Commissioner, SEC
SEC Commissioner Hester Peirce On The Rulebook For Crypto & Tokenized Securities
Markets are being rebuilt around blockchain, but the rules governing them are still being written. This week, we sit down with SEC ...
About Hester Peirce
SEC Commissioner Hester Peirce has continued to advocate for clear regulatory frameworks for digital assets and tokenized securities. In recent appearances, she discussed the SEC's work on an "innovation exemption" for tokenized securities, which she described as "not even that big of a step" and "pretty traditional," clarifying that it would not cover synthetic securities held through special purpose vehicles. She also emphasized that the SEC and CFTC are conducting joint work to determine where products should be regulated, and that the SEC is preparing for potential rule-writing obligations if the CLARITY Act passes, which she said she expects to happen "this summer." Peirce noted that her term ended in June 2025 but she can remain until the end of 2026, and that she plans to leave before that time to teach securities regulation at a law school. Peirce stated that she is "not looking for ways to pull people into the regulatory regime that don't belong" and cautioned that "some of what's out there at least rhymes with what we see in some securities type arrangements," urging market participants to assess whether securities laws apply to their activities. She identified priorities including enabling token fundraising, updating transfer agent rules, and addressing custody issues. Peirce also stressed the importance of protecting self-custody, privacy in financial transactions, and developers' ability to write code without permission, while noting that the SEC continues to pursue enforcement against bad conduct. She encouraged builders to "build things that meet actual human needs" and to "come in and talk to us" about registration or relief.
Transcript (53 segments)
H
Hester Peirce0:00
You know, having seen the financial crisis, it really gives you an appreciation for good financial regulation versus bad financial regulation. This issue is much bigger than just crypto. It's a question of do we tell people how they have to route their orders. If you are going to tokenize something, you need to figure out which bucket it fits in. We're looking at ways to enable people to experiment with trading tokenized securities, and that is going to require some experimentation. I think we really need to be careful not to say that pieces of software have to register as things. You know, one of the other rules that I've talked about needing to update for a long time are the transfer agent rules. I think it's a really exciting moment to rethink how some of this infrastructure works, where the regulation obligations and registration obligations should be that would make the system better for everyone.
H
Host1:10
Nothing said on Inflection Point is a recommendation to buy or sell securities, tokens, or any other assets. Nor does it constitute a solicitation or offer to invest in any fund, product, or financial instrument. This podcast is for informational purposes only. The views and opinions expressed by hosts and guests are their own and do not necessarily reflect the official positions or views of their respective employers or affiliates. Hosts and guests may hold positions in companies, funds, tokens, or projects discussed. Hey everyone, welcome back to Inflection Point. I'm joined as always by David Lant and Michael Mark Antonio. And today we have a very special guest, Commissioner Hester Pur. Commissioner, thank you for being here. Thanks for joining us.
H
Hester Peirce1:52
Thanks for having me. I'm excited to be here. I do have to give you my disclaimer, of course, which is that my views are my own views as a commissioner and not necessarily those of the SEC or my fellow commissioners.
H
Host2:02
Yeah, thank you. I've been listening to you long enough to know that that's the standard disclaimer. So we're going to keep it very SEC focused. The first question I kind of wanted to get into is: what do you think the coverage gets wrong about the SEC? Where are people misreading the commission's intent most of the time?
H
Hester Peirce2:41
I think when it comes to crypto, people assume that all we work on at the SEC is crypto, which is definitely not true.
H
Host2:52
Okay. Yeah. Love it. That's definitely a bias in my world. You've been at the commission since 2018 and you've seen three different chairs and two eras of crypto within the administration. For a long stretch you were writing the dissent as the minority voice, and now in 2026 much of what you argued for has become the house position. What has that shift been like to live through? How does it feel from 2018 to now? Did you think you would get here? Any decisions you're proud of or think you got wrong in this transition?
H
Hester Peirce3:49
Definitely I hoped we would get to a better place, which we're in now, so it's a relief to be here. I would not have imagined it would have taken as many years and twists and turns as it did. Working now in an environment where the chairman is extremely supportive of making positive progress has been a wonderful change. In terms of regrets, I think had I realized how bad the road was going to be earlier, I could have tried to pull us back by doing a more thorough legal analysis myself very early in my tenure. I don't think it would have changed a lot, but it could have set us up better for when we came into a more favorable administration.
H
Host5:07
That's excellent. Commissioner, can you talk us very briefly about your career? A lot of people know you from crypto over the past five years, but you have a long career in public and private service. How did you get to the SEC and get interested in what you're doing?
H
Hester Peirce5:45
Yeah sure. I came to securities law because I had a deep interest in economics and in law, so it was a nice marriage of the two. After law school I did a clerkship and then worked at a firm heavily engaged in securities law. That led me to the SEC because understanding securities law is really helpful if you've worked at the regulator. I wrote rules for mutual funds as a staffer, then worked for now chairman Atkins when he was a commissioner. After that I worked on the Hill at the Senate Banking Committee during the financial crisis. Then I went to a research center where I worked on how regulation could be done better. Having seen the financial crisis, it gives you an appreciation for good versus bad regulation. I don't think the lessons many took from the crisis were the right ones. I was able to work with economists and others to think about good regulation. Then I had a chance to come back to the SEC as a commissioner, something I had not wanted to do initially, but when the opportunity came I thought it might be fun to shape policy.
H
Host7:48
That's fascinating. Can I ask a follow-up? How did you get interested in crypto? When did it come onto your radar?
H
Hester Peirce7:56
Well, I heard about Bitcoin pretty early on because I was working with Jerry Breurto at Mercadus and he was very early involved in Bitcoin and other crypto assets. That was my first exposure. When I got to the SEC, I had seen from outside that the SEC was struggling with how to approach Bitcoin exchange-traded products. One of the first things we had to look at after I became commissioner was one of those products. It was my first digging down into that, and I realized we were applying a different approach than we did to other things, which is not what a regulator should do. Eventually a court agreed, but that took years.
H
Host9:10
That's fascinating. I'll ask just one more question. Michael and Mark, I wanted to touch on tokenization, which is a massive trend. We saw episodes like token AI and OpenAI disavowing tokenized equity linked to its shares. The SEC issued a statement classifying tokenized assets into three categories and seemed to shun the synthetic category. Can you talk about that? What is your view, what are the next steps in this area that could impact market structure so much?
H
Hester Peirce10:14
You're right to point to that statement. If people are interested, they should look at the statement on the different models. I'm not going to talk about any particular issuer, but the key idea is that if you are going to tokenize something, you need to figure out which bucket it fits in. You can have natively, the issuer itself can tokenize, or it can be tokenized in an entitlement form, which is standard. Then there is a synthetic version. We want to emphasize that a synthetic is not the same security, so it has to be registered or exempt from registration if offered in the US. You need to think about what it is and how to register it. Issuers don't govern secondary trading of their stock. This issue has come up in connection with the innovation exemption, which is not out yet. But as I have emphasized, the innovation exemption is about trading of tokenized securities, not about how you tokenize them. I've never envisioned it as being about trading of synthetics. It's about trading of the first two categories in that statement.
H
Host12:22
I mean, there are other rules being proposed. There's the rescinding of 611 and 610E. Are these just the parts that need to go into place in the background while the innovation exemption does the legwork? Because if we ignore the innovation exemption, it's not out yet, it's been delayed. But we have the proposal to rescind these rules, and that still leaves a lot of questions. Is the idea that the innovation exemption is to hold us down until all the other rules are put in place? What's the actual purpose here?
H
Hester Peirce13:06
Well, first of all, the notion that it's been delayed - I don't know what delay means in this context. People have put undue weight on the innovation exemption. As the chairman and I have said, we're looking at ways to enable people to experiment with trading tokenized securities, and that will require experimentation. We have to understand how tokenized stocks will interact with non-tokenized stocks. The innovation exemption is intended to be one piece of working through that. It is not permanent. The goal is to get to a rule or set of rules that govern this. People should keep their eye on the long-term goal of that rule. We would love input. With respect to 611, the trade-through rule, that is a much bigger issue, not just a crypto issue. It's a question of whether we tell people how to route their orders. That is a central planning kind of thing, and we ought to have a very good reason for it. We have a proposal to rescind it, and we'll see what commenters say. If we do take away that rule, we'll need to ensure we still achieve investor protection and market integrity.
H
Host16:11
Yeah, let's stick with 611. A lot of people in crypto are couching the potential recision of 611 as a green light for tokenized equities on chain, because an AMM can't comply with 611 by construction. So killing the trade-through rule clears that path. Two-part question: first, do you agree with that analysis, or is it overstating it?
H
Hester Peirce16:46
Well, I think there are questions about how 611 would apply in an onchain world with AMM. That's a fair point, but the overstatement comes in that although the innovation exemption isn't out, if people want to wait until 611 is rescinded, they may wait a long time. We don't know what comments will say. Even if we do rescind it, that process takes time. The exploration of trading tokenized securities will move in parallel, not sequentially. Also, the 611 debate is a much broader debate. I've always had trouble with 611 because the goal was to facilitate a national market system, but in my view, market participants are good at arbitrage. As long as information is available, prices will even out organically. We don't need a regulatory system that mandates it. With tokenized securities and AMMs, we need to ensure information is available for arbitrage. We'd love feedback on how to facilitate experimentation and market integration.
H
Host19:51
Yeah. My position on 611 is that even if it were rescinded, that's not a real green light for trading tokenized equities. You still have other rules like 3B16 that AMMs can't comply with. They would still arguably be defined as an exchange and need to register as a broker-dealer, which a smart contract can't do.
H
Hester Peirce20:27
I just want to weigh in. I think we really need to be careful not to say that pieces of software have to register as things, and not to say that decentralized things need to register as if they were one united entity. That said, we'll probably end up in a world where people use onchain mechanisms and someone in the system will be registered as an exchange or ATS. We have to figure out where the registration obligation properly attaches. We can't require registration of software code or a developer who just publishes code. That wouldn't be a good place to be.
H
Host21:51
Right. So that's one rule with tension. Settlement has to clear through a registered clearing agency, the underlying share has to sit with a qualified custodian, and then a transfer agent. That seems to obviate the benefits of blockchain. Most people are excited about the innovation exemption to avoid complying with a host of rules the technology is fundamentally incompatible with. Do you see it that way? Is the innovation exemption meant to cut through those rules rather than modify each one?
H
Hester Peirce22:52
Well, I think what rules are applicable depend on the entity. Someone who is a regulated entity may decide to take advantage of the innovation exemption. We're trying to make it possible for people to explore on-chain trading and provide relief where necessary. You're raising the right questions. Will some regulated entities be replaced or supplemented by technology? For example, transfer agents could do more using blockchain. One of the other rules I've talked about needing to update are the transfer agent rules. I'm sad we waited so long, but now it's a better time to rethink them in light of tokenized securities. I hope people will pay attention and think creatively about the role of blockchain. Also, clearing agencies are seeing more interest. It's an exciting moment to rethink how infrastructure works and where obligations should be placed, and what technology can offload to make the system better for everyone.
H
Host25:16
That is all fascinating. Commissioner, I think I heard you make the distinction between onchain finance and decentralized finance. How does that relate? Would it make sense in the short term to see onchain finance conducted mostly by registered players, with a future where everything is decentralized? Or is there a role for gated DeFi?
H
Hester Peirce26:10
Yeah. It's important to make the distinction because it's different. When you involve intermediaries, you probably want some regulatory structure around them. But that's not to say the OG folks don't have a good point about the value of peer-to-peer or peer-to-protocol. I think that should be an option. This technology enables it in the securities world in a way it hasn't been before.
In recent years, the securities market is heavily regulated. Many policies are driven by AML/KYC and tax regimes, but we also need to preserve people's ability to engage in peer-to-peer activity and hold assets in their own wallets rather than through intermediaries.
H
Host28:36
Yeah. One follow-up on 611. It relates to market makers. Today in crypto, anyone can be a market maker. When we move to on-chain securities, what's your view on market makers having to register as dealers? Do you think that is appropriate or a relic of the past?
H
Hester Peirce29:49
Well, you're opening up a can of worms. The dealer definition has been debated at the commission. We need to distinguish between actual market makers and liquidity providers. It's important for people to understand how markets operate and the incentives of participants.
H
Host31:15
Yeah, just last point. Dealer registration under FINRA is so onerous that it might crowd out crypto market makers. Could the innovation exemption cover those registration requirements?
H
Hester Peirce31:58
The innovation exemption is primarily about using AMMs to trade on chain. Dealer issues are tangential. If the innovation exemption comes out and people have questions, they should inquire with us.
H
Host32:30
So, I want to tie this into a little bow. We've talked about rescission of 611, 610E, definitions, market makers. What are we not talking about, Commissioner? What other gray areas are you looking into?
H
Hester Peirce33:06
We still have to do something about people trying to raise funds by issuing crypto. I've been thinking about a safe harbor. The Clarity Act is also out there. We also have questions around custody, broker-dealers, investment advisors, money market funds, tokenized funds, and how stablecoins are treated.
H
Host34:38
Nice. David, I think you have a follow-up. But first: you mentioned fundraising. Would the Clarity Act help that aspect or are there untouched areas?
H
Hester Peirce34:58
Yeah, the Clarity Act would be helpful. We'll have rulemaking obligations flowing from it. Also, crypto issues bring up CFTC-SEC harmonization, which we are spending time on.
H
Host35:45
That is incredible. Two more: first on vaults – is that an area of interest for the commission?
H
Hester Peirce36:11
It's important for people to think about securities laws and how they apply. People should not assume securities laws don't apply. They need to think about what a good regulatory framework would look like and engage with us.
H
Host37:35
Makes sense. Another: the SEC’s crypto taxonomy statement from a few months ago had five categories. But revenue-generating tokens like Hyperliquid or Aerodrome – is that still an area of exploration?
H
Hester Peirce39:13
We invited feedback and some have come in about those tokens. We’re open to engaging. Further guidance could be helpful. I hope we can get to a place where someone can create a security and feel comfortable registering it.
H
Host40:10
Got it. Makes a lot of sense. Yeah, you just said you hope people feel comfortable. I’ve heard you talk about the IPO drought. What needs to change in rulemaking to see more IPOs?
H
Hester Peirce40:51
It’s one of the chairman’s primary pillars to make it more attractive to go public. We need to peel away non-material disclosures, streamline public company categories, consider moving from mandatory quarterly reporting, and address arbitration vs litigation, research analyst coverage, and market structure issues.
H
Host42:29
The reduction from quarterly to semiannually – was it primarily to make regulation easier or also to encourage long-term thinking?
H
Hester Peirce43:10
The research is mixed on whether moving away from quarterly changes that dynamic. The question is whether the cost of quarterly reporting outweighs benefits for some companies. We’re open to comments. Maybe we can pair back quarterly to an easier lift.
H
Host44:19
Love to hear that. So, let’s zoom out. In five years, what do you hope and think the markets will look like?
H
Hester Peirce44:47
I hope we’ll have markets with active retail participation. Tokenization might be the format. I hope we can experiment and have enthusiastic participation. What will actually happen remains to be seen.
H
Host46:12
Lovely. There’s confusion about tokenized securities models: issuer-sponsored, custodial, synthetic. Could you clarify the difference between custodial and synthetic?
H
Hester Peirce47:43
The custodial entitlement framework gives you all economic rights – you are the owner. The synthetic version is someone holding securities and you’re buying into a vehicle. Your claim depends on that entity. It becomes a separate security. People need to think about what it looks like to register that synthetic option.
H
Host49:08
If a synthetic issuer extended all rights of the custodial model, would that transfer it to custodial, or are other things needed?
H
Hester Peirce49:41
I don’t want to talk about any particular issuer, but the custodial model entails a registered entity. That’s the piece people need to think about.
H
Host49:54
Right. Final point: what’s your opinion on tokenizing OpenAI private shares? Should an unaffiliated party be able to tokenize a company’s shares without the issuer’s consent?
H
Hester Peirce50:36
I won’t talk about any particular company. But when a company goes public, it doesn’t have control over what people do with the shares. Nobody has to ask the company about entitlements.
H
Host51:25
There’s so much room for discussion, but we’re getting to the end. One more: you mentioned you’ll be on the sidelines. Tell us what’s next for Hester Peirce.
H
Hester Peirce52:01
My term ended last June; I could stay till the end of the calendar year, but I’ll leave before then to teach law school. I’ll be teaching securities regulation. I’m excited to leave these problems to someone else.
H
Host52:28
I think there will be a lot of crypto people wanting to audit that class. But for now, thank you for everything you’ve done for crypto and the industry. Those students will be very lucky.
H
Hester Peirce53:02
Thanks for the conversation. I’m honored to talk with you all today.
H
Host53:10
Thanks for watching everybody. This was a special guest, our first guest. Tune in next week for market talks and World Cup predictions. Cheers.