reinforces the United States' continued leadership around the globe
in capital markets and capital formation.
I look forward to the panel's discussion today, and I yield back the balance of my
time.
Now I recognize the ranking member for a four-minute opening statement.
Thank you, Mr. Chairman.
Democrats on this committee support innovation, helping companies raise capital,
and strengthening investor confidence in our financial markets.
This has never been a question.
New technologies that convert securities into digital tokens on a blockchain known as tokenization
might be able to make stock trading more efficient
through faster settlement, more transparency,
and increased participation from global investors.
It would be a good thing to increase demand for U.S. securities and lower costs for issuers.
Democrats support technology when it delivers real benefits to American people.
However, our first priority should be to ensure that any innovation actually serves investors and businesses,
not the middlemen looking to take advantage.
Our caution comes from experience.
Leading up to the 2008 financial crisis, we were told that securitization and new financial technologies
would make barn easier, spread risk, and lift
everyone up. What they actually did was allow Wall Street to build a process that legitimatized
predatory loans, stripped wealth from middle-class homeowners, and created the conditions for the worst economic catastrophe since the Great
Depression. Working families lost their homes, communities of color were
devastated, and the people who built and sold those products walked away richer.
While creating new types of middlemen may sound innovative. In practice, it appears that tokenization also adds new fees, complexities, and risk for investors and the financial system.
When a retail investor buys a tokenized stock on a decentralized exchange and pays seven times more in execution costs than if they just brought the stock on NASDAQ.
As a former SEC chief, economics has documented.
Is that reality innovative? Is that really innovative or just predatory?
I'm also concerned about the gamification of investing and gambling associated with these technologies.
This committee has already examined how trading apps use behavioral designs to turn invested into a game.
Tokenization could make those trades faster, always on, and with fewer guardrails.
And most importantly, it is impossible for this committee to ignore the blatant corruption
from this administration. The Trump family has earned an estimated $1 billion in profit
from their crypto ventures. Just month. Crypto executives gathered at
Mar-a-Lago, where market participants paid millions of dollars to appear on stage with
President Trump's children. When officials in the government who are approving the rules also
profit from the market those would regulate. The American people rightly ask,
whose interest truly comes first? Innovation must be, should be used to strengthen, not weaken,
investor protections. Innovation should be used to help working families and build wealth and extract it from them.
And innovation should be used to learn from the mistakes of the past,
not repeat them on a greater scale.
So I look forward to hearing from our witnesses today,
and I yield back the balance of my time.
The gentlewoman yields back to recognize the chair of our subcommittee on capital markets,
Ms. Wagner, Missouri, for one minute for an opening statement.
I thank you, Chairman Hill.
As chair of the capital markets subcommittee, I'm focused on tokenization's real-world impact,
how this technology will streamline capital formation and modernize our markets. But most importantly, I'm focused on how tokenization will benefit my
constituents in Missouri and Main Street investors throughout the United States.
Tokenization is revolutionizing finance, yet regulatory uncertainty threatens to push this
technology offshore. To ensure American markets continue to set the global standard, we must
provide legal clarity to foster innovation without compromising investor protection.
By modernizing outdated rules, the SEC can encourage innovation within our existing
securities law. But let me be clear, modernization must never come at the
expense of rigorous oversight. I look forward to your insights and I yield back.
The gentleman yields back. We recognize the chairman of the ranking member of
our sub-dominal capital markets, Mr. Sherman of California. One minute for an opening statement.
Now the people who have tried to create a payment system without Know Your
Customer or anti-money laundering
are trying to create a stock exchange without Know Your Customer, anti-money laundering, or any other regulation.
This is such a bad idea that they know they can't pass it through Congress,
even though they spend more money on lobbying and campaign contributions than the next 10 industries combined.
They know they can't even get this through the SEC through a regular rulemaking process.
So they've gone to the SEC and asked for a blanket exemption, a rubber stamp,
scarcely more than a no-action letter.
If this new approach to stock transactions took place,
it would be perfect for those engaging in insider
trading. It would doom the consolidated audit trail. Sure, you might know that a particular
account number seemed to make a big trade just before the announcement, but you'll never know
who the person was behind that account and what inside information they had. This is a bad idea.
We ought to say no.
Gentlemen, he'll be back today. We welcome the testimony of the Honorable Ken
Benson, President and Chief Executive Officer of the Securities Industry and
Financial Markets Association, the Honorable Sumner Messengers, Chief
Executive Officer of the Blockchain Association, Christian Sabella, the
Managing Director and Deputy General Counsel of the Depository Trust and
Clearing Corp, John Zetka, the Executive Vice President, Global Chief Legal Risk and Regulatory Officer at NASDAQ,
and Salmon Banai, the General Counsel of Plume Network.
We thank each of you for taking time to be with us.
Each of you will be recognized for five minutes to give an oral presentation of your testimony,
and without objection, your written statements will be made part of our record.
Congressman Benson will recognize you for five minutes. Thank you, Chairman Hill. testimony, and without objection, your written statements will be made part of our record.
Congressman Benson will recognize you for five minutes.
Thank you, Chairman Hill, Ranking Member Waters, and distinguished members of the committee.
Thank you for the opportunity to testify today on tokenization and the future of U.S. securities
markets.
My name is Ken Benson.
I'm President and CEO of the Securities Industry and Financial Markets Association, or SIFMA.
The United States leads the world with the deepest, most liquid capital markets
built on a foundation of robust investor protection and market integrity.
The undergirding of that foundation is the most technologically sophisticated market infrastructure
that ensures robust operational resiliency, proven to deliver maximum execution,
quality, and efficiency, including during periods of extreme stress,
and as a result of constant investment in new technology and processes to better serve clients. As such,
SIFMA and its members strongly support innovation in the securities markets and believe new
technologies such as distributed ledger technology, or DLT, and tokenization offer many potential
benefits for the U.S. SIFMA's members and other
industry participants have been investing in DLT for more than a decade to
determine how such new technologies could benefit investors, issuers, and
other market participants across the securities lifecycle. This includes
enhancing market infrastructure, increasing investor access and choice,
and supporting more efficient capital formation. At the same time, the continued strength of the U.S. securities markets depends on preserving
the investor protections and market integrity safeguards that provide trust and confidence
to market participants.
That strength and efficiency is not an abstract thought, but it provides real benefits across
the U.S. economy, including lower cost of capital for issuers, broader access and liquidity
for investors, retirement savings, business investment, and economic growth.
As SIPPA has emphasized across a series of submissions to the Securities and Exchange
Commission, our securities markets thrive because of, not despite, long-standing regulatory
frameworks that protect investors and ensure market quality and integrity.
The goal of policymakers should be to modernize markets in a way that builds on these strengths rather than bypassing them. Developing a durable approach that is built
on existing regulatory frameworks will enable innovation to flourish and new operating models
to develop while also protecting investors and ensuring that our markets remain the envy of the
world. Specifically, I would like to highlight four recommendations. First, tokenized securities
are securities. Technology does not change the underlying definition
of the instrument.
And like any securities, tokenized securities
should be subject to the same robust investor protection
and market integrity rules that have helped make the US
securities markets the deepest, most liquid,
and efficient in the world.
Second, DLT and tokenization can deliver meaningful benefits
across the securities lifecycle, but those benefits will be realized on a scalable and durable basis
only through technology-neutral functional regulation
that protects investors and preserves market quality.
Third, there may be areas where the current regulatory framework
is fundamentally incompatible with DLT technology,
making existing requirements infeasible.
In these instances, carefully tailored exemptive relief may be necessary
to allow innovation while maintaining the spirit of the regulations
and the protections they offer.
Even then, bespoke exemptions must be narrow, transparent, time-bound,
and aligned with the intent of the underlying regulations.
They should never serve as a substitute for a notice and comment rulemaking.
Congress and the Commission must ensure regulations are calibrated to actual risk, avoiding
workarounds that undermine investor protection or market integrity. Fourth,
tokenization must be evaluated as part of a broader set of market structure
reforms that also includes extended hours trading or so-called 24-7, the
ongoing review of Rule 611 on trade-through prohibitions and other
areas of regulation in MS. Congress can play an important role, as it always has,
in supporting the responsible development of tokenized securities
markets by reinforcing that tokenized securities are securities and they should
be integrated into the existing federal securities regulatory framework not
placed outside of it. Tokenization offers real promise across the securities industry, but those benefits will
only be realized if tokenization develops in a framework that preserves investor protection
and market integrity and builds on, rather than undermines, the strength, depth, and
efficiency of U.S. securities markets.
Thank you for the opportunity to testify today, and I look forward to the committee's questions. Thank you, sir. Ms. Messinger, you're recognized for five minutes for your oral presentation.
Thank you, Chairman. Chairman Hill, Ranking Member Waters, and members of this committee,
thank you for the opportunity to testify today. My name is Summer Messinger and I am the Chief
Executive Officer of the Blockchain Association.
It's the largest crypto native trade association.
We represent the leading builders and innovators in digital assets
and we work to promote policies that support responsible innovation,
protect consumers, and strengthen U.S. competitiveness.
The central point I want to lead the committee with today is this, tokenization can help modernize American financial
markets, but we must provide clear rules that help innovation to grow here at home.
Tokenization means representing an asset like a stock or a bond on a blockchain
in digital form. Tokenization provides
expanded access to US capital markets by reducing reliance on intermediaries,
lowering transaction costs, and enabling 24-7 trading and continuous market
access outside of traditional market hours. The blockchain technologies used
in tokenization enable near real-time settlement, reducing counterparty risk by narrowing the gap between a trade and final payment.
By replacing flawed manual record-keeping processes with more transparent, time-stamped records, tokenization lowers the cost and reimagines U.S. financial markets. These are real improvements
for market participants, for investors, and for the long-term strength of U.S. markets.
To be clear, though, modernization is not deregulation. Tokenized markets should be
regulated. The question is whether our existing capital markets framework is appropriately calibrated
for how tokenized securities markets actually operate.
There's three ideas that should guide that approach.
First, regulation should focus on function, not the technology itself.
A security does not stop being a security because it's recorded on a blockchain.
This is consistent with how
financial regulation has always operated. The law regulates the activity taking place,
not the technology used to carry it out. Second, regulation should distinguish between intermediaries
and infrastructure. Traditional markets rely on intermediaries that custody assets and control transactions.
Blockchain systems work differently. Software can handle record-keeping,
transfer, and settlement without any one party taking custody or control of the
customer's assets. Rules should reflect that difference. Third, regulation should
reflect changes in settlement and risk. Traditional market rules were designed for delayed settlement and multiple intermediaries.
But when assets and payments can move together in a single transaction, those legacy risks are reduced.
A modernized framework should match the risks that are actually present.
There has already been important progress. The SEC has provided helpful definitional clarity on the treatment of tokenized securities
that makes clear that a tokenized security is still a security.
The Commission has also shown a willingness to engage with tokenized technology
through staff guidance, no action relief, and other tools.
That is the right approach, and it reflects how the SEC has
handled other major technological advances in the past. But uncertainty
remains, especially when the rules written for financial intermediaries are
applied to disintermediated systems. More clarity is needed so that oversight
remains strong without holding back better, more efficient market structure.
Tokenization is the next step in the evolution of U.S. financial markets, and the benefits are
clear. Faster settlement, lower risk, greater transparency, and broader access. The question
is whether the United States will lead this transition or allow it to take shape somewhere else. The next generation of
market infrastructure should be built here at home under the U.S. rules with robust U.S. investor
protections in a way that strengthens American leadership, supports American innovation,
and keeps the future of finance anchored in the United States. Blockchain Association and our
members stand ready to work
with Congress, regulators, and other stakeholders to help make that happen. Thank you, and I look
forward to your questions. Thank you. Mr. Sabella, you're recognized for five minutes for your oral
presentation. Chairman Hill, Ranking Member Waters, and members of the committee, my name is Christian
Sabella, and I am Deputy General Counsel and a Managing Director of the Depository Trust and Clearing Corporation.
It is my privilege to be here today to discuss DTCC's ongoing development of digital securities
and tokenization solutions, which represents just the latest instance of DTC performing its role
as a pivotal driver of innovation and interoperability across U.S. and global financial
markets. On behalf of DTCC, I thank you for the opportunity to participate in this important
discussion. DTCC owns and operates three important financial market infrastructures,
National Securities Clearing Corporation, Fixed Income Clearing Corporation, and the Depository
Trust Company, each of which are registered with the U.S. Securities and Exchange Commission as a clearing agency.
Additionally, each clearing agency has been designated as a systemically important financial market utility, or SIFMU,
and thus is subject to heightened risk management standards and oversight by over 20 different supervisory bodies globally.
As a user-owned business, DTCC's core purpose is to serve as a strategic partner to its
members and their clients in creating and implementing innovations that promote efficiency,
resilience, and interoperability across some of the most important financial markets.
In 2024, DTCC played a pivotal role in facilitating the transition of the U.S. equities market to a
T plus one standard settlement cycle and is presently spearhead facilitating the transition of the U.S. equities market to a T-plus-1
standard settlement cycle, and is presently spearheading the implementation of expanded
central clearing in the U.S. Treasury market. It is this purposeful innovation and deep expertise
that led the firm to begin developing digital asset solutions starting in 2016. These efforts
accelerated in 2024 with the acquisition of a company called Securrency,
which today operates as DTCC's newest subsidiary, DTCC Digital Assets, or DDA. DDA's purpose is to
provide institutional-grade infrastructure and products that facilitate end-to-end life cycle
processing for tokenized traditional financial assets, including those assets serviced by the SIFMUs.
Following this acquisition, DTCC's tokenization efforts have intensified, as evidenced by a
no-action letter approval from the Securities and Exchange Commission's Division of Trading
and Markets late last year.
This no-action letter approval allows for limited and targeted relief that will enable
the launch of the DTC preliminary-based tokenization service
using DDA tokenization technology. More broadly, this development will also accelerate DTCC's
efforts to deliver to its users and their clients new solutions that could ultimately underpin the
evolution of an open access and interoperable digital asset infrastructure for financial markets,
of an open access and interoperable digital asset infrastructure for financial markets,
thus bridging DTCC's existing technology and services with the benefits of transacting in
real-world assets on distributed ledger technology. If successful, this bridging of the traditional
infrastructure and DLT offers market participants the potential to optimize asset mobility and
liquidity with increased efficiencies and interoperability
across clearing, settlement, and other FMIs. Unlocking the potential benefits of tokenization
for critical markets like the U.S. public equities market and the U.S. treasury securities market
is a tremendous opportunity equal to, if not greater than, the opportunities presented by
the transition to T plus one and the expansion of central
clearing for treasuries. However, as in those prior endeavors, with great opportunity comes
great responsibility. In pursuing the great opportunity of tokenization, DTCC believes that
financial entities and policymakers should ensure that a responsible regulatory approach,
one based upon and derived from the historical approach used for traditional
assets, is applied. In practice, this means resisting calls to upend the prevailing legal
and regulatory framework. Properly tokenized assets still must constitute the same bundle
of rights and privileges that holders of traditional assets enjoy today. DTCC's perspective is that the
existing legal and regulatory approach is core to ensuring tokenized
assets deliver this outcome. At the same time, tokenization does raise the potential for asset
holders to expand upon or experience their existing rights and privileges in more efficient
and flexible ways, and we should look at efficient and responsible policy approaches to realize that
potential. In DTCC's experience, an advisable approach is surgical
and principles-based, which will ensure competition and choice for market participants,
their customers, and investors. This is the approach that informed our December 2025
no-action request and will continue to inform the innovation and deployment that we plan
to unveil in the months and years to come. DTCC is honored to have been asked to contribute
to this discussion and applauds this committee for taking a leadership role on the issue. We look forward
to continuing to work with Congress as they explore these important issues today, and I look
forward to answering your questions. Thank you. Chairman Hill is back. Mr. Zecca, you're recognized
for five minutes for your oral presentation. Chairman Hill, Ranking Member Waters, and members
of the committee,
thank you for the opportunity to testify today on behalf of NASDAQ. I'm John Zecca, NASDAQ's Chief Legal Risk and Regulatory Officer. For more than 50 years, NASDAQ has operated at the
intersection of capital markets and technology. We were the world's first electronic stock market,
helping lead the transition from paper certificates to electronic ownership, from floor-based trading to automated execution, and from
domestic markets to globally connected financial infrastructure. Throughout that
history, our focus has been consistent, protecting investors, supporting deep and
resilient liquidity, and safeguarding the integrity of U.S. equity markets.
And that liquidity is not abstract. It is fundamental to capital formation.
Research shows that companies that go public in deep competitive markets generate nearly 40%
higher capital investment and materially higher employment growth in the years following the IPO,
underscoring why market integrity and trust are essential to long-term economic growth. That's the lens that we bring
to tokenization. At its core, tokenization should reflect and change in how ownership is recorded,
not what is owned. A tokenized share is still a share. Merely changing the technology used to represent a
security should not alter its legal status, the rights it conveys, or the protections that apply
under U.S. securities laws. Done responsibly, tokenization can modernize market plumbing,
reducing reconciliation, streamlining settlement and corporate actions, and improving shareholder
engagement, while preserving the investor protections and market integrity that make streamlining settlement and corporate actions and improving shareholder engagement while
preserving the investor protections and market integrity that make the U.S. public markets the
global standard. Tokenization can also reduce real costs in the system. Processing corporate
actions is estimated to cost the industry 58 billion annually, costs that ultimately are
borne by investors and can weigh on capital formation
and job creation. But tokenization can also be done poorly, creating parallel pools of liquidity,
inconsistent rights, or uneven safeguards. Avoiding that outcome is essential. That is why Nasdaq's
approach is focused on integration, bringing tokenization into regulated markets
rather than creating parallel systems.
On March 18, 2026, the SEC approved Nasdaq's proposal to enable securities to trade on
our markets in either electronic form, as they do now, or tokenized form, applying existing
exchange rules so that tokenized securities remain fungible with their counterparts,
share the same QCIP, and convey the same rights.
Building on that framework, NASDAQ recently announced our intention to develop an equity
token design, an issuer-sponsored way for shares to be held and moved in token form
without changing what it is. It is designed to treat the digital representation
and the underlying share as a single security.
By doing this, investors keep the same core protections
and companies continue to operate under the same governance framework
while using modern technology to reduce friction
in areas like settlement workflows, corporate actions, and proxy voting.
Put simply, it's upgrading the rails underneath the stock, not creating a new kind of stock.
Congress also has an important role to play.
NASDAQ supports this committee's bipartisan work on the Clarity Act
because clear statutory guidance can protect investors, strengthen confidence in the U.S. markets,
and support capital formation by ensuring innovation reinforces
rather than fragments public markets.
In closing, tokenization should be about building on the strength of our public markets.
It should be about responsibly modernizing infrastructure
and ensuring the United States continues to lead with the deepest, most liquid, and most trusted capital markets in the world.
NASDAQ stands ready to work with Congress, the SEC, and market participants to ensure tokenization strengthens the U.S. capital markets and supports long-term economic growth.
Thank you, and I look forward to your questions.
Thank you. The chair look forward to your questions. Thank you.
The chair recognizes Mr. Banai.
You're now recognized for five minutes for your oral presentation.
Chairman Hill, Ranking Member Waters, members of the committee,
thank you for the opportunity to testify today.
My name is Salman Banai, General Counsel of Kimber Labs,
also known as Plume, a New York-based tokenization startup.
Plume is Ethereum's compliance layer,
and it's only
layer two blockchain with AML and sanctions controls at the protocol level. Our nest asset
management protocol also embeds compliance directly into tokenized assets. Since launching in June,
the Plume blockchain has attracted over 220 tokenization projects including blue chip
issuers like Apollo and WisdomTree. There is now over 350 million of value on the
Plume blockchain across 260,000 wallets, nearly half of all public tokenized asset wallets,
primarily across Southeast Asia, LatAm, and Nigeria. Plume is not available in the U.S. We
are working with FINRA to obtain a broker-dealer registration to augment our existing SEC transfer
agent. Plume and tokenization projects like it are happening today mostly outside the U.S.,
while our tokenization policy remains under construction.
Why should Congress, the SEC, and the Administration act?
The fact that most tokenized markets are outside the U.S. should concern this committee.
The demand is global and the benefits are local.
Consider a practical example.
Today, a $200 million highway expansion is funded in opaque muni bond markets, difficult
to access for the taxpayers who fund and use it. Tokenization of that project can allow people to
invest in their community for as little as $50. The state could reward civic engagement by
airdropping muni bonds to community volunteers through a QR code, as an example. The opportunity
is not just local. Over 7 billion people globally are middle
or upper income, up from 1.6 billion in 1990. Tokenization through permissionless blockchains
can channel that expanding pool of capital into U.S. markets, funding job-creating opportunities
here at home. What are our competitors doing? Hong Kong subsidizes bond tokenization after finding
it lowered yield spreads by nearly 24%.
Applied to our $200 million highway example, this represents about $4.8 million in interest savings.
Singapore does the same and leads Project Guardian, a coalition of over 40 institutions,
including the IMF and World Bank and seven other countries, not including the U.S.
Singapore, the UAE, and the EU, to name a few, are advancing
as well. The pattern is unmistakable. Our competitors are racing to capture the infrastructure layer
of global capital. How can we return to the head of the global markets? I want to express six
principles that center American investors' interests and should guide the transition to
tokenized markets and secure the U.S. as the global leader.
First, the same or better outcomes.
Section 505 of the Senate Clarity Bill gets this right.
The format of a security should not change the regulatory outcomes.
Clarity also implements this principle in Section 108,
directing the SEC to update its rules around market infrastructure,
but not outcomes, in response to digital asset technology.
Second, accountability.
Congress should ensure retail investors have the same protections regardless of which app
they use, including DeFi apps as well as super apps.
Such accountability is essential for customer protection and confidence.
Third, prioritize legislative and regulatory actions based on net benefits.
Bonds are particularly suitable products.
Indeed, competitors are providing subsidies to promote bond tokenization, but here in the U.S.,
these products are effectively banned under the 1982 Tax Equity and Fiscal Responsibility Act,
also known as TEFRA. Fourth, the Hippocratic Oath, do no harm. As Chairman Atkins indicated,
tokenized finance is incompatible with the existing well-functioning regulation NMS
framework. It will be a complex multi-year effort to incorporate tokenization benefits for public
equities. Fifth, solutions should be durable. If exemptions and no action relief is temporarily
offered, these should be milestones on a clear path toward formal lasting rulemaking or legislation.
The SEC's goal should not be deregulation by exemption,
but instead durable, modernized regulation. The EU's DLT pilot presents a cautionary tale.
Sixth, safeguards should be proportional. Scale the safeguards to the risks on chain.
Some risks, for example, associated with intermediary abuses and rent-seeking,
are reduced, while others are higher, for example, the risks of hacks and scams.
In my written testimony, I apply these principles to guide recommendations for the safe integration of tokenization into capital markets. Chairman, Ranking Member Waters, members of the committee,
tokenization is to capital what the internet was to information. With the right policy framework,
America leads this transformation. We lead global finance by driving a global race to the top, and we can do the same. Thank you.
Chairman Yul's back. When I'll turn to member questions, I recognize myself for five minutes
for questions. Much of today's hearing has focused on technical issues surrounding
how tokenization would be integrated into the existing securities legal arena.
But I want to step back and consider how tokenization could benefit just ordinary investors out there.
For example, let's say an investor in Little Rock needs to sell some shares late on a Friday afternoon for some reason. Mr. Sabella, under the current T plus one settlement rules, if she were
to sell on late on a Friday afternoon, what's the earliest day that she would see her proceeds in
her account? Thank you, Mr. Chairman. The person in question would probably expect to receive their
proceeds on the following Monday. So in contrast, you know, to the tokenized world with the idea of so-called atomic settlement
because of the use of the distributed ledger, could she have access to her funds on a same-day
basis in my example?
Yes, Mr. Chairman.
Under that example, if she was able to otherwise have a counterparty that could meet the deadline
on the same day,
yes, she would get her proceeds right away.
In the U.S., financial innovation is central to America's role as the world's premier capital market
and preserving the international standing of the dollar.
Our market attracts, as we've heard from our president, trillions and trillions of new foreign direct investment,
and they're attracted here by our regulatory system, our legal system, our capital formation system, our transparency of our market.
So as more market participants develop tokenization technology,
some in the recent years, before this past year, have chosen to do so in Europe rather than
in the United States which is a little counter messaging compared to what we normally
hear in this committee. So Mr. Benson are updating the technology rails
important to our competitive position as we obviously are going to maintain
market integrity no matter what technology we select. Yeah, Mr. Chairman, I
mean this industry constantly is investing in new technology and
has done. I mean we would not have gotten from three to two to two to one if it
hadn't been for that. We invented electronic markets, which this
committee by the way played a big role in
over the years. So this is an ever-evolving industry, and it's absolutely essential
that we are constantly evolving. But at the same time, we want to do it on the basis of the legal
and regulatory framework that we have. So some of the things that are happening outside the U.S.
are in products that are not traditional securities. Some of the things that are happening outside the U.S. are in products that are not traditional securities. Some of the things that are happening outside the U.S. are products which Congress and others have suggested are not retail products.
So there are some issues that Congress, you know, things like security-backed swaps, for instance, Congress is going to have to think about.
But legal and regulatory clarity is paramount for regulated firms to know what they can and can't do.
firms to know what they can and can't do.
Well, in just the 50 years since one of my first summer jobs was typing confirmations
at a brokerage firm using something called carbon paper, which people don't know what
that is, but so that it would be in triplicate, it was T plus five this summer I was doing
that.
So in 50 years, look at the advance of our technology and our markets.
But this point, I've heard it mentioned a couple of times today that, you know, we're,
and I like the way Mr. Zeka, I think you phrased it on, we're updating the rails.
We're using a different technology in the rails.
We're not doing something inappropriate to an issuer of a corporate
stock or people who are buying and selling that corporate stock. It's just using a different
technology. And Ms. Merzinger, I wanted to kind of talk to you about that. Placing a traditional
security on a blockchain doesn't change that underlying nature of the assets or the goals of investor protection.
I think we've got to recognize that.
I hear a lot of conversation about that, that is making a broad assumption that it does.
I argue that it doesn't.
But tell us what role decentralized finance can play in that broader tokenization ecosystem.
What do DeFi tools provide to markets and investors?
Thank you for the question.
And when I talk about DeFi, what I'm talking about is non-custodial, non-discretionary code.
And it provides the way for the market to move, for the asset to move, to settle, to be traded.
It's really the plumbing. It's the infrastructure of the market. And it
takes away, there's a lot of efficiencies involved. You remove a lot of
intermediaries that add cost to the trade and it allows for more broader
access to the markets. Oh, if all of you would sort of expand on that thought in answer to that question,
I yield back.
I recognize the ranking member for her five minutes of questions.
Mr. Chairman, before I begin my questions,
I ask for unanimous consent to submit into the hearing records
a letter from Investment Company Institute
and the North American Securities Administration Association.
Without objection, they'll be included.
Thank you very much.
Mr. Van I, the Trump family has earned $1 billion from crypto ventures,
while this administration simultaneously loosens the regulatory framework governing these same markets.
loosens the regulatory framework governing these same markets.
The SEC has dismissed or scaled back numerous enforcement actions against crypto companies,
including the most recent slap-on-the-wrist settlement with Justin Sun.
The president's family venture, World Liberty Financial, is actively launching tokenized products.
As a market participant, does this concern you?
And should tokenization enabling legislation include provisions
barring senior government officials, including the president
and their immediate families, from holding financial interest
in tokenized securities platforms.
Thank you, Ranking Member Waters, for that question.
Public confidence in our institutions is at an all-time low.
There are currently laws and regulations on the books that are intended to prohibit conflicts or the perceived conflicts of interest
involving public officials.
When it comes to the administration,
the question is whether current oversight and enforcement,
as well as legislation, is adequate to address concerns
that would otherwise
ensure public confidence in our institutions.
I'll say that public confidence in institutions is also eroding
because of a perception that Congress and the administrative branch,
the executive branch, are not adapting to new realities.
And digital asset legislation being among them.
These debates about digital asset legislation have now been circulating in D.C. for many years.
And so we would encourage Congress to look at the merits of pending market structure legislation,
as opposed to ethical and not letting concerns around ethics get in the way of making incremental progress.
Further, Section 505 of the Senate Clarity Act establishes a critical principle
that a security does not stop being a security simply because it is issued, recorded,
or transferred using distributed
ledger technology. NASA, which represents states' securities regulators, has urged Congress to
maintain this provision as drafted. Do you agree that this principle should be preserved in any
crypto or tokenization legislation Congress advances?
I think Section 505 does a great job of expressing congressional intent
that the format of security does not change the substantive requirements around it.
Mr. Benson, Symphom has submitted multiple comment letters to the SEC's crypto task force
making a point that I think this committee needs to hear clearly.
Your organization has argued that the regulatory framework for tokenized securities
should be established through formal notice and comment rulemaking,
not through the whole no action letters or broad exemptive relief.
Can you explain to this committee why that distribution matters
and why the process for which we build these rules is just as important as the substance of the rules themselves?
Thank you, Congresswoman.
We're aware that there have been requests to the commission to make material changes
or ask for exemptions that are quite material in terms of the application of the existing securities rules,
securities laws, and as such we think it's only prudent that those be put out for notice and comment
because they'll affect the broad securities market.
And it's not, you know, the SEC puts out, you know, numerous proposals throughout the year on rulemaking,
and we think this should fall in that category.
The importance of robust rulemaking is very important to us as we try to develop legislation.
And I want to know whether or not there is something specific that you think we should be paying attention to.
Well, I think we should be paying attention to any efforts,
either through exemptive relief or no action relief,
that would create very material exemptions under the securities laws, under
things like Reg NMS, for certain market participants that don't apply across the entire ecosystem.
Your organization has argued.
We'll continue the questions, perhaps, in writing.
Thank you very much.
I yield back.
I thank the ranking member.
The gentleman from Michigan, Mr. Huizenga, who's also the vice chairman of this committee, is now recognized for five minutes. Thank you to my
colleague from Ohio. Mr. Benson, good to see you again. Appreciate your time here. So how can the
SEC balance the need for technological flexibility with the rigorous oversight required to maintain
the highest standards of market integrity? I mean, I don't think anybody questions that we need to have a rigorous integrity to the market.
But how does the SEC balance that?
Well, I should say, at the outset what I would say is I think the SEC right now is doing what they should be doing
by creating a task force and inviting stakeholders, the public,
to comment on how they think the rules should apply for whether, you know, what's a security, what's not a security.
You take it that Mr. Atkins is running a very inclusive.
Very much.
We simply filed over a dozen letters to that.
We have another one that's in the works now.
Other stakeholders have as well.
I think that's a very appropriate response.
And then I think as the SEC believes within their authorities where they believe there
are certain round peg square holes where a certain rule for securities will not work
for something on DLT or in DeFi.
And again, there's very important definitions and we can get into intermediaries versus
infrastructure.
I would argue intermediaries are infrastructures in many cases.
Then they have to think about do they need to go in and do rulemaking?
Do they have to come to Congress and ask for additional authority? But they're doing the investigation work now, and that's the right approach.
Okay.
Obviously, our capital markets are the envy of the world.
Our liquidity, the depth, all of those things make it very attractive.
But is there a risk to just maintaining the status quo?
Well, I wouldn't say our markets have been static or at the status quo.
Our markets are constantly evolving.
Again, if you think back, we didn't have electronification of the equities markets 30 years ago.
That work started this committee.
You look at when this committee started the work that ended up in what became Reg NMS,
and we can all talk about what we like and don't like about Reg NMS,
but today retail investors in most cases pay no commissions.
They have the cheapest execution they've ever had before.
We've gone, as the chairman said, from T5 to T1.
It wasn't easy.
We ran that with ICI and DTCC.
So this market's always evolving.
You're seeing the adoption of DLT.
It's taken longer than I think people thought in the securities market, but it's happening.
And so it is possible to maintain innovation and protection of consumers.
A hundred percent.
Right.
And obviously market integrity has to reign supreme and all that.
has to reign supreme and all that. Mrs. Messinger, Mr. Zeka, should we view tokenization as the next
natural evolution of our capital markets like electronic trading? Are there aspects of
tokenization that create novel problems unlike what we've seen in the adoption of other technologies?
Ms. Messinger. Thank you for that question that question and yes it is an evolution
versus rewriting the system so I think it's a natural evolution I think that's
where we're headed of course there's going to be challenges with any time of
you know change in technology but I think the SEC has the tools to overcome any challenges that they face
and put into place a system that will provide appropriate customer protections
while allowing this new infrastructure to take root.
Mr. Zekka, I want to hear from you, but I'll just note that last month,
eight Chinese government agencies issued a joint notice reiterating their domestic ban on cryptocurrencies and cracking down on real-world asset tokenization, restricting it onshore without prior approval and tightening controls on cross-border activity.
That's not where we want to go, is it?
No, it's not.
And I think the key is if we think about it as a technology evolution and not a new product, then I think things flow much more consistently.
You say, all right, we still need investor protection.
A stock is still a stock.
It hasn't changed.
We're still worried about fragmentation of liquidity.
We want to make sure the capital formation is not impacted.
We want to make sure that the investor knows,
am I getting the full rights of a stock or am I getting something else?
If I'm not, there should be disclosure.
And then the markets that trade it should be, if you're trading the same instrument,
you should be regulated in a similar way.
And what we're seeing now is the products are developing overseas and they tend to be
not full equity.
They tend to be a synthetic product that is not ownership.
It's not always clear that investors fully understand what they're buying.
So what we want to do is bring it in.
Why is that?
Well, it's a question of disclosure and regulation.
Part of it, I think, is regulation.
Like, what is the regulation that applies in these foreign jurisdictions?
And there is some bleed, I think, where American investors find ways to invest there.
So what we're saying is get the regulatory structure here in the U.S., make sure they understand what they're buying,
and try to have interoperability so a retail investor can still take advantage
for trading of the markets that they know,
the stock markets that are fully regulated.
My time's expired. I yield back.
Thank you, Mr. Huizinga.
The gentleman from California, Mr. Sherman,
who's also the ranking
member of the Subcommittee on Capital Markets, is now recognized for five minutes.
I'm flabbergasted that there's even the possibility of making a change this big,
not through legislation, not even through notice and comment rulemaking,
but the industry has just asked for a complete exemption from all the rules
with a rubber stamp. We could see digital receipts where a company claims to have a thousand shares
of Apple stock in reserve and issues a thousand tokens, but maybe they'll issue two thousand
tokens. We could even see derivative where they don't even claim to have any reserve,
any Apple stock, but they just say their Apple coin is worth as much as Apple stock. As I mentioned,
this would kill the consolidated audit trail and provide a wide open system for insider trading,
and exchanges must monitor and surveil for manipulative trading activity, including spoofing,
front-running, and wash trading.
There's no equivalent in this tokenized system.
Mr. Benson, by the way, welcome back once again to this room.
The United States is the deepest, most liquid capital markets in the world.
States is the deepest, most liquid capital markets in the world. As a result, broker-dealers are
subject to rigorous know-your-customer and anti-money laundering requirements to prevent
our capital markets from being used as an arm of illicit finance. Are you concerned that granting
this exemptive relief for tokenized securities would open the door to our capital markets being
available to money laundering?
Well, I think that Congress should be concerned and policymakers should be concerned that
everyone active in financial markets is abiding by the existing BSA, know your customer rules.
And so that's an issue that as we're thinking about tokenization, as we're thinking about DLT,
we're thinking about any exemptive relief or even DeFi, that policymakers need to understand
where KYC, BSA rules can apply and if there are gaps, how you're going to deal with them,
because that becomes more of a national security issue that is in your...
There is a tremendous power in Washington to let people
make huge amounts of money by opening giant gaps in the Know Your Customer and anti-money laundering.
There's huge money to be made in being the financial services subpart of the industry
to provide aid first to the drug dealers and the human traffickers and the
sanctions evaders, and then eventually to the tax evaders as well. Exchanges provide transparency
regarding fees, conflicts of interest, access, user segmentation, order handling. There'd
be no requirements for unregistered DeFi systems enabling bad actors to charge investors exorbitant
fees and use opaque, conflicted, discriminatory order handling practices. Furthermore, broker-dealers
are required to obtain BEX execution for customer orders and also provide extensive disclosures
regarding order routing decisions and execution quality. There would be no equivalent requirements for unregistered
DeFi intermediaries, meaning that conflicts of interest can pervade the execution process
as an intermediary can manipulate transaction ordering. Mr. Benson, how can we ensure that
the introduction of tokenized securities does not raise new best
execution investor protection or market manipulation concerns? Well I think
applying the existing rules again a security is a security whether it's
tokenized whether it's book entry or whether it's paper which virtually
nobody has and hasn't for a long time and so all these rules are very important
so you shouldn't be exempting that by virtue of technology. And I have to say with all due respect,
where we've been concerned about issues around DeFi where you have
intermediaries or infrastructure, again, infrastructure or intermediaries are
infrastructure often. If the infrastructure is doing the same thing
that a broker-dealer does, if it's routing, if
it's being compensated for that, if a custodian is acting as a custodian as
opposed to pure self-custodian, and they're also providing order selection,
order routing, that's the same thing. And that's what the SEC and
maybe ultimately Congress has to figure out is how you draw those lines and definitions.
But if you're doing the same thing as somebody and you're being compensated for it, then
you should be regulated as such.
I'm concerned that we're creating a two-tiered market where tokenized securities and blockchain
platforms are exempted from core securities regulations. We've learned over the last hundred years we need these regulations.
And to turn to the tech bros and say, go fleece investors, do whatever you want,
because you're cool, you're hip, and you're electronic, is absolutely absurd, and I yield back.
Thank you, Mr. Sherman.
The gentleman from Oklahoma, Mr. Lucas, who is also the chairman of the Task Force on Monetary Policy, is now recognized for five minutes. Thank you, Mr. Sherman. The gentleman from Oklahoma, Mr. Lucas, who is also the chairman of the Task Force on Monetary Policy, is now recognized for five minutes.
Thank you, Mr. Chairman. Mr. Sabella, the DTCC announced at the end of last year your
intention to enable the tokenization of a subset of U.S. Treasury securities. How do you anticipate
this technology affecting the broader Treasury market? Thank you for the question, Congressman.
So initially I think we're looking at this, as some of my co-panelists have described,
as a very evolutionary process.
And so while Treasury securities are being contemplated as part of the suite of potential
assets that our members or their customers could come to ask us to tokenize, we have
a wide range of instruments.
And I think in terms of how this will spread out to the broader treasury market structure,
that still remains to be seen.
At FICC, we're very focused on the treasury clearing mandate in terms of regular way transacting.
We think at a point in the future, maybe there will be a convergence between what we do at
FICC and tokenization of treasuries at DTC, but it's still a little bit too early to tell. Okay. NASDAQ recently conducted a survey
that showed that 50% of firms plan to manage tokenized collateral by the end of this year.
Mr. Vinica, what other insights can we learn from that survey, and how are market participants
already utilizing this technology?
Well, I think the regulatory certainty that we're talking about here will help adoption,
but you've seen in the asset management space, you've seen in the ETF space, you're seeing a lot of ways that new products can develop. And so I think what we're saying and what we're
focused on is really drawing those products and that innovation into the regulated space,
creating products that are available for retail investors, that retail investors understand,
that meet the expectations for the protections that they expect.
So I think you will see an acceleration of that.
There's still some things that need to be worked out.
We were talking about where settlement goes in the long run and timing.
I think that's a real question. There are questions on netting and, you know, there are value chains that
I think are important. The piece that I would like to mention, if I could, is the issuer side. So on
the issuer side, the real value from a tokenized security can be that corporate actions can be
digitized on the record. Proxy, the proxy process can be also handled through the blockchain.
And as I think most people know, the process is very Byzantine right now.
At mass scale, that could be a real cost save for issuers.
This topic also raises important questions about how to integrate new technology into existing market regulations.
Our capital markets, I think we would all agree, are the envy of the world,
and certainly we must safeguard that status.
Mr. Benson, what is the benefit of diverse industry input
as the regulators in Congress seek to apply investor protections
and market integrity principles to the new technology?
Thank you. It's very important.
I mean, hearings like this are very important and hearing from all the stakeholders
and then finding out where there may be instances,
again, where you have a square peg round hole
and the rules aren't gonna work,
but if you're gonna change those rules,
do it through notice and comment
and change it for the entire marketplace.
Ms. Merzinger, would you like to speak to that as well?
And as a former regulator, how can the SEC and the CFTC be good partners to all industry shareholders?
Thank you, Congressman, and thank you for your years of support for the CFTC.
I really appreciated that when I was there.
These are tools the CFTC. I really appreciated that when I was there. These are tools the
regulators use. Of course, notice and comment, rulemaking is very important, but sometimes
you have to have an iterative approach to regulating, and it's not unusual for the agency
to use things like no action, relief, use theirive authority, to create the appropriate regulatory structure
that will then go to rulemaking.
So I think it is eventually, notice and comment,
rulemaking is kind of the gold standard,
but it takes time to get there,
and this is how we've done this in the past.
And I think on the SEC-CFTC cooperation,
what you're seeing now is exactly what needs to happen.
They recently signed an MOU.
They're working hand-in-hand.
They're issuing guidance together, and I think that's what we need in the market to make sure that people are clear of where the rules are for them.
And with that, I yield back, Mr. Chairman.
With that, I yield back, Mr. Chairman.
Thank you, Mr. Lucas.
Thank you, Mr. Lucas.
The gentleman from Massachusetts, Mr. Lynch, who is also the ranking member of the Subcommittee on Digital Assets, is now recognized for five minutes.
Thank you, Mr. Chairman.
First of all, I want to thank all of our witnesses for your help on this.
This is a big deal.
It's a big deal, tokenization.
It's going to change a lot.
I think it is, you it is inevitable in some degree.
But our current U.S. markets are the best in the world because they're trusted.
They really are.
And those regulations that we have encourage that.
But I want to talk about NMS 611, just the order protection rule.
I know that, Mr. Benson, you mentioned that
in your opening statement. So under Reg NMS right now, we try to make sure every customer
gets the fair price, right? Best available price in the market. And that is possible because of
the regulatory requirements we have on trading venues.
They've got to be transparent.
They've got to post the best possible price.
They have to look at the other markets.
And so that customer knows they're getting the best possible price.
It prevents pass-through trades as well,
where in this age of high-speed trading,
if you were able to get a customer to pay a higher price,
you could resell it at another, and then you make money on that.
So it introduces an opportunity for scams.
That's not possible in this system with tokenization. You've got unaffiliated issuers who are out there, you know, selling it,
and it's very, very difficult for them to figure out in the market what the best possible price is.
So that's the essence just on a single transaction level that I have problems with.
Now, there is some suggestion that the SEC might give an exemption on that.
And, Mr. Benson, is that sort of where you see this going?
I just don't see how this works in a tokenized world,
especially if you have people doing the traditional trading
method and then you also have people trading that same security on a tokenized basis through
blockchain. So that's an important question. I'm sure my colleague from NASSAC will have some views
on this as well. So a couple of things. First of all, I think you're spot on. I do think tokenized
securities that are treated as securities under the rules that we have today,
that you could live in a 611 NMS world.
I don't think there's any question about that.
The other thing, though, and the SEC has talked about,
they've had two roundtables now to look at this.
We participated in one of them.
Our view is more if you're going to change 611,
you're going to have to change a lot of other things in Reg NMS.
You're going to have to go think about how best execution works, which is very important.
Not to say you can't do it, but you've got to.
And the issue, the concern, our members have, depending on how they're structured, what their business model is, have different thoughts about this issue.
But core to it is, particularly for our retail oriented members, is how can they show
their clients what their execution quality has been, and that was one of the intent, part of the
intent behind it. So the concern, the other concern that you raise is very important, I think, and I
think John mentioned this in his comments, is if we end up with the same security, the same name,
trading in parallel unlinked markets, Because today under NMS, the equity markets
all have to be linked. Everything has to report into
the SIP. So you have displayed
routing from the
broker as well. And if you don't have that, even
in, we can talk about 24-7, because we have
24-7 today, but we can talk about, if you
have the same security trading in different
pools of liquidity, at different
price transparency, if I'm an
issuer, I'm going to be concerned about
it. But if I'm an investor, I should be concerned as well, because I'm not getting the best
displayed price. Right. So this goes back to this idea of an exemption or a broad exemption
on a certain rule. And I tend to favor this process where we look at an individual rule and
we figure out how do you protect the consumer,
how do we maintain the integrity of our markets at the same time where we onboard some of this
technology. That seems to be the challenge here. And so if you get broad exemptions on the part
of the SEC, I think it, you know, we lose that opportunity to look at the rule-by-rule analysis that I think is required to maintain those competitive markets.
We haven't talked at all about, and I know there's too much going on, but the whole settlement process.
You get a lot of people down in Manhattan that are doing a lot of this settlement process,
and I see the jobs going away if we go forward with this in a big way with further
adoption. Is anybody anybody get any thoughts on that? I mean it's probably efficiency but it's
just you know when your job goes away. Yeah I think with any new introduction of technology
there is a change in how companies including companies like ours may do business but at the
same time new technology usually offers new opportunities and new functionalities that didn't exist before, and people need to do those jobs as well. So I
think it might be a mixed outcome. Thank you, Mr. Chairman. I yield back. Thank you, Mr. Lynch.
The generalwoman from Missouri, Ms. Wagner, who is also the chairwoman of the Capital Market
Subcommittee, is now recognized for five minutes. I thank the chair. The United States has the
deepest and most liquid capital markets in the
world. So many of us have said that on this day as today. As one of our economy's greatest strengths,
they have helped make America the premier destination to start and grow a business.
However, global competition is intensifying, and other jurisdictions are actively modernizing their financial systems to attract investment.
Mr. Benson, how does the tokenization of traditional assets directly support the international standing of U.S. capital markets?
Thank you, Congresswoman. I think this is part of a long evolution of the U.S.
innovating its market infrastructure and market operations, which is one of the reasons why we
lead the world. And as I go around the world and meet with other policymakers and work with my colleagues around, Europe, the UK, Asia are all trying to do what we do here.
They have problems that are getting in the way of that.
We don't have to talk about that.
But they're all looking at the U.S. markets.
Europe is trying to create a SIP.
They're trying to create a consolidated tape that we've had here for years.
They're trying to build a broader retail wealth environment
like we have here where more than, you know, 60% of households are invested in the market in the U.S.
So people are looking at what we have here. We need to be careful not to import things that are
inconsistent with what we built in the U.S. So we need to think, while they may be developing new products with technology that can be
interesting, we need to make sure that they're fit for purpose for the market.
But we want to get ahead of them.
We are ahead.
They will take our standards, our models.
I would put our markets against anybody's in the world.
Agree.
Mr. Zekka, NASDAQ just launched a new equity token design
that puts public companies at the center of the process. For a Main Street investor,
that is the, for a Main Street investor, I'd say, what is the practical difference between holding a
traditional share of an S&P 500 company and its tokenized counterpart?
Well, thank you for the question.
I think the core thing is we want it to be about flexibility for the retail investor,
not because there's something, a better price or something like that.
So the goal for our product is to essentially make it a technology differentiator,
not a new product.
So some people have wallets that they have, you know, they're maybe younger, maybe more
tech savvy, but they have wallets, they have investments in digital assets.
This is a way to connect and bring those assets back into the regulated markets.
If they can transfer those easily into these tokens, the token is subject to
all the know your customer, all the compliance controls. It goes to a broker process. It's
subject to surveillance. It really protects the investor. Exactly, exactly. But it gives them a
choice because there is going to be a subset of your constituents who want to trade that way.
Let me ask you a second. How can exchanges and regulators ensure that price discovery and liquidity
don't become fragmented between traditional securities and tokenized ones?
Well, probably two core ways.
One is the product itself to try to avoid.
There's the risk of synthetic products and other things that aren't really securities
trading out there, and they're going to trade at different prices and so we're saying look make it
a stock is a stock or if it's not as the Senate bill says make the disclosure
very clear so that's one the second is to avoid parallel markets and walled
gardens where some securities are trading but you but a retail investor
can't access them so make sure that all markets are subject
to the same rules. Quickly, I'm running out of time. Mr. Benson, SEC Chair Atkins has discussed
an innovation exemption to help harmonize blockchain with existing laws. The securities
industry and Financial Markets Association, or SIFMA, has cautioned that broad exemptions are no substitute for comprehensive
rulemaking. Given that major firms are ready to tokenize, how can the SEC craft an innovation
exemption that provides the legal clarity firms need to stay in the U.S. without creating a
permanent two-tier system where tokenized assets have different investor protections than traditional assets?
Well, we've conveyed to the chairman and his staff that we think the best approach on doing this,
and we've had a lot of discussions, as have many stakeholders, and we can compliment them for doing that,
for opening the door to do that, but that they should put it out for notice and comment
so stakeholders can see what the impact of this would be before going final.
We'll see what they do. Obviously, at the balls in their court, but we have
weighed in considerably, as have all the stakeholders. And again, I give them
credit for opening the door to hear from this. My time is expired. I thank you. And
if you'd like to elaborate, that would be great. I yield back. Mr. Chair. Thank you,
Mrs. Wagner. The gentlewoman from Ohio, Ms. Beatty, who is also the ranking member of the National Security Subcommittee, is recognized for five minutes.
Thank you, Mr. Chairman, and thank you to our ranking member.
I'm going to start with that, as the sitting chair just said, where he chairs that committee, and I serve his ranking.
I'm going to frame my questions kind of around that, because I think most of us are on the same page with this.
We just want to make sure that we're protecting the security, the integrity of the markets,
and we have the appropriate guardrails there.
So my first question is to you, Mr. Bunai or Mr. Benson.
Mr. Bunai or Mr. Benson, we've seen that certain crypto products have become an avenue for fraud,
for investment scams, money laundering, et cetera. How do we ensure that tokenized assets do not
similarly become another avenue for fraud targeting unsuspecting investors? Talk to me about
what are the challenges that law enforcement may face in investigating
illicit activities. So if you follow the rules that you have in the books, and we think you can
run to tokenized securities on the laws and rules that we have in the books, there are multiple
avenues through reporting requirements, through oversight, through CIPIC protection for lost and stolen securities, through KYC AML rules, and ultimately if something goes wrong, that there's somebody
on the other side of that transaction that you can hold accountable, you can go to the
regulators. If you have none of that, then you have nothing. And so those are the key
things. So that's why we think if it's a security, regulators are security, tokenization
is just the next iteration of the technology by which securities are meant.
I can follow up on that.
One of the recommendations that we included in detail in our written testimony
is to extend the same protections we have for customers using broker-dealers
to the retail apps that use DeFi technology, on-chain technology,
which would provide an additional touchpoint for regulation and transparency for the regulator.
Right now, we don't have that layer of regulation, and addressing that, I think, should be at the
core of Congress's considerations on market structure legislation.
I'll add to that that there is now some case law.
There's a Coinbase case that the SEC won on most of the issues,
but one issue they lost on was on the SEC's authority to regulate the Coinbase wallet
and its trading functionality as a broker,
and that just makes the need for legislation all the more important. This is a good time for me to segue into another question.
I'd like to follow up on the ranking member's question when she was addressing the issue of,
do you think that President Trump's involvement in crypto gives the appearance of conflict?
And the reason I'm following up on this, we've on both sides talked about guardrails, integrity.
And when you think of, while it appears to me and many others, that this administration is loosening crypto's regulation,
loosening crypto's regulation, the Trump family has earned like $1 billion,
and Trump has surpassed something like $62 million just in the first half of last year with crypto.
So I'd like to dig deeper.
Do you feel that that has the appearance of conflict?
Thank you, Congresswoman.
I think the ties between the Trump family and this industry has unfortunately created a cloud
over the legitimacy of moving forward on this important market structure legislation.
I believe Congress should think seriously about the gaps that exist under existing law
and how to address those, in addition to looking at the lack of enforcement power
under current law, which could potentially still be applied and why it hasn't been applied.
I take that kind of as a yes, you know, conflict, the cloud.
So I think that sends a strong message to us,
and I thank the ranking member for opening that door for us because certainly we want to make sure that we do the due diligence for oversight
and for having those guardrails.
Let me just try to get one more
question in. I've heard from some that anti-money laundering compliance is impossible
on permissionless blockchains. Your company has built AML and sanctioned screening directly
into your blockchain's infrastructure. Can you talk about that and describe how that works in real
practice? And you might have to give it to me in writing because I only have two seconds.
Yes, so I'll just give you a data point. So we did a scan of how many transactions
were screened in our blockchain. Our blockchain deters, obviously, these bad actors. And it's
currently about 0.00005%
of the transactions have been blocked, and this is
using the same commercial providers that are
saying one to one to one.
I would encourage the gentleman to respond in writing.
Time has expired.
Thank you. I'll give back.
The gentleman from Kentucky, Mr. Barr, who is the chairman of the
Financial Institutions Subcommittee, is now
recognized for five minutes.
Well, thank you to all our witnesses, and no doubt tokenization of securities is coming.
It's here, and our modernization of our securities regulation is required,
both in terms of preserving that gold standard of investor protection,
but also making sure that the United States is leading the way.
I wanted to tease out maybe perhaps a source of tension between Mr. Benson's point of view
and Ms. Mercinger's testimony here today. And maybe there isn't tension, but I want to kind
of get at two pieces of testimony. Mr. Benson, first of all, I think you make a great
point when you say securities are securities, whether they're tokenized or not, or look more
traditional, and that tokenized securities should be subject to the same robust investor protection
and market integrity rules that have made the U.S. security markets the deepest, most liquid,
and most efficient in the world. You do acknowledge the square peg round hole point, but the overall point is that investor
protection regulations need to remain.
But then, Ms. Mersinger, you make a very good point as well.
When you say requirements designed to manage settlement delays, counterparty exposure,
and reconciliation across multiple entities may not be necessary in a tokenized world,
blockchain-based settlement models illustrate how changes in infrastructure can reduce or eliminate
certain forms of settlement risk. Therefore, regulations should remain calibrated to the
risks that are actually present rather than those associated with legacy market structure.
Is there a disagreement there?
And I'll ask Mr. Benson, do you acknowledge that with gravitation to the blockchain does eliminate some of the risk with intermediaries and therefore regulations should evolve accordingly?
So it depends, right?
So and here's how I will come at it.
I'll break it into two parts, intermediaries and I'll break it into settlement.
So in settlement, if the issue is that going to – anytime you reduce the settlement cycle,
there's no question that you're reducing risk in the system to a point.
And certainly we reduced a lot when we went from two to one. Atomic settlement, real-time
settlement, can reduce some risk, but it may introduce other risk. And it may introduce
other risks in terms of things like securities lending, which is a key function in the marketplace,
issues affecting prime brokers and the like. So those are things we talked about when we
were doing T1 that we were involved with TTCC.
So that's one.
On the intermediaries, I would go back to infrastructure
is often an intermediary.
Infrastructure providers are often intermediaries.
And so if they are doing the same function,
and I know the argument's been made,
if it's pure code, autonomous code that has just been put out there, there are no humans
involved so because there are no humans there's no risk to mitigate, there's no risk of malfeasance.
But there is risk that the code doesn't work and there is risk and also if the code is
being paid to order route, to do the same functions, to act as a true custodian and
being paid for that, then they're basically doing the same thing. So I think that's where the
tension is from our standpoint of where do you draw the line.
Ms. Mersinger.
Thank you and I actually I think there's a lot of areas where with Mr. Benson and I
probably agree which is as we both stated a security is a security even if
it's on chain and those rights and responsibilities and consumer protections that are baked into a
security will continue as they go on chain.
Some of the issues that he highlighted, I think where I might think a little differently
on this, is because of those reasons, because there are questions around, you know, how does the
risk shift?
What happens if something goes wrong?
That's why we need an iterative approach to regulating in this space.
That's why I think it is really important for the SEC to use their no action tools,
their exemptive authority to take an iterative approach to regulating this space.
Notice and comment rulemaking will come once that's established.
Last question.
As the financial institutions chairman, I got a lot of questions from community banks
about DeFi and blockchain.
Community banks, as you know, serve as the foundation of small towns and local economies,
but they've been at a disadvantage compared to large institutions when it comes to access and capital markets.
Could tokenization actually level that playing field for community banks?
Ms. Mersinger?
Yes, thank you. I think that's a great question. I grew up in a small town. My mom worked at a community bank.
I know how important it is to a small rural community. And yes, there's a lot of opportunity there.
small rural community and yes there's a lot of opportunity there you are you're
you're taking costs out of the system and that's going to broaden the access
and so I think there's a lot of opportunities for community banks to
begin using DeFi technology for their act for some of their their time has
expired thank you thank you mr. Barr gentleman's time has expired. Thank you.
Thank you, Mr. Barr.
The gentleman from Illinois, Dr. Foster, who is also the ranking member of the Financial
Institution Subcommittee, is recognized for five minutes.
I will yield to Mr. Vargas, who I believe was in line.
He's recognized Mr. Vargas.
I'd recognize Mr. Vargas instead for five minutes.
Well, thank you very much.
I appreciate it. Mr. Chairman, ranking member, again, thank you very much.
And to the crowd here today, thank you.
I think that this has been excellent, actually, a very good hearing.
two things I want to talk about the issue of technology and risk with the
Two things I want to talk about, the issue of technology and risk.
issue of technology first I agree with what my good friend and colleague said
that we have these fantastic capital markets because of trust people trust
them I think that investors trust them and I think that we have to continue
with that trust so mr. Zeke I go you, although you did say this, you said a stock
is a stock by any other name, I believe, in your testimony. Apologies to Shakespeare.
That's right. You did write this in your written testimony, like the transaction from paper
certificates to electronic book entries decades ago, tokenization done right,
can enhance efficiency, transparency, and engagement across the life cycle of security
without weakening the regulatory framework or the rights that investors and the public companies
expect and rely on. Again, the trust that Mr. Lynch. So are we going to have the same trust or is there going to be a
diminution of trust? Well, I think it's the way tokenization is done. It can be done right and
it can be done wrong. If it's done right, it's drawing it into the existing market with the
same regulatory structure, the same set of rights so you own the same stock. It's just in tokenized
form. So in that context, everything we've talked about,
all the protections, all the way the capital markets function would exist. So that's one
scenario that I think is good. Where there could be concerns is there are other ways to do it,
where you start to create synthetic instruments, which are certain rights, but not the ownership.
People may not realize whether or not they get dividends. They don't get voting rights. In that context, and it's largely overseas right now, but in that context
it is a different instrument. And so an investor certainly at a minimum needs to know what they're
getting. And so there needs to be full disclosure of that. They may choose it, but that's a different
instrument. But in the world we're talking about with a tokenized
security stock, a tokenized share of Apple, let's say. The idea is to give them exactly the same
rights and the same experience when they trade as they would normally get. So in a sense, it
wants to be like what the chairman talked about, going from the old carbon paper to basically computerization.
Exactly, like paper to digital as we did with electronic shares.
All right, I would like to switch then to risk.
This is what former acting comptroller Michael Zhu warned about,
the potential unintended consequence of tokenization.
He said, to the extent tokenization reduces settlement frictions,
it will also accelerate the velocity of banking and finance.
The characteristics of bank runs are changing, and banks and regulators need to adapt accordingly.
We need to develop better brakes to keep banks safe and sound to mitigate systemic risk.
I was here, obviously, when the three CEOs came and testified, Silicon Valley Bank,
Signature Bank, and Republic. And the CEO of Republic Bank said something that was very
interesting to me. And he said, I'd had customers that were with me forever who trusted the bank.
But once the panic hit, they were able to move billions of dollars out, and there wasn't much
we could do. And the amount of money that moved out of those banks almost instantaneously was incredible,
a real run on the bank as opposed to how it used to be.
What is the risk here?
Are we forgetting some risk here that could be problematic because of this velocity?
Zika, why don't you try it first?
Go ahead.
I'll try it first.
We don't operate a bank, so I'm less familiar with that.
But I will say the thing you want in that situation from a trading perspective
is to have deep liquid markets that can withstand the shock.
And I think you've seen the U.S. capital markets handle those situations very well.
And so, again, if you keep that liquidity pool together,
then the experience, whether it's a tokenized security or a non-tokenized security, should be the same.
But I would defer to others on the banking.
Yes.
I'd just add a couple of things.
In the securities markets, you have things like in equity markets, as opposed to the
SVB, you've got limit up, limit down.
You've got circuit breakers.
You have things when there's confidence issues or panics going in the market.
You have segregation of assets.
You have 15C33 so that the customer's assets are segregated.
It's a little bit different than the way the banking system works.
Right, but if you get some illiquid, some of the derivatives you're talking about,
or some illiquid assets that you're getting from other places and you tokenize them
and put them into our market, if you were able to move those quickly, I mean, it could shock the system.
I don't know. That's what I'm thinking. You have to take a look at all the potential risks. With that, my time is up, and I thank the chairman.
Thank you. I yield back. Thank you, Mr. Vargas. The gentleman from Texas, who's also the chairman
of the Small Business Committee, Mr. Williams, is now recognized for five minutes.
Thank you, Mr. Chairman. And we've heard today how tokenization can modernize our capital markets, including faster settlements, reduced counterparty risk, more efficient movement of capital.
Shortening the settlement cycle can free up liquidity, reduce costs tied to delays, and allow capital to be put to work more freely. For a small business owner operating on tight margins like myself, I'm a small business owner in Texas. Tokenization can
translate into better financing, more predictable cash flow, and lower costs. So Ms. Mersinger,
how could tokenization and a shorter settlement cycle benefit Main Street businesses?
Thank you for that question. I think the overall kind of theme here is that it reduces the advantage of scale.
So you have lower cost, broader investors available.
You kind of level the playing field between the small businesses and the large Wall Street
businesses.
And the other kind of piece to this that I think is really interesting
is this idea of fractional ownership
where you might be able to invest
in something that you normally
wouldn't be able to invest in
because of the cost
that now you can
because of the fractional ownership.
So I think there's a lot of opportunities
for small businesses.
Also, it broadens their access
to the capital markets as well.
Thank you for that answer. The strength of U.S. capital markets has been built on a combination
of deep liquidity, strong investor protections, and a regulatory framework that promotes transparency
and integrity. As tokenization develops, global competition is accelerating with other countries
and jurisdictions acting quickly to establish clear frameworks
and attract innovation.
And I am concerned with the risk that regulatory uncertainty here in the United States could,
frankly, push innovation offshore.
So, Mr. Benson, to you, how can we create a regulatory environment that encourages innovation
and tokenization here in the United States while also ensuring that we don't compromise transparency, integrity, and investor confidence?
That's a great question. And I would say, I do want to say one thing. You can buy
fractionalized shares today. Many of our members offer fractionalized shares,
whether it's in high-priced stocks, whether it's Tesla, Berkshire Hathaway,
whatever it was. So that's a market innovation that is in the U.S. today. It's
like 24-7 exists today.
Most people don't take advantage of it.
But I think the other thing, Congressman, is I would step back and look at what's already happening.
I mean, DTCC made an investment 10 years ago in digital partners, and now they're expanding what they're doing.
NASDAQ is doing a partnership with Kraken and doing that.
Nice New York Stock Exchange is doing the same.
Firms that are digital native firms like Kraken and Coinbase have now registered as broker-dealers
so they can do tokenized securities while the incumbent firms, the Wall Street firms,
have been looking at tokenization on everything from equities to fixed income for many, many years.
So I would argue that this is happening.
Now, we have done an analysis of the securities laws, and in most cases, we believe almost all of those are fit for purpose for tokenization.
In a couple of places, there might need to be adjustments.
We don't need to throw the baby out with the bathwater here. We need to let, I mean, this is a very
innovative industry, and we're taking advantage of it.
Okay, thank you. Much of the conversation around tokenization has been focused on trading
and market infrastructure, but issuers sit at the center of our capital markets, and
companies rely on those markets to raise capital, manage their stockholder base, and support long-term growth.
Tokenization introduced the possibility of rethinking how ownership is recorded
and how issuers interact with investors across the life cycle of security.
So, Mr. Zeka, quickly, could you walk us through how issuers are thinking about tokenization,
their shares, and what benefits they have set from having more direct control over that process. Well I think that
that's a critical question and just to give you one sense of a stat for that
small community bank that you were talking about, a average corporate action
costs the industry about thirty four million dollars because there are a
hundred and ten thousand touch points across all the shareholders because
there's such a Byzantine system behind the scenes to reach shareholders. There
is a route with blockchain and of course it has to be adopted at scale to do it,
but there is a route where there's a much more streamlined connection. You
could see a world where issuers can speak directly to their shareholders who
want to be engaged and I think there's no more loyal motivated stakeholder base for a company than its shareholders. So I think there's no more loyal, motivated stakeholder base for a
company than its shareholders. So I think there's huge opportunities there. What we want to avoid
are situations where, because we have different instruments under different regulations,
there's competition for capital that hurts the ability of companies to raise capital and create
jobs. That's the thing we have to keep in mind. Thank you for that. And I yield my time back,
Mr. Chairman. Thank you, Mr. Williams.
The gentleman from Illinois, Dr. Foster, who is the ranking member of the Financial Institutions
Subcommittee, is now recognized for five minutes.
Thank you, Mr. Chair, and to our witnesses.
It seems like one of the big branch points that has to be decided here is once things are tokenized, are they gonna be traded on a private permission blockchain
or a variety of public blockchains,
which often allow anonymous participation
through self-hosted wallets and things like that.
And in the second option,
it seems like it must be technically very difficult
to establish things like position limits
and stuff like that where you actually don't know the true owners of wallets that are owning a lot of
these. What's the approach that's been taken so far and what are the proposed approaches
for that sort of problem? It seems like in the conventional markets there is one regulator
who knows the true identity behind both participants of a trade so you can identify front running
and wash trades and all these sort of things that are a threat to a lot of the tokenized
or the crypto world.
I was just wondering, what is the approach taken so far on that?
Is there a uniform KYC for all participants?
I can only speak to what we're working on. I would say we're working in the permissioned world where on the blockchain you would have the KYC information, the controls,
and the corporate governance and everything is embedded in there and can't be overridden. So
from that perspective, we would be... You have no anonymous participants. Correct. Essentially.
Are there other approaches that are being talked about or taken that are likely to happen?
I can comment at least on the tokenization solution that we're starting to develop,
largely what Mr. Zeka said in terms of wanting to impose some degree of identifiability onto the activity.
But that could also potentially happen on a so-called permissionless chain.
happen on a so-called permissionless chain. In particular, if in the tokenization protocol
itself, you basically embed the identification and the compliance features for KYC and AML.
So under our approach, we will be looking basically for our participants and their customers
to bring chains and wallets to us that lend themselves to being able to practice the KYC,
AML identification that folks
here have described as being very valuable, which we agree with.
And so we would then, and this is speaking to an intermediated solution, certainly there's
options for less intermediation, but we would come in and basically act as the party that
helps do that mapping and maintain that mapping for compliance with existing rules.
And I can speak from a more permissionless environment.
So the way we've gone about it is embedding, as it relates to AML, is embedding AML and
sanctions screening at the token level.
So regardless of where a particular tokenized asset may trade or be transferred, it can
be freezed if it ends up being flagged
as being connected.
But is there in the systems you envision, is there a regulator that can see the true
identity of participants to identify wash trades?
So when it comes to wash trades, that's a market surveillance issue.
And right now we are working with FINRA and some commercial vendors in order to extend
on-chain native surveillance capabilities, which would then be augmented under our proposal
through the regulated DeFi brokers, which would then be capturing KYC information to
enhance the attributions of the wallet owners.
But does that, to answer my question, is there a regulator that can see the true identity behind all? Not at present. Not at
present. Do you have any technical solution in sight that might allow that
to happen? And if not, how do you prevent wash trades, front-running, you know,
violations of market positions and stuff like that? You know, everything that we've
learned the hard way is necessary to have a well-regulated system. Do you have technical solutions that could implement that?
Yes. There are vendors out there, both vendors that provide services into the traditional
markets that are now capable of ingesting on-chain data as well as on-chain native vendors.
So the world you anticipate will have a regulator that can actually identify wash
trades and things like that.
There will be someone that has full visibility into the true identity, legally traceable identities,
you know, everything that's necessary in our markets.
Absolutely.
Yeah, the proposal that we've detailed in our written testimony includes a proposal for FINRA
to operate a surveillance system because these are, you know, transparent markets,
and they would have the capability of extending market surveillance. FINRA to operate a surveillance system because these are transparent markets.
And they would have the capability of extending market surveillance.
So they will know the true identity of every wallet that's operating for any of these tokens
will be traded.
They will know who owns that wallet and be able to identify them.
That's the sort of…
For U.S. markets, that would be the case under our proposal.
But will you allow international participants into this?
If you have a technical write-up on that that you could get for the record
I'd be interested in seeing how you're really going to map that sort of an anonymous
pseudonymous system onto a sort of regulated system that we've learned the hard way has to be implemented
Yeah, that's an important question and I'll be happy to follow up with you on that. Yeah, thank you
Thank you, Dr. Foster.
The gentleman from Georgia, Mr. Loudermilk, is now recognized for five minutes.
Thank you, Mr. Chairman.
Thank you all for being here today.
Very important subject.
Mr. Benson, before we act or Congress acts, I think it's important that we know exactly
where we stand.
So simple question, does the SEC already have the authority it needs to oversee tokenized securities?
Yes, I believe so.
Okay.
To the extent there are gaps, how much can be addressed through exemptive relief,
no action letters, or guidance versus what actually requires Congress to act?
In our analysis, we think they have, as it relates to securities, tokenized
securities, we think they probably have the authority that they need.
Okay, all right. Ms. Mersinger.
Just with one exception.
Sure.
There's been discussion of products that are not true underlying
securities, tokenized products that are like reference products,
which by law may not be allowed in the United States.
And in that instance, the Congress would have to take that up.
So with that caveat.
Okay.
I appreciate you.
Clarification there.
Ms. Mersinger, Congress acts in conjunction with the SEC and CFTC on tokenization.
Where do you think
we can be most productive?
Thank you for that question.
And I think the support of the agencies is very important.
I would point to the Section 507 of the Clarity Act, which was requiring a study between the
agencies to look further into tokenization and see what kind of regulations
need to develop in order to make sure that these markets maintain the safety and soundness
and the customer protections that exist.
So I think Congress has done some good work here, and I believe continuing as you work
through market structure, you'll see the kind of the
support for the agency that's most important.
So for this committee, what is the single most important thing you think we should do
to get the regulatory framework correct?
Yes.
I would say to get past market structure legislation, clarity or something else, it's
very important that we have that to provide the clear rules of the road for the industry.
Okay.
Anyone else?
I think, again, I think in our analysis we believe for tokenized securities, true securities
that are allowed under the law in the U.S.,
that the SEC has probably the authority that it needs.
They may find some areas where they don't, and in that case they have to come back for Congress.
Where Congress should be acting, though, and is, which I personally think a good thing,
is for non-security products, non-commodity products, and you know better,
in some cases the CFTC doesn't have the authorities, particularly with retail investor protections for spots, commodities that the SEC has.
That's where Congress needs, where there clearly are some gaps for these new innovative products that are not securities, may not be commodities, and the law is not clear.
And even for what we might call traditional finance, the law is not clear in how they might engage in those on behalf of their clients.
So there are areas where Congress does need to take a role.
Okay.
Thank you all, Mr. Chairman, I yield back.
Thank you, Mr. Latimer.
The gentleman from Illinois, Mr. Kassin,
is now recognized for five minutes.
Thank you, Mr. Chairman.
Thanks to all our witnesses.
So it strikes me that like most of the things
that we're talking about here
in terms of the way that markets have to work
are essentially accounting problems, right?
Who's the buyer?
Who's the seller?
Where's the clearinghouse?
What's the settlement process?
And tokenization at its best
is a boring accounting conversation, right?
If we can do that faster,
if we can have better accounting, that's great.
The minute it becomes not boring and not accounting,
I get really, really nervous.
And I guess Mr. Zek, if I'm understanding right
what you've done at NASDAQ,
proposing tokenized trades,
you're still going under DTC rules,
it's the same sort of settlement.
Is it safe for me, and I don't know, Mr. Savella, if you want to chime in,
would I be accurate in describing what you're doing as a boring accounting change to NASDAQ rules?
Yeah, I would say it's an interesting technology upgrade, and I think it is bringing the system forward.
technology upgrade, and I think it is bringing the system forward. But yes, I don't think,
again, we're looking at it in the context of upgrading, not creating new products or new
systems. Okay. So this now brings me to this innovation exception, which scares the Dickens
out of me because it's neither boring nor accounting. And look, there's this talk about like, oh, it's innovation.
We shouldn't get in the way of innovation.
Having conversations about what might happen in the future if we ignore what's happening
in the present is not innovation.
That's stupid, right?
And so we have seen when Trump did this tariff announcement, we saw this massive deleveraging event in the
crypto space, largely because those DeFi platforms did not have the kind of checks in place.
They didn't have the market stops.
They didn't have the rules that markets have learned through hard experience.
Somehow this narrative that like, well, if software does it, it's fine.
Auto deleveraging cost 1.6 million investors $19 billion.
The idea that somehow like a human-created SOP
is incapable of human error is dumb, right,
and hugely irresponsible.
We've seen tokenized stocks trading at massive variances
to what the actual underlying security is.
Tokenized Apple traded at a 12% premium to the stock price at one point.
And I guess, Ms. Merzinger, since you've been the advocate for tokenized securities here,
put yourself in the shoes of Apple's auditor.
If you're closing your books and the tokenized Apple security is trading at a wild difference
from what they're trading at on the nice, what do you use to calculate stockholders equity on their books?
Is there any confusion in that question but that you would use the public
security? Well I think what this is pointing, what you're pointing out is
there are a lot of questions left unanswered and I think that's why it is
No, but I'm just asking is there any place where someone who is actually a
boring accountant is going to look at that tokenized value as a better representation of value
than the security that's trading through markets like Mr. Zekas with those controls?
That's the oversight we're hoping that the SEC can offer because these are securities.
Okay, which does not yet exist.
So then we're back to why are we even having this conversation about an innovation exception?
We've seen that the DeFi markets are failing to put the rules in place that you all have learned through hard experience.
We've gone through market crashes. We've got all these rules in place to do that.
What is the innovation exception that – what is the innovation we're trying to achieve if our goal is boring
accounting and we've got boring accounting pretty well and the markets
like Nasdaq seem to be figuring how to do boring accounting pretty well, right?
Because the last thing we want to have is something super exciting that brings
all the markets back in here to say something exciting just happened in the
market that's not particularly boring and we've got a bunch of political
pressure now to talk about it. Mr. Benson, can you – I don't know if you're as – where you sit with my own view that innovation exemptions are dangerous,
but if we're going to do something on the innovation exemption, can you talk about what sort of guardrails you would at least like to see in the DeFi space
to ensure that there is absolutely no difference in the price of these securities
and it isn't an arbitrage opportunity and we're not creating these kind of risks to investors.
I think, well, that's all a reason to put, we think, to put it out for notice and comment
in the first place so we can see exactly what it is the SEC is thinking about.
And then we think there should be guardrails, and those guardrails could be certainly time limitation,
who could have access to that, if it's high net worth, whatever it may be.
We don't really know until we know what the exemption looks like.
Does it apply to all registrants versus just a limited group?
So, again, all reasons we think to put it out for Comet to see.
But, again, I'll restate.
Some of the groups who have been asking for exemptions have now figured out that they can register as broker
dealers. And so they've shown that they can live under the existing framework.
And I don't, to your point, I don't think we want to import some of the market
practices in the non-securities world into the securities world. The gentleman's
time has expired. Appreciate you, I yield back. Thanks, Mr. Kasten. I now recognize myself
for five minutes.
Mr. Sabella, today's market structure relies on intermediaries like clearinghouses and part of a settlement that is not instantaneous,
which creates counterparty risk, and those institutions are designed to manage that risk.
If we move to a model where transactions settle atomically or, you know, real-time settlement,
where transactions settle atomically or real-time settlement,
effectively eliminating that counterparty exposure,
would you agree that one of the core risks to the systems
that is built significantly around is reduced in this new model?
Thank you for the question, Congressman.
So, yes, I do agree that in a sort of so-called atomic or T0 settlement environment,
in particular, market risk is reduced.
What you still
have to contend with, and some of the discussion we've had so far has hit on, is heightened
operational risk because you're really relying on that technology to be there to perform accurately
and consistently and to scale when you need it. The second is liquidity risk, which still exists,
and intermediaries still can play a role in helping to basically ensure there are no drops
in the transmission of assets from one to the other. Things move so quickly now. Obligations move so quickly now.
You need to ensure you have enough resources in the system, in the right place, at the right time.
Technology can help do that, but intermediation is the coordination of that technology that still
remains important. Yeah, thank you, and thank you for highlighting liquidity still there. And, you
know, we saw that, for example, when Robinhood, you know highlighting liquidity still there and you know we saw that for example when Robin Hood you know is still doing
broker-dealer, they've made it in a much more consumer-friendly way but if you
remember the GameStop short squeeze that resulted in a lack of liquidity, those
things could be heightened and you know Mr. Benson you highlighted you know or
really suggested that if of course there would never be such a thing as malicious software,
which reality is maybe there could be.
So you do need systems to safeguard it.
And Mr. Kasten highlighted that even when the software is designed right,
there could be some rapid changes in the market.
So I think the thoughtfulness that's going about tokenizing securities makes sense.
And I think Chairman Atkins is doing a great job.
Commissioner Peirce has been very thoughtful on this for years.
We've been set back for a long time, though, because, frankly, Gary Gensler wanted to prevent any kind of real progress on the commission.
And a lot of the companies wanted to just be deemed not securities.
They were working to be not securities, and that interfered with the people that really did intentionally want to be a security in getting
the clarity. The Commission didn't provide the regulatory clarity there. So, Mr. Zucca,
you're moving forward and trying to develop a way where people can intentionally work
with securities. And when you talk about some of the things that some of my colleagues have
brought up about, you know, things that aren't securities,
well, of course, those things don't necessarily have all the same rules that you do have for our securities.
So whether it's tokenized or not, let's say we have a tokenized future, and now tomorrow, or let's make it Monday, you know,
so that we have the weekend for the radical change.
Monday morning, markets open, and 100% of it's tokenized.
Would the accredited investor rule be gone?
If it's a future or if it's a...
I mean, I'm for a future where we change that radically.
Since it's your money, you should be able to use it.
I'm not talking about the markets we should have.
I'm just saying, hey, if the only thing that we changed is tokenized,
would we change the accredited investor rule by tokenizing these things?
No, I don't think so.
Would you change the regulations for broker-dealers?
Would you eliminate the requirement of know your customer?
Would insider trading instantaneously now be legal?
All these things that we're talking about are still critical features of the market,
but fundamentally the technology is changing. And that's been a constant in our market.
The technology does change and adapt.
And now you suggest, as I have long advocated, that there are some other changes that we
might make because they're not really fair or efficient.
And the accredited investor rule is one of those.
And so Ms. Merzinger, I think you've highlighted some of the challenges. You look at the rulemaking, even if we pass the Clarity Act and it comes through, there's
still a lot of rulemaking to go through.
So how do you see that playing out and how does that affect markets as they're really
awaiting the certainty of a final rule?
Thank you for that question.
And that's a great point.
You do need certainty for these entities while they're awaiting rulemaking, which can take
a very long time.
So that's why there are other tools available at the SEC, at the CFTC to guide markets,
to guide the activity to make sure that they're following the law while they get to the place
of rulemaking.
So this is why we have no action relief,
why we have exemptive authority.
And one thing just to mention on exemptive authority
I think is really important for everyone to remember is
this isn't an exemption from everything.
This is, you are getting certain tailored,
tailored kind of rules to the technology that we're talking about now.
So at the end of the day, you're still under the SEC's regulation.
You're still abiding by rules that the SEC lays out.
Thank you for that. I appreciate it.
And I now yield back, and I recognize the gentlewoman from Massachusetts,
Ms. Presley, for five minutes.
Thank you very much, Mr. Chair.
As we're talking today about tokens and digital assets, I just want to, for those watching at home,
just really center the American public and my constituents of the Massachusetts 7th.
You know, it seems everything and everyone is being attacked except for affordability.
And people are really struggling.
They are struggling to pay for their rent, groceries, gas, and medical bills.
They are exhausted by the constant chaos coming out of this White House.
And Donald Trump and his co-conspirators are making millions at the expense of everyday working people.
Trump and Republicans in Congress are continuing to try and weaken the SEC
and make it harder for them to protect investors and consumers.
Mr. Banai, you worked at the SEC and CFTC, and now you work in digital finance.
Previously, you mentioned that you think regulators could have played more of a role
in shaping these emerging technologies years ago.
Can you just expound and elaborate on how the SEC, the Securities and Exchange Commission
could have exercised oversight of these technologies and protect consumers?
protect consumers?
The same decisions that the current SEC is thinking about could have also been, those
authorities could have been exercised under the last administration.
A different strategy was undertaken and we could talk about it sometime.
But I think the hardest thing for the SEC to do right now is, for example, looking at the whole myriad rules under Reg NMS,
including the Order Protection Rule, which was mentioned earlier, and conducting industry outreach and roundtables
in order to try to understand how we can bridge the gap between, for example, the public price feed, the securities information processor, the SIP,
and on-chain based trading.
For example, integrating data both on-chain and off-chain through connectivity between
the SIP and U.S. regulated liquidity pools.
These are all issues that can be surmounted, but it requires extensive
fact-finding, and I would encourage this SEC to engage in that fact-finding alongside the
other efforts it's doing. Otherwise, it's going to lead to the same lack of progress.
Thank you. Thank you, Mr. Benai. Mr. Zekka, I'm interested in NASDAQ's approach to tokenization
as a way that empowers shareholders to hold companies accountable.
Are you working with consumer groups and advocacy organizations or other stakeholders on that goal?
And how can interested parties like myself be involved?
Well, thank you for the question.
You know, we're not directly in touch because we're sort of the exchange.
We're not with the end customer.
I do know that there are intermediaries
who do speak to various groups.
And we're happy to demo our technology for anyone.
All right.
We'd be happy to reach out to you separately.
I'm going to take you up on that, Mr. Zekko.
On the record, would you commit to working with my office
as we move forward in that process?
And I just really do believe as we innovate
that we have to have advocates and impact the consumers.
They should be at the table.
Okay.
Will you commit to that?
Yes, I'm happy to work with you.
Okay, excellent.
Happy to work with you.
All right.
Mr. Benson, as a former member of Congress, I know you understand the importance of the public trust.
Do you agree that there should be laws around digital assets so members of Congress or the president, for example,
cannot unjustly enrich themselves
or abuse their position. My time is short, yes or no?
Yes, we're on record saying Congress should write rules around digital assets that are not securities.
Okay, all right.
For the record, I'm certainly not against innovation. I have introduced
legislation to advance financial technology in a way to protect consumers, not harm them,
evade the law, or enrich the pockets of the already wealthy and well-connected. As we
innovate, we should not exploit and leave communities behind, and we should not let
Trump continue to make money and put our economy at risk by changing or not enforcing the laws created to protect consumers.
Thank you, and I yield back.
Bill's back.
Chair recognizes the gentleman from Wisconsin, the chair of our subcommittee on digital assets,
artificial intelligence, Mr. Stile.
Thank you very much, Mr. Chairman. Thank you all to our witnesses for being here.
Blockchain technology is helping modernize our capital markets. I think we all agree on that.
If you think about the history from kind of the ticker to the digital terminal,
each leap in communications breakthroughs, expanded access, improved efficiency,
and reduced costs.
But history also shows us that regulatory hostility can stall innovation and weaken American leadership in this space. Our capital markets have long been the envy of the world and
led because we've consistently upgraded both our market infrastructure, but also importantly,
upgraded our rule books.
And that means providing clear rules of the road for innovators developing new base layer technologies and applications, as well as some integrators combining those tools with,
in some cases, centuries of market expertise.
If we get this right, I think we can uphold the core principles of capital formation,
liquidity and investor protection, while making
the regulatory upgrades needed to sustain them in a rapidly evolving financial system.
Let me begin with you, Mr. Zecca and Mr. Sabella. Your firms recently proposed a rule change
and no action relief, respectively, from the SEC to undertake tokenization projects.
I want to get your view here.
Do these actions appropriately address the regulatory gaps needed for you to undertake
these market upgrades?
And if not, what does Congress need to do or what does the SEC need to do?
And I'll start with you, Mr. Zeke, if I can.
Sure.
I think in the immediate term, the answer is yes.
So the SEC approved the rule, and so now we're working on the technology
side and working with our partners, including DTC, on that. In the longer term, as this develops,
because I think that was part of your question, I think there are areas where CFTC coordination
and things like that we're going to need work there. I think the sandbox question that's come
up has been critical as well. Yeah, I would echo what Mr. Zekka said. And I think for us, the no action relief we have is
to a sort of base version of the tokenization. It's limited number of equities. It's sort of
limited to our members and their customers. It runs on a three-year period. During that three-year
period, we'll be looking to support stakeholders like NASDAQ and others in the market to give choice and competition.
But once we get to the end of that three-year period, we're hopeful we would provide more comprehensive answers about solutions.
Thank you very much. imperative that we continue this dialogue between us here, the Financial Services Committee, the SEC stakeholders to make sure that we're getting this right with the opportunity to
expand the scope as we look for additional efficiencies in embracing the technology.
Let me shift gears. I'll come to you, Ms. Merzinger. One of the things we haven't,
we can't discuss tokenization without talking about
decentralization and the innovation happening in DeFi. You have a lot of background experience in
this space. The lack of the intermediation, the lack of intermediation poses some really novel
legal and regulatory questions for trading and custody of securities. It really in some ways spins on its head kind of our framework with which we've
thought through this over the past hundred years. Can you just comment how
decentralized exchanges complement or can coexist alongside the traditional
market structure and what are the benefits of a decentralized trading?
Thank you for that question and I just want to make sure when we talk about DeFi what we're talking about is permissionless, non-custodial, non
discretionary code. So this is a technology that's going to improve the
markets, it's going to bring faster settlement, it's going to reduce costs
because there's not the intermediaries. And just like with electronic trading, these technologies can operate side by side in a regulated space.
And eventually you'll see the evolution of the markets going to the more efficient system,
such as using DeFi for these trades.
So I think what you'll see is more efficiency from them, lower costs, and really less risk because of the settlement time.
I think that's right, and that's what we're all going for, right, is efficiencies in the market, embracing technology,
and maintaining those investor protections, which I think are so essential to the core structure of U.S. markets.
Appreciate all of you being here today.
Thank you for holding this hearing.
Mr. Chairman, I'll yield all of you being here today. Thank you for holding this hearing. Mr.
Chairman, I'll yield back. The gentleman yields back. The chair recognizes the gentlewoman from
Texas. Ms. Garcia, you're recognized for five minutes. Thank you, Mr. Chairman, and thank you
to all the witnesses. I'm sure by now you're getting a little hungry, but bear with us. We're
almost to the end. Mr. Chairman, our nation's capital markets are the backbone of our economy. I think
we can all agree with that. As we continue to talk about innovation and how to modernize securities,
we need to keep strong guardrails in mind. To start, innovation is often considered a way to
improve capital market access for ordinary Americans. Mr. Benai, you offered an example
in your testimony where you talked about ordinary
Americans investing on a highway project in your community.
I frankly can't think of a single person who would want to own a piece of a road, but
maybe that's true in your area.
This is a great theory, but in practice, who is really buying these tokens?
Who is really buying these tokens?
So right now, we see a strong global demand primarily.
I heard that in your testimony, but which ordinary Americans?
Are ordinary Americans buying these tokens?
These tokenized securities are actually pretty hard to access in US markets.
Most of the entry points, for example, the website that we help administer,
block U.S. users.
I think that's the same with most of the other tokenization projects, whether they're U.S.-based or not.
One of the things that I think we can do here is make progress toward providing the legal certainty needed
to be able to offer tokenized products to U.S. users that follow the panoply of securities laws adjusted for this new infrastructure.
So these are mostly the retail investors?
There's a range.
There's a distribution of holdings based on wallet that we see.
It is pretty concentrated, but there's a lot of people that are owning very small pieces,
$10, $20, $100 of different types of tokenized assets, the most popular being those that
are backed by US treasuries.
But you're saying that it's hard for Americans to actually have access to these.
That's right.
And the DeFi interfaces that are out there as a best practice do try to prevent access to tokenized securities.
Well, it's interesting because, Ms. Mercinger, you said in your testimony,
you read in testimony that the total market capitalization of digital assets exceeds
$2.5 trillion in more than 50 million Americans' own digital assets.
So do they have access to these tokens?
So this is more of a crypto digital asset.
You know, the Bitcoin, Ether, yes, U.S. customers, about one in five own digital assets.
I think what we're talking about now is the tokenized securities.
I know what we're talking about, but I'm trying to reconcile the two because we're talking about access.
So does the ordinary American truly have access to tokens today?
Not to all tokenized products.
Okay.
And of the 50 million Americans that do have
access to digital assets is that today is that a current number for 2026? Yes.
And could you tell me what the profile of the average person who owns digital
assets might look like? Unfortunately I don't know the exact profile, but what I know is it's pretty widespread.
What is the income levels? I can comment on this. It's a wide range. It's primarily male.
It tends younger. It tends to look like me and younger on down. So it's definitely a technology forward demographic.
So are any of these folks in any of the underserved communities?
Absolutely.
They are?
There are a lot of the numbers in terms of when you look
at the democratic spread, disproportionately brown, disproportionately black and male and young.
Black, male and young? That's interesting. I ask that because I've always been concerned that we're creating just another divide.
To me, the financial system, the banking system is not very equal to everyone.
We still have so many people that are unbanked.
Will this solve any of those issues?
Mr. Benson?
The issues with the unbanked, will access to tokens, access to digital assets improve
that or just continue the divide?
I will say this, I think our market structure that we have in the
securities markets, and by the way just to your question, there are about 25
billion tokenized securities in the US, it's up considerably but still small, and
about a billion of those are tokenized equities, so it's still a nascent market
in the US. I think in the investment markets in the U.S. under a restructure are quite accessible,
increasingly efficient, increasingly price efficient.
So we think there's a lot of opportunity for the unbanked or the uninvested, as you might say.
Thanks so much.
Mr. Chairman, I'll submit a follow-up question in writing. Thank you.
I thank the gentlewoman from Texas.
I now recognize the gentlewoman from California.
Ms. Kim, you're recognized for five minutes.
Thank you, Chairman and Ranking Member, for hosting this hearing,
and I want to thank all of our witnesses for joining us today.
You know, when we discuss the term brain drain,
it's often used in the context of foreign content,
the talents leaving their home countries to come to
America because of the opportunities that we provide. However, in the digital asset industry,
this drain reflects a 2% year-over-year decline in the U.S. share of blockchain developers over
the last five years. In 2018, the U.S. share of global blockchain developers was 40%,
and today it is down to 20%. While the rogue regulation of former SEC chair Gary Gensler
did America no favors in fostering crypto innovation in America, that does not mean it
is too late to reverse his policies and establish America as the crypto capital of the world by doing something that we already did, passing Clarity Act.
Ms. Mersinger, when innovation moves offshore, where is it going?
Thank you for that question.
Often it's going to jurisdictions where they do have clear rules of the road. That's best case scenario. Other times they're going to jurisdictions
where they don't have the same protections available for consumers. And that's why it's
important that we have the ability to have these markets here in the U.S. where we have
the best consumer protections available for those who want to invest in these markets.
So you're saying we're losing our blockchain developers because foreign jurisdictions are
adopting clearer frameworks. So there is that urgency for us to get this done and get it
across the finish line as soon as possible. For decades, our capital markets have been
the greatest in the world because of the clear and consistent regulations that have been crafted.
It is time that we extend the same standard to crypto industry and help it return to a regulatory regime that is ready to foster more innovation.
Mr. Benson, what lessons can we draw from the success of the U.S. securities market
when evaluating how new technologies like tokenization should be regulated?
Congressman, thank you for that question.
And I should thank you, and I would have thanked Ms. Beatty if she had asked me a question,
and thank both of you all for the work that you all do as co-chairing the Financial Literacy Caucus.
And I know we've been able to engage with you on that over the years and look forward to in the future. I think we can learn a lot from the U.S. security markets. As I
mentioned, you know, fractionalization of shares, we have that in this market system. We have, you
know, 78 million households in the U.S. are invested in our markets. That's 58 percent of
households in the U.S. That's great. That's more than most jurisdictions. That can be more through things like financial literacy.
But also because of the continued development of our markets through electronification,
through increased operational efficiency, lower cost, the fact that you can basically
buy equities for no commission today, Our markets are continuing to evolve and
continually get better and greater access for more people. Thank you. You know, as we
evaluate the benefits of tokenization, one aspect that interests me is the
global exposure that tokenization provides for our U.S. markets. Again, back
to you, Ms. Merzinger. How would tokenization open the U.S. markets. Again, back to you, Ms. Merisinger. How would tokenization open the U.S. markets
to investors that have historically been excluded by high minimums, currency barriers, or lack of
brokers? That's a great question, and that goes to what having tokenized securities means. It's broader access, it's faster settlement, it's fewer
intermediaries, so it brings down the cost of the transactions. So it is opening up markets that,
you know, have not always been available to the average retail investor. So it really is
broadening our access and making sure the costs are lower for retail investors.
Then how critical is the innovation exemption from the SEC that is coupled with Clarity Act to kickstart that type of innovation?
It's critically important that the SEC be able to use that authority that Congress gave them.
Again, this is about tailoring the rules to apply to the technology.
It's not avoiding the rules.
It's not being exempt from the rules.
It's a tailored approach to the rule.
You're still under the SEC's jurisdiction, and there are going to be conditions around
these exemptions.
these exemptions.
But what it does is help us move ahead.
But what it does is help us move ahead and if you're waiting on rulemaking, even with
clarity when it passes, it's going to take a while to get that rulemaking in place.
But these markets need to go on.
I wonder if Mr. Sabala can quickly talk about cost of tokenization.
The moment's time has expired.
If I can ask you to respond to that in writing or submit that question.
I'm pleased to respond in writing to the question.
Thank you. Chair recognizes the gentleman from Colorado. Ms. Peterson, you're recognized for
five minutes. Thank you, Mr. Chairman, and thank you all for being with us today. This is such an
important discussion as we're looking at how we modernize our system and make sure that we're not,
that our financial system is still protected. And so blockchain technology is increasingly,
sorry I have a cold, it's that time of year, I have a one-year-old at home. So
blockchain technology is increasingly becoming an important catalyst in the evolution of our
capital markets. And tokenization is helping firms achieve faster settlements, and we've talked at
length about this. But it also can come with risks with with innovation. So we have to find a balance and making sure that the
same principles that have led America American capital markets to be the most
liquid and powerful in the world continue to safeguard investors and help
our businesses thrive which is the core of our discussion today. So Ms.
Mersinger your testimony highlights the important improvements our
capital markets stand to gain by adopting tokenization. Can you give
specific examples of what this looks like on the ground? Yeah, thank you. And
it's, you know, some of the benefits that come from tokenization, you know, you are
talking about faster settlement which reduces the counterparty risk.
You're also looking at expanded access, you know, the 24 hours, 24-7 trading, which is globally where markets are headed.
It's already here.
Overall, just reduced operational costs and really improved compliance and record keeping because you have an immutable audible trail that is time stamped, that is, you know, nobody
is, it's automatically happening, so you're not relying on an individual for that compliance
and record keeping.
So there's a lot of benefits to having these tokenized assets. Can you give some real world examples of how this has benefited individuals that you've
worked with?
Well, as you know, the retail investors in the United States don't have as much access
to these because of the lack of clear rules around how this will work.
But certainly you can see where globally it is allowing those who are underserved, underbanked to access markets that they wouldn't normally access.
And so I think it's going to be a huge win in the United States when we open this up
and allow more retail investors
to access tokenized security because again it's going to bring down the cost
it's going to make this an easier less costly less expensive transaction for
the average retail investor. Thank you so much for that and Mr. Zecca everyone in
this room we're familiar with this debate.
We've talked about this at length. But I just want to follow up on some of the questions that have been asked.
I think that tokenization brings a different perspective around whether digital assets should be treated as commodities or securities.
Would you agree that where a security is traded via token on the blockchain,
that the exact same securities laws and market rules should apply to both that product and trade?
I would. I would agree.
Mr. Benson, should trading tokens on blockchain where the underlying asset is a security be treated any differently than a security traded on a regulated exchange? They should be treated the same, and I would argue that today retail investors have access.
It's not the question of tokenization.
That's a technology.
It's a question of the broker-dealer and the provider,
and retail investors have full access today at the lowest cost they've ever had before.
Mr. Benai, would you like to comment at anything?
I think that we can create a regulatory framework with Congress's direction that achieves the
same outcomes as the current securities regulatory architecture and extend it to the on-chain
capital markets in a way that would expand the scope of capital formation opportunities
as the rest of the world also moves on-chain.
And Ms. Mersinger in Manai, what are the strengths or weaknesses of tokenized
securities in combating fraud? You want to go first? Ms. Mersinger?
Yep. I can start. Again, it's that kind of automated trail. You have, it improves your
compliance and your record keeping because it's all done automated.
It's on a public blockchain. So there's a lot of, again, you're not relying on human surveillance.
You're relying on the technology to do the work of protecting against fraud manipulation and other
market abuses. Tokenized equities right now are an inferior product.
The only reason there's demand for them is because there is a large population of people
outside the U.S. that are unbrokered that want access to U.S. capital markets.
We need to leverage the moment.
The gentleman's time has expired.
I yield back.
The gentleman yields back.
The chair recognizes the gentleman from Texas, Mr. Green, who is the ranking member of our
Oversight and Investigation Subcommittee.
You're recognized for five minutes.
Thank you, Mr. Chairman.
I thank the witnesses for appearing, and I thank the ranking member for her opening statement.
It has been concluded that there are opportunities to tokenize equity securities.
there are opportunities to tokenize equity securities.
And in so doing, this may provide the opportunity
to avoid having a central bank involved in the database.
If this occurs, can we assume that there may be some efforts by some persons to avoid their tax
obligations? Would it be made possible for some persons to do this to avoid tax obligations?
And Mr. Plum, would you kindly give a response?
Mr. Plum, would you kindly give a response?
Right now, there's many different strategies that high net worth individuals in the U.S. use to avoid taxes.
Under the proposal that we've submitted, we would be extending the remit of the SEC to incorporate the entry points into the DeFi ecosystem,
which would include KYC as well as tax reporting obligations.
And that would reduce that surface area for that type of tax avoidance.
Thank you. I use the term avoidance with intentionality because ultimately the concern is evasion.
Avoidance, while may not be preferable, is legal, but evasion.
When we can now have these transactions take place from one person literally to another,
that opens the door of opportunity for evasion. It also opens many other doors for concerns that might be nefarious.
Can you talk about some of these nefarious opportunities
that would be available as a result of this type of tokenization?
When it comes to tax compliance, actually some of the best
and highest profile seizure cases of digital assets have occurred by our IRS enforcement friends.
When you look at, and they've actually been the primary drivers of seizure rates in on-chain contexts,
we see in on-chain contexts a seizure rate of about 12%.
So when you look at the universe of illicit activity
on-chain, about 17% of it ends up being seized
by law enforcement, primarily actually by the IRS.
That contrasts to an estimate from the UN
of about 0.2% in the real economy.
So the traceability of on-chain data of permissionless public blockchains
has actually been a really powerful tool in law enforcement's toolkit,
particularly as it relates to tax evasion.
And that is accomplished because we do have the central bank?
It's accomplished because when we find wrongdoers, when we find tax evaders,
we can trace their activities on chain to all the different wallets that they may have,
and that's enabled a quite successful record of seizures. Without a central bank would you be able to do this?
Without anti-money laundering
enforcement,
that would obviously pose a challenge, but
I would say that right now that the enforcement of tax evasion
is pretty robust in an on-chain environment.
what about the persons who tend to want to extort from other people by using crypto?
We have seen, for example, one common type of illicit activity involving crypto is these types of extortion schemes.
That has been reduced in recent years.
And law enforcement has actually been pretty successful in tracking those digital assets.
What I will say under the framework that I proposed for tokenized securities, that the assets that would be extorted from somebody
could be frozen and seized by law enforcement by being, with that logic
being programmed into the tokenized security. So it would make tokenized
securities particularly useless for illicit actors.
Thank you Mr. Chairman. I yield back.
Gentleman from Texas yields back.
Chair recognizes the gentleman from Tennessee.
Mr. Rose, you're recognized for five minutes.
Thank you, Chairman Hill and Ranking Member Waters
for holding this important hearing,
and thanks to our witnesses for your time here today.
Mr. Bonney, did I say that correct?
Okay.
Romance fraudsters today often need victims to sell
securities, move money through bank accounts, and then convert it to cryptocurrency, a multi-step
process that sometimes gives families, banks, or law enforcement time to intervene. With tokenized
securities that can be transferred in
seconds, how concerned are you that this friction is being engineered out, making
it easier for criminals to drain a victim's life savings in a single
transaction? Thank you Congressman, that's a that's an excellent question.
It's actually a good follow-up to the congressman's question before. I think, again, one of the benefits of tokenization is the programmability aspect of it
and being able to embed compliance controls at the token level.
And that would include the ability for law enforcement to identify the tokenized security, ask the issuer or their transfer agent
or the broker-dealer administering AML controls to freeze the asset and pending a lawful seizure order.
Okay. I think I followed that. Appreciate it.
Mr. Mersinger, many have argued that payment for order flow operates as an opaque cost to investors,
one that is difficult to see or evaluate and that most retail investors do not fully understand.
In your view, how might the development of tokenized securities and new market structures built on them
create competitive alternatives to today's payment for order flow driven platforms?
create competitive alternatives to today's payment for order flow driven platforms?
Thank you for the question.
I think the kind of core issue here is this idea of the transparency that's involved.
And so you're going to have a transparent system where you know the order flow, you'll
be able to see all the information on the public blockchain.
So a lot of it is just the transparency for the investor.
All right, thank you.
Mr. Sabella, in your written testimony, you referenced a future with greater settlement optionality
where characteristics like asset class, liquidity needs, and counterparty risk help determine the optimal settlement cycle for a given
tokenized transaction. Could you expand on the potential benefits of a more
tiered settlement structure where some trades might settle in real time while
others settle on longer cycles and how such a framework could improve market
efficiency, risk management,
and cost outcomes for different types of market participants.
Thank you for the question, Congressman.
This is a theme that I think even started before tokenization really took off after the
transition to T plus one.
But what we observe at DTCC even today is that market participants like to have choice in terms of how quickly they can
access liquidity by converting assets into cash or other assets. And so one of the propositions
around tokenization is it may give market participants more flexibility in actually
realizing a variety of settlement cycles. Today, in fact, you can actually settle a
transaction T0 at DTC today, but that's very limited based on the technology and participation
requirements we have. In a tokenized future, it may be possible to have more parties able to do
T0 settlement, and that may suit their needs if they have a particularly time-sensitive funding need or they need to get into and out of a certain asset class.
All of these use cases exist today, but they may be more available
and more graceful for participants if they use tokenization.
And so that's what we really mean by choice and allocating liquidity efficiency across markets.
And finally, in the 50 seconds we have left, Ms. Mersinger, many Americans are
watching this hearing are excited about tokenized securities and wondering when they'll actually
see them in everyday use. If you had to give your rough best guess, how long do you think it will
be before we see broad adoption? For instance, the Thrift Savings Plan providing federal employees
access to tokenized retirement securities in addition to its current core funds? I think the timeline depends
on how quickly the SEC can provide clarity to these markets and how the
securities transaction transacting on the blockchain are subject to the the
rules of securities law so a lot of it is dependent on the regulator.
I know Chairman Adams is moving very quickly, so I think it'll be soon.
Thank you. I appreciate it. Mr. Chairman, I yield back.
Chairman Yelts back. Chair recognizes the gentleman from New York. Mr. Torres, you're recognized for five minutes.
Thank you, Mr. Chair. A significant share of capital is effectively frozen as collateral.
A traditional settlement is so inefficient, so intermediated, that it often causes firms to over-collateralize.
Tokenization has the potential to transform trillions of dollars of idle capital into productive capital.
Do any of you have an estimate of exactly how much capital could be unlocked through tokenization?
you have an estimate of exactly how much capital could be unlocked through tokenization?
So I can start, Congressman. So at this point, we don't have an estimate. We saw the benefits
that you were describing certainly happen when we moved from T2 to T1. But I think one of the
challenges in terms of getting to the bottom of an answer to your question is market participants,
I think, and I'll defer to Mr. Benson and others here on the panel, have a variety of views about
what the next step is for moving to T1. As I mentioned before, some people may want to move
to T0 very quickly. Others may want to have a little bit of a more nuanced approach. Depending
on how that shakes out in terms of what becomes the new standard settlement cycle after T1,
we can't
really figure out what the savings look like. But we do agree with your instinct that the savings
are there if we can basically unlock collateral further. I have a question. I spoke about the
benefit. I want to address a possible cost of tokenization. I'm generally supportive, but
I have a question about the role of technology in accelerating financial contagion. So we saw during the
collapse of Silicon Valley that a single rumor amplified by social media can trigger widespread
panic and an instantaneous bank run. In March of 2023, SVB lost approximately 25% of its deposits
in a single day, making it the fastest bank run in modern financial history.
It seems to me that a 24-7 financial
system can be a blessing and a curse. It's a blessing because it enables more efficient
collateralization, but there's also a curse because it can enable more efficient and rapid
liquidation. Tokenization could enable financial contagion to spread more rapidly and widely,
and so how do we mitigate the risk of financial contagion in a world of 24-7
tokenized financial markets? So I can start but defer to others as well. I mean, I think we're
partnering again with partners like NASDAQ, members of SIFMA, as there's an extension of 24-7 trading
in the equities markets to provide the same risk protections that I think you're pointing at,
Congressman. And as we noted before, with the introduction of new technology, that means on a good day you worry less,
but on a bad day the risk profile is a little bit different.
So we reduce counterparty and market risk because we're able to reduce our exposure to each other
and the market value of the asset we're exchanging.
But we do have to still keep in mind both operational risk but also liquidity risk, which I think is what you're really getting at, insofar as if things move
quickly and there's a drop somewhere, we need the resourcing in the system to deploy and be
available to cover that drop as quickly as possible. Happy to add a couple things to that.
I think the best risk avoidance in a volatile market is deep liquid markets.
And, of course, we've seen that time and again in the U.S.
And so I think when we say with crypto and digital assets and tokenized securities,
how do you best protect it from being a separate risk exposure is to bring it into the markets,
into the deepest pool of liquidity so that it's available in times of stress I did want to note you
know we do have versions of 24-7 equity trading now and what we're talking about
as it extends and becomes more of a regular session would be ensuring that
we have all the protections that we have now there's surveillance there are limit
up limit down bands to prevent wild trading so we're working on adding that as well.
You know, tokenization has the potential to expand retail access, not only to public
markets, but also to private markets, to an extent we've never seen before. At the same
time, we are witnessing growing signs of strain in the private markets, particularly private
credit. How should the stress in the private credit market inform our thinking
about the role of tokenization in expanding retail access to alternative assets, retail access to alternative assets?
So there's kind of two different things in there, but I think you're right that in the work that we've looked at,
tokenization can be a tool for alternative investments, private markets, as a more efficient
means to move that type of product.
On the other hand, policymakers, Department of Labor, Securities and Exchange Commission,
Congress, have all been looking at what are the right suitability rules, or how would
suitability rules apply to alternative investments that have otherwise been only the purview
of high net worth investors, foundations, and institutional investors.
So there's sort of two different things that have to be worked out there.
But from a technology standpoint, I think there's a view in the industry
that tokenization would be a useful infrastructure tool.
I agree with that.
Gentleman yields back.
Chair recognizes the chair of our Oversight and Investigation Subcommittee, Mr. Muser of Pennsylvania. You're recognized for five minutes. Thank you. delivered. We did pass the Genius Act, the Clarity Act, which provided a framework for payment stablecoins and the greater digital
asset ecosystem. Now we
are turning to the next phase, making sure the United States
leads the way in tokenization.
If we get this right, tokenization and
decentralized finances can increase liquidity
and expand access to capital
markets so retail investors in Pennsylvania
and across our nation can
participate in more opportunities.
So the SEC is considering an innovation exemption
that could enable certain tokenization offerings
to move forward in the near term,
providing a pathway for products to reach market
while long-term standards are developed.
Mrs. Mercinger, what does the Blockchain Association
want to see out of the SEC's innovation exemption?
What we're looking for is clarity and how securities laws will treat tokenized equities.
So really what it is is just clear rules of the road so that we can have this innovation onshore
and make sure the United States remains the crypto capital of the world.
That seems to make sense.
Mr. Zekka, do you agree with Mrs. Mercinger's assessment?
Yeah, I think the core question that we're facing with tokenized security is how to do
it in a way where retail investors can access the wallets that they have, the investments
that they already have in the crypto space, bring them into a digital environment, bring them into a tokenized environment,
but trade with the protections that they're used to.
And that's sort of what we're focused on.
We think there are huge opportunities there.
Great.
Can you, Mr. Zekka, can you explain the difference between a native and wrapper model for tokenization
and what risks do tokenized securities that trade outside the national market system, the NMS, pose?
Yeah, so I think the concern that's out there right now is, as we watch the way the markets have developed,
it's mainly been overseas.
It's been a lot of synthetic products, so they're not true equity ownership.
You may not get dividends.
You may not get other rights, and they're probably priced differently as a result. It's not clear that investors are always
informed as to what that is. And so what we're saying is the tokenized product,
certainly for the retail investors, should be one that they're very familiar
with. And we don't want to avoid one of the biggest risks, not only for investors,
but also for issuers and capital formation, which is that you fragment
liquidity through different pools, different assets,
and therefore there's less pricing, there's less liquidity in a problem.
And so what we want to have is a core base of liquidity
and an instrument that retail investors are familiar with.
Great, thank you.
Ms. Mercer, back to you, please.
Can you explain the benefits of the wrapper model for tokenization and how does it increase liquidity? Sorry, can
you repeat the question? The benefits of the wrapper model for tokenization and how the
effects it has, how it increases liquidity. I think a lot of the benefits are the same.
We're talking about expanded access, faster settlement, reduced operational costs.
So it's a lot of the same benefits that we see with putting these tokens
or putting securities, any security on the blockchain.
Okay.
Mr. Sabella, the DTCC was granted no action relief in December 2035
to operate a pilot tokenization program.
Can you describe the program and the benefits of temporary relief allowing tokenization pilots?
Sure. Thank you for the question, Congressman.
So effectively, it's limited to a certain subset of the security assets we service.
It is limited to our participants and their customers.
Effectively, we will look for those parties to bring to us different wallet protocols
and different chains where they would like us to tokenize their holding in DTC today
so that it can be deployed into new tokenized environments, whether provided by traditional
market actors or new market actors.
It's a three-year program because we're trying to, and we view this as effectively just an
extension and evolution of the services and value we provide today in the depository so we
want to see how effectively that will work and we did it under a no action
approach because in contrast I think to some of the other approaches we've been
discussing this is very technical very targeted we were basically just trying
to get the the minimum the MVP version off of the ground so we can grow back into some of the more technical
requirements that just to apply to our operations as a clearing agency. We're hopeful at the end of
the three years, if not before, we'll have learnings and feedback to get to bodies like
this one and the regulators about how to better accommodate tokenized activity in our financial
markets. Thank you. I'm just about out of time. Mr. Mercer, maybe you can tell us later or in writing.
Singapore, U.S. tokenized securities, current rules allow it to be traded in Singapore
but limit their use here at home.
Wondering what you believe the competitive disadvantage that's created in the U.S. markets.
But with that, we'll have to...
Gentleman yields back.
We'll take that answer in writing.
Chair recognizes the gentleman from California. Mr. Liccardo, you're recognized for five minutes. Thank you Mr. Chair. I appreciate all the testimony and
I've learned quite a bit about the tremendous advantages and opportunities
with tokenization of assets for trade investment on blockchain.
Undoubtedly, obviously, as Congress, we have to be concerned about those cases of fraud,
of deception, of illicit finance of various kinds, and criminality.
And I know that we're all concerned about that.
And I appreciate the testimony of several of you who have said, look we we've got to have clear protections for investors and for the public. Just yesterday in New York the Wall Street Journal came out with a story describing
how some tokenized offerings had significantly deviated in value from
underlying public shares. We saw earlier stories Amazon stock was its token was selling
at a price 300% higher than the stock itself in one case and obviously there
are other examples and obviously the challenge that tokens are technically
derivatives that don't convey the same shareholder rights as underlying
securities until otherwise determined. So my fundamental concern is not what's going to
happen. I'm certain that NASDAQ is going to do a good job. I'm certain that many centralized
exchanges will apply regulations in a way that protect investors. Certainly there'll be regulators
in place to ensure that happens. I'm concerned about the anonymity
or maybe the pseudo anonymity
of those participants on decentralized exchanges.
And DeFi certainly provides,
I know great opportunity, but enormous risk.
And I really appreciate Mr. Bernay,
your company's approach, as I understand it on Plume,
investors are less likely to be the victims of fraudsters
who may be selling the tokenized equivalent
of the Brooklyn Bridge.
And to the extent there's a know your customer requirement,
it makes it less likely that there'll be insider trading.
There's less likely that there'll be members of Congress trading on stock that they shouldn't be trading on because of conflicts of interest.
Now, my understanding is your company provides essentially a layer two app over the DeFi protocol.
And not all companies require what you require. Is that right?
Yes, most blockchains do not have protocol require what you require. Is that right? Yes.
Most blockchains do not have protocol-level AML controls.
And why do you decide that you're going to apply those controls?
Our goal was to make regulated financial institutions comfortable deploying their assets into our ecosystem
because of the lower AML risk profile.
And I assume you do to also protect your customers, make them feel more comfortable?
Yes, and that includes, for example, the capability to freeze and seize or burn and remint
tokens through our nest tokenization platform.
Now, in your written testimony between pages 12 and 14 you talk about
treating companies that are in your position later too as brokers subject
the same the same requirements of anti-fraud and fair dealing standards
know your customer anti-money laundering etc. And I guess the question is if that were applied across the entire industry,
do you feel confident that other competitors of yours would comply?
This is a natively global architecture which poses both opportunity and risks.
architecture which poses both opportunity and risks. I think if the
framework that we've adopted which includes consumer protections at the
retail app level and the SEC and Treasury work together when it comes to
anti-money laundering requirements at the token level, we can
achieve a pretty good level of protection. And then you mentioned also the
price discovery issues that we see in tokenized markets and that can be
addressed through the network effects that would be established once these
markets move on chain. That will move price discovery away from these less liquid offshore trading centers
that have limited liquidity and poor quality products
and toward the markets that would be overseen by the SEC,
which would operate under the same types of transparency and regulatory controls.
I appreciate that, sir. I know I'm out of time.
I just wanted to ask Ms. Mercinger off the record if she might be able to provide a written statement
about what Blockchains Association, their position might be on this issue.
Happy to follow up with you and your staff.
Thank you very much. I yield.
Thank you very much.
Chair recognizes the gentleman from South Carolina.
Mr. Timmons, You're recognized for five minutes.
Thank you, Mr. Chairman, and thank you to the witnesses for joining us today.
I've long been interested in the concept of tokenization, not just as an emerging technology,
but for its potential to integrate on-chain systems seamlessly into our financial markets in the near future.
Realizing that potential will require clear, well-defined rules of the road that support
innovation in the United States, protect consumers, and encourage existing systems
to evolve toward more efficient, lower-cost models. I commend Chair Atkins in the SEC's
January Statement on Tokenized Securities. Together with today's discussion, it represents
an important first step in shaping how our markets can responsibly harness the transformative potential of blockchain technology.
I want to begin with cross-border transactions and the potential for tokenized securities to allow individuals around the world to access and move assets into U.S. markets.
Ms. Maersinger, when you speak with member companies exploring this space,
He's exploring the space.
what are you hearing about the demand for tokenized securities from investors?
What are you hearing about the demand for tokenized securities from investors?
And are firms seeing this as a meaningful opportunity to bring more global capital into the American financial system?
Yes, absolutely.
There is certainly the demand is there.
We see it offshore.
And, you know, opening up these markets more globally will just mean more capital, more liquidity.
So there's a lot of opportunity there if the right rules are in place and are clear.
Thank you for that.
And from the perspective of financial institutions, I want to touch on compliance.
As tokenization and blockchain technology evolve, they introduce the possibility of self-executing compliance,
where regulatory requirements can be embedded
directly into the asset or transaction itself. How do you see this capability enhancing compliance
with existing rules, strengthening investor protections, and potentially reducing the
cost firms face in meeting their regulatory obligations? Again, Ms. Meersinger.
I think what's interesting is the technology around compliance is moving as quickly as the technology that we are seeing with the markets.
And so there's a lot of opportunity to bring efficiencies into the compliance side of this as well.
And we're seeing it.
seeing it. Plume, one of our member companies, is doing this and so it's
certainly the technology is catching up and the compliance is becoming very
automated and part of the system. Thank you. I really believe this is where the
greatest potential lies. Removing intermediaries and creating efficiencies
is what emerging technology is all about and I think the future is very bright.
Combine that with President Trump's emphasis on attracting foreign direct investment
to drive economic growth, the tokenization of traditional financial assets
presents a new and compelling pathway for investment in the United States,
particularly for individuals and firms and countries with strict capital controls.
If we establish the right regulatory framework and allow issuers and intermediators
to adapt, blockchain technology could significantly reduce barriers to entry and expand access to U.S.
markets. That reflects the long-term vision. In the near term, I want to focus on the role of
Congress in ensuring that our exchanges continue to operate efficiently and without disruption as
this technology is introduced. As tokenization begins to intersect with existing market infrastructure, including clearing, settlement,
custody, and trading, it is important that integration is thoughtful, orderly, and does
not introduce unnecessary friction or risk. One area of particular interest is the potential for
markets to operate on a 24-7 basis through tokenized securities. Mr. Zeka, given your
experience overseeing market structure,
regulation, and risk at NASDAQ, how should we think about the practical steps required to integrate tokenized securities into existing exchange infrastructure without disrupting
the efficiency and integrity of our markets? Well, it's a critical question, and I think
the short answer is that most of it can be done quite easily through the current processes.
The short answer is that most of it can be done quite easily through the current processes.
Our vision of what we got SEC approval of is basically a message that tells DTC,
look, my choice is I want to clear in tokenized form, non-tokenized form.
Otherwise, your experience is the same.
You're in the same order book.
You get the same priorities.
Everything else is the same.
So I think a lot of it can be incorporated.
It's frankly what retail, I think a lot of it can be incorporated. It's frankly what retail I think expects. To your point on 24-7, there are innovations from the crypto space that have
evolved in the market. I will argue that we have 24-7 trading in equity now. It's obviously not as
robust, but I think the systems are ready to go with the exception of we want to make sure when we really launch it as more of a
regular session that we have the same data information safeguards and surveillance and
so I would argue that that will be the main protection going forward we're going to treat
it like a regular day session thank you for that I had one more question for Mr. Benson but it
seems I'm out of time we will send it to you and if you could follow up that'd be great appreciate
y'all I yield back back, Mr. Chairman.
The gentleman yields back. The gentleman from Montana, Mr. Downing, is now recognized for five minutes.
Thank you, Mr. Chairman.
I'm really excited that this administration and this committee is charged headfirst on embracing innovative technologies,
from payments, stable coins, to digital assets, artificial intelligence, and now to tokenization. Embracing these technologies and establishing regulatory frameworks will maintain the United States' preeminent position as the global leader in innovation.
And one thing that interests me in tokenization is its potential to bolster financial freedom by making
peer-to-peer trading more accessible. However, this presents its own risk to
investor protection. And I was the former securities regulator for the state of
Montana and one of my primary responsibilities was protecting
investors from fraud. And I'm going to start with Mrs. Mersinger here. How
should Congress and regulators balance the risks associated with increased disintermediated securities trading with protecting retail investors from bad actors?
I think that's where it's important for the regulators to have some flexibility in deciding how the rules will apply to this technology. So we've
talked a lot about the SEC's innovation exemption, which is authority that
Congress has given them. Being able to use that flexibility to ensure that
there are protection, consumer protections in place, even though the
technology might be different from the way it's currently working,
we want to make sure that
those investor protections are still there and that we are not bringing in
new risk because of a different system. Thank you very much. I'm going to shift
now in the interest of time here. I want to shift to the regulatory framework and
I'm going to go to Mr. Zek on this one. Regulation National Market Systems, or Reg NMS, contains requirements for trading centers
designed to prevent the execution of trades at prices that are inferior to what is displayed
on other platforms.
So to what extent would Reg NMS currently apply to tokenized versions of publicly traded
equities?
So if it's in the regulated environment, it would apply just like anything else.
I think that's separate and apart from, as you know, the SEC is considering whether to make changes there.
And that's a separate analysis.
We would argue if they do decide that changes make sense, and frankly we've supported some change,
that that be done globally and for everybody, not just in some sort of an exemption.
So how much do you think Congress should be concerned about liquidity fragmentation inhibiting price discovery with digital assets trading across both security exchanges and decentralized trading protocols?
And should that be regulated in some form?
I think it's an important question.
We are very concerned about fragmentation of liquidity
because for capital formation, for price discovery, it's all critical.
So I do think it's something that we have to consider,
and that's why we're saying if there are somehow exemptions,
which we don't necessarily favor,
that they be time-limited and size-limited
because you want to ensure that you are not breaking up.
I can move to Mr. Benson.
There's been data showing that custodians have been much faster to adopt tokenization
than asset and wealth managers.
Why do you think that is?
I think the industry as a whole, custodians probably at the front end, but the industry
as a whole, I think it's been looking at tokenization because it's constantly looking to take costs
out wherever it can and improve efficiencies.
But I would say as part of that, the one thing that we've talked about this morning is there's still human oversight because technology can go wrong from time to time.
And so you have to do constant risk management, auditing, et cetera.
All right. Thank you.
I'm going to switch now to what tokenization means for retail investors.
Now do what tokenization means for retail investors. I'm going to go back to Mrs.
I'm going to go back to Mrs. Merzinger here.
Mersinger here. If tokenization really takes off, what does that mean for someone
in Montana with a retirement account? And do they notice anything different? And do
they benefit directly? Or is this primarily an efficiency story for institutions?
What I think will happen for most retail investors in Montana is the experience will look a lot
like it does today.
They're going to have the same benefits.
They're going to have the same protections, but they'll have the benefits of faster settlement,
lower cost, smoother transactions.
I think where it's visible in the change is the flexibility in the access because you have a standard kind of range of
assets available through tokenization. And it's also going to improve the actual investing
experience by reducing some of the delays that we've talked about previously about,
you know, taking longer for the asset to show up in your account. This will be near instantaneous settlement,
so your assets will be under your control almost immediately.
So there's a lot of the benefits that your constituents from Montana will see.
Well, thank you all for participating.
And, Mr. Chair, on that, I yield.
Gentleman yields the gentlewoman from Michigan.
Ms. Tlaib is now recognized for five minutes.
Thank you, Mr. Chairman.
Can I start with just asking for unanimous consent to address, to include in the journal the real estate scheme
gobbling up Detroit one digital token at a time by Aaron Modbury. He's been tracking it in our city.
Without objection. Thank you. So the Real Token LLC, also known as Real IT, is a cryptocurrency
real estate company with a portfolio of more than
600 homes and apartment buildings in and around Detroit. Via a web of LLCs, Real IT sells what
it claims to be fractional ownership of its properties in a form of tokens to overseas
and accredited investors. Real T launched in 2019 and raised more than
$93 million for its Detroit properties, but today its real estate empire is in ruins.
I want you all to look at the shocking condition endured by Realty's tenants. This is important
for people to understand. Realty is subject to the largest nuisance abatement lawsuit in the history of the city of Detroit.
Realty faces hundreds of blight violations and thousands of code violations.
It owes the city more than $5 million in unpaid water bills and property taxes.
The city's complaint cites buildings that are fire, flood damage, lack doors, windows,
have no heat, or are structurally unsound.
I mean, you just have to look at this.
One of the things that people don't understand is, according to the complaint, 408, it's
not a little bit, but 408 properties lack paperwork certifying them as safe for habitation.
Tenants have reported going, this has been going on for years without heat.
They are not functioning only in the city of Detroit, Mr. Chair. They're functioning in 40
cities around our country. One home, for example, is owned by 331 people
who have enjoyed a 9.3% annual return on their investment, but tenants report that the heating
is broken, the water only
works sometimes, and one tenant who lives with her grandchildren has stated that she can't sleep at
night for a fear of intruder might enter through one of the buildings because of broken windows.
By issuing tokenized interest, Realty has avoided disclosure requirements, and Mr. Chair, we need to
do something about that. Mr. Bailly, do you think it's possible to have disclosure requirements or stronger investor protections that could help prevent conditions like this?
I think what you're pointing out here is actually a great case study in the need to make sure that the market structure bill keeps in place state regulator anti-fraud authority.
So no disclosures. You want to do anti-fraud?
No, for sure. I mean, this looks like, particularly if this is distributed publicly, you know...
Well, I just want you to know, so Realty's own white paper stated that its operating agreements would be intentionally structured
to minimize responsibility of token holders over the upkeep and maintenance of the property.
Like Mr. Chair, they're actually saying it. They know this is happening, they don't
care, they just want the money. Yeah, this is outrageous and I would like to see these
types of broadly available products come under the same type of securities laws
that apply to publicly traded equities. I mean, the risk of that tokenization or related complex financial arrangements can
be manipulated, right, and skew away responsibility.
Isn't that a big issue to, again, try to make sure this doesn't happen?
Yeah, these types of offerings should be exposed to the full level of disclosure that we have
for the public markets, for sure,
given particularly how they're distributed so broadly.
You know, I know people are so scared of regulation.
This is oversight.
We can't allow people to live in this kind of conditions.
And it looks like everyday people, even those who have never invested a penny,
are impacted by decisions we make in this room.
And so it's a difference between innovation and exploitation.
And I think that's
something that we need to really, really work hard. You know, Mr. Chair, the only reason we
know about Realty is not because of our oversight work in Congress. It's because of these pictures
and everything that's happened from local reporting in our city by a nonprofit news organization
called Outlier Media. And Mr. Bate, while Realty claims that it offers
investors ownership, scholars have argued that the investors more accurately get shares in an LLC.
As members of an LLC, do such investors have property rights?
I think if there's a potential misrepresentation there, there is definitely grounds for
anti-fraud enforcement in this case.
Okay. What lessons do you think Congress can draw when we see poorly regulated tokenization schemes like this?
I think, you know, one of the benefits of tokenization is it allows broad public distribution of assets.
And it looks like, I'm not that familiar with this case, but it looks like in this case, they are issuing securities into a public
environment. And these are not, you know, reg D private market offerings offered to a handful of
investors. It looks like these are broadly distributed. You mentioned, you know, 331 people
having an interest in just one of the 408 properties. So to me, this looks like a very sketchy scheme that city inspectors, state securities regulators.
I mean, they owe them money, but is the fees going to really work?
The gentlewoman's time has expired.
Thank you, Mr. Chair.
The gentlewoman yields back.
I now recognize myself for five minutes.
First of all, I appreciate the opportunity to learn more about something that has become an exceedingly important topic for both our capital markets and financial innovation.
Tokenization represents two different worlds colliding, our traditional capital market system and the world of distributed ledger and blockchain technology.
While our committee has spent a great deal of time trying to ensure that native digital assets are properly regulated,
there is now the separate
question that regulators are also wrestling with. What happens when a traditional security or a real
world asset is put on the blockchain? How would regulators treat that technological transition
and what would shift towards a broader tokenization? What does that mean for our markets?
Mr. Zecca, in your testimony, you described NASDAQ's approach to tokenization as one of
integration between the strengths of traditional equity markets and blockchain-based markets.
Can you expand on that thought? And specifically, what would an integrated market harnessing the
strengths of both tokenization and traditional equity markets look like?
Sure, thank you for the question.
I mean, the one thing to keep in mind is that for markets generally,
and whether they're in the crypto space or otherwise,
is that it tends to be a central order book, very similar to what we have.
So when you think about the technology, it's data coming in, it's orders, they're matched,
and then they're written to the
blockchain or, you know, in the case of a normal security, they're sent to DTC. So the technological
structure is very similar. We view this as not a new product so much as a new way to
technologically represent a security. So where is the question? And the bridge coming in from
the DeFi world, you're going to have a growing share of the
American population that is invested in crypto assets.
They have wallets.
They want to expand.
They want to use those assets to expand into other asset classes, including equities.
We want to give them a path to do that in the world that they probably know best through
brokers with trading occurring on regulated exchanges.
So that's what we say when we say integrating the bridge between the two.
Mr. Benson, the regulated settlement network was a basically proof of concept exercise in 2024
designed to explore the effects of tokenization on efficiency.
What kind of conclusions did you draw from that exercise?
And do you anticipate other similar exercises to take place in the future?
Yes. Thank you, Congressman. So that was an exercise that actually was looking at other
asset classes besides equity, so treasuries and other fixed income assets. And I think
it underscores that the industry has been looking at this technology for many, many
years to see where it can be adopted.
And I think you'll see more of that.
I think things like the Regulated Settlement Network, work that's been done, that the
exchanges have done, DTCC's done, central banks have done in Europe of looking where
they can adopt this technology, is this is happening now.
And so it's not a question of if we will
have tokenized securities, that we have tokenized securities today because of the pre-work that's
been done. And I would argue that it's happening under the regulatory framework that we have
in place today. Now, we may find over time that there are friction points, but to date
we have found that we can adopt this technology. I think it's taken a while.
It's not a big market at this point, but I think we will see it grow because, as Mr. Zekka said,
this is not necessarily a new product. It's just an upgraded technology.
Thank you. Mr. Benelli, you talked a little bit about the possible tokenization of low-income housing tax credits. Could you expand on that?
Yeah, so what we see in the Litke program,
among other federally-backed programs
that are seeking to enhance the availability of capital
to developed communities, is a weak secondary market.
Institutes such as the Sorenson Institute have identified the potential of securitization
of these types of products as a way of unlocking secondary market liquidity,
which would in turn incentivize more participation in the primary markets as well.
And so we've recommended that the SEC convene a roundtable around the securitization of
these types of community development project assets in conjunction with, I know as a part
of their rulemaking agenda, they are considering new shelf registration requirements.
These would also further enhance the ability to securitize these types of projects. And so that could be done, that roundtable could be done to help inform that future
rulemaking. Thank you very much. With that, I yield back. The gentleman from Iowa, Mr. Nunn,
is now recognized for five minutes. Well, thank you very much, Mr. Chair, and thank you for the team
for being here. I know it's been a long hearing, so we'll try and be quick. I want to be clear,
since 1996, the number of companies that were publicly traded dropped
from 8,000 to about half that, 4,000.
IPOs dried up, and that hit home in my home state of Iowa, where fewer ways were provided
for businesses to raise capital, grow, and hire.
Now, tokenization won't fix everything, but it does lower the cost and opens more doors
for investors.
This technology, we all know, is going to come either way.
The only question is whether we build it here in the United States or whether lack of ability in D.C. drives it overseas.
So, Mr. Messinger, I'd like to begin with you.
We'll do some rapid-fire questions here.
Tokenization lowers transaction costs.
It speeds settlement from days to seconds, and it opens capital formation for a broader pool of investors.
For a small business in Iowa that can't crack into the public market today,
would you agree that those are real and concrete benefits?
I think there are a lot of factors, but I think tokenization can help.
But I don't think it's the only factor.
but I don't think it's the only factor.
I would agree.
I would agree.
But you also agree that the biggest barriers for a company in Iowa
might be that they aren't technological and aren't investor appetite.
There are regulatory uncertainties that lack clear SEC guidance.
For small investors, I mean, there may be issues where they want to look at,
like, Reg A or Reg D and determine whether or not those need to be upgraded.
But honestly, I would separate those from the technology, and that's more of an investor.
What the rules are around disclosure, what the rules are for the issuer, which do add costs,
whether tokenization can improve that or not, we don't know.
But it could.
I certainly hear from my small business investors that they would like to have that option.
I also offer that we should agree that if the Senate doesn't move the Invest Act forward this year,
capital formation might be incentivized to move overseas.
Would you agree with me on that?
I think if Congress could move the Invest Act, that would be a real win for the American people.
I would agree.
I'd like to you, my colleagues in the Senate, to help us with that.
Back in Iowa, when I took my first driver's test, and back then it was a 1982 Volvo,
it didn't matter what kind of car I drove.
It mattered that I knew the rules of the road.
And so when we talk about knowledge-based pathways to accredited investors,
that status applies with the same logic, in my
opinion. It opens investing to millions of Iowans who have plenty of smarts but don't happen to have
millions of dollars. Should American companies have the freedom to choose tokenized infrastructure
for their securities if they meet those same rules of the road? Would you agree?
I think Congress should definitely look at,
and I know you've been working on this, definitely look at the rules around accredited
investors, whether it's tokenized or not. I think the rules are outdated where they are today.
Mr. Zika, I'd like to turn to you here. We know that the SEC has approved NASDAQ proposals to
list and trade tokenized securities. That is one of the things that NASDAQ still needs from the SEC
to launch tokenized security trading.
Would you agree with that?
I'm sorry, what do we need from the SEC still?
Tokenized security trading.
Yeah, so the approval order got us most of the way there.
There's still some technological things.
But it's a pilot program,
and frankly it doesn't cover all securities yet. So I think
there are going to be other things we're going to go back to the SEC on. And I think that we've
got to be able to have a clear framework for this. Well, exactly. I mean, the part we're most
concerned about is that there's some parallel market out there that is draining liquidity.
To your point about issuers worried about raising money, I think that's a critical point. Let's keep
the liquidity together
so that it's the strongest for capital formation. And to your other point about cost saves, I will
say on the proxy side, I do think that there's significant saving possibilities if it's adopted
at scale for issuers if we can get around the Byzantine structure right now to reach your
shareholders. I very much agree with you on that, and I hope that's something we can move on. I'll
even go so far to say, would appreciate your feedback on this, if the U.S. creates a more clear
regulatory pathway here, offshore trading activity could actually move back to the United States in
that environment. I think that's right. I mean right now they're basically trading synthetic
securities overseas. That's right. I think a lot of people would prefer to come back.
Well Mr. Chair, I'm not sure what your first car was. I think it was a 48 ambulance based on the grays in your hair and mine included. The U.S. cannot
continue to stand on the sidelines on this. We must ensure the next generation of financial and
internet technology is built here in the United States. I think tokenization is a clean area
where we can do this. I ask for your help both with the Senate and with the SEC to continue to
move this forward. Thank you, Mr. Chair. I yield back my time. Gentleman yields back. The gentleman from
Indiana, Mr. Stutzman, is now recognized for five minutes. Thank you, Mr. Chairman, and thank you all
for being here today. Before getting into the more technical aspects of today's hearing, I want to
start with the real-world impact this technology could have on working families back in Indiana.
Northeast Indiana is a major
manufacturing hub, and many of my constituents spend long days building the products that make
our country run. Because of those hours, they don't always have the flexibility to participate
in our capital markets during normal trading hours. I want to start with Mrs. Mersinger. Could you briefly explain how tokenized securities could expand opportunities for Americans to participate in our markets,
and what kinds of other benefits might they see?
Thank you for that question.
I think in your question, part of it was answered is that these markets can be 24-7 markets.
answered is that these markets can be 24-7 markets. We already have 24-7, but the expansion
of 24-7 access will help people access the wealth-generating opportunities of our capital
markets. And so a lot of it is around when the markets are open, when you can trade,
and if your only trading time is after markets close,
that's a barrier to entry that tokenization can remove.
As we've heard throughout this hearing, tokenization can enhance efficiency
in areas like collateral management, settlement, trading speed, and transparency,
but it can be hard to conceptualize what this actually means.
Mr. Sabella, as the DTCC has begun incorporating tokenization into its work,
what examples can you share that help illustrate how this technology is improving your operations?
Thank you for the question, Congressman.
So I think we're still in early days.
We haven't actually activated the three-year
period under the no action letter yet. We expect to do that in the second half of this year. I think
the theses we have is that it will help with giving investors more optionality around settlement
cycles. So to your point about folks in Indiana, not only can they trade faster, they can get the
benefit, the economic benefit of their activity faster through faster settlement.
There's also the ability to have more optimized collateral deployment.
So folks holding securities in Indiana can get more economic benefit from using them in different ways via tokenization.
And then finally, issuance and distribution, which is something we would do with others.
But I'm happy to report back later in the year when we've actually gotten our feet off the ground.
Yeah, that'd be great.
Mr. Zekka, NASDAQ has begun deploying similar tools. How is tokenization making it easier for companies to modernize operations like investor engagement and proxy voting?
Sure. So I think that's an important point. One of the great benefits of the blockchain
is that there is the opportunity to have sort of direct connection to
your shareholders. Now, of course, there's still SEC rules on objective and beneficial owner and
who wants to be known and not. But by and large, you can bypass the Byzantine system that exists
right now, which, you know, I think it's in DTC, measure that a corporate action leads to 110,000 actions across the system as everyone has to implement it.
It costs $34 million per corporate action.
So if this is adopted at scale and you can bypass some of that or streamline some of this,
imagine the cost savings for companies that they can deploy to jobs in Indiana.
Yeah.
I want to talk a little bit about broker-dealers and self-custody,
and Mr. Benson, I'll ask you, are there scenarios in which a broker-dealer would still play a role
in a tokenized transaction that culminates in self-custody, and then if so, how should regulators
be thinking about those transactions and the role of broker-dealers more generally?
Thank you, Congressman.
I guess if you had a true self-custody wallet where the wallet itself, there was no qualified custodian involved in that,
that wallet could engage, could be a DeFi app.
It could be any sort of app that's an order routing,
that's matching the seller with the buyer, a buyer with the seller.
Then you would be dealing with a broker-dealer or a registered ATS.
So I could see that concept.
And I think the SEC is probably thinking about it, because the questions that they need to answer are
when something is truly DeFi, no control, no transaction fee, versus when there is control.
All right. Thank you. Mr. Chairman, I'll yield back the balance of my time.
The gentleman yields back.
A vote has been called in the House.
Pursuant to the previous order, the chair declares the committee in recess.
Subject to the call of the chair, we will reconvene directly after this voting series.
The committee stands in recess. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. The committee will come back to order following our recess.
The gentleman from New York, the chair who is the chair of the Homeland Security Committee,
Mr. Garbarino, who is now recognized for five minutes.
Thank you very much, Mr. Chairman, and thank you to all the witnesses for being here today.
U.S. capital markets are the deepest and most liquid in the world,
but the infrastructure beneath them, clearing, settlement, and reconciliation,
still relies on systems and processes built decades ago.
While reliable, they remain complex, fragmented, and costly.
Because of this, there's a growing interest in tokenization as a way to modernize this plumbing.
Ms. Merzinger, can you walk us through what tokenization actually changes and how securities
move from seller to buyer?
And in practical terms, what does that mean for settlement speed, risk, and the overall
cost of operating in our markets?
Thank you for that question.
Tokenization entails a paradigm shift in the function of our capital markets.
Instead of relying on multiple intermediaries
to reconcile the ledger and to complete settlement, tokenization collapses that and offers a disintermediated
transfer and settlement of these assets. So the delivery and the payment are happening simultaneously, and it really is a more efficient and certainly a lower cost way of moving these assets.
Thank you very much. NASDAQ has emphasized a commitment to advancing tokenization in a way
that preserves investor protection and supports issuers. Mr. Zekka, do you believe tokenized securities can be offered within the same regulatory
framework that governs today's equity markets without weakening core protections?
We do.
I think that's actually what we should be aspiring towards, because in reality, there's
very little difference between the digital way that securities trade and the way that most crypto assets trade and tokenized securities would trade.
Obviously, there's peer-to-peer, but by and large,
it's in a central limit order book just like we have.
And then it's written to the blockchain.
So it's something that we can do in the securities market very similar.
You do the trade.
You would have the same priority as a normal equity, any other equity.
You would have the same rights, the same surveillance.
And then you would make a selection, and it would go to clearing, and you would get it on token form.
How does that approach, what are the implications of that approach for the competitiveness of the U.S. and specifically jobs?
the U.S. and specifically jobs? Well, I think there are a couple. One is right now the market
Well, I think there are a couple.
is developing overseas with synthetic securities that are not real ownership interests. So the
market is developing without us essentially. So bringing that back and giving an opportunity for
U.S. investors to participate in a regulated market I think is a key one. I also think for
issuers, the part that's important to note is for them. I do think that the blockchain provides real advantage because of what we've talked about with what can be on the ledger,
whether it's corporate governance, whether it's the proxy process, communication with shareholders.
All of that can help avoid some of the bottlenecks and the expensive bottlenecks that exist right now.
help avoid some of the bottlenecks and the expensive bottlenecks that exist right now.
We're also seeing clear momentum, clear market momentum.
Just yesterday, there was a new partnership announced between Invesco and Superstate,
another example of how major institutions are embracing tokenization,
building on moves we've seen from BlackRock, Franklin Templeton, and J.P. Morgan.
Tokenized treasuries alone have already reached roughly $12 billion, and some estimates say it could be
$20 to $30 billion by the end of the year. Many would argue this acceleration reflects a more
coordinated and supportive posture from U.S. regulators. Ms. Mersinger, as digital assets
evolve toward utility-driven finance, and as large asset managers begin putting traditional assets like treasuries on chain,
are we truly moving towards a more open 24-7 global market where individual investors have the same access as major institutions?
Yes, that's where we're headed.
There's already 24-7 trading, and there's a lot of this is happening offshore.
We need to bring that back into the U.S. and have it available to retail investors here in the U.S.
So this is something new or just an expansion of the existing, making the current system faster and more efficient?
system faster and more efficient?
It's bringing the, it's evolution of the current system, making the settlement more
quick, faster, lower the cost because there's fewer intermediaries.
So it really is just an evolution of our current system to what's going to be a more efficient
system.
Are we leading on this?
Is the U.S. leading on this right now?
The U.S. is not leading on this right now.
We shouldn't take for granted
that we are always the leader in financial markets, and I think we have an opportunity here to lay the
ground rules so we can step back into the position of leading with our financial markets in the
tokenized space. Thank you very much. I'm out of time. I'll submit the rest of my questions for
answers in writing. I yield back, Mr. Chairman. The gentleman yields. The chair now recognizes
himself. I start first off with thanking the witnesses for today's testimony before the
committee. And as to this topic, tokenization has the potential to fundamentally modernize
how our operates work. It enables these traditional financial assets to be represented on blockchain-based systems.
It means faster settlement, lower cost, greater transparency, and expanded access for investors.
But today's markets still rely on layers of intermediaries that process and can,
which can delay settlement, increase operational risk.
Tokenization, however, introduces the possibility that transactions can be completed
in real time. So first question, Ms. Merrissinger, how does eliminating the settlement lag impact
systemic risk and how does it shift risk elsewhere in the system?
Thank you. That's a great question. Systemic risk will never be 100% eliminated, but instantaneous settlement certainly reduces
the overall risk by setting the same time as a transaction itself, by settling it as
the same time as a transaction itself is taking place.
The SEC has recognized even recently that there is a correlation between settlement
speed and counterparty risk.
And that's part of the reason they have reduced the settlement times from T plus one to T
plus, T plus three to T plus one.
As you bring down the settlement times, you're moving the payment with the settlement, you're
taking a lot of the counterparty risk out of the system.
You know, while our existing security laws have provided a strong
foundation for decades, they're built around a system of identifiable intermediaries, brokers,
dealers, exchanges, and clearinghouses. Tokenized markets may not always fit neatly into these
categories. So, Mr. Benson, where are the biggest areas of regulatory uncertainty today that are
slowing the development of tokenized markets in
the United States. Thank you, Congressman. So first of all, again, I would say we are seeing markets,
securities markets move towards tokenization. It hasn't moved as fast as I think some people
thought, but broker dealers are doing it, custodians are doing it under the existing
rules that we have. And I think that's a good thing because those rules have served our markets very well. In fact, if you see in our testimony,
we did an analysis or had one of our law firms do an analysis of mapping the securities rules
against tokenized securities. And pretty much across the board, we feel that it can be accomplished.
And it's obviously being done by NASDAQ and DTCC. I think what we have to look at as we're going forward is when we're thinking about things like 24-7,
which exists today, exists for retail investors today,
we have to be careful we don't end up with unlinked markets or unlinked pools of liquidity
that result in price differentiation that's not good for the investor and not good for the issuer.
And so I think as these markets grow, we're going to have to pay attention to that, particularly in things like 24-7 trading.
So somewhat of a follow-up to that, Mr. Sabella, to what extent are regulatory uncertainty driving innovation and trading activity offshore as opposed to here in the U.S.? Thank you for the question. So to be clear, I mean we sit at the post-trade settlement side,
so we don't have as I think clearer view in terms of trade execution dynamics as others
here may have. But I think one of the biggest issues just comes around access. So effectively,
the way you come into U.S. markets today, today is very broad, it's very expansive, but it's
not perfect for everyone. And so I think what we see folks trying to do is expand access through
instruments that are offshore, and as others on this panel have noted, may not exactly be the
equity instruments that we want investors to have to access U.S. capital markets. So what kind of
risk would that, in fact, pose to U.S. market leadership and investor protection?
Well, I think one thing that it does, and again would defer to others on the panel who follow this a bit more closely I think than we do at DTCC,
but one of the issues is that breakage of liquidity so that effectively offshore investors aren't getting the same price discovery
and frankly economic and legal benefits that you get when you have an actual tokenized
equity instrument in the United States. This is particularly important in insolvency where
if you think you're holding something that is not in fact a cash equity interest in an issuer,
you are going to end up with less than what people get in traditional markets today.
So of course tokenization could also expand access to markets through the
fraction ownership as well as 24-7 trading.
So back to Ms. Meersinger, how might these developments benefit retail investors?
Well, I think it's bringing down the barriers to access, making that being able
to access the markets with lower costs.
24-7 means that you have extended hours when you can trade,
and certainly that's going to improve access as well. So there are a number of benefits to the
system that retail investors will see as benefits to their ability to access capital markets.
So that time has expired. It looks like there are no other members who would be asking
questions at this point. So again, I want to thank all of our witnesses for today's testimony. Very
informative, very helpful to the committee. We appreciate you taking your time and your expertise
being here with us today. Without objection, all members will have five legislative days
to submit additional written questions for the witnesses to the chair. The questions will be
forwarded to the witnesses for their response. Witnesses, we would ask if you would to please
respond no later to any of those questions than April 29th of this year. With nothing further
before the committee, the hearing is adjourned. Thank you.
