On July 21, U.S. market-making firm Citadel Securities sent a letter to the SEC’s Crypto Task Force. In the letter, Citadel asked the SEC to be careful before making any rule changes related to digital securities or tokenized stocks. The firm warned about several risks and advised the SEC not to allow any special exemptions for digital assets.
Citadel Warns SEC Regarding Tokenized Stock Exemptions
In its letter, the firm raised concerns about the SEC’s proposed regulatory exemptions for tokenized stocks, warning that such measures could destabilize traditional market liquidity and impact investors’ clarity. Citadel suggested that the SEC should focus on market liquidity and investor protection.
“Simply put, while we strongly support technological innovations designed to address market inefficiencies, seeking to exploit regulatory arbitrage for ‘lookalike’ securities is not innovation,” said the founder of Citadel Securities, Ken Griffin.
Citadel’s Demand from the SEC
Citadel Securities recommends the SEC to create a balanced regulatory framework that embraces technology while maintaining stability and investor protection. Additionally, the firm demanded adjustments in regulatory requirements for crypto exchanges and digital securities.
Citadel also highlighted the risks of — compliance complexity, potential decline in IPO activity, and intensified volatility in crypto exchanges if the SEC approves the exemption.
“Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” the firm reiterated.
Citadel Letter Sparks Debate Among SEC Heads and Crypto Experts
SEC Commissioner Hester Pierce addressed Citadel’s letter and said that tokenized securities must adhere to existing regulatory frameworks. Later, SEC Chair Paul Atkins emphasized the agency’s “innovation exemption” mechanism will open new avenues for trading.
While the agency’s heads are embracing innovation exemption, crypto experts fear that it will disrupt the balance between market stability and innovation. Industry experts warn that unregulated tokenization could break the smooth liquidity, harm transparency, and create systemic risks for crypto investors and users who are relying on centralized exchanges.
Final Thought
Along with Citadel Securities, many other industry players raised concerns regarding hurdles in secure custody, collateral volatility, and stable liquidation frameworks if the exemption is approved. Crypto investors and experts urge the SEC to create a framework without compromising market structure, transparency, or investor access.
