Oct. 22, 2026
Dear Secretary Countryman and Commissioners: I respectfully submit these comments regarding the Commission’s September 17, 2026, Order, Release No. 34-106402, File No. 4-927, granting temporary conditional exemptions related to tokenized National Market System stocks and certain liquidity providers. I recognize that tokenization and distributed-ledger technology may offer useful innovations in trading, settlement, and recordkeeping. Those possibilities do not eliminate the need to preserve investor protection, fair execution, market integrity, meaningful issuer oversight, and effective SEC supervision. In my view, the Order makes significant changes to the market structure for U.S. equities before the public comment process can inform the decision, raising serious procedural and substantive concerns. I urge the Commission to rescind the Order and address any proposed changes through full notice-and-comment rulemaking under the Administrative Procedure Act. Before adopting a new framework, the Commission should publish the legal and economic analysis necessary for meaningful public review, including a rigorous assessment of costs, benefits, competitive effects, operational burdens on issuers, and likely effects on retail investors and market quality. The analysis should address whether the scope of the exemptions is consistent with the Exchange Act’s investor-protection requirements and why an order, rather than rulemaking, is the appropriate mechanism for changes of this breadth. The Commission should also address the following safeguards in any subsequent rulemaking: 1. Equivalent investor and trading protections. Evaluate how investors using tokenized securities venues will receive protections comparable to those available in registered markets, including best execution, trade-through and price-transparency protections, order-quality information, customer-asset safeguards, and clear remedies when trades fail or assets are lost. Disclosures should explain, in plain language, which protections do not apply and must not imply that SEC exemptive relief is an endorsement of a venue or a guarantee of investor protection. 2. Effective supervision and market surveillance. Ensure that the Commission can promptly obtain complete, standardized, usable records; examine venues and relevant participants; investigate suspicious trading; and coordinate surveillance across tokenized and conventional markets. The Commission should assess how activity will be captured by the Consolidated Audit Trail and other surveillance systems, and how the cost of supervision and market infrastructure will be allocated fairly rather than shifted disproportionately to registered participants. 3. Cybersecurity, custody, and operational resilience. Require meaningful, verifiable safeguards for smart contracts, cyber incidents, private information, custody, business continuity, disaster recovery, and the handling of execution errors and customer complaints. Public disclosure alone should not substitute for minimum operational controls where their absence could expose investors or market integrity to material harm. 4. Issuer consent and shareholder rights. Require affirmative written issuer consent before an unaffiliated third party may tokenize an issuer’s stock or make it available for trading. A 30-day non-objection process may not provide adequate time for due diligence, internal review, or assessment of sanctions screening, insider-trading controls, proxy distribution, dividend payments, voting rights, and reconciliation across multiple ledgers. The Commission should clearly allocate responsibility for preserving the rights attached to the underlying shares. 5. Consistent treatment of comparable market activity. Assess the exemptions from the exchange and dealer definitions together with relevant trading, reporting, and market-structure rules. The Commission should explain how it will prevent regulatory arbitrage, protect competition, and avoid giving economically similar activity materially different safeguards merely because one venue uses distributed-ledger technology. Better Markets’ October 22, 2026, comment letter concerning the Innovation Exemption (File No. 4-927; Release No. 34-106402) provides a detailed discussion of these procedural, supervisory, investor-protection, infrastructure, and issuer-related concerns. I ask the Commission to consider those issues alongside the full range of stakeholder comments, rather than treating the Order’s temporary duration and disclosure conditions as substitutes for a comprehensive public process. If the Commission does not rescind the Order immediately, it should, to the extent permitted by law, suspend or narrow reliance on the exemptions while it undertakes a transparent rulemaking and develops enforceable safeguards. Any subsequent framework should include public reporting, ongoing monitoring, clear intervention triggers, and a meaningful review before the exemptions can be extended or made permanent. Innovation in securities markets should be pursued through a process that is lawful, transparent, evidence-based, and protective of investors. I respectfully request that the Commission withdraw the current Order and develop any replacement through full notice-and-comment rulemaking. Respectfully, Robert E. Rutkowski