SIFMA identified the key regulatory challenges to "operationalizing" distributed ledger technology ("DLT") into ordinary securities transactions.

SIFMA stated that its whitepaper, co-authored by PricewaterhouseCoopers LLP, was intended to highlight where regulatory clarity or change is required for the securities markets to take full advantage of DLT. SIFMA stated that the securities industry is strongly motivated to operationalize DLT given the benefits (i.e., capital savings through instantaneous settlement, streamlining of recordkeeping, and programmability of a securities asset itself).

SIFMA said further regulatory clarification is needed on:

  • whether DLT is "sufficiently robust" to act as the registrar of a corporate issuer or to satisfy a broker-dealer's books and records requirements;
  • whether DLT-based systems meet the possession or control requirements of SEA Rule 15c3-3 ("Customer Protection - Reserves and Custody of Securities"); and
  • whether an entity that clears and settles DLT transactions would be required to register with the SEC as a clearing agency.

Commentary Steven Lofchie

In this paper, SIFMA illustrates that the industry has moved past the stage where "Bitcoin" will change the entire world and into the stage where DLT will provide for meaningful cost reductions using existing infrastructure subject to current regulatory requirements. To make it work, however, there will need to be some tinkering with the regulatory framework.

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