Sep. 21, 2026
Dear Secretary Countryman and Members of the Commission, I am submitting this comment regarding File No. 4-927, Release No. 34-106402, the Commission's temporary conditional exemptive relief concerning Tokenized Securities Venues and tokenized NMS stocks. I support responsible technological innovation in U.S. capital markets. Tokenization has the potential to improve settlement, transparency, ownership records, and market efficiency. However, I believe the Commission should address a fundamental market-structure question before tokenized equities operate at significant scale: Can a tokenized NMS share support, directly or indirectly, a Regulation SHO locate while the corresponding traditional share or related inventory held through a custodian or the existing DTC infrastructure is simultaneously available for securities lending or another locate? The Commission's requirement that covered tokenized NMS stock provide holders the same rights and privileges as traditional NMS stock of the equivalent class is important. But rights equivalence also makes reconciliation between the onchain and traditional systems critically important. If the tokenized and traditional records represent the same security and economic ownership, there should be clear controls preventing the same underlying inventory from supporting multiple incompatible claims, locates, lending commitments, or settlement obligations. If, alternatively, inventory associated with tokenized and traditional markets is treated separately for these purposes, investors should understand how short interest, securities lending, Regulation SHO compliance, failures to deliver, and settlement obligations will be measured and reconciled across the two systems. I respectfully ask the Commission to consider addressing the following questions as part of File No. 4-927 and any subsequent rulemaking: Locate reconciliation: How will broker-dealers determine whether shares associated with tokenized NMS stock are available for purposes of Regulation SHO Rule 203(b)(1), and how will that availability be reconciled with inventory available through traditional securities-lending systems? Inventory controls: What mechanism prevents the same underlying economic inventory from simultaneously being represented as available within both an onchain environment and a traditional custody or securities-lending environment? Custody and backing: Where applicable, how will market participants and regulators verify the relationship between tokenized shares, shareholder records, custodians, transfer agents, and existing depository infrastructure? Securities lending: If securities connected to tokenized positions can participate in securities lending, how will the creation, termination, and transfer of those lending obligations be reflected across both systems? Short-interest reporting: How will short positions involving tokenized NMS stocks be incorporated into existing short-interest reporting so that investors and regulators receive a coherent picture rather than separate or incomplete measurements? Failures to deliver: How will failures to deliver involving tokenized NMS stocks interact with existing Regulation SHO close-out requirements and existing clearing and settlement records? Auditability: Will regulators have an end-to-end audit trail capable of connecting the blockchain transaction record with the relevant broker, custodian, transfer-agent, clearing, and securities-lending records? Public transparency: What information regarding token issuance, outstanding supply, backing, lending status, and reconciliation will be publicly available so that investors can independently evaluate whether tokenized shares remain properly accounted for? Existing products also demonstrate why terminology and legal structure matter. Some products marketed as "stock tokens" may provide economic exposure without representing legal or beneficial ownership of the underlying company's shares. Those products should be clearly distinguished from tokenized NMS stocks carrying the same rights and privileges as traditional shares. My concern is therefore not with tokenization itself. In fact, distributed-ledger technology may provide an opportunity to improve the transparency of U.S. securities markets. An auditable ledger could potentially make ownership, transfers, settlement, and other market activity easier to trace. But that benefit depends on the onchain record and the traditional financial infrastructure describing the same economic reality. A blockchain can provide an auditable record of what happens onchain. It cannot, by itself, establish that the same inventory has not simultaneously been committed, lent, pledged, or otherwise represented elsewhere. For that reason, I encourage the Commission to consider a straightforward principle as it evaluates the Innovation Exemption and develops any permanent framework for tokenized securities: One legitimate share should have one accountable and auditable chain of ownership and availability across the entire market infrastructure. Whether that record exists on a distributed ledger, at a custodian, through DTC infrastructure, or across interoperable systems, market participants and regulators should be able to determine which shares exist, where they are held, whether they are available for lending or a locate, and whether they have already been committed elsewhere. The Commission has an opportunity to use tokenization not merely to replicate existing market plumbing on a blockchain, but to improve its transparency. Before this market grows, I respectfully encourage the Commission to establish clear rules for: locate reconciliation, backing verification, securities-lending reconciliation, prevention of duplicate claims, and an end-to-end audit trail between traditional custody infrastructure and tokenized markets. These safeguards would help ensure that innovation strengthens market integrity rather than introducing a new layer of uncertainty into ownership and settlement. Thank you for considering this comment and for providing investors and market participants an opportunity to participate in the development of this framework. Respectfully submitted, Brad M. Retail Investor