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27 October 2020
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SEC open to the idea of tokenised ETFs

  • With the adoption of new rules and diversification in their portfolio, the SEC is willing to drive tokenisation of ETFs
  • SEC in October 2020 has brought amendments under the Investment Company Act of 1940, as amended (1940 act
  • Franklin Templeton had also launched a government money market fund whose shares will be tokenised on the stellar blockchain network

Jay Clayton, Chairman, the Securities and Exchange Commission (SEC) has announced that they are working on regulations which will permit cryptocurrencies version of Exchange Traded Funds to? Trade? To use? (ETFs).

Clayton at a conference on Innovation and Regulation of Digital Assets informed that the SEC is coordinating with other financial regulators like the Office of the Comptroller of the Currency and Commodities Future Trading Commission to decide as to who has regulatory jurisdiction over different crypto products.

With the adoption of new rules and diversification in their portfolio, the SEC is willing to drive tokenisation of ETFs. Under tokenisation, the designated crypto asset similar to Bitcoin, represent single security such as a stock or a basket of securities like a fund or an ETF. Some of the companies have also begun exploring this idea.

SEC in October 2020 has brought amendments under the Investment Company Act of 1940, as amended (1940 act), which streamline and enhance the regulatory requirements for registered investment companies and business development companies to acquire shares of other funds, as reported by the National Law Review. Source: natlawreview.com/article/securities-and-exchange-commission-adopts-final-fund-funds-rule

Franklin Templeton had also launched a government money market fund whose shares will be tokenised on the stellar blockchain network. Amidst the announcement, the company has filed paperwork with SEC lately. However, investors can also invest in traditional fund shares. The fund is yet to be launched.

Another company in the run for tokenised investment is WisdomTree, which is very positive on the move by SEC. The company will lead the venture capital funding to secure token developer currency. Jonathan Steinberg, Chief Executive of the company believes that tokenised investment gives more opportunities to the investors than ETF.

Tokenised funds are efficient and have the capability for real-time trade settlement, and global liquidity. But the question arises how far and when SEC is willing to adapt to the needs of the companies and bring the rule in action. The SEC has struggled to keep up with the pace of innovation in the decentralised finance space.

Clayton had also informed while addressing the webinar with the chamber of Digital Commerce that investors of crypto were not interested to follow this approach. While addressing the conference Clayton has expressed his willingness to the idea of tokenised stock, however, the recent actions by the regulatory body on rejecting Bitcoin ETF earlier this year indicates that the idea of tokenised ETF becoming a reality would still take time.

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