On October 12, 2017, the United States Securities and Exchange Commission’s Investor Advisory Committee will meet to discuss blockchain and distributed ledger technology. Among other items, the committee will explore the implications that the technologies have for securities markets. As set out in the SEC’s notice, the meeting will be available via webcast on the agency’s website at www.sec.gov, and the public is invited to submit written statements to the committee.
One of the key figures who will be in attendance is Hester Peirce, director of the Financial Markets Working Group at George Mason University’s Mercatus Center. A former staff attorney at the Commission and staff member of the Senate Banking Committee, Peirce is on the shortlist to become an SEC Commissioner. Last month, the White House announced President Trump’s intention to nominate Peirce for the position.
As the Commission considers the FinTech landscape, it’s clear that there are many potential benefits and risks for investors. Blockchain technology might reduce transaction settlement times and virtually eliminate trading fees, but unregulated token offerings might entice uninformed, exuberant speculation. The agency will need to separate the good from the bad. Close study and patient analysis are crucial.
In July 2017, the Commission deduced that tokens from The DAO were securities, and thus, would have been subject to SEC regulation. However, the agency did not pursue any enforcement actions in the matter. As those privy to the cryptocurrency world know, sometimes it is ambiguous whether a token qualifies as a security. New financial instruments are constantly created, and they deserve the SEC’s scrutiny. But they also deserve the agency’s leadership. While it’s tempting to criticize the Commission for not acting swiftly and decisively, the truth is that the agency has been far more permissive than its counterparts in China. Instead of brazenly banning ICOs and closing exchanges, the Commission has been judicious in its approach.
Blockchain technology could soon become the underlying settlement mechanism for securities trading. In June 2017, Delaware passed an amendment to the Delaware General Corporation Law, setting the stage for distributed ledger shares. The state’s law now allows for the corporate authorization, issuance, transfer, and redemption of shares through a distributed ledger.