SEC Commissioner Hester Peirce On The Rulebook For Crypto & Tokenized Securities

Hester Peirce has served as an SEC commissioner since 2018 under three chairs, including current Chair Atkins, for whom she previously worked as a staffer. For most of her pre-2025 tenure she was explicitly the minority voice on crypto policy, and she acknowledges that many positions she argued for in dissent have since become the commission's majority view, though she believes the shift took far longer than it should have. She also regrets not conducting a more thorough legal analysis earlier in her tenure, which she thinks could have laid a better foundation for the eventual policy change.

The SEC has issued a statement classifying tokenized assets into three categories: natively issuer-tokenized securities, entitlement-form tokenized securities, and synthetic versions. Peirce explains that entitlement-form tokenization is already standard market practice and not a new development. A synthetic tokenized version of a security is not legally equivalent to the underlying security and must be registered or qualify for an exemption if offered in the United States. The OpenAI case illustrates the stakes directly, as OpenAI disavowed a tokenized equity product linked to its shares that was trading on a US platform without its authorization.

The SEC's innovation exemption is designed to facilitate trading of tokenized securities, not to address the mechanics of how to tokenize them, and Peirce is explicit that it was never intended to cover trading of synthetic tokenized securities. She describes the exemption as a temporary measure, with the stated goal being a permanent rule or set of rules. She adds that the SEC needs to understand how tokenized stock trading will interact with non-tokenized stock trading before it can finalize anything durable.

The SEC has issued a proposal to rescind Rule 611 and Rule 610e, which is now open for public comment. Rule 611, the order protection or trade-through rule, has been in place for approximately 20 years. Peirce says roundtable sentiment indicated that even if the rule once served a purpose, that purpose has largely passed. She frames mandatory order routing as a form of central planning that requires strong justification, and argues market participants are effective at arbitraging price differences across venues without regulatory mandates. Rescission of Rule 611 and the innovation exemption process will proceed in parallel rather than sequentially, though Peirce cautions that opposition in the comment period could halt rescission entirely, and that even a supportive comment record would still leave a lengthy rulemaking process ahead.

Rescinding Rule 611 alone would not be a green light for tokenized equity trading because other rules remain in place. Rule 3B-16 is a specific example, as it could classify automated market makers as exchanges requiring registration under Section 6 or as alternative trading systems requiring broker-dealer registration. An AMM cannot comply with Rule 611 by construction because a bonding curve cannot respect the national best bid and offer, which means the rule's rescission is a necessary but not sufficient condition for on-chain equity trading to become viable.

Peirce agrees that the question of where registration obligations properly attach in decentralized systems is unresolved. She expresses clear disagreement with the prior SEC's approach of applying exchange or ATS registration requirements broadly to decentralized software and protocols. Her position is that pieces of software should not be required to register as regulated entities and that decentralized systems should not be treated as single unified registerable entities. At the same time, she predicts that on-chain trading mechanisms will likely exist in a world where someone within that system is registered as an exchange or ATS, meaning some registration anchor within a decentralized structure is the probable practical outcome even if the protocol itself is not the registrant.

Peirce's first exposure to Bitcoin came through Jerry Brito at the Mercatus Center, and one of the first issues she examined as commissioner was a Bitcoin exchange-traded product application. She concluded the SEC was applying a different standard to Bitcoin ETP applications than to comparable products, a view a court eventually upheld, though that vindication took years to arrive.