Tokenization and the Future of Securities: Modernizing Our Capital Markets

Committee for Financial Services will come to order. Without objection, the chair is authorized to declare a recess at any time today. Today's hearing is entitled Tokenization and the Future of Securities: Modernizing Our Capital Markets. Without objection, all members will have five legislative days within which to submit extraneous materials to the conclusion in the record. I now recognize myself for four minutes for an opening statement. Good morning. We stand at the threshold of a significant transformation in our financial landscape. Currently, early adoption efforts in the tokenization of assets are changing the ways that securities are issued, traded, and recorded. By leveraging distributed ledger technology to represent financial instruments and their ownership, tokenization has the potential to streamline processes and introduce entirely new ones, promising greater efficiency, transparency, and accessibility. However, as tokenization becomes more prevalent in our capital markets, it raises very important legal and regulatory policy questions. We must ensure that our existing security laws are equipped to govern these modern emerging technologies without stifling the very progress they offer. Today's hearing provides members with an opportunity to identify regulatory gaps and inefficiencies that could create risk or hinder investor protection and orderly market objectives. We must foster an environment that supports growth while maintaining investor protections, which are the bedrock of our system. As we move forward, we must also consider the broader impact of tokenization on market integrity, capital formation, while examining how it can enhance transparency, efficiency for investors, regulators, market participants by upgrading the very certain complex compliance functions themselves. Evaluating this impact will help the committee better understand both the opportunities and the risks associated with this emerging technology. Today's discussion is vital to shaping the future of our capital markets and guiding policy and legislative approaches that can support innovation and the growth of U.S. capital markets while maintaining our position in the world and our strong investor protections. The United States has led the world in financial innovation and it's essential that we continue to pave the way for future advancements in a manner that are responsible and supported by clear, effective regulatory frameworks. In doing so, we can help ensure innovation serves the broader public interest, strengthens market integrity, and reinforces the United States' continued leadership around the globe in capital markets and capital formation. I look forward to the panel's discussion today and I yield back the balance of my time. I now recognize the ranking member for a four-minute opening statement.

Thank you, Mr. Chairman. Democrats on this committee support innovation, helping companies raise capital, and strengthening investor confidence in our financial markets. This has never been a question. New technologies that convert securities into digital tokens on a blockchain known as tokenization might be able to make stock trading more efficient through faster settlement, more transparency, and increased participation from global investors. It would be a good thing to increase demand for U.S. securities and lower costs for issuers. Democrats support technology when it delivers real benefits to American people. However, our first priority should be to ensure that any innovation actually serves investors and businesses, not the middlemen looking to take advantage. Our caution comes from experience. Leading up to the 2008 financial crisis, we were told that securitization and new financial technologies would make borrowing easier, spread risk, and lift everyone up. What they actually did was allow Wall Street to build a process that legitimatized predatory loans, stripped wealth from middle-class homeowners, and created the conditions for the worst economic catastrophe since the Great Depression. Working families lost their homes. Communities of color were devastated, and the people who built and sold those products walked away richer. While creating new types of middlemen may sound innovative, in practice, it appears that tokenization also adds new fees, complexities, and risk for investors and the financial system. When a retail investor buys a tokenized stock on a decentralized exchange and pays seven times more in execution costs than if they just bought the stock on Nasdaq, as a former SEC chief economist has documented, is that reality innovative? Is that really innovative or just predatory? I'm also concerned about the gamification of investing and gambling associated with these technologies. This committee has already examined how trading apps use behavioral designs to turn investing into a game. Tokenization could make those trades faster, always on, and with fewer guardrails. And most importantly, it is impossible for this committee to ignore the blatant corruption from this administration. The Trump family has earned an estimated $1 billion in profit from their crypto ventures just last month. Crypto executives gathered in Mar-a-Lago where market participants paid millions of dollars to appear on stage with President Trump's children. When officials in the government who are approving the rules also profit from the market those would regulate, the American people rightly ask whose interest truly comes first? Innovation must be, should be used to strengthen, not weaken investor protections. Innovation should be used to help working families and build wealth and extract it from them. And innovation should be used to learn from the mistakes of the past, not repeat them on a greater scale. So I look forward to hearing from our witnesses today and I yield back the balance of my time.

The gentlewoman yields back. I recognize the chair of our subcommittee on capital markets, Mrs. Wagner of Missouri, for one minute for an opening statement.

I thank you, Chairman Hill. As chair of the capital markets subcommittee, I'm focused on tokenization's real-world impact. How this technology will streamline capital formation and modernize our markets. But most importantly, I'm focused on how tokenization will benefit my constituents in Missouri and main street investors throughout the United States. Tokenization is revolutionizing finance, yet regulatory uncertainty threatens to push this technology offshore. To ensure American markets continue to set the global standard, we must provide legal clarity to foster innovation without compromising investor protection. By modernizing outdated rules, the SEC can encourage innovation within our existing securities law. But let me be clear. Modernization must never come at the expense of rigorous oversight. I look forward to your insights and I yield back.

Gentlewoman yields back. We recognize the ranking member of our subcommittee on capital markets, Mr. Sherman of California, one minute for an opening statement.

Now the people who have tried to create a payment system without know your customer anti-money laundering are trying to create a stock exchange without know your customer, anti-money laundering, or any other regulation. This is such a bad idea that they know they can't pass it through Congress even though they spend more money on lobbying and campaign contributions than the next 10 industries combined. They know they can't even get this through the SEC through a regular rulemaking process. So they've gone to the SEC and asked for a blanket exemption, a rubber stamp, scarcely more than a no-action letter. If this new approach to stock transactions took place, it would be perfect for those engaging in insider trading. It would doom the consolidated audit trail. Sure you might know that a particular account number seemed to make a big trade just before the announcement, but you'll never know who the person was behind that account and what inside information they had. This is a bad idea. We ought to say no.

Gentleman yields back. Today we welcome the testimony of the Honorable Ken Bentsen, President and Chief Executive Officer of the Securities Industry and Financial Markets Association; the Honorable Summer Mersinger, Chief Executive Officer of the Blockchain Association; Christian Sabella, the Managing Director and Deputy General Counsel of the Depository Trust and Clearing Corp; John Zecca, the Executive Vice President, Global Chief Legal, Risk and Regulatory Officer at Nasdaq; and Salman Banaei, the General Counsel of Plume Network. We thank each of you for taking time to be with us. Each of you will be recognized for five minutes to give an oral presentation of your testimony and without objection your written statements will be made part of our record. Congressman Bentsen, we'll recognize you for five minutes.

Thank you, Chairman Hill, Ranking Member Waters, and distinguished members of the committee. Thank you for the opportunity to testify today on tokenization and the future of U.S. securities markets. My name is Ken Bentsen, I'm President and CEO of the Securities Industry and Financial Markets Association, or SIFMA. United States leads the world with the deepest and most liquid capital markets built on a foundation of robust investor protection and market integrity. The undergirding of that foundation is the most technologically sophisticated market infrastructure that ensures robust operational resiliency, proven to deliver maximum execution quality and efficiency, including during periods of extreme stress, and is the result of constant investment in new technology and processes to better serve clients. As such, SIFMA and its members strongly support innovation in the securities markets and believe new technology such as distributed ledger technology or DLT and tokenization offer many potential benefits for the U.S. SIFMA's members and other industry participants have been investing in DLT for more than a decade to determine how such new technologies could benefit investors, issuers, and other market participants across the securities lifecycle. This includes enhancing market infrastructure, increasing investor access and choice, and supporting more efficient capital formation. At the same time, the continued strength of the U.S. securities markets depends on preserving the investor protections and market integrity safeguards that provide trust and confidence to market participants. That strength and efficiency is not an abstract thought, but it provides real benefits across the U.S. economy, including lower cost of capital for issuers, broader access and liquidity for investors, retirement savings, business investment, and economic growth. As SIFMA has emphasized across a series of submissions to the Securities and Exchange Commission, our securities markets thrive because of, not despite, longstanding regulatory frameworks that protect investors and ensure market quality and integrity. The goal of policymakers should be to modernize markets in a way that builds on these strengths rather than bypassing them. Developing a durable approach that is built on existing regulatory frameworks will enable innovation to flourish and new operating models to develop while also protecting investors and ensuring that our markets remain the envy of the world. Specifically, I would like to highlight four recommendations. First, tokenized securities are securities. Technology does not change the underlying definition of the instrument. And like any securities, tokenized securities should be subject to the same robust investor protection and market integrity rules that have helped make the U.S. securities markets the deepest, most liquid, and efficient in the world. Second, DLT and tokenization can deliver meaningful benefits across the securities lifecycle, but those benefits will be realized on a scalable and durable basis only through technology-neutral functional regulation that protects investors and preserves market quality. Third, there may be areas where the current regulatory framework is fundamentally incompatible with DLT technology, making existing requirements infeasible. In these instances, carefully tailored exemptive relief may be necessary to allow innovation while maintaining the spirit of the regulations and the protections they offer. Even then, bespoke exemptions must be narrow, transparent, time-bound, and aligned with the intent of the underlying regulations. They should never serve as a substitute for a notice and comment rulemaking. Congress and the Commission must ensure regulations are calibrated to actual risk, avoiding workarounds that undermine investor protection or market integrity. Fourth, tokenization must be evaluated as part of a broader set of market structure reforms that also includes extended hours trading or so-called 24/7, the ongoing review of Rule 611 on trade-through or trade-through prohibitions, and other areas of Regulation NMS. Congress can play an important role, as it always has, in supporting the responsible development of tokenized securities markets by reinforcing that tokenized securities are securities and they should be integrated into the existing federal securities regulatory framework, not placed outside of it. Tokenization offers real promise across the securities industry, but those benefits will only be realized if tokenization develops in a framework that preserves investor protection and market integrity and builds on, rather than undermines, the strength, depth, and efficiency of U.S. securities markets. Thank you for the opportunity to testify today, and I look forward to the committee's questions.

Thank you, sir. Ms. Mersinger, you're recognized for five minutes for your oral presentation.

Thank you, Chairman. Chairman Hill, Ranking Member Waters, and members of this committee, thank you for the opportunity to testify today. My name is Summer Mersinger, and I am the Chief Executive Officer of the Blockchain Association, the largest crypto-native trade association. We represent the leading builders and innovators in digital assets, and we work to promote policies that support responsible innovation, protect consumers, and strengthen U.S. competitiveness. The central point I want to leave the committee with today is this: tokenization can help modernize American financial markets, but we must provide clear rules that help innovation to grow here at home. Tokenization means representing an asset, like a stock or a bond, on a blockchain in digital form. Tokenization provides expanded access to U.S. capital markets by reducing reliance on intermediaries, lowering transaction costs, and enabling 24/7 trading and continuous market access outside of traditional market hours. The blockchain technologies used in tokenization enable near real-time settlement, reducing counterparty risk by narrowing the gap between a trade and final payment. By replacing flawed manual record-keeping processes with more transparent, time-stamped records, tokenization lowers the cost and reimagines U.S. financial markets. These are real improvements for market participants, for investors, and for the long-term strength of U.S. markets. To be clear, though, modernization is not deregulation. Tokenized markets should be regulated. The question is whether our existing capital markets framework is appropriately calibrated for how tokenized securities markets actually operate. There's three ideas that should guide that approach. First, regulation should focus on function, not the technology itself. A security does not stop being a security because it's recorded on a blockchain. This is consistent with how financial regulation has always operated. The law regulates the activity taking place, not the technology used to carry it out. Second, regulation should distinguish between intermediaries and infrastructure. Traditional markets rely on intermediaries that custody assets and control transactions. Blockchain systems work differently. Software can handle record-keeping, transfer, and settlement without any one party taking custody or control of the customer's assets. Rules should reflect that difference. Third, regulation should reflect changes in settlement and risk. Traditional market rules were designed for delayed settlement and multiple intermediaries. But when assets and payments can move together in a single transaction, those legacy risks are reduced. A modernized framework should match the risks that are actually present. There has already been important progress. The SEC has provided helpful definitional clarity on the treatment of tokenized securities that makes clear that a tokenized security is still a security. The Commission has also shown a willingness to engage with tokenized technology through staff guidance, no-action relief, and other tools. That is the right approach, and it reflects how the SEC has handled other major technological advances in the past. But uncertainty remains, especially when the rules written for financial intermediaries are applied to disintermediated systems. More clarity is needed so that oversight remains strong without holding back better, more efficient market structure. Tokenization is the next step in the evolution of U.S. financial markets, and the benefits are clear: faster settlement, lower risk, greater transparency, and broader access. The question is whether the United States will lead this transition or allow it to take shape somewhere else. The next generation of market infrastructure should be built here at home under U.S. rules with robust U.S. investor protections in a way that strengthens American leadership, supports American innovation, and keeps the future of finance anchored in the United States. Blockchain Association and our members stand ready to work with Congress, regulators, and other stakeholders to help make that happen. Thank you, and I look forward to your questions.

Thank you. Mr. Sabella, you're recognized for five minutes for your oral presentation.

Chairman Hill, Ranking Member Waters, and members of the committee, my name is Christian Sabella, and I am Deputy General Counsel and a Managing Director of the Depository Trust & Clearing Corporation. It is my privilege to be here today to discuss DTCC's ongoing development of digital securities and tokenization solutions, which represents just the latest instance of DTCC performing its role as a pivotal driver of innovation and interoperability across U.S. and global financial markets. On behalf of DTCC, I thank you for the opportunity to participate in this important discussion. DTCC owns and operates three important financial market infrastructures: National Securities Clearing Corporation, Fixed Income Clearing Corporation, and the Depository Trust Company, each of which are registered with the U.S. Securities and Exchange Commission as a clearing agency. Additionally, each clearing agency has been designated as a systemically important financial market utility, or SIFMU, and thus is subject to heightened risk management standards and oversight by over 20 different supervisory bodies globally. As a user-owned business, DTCC's core purpose is to serve as a strategic partner to its members and their clients in creating and implementing innovations that promote efficiency, resilience, and interoperability across some of the most important financial markets. In 2024, DTCC played a pivotal role in facilitating the transition of the U.S. equities market to a T+1 standard settlement cycle and is presently spearheading the implementation of expanded central clearing in the U.S. Treasury market. It is this purposeful innovation and deep expertise that led the firm to begin developing digital asset solutions starting in 2016. These efforts accelerated in 2024 with the acquisition of a company called Securrency, which today operates as DTCC's newest subsidiary, DTCC Digital Assets, or DDA. DDA's purpose is to provide institutional-grade infrastructure and products that facilitate end-to-end lifecycle processing for tokenized traditional financial assets, including those assets serviced by the SIFMUs. Following this acquisition, DTCC's tokenization efforts have intensified, as evidenced by a no-action letter approval from the Securities and Exchange Commission's Division of Trading and Markets late last year. This no-action letter approval allows for limited and targeted relief that will enable the launch of the DTC preliminary base tokenization service using DDA tokenization technology. More broadly, this development will also accelerate DTCC's efforts to deliver to its users and their clients new solutions that could ultimately underpin the evolution of an open-access and interoperable digital asset infrastructure for financial markets, thus bridging DTCC's existing technology and services with the benefits of transacting in real-world assets on distributed ledger technology. If successful, this bridging of the traditional infrastructure and DLT offers market participants the potential to optimize asset mobility and liquidity with increased efficiencies and interoperability across clearing, settlement, and other FMIs. Unlocking the potential benefits of tokenization for critical markets like the U.S. public equities market and the U.S. Treasury securities market is a tremendous opportunity equal to, if not greater than, the opportunities presented by the transition to T+1 and the expansion of central clearing for Treasuries. However, as in those prior endeavors, with great opportunity comes great responsibility. In pursuing the great opportunity of tokenization, DTCC believes that financial entities and policymakers should ensure that a responsible regulatory approach, one based upon and derived from the historical approach used for traditional assets, is applied. In practice, this means resisting calls to upend the prevailing legal and regulatory framework. Properly tokenized assets still must constitute the same bundle of rights and privileges that holders of traditional assets enjoy today. DTCC's perspective is that the existing legal and regulatory approach is core to ensuring tokenized assets deliver this outcome. At the same time, tokenization does raise the potential for asset holders to expand upon or experience their existing rights and privileges in more efficient and flexible ways, and we should look at efficient and responsible policy approaches to realize that potential. In DTCC's experience, an advisable approach is surgical and principles-based, which will ensure competition and choice for market participants, their customers, and investors. This is the approach that informed our December 2025 no-action request and will continue to inform the innovation and deployment that we plan to unveil in the months and years to come. DTCC is honored to have been asked to contribute to this discussion and applauds this committee for taking a leadership role on the issue. We look forward to continuing to work with Congress as they explore these important issues today, and I look forward to answering your questions. Thank you.

Gentleman yields back. Mr. Zecca, you're recognized for five minutes for your oral presentation.

Chairman Hill, Ranking Member Waters, and members of the committee, thank you for the opportunity to testify today on behalf of Nasdaq. I'm John Zecca, Nasdaq's Chief Legal, Risk and Regulatory Officer. For more than 50 years, Nasdaq has operated at the intersection of capital markets and technology. We were the world's first electronic stock market, helping lead the transition from paper certificates to electronic ownership, from floor-based trading to automated execution, and from domestic markets to globally connected financial infrastructure. Throughout that history, our focus has been consistent: protecting investors, supporting deep and resilient liquidity, and safeguarding the integrity of U.S. equity markets. And that liquidity is not abstract. It is fundamental to capital formation. Research shows that companies that go public in deep, competitive markets generate nearly 40 percent higher capital investment and materially higher employment growth in the years following the IPO, underscoring why market integrity and trust are essential to long-term economic growth. That's the lens that we bring to tokenization. At its core, tokenization should reflect a change in how ownership is recorded, not what is owned. A tokenized share is still a share. Merely changing the technology used to represent a security should not alter its legal status, the rights it conveys, or the protections that apply under U.S. securities laws. Done responsibly, tokenization can modernize market plumbing, reducing reconciliation, streamlining settlement and corporate actions, and improving shareholder engagement, while preserving the investor protections and market integrity that make the U.S. public markets the global standard. Tokenization can also reduce real costs in the system. Processing corporate actions is estimated to cost the industry $58 billion annually, costs that ultimately are borne by investors and can weigh on capital formation and job creation. But tokenization can also be done poorly, creating parallel pools of liquidity, inconsistent rights, or uneven safeguards. Avoiding that outcome is essential. That is why Nasdaq's approach is focused on integration, bringing tokenization into regulated markets rather than creating parallel systems. On March 18, 2026, the SEC approved Nasdaq's proposal to enable securities to trade on our markets in either electronic form, as they do now, or tokenized form, applying existing exchange rules so that tokenized securities remain fungible with their counterparts, share the same CUSIP, and convey the same rights. Building on that framework, Nasdaq recently announced our intention to develop an equity token design, an issuer-sponsored way for shares to be held and moved in token form without changing what it is. It is designed to treat the digital representation and the underlying share as a single security. By doing this, investors keep the same core protections and companies continue to operate under the same governance framework while using modern technology to reduce friction in areas like settlement workflows, corporate actions, and proxy voting. Put simply, it's upgrading the rails underneath the stock, not creating a new kind of stock. Congress also has an important role to play. Nasdaq supports this committee's bipartisan work on the Clarity Act because clear statutory guidance can protect investors, strengthen confidence in the U.S. markets, and support capital formation by ensuring innovation reinforces rather than fragments public markets. In closing, tokenization should be about building on the strength of our public markets. It should be about responsibly modernizing infrastructure and ensuring the United States continues to lead with the deepest, most liquid, and most trusted capital markets in the world. Nasdaq stands ready to work with Congress, the SEC, and market participants to ensure tokenization strengthens U.S. capital markets and supports long-term economic growth. Thank you, and I look forward to your questions.

Thank you. We recognize the chair recognizes Mr. Banaei, you're now recognized for five minutes for your oral presentation.

Chairman Hill, Ranking Member Waters, members of the committee, thank you for the opportunity to testify today. My name is Salman Banaei, General Counsel of Plume Labs, also known as Plume, a New York-based tokenization startup. Plume is Ethereum's compliance layer and its only layer two blockchain with AML and sanctions controls at the protocol level. Our Nest asset management protocol also embeds compliance directly into tokenized assets. Since launching in June, the Plume blockchain has attracted over 220 tokenization projects, including blue-chip issuers like Apollo and WisdomTree. There is now over $350 million of value on the Plume blockchain across 260,000 wallets, nearly half of all public tokenized asset wallets, primarily across Southeast Asia, LATAM, and Nigeria. Plume is not available in the U.S. We are working with FINRA to obtain a broker-dealer registration to augment our existing SEC transfer agent. Plume and tokenization projects like it are happening today mostly outside the U.S. while our tokenization policy remains under construction. Why should Congress, the SEC, and the administration act? The fact that most tokenized markets are outside the U.S. should concern this committee. The demand is global and the benefits are local. Consider a practical example. Today, a $200 million highway expansion is funded in opaque muni bond markets, difficult to access for the taxpayers who fund and use it. Tokenization of that project can allow people to invest in their community for as little as $50. The state could reward civic engagement by airdropping muni bonds to community volunteers through a QR code as an example. The opportunity is not just local. Over seven billion people globally are middle or upper income, up from 1.6 billion in 1990. Tokenization through permissionless blockchains can channel that expanding pool of capital into U.S. markets, funding job-creating opportunities here at home. What are our competitors doing? Hong Kong subsidizes bond tokenization after finding it lowered yield spreads by nearly 24 percent. Applied to our $200 million highway example, this represents about $4.8 million in interest savings. Singapore does the same and leads Project Guardian, a coalition of over 40 institutions including the IMF and World Bank and seven other countries, not including the U.S. Singapore, the UAE, and the EU to name a few are advancing as well. The pattern is unmistakable. Our competitors are racing to capture the infrastructure layer of global capital. How can we return to the head of the global markets? I want to express six principles that center American investors' interests and should guide the transition to tokenized markets and secure the U.S. as the global leader. First, the same or better outcomes. Section 505 of the Senate Clarity Bill gets this right. The format of a security should not change the regulatory outcomes. Clarity also implements this principle in Section 108 directing the SEC to update its rules around market infrastructure, but not outcomes, in response to digital asset technology. Second, accountability. Congress should ensure retail investors have the same protections regardless of which app they use, including DeFi apps as well as super apps. Such accountability is essential for customer protection and confidence. Third, prioritize legislative and regulatory actions based on net benefits. Bonds are particularly suitable products. Indeed, competitors are providing subsidies to promote bond tokenization, but here in the U.S., these products are effectively banned under the 1982 Tax Equity and Fiscal Responsibility Act, also known as TEFRA. Fourth, the Hippocratic Oath: do no harm. As Chairman Atkins indicated, tokenized finance is incompatible with the existing well-functioning Regulation NMS framework. It will be a complex multi-year effort to incorporate tokenization benefits for public equities. Fifth, solutions should be durable. If exemptions and no-action relief is temporarily offered, these should be milestones on a clear path toward formal lasting rulemaking or legislation. The SEC's goal should not be deregulation by exemption, but instead durable modernized regulation. The EU's DLT pilot presents a cautionary tale. Sixth, safeguards should be proportional. Scale the safeguards to the risks on-chain. Some risks, for example, associated with intermediary abuses and rent-seeking, are reduced, while others are higher, for example, the risks of hacks and scams. In my written testimony, I apply these principles to guide recommendations for the safe integration of tokenization into capital markets. Chairman, Ranking Member Waters, members of the committee, tokenization is to capital what the internet was to information. With the right policy framework, America leads this transformation. We lead global finance by driving a global race to the top, and we can do the same. Thank you.

Gentleman yields back. We'll now turn to member questions. I recognize myself for five minutes for questions. Much of today's hearing has focused on technical issues surrounding how tokenization would be integrated into the existing securities legal arena. But I want to step back and consider how tokenization could benefit just ordinary investors out there. For example, let's say an investor in Little Rock needs to sell some shares late on a Friday afternoon for some reason. Mr. Sabella, under the current T+1 settlement rules, if she were to sell on late on a Friday afternoon, what's the earliest day that she would see her proceeds in her account?

Thank you, Mr. Chairman. The person in question would probably expect to receive the proceeds on the following Monday.

So in contrast, you know, to the tokenized world with the idea of so-called atomic settlement because of the use of the distributed ledger, could she have access to her funds on a same-day basis in my example?

Yes, Mr. Chairman, under that example, if she was able to otherwise have a counterparty that could meet the deadline on the same day, yes, she would get assets or get her proceeds right away.

In the U.S., financial innovation is central to America's role as the world's premier capital market and preserving the international standing of the dollar. Our market attracts, as we've heard from our president, trillions and trillions of new foreign direct investment, and they're attracted here by our regulatory system, our legal system, our capital formation system, our transparency of our of our market. So as more market participants develop tokenization technology, some in the recent years before this past year have chosen to do so in Europe rather than in the United States, which is a little counter-messaging compared to what we normally hear in this committee. So Mr. Bentsen, are updating the technology rails important to our competitive position as we obviously are going to maintain market integrity no matter what technology we select?

Yeah, Mr. Chairman, I mean this industry constantly is investing in new technology and and has done. I mean we would not have gotten from three to two to two to one if it hadn't been for that. We invented electronic markets, which this committee, by the way, played a big role in over the years. So this is an ever-evolving industry. And so it's but and it's absolutely essential that we are constantly evolving. But at the same time, we want to do it on the basis of the of the legal and regulatory framework that we have. So some of the things that are happening outside the U.S. are in products that are not traditional securities. Some of the things that are happening outside the U.S. are products which Congress and others have suggested are not retail products. So there are some issues that Congress, you know, things like security-based swaps, for instance, Congress is going to have to think about. But legal and regulatory clarity is paramount for regulated firms to know what they, you know, what they can and can't do.

Thank you. Well, I've in just the 50 years since one of my first summer jobs was typing confirmations at a brokerage firm using something called carbon paper, which people don't know what that is, but so that it would be in triplicate, it was T+5 the summer I was doing that. So in 50 years, look at the advance of our technology in our markets. But this point, I've heard it mentioned a couple of times today that, you know, we're and I like the way Mr. Zecca, I think you phrased it on we're updating the rails, we're using a different technology in the rails, we'not doing something inappropriate to an issuer of a corporate stock or people who are buying and selling that corporate stock. It's just using a different technology. And Ms. Mersinger, I wanted to kind of talk to you about that. Placing a traditional security on a blockchain doesn't change that underlying nature of the assets or the goals of investor protection. I think that we've got to recognize that. I hear a lot of conversation about that that is making a broad assumption that it does. I argue that it doesn't. But tell us what role decentralized finance can play in that broader tokenization ecosystem. What do DeFi tools provide to markets and investors?

Thank you for that question. And when I talk about DeFi, what I'm talking about is non-custodial, non-discretionary code. And it provides the the way for the market to move, for the asset to move, to settle, to be traded. It's really the plumbing, it's the infrastructure of the the market. And it takes away there's a lot of efficiencies involved. You remove a lot of intermediaries that add cost to the trade, and it allows for more broader access to the markets.

Well, if all of you would sort of expand on that thought in in answer to that question, I yield back. I recognize the ranking member for her five minutes of question.

Mr. Chairman, before I begin my questions, I ask for unanimous consent to submit into the hearing records a letter from Investment Company Institute and the North American Securities Administration Association.

Without objection, it'll be included.

Thank you very much. Mr. Banaei, the Trump family has earned $1 billion from crypto ventures while this administration simultaneously loosens the regulatory framework governing these same markets. The SEC has dismissed or scaled back numerous enforcement actions against crypto companies, including the most recent slap on the wrist settlement with Justin Sun. The president's family venture, World Liberty Financial, is actively launching tokenized products. As a market participant, does this concern you? And should tokenization enabling legislation include provisions barring senior government officials, including the president and their immediate families, from holding financial interest in tokenized securities platforms?

Thank you, Ranking Member Waters, for that question. Public confidence in our institutions is at an all-time low. And there are currently laws and regulations on the books that are intended to prohibit conflicts or the perceived conflicts of interest involving public officials. These, when it comes to the administration, the question is whether current oversight and enforcement, as well as legislation, is adequate to address concerns that would otherwise ensure public confidence in our institutions. I'll say that public confidence in institutions is also eroding because of a perception that Congress and the administrative branch, the executive branch, are not adapting to new realities. Digital asset legislation being among them. These debates about digital asset legislation have now been circulating in D.C. for many years. And so we would encourage Congress to look at the merits of pending market structure legislation as opposed to ethical and not letting concerns around ethics get in the way of making incremental progress.

Further, Section 505 of the Senate Clarity Act establishes a critical principle that a security does not stop being a security simply because it is issued, recorded, or transferred using distributed ledger technology. NASAA, which represents state securities regulators, has urged Congress to maintain this provision as drafted. Do you agree that this principle should be preserved in any crypto or tokenization legislation Congress advances?

I think Section 505 does a great job of expressing congressional intent that the format of a security does not change the substantive requirements around it.

Mr. Bentsen, SIFMA has submitted multiple comment letters to the SEC's crypto task force, making a point that I think this committee needs to hear clearly. Your organization has argued that the regulatory framework for tokenized securities should be established through formal notice and comment rulemaking, not through the whole no-action letters or broad exemptive relief. Can you explain to this committee why that distinction matters and why the process by which we build these rules is just as important as the substance of the rules themselves?

Thank you, Congresswoman. We are aware that there have been requests to the Commission to make material changes or ask for exemptions that are quite material in terms of the application of the existing securities rules, securities laws. And as such, we think it is only prudent that those be put out for notice and comment because they will affect the broad securities market. And it is not, the SEC puts out numerous proposals throughout the year on rulemaking, and we think this should fall in that category.

The importance of robust rulemaking is very important to us as we try to develop legislation. And I want to know whether or not there is something specific that you think we should be paying attention to.

Well, I think we should be paying attention to any efforts, either through exemptive relief or no-action relief, that would create very material exemptions under the securities laws, under things like Reg NMS, for certain market participants that do not apply across the entire ecosystem.

Your organization has argued, thank you, we will continue the questions perhaps in writing. Thank you very much. I yield back.

I thank the Ranking Member. The gentleman from Michigan, Mr. Huizenga, who is also the Vice Chairman of this committee, is now recognized for five minutes.

Thank you to my colleague from Ohio. Mr. Bentsen, good to see you again. Appreciate your time here. So how can the SEC balance the need for technological flexibility with the rigorous oversight required to maintain the highest standards of market integrity? I mean, I do not think anybody questions that we need to have a rigorous integrity to the market, but how does the SEC balance that?

Well, I should say at the outset, what I would say is I think the SEC right now is doing what they should be doing by creating a task force and inviting stakeholders, the public, to comment on how they think the rules should apply for whether it is what is a security, what is not.

You take it that Mr. Atkins is running a very inclusive...

Very much so. We at SIFMA filed over a dozen letters to that. We have another one that is in the works now. Other stakeholders have as well. I think that is a very appropriate response. Then I think as the SEC believes what within their authorities, where they believe there are certain round peg, square holes where a certain rule for securities will not work for something on DLT or in DeFi. And again, there are very important definitions and we can get into intermediaries versus infrastructure. I would argue intermediaries are infrastructures in many cases. Then they have to think about do they need to go in and do rulemaking? Do they have to come to Congress and ask for additional authority? But they are doing the investigation work now and that is the right approach.

Okay. Obviously, our capital markets are the envy of the world. Our liquidity, the depth, all of those things make it a very attractive. But is there a risk to just maintaining the status quo?

Well, I would not say our markets have been static or at the status quo. Our markets are constantly evolving. Again, if you think back, we did not have electronification of the equities markets 30 years ago. That work started this committee. You look at when this committee started the work that ended up in what became Reg NMS. And we can all talk about what we like and do not like about Reg NMS. But today, retail investors in most cases pay no commissions. They have the cheapest execution they have ever had before. We have gone, as the Chairman said, from T+5 to T+1. It was not easy. We ran that with ICI and DTCC. So this market is always evolving. You are seeing the adoption of DLT. It has taken longer than I think people thought in the securities market, but it is happening.

And so it is possible to maintain innovation and protection of consumers. Right? And obviously, market integrity has to reign supreme in all that. Mrs. Mersinger, Mr. Zecca, should we view tokenization as the next natural evolution of our capital markets like electronic trading? Are there aspects of tokenization that create novel problems unlike what we have seen in the adoption of other technology? Mrs. Mersinger.

Thank you for that question. And yes, it is an evolution versus rewriting the system. So I think it is a natural evolution. I think that is where we are headed. Of course, there is going to be challenges with any time of change in technology. But I think the SEC has the tools to overcome any challenges that they face and put into place a system that will provide appropriate customer protections while allowing this new infrastructure to take root.

Mr. Zecca, I want to hear from you, but I will just note that last month, eight Chinese government agencies issued a joint notice reiterating their domestic ban on cryptocurrencies and cracking down on real-world asset tokenization, restricting it onshore without prior approval and tightening controls on cross-border activity. That is not where we want to go, is it?

No, it is not. And I think the key is if we think about it as a technology evolution and not a new product, then I think things flow much more consistently. You say, alright, we still need investor protection. A stock is still a stock, it has not changed. We are still worried about fragmentation of liquidity. We want to make sure that capital formation is not impacted. We want to make sure that the investor knows, am I getting the full rights of a stock or am I getting something else? And if I am not, there should be disclosure. And then the markets that trade it should be, if you are trading the same instrument, you should be regulated in a similar way. And what we are seeing now is the products are developing overseas and they tend to be not full equity. They tend to be a synthetic product that is not ownership. It is not always clear that investors fully understand what they are buying. So what we want to do is bring it in...

Why is that? Because of intentionality?

Part of it, I think, is regulation. Like what is the regulation that applies in these foreign jurisdictions? And you know, there is some bleed, I think, where American investors find ways to invest there. So what we are saying is get the regulatory structure here in the U.S., make sure they understand what they are buying, and try to have interoperability so a retail investor can still take advantage for trading of the markets that they know, the stock markets that are fully regulated.

My time has expired. I yield back.

I thank Mr. Huizenga. The gentleman from California, Mr. Sherman, who is also the Ranking Member of the Subcommittee on Capital Markets, is now recognized for five minutes.

I am flabbergasted that there is even the possibility of making a change this big, not through legislation, not even through notice and comment rulemaking, but the industry has just asked for a complete exemption from all the rules with a rubber stamp. We could see digital receipts where a company claims to have 1,000 shares of Apple stock in reserve and issues 1,000 tokens, but maybe they will issue 2,000 tokens. We could even see derivative where they do not even claim to have any reserve, any Apple stock, but they just say their Apple coin is worth as much as Apple stock. As I mentioned, this would kill the consolidated audit trail and provide a wide-open system for insider trading. And exchanges must monitor and surveil for manipulative trading activity, including spoofing, front running, and wash trading. There is no equivalent in this tokenized system. Mr. Bentsen, by the way, welcome back once again to this room. The United States has the deepest, most liquid capital markets in the world. As a result, broker-dealers are subject to rigorous know-your-customer and anti-money laundering requirements to prevent our capital markets from being used as an arm of illicit finance. Are you concerned that granting this exemptive relief for tokenized securities would open the door to our capital markets being available to money laundering?

Well, I think that Congress should be concerned and policy makers should be concerned that everyone active in financial markets is abiding by the existing BSA, know-your-customer rules. And so that is an issue that if you are, as we are thinking about tokenization, as we are thinking about DLT, and we are thinking about any exemptive relief or even DeFi, that policy makers need to understand where KYC, BSA rules can apply and if there are gaps, how you are going to deal with them because that becomes more of a national security issue that is in your...

There is a tremendous power in Washington to let people make huge amounts of money by opening giant gaps in the know-your-customer and anti-money laundering. There is huge money to be made in being the financial services subpart of the industry to provide aid first to the drug dealers and the human traffickers and the sanctions evaders and then eventually to the tax evaders as well. Exchanges provide transparency regarding fees, conflicts of interest, access, user segmentation, order handling. There would be no requirements for unregistered DeFi systems, enabling bad actors to charge investors exorbitant fees and use opaque, conflicted, discriminatory order handling practices. Furthermore, broker-dealers are required to obtain best execution for customer orders and also provide extensive disclosures regarding order routing decisions and execution quality. There would be no equivalent requirements for unregistered DeFi intermediaries, meaning that conflicts of interest can pervade the execution process as an intermediary can manipulate transaction ordering. Mr. Bentsen, how can we ensure that the introduction of tokenized securities does not raise new best execution, investor protection, or market manipulation concerns?

Well, I think applying the existing rules, again, a security is a security whether it's tokenized, whether it's book entry or whether it's paper, which virtually nobody has and hasn't for a long time. And so all these rules are very important. So you shouldn't be exempting that by virtue of technology. And I have to say with all due respect, in where we've been concerned about issues around DeFi where you have intermediaries or infrastructure, again, infrastructure are intermediaries often. If the infrastructure is doing the same thing that a broker-dealer does, if it's routing, if it's being compensated for that, if a custodian is acting as a custodian as opposed to pure self-custodian and they are also providing order selection, order routing, that's the same thing. And that's what the SEC and maybe ultimately Congress has to figure out is how you draw those lines of definitions. But if you're doing the same thing as somebody and you're being compensated for it, then you should be regulated as such.

Thank you. I'm concerned that we're creating a two-tiered market where tokenized securities and on-chain blockchain platforms are exempted from core securities regulations. We've learned over the last 100 years we need these regulations and to turn to the tech bros and say, go fleece investors, do whatever you want because you're cool, you're hip, and you're electronic is absolutely absurd and I yield back.

Thank you, Mr. Sherman. The gentleman from Oklahoma, Mr. Lucas, who is also the chairman of the Task Force on Monetary Policy, is now recognized for five minutes.

Thank you, Mr. Chairman. Mr. Sabella, the DTCC announced at the end of last year your intention to enable the tokenization of a subset of U.S. Treasury securities. How do you anticipate this technology affecting the broader Treasury market?

Thank you for the question, Congressman. So initially, I think we're looking at this as some of my co-panelists have described as a very evolutionary process. And so while Treasury securities are being contemplated as part of the suite of potential assets that our members or their customers could come to ask us to tokenize, we have a wide range of instruments. And I think in terms of how this will spread out to the broader Treasury market structure, that still remains to be seen. At FICC, we're very focused on the Treasury clearing mandate in terms of regular way transacting. We think at a point in the future, maybe there will be a convergence between what we do at FICC and tokenization of Treasuries at DTC, but it's still a little bit too early to tell.

Okay. Nasdaq recently conducted a survey that showed that 50 percent of firms plan to manage tokenized collateral by the end of this year. Mr. Zecca, what other insights can we learn from that survey and how are market participants already utilizing this technology?

Well, I think the regulatory certainty that we're talking about here will help adoption. But you've seen in the asset management space, you've seen in the ETF space, you're seeing a lot of ways that new products can develop. And so I think what we're saying and what we're focused on is really drawing those products and that innovation into the regulated space, creating products that are available for retail investors, that retail investors understand, that meet the expectations for the protections that they expect. So I think you will see an acceleration of that. There's still some things that need to be worked out. We were talking about where settlement goes in the long run and timing, I think that's a real question. There are questions on netting and their value chains that I think are important. The piece that I would like to mention if I could is the issuer side. So on the issuer side, the real value from a tokenized security can be that corporate actions can be digitized on the record, proxy, the proxy process can be also handled through the blockchain. And as I think most people know, the process is very Byzantine right now. At mass scale, that could be a real cost save for issuers.

This topic also raises important questions about how to integrate new technology into existing market regulations. In our capital markets, I think we would all agree are the envy of the world and certainly we must safeguard that status. Mr. Bentsen, what is the benefit of diverse industry input as the regulators in Congress seek to apply investor protections and market integrity principles to the new technology?

Thank you. It's very important. I mean, hearings like this are very important and hearing from all the stakeholders and then finding out where there may be instances, again, where you have square peg, round hole and the rules aren't going to work. But if you're going to change those rules, do it through notice and comment and change them for the entire marketplace.

Ms. Mersinger, would you like to speak to that as well? And as a former regulator, how can the SEC and the CFTC be good partners to all industry shareholders?

Thank you, Congressman, and thank you for your years of support for the CFTC. I really appreciated that when I was there. These are tools the regulators use. Of course, notice and comment rulemaking is very important, but sometimes you have to have an iterative approach to regulating. And it's not unusual for the agency to use things like no-action relief, exemptive authority to create the appropriate regulatory structure that will then go to rulemaking. So I think it is eventually a notice and comment rulemaking is kind of the gold standard, but it takes time to get there and this is how we've done this in the past. And I think on the SEC-CFTC cooperation, what you're seeing now is exactly what needs to happen. They recently signed an MOU, they're working hand in hand, they're issuing guidance together, and I think that's what we need in the market to make sure that people are clear of where the rules are for them.

Thank you. And with that, I yield back, Mr. Chairman.

Thank you, Mr. Lucas. The gentleman from Massachusetts, Mr. Lynch, who is also the ranking member of the Subcommittee on Digital Assets, is now recognized for five minutes.

Thank you, Mr. Chairman. First of all, I want to thank all of our witnesses for your help on this. This is a big deal. It's a big deal, tokenization. It's going to change a lot. I think it is inevitable in some degree. But our current U.S. markets are the best in the world because they're trusted. They really are, and those regulations that we have encourage that. But I want to talk about NMS 611, just the order protection rule. I know that, Mr. Bentsen, you mentioned that in your opening statement. So under Reg NMS right now, we try to make sure every customer gets the fair price, right? Best available price in the market. And that is possible because of the regulatory requirements we have on trading venues. They've got to be transparent, they've got to post the best possible price, they have to look at the other markets. So that customer knows they're getting the best possible price. It prevents pass-through trades as well, where in this age of high-speed trading, if you were able to get a customer to pay a higher price, you could resell it at another and then you make money on that. So it introduces an opportunity for scams. That's not possible in this system with tokenization. You've got unaffiliated issuers who are out there selling and it's very, very difficult for them to figure out in the market what the best possible price is. So that's the essence just on a single transaction level that I have problems with. Now, there is some suggestion that the SEC might give an exemption on that. And Mr. Bentsen, is that where you see this going? I just don't see how this works in a tokenized world, especially if you have people doing the traditional trading method and then you also have people trading that same security on a tokenized basis through blockchain.

So it's an important question. I'm sure my colleague from Nasdaq will have some views on this as well. So a couple of things. First of all, I think you're spot on. I do think tokenized securities that are treated as securities under the rules that we have today, that you could live in a 611 NMS world. I don't think there's any question about that. The other thing though, and the SEC has talked about, they've had two roundtables now to look at this, we participated in one of them. Our view is more if you're going to change 611, you're going to have to change a lot of other things in Reg NMS. You're going to have to go think about how best execution works, which is very important. Not to say you can't do it, but you've got to... And the issue, the concern our members have, depending on how they're structured, what their business model is, have different thoughts about this issue. But core to it is, particularly for our retail-oriented members, is how can they show their clients what their execution quality has been? And that was one of the intent, part of the intent behind it. So the concern, the other concern that you raise is very important, and I think John mentioned this in his comments, is if we end up with the same security, the same name, trading in parallel, unlinked markets. Because today under NMS, the equity markets all have to be linked, everything has to report into the SIP, so you have displayed routing from the broker as well.

Routing from the broker as well.

Right. And if you don't have that, even in... We can talk about 24/7 because we have 24/7 today, but if you have the same security trading in different pools of liquidity at different price transparency, if I'm an issuer, I'm going to be concerned about it. But if I'm an investor, I should be concerned as well because I'm not getting the best displayed price.

Right. So this goes back to this idea of an exemption or a broad exemption on a certain rule. And I tend to favor this process where we look at an individual rule and we figure out how do you protect the consumer, how do we maintain the integrity of our markets at the same time where we onboard some of this technology. That seems to be the challenge here. And so if you get broad exemptions on the part of the SEC, I think it, you know, we lose that opportunity to look at the rule-by-rule analysis that I think is required to maintain those competitive markets. We haven't talked at all about, and I know there's too much going on, but the whole settlement process. You got a lot of people down in Manhattan that are doing a lot of this settlement process and I see their jobs going away if we go forward with this in a big way with further adoption. Is anybody got any thoughts on that?

I mean, it's probably efficiency, but it's just, you know, when your job goes away. Yeah, I think with any new introduction of technology, there is a change in how companies, including companies like ours, may do business. But at the same time, new technology usually offers new opportunities and new functionalities that didn't exist before. I think with any new introduction of technology, there is a change in how companies, including companies like ours, may do business. But at the same time, new technology usually offers new opportunities and new functionalities that didn't exist before, and people need to do those jobs as well. So I think it might be a mixed outcome.

Thank you, Mr. Chairman. I yield back.

Thank you, Mr. Lynch. The gentlewoman from Missouri, Mrs. Wagner, who is also the chairwoman of the Capital Markets Subcommittee, is now recognized for five minutes.

I thank the chair. The United States has the deepest and most liquid capital markets in the world. So many of us have said that on this dais today. As one of our economy's greatest strengths, they have helped make America the premier destination to start and grow a business. However, global competition is intensifying, and other jurisdictions are actively modernizing their financial systems to attract investment. Mr. Bentsen, how does the tokenization of traditional assets directly support the international standing of U.S. capital markets?

Thank you, Congresswoman. I think this is part of a long evolution of the U.S. innovating its market infrastructure and market operations, which is one of the reasons why we lead the world. And as I go around the world and meet with other policymakers and work with my colleagues around Europe, the UK, Asia, are all trying to do what we do here. They all have problems that are getting in the way and we don't have to talk about that. But they're all looking at the U.S. markets. Europe is trying to create a SIP. They're trying to create a consolidated tape that we've had here for years. They're trying to build a broader retail wealth environment like we have here where more than 60 percent of households are invested in the market in the U.S. So people are looking at what we have here. We need to be careful not to import things that are inconsistent with what we've built in the U.S. So we need to think, while they may be developing new products with technology that can be interesting, we need to make sure that they're fit for purpose for the market we have.

But we want to get ahead of them.

We are ahead. But we're...

So they will take our standards, our models.

I would put our markets against anybody's in the world.

Agreed. Mr. Zecca, Nasdaq just launched a new equity token design that puts public companies at the center of the process. For a Main Street investor, I'd say, what is the practical difference between holding a traditional share of an S&P 500 company and its tokenized counterpart?

Well, thank you for the question. I think the core thing is we want it to be about flexibility for the retail investor, not because there's something a better price or something like that. The goal for our product is to essentially make it a technology differentiator, not a new product. So some people have wallets that they have, they're maybe younger, maybe more tech-savvy, but they have wallets, they have investments in digital assets. This is a way to connect and bring those assets back into the regulated markets. If they can transfer those easily into these tokens, the token is subject to all the know-your-customer, all the compliance controls. It goes through a broker process, it's subject to surveillance.

It really protects the investor.

Exactly, exactly. But it gives them a choice because there is going to be a subset of your constituents who want to trade that way.

Let me ask you this, Mr. Zecca, how can exchanges and regulators ensure that price discovery and liquidity don't become fragmented between traditional securities and tokenized ones?

Probably two core ways. One is the product itself, to try to avoid the risk of synthetic products and other things that aren't really securities trading out there and they're going to trade at different prices. And so we're saying, look, make it a stock is a stock or if it's not, as the Senate bill says, make the disclosure very clear. So that's one. The second is to avoid parallel markets and walled gardens where some securities are trading but a retail investor can't access them. So make sure that all markets are subject to the same rules.

Quickly, I'm running out of time, Mr. Bentsen. SEC Chair Atkins has discussed an innovation exemption to help harmonize blockchain with existing laws. The Securities Industry and Financial Markets Association, or SIFMA, has cautioned that broad exemptions are no substitute for comprehensive rulemaking. Given that major firms are ready to tokenize, how can the SEC craft an innovation exemption that provides the legal clarity firms need to stay in the U.S. without creating a permanent two-tier system where tokenized assets have different investor protections than traditional assets?

Well, we've conveyed to the chairman and his staff that we think the best approach on doing this, and we've had a lot of discussions as have many stakeholders and we compliment them for doing that, for opening the door to do that. But that they should put it out for notice and comment so stakeholders can see what the impact of this would be before going final. We'll see what they do. Obviously, the ball's in their court. But we have weighed in considerably as have all the stakeholders. And again, I give them credit for opening the door to hear from the stakeholders.

My time's expired. I thank you and if you'd like to elaborate, that would be great. I yield back, Mr. Chair.

Thank you, Mrs. Wagner. The gentlewoman from Ohio, Mrs. Beatty, who is also the ranking member of the National Security Subcommittee, is recognized for five minutes.

Thank you, Mr. Chairman, and thank you to our ranking member. And I'm going to start with that as the sitting chair just said where he chairs that committee and I serve as ranking. I'm going to frame my questions kind of around that because I think most of us are on the same page with this. We just want to make sure that we're protecting the security, the integrity of the markets and we have the appropriate guardrails there. So my first question is to you, Mr. Banaei or Mr. Bentsen. We've seen that certain crypto products have become an avenue for fraud, for investment scams, money laundering, etc. How do we ensure that tokenized assets do not similarly become another avenue for fraud targeting unsuspecting investors? Talk to me about what are the challenges that law enforcement may face in investigating illicit activities?

So if you follow the rules that you have in the books, and we think you can run tokenized securities on the laws and rules that we have in the books, there are multiple avenues through reporting requirements, through oversight, through SIPC protection for lost and stolen securities, through KYC AML rules, and ultimately if something goes wrong, that there's somebody on the other side of that transaction that you can hold accountable, you can go to the regulators. If you have none of that, then you have nothing. And so those are the key things. But so that's why we think if it's a security, regulate it as a security. Tokenization is just the next iteration of the technology by which securities are minted.

Mr. Banaei?

I can follow up on that. One of the recommendations that we included in detail in our written testimony is to extend the same protections we have for customers using broker-dealers to the retail apps that use DeFi technology, on-chain technology, which would provide an additional touchpoint for regulation and transparency for the regulator. Right now we don't have that layer of regulation, and addressing that I think should be at the core of Congress's considerations on market structure legislation. I'll add to that that there is now some case law. There's the Coinbase case that the SEC won on most of the issues, but one issue they lost on was on the SEC's authority to regulate the Coinbase wallet and its trading functionality as a broker. And that just makes the need for legislation all the more important.

This is a good time for me to segue into another question. I'd like to follow up on the ranking member's question when she was addressing the issue of do you think that President Trump's involvement in crypto gives the appearance of conflict? And the reason I'm following up on this, we've on both sides talked about guardrails, the integrity, and when you think of while it appears to me and many others that this administration is loosening crypto's regulation, the Trump family has earned like $1 billion and Trump has surpassed something like $62 million just in the first half of last year with crypto. So I'd like to dig deeper. Do you feel that that has the appearance of conflict?

Thank you, Congresswoman. I think the ties between the Trump family and this industry has unfortunately created a cloud over the legitimacy of moving forward on this important market structure legislation. I believe Congress should think seriously about the gaps that exist under existing law and how to address those, in addition to looking at the lack of enforcement power under current law, which could potentially still be applied and why it hasn't been applied.

Thank you. I take that kind as a yes, a conflict, a cloud. So I think that sends a strong message to us and I thank the ranking member for opening that door for us because certainly we want to make sure that we do the due diligence for oversight and for having those guardrails. Let me just try to get one more question in. I've heard from some that anti-money laundering compliance is impossible on permissionless blockchains. Your company has built AML and sanction screening directly into your blockchain's infrastructure. How can you talk about that and describe how that works in real practice? And you might have to give it to me in writing because I only have two seconds.

Yes, so I'll just give you a data point. So we did a scan of how many transactions were screened in our blockchain. Our blockchain deters obviously these bad actors, and it's currently about 0.00005 percent of the transactions have been blocked and this is using the same commercial providers...

The gentlelady's time has expired. I would encourage the gentleman to respond in writing. The time has expired.

Thank you. I yield back.

The gentleman from Kentucky, Mr. Barr, who is the chairman of the Financial Institutions Subcommittee, is now recognized for five minutes.

Well, thank you to our witnesses and no doubt tokenization of securities is coming, it's here, and our modernization of our securities regulation is required both in terms of preserving that gold standard of investor protection but also making sure that the United States is leading the way. I wanted to tease out maybe perhaps a source of tension between Mr. Bentsen's point of view and Ms. Mersinger's testimony here today, and maybe there isn't tension. But I want to kind of get at two pieces of testimony. Mr. Bentsen, first of all, I think you make a great point when you say securities are securities, whether they're tokenized or not or look more traditional, and that tokenized securities should be subject to the same robust investor protection and market integrity rules that have made the U.S. securities markets the deepest, most liquid, and most efficient in the world. You do acknowledge the square peg round hole point, but the overall point is that investor protection regulations need to remain. But then Ms. Mersinger, you make a very good point as well when you say requirements designed to manage settlement delays, counterparty exposure, and reconciliation across multiple entities may not be necessary in a tokenized world. Blockchain-based settlement models illustrate how changes in infrastructure can reduce or eliminate certain forms of settlement risk, therefore regulation should remain calibrated to the risks that are actually present rather than those associated with legacy market structure. Is there a disagreement there? And I'll ask Mr. Bentsen, do you acknowledge that with gravitation to the blockchain does eliminate some of the risk with intermediaries and therefore regulation should evolve accordingly?

So it depends, right? So and here's how I will come at it is I'll break it into two parts, intermediaries and I'll break it into settlement. So in settlement, if the issue is that going to anytime you reduce the settlement cycle, there's no question that you're reducing risk in the system to a point. And certainly we reduced a lot when we went from two to one. Atomic settlement, real-time settlement can reduce some risk, but it may introduce other risk. And it may introduce other risk in terms of things like securities lending, which is a key function in the marketplace, areas issues affecting prime brokerage and the like. So those are things we talked about when we were doing T+1 that we were involved with DTCC. So that's one. On the intermediaries, I would go back to infrastructure is often an intermediary. Infrastructure providers are often intermediaries. And so if they are doing the same function, and I know the argument's been made if it's if it's pure code, autonomous code that has just been put out there, there are no humans involved, so because there are no humans there's no risk to mitigate, there's no risk of malfeasance. But there is risk that the code doesn't work. And there is risk and and also if the code is being paid to order route to do the same functions to act as a true custodian and being paid for that, then they're basically doing the same thing. So I think that's where the tension is from our standpoint of where do you draw the line.

Ms. Mersinger?

Thank you, and I actually think there's a lot of areas where Mr. Bentsen and I probably agree, which is as we both stated, a security is a security even if it's on chain. And those rights and responsibilities and consumer protections that are baked into a security will continue as they go on chain. Some of the issues that he highlighted, I think where where I might think a little differently on this is those because of those reasons, because there are questions around, you know, how does the risk shift, what happens if if something goes wrong, that's why we need an iterative approach to regulating in this space. That's why I think it is really important for the SEC to use their no-action tools, their exemptive authority to take an iterative approach to regulating in this space. Notice and comment rulemaking will come once that's established.

Last question, as the Financial Institutions Chairman, I get a lot of questions from community banks about DeFi and blockchain. Community banks, as you know, serve as the foundation of small towns and local economies, but they've been at a disadvantage compared to large institutions when it comes to access in capital markets. Could tokenization actually level that playing field for community banks?

Ms. Mersinger? Yes. Thank you. I think that's a great question. I grew up in a small town, my mom worked at a community bank, I know how important it is to a small rural community. And yes, there's a lot of opportunity there. You are you're you're taking costs out of the system and that's going to broaden the access. And so I think there's a lot of opportunities for community banks to begin using DeFi technology for their for some of their their...

Gentleman's time has expired. Thank you. Thank you, Mr. Barr. The gentleman from Illinois, Dr. Foster, who is also the ranking member of the Financial Institutions Subcommittee, is recognized for five minutes.

I will yield to Mr. Vargas, who I believe was in line.

He's recognized, Mr. Vargas. I recognize Mr. Vargas instead for five minutes.

Well, thank you very much. I appreciate it, Mr. Chairman, ranking member. Again, thank you very much. And and to the the crowd here today, thank you. I think that this has been excellent, actually, a very good hearing. Two things I want to talk about, the issue of technology and risk. With the issue of technology, first, I agree with what my good friend and colleague said that we have these fantastic capital markets because of trust. People trust them. I think that investors trust them and I think that we have to continue with that trust. So, Mr. Zecca, I go to you, although you did say this, you said a stock is a stock by any other name, I believe, in your testimony.

With apologies to Shakespeare.

That's right. You did write this in in your written testimony, like the transaction from paper certificates to electronic book entries decades ago, tokenization done right can enhance efficiency, transparency, and engagement across the life cycle of security without weakening the regulatory framework or the rights that investors and the public companies expect and rely on. Again, the trust that Mr. Lynch. So are we going to have the same trust or is there going to be a diminution of trust?

Well, I think it's the way tokenization is done. It can be done right and it can be done wrong. If it's done right, it's drawing it into the existing market with the same regulatory structure, the same set of rights, so you own the same stock, it's just in tokenized form. So in that context, everything we've talked about, all the protections, all the way the capital markets function would exist. So that's that's one scenario that I think is good. Where there could be concerns is there are other ways to do it where you start to create synthetic instruments which are certain rights but not the ownership. People may not realize whether or not they get dividends, they don't get voting rights. In that context, and it's largely overseas right now, but in that context, it is it is a different instrument. And so an investor certainly at a minimum needs to know what they're getting. And so there needs to be full disclosure of that. They may choose it, but that's a different instrument. But but in the world we're talking about with a tokenized security stock, a tokenized share of Apple, let's say, you know, that is the idea is to give them exactly the same rights and the same experience when they trade as they would normally get.

So in a sense that it would almost be like what the Chairman talked about going from the old carbon paper to basically computerization.

Exactly, like paper to digital as we did with electronic shares.

All right, I would like to switch then to risk. This is what former acting comptroller Michael Hsu warned about, the potential unintended consequence of tokenization. He said to the extent tokenization reduces settlement frictions, it will also accelerate the velocity of banking and finance. The characteristics of bank runs are changing and banks and regulators need to adapt accordingly. We need to develop better brakes to keep banks safe from sound from to keep banks safe and sound to mitigate systemic risk. Now I was here obviously when the three CEOs came and testified, Silicon Valley Bank, Signature Bank, and Republic. And the CEO of Republic Bank said something that was very interesting to me and he said, I had had customers that were with me forever who trusted the bank, but once the panic hit, they were able to move billions of dollars out and there wasn't much we could do. And the amount of money that moved out of those banks almost instantaneously was incredible. A real run on the bank as opposed to how it used to be. What is the risk here? Are we looking at are we forgetting some risk here that could be problematic because of this velocity? Mr. Zecca, why don't you try it first? Go ahead.

I'll try first. I you know, we we don't operate a bank, so I'm less familiar with that side. But I will say the thing you want in that situation from a trading perspective is to have deep liquid markets that can withstand the shock. And I think you've seen the U.S. capital markets handle those situations very well. And so again, if you keep that liquidity pool together, then the experience whether it's a tokenized security or a non-tokenized security should be the same. But I would defer to others on on the banking side.

Yes, Mr. Bentsen. I would just add a couple of things. In the securities markets, you have things like in the equity markets, you have as opposed to SVB, you got limit up, limit down. You got circuit breakers. You have things when there's when there's confidence issues or panics going in the market. You have segregation of assets. You have 15c3-3 so that, you know, the customer's assets are segregated. It's a little bit different than the way the banking system works.

Right, but if you get some illiquid some of the derivatives you talk about or some illiquid assets that you're getting from other places and you tokenize them and put them into our market, if you were able to move those quickly, I mean it could shock the system. I don't know, I'm that's what I'm thinking, you know, you have to take a look at all the potential risks. With that, my time is up and I thank the Chairman. Thank you, I yield back.

Thank you, Mr. Vargas. The gentleman from Texas, who's also the Chairman of the Small Business Committee, Mr. Williams, is now recognized for five minutes.

Thank you, Mr. Chairman. And we've heard today how and all to our here, thank you for being here. We've heard today how tokenization can modernize our capital markets, including faster settlements, reduced counterparty risk, more efficient movement of capital. Shortening the settlement cycle can free up liquidity, reduce costs tied to delays, and allow capital to be put to work more freely. For a small business owner operating on tight margins like myself, I'm a small business owner in Texas, tokenization can translate into better financing, more predictable cash flow, and lower costs. So Ms. Mersinger, how could tokenization and a shorter settlement cycle benefit Main Street businesses?

Thank you for that question. I think the overall kind of theme here is that it reduces the advantage of scale. So you have lower cost, broader investors available, you kind of level the playing field between the small businesses and the large, you know, Wall Street businesses. And the other kind of piece to this that I think is really interesting is this idea of fractional ownership where you might be able to invest in something that you normally wouldn't be able to invest in because of the cost that now you can because of that fractional ownership. So I think there's a lot of opportunities for small businesses. Also, it's it broadens their access to the capital markets as well.

Thank you for that answer. The strength of U.S. capital markets has been built on a combination of deep liquidity, strong investor protections, and a regulatory framework that promotes transparency and integrity. As tokenization develops, global competition is accelerating with other countries and jurisdictions acting quickly to establish clear frameworks and attract and attract innovation. And I am concerned with the risk that regulatory uncertainty here in the United States could frankly push innovation offshore. So Mr. Bentsen, to you, how can we create a regulatory environment that encourages innovation and tokenization here in the United States while also ensuring that we don't compromise transparency, integrity, and investor confidence?

It's a great question. And and I would say I do want to say one thing. You can buy fractionalized shares today. Many of our members offer fractionalized shares, whether it's in high-priced stocks, whether it's Tesla, Berkshire Hathaway, whatever it was. So that's a market innovation that's that is in the U.S. today, just like 24/7 exists today, most people don't take advantage of it. But I think the I think the other thing, Congressman, is I would step back and look at what's already happening. I mean, DTCC made an investment 10 years ago in in Digital Partners and now they're expanding what they're doing. Nasdaq is doing a partnership with Kraken and and in doing that. NYSE, New York Stock Exchange, is doing the same. Firms that are digital native firms like Kraken and and Coinbase have now registered as broker-dealers so they can do tokenized securities while the incumbent firms, the Wall Street firms, have been looking at at tokenization on everything from equities to fixed income for many, many years. So I would argue that this is happening. Now, we have done an analysis of the securities laws and and in most cases we believe almost all of those apply can are fit for purpose for tokenization. In a couple of base places there might need to be adjustments. We don't need to throw the baby out with the bathwater here. We need to let let I mean, this is a very innovative industry and we should just we're taking advantage of it.

Okay, thank you. Much of the conversation around tokenization has been focused on trading and market infrastructure, but issuers sit at the center of our capital markets and companies rely on those markets to raise capital, manage their stockholder base, and support long-term growth. Tokenization introduced the possibility of rethinking how ownership is recorded and how issuers interact with investors across the life cycle of a security. So Mr. Zecca, quickly, could you walk us through how issuers are thinking about tokenizing their shares and what benefits they see from having more direct control over that process?

Well, I think that that's a critical question. And just to give you one sense of a stat for that small community bank that you were talking about, an average corporate action costs the industry about $34 million because there are 110,000 touchpoints across all the shareholders because there's such a Byzantine system behind the scenes to reach shareholders. There is a route with blockchain, and of course it has to be adopted at scale to do it, but there is a route where there's a much more streamlined connection. You could see a world where issuers can speak directly to their shareholders who want to be engaged. And I think there's no more loyal motivated stakeholder base for a company than its shareholders. So I think there's huge opportunities there. What we want to avoid are situations where because we have different instruments under different regulations, there's competition for capital that hurts the ability of companies to raise capital and create jobs. That's the thing we have to keep in mind.

Thank you for that and I yield my time back, Mr. Chairman.

Thank you, Mr. Williams. The gentleman from Illinois, Dr. Foster, who is the ranking member of the Financial Institutions Subcommittee, is now recognized for five minutes.

Thank you, Mr. Chairman, and to our witnesses. It seems like one of the big branch points that has to be decided here is, once things are tokenized, are they going to be traded on a private permissioned blockchain or a variety of public blockchains, which often allow anonymous participation through self-hosted wallets and things like that? And in the second option, it seems like it must be technically very difficult to establish things like position limits and stuff like that where you actually don't know the true owners of wallets that are owning a lot of these. What's the approach that's been taken so far, and what are the proposed approaches for that sort of problem here? It seems like in the conventional markets, there is one regulator who knows the true identity behind both participants of a trade, so you can identify front-running and wash trades and all these sort of things that are a threat to a lot of the crypto world. I was just wondering, what is the approach taken so far on that? Is there uniform KYC for all participants?

I can only speak to what we're working on. I would say we're working in the permissioned world where on the blockchain, you would have the KYC information, the controls, and the corporate governance, and everything is embedded in there and can't be overridden. So from that perspective, we would be not...

So you have no anonymous participants, essentially. Are there other approaches that are being talked about or taken that are likely to happen?

I would have to defer to others on that.

I can comment at least on the tokenization solution that we're starting to develop. Largely what Mr. Zecca said in terms of wanting to impose some degree of identifiability onto the activity, but that could also potentially happen on a so-called permissionless chain, in particular if in the tokenization protocol itself, you basically embed the identification and the compliance features for KYC and AML. So under our approach, we will be looking basically for our participants and their customers to bring chains and wallets to us that lend themselves to being able to practice the KYC, AML identification that folks here have described as being very valuable, which we agree with. And so we would then, and this is speaking to an intermediated solution, certainly there's options for less intermediation, but we would then come in and basically act as the party that helps do that mapping and maintain that mapping for compliance with existing rules.

And I can speak from a more permissionless environment. So the way we've gone about it is embedding, as it relates to AML, is embedding AML and sanctions screening at the token level. So regardless of where a particular tokenized asset may trade or be transferred, it can be freezed if it ends up being flagged as being connected to...

But is there, in the systems you envision, is there a regulator that can see the true identity of participants to identify wash trades and so on?

So when it comes to wash trades, that's a market surveillance issue. And right now, we are working with FINRA and some commercial vendors in order to extend on-chain native surveillance capabilities, which would then be augmented under our proposal through the regulated DeFi brokers, which would then be capturing KYC information to enhance the attributions of the wallet owners.

But does that answer my question? Is there a regulator that can see the true identity behind all of...

Not at present.

Thank you for that. I appreciate it, and I now yield back and I recognize the gentlewoman from Massachusetts, Ms. Pressley for five minutes.

Thank you very much, Mr. Chair.

Not at present. Do you have any technical solution in sight that might allow that to happen? And if not, how do you prevent wash trades, front-running, violations of market positions, and stuff? Everything that we've learned the hard way is necessary to have a well-regulated system. Do you have technical solutions that could implement that?

Yes, so there are vendors out there, both vendors that provide services into the traditional markets that are now capable of ingesting on-chain data, as well as on-chain native vendors.

So the world you anticipate will have a regulator that can actually identify wash trades and things like that? There will be someone that has full visibility into the true identity, legally traceable identities, everything that's necessary in our markets?

Absolutely. The proposal that we've detailed in our written testimony would include a proposal for FINRA to operate a surveillance system because these are transparent markets, and they would have the capability of extending market surveillance...

So they will know the true identity of every wallet that's operating for any of these tokens that will be traded? They will know who owns that wallet and be able to identify them? That's the sort of...

For U.S. markets, that would be the case under our proposal.

But will you allow international participants into this? If you have a technical write-up on that that you could get for the record, I'd be interested in seeing how you're really going to map that sort of anonymous, pseudonymous system onto the sort of regulated system that we've learned the hard way has to be implemented here.

That's an important question, and I'll be happy to follow up with you on that.

Thank you.

Thank you, Dr. Foster. The gentleman from Georgia, Mr. Loudermilk, is now recognized for five minutes.

Thank you, Mr. Chairman, and thank you all for being here today. Very important subject. Mr. Bentsen, before we act or Congress acts, I think it's important that we know exactly where we stand. So simple question: Does the SEC already have the authority it needs to oversee tokenized securities?

Yes, I believe so.

Okay. To the extent there are gaps, how much can be addressed through exemptive relief, no-action letters, or guidance versus what actually requires Congress to act?

In our analysis, we think they have, as it relates to securities, tokenized securities, we think they probably have the authority that they need.

Okay. All right. Ms. Mersinger...

Can I just, with one exception? There's been discussion of products that are not true underlying securities, tokenized products that are like reference products, which by law may not be allowed in the United States, and in that instance, the Congress would have to take that up. So with that caveat.

Okay. I appreciate your clarification there. Ms. Mersinger, if Congress acts in conjunction with the SEC and CFTC on tokenization, where do you think we can be most productive?

Thank you for that question, and I think, you know, the support of the agencies is very important. I would point to the Section 507 of the Clarity Act, which was the requiring a study between the agencies to look further into tokenization and see what kind of regulations need to develop in order to make sure that these markets maintain the safety and soundness and the customer protections that exist. So I think Congress has done some good work here, and I believe, you know, continuing as you work through market structure, you'll see that the kind of support for the agency that's most important.

So for this committee, what is the single most important thing you think we should do to get the regulatory framework correct?

Yes. I would say to get past market structure legislation, Clarity or something else. It's very important that we have that to provide the clear rules of the road for the industry.

Okay. Anyone else?

I think, again, I think in our analysis, we believe for tokenized securities, true securities that are allowed under the law in the U.S., that the SEC has probably the authority that it needs. They may find some areas where they don't, and in that case, they have to come back for Congress. Where Congress should be acting, though, and is, which is I personally think a good thing, is for non-security products, non-commodity products, and then as you know better, there's in some cases the CFTC doesn't have the authorities, particularly with retail investor protections for spot commodities that the SEC has. That's where Congress needs, where there clearly are some gaps for these new innovative products that are not either not securities, may not be commodities, and the law is not clear, and even for what we might call traditional finance, the law is not clear in how they might engage in those on behalf of their clients. So there are areas where Congress does need to take a role.

Okay. Thank you all. Mr. Chairman, I yield back.

Thank you, Mr. Loudermilk. The gentleman from Illinois, Mr. Casten, is now recognized for five minutes.

Thank you, Mr. Chairman. Thanks to all our witnesses. So it strikes me that most of the things that we're talking about here in terms of the way that markets have to work are essentially accounting problems, right? Who's the buyer, who's the seller, where's the clearinghouse, what's the settlement process? And tokenization at its best is a boring accounting conversation. Right? If we can do that faster, if we can have better accounting, that's great. The minute it becomes not boring and not accounting, I get really, really nervous. And I guess, Mr. Zecca, if I'm understanding right what you've done at Nasdaq, proposing tokenized trades, you're still going under DTC rules, it's the same sort of settlement. Is it safe for me, and I don't know, Mr. Sabella, if you want to chime in, would I be accurate in describing what you're doing as a boring accounting change to Nasdaq rules?

Yes, I would say it's an interesting technology upgrade, and I think it is bringing the system forward. But yes, I don't think, again, we're looking at it in the context of upgrading, not creating new products or new systems.

Okay. So this now brings me to this innovation exception, which scares the dickens out of me because it's neither boring nor accounting. We and look, there's this talk about like, oh, it's innovation, we shouldn't get in the way of innovation. Having conversations about what might happen in the future if we ignore what's happening in the present is not innovation, that's stupid. And so we have seen when Trump did this Terra announcement, we saw this massive deleveraging event in the crypto space, largely because those DeFi platforms did not have the kind of checks in place. They didn't have the market stops, they didn't have the rules that markets have learned through hard experience. And somehow this narrative that like, well, if software does it, it's fine. Auto-deleveraging cost 1.6 million investors $19 billion. The idea that somehow like a human-created SOP is incapable of human error is dumb and hugely irresponsible. We've seen tokenized stocks trading at massive variances to what the actual underlying security is. Tokenized Apple traded at a 12 percent premium to the stock price at one point. And I guess, Ms. Mersinger, since you've been the advocate for tokenized securities here, put yourself in the shoes of Apple's auditor. If you're closing your books and the tokenized Apple security is trading at a wild difference from what they're trading at on the NYSE, what do you use to calculate stockholders' equity on their books? Is there any confusion in that question but that you would use the public security?

Well, I think what this is pointing, what you're pointing out is there are a lot of questions left unanswered, and I think that's why it is...

No, but I'm just asking, is there any place where someone who is actually a boring accountant is going to look at that tokenized value as a better representation of value than the security that's trading through markets like Mr. Zecca's with those controls?

That's the oversight we're hoping that the SEC can offer because these are securities.

Okay, which does not yet exist. So then we're back to why are we even having this conversation about an innovation exception? We've seen that the DeFi markets are failing to put the rules in place that you all have learned through hard experience. We've gone through market crashes. We've got all these rules in place to do that. What is the innovation exception that what is the innovation we're trying to achieve if our goal is boring accounting and we've got boring accounting pretty well and the markets like Nasdaq seem to be figuring out how to do boring accounting pretty well, right? Because the last thing we want to have is something super exciting that brings all the markets back in here to say something exciting just happened in the market that's not particularly boring and we've got a bunch of political pressure now to talk about it. Mr. Bentsen, can you I don't know where I don't know if you're as where you sit with my own view that innovation exemptions are dangerous, but if we're going to do something on the innovation exception, can you talk about what sort of guardrails you would at least like to see in the DeFi space to ensure that there is absolutely no difference in the price of these securities and it isn't an arbitrage opportunity and we're not creating these kind of risks to investors?

I think well, it's that's all a reason to put we think to put it out for notice and comment in the first place so we can see exactly what it is the SEC is thinking about. And then you we think there should be guardrails and those guardrails could be certainly time limitation, who is who can have access to that if it's high net worth, whatever it may be. We don't really know until we know what the exemption looks like. Does it apply to all registrants versus just a limited group? So again, all reasons we think to put it out for comment to see. But again, I'll restate, some of the groups who've been asking for exemptions have now figured out that they can register as broker-dealers. And so they've shown that they can live under the existing framework. And I don't to your point, I don't think we want to import some of the market practices in the non-securities world into the securities world.

The gentleman's time has expired.

Appreciate it, I yield back.

Thanks, Mr. Casten. I now recognize myself for five minutes. Mr. Sabella, today's market structure relies on intermediaries like clearinghouses as part of a settlement that is not instantaneous, which creates counterparty risk and those institutions are designed to manage that risk. If we move to a model where transactions settle atomically or real-time settlement, effectively eliminating that counterparty exposure, would you agree that one of the core risks the system is built significantly around is reduced in this new model?

Thank you for the question, Congressman. So yes, I do agree that in a sort of so-called atomic or T-zero settlement environment, in particular market risk is reduced. What you still have to contend with and some of the discussion we've had so far has hit on is heightened operational risk because you're really relying on that technology to be there to perform accurately and consistently and to scale when you need it. The second is liquidity risk, which still exists and intermediaries still can play a role in helping to basically ensure there are no drops in the transmission of assets from one to the other. Things move so quickly now, obligations move so quickly now, you need to ensure you have enough resources in the system in the right place at the right time. Technology can help do that, but intermediation is the coordination of that technology that still remains important.

Yeah, thank you, and thank you for highlighting liquidity still there and we saw that for example when Robinhood, you know, is still doing broker-dealer, they've made it in a much more consumer-friendly way, but if you remember the GameStop short squeeze that resulted in a lack of liquidity, those things could be heightened and, Mr. Bentsen, you highlighted or really suggested that of course there would never be such a thing as malicious software, which reality is maybe there could be. So you do need systems to safeguard it and Mr. Casten highlighted that even when the software is designed right, there could be some rapid changes in the market. So I think the thoughtfulness that's going about tokenizing securities makes sense and I think Chairman Atkins is doing a great job, Commissioner Peirce has been very thoughtful on this for years. We've been set back for a long time though because frankly Gary Gensler wanted to prevent any kind of real progress on the commission. And a lot of the companies wanted to just be deemed not securities. They were working to be not securities and that interfered with the people that really did intentionally want to be a security and getting the clarity the commission didn't provide the regulatory clarity there. So Mr. Zecca, you're moving forward in trying to develop a way where people can intentionally work with securities and when you talk about some of the things that some of my colleagues have brought up about, you know, things that aren't securities, well of course those things don't necessarily have all the same rules that you do have for our securities. So whether it's tokenized or not, let's say we have a tokenized future and now tomorrow or let's make it Monday, you know, so that we have the weekend for the radical change. Monday morning, markets open and 100 percent of it's tokenized, would the accredited investor rule be gone?

If it's a future or if it's a...

Well, I mean, I'm for a future where we change that radically since it's your money you should be able to use it. I'm not talking about the markets we should have. I'm just saying, hey, if the only thing that we change is tokenize it, would we change the accredited investor rule by tokenizing these things?

No, I don't think so.

No. Would you change the regulations for broker-dealers?

No.

Would you eliminate the requirement of know your customer?

No.

Would insider trading instantaneously now be legal?

No.

You know, all these things that we're talking about are still critical features of the market, but fundamentally the technology is changing. And that's been a constant in our market. The technology does change and adapt. And now you suggest as I have long advocated that there are some other changes that we might make because they're not really fair or efficient. And the accredited investor rule is one of those. And so Ms. Mersinger, I think you've highlighted some of the challenges as you look at the rulemaking, even if we pass the Clarity Act and it comes through, there's still a lot of rulemaking to go through. So how do you see that playing out and how does that affect markets as they're really awaiting the certainty of a final rule?

Thank you for that question, and that's a great point. You do need certainty for these entities while they're awaiting rulemaking, which can take a very long time. So that's why there are other tools available at the SEC, at the CFTC to guide markets, to guide the activity to make sure that they're following the law while they get to the place of of rulemaking. So this is why we have no-action relief, why we have exemptive authority. And one thing just to mention on exemptive authority, I think it's really important for everyone to remember is this isn't an exemption from everything. This is you are getting certain tailored kind of rules to the the technology that we're talking about now. So at the end of the day, you're still under the SEC's regulation, you're still abiding by rules that the SEC lays out.

Thank you for that, I appreciate it, and I now yield back and I recognize the gentlewoman from Massachusetts, Ms. Pressley, for five minutes.

Thank you very much, Mr. Chair. As we're talking today about tokens and digital assets, I just want to for those watching at home, just really center the American public and my constituents of the Massachusetts 7th. You know, it seems everything and everyone is being attacked except for affordability. And people are really struggling. They are struggling to pay for their rent, groceries, gas, and medical bills. They are exhausted by the constant chaos coming out of this White House. And Donald Trump and his co-conspirators are making millions at the expense of everyday working people. Trump and Republicans in Congress are continuing to try and weaken the SEC and make it harder for them to protect investors and consumers. Mr. Banaei, you worked at the SEC and CFTC and now you work in digital finance. Previously you mentioned that you think regulators could have played more of a role in shaping these emerging technologies years ago. Can you just expound and elaborate on how the SEC, the Securities and Exchange Commission, can could have exercised oversight of these technologies and protect consumers?

The same decisions that the current SEC is thinking about, you know, could have also been those authorities could have been exercised under the last administration. A different strategy was was undertaken and we can talk about it sometime. But I think the hardest thing for the SEC to do right now is, for example, looking at the whole myriad rules under Reg NMS, including the order protection rule, which was which was mentioned earlier, and conducting industry outreach and roundtables in order to try to understand how we can bridge the gap between, for example, the public price feed, the securities information processor, the SIP, and on-chain based trading, for example, integrating data both on-chain and off-chain through connectivity between the SIP and US-regulated liquidity pools. These are all issues that can be surmounted, but it requires extensive fact-finding, and I would encourage this this SEC to engage in that fact-finding alongside the other efforts it's doing. Otherwise, it's it's going to lead to the same lack of progress.

Thank you. Thank you, Mr. Banaei. Mr. Zecca, I'm interested in Nasdaq's approach to tokenization as a way that empowers shareholders to hold companies accountable. Are you working with consumer groups and advocacy organizations or other stakeholders on that goal? And how can interested parties like myself be involved?

Well, thank you for the question. You know, we're not directly in touch because we're sort of the we're the exchange, we're not the end we're not with the end customer. I do know that there are intermediaries who do speak to various groups and we're happy to demo our technology for anyone. We'd be happy to reach out.

Okay, all right, well, I'm going to take you up on that, Mr. Zecca. On the record, would you commit to working with my office as we move forward in that process? And I just really do believe as we innovate that we have to have advocates and impact the consumers, they should be at the table. Okay. Will you commit to that?

Yes, we'd be happy to. Happy to work with you.

Okay, excellent. Mr. Bentsen, as a former member of Congress, I know you understand the importance of the public trust. Do you agree that there should be laws around digital assets so members of Congress or the president, for example, cannot unjustly enrich themselves or abuse their position? My time is short, yes or no?

Yes, we're on record as saying Congress should write rules around digital assets that are not securities.

Okay. All right. For the record, I'm certainly not against innovation. I have introduced legislation to advance financial technology in a way to protect consumers, not harm them, evade the law, or enrich the pockets of the already wealthy and well-connected. As we innovate, we should not exploit and leave communities behind and we should not let Trump continue to make money and put our economy at risk by changing or not enforcing the laws created to protect consumers. Thank you, and I yield back.

The gentlewoman yields back. Chair recognizes the gentleman from Wisconsin, the chair of our subcommittee on digital assets, artificial intelligence, Mr. Steil.

Thank you very much, Mr. Chairman. Thank you all to our witnesses for being here. Blockchain technologies help modernize our capital markets. I think we all agree on that. From if you think about the history from kind of the ticker to the digital terminal, each leap in communications breakthroughs expanded access, improved efficiency, and reduced cost. But history also shows us that regulatory hostility can stall innovation and weaken American leadership in this space. Our capital markets have long been the envy of the world and led because we've consistently upgraded both our market infrastructure but also importantly upgraded our rulebooks. And that means providing clear rules of the road for innovators developing new base layer technologies and applications as well as some integrators combining those tools with in some cases centuries of market expertise. If we get this right, I think we can uphold the core principles of capital formation, liquidity, and investor protection while making the regulatory upgrades needed to sustain them in a rapidly evolving financial system. Let me begin with you, Mr. Zecca and Mr. Sabella. Your firms recently proposed a rule change and no-action relief respectively in the SEC from the SEC to undertake tokenization projects. Want to get your your view here. Do these actions appropriately address the regulatory gaps needed for you to undertake these market upgrades? And if not, what does Congress need to do or the SEC need to do? And I'll start with you, Mr. Zecca, if I can.

Sure. I think in the immediate term the answer is yes. So the SEC approved the rule and so now we're working on the technology side and working with our partners including DTCC on that. In the longer term as as this develops because I think that was part of your question, I think there are areas where CFTC coordination and things like that we're going to need work there. I think the sandbox question that's come up has been critical as well.

Go ahead.

I would echo what Mr. Zecca said and I think for us, the no-action relief we have is is to a sort of base version of the tokenization. It's limited number of equities, it's sort of limited to our members and their customers. It runs on a three-year period. During that three-year period we'll be looking to support stakeholders like Nasdaq and others in the market to give choice and competition. But once we get to the end of that three-year period, we're hopeful we would provide more comprehensive answers about solutions.

Thank you very much. We and at the end of this project, three years out, I think it's going to be really imperative that we continue this dialogue between us here at the Financial Services Committee, the SEC, stakeholders, to make sure that we're getting this right with the opportunity to expand the scope as we look for additional efficiencies and embracing the technology. Let me shift gears. I'll come to you, Ms. Mersinger. One of the things we haven't we can't discuss tokenization without talking about decentralization in the innovation happening in DeFi. You have a lot of background experience in this space. The lack of intermediation the lack of intermediation poses some really novel legal and regulatory questions for trading and custody of securities that really, in some ways, spins on its head kind of our framework with which we've thought through this over the past 100 years. Can you just comment how decentralized exchanges complement or can coexist alongside the traditional market structure? And what are the benefits of decentralized trading?

Thank you for that question. And I just want to make sure when we talk about DeFi, what we're talking about is permissionless, non-custodial, non-discretionary code. So this is a technology that's going to improve the markets. It's going to bring faster settlement. It's going to reduce costs because there's not the intermediaries. And just like with electronic trading, these technologies can operate side by side in a regulated space. And eventually, you'll see the the evolution of the markets going to the more efficient system, such as using DeFi for these trades. So I think what you'll see is more efficiency from them, lower costs, and really less risk because of the settlement time.

I think that's right, and that's what we're all going for, right, is efficiencies in the market, embracing technology, and maintaining those investor protections, which I think are so essential to the core structure of U.S. markets. Appreciate all of you being here today. Thank you for holding this hearing, Mr. Chairman. I'll yield back.

The gentleman yields back. The chair recognizes the gentlewoman from Texas, Ms. Garcia. You're recognized for five minutes.

Thank you, Mr. Chairman, and thank you to all the witnesses. I'm sure by now you're getting a little hungry. But bear with us, we're almost to the end. Mr. Chairman, our nation's capital markets are the backbone of our economy. I think we can all agree with that. As we continue to talk about innovation and how to modernize securities, we need to keep strong guardrails in mind. To start, innovation is often considered a way to improve capital market access for ordinary Americans. Mr. Banaei, you offered an example in your testimony where you talked about ordinary Americans invest on a highway project in your community. I frankly can't think of a single person who would want to own a piece of a road, but maybe that's true for for in your area. This is a great theory, but in practice, who is really buying these tokens?

So right now, we see a strong global demand, primarily for...

No, I heard that in your testimony, but which ordinary Americans? Are ordinary Americans buying these tokens?

These tokenized securities are actually pretty hard to access in U.S. markets. Most of the entry points, for example, the the website that we help administer, block U.S. users. I think that's the same with most of the other tokenization projects, whether they're U.S.-based or not. One of the things that I think we can do here is make progress toward providing the legal certainty needed to be able to offer tokenized products to U.S. users that follow the panoply of securities laws adjusted for this new new infrastructure.

So these are mostly then retail investors?

The there's a there's a range. There's a distribution of, you know, holdings based on wallet that we see. It is, you know, pretty pretty concentrated, but there's a lot of people that are owning very small pieces, you know, $10, $20, $100 of different types of tokenized assets, the most popular being those that are are backed by U.S. treasuries.

But but you said you're saying that it's hard for Americans to actually have have access to these.

That's right. And the DeFi interfaces that are out there, as a best practice, do try to prevent access to tokenized securities.

Well, it's interesting because, Ms. Mersinger, you said in your written testimony that the total market capitalization of digital assets exceeds 2.5 trillion and more than 50 million Americans own digital assets. So do they have access to these tokens?

So this is this is more of a crypto digital asset, you know, the Bitcoin, Ether. Yes, U.S. customers, about one in five, own digital assets. I think what we're talking about now is the tokenized securities and...

I know what we're talking about, but I'm trying to reconcile the two because we're talking about access. So does the ordinary American truly have access to tokens today?

Not to all tokenized products.

Okay. And of the the 50 million Americans that that do have access to digital assets, is that today? Is that a current number for 2026?

Yes.

And could you tell me what the profile of the average person who owns digital assets might look like?

Unfortunately, I don't know the exact profile, but what I know is it's pretty widespread.

What is the income level?

I can I can comment on this. It's a wide range. It's primarily male. It tends younger. Tends to look like me. And, you know, younger on down. So it's it's definitely a technology-forward demographic.

So are any of these folks in any of the underserved communities?

Absolutely. They are. There are a lot of the numbers in terms of when you look at the democratic spread, disproportionately brown, disproportionately black. And male and young.

Black, male, and young. That's interesting. I I asked that because I I've always been concerned that we're creating just another divide. To me, the financial system, the banking system, is not in fair fair and equal to everyone. We still have so many people that are unbanked. Will this solve any of those issues, Mr. Bentsen?

I'm sorry. The issues with the unbanked, will access to the tokens, access to digital assets improve that or or just continue the divide? I I will say this. I think that I think our market structure that we have in the securities markets and, by the way, just to your question, there are about 25 billion tokenized securities in the U.S. It's up considerably but still small, and about a billion of those are tokenized equities. So it's still a nascent market in the U.S. I think in the investment markets in the U.S. under our current structure are are quite accessible, increasingly efficient, increasingly price efficient. So we think there's a lot of opportunity for the unbanked or the uninvested, as you might say.

Thanks so much. Mr. Chairman, I'll I'll submit a follow-up question in writing. Thank you.

I thank the gentlewoman from Texas. I now recognize the gentlewoman from California, Ms. Kim. You're recognized for five minutes.

Thank you, Chairman and Ranking Member, for hosting this hearing, and I want to thank all of our witnesses for joining us today. You know, when we discuss the term brain drain, it's often used in the context of foreign content, the talents leaving their home countries to come to America because of the opportunities that we provide. However, in the digital asset industry, this drain reflects a 2 percent year-over-year decline in the U.S. share of blockchain developers over the last five years. In 2018, the U.S. share of global blockchain developers was 40 percent, and today it is down to 20 percent. While the rogue regulation of former SEC Chair Gary Gensler did America no favors in fostering crypto innovation in America, that does not mean it is too late to reverse his policies and establish America as the crypto capital of the world by doing something that we already did, passing Clarity Act. Ms. Mersinger, when innovation moves offshore, where is it going?

Thank you for that question. Often it's going to jurisdictions where they do have clear rules of the road. That's best case scenario. Other times they're going to jurisdictions where they don't have the same protections available for consumers, and that's why it's important that we have the ability to have these markets here in the U.S. where we have the best consumer protections available for those who want to invest in these markets.

So you're saying we're losing our blockchain developers because foreign jurisdictions are adopting clearer frameworks. So there is that urgency for us to get this done and get it across the finish line as soon as possible. For decades, our capital markets have been the greatest in the world because of the clear and consistent regulation that have been crafted. It is time that we extend the same standard to crypto industry and help it return to a regulatory regime that is ready to foster more innovation. Mr. Bentsen, what lessons can we draw from the success of the U.S. securities market when evaluating how new technologies like tokenization should be regulated?

Congresswoman, thank you for that question. And I should thank you and I would have thanked Ms. Beatty if she had asked me a question. Thank both of you all for the work that you all do as co-chairing the Financial Literacy Caucus, and I know we've been able to engage with you on that over the years and look forward to in the future. I think we can learn a lot from the U.S. security markets. As I mentioned, fractionalization of shares, we have that in this market system. We have, you know, 78 million households in the U.S. are invested in our markets. That's 58 percent of households in the U.S. That's great. That's more than most jurisdictions. That can be more through things like financial literacy, but also because of the continued development of our markets through electronification, through increased operational efficiency, lower cost, the fact that you can basically buy equities for no commission today. Our markets are continually to evolve and continue to get better and greater access for more people.

Thank you. You know, as we evaluate the benefits of tokenization, one aspect that interests me is the global exposure that tokenization provides for our U.S. markets. Again, back to you, Ms. Mersinger. How would tokenization open the U.S. markets to investors that have historically been excluded by high minimums, currency barriers, or lack of brokers?

That's a great question, and that goes to what having tokenized securities means. It's it's broader access. It's faster settlement. It's fewer intermediaries. So it brings down the cost of the transactions. So it is opening up markets that, you know, have not always been available to the average retail investor. So it really is broadening our access and making sure the costs are lower for retail investors.

Then how critical is the innovation exemption from the SEC that is coupled with Clarity Act to kickstart that type of innovation?

It's it's critically important that the SEC be able to use that authority that Congress gave them. Again, this is about tailoring the rules to apply to the technology. It's not avoiding the rules. It's not being exempt from the rules. It's a tailored approach to the rules. You're still under the SEC's jurisdiction and there are going to be conditions around these exemptions. But what it does is help us move ahead and if you're waiting on rulemaking, even with Clarity when it passes, it's going to take a while to get that rulemaking in place, but these markets need to go on.

I wonder if Mr. Sabella can quickly talk about cost of tokenization.

The gentlewoman's time has expired. If I can ask you to respond to that in writing or submit that question.

I'm pleased to respond in writing to the question.

Thank you.

Chair recognizes the gentlewoman from Colorado, Ms. Pettersen, you're recognized for five minutes.

Thank you, Mr. Chairman, and thank you all for being with us today. This is such an important discussion as we're looking at how we modernize our system and make sure that we're not that our financial system is still protected. And so blockchain technology is increasingly sorry, I have a cold. It's that time of year, I have a one-year-old at home, so. Blockchain technology is increasingly becoming an important catalyst in the evolution of our capital markets and tokenization is helping firms achieve faster settlements and we've talked at length about this, but it also can come with risks with innovation. So we have to find a balance in making sure that the same principles that have led American capital markets to be the most liquid and powerful in the world continue to safeguard investors and help our businesses thrive, which is the core of our discussion today. So Ms. Mersinger, your testimony highlights the important improvements our capital markets stand to gain by adopting tokenization. Can you give specific examples of what this looks like on the ground?

Thank you, and as some of the benefits that come from tokenization, you are talking about faster settlement which reduces the counterparty risk. You're also looking at expanded access, the 24/7 trading, which is globally where markets are headed, it's already here. Overall just reduced operational costs and really improved compliance and record keeping because you have an immutable audible trail that is time stamped that is nobody is in it's automatically happening so you're not relying on an individual for that compliance and record keeping. So there's a lot of benefits to having these tokenized assets.

Can you give some real world examples of how this has benefited individuals that you've worked with?

Well as the retail investors in the United States don't have as much access to these because of the lack of clear rules around how this will work, but certainly you can see where globally it is allowing those who are underserved, underbanked to access markets that they wouldn't normally access. And so I think it's going to be a huge win in the United States when we open this up and allow more retail investors to access tokenized security because again it's going to bring down the costs, it's going to make this an easier, less expensive transaction for the average retail investor.

Great. Thank you so much for that. And Mr. Zecca, everyone in this room we're familiar with this debate. We've talked about this at length. But I just want to follow up on some of the questions that have been asked. I think that tokenization brings a different perspective around whether digital assets should be treated as commodities or securities. Would you agree that where a security is traded via token on the blockchain that the exact same securities laws and market rules should apply to both that product and trade?

I would. I would agree.

Mr. Bentsen, should trading tokens on blockchain where the underlying asset is a security be treated any differently than a security traded on a regulated exchange?

They should they should be treated the same and I would argue that today retail investors have access it's not the question of tokenization, that's a technology. It's a question of the broker dealer and the provider and retail investors have full access today at the lowest cost they've ever had before.

Mr. Banaei, would you like to comment at anything?

I think that we can create a regulatory framework with Congress's direction that achieves the same outcomes as the current securities regulatory architecture and extend it to the on-chain capital markets in a way that would expand the scope of capital formation opportunities as the rest of the world also moves on-chain.

Thank you. And Ms. Mersinger and Banaei, what are the strengths or weaknesses of tokenized securities in combating fraud? You want to go first, Ms. Mersinger?

Yep, I can start. Again, it's that kind of automated trail. You have it improves your compliance and your record keeping because it's all done automated, it's on a public blockchain. So there's a lot of again, you're not you're not relying on human surveillance, you're relying on the technology to do the work of protecting against fraud, manipulation, and other market abuses.

Tokenized equities right now are an inferior product. The only reason there's demand for them is because there is a large population of people outside the U.S. that are unbrokered that want access to U.S. capital markets. We need to leverage the moment and...

Gentlewoman's time has expired.

All right. Thank you, I yield back.

Gentlewoman yields back. The Chair recognizes the gentleman from Texas, Mr. Green, who is the ranking member of our Oversight and Investigations Subcommittee. You're recognized for five minutes.

Thank you, Mr. Chairman. I thank the witnesses for appearing and I thank the ranking member for her opening statement. It has been concluded that there are opportunities to tokenize equity securities. And in so doing, this may provide the opportunity to avoid having a central bank involved in the database. If this occurs, can we assume that there may be some efforts by some persons to avoid their tax obligations? Would it be made possible for some persons to do this to avoid tax obligations? And Mr. Banaei, would you kindly give a response?

Right now there's many different strategies that high net worth individuals in the U.S. use to avoid taxes. Under the proposal that we've submitted, we would be extending the remit of the SEC to incorporate the entry points into the DeFi ecosystem, which would include KYC as well as tax reporting obligations, and that would reduce that surface area for that type of tax avoidance.

Thank you. I use the term avoidance with intentionality because ultimately the concern is evasion. Avoidance, while may not be preferable, is legal. But evasion, when we can now have these transactions take place from one person literally to another, that opens the door of opportunity for evasion. It also opens many other doors for concerns that that might be nefarious. Can you talk about some of these nefarious opportunities that would be available as a result of the this type of tokenization?

When it comes to tax compliance, actually some of the best and highest profile seizure cases of digital assets have occurred by our IRS enforcement friends. When you look at and they've actually been the primary drivers of seizure rates in on-chain contexts. We see in on-chain contexts a seizure rate of about 12 percent. So when when you look at the universe of illicit activity on-chain, about 17 percent of it ends up being seized by law enforcement, primarily actually by by the IRS. That contrasts to an estimate from the UN of about 0.2 percent in the real economy. So the traceability of on-chain data of permissionless public blockchains has actually been a really powerful tool in law enforcement's toolkit, particularly as it relates to tax evasion.

And that is accomplished because we do have the central bank?

It's accomplished because when we when we find wrongdoers, when we find tax evaders, we can trace their activities on-chain to all the different wallets that they may have and that's enabled quite successful record of seizures.

Well, without a central bank, would you be able to do this?

Without anti-money laundering enforcement, that that would obviously pose a challenge, but I would say that right now that the enforcement of tax evasion is pretty robust in an on-chain environment.

And what about the persons who tend to want to extort from other people by using crypto?

We have seen, for example, one common type of illicit activity involving crypto is these these these types of extortion schemes. That that has been reduced in recent years and law enforcement has actually been pretty successful in in in tracking those digital assets. What I what I will say under the framework that I've proposed for tokenized securities, that the assets that would be extorted from somebody could could be frozen and seized by law enforcement by being with that logic being programmed into the tokenized security. So it would make tokenized securities particularly useless for for illicit actors.

Thank you, Mr. Chairman. I yield back.

Gentleman from Texas yields back. Chair recognizes the gentleman from Tennessee, Mr. Rose, you're recognized for five minutes.

Thank you, Chairman Hill and Ranking Member Waters and and for holding this important hearing and thanks to our witnesses for your time here today. Mr. Banaei, did I say that correct? Okay. Romance fraudsters today often need victims to sell securities, move money through bank accounts and then convert it to cryptocurrency, a multi-step process that sometimes gives families, banks or law enforcement time to intervene. With tokenized securities that can be transferred in seconds, how concerned are you that this friction is being engineered out, making it easier for criminals to drain a victim's life savings in a single transaction?

Thank you, Congressman. That's an excellent question. It's actually a good follow-up to the Congressman's question before. I think the again, we can this one of the benefits of tokenization is the programmability aspect of it and being able to embed compliance controls at the token level. And that would include the ability to for law enforcement to identify the tokenized security, ask the issuer or their transfer agent or the broker-dealer administering AML controls to freeze the asset and pending a lawful seizure order.

Okay. I think I followed that. Appreciate it. Ms. Mersinger, many have argued that payment for order flow operates as an opaque cost to investors, one that is difficult to see or evaluate and that most retail investors do not fully understand. In your view, how might the development of tokenized securities and new market structures built on them create competitive alternatives to today's payment for order flow-driven platforms?

Thank you for the question. I think the kind of core issue here is this idea of the transparency that's involved. And so you're going to have a transparent system where you know the order flow, you'll be able to see all the information on the public blockchain. So a lot of it is just the transparency for the investor.

All right. Thank you. Mr. Sabella, in your written testimony, you referenced a future with greater settlement optimality where characteristics like asset class, liquidity needs and counterparty risk help determine the optimal settlement cycle for a given tokenized transaction. Could you expand on the potential benefits of a more tiered settlement structure where some trades might settle in real time while others settle on longer cycles and how such a framework could improve market efficiency, risk management and cost outcomes for different types of market participants?

Thank you for the question, Congressman. So this is a theme that I think even started before tokenization really took off after the transition to T+1. But what we observe at DTCC even today is that market participants like to have choice in terms of how quickly they can access liquidity by converting assets into cash or other assets. And so one of the propositions around tokenization is it may give market participants more flexibility in actually realizing a variety of settlement cycles. Today, in fact, you can actually settle a transaction T+0 at DTCC today, but that's very limited based on the technology and participation requirements we have. In a tokenized future, it may be possible to have more parties able to do T+0 settlement and that may suit their needs if they have a particularly time-sensitive funding need or they need to get into and out of a certain asset class. All of these use cases exist today, but they may be more available and more graceful for participants if they use tokenization. And so that's what we really mean by choice and allocating liquidity efficiency across markets.

Thank you. And finally, in the 50 seconds we have left, Ms. Mersinger, many Americans who are watching this hearing are excited about tokenized securities and wondering when they'll actually see them in everyday use. If you had to give your rough best guess, how long do you think it will be before we see broad adoption? For instance, the Thrift Savings Plan providing federal employees access to tokenized retirement securities in addition to its current core funds.

I think the timeline depends on how quickly the SEC can provide clarity to these markets in how the securities transacting on the blockchain are subject to the rules of securities laws. So a lot of it is dependent on the regulator. I know Chairman Atkins is moving very quickly, so I think it'll be soon.

Thank you. I appreciate it. Mr. Chairman, I yield back.

Gentleman yields back. Chair recognizes the gentleman from New York, Mr. Torres. You're recognized for five minutes.

Thank you, Mr. Chair. A significant share of capital is effectively frozen as collateral. Traditional settlement is so inefficient, so intermediated that it often causes firms to over-collateralize. Tokenization has the potential to transform trillions of dollars of idle capital into productive capital. Do any of you have an estimate of exactly how much capital could be unlocked through tokenization?

So I can start, Congressman. So at this point, we don't have an estimate. We saw the benefits that you were describing certainly happen when we move from T+2 to T+1. But I think one of the challenges in terms of getting to the bottom of an answer to your question is market participants, I think, and I'll defer to Mr. Bentsen and others here on the panel, have a variety of views about what the next step is for moving to T+1. As I mentioned before, some people may want to move to T+0 very quickly. Others may want to have a little bit of a more nuanced approach. Depending on how that shapes out in terms of what becomes the new standard settlement cycle after T+1, we can't really figure out what the savings look like. But we do agree with your instinct that the savings are there if we can basically unlock collateral further.

Now I have a question. I spoke about the benefit. I want to address a possible cost of tokenization. I'm generally supportive, but you know, I have a question about the role of technology in accelerating financial contagion. So we saw during the collapse of Silicon Valley that a single rumor amplified by social media can trigger widespread panic and an instantaneous bank run. In March of 2023, SVB lost approximately 25 percent of its deposits in a single day, making it the fastest bank run in modern financial history. It seems to me that a 24/7 financial system can be a blessing and a curse. It's a blessing because it enables more efficient collateralization, but it's also a curse because it can enable more efficient and rapid liquidation. Tokenization could enable financial contagion to spread more rapidly and widely. And so how do we mitigate the risk of financial contagion in a world of 24/7 tokenized financial markets?

So I can start, but defer to others as well. I mean, I think we're partnering again with partners like Nasdaq, members of SIFMA as there's an extension of 24/7 trading in the equities markets to provide the same risk protections that I think you're pointing at, Congressman. And as we noted before, with the introduction of new technology, that means on a good day you worry less, but on a bad day the risk profile is a little bit different. So we get we reduce counterparty and market risk because we're able to reduce our exposure to each other and the market value of the asset we're exchanging. But we do have to still keep in mind both operational risk, but also liquidity risk, which I think is what you're really getting at insofar as if things move quickly and there's a drop somewhere, we need the resourcing in the system to deploy and be available to cover that drop as quickly as possible.

Happy to add a couple things to that. I think the yeah, the best risk avoidance in a volatile market is deep liquid markets. And of course, we've seen that time and again in the U.S. And so I think when we say with with crypto, how do you and digital assets and tokenized securities, how do you best protect it from being a separate risk exposure is to bring it into the into the markets, into the deepest pool of liquidity so that it's available in times of stress. I did want to note, you know, we do have versions of 24/7 equity trading now. And what we're talking about as it extends and becomes more of a regular session would be ensuring that we have all the protections that we have now, the surveillance, there are limit up, limit down bands to prevent wild trading. So we're working on adding that as well.

You know, tokenization has the potential to expand retail access not only to public markets, but also to private markets to an extent we've never seen before. At the same time, we are witnessing growing signs of strain in the private markets, particularly private credit. How should the stress in the private credit market inform our thinking about the role of tokenization in expanding retail access to alternative assets, retail access to alternative assets?

So there's a kind of two different things in there, but I think you're right that and the work that we've looked at, tokenization can be a tool for alternative investments, private markets as a more efficient means to move that type of product. On the other hand, policymakers, Department of Labor, Securities and Exchange Commission, Congress have all been looking at what are the right suitability rules or how would suitability rules apply to alternative investments that otherwise been only the purview of high-net-worth investors, foundations and institutional investors. So that's something there's sort of two different things have to be worked out there. But I but from a technology standpoint, I think there's a view in the industry that tokenization would be a useful infrastructure tool.

I agree with that. Thank you.

Gentleman yields back. Chair recognizes the chair of our Oversight and Investigation Subcommittee, Mr. Meuser of Pennsylvania. You're recognized for five minutes.

Thank you, Chairman. Thank you all very much. Appreciate it. President Trump has called for the United States to be the most pro-crypto nation in the world. And I think all Republicans in the House agree and have delivered. We did pass the GENIUS Act, the Clarity Act, which provided framework for payment stablecoins and the greater digital asset ecosystem. And now we are turning to the next phase, making sure the United States leads the way in tokenization. If we get this right, tokenization and decentralized finances can increase liquidity and expand access to capital markets so retail investors in Pennsylvania and across our nation can participate in more opportunities. So the SEC is considering an innovation exemption that could enable certain tokenization offerings to move forward in the near term, providing a pathway for products to reach market while long-term standards are developed. Mrs. Mersinger, what does the Blockchain Association want to see out of the SEC's innovation exemption?

What we're looking for is clarity in how securities laws will treat tokenized equities. So really what it is is just clear rules of the road so that we can have this innovation onshore and make sure the United States remains the crypto capital of the world.

That seems to make sense. Mr. Zecca, do you agree with Mrs. Mersinger's assessment?

Yeah, I think what the core question that we're facing with tokenized securities is how to do it in a way where retail investors can access the wallets that they have, the the investments that they already have in the crypto space, bring them into a digital environment, bring them into a tokenized environment, but trade with the protections that they're used to. And that's sort of what we're focused on. We think there are huge opportunities there.

Great. Can you, Mr. Zecca, can you explain the difference between a native and wrapper model for tokenization and what risks do tokenized securities that trade outside the national market system, the NMS, pose?

Yeah, so I think the the concern that's out there right now is as we watch the way the markets have developed, it's mainly been overseas. It's been a lot of synthetic products, so they're not true equity ownership. You don't you may not get dividends, you may you may not get other rights and they're probably priced differently as a result. It's not clear that investors are always informed as to what that is. And so what we're saying is the tokenized product, certainly for the retail investor, should be one that they're very familiar with. And we don't want to avoid one of the biggest risks not only for investors, but also for issuers and capital formation, which is that you fragment liquidity through different pools of different assets and therefore there's there's less pricing, there's less liquidity in a in a problem. And so what we want to have is a core base of liquidity and an instrument that retail investors are familiar with.

All right. Great. Thank you. Ms. Mersinger, back to you, please. Can you explain the benefits of the wrapper model for tokenization and how does it increase liquidity?

Sorry, can you repeat the question?

The benefits of the wrapper model for tokenization and how the effects it has, how it increases liquidity.

I think it a lot of the benefits are are the same. It's, you know, we're talking about, you know, expanded access, faster settlement, reduced operational costs. So it's it's a lot of the same benefits that we see with putting these tokens or putting securities, any security on the blockchain.

Okay. Mr. Sabella, the DTCC was granted no-action relief in December 2023 to operate a pilot tokenization program. Can you describe the program and the benefits of temporary relief allowing tokenization pilots?

Sure. Thank you for the question, Congressman. So effectively, it's limited to a certain subset of the security assets we service. It is limited to our participants and their customers and effectively we will look for those parties to bring to us different wallet protocols and different chains where they would like us to tokenize their holding in DTC today so that it can be deployed into new tokenized environments, whether provided by traditional market actors or new market actors. It's a three-year program because we're trying to and we view this as effectively just an extension and evolution of the services and value we provide today in the depository. So we want to see how effectively that will work. And we did it under a no-action approach because in contrast, I think to some of the other approaches we've been discussing, this was very technical, very targeted. We were basically just trying to get the the minimum the MVP version off of the ground so we can grow back into some of the more technical requirements that just do apply to our operations as a clearing agency. We're hopeful at the end of the three years, if not before, we'll have learnings and feedback to give to bodies like this one and the regulators about how to better accommodate tokenized activity in our financial markets.

Okay. Thank you. I'm just about out of time. Ms. Mersinger, maybe you could tell us later or in writing, Singapore, U.S. tokenized securities current rules allow it to be traded in Singapore but limit their use here at home. Wondering what you believe the competitive disadvantage that's created in the U.S. markets. But with that, we'll have to...

Gentleman yields back. We'll take that answer in writing. Chair recognizes the gentleman from California, Mr. Liccardo. You're recognized for five minutes.

Thank you, Mr. Chair. I appreciate all the testimony and I've learned quite a bit about the tremendous advantages and opportunities with tokenization of assets for trade and investment on blockchain. Undoubtedly, obviously as Congress, we have to be concerned about those cases of fraud, of deception, of illicit finance of various kinds and criminality. And I know that we're all concerned about that. And I appreciate the testimony of several of you who have said, look, we've got to have clear protections for investors and for the public. Just yesterday, the Wall Street Journal came out with a story describing how some tokenized offerings had significantly deviated in value from underlying public shares. We saw earlier stories that Amazon stock, its token was selling at a price 300 percent higher than the stock itself in one case. And obviously there are other examples. And obviously the challenge that tokens are technically derivatives that don't convey the same shareholder rights as underlying securities until otherwise determined. So my fundamental concern is not what's going to happen, I'm certain that Nasdaq's going to do a good job, I'm certain that many centralized exchanges will apply regulations in a way that protect investors and certainly there'll be regulators in place to ensure that happens. I'm concerned about the anonymity or maybe the pseudo-anonymity of those participants on decentralized exchanges. And DeFi certainly provides, I know, great opportunity but enormous risk. And I really appreciate, Mr. Banaei, your company's approach. As I understand at Plume, investors are less likely to be the victims of fraudsters who may be selling the tokenized equivalent of the Brooklyn Bridge. And to the extent there's a know-your-customer requirement, it makes it less likely that there'll be insider trading. There's less likely that there'll be members of Congress trading on stock that they shouldn't be trading on because of conflicts of interest. Now, my understanding is your company provides essentially a layer two app over the DeFi protocol and not all companies require what you require. Is that right?

Yes, most blockchains do not have protocol-level AML controls.

And why do you decide that you're going to apply those controls?

Our goal was to make regulated financial institutions comfortable deploying their assets into our ecosystem because of the lower AML risk profile.

And I assume you do it also to protect your customers, make them feel more comfortable.

Yes. And that includes, for example, the capability to freeze and seize or burn and remint tokens through our Nest tokenization platform.

Now, in your written testimony between pages 12 and 14, you talk about treating companies that are in your position, layer two, as brokers subject to the same requirements of anti-fraud and fair dealing standards, know-your-customer, anti-money laundering, etc. And I guess the question is if that were applied across the entire industry, do you feel confident that other competitors of yours would comply?

This is a natively global architecture which poses both opportunity and risks. I think if the framework that we've adopted, which includes consumer protections at the retail app level and the SEC and Treasury work together when it comes to anti-money laundering requirements at the token level, we can achieve a pretty good level of protection. And then you mentioned also the price discovery issues that we see in tokenized markets and that can be addressed through the network effects that would be established once these markets move on-chain. That will move price discovery away from, you know, these less liquid offshore trading centers that have, you know, limited liquidity and poor quality products and toward the markets that would be overseen by the SEC, which would operate under the same types of transparency and regulatory control.

I appreciate that, sir. I know I'm out of time. I just wanted to ask Ms. Mersinger off the record if she could might be able to provide written statement about what Blockchain Association, their position might be on this issue.

Happy to follow up with your staff.

Thank you very much. I yield.

Thank you very much. Chair recognizes the gentleman from South Carolina, Mr. Timmons. You're recognized for five minutes.

Thank you, Mr. Chairman, and thank you to the witnesses for joining us today. I've long been interested in the concept of tokenization, not just as an emerging technology, but for its potential to integrate on-chain systems seamlessly into our financial markets in the near future. Realizing that potential will require clear, well-defined rules of the road that support innovation in the United States, protect consumers, and encourage existing systems to evolve toward more efficient, lower-cost models. I commend Chair Atkins and the SEC's January statement on tokenized securities. Together with today's discussion, it represents an important first step in shaping how our markets can responsibly harness the transformative potential of blockchain technology. I want to begin with cross-border transactions and the potential for tokenized securities to allow individuals around the world to access and move assets into U.S. markets. Ms. Mersinger, when you speak with member companies exploring this space, what are you hearing about the demand for tokenized securities from investors and are firms seeing this as a meaningful opportunity to bring more global capital into the American financial system?

Yes, absolutely. There is certainly the demand is there. We see it offshore. And opening up these markets more globally will just mean more capital, more liquidity. So there's a lot of opportunity there if the right rules are in place and are clear.

Thank you for that. And from the perspective of financial institutions, I want to touch on compliance. As tokenization and blockchain technology evolves, they introduce the possibility of self-executing compliance, where regulatory requirements can be embedded directly into the asset or transaction itself. How do you see this capability enhancing compliance with existing rules, strengthening investor protections, and potentially reducing the cost firms face in meeting their regulatory obligations? Again, Ms. Mersinger.

I think it's what's interesting is the technology around compliance is moving as quickly as the technology that we are seeing with the markets. And so there's a lot of opportunity to bring efficiencies into the compliance side of this as well. And we're seeing it, Plume, one of our member companies is doing this. And so it's certainly the technology is catching up and the compliance is becoming very automated and part of the system.

Thank you. I really believe this is where the greatest potential lies. Removing intermediaries and creating efficiencies is what emerging technology is all about and I think the future is very bright. And combine that with President Trump's emphasis on attracting foreign direct investment to drive economic growth, the tokenization of traditional financial assets presents a new and compelling pathway for investment into the United States, particularly for individuals and firms in countries with strict capital controls. If we establish the right regulatory framework and allow issuers and intermediaries to adapt, blockchain technology could significantly reduce barriers to entry and expand access to U.S. markets. That reflects the long-term vision. In the near term, I want to focus on the role of Congress in ensuring that our exchanges continue to operate efficiently and without disruption as this technology is introduced. As tokenization begins to intersect with existing market infrastructure, including clearing, settlement, custody, and trading, it is important that integration is thoughtful, orderly, and does not introduce unnecessary friction or risk. One area of particular interest is the potential for markets to operate on 24/7 basis through tokenized securities. Mr. Zecca, given your experience overseeing market structure regulation and risk at Nasdaq, how should we think about the practical steps required to integrate tokenized securities into existing exchange infrastructure without disrupting the efficiency and integrity of our markets?

Well, it's a critical question and I think the short answer is that most of it can be done quite easily through the current processes. Our vision of what we got SEC approval of is basically a message that tells DTC, look, my choice is I want to clear in tokenized form, non-tokenized form. Otherwise your experience is the same. You're in the same order book, you get the same priorities, everything else is the same. So I think a lot of it can be incorporated. It's frankly what retail I think expects. To your point on 24/7, there are innovations from the crypto space that have evolved in the market. I will argue that we have 24/7 trading in equity now. It's obviously not as robust. But I think the systems are ready to go with the exception of we want to make sure when we really launch it as more of a regular session that we have the same data information, safeguards, and surveillance. And so I would argue that that will be the main protection going forward. We're going to treat it like a regular day session.

Thank you for that. I had one more question for Mr. Bentsen but it seems I am out of time. We will send it to you and if you could follow up that'd be great. Appreciate you all. I yield back, Mr. Chairman.

Gentleman yields back. The gentleman from Montana, Mr. Downing, is now recognized for five minutes.

Thank you, Mr. Chairman. I'm really excited that this administration and this committee has charged headfirst on embracing innovative technologies from payment stablecoins to digital assets, artificial intelligence, and now to tokenization. Embracing these technologies and establishing regulatory frameworks will maintain the United States' preeminent position as the global leader in innovation. And one thing that interests me in tokenization is its potential to bolster financial freedom by making peer-to-peer trading more accessible. However, this presents its own risk to investor protection. And I was the former securities regulator for the state of Montana and one of my primary responsibilities was protecting investors from fraud. And I'm going to start with Mrs. Mersinger here. How should Congress and regulators balance the risks associated with increased disintermediated securities trading with protecting retail investors from bad actors?

I think that's where it's important for the regulators to have some flexibility in deciding how the rules will apply to this technology. So we've talked a lot about the SEC's innovation exemption, which is authority that Congress has given them. Being able to use that flexibility to ensure that there are protections, consumer protections in place, even though the technology might be different from the way it's currently working. We want to make sure that those investor protections are still there and that we are not bringing in new risk because of a different system.

Thank you very much. I'm going to shift now in the interest of time here. I want to shift to the regulatory framework and I'm going to go to Mr. Zecca on this one. Regulation National Market Systems, or Reg NMS, contains requirements for trading centers designed to prevent the execution of trades at prices that are inferior to what is displayed on other platforms. So to what extent would Reg NMS currently apply to tokenized versions of publicly traded equities?

So if it's in the regulated environment, it would apply just like anything else. I think that's separate and apart from, as you know, the SEC is considering whether to make changes there. And that's a separate analysis. We would argue if they do decide that changes make sense, and frankly, we've supported some change, that that be done globally and for everybody, not just in some sort of an exemption.

So how much do you think Congress should be concerned about liquidity fragmentation inhibiting price discovery with digital assets trading across both securities exchanges and decentralized trading protocols, and should that be regulated in some form?

I think it's an important question. We are very concerned about fragmentation of liquidity because for capital formation, for price discovery, it's all critical. So I do think it's something that we have to consider. And that's why we're saying if there are somehow exemptions, which we don't necessarily favor, that they be time-limited and size-limited because you want to ensure that you are not breaking up liquidity.

Thank you. I'm going to move to Mr. Bentsen. There's been data showing that custodians have been much faster to adopt tokenization than asset and wealth managers. Why do you think that is?

I think the industry as a whole, custodians probably at the front end, but the industry as a whole, I think has been looking at tokenization because it's constantly looking to take costs out wherever it can and improve efficiency. But I would say as part of that, the one thing that and we've talked about this morning is there's still human oversight because technology can go wrong from time to time, and so you have to do constant risk management, auditing, etc.

Right. Thank you. I'm going to switch now to what tokenization means for retail investors. I'm going to go back to Mrs. Mersinger here. If tokenization really takes off, what does that mean for someone in Montana with a retirement account, and do they notice anything different, and do they benefit directly, or is this primarily an efficiency story for institutions?

What I think will happen for most retail investors in Montana is that the experience will look a lot like it does today. They're going to have the same benefits, they're going to have the same protections, but they'll have the benefits of faster settlement, lower costs, smoother transactions. I think where it's visible in the change is the flexibility and the access because you have an expanded kind of range of assets available through tokenization. And it's also going to improve the actual investing experience by reducing some of the delays that we've talked about previously about taking longer for the asset to show up in your account. This will be near-instantaneous settlement, so your assets will be under your control almost immediately. So there's a lot of the benefits that your constituents from Montana will see.

Well, thank you all for participating, and Mr. Chairman, I yield.

Gentleman yields. The gentlewoman from Michigan, Ms. Tlaib, is now recognized for five minutes.

Thank you, Mr. Chairman. Can I start with just asking for unanimous consent to address to include in the journal the real estate scheme gobbling up Detroit one digital token at a time by Aaron Mondry? He's been tracking it in our city.

Without objection.

Thank you. So the RealT LLC, also known as RealT, is a cryptocurrency real estate company with a portfolio of more than 600 homes and apartment buildings in and around Detroit. Via a web of LLCs, RealT sells what it claims to be fractional ownership of its properties in a form of tokens to overseas and accredited investors. RealT launched in 2019 and raised more than $93 million for its Detroit properties, but today its real estate empire is in ruins. I want you all to look at the shocking condition endured by RealT's tenants. This is important for people to understand. RealT is subject to the largest nuisance abatement lawsuit in the history of the city of Detroit. RealT faces hundreds of blight violations and thousands of code violations. It owes the city more than $5 million in unpaid water bills and property taxes. The city's complaint cites buildings that are fire, flood-damaged, lack doors, windows, have no heat, or are structurally unsound. I mean, you just have to look at this. One of the things that people don't understand is according to the complaint, 408, it's not a little bit, but 408 properties lack paperwork certifying them as safe for habitation. Tenants have reported this has been going on for years without heat. They are not functioning only in the city of Detroit, Mr. Chair. They're functioning in 40 cities around our country. One home, for example, is owned by 331 people who have enjoyed a 9.3 percent annual return on their investment. But tenants report that the heating is broken, the water only works sometimes, and one tenant who lives with her grandchildren has stated that she can't sleep at night for fear of an intruder might enter through one of the buildings because of broken windows. By issuing tokenized interests, RealT has avoided disclosure requirements. And Mr. Chair, we need to do something about that. Mr. Banaei, do you think it's possible to have disclosure requirements or stronger investor protections that could help prevent conditions like this?

I think what you're pointing out here is actually a great case study in the need to make sure that the market structure bill keeps in place state regulator anti-fraud authority, because these types...

So no disclosures. You want to do anti-fraud.

No, for sure. I mean, this looks like, particularly if this is distributed publicly, you know, these...

Well, I just want you to know. So RealT's own white paper stated that its operating agreements would be intentionally structured to minimize responsibility of token holders over the upkeep and maintenance of the property. Like Mr. Chair, they're actually saying it. They know this is happening. They don't care. They just want the money.

Yeah, this is outrageous, and I would like to see these types of broadly available products come under the same type of securities laws that apply to publicly traded equities.

I mean, the risk of that tokenization or related complex financial arrangements can be manipulated, right, and skew away responsibility. Isn't that a big issue to again try to make sure this doesn't happen?

Yes, these types of offerings should be exposed to the full level of disclosure that we have for the public markets for sure, given particularly how they're distributed so broadly.

You know, I know people are so scared of regulation. This is oversight. We can't allow people to live in this kind of conditions. And look, everyday people, even those who have never invested a penny, are impacted by decisions we make in this room. And so it's the difference between innovation and exploitation. And I think that's something that we need to really, really work hard. You know, Mr. Chair, the only reason we know about RealT is not because of our oversight work in Congress. It's because of these pictures and everything that's happened from local reporting in our city by a nonprofit news organization called Outlier Media. And Mr. Banaei, while RealT claims that it offers investors ownership, scholars have argued that the investors more accurately get shares in an LLC. As members of an LLC, do such investors have property rights?

I think if there was a potential misrepresentation there, there is definitely grounds for anti-fraud enforcement in this case.

Okay. What lessons do you think Congress can draw when we see poorly regulated tokenization schemes like this?

I think, you know, one of the benefits of tokenization is it allows broad public distribution of assets. And it looks like, I'm not that familiar with this case, but it looks like in this case they are issuing securities into a public environment. And these are not, you know, Reg D private market offerings offered to a handful of investors. It looks like these are broadly distributed. You mentioned, you know, 331 people having an interest in just one of the 408 properties. So to me, this looks like a very sketchy scheme that city inspectors, state securities regulators...

I mean, they owe them money, but is the fees going to really work?

The gentlewoman's time has expired.

Thank you, Mr. Chair.

Gentlewoman yields back. I now recognize myself for five minutes. First of all, I appreciate the opportunity to learn more about something that has become an exceedingly important topic for both our capital markets and financial innovation. Tokenization represents two different worlds colliding: our traditional capital market system and the world of distributed ledger and blockchain technology. While our committee has spent a great deal of time trying to ensure that native digital assets are properly regulated, there is now the separate question that regulators are also wrestling with. What happens when a traditional security or a real-world asset is put on the blockchain? How would regulators treat that technological transition and what would shift towards a broader tokenization, what does that mean for our markets? Mr. Zecca, in your testimony, you described Nasdaq's approach to tokenization as one of integration between the strengths of traditional equity markets and blockchain-based markets. Can you expand on that thought and specifically, what would an integrated market harnessing the strengths of both tokenization and traditional equity markets look like?

Sure. Thank you for the question. I mean, the one thing to keep in mind is that for markets generally, and whether they're in the crypto space or otherwise, is that it tends to be a central order book, very similar to what we have. So if you think about the technology, it's data coming in, it's orders, they're matched, and then they're written to the blockchain or, you know, in the case of a normal security, they're sent to DTCC. So the technological structure is very similar. We view this as not a new product so much as a new way to technologically represent a security. So where is the question? And the bridge coming in from the DeFi world, you're going to have a growing share of the American population that is invested in crypto assets. They have wallets. They want to expand, they want to use those assets to expand into other asset classes, including equities. We want to give them a path to do that in the world that they probably know best through brokers, with trading occurring on regulated exchanges. So that's what we say when we say an integrating and the bridge between the two.

Mr. Bentsen, the Regulated Settlement Network was a basically proof-of-concept exercise in 2024 designed to explore the effects of tokenization on efficiency. What kind of conclusions did you draw from that exercise and do you anticipate other similar exercises to take place in the future?

Yes, thank you, Congressman. So that was an exercise that actually was looking at other asset classes besides equities, so Treasuries and other fixed income assets. And I think it underscores that the industry has been looking at this technology for many, many years to see where it can be adopted. And I think you'll see more of that. I think things like the Regulated Settlement Network, work that's been done that the exchanges have done, DTCC's done, central banks have done in Europe of looking where they can adopt this technology, this is happening now. And so it's not a question of if we will have tokenized securities, but that we have tokenized securities today because of the pre-work that's been done. And I would argue that it's happening under the regulatory framework that we have in place today. Now, we may find over time that there are friction points, but today we have found that we can adopt this technology. I think it's taken a while. It's not a big market at this point, but I think we will see it grow because as Mr. Zecca said, this is not necessarily a new product. It's just an upgraded technology.

Thank you. Mr. Banaei, you talked a little bit about the possible tokenization of low-income housing tax credits. Could you expand on that?

Yes. So what we see in the LIHTC program, among other federally backed programs that are seeking to enhance the availability of capital to develop communities, is a weak secondary market. Institutes such as the Sorensen Institute have identified the potential of securitization of these types of products as a way of unlocking secondary market liquidity, which would in turn incentivize more participation in the primary markets as well. And so we've recommended that the SEC convene a roundtable around the securitization of these types of community development project assets in conjunction with, I know as a part of their rulemaking agenda, they are considering new shelf registration requirements. These would also further enhance the ability to securitize these types of projects, and so that roundtable could be done to help inform that future rulemaking.

Thank you very much. With that, I yield back. The gentleman from Iowa, Mr. Nunn, is now recognized for five minutes.

Well, thank you very much, Mr. Chair, and thank you for the team for being here. I know this has been a long hearing, so we'll try and be quick. I want to be clear, since 1996, the number of companies that were publicly traded dropped from 8,000 to about half that, 4,000. IPOs dried up, and that hit home in my home state of Iowa, where fewer ways were provided for businesses to raise capital, grow, and hire. Now, tokenization won't fix everything, but it does lower the cost and opens more doors for investors. This technology, we all know, is going to come either way. The only question is whether we build it here in the United States or whether a lack of ability in D.C. drives it overseas. So, Mr. Nunn, I'd like to begin with you. We'll do some rapid-fire questions here. Tokenization lowers transaction costs. It speeds settlement from days to seconds, and it opens capital formation for a broader pool of investors. For a small business in Iowa that can't crack into the public market today, would you agree that those are real and concrete benefits?

I think there are a lot of factors, but I think tokenization can help, but I don't think it's the only factor.

I would agree. Would you also agree that the biggest barriers for a company in Iowa might be that they aren't technological and aren't investor appetite, they're regulatory uncertainties that lack clear SEC guidance?

For small investors, I mean, there may be issues where they want to look at like Reg A or Reg D and determine whether or not those need to be upgraded, but honestly, I would separate those from the technology, and that's more of an investor, what the rules are around disclosure, what the rules are for the issuer, which do add cost. Whether tokenization can improve that or not, we don't know, but it could.

I certainly hear from my small business investors that they would like to have that option. I'd also offer that we should agree that if the Senate doesn't move the INVEST Act forward this year, capital formation might be incentivized to move overseas. Would you agree with me on that?

I think if Congress could move the INVEST Act, that would be a real win for the American people.

I would agree. I look to my colleagues in the Senate to help us with that. Back in Iowa, when I took my first driver's test, and back then it was a 1982 Volvo, it didn't matter what kind of car I drove, it mattered that I knew the rules of the road. And so when we talk about knowledge-based pathways to accredited investors, that status applies with the same logic, in my opinion. It opens investing to millions of Iowans who have plenty of smarts but don't happen to have millions of dollars. Should American companies have the freedom to choose tokenized infrastructure for their securities if they meet those same rules of the road? Would you agree?

I think that Congress should definitely look, and I know you've been working on this, definitely look at the rules around accredited investors, whether it's tokenized or not. I think the rules are outdated where they are today.

Mr. Zecca, I'd like to turn to you here. We know that the SEC has approved Nasdaq proposals to list and trade tokenized securities. That is one of the things that Nasdaq still needs from the SEC to launch tokenized security trading. Would you agree with that?

I'm sorry, what do we need from the SEC still? Is that...

Tokenized security trading.

Yeah. So, the approval order got us most of the way there. There's still some technological things, but it's a pilot program and, frankly, it doesn't cover all securities yet. So I think there are going to be other things we can go back to the SEC on.

And I think that we've got to be able to have a clear framework for this.

Exactly. I mean, the part we're most concerned about is that there's some parallel market out there that is draining liquidity, to your point about issuers worried about raising money. I think that's a critical point. Let's keep the liquidity together so that it's the strongest for capital formation. And to your other point about cost savings, I will say on the proxy side, I do think that there's significant saving possibilities if it's adopted at scale for issuers if we can get around the Byzantine structure right now to reach your shareholders.

I would very much agree with you on that, and I hope that's something we can move on. I'll even go so far as to say, would appreciate your feedback on this, if the U.S. creates a more clear regulatory pathway here, offshore trading activity could actually move back to the United States in that environment.

I think that's right. I mean, right now they're basically trading synthetic securities overseas, and I think a lot of people would prefer to come back.

Well, Mr. Chair, I'm not sure what your first car was. I think it was a '48 ambulance based on the grays in your hair and mine included. The U.S. cannot continue to stand on the sidelines on this. We must ensure that the next generation of financial and internet technology is built here in the United States. And I think tokenization is a clean area where we can do this. Ask for your help both with the Senate and with the SEC to continue to move this forward. Thank you, Mr. Chair. I yield back my time.

Gentleman yields back. The gentleman from Indiana, Mr. Stutzman, is now recognized for five minutes.

Thank you, Mr. Chairman, and thank you all for being here today. Before getting into the more technical aspects of today's hearing, I want to start with the real-world impact this technology could have on working families back in Indiana. Northeast Indiana is a major manufacturing hub, and many of my constituents spend long days building the products that make our country run. Because of those hours, they don't always have the flexibility to participate in our capital markets during normal trading hours. I want to start with Mrs. Mersinger. Could you briefly explain how tokenized securities could expand opportunities for Americans to participate in our markets, and what kinds of other benefits might they see?

Thank you for that question. And I think in your question, part of it was answered, is that these markets can be 24/7 markets. We already have 24/7, but the expansion of 24/7 access will help people access the wealth-generating opportunities of our capital markets. And so a lot of it is around when the markets are open, when you can trade, and if your only trading time is after markets close, that's a barrier to entry that tokenization can remove.

As we've heard throughout this hearing, tokenization can enhance efficiency in areas like collateral management, settlement, trading speed, and transparency, but it can be hard to conceptualize what this actually means. Mr. Sabella, as the DTCC has begun incorporating tokenization into its work, what examples can you share that help illustrate how this technology is improving your operations?

Thank you for the question, Congressman. So I think we're still in early days. We haven't actually activated the three-year period under the no-action letter yet. We expect to do that in the second half of this year. I think the thesis we have is that it will help with giving investors more optionality around settlement cycles. So to your point about folks in Indiana, not only can they trade faster, they can get the benefit, the economic benefit of their activity faster through faster settlement. There's also the ability to have more optimized collateral deployment. So folks holding securities in Indiana can get more economic benefit from using them in different ways via tokenization. And then finally, issuance and distribution, which is something we would do with others. But I'm happy to report back later in the year when we've actually gotten our feet off the ground.

Yeah, that'd be great. Mr. Zecca, Nasdaq has begun deploying similar tools. How is tokenization making it easier for companies to modernize operations like investor engagement and proxy voting?

Sure. So I think that's an important point. One of the great benefits of the blockchain is that there is the opportunity to have sort of direct connection to your shareholders. Now, of course, there's still SEC rules on objecting beneficial owner and who wants to be known and not. But by and large, you can bypass the Byzantine system that exists right now, which, I think it's from DTCC, measured that a corporate action leads to 110,000 actions across the system as everyone has to implement it. It costs $34 million per corporate action. So if this is adopted at scale and you can bypass some of that or streamline some of this, imagine the cost savings for companies that they can deploy to jobs in Indiana.

Yeah, no, that's... I want to talk a little bit about broker-dealers and self-custody. And Mr. Bentsen, I would ask you, are there scenarios in which a broker-dealer would still play a role in a tokenized transaction that culminates in self-custody? And then if so, how should regulators be thinking about those transactions and the role of broker-dealers more generally?

Thank you, Congressman. I guess if you had a true self-custody wallet where the wallet itself was, there was no qualified custodian involved in that, that wallet could engage, could be a DeFi app, it could be any sort of app that's an order routing that's matching the seller with the buyer or buyer with the seller. Then you would be dealing with a broker-dealer or a registered ATS. So I could see that concept. And I think the SEC is probably thinking about it because the questions that they need to answer are when something is truly DeFi, no control, no transaction fee, versus when there is control.

Very good. All right, thank you. Mr. Chairman, I'll yield back the balance of my time.

Gentleman yields back. A vote has been called in the House. Pursuant to the previous order, the chair declares the committee in recess subject to the call of the chair. We will reconvene directly after this voting series. The committee stands in recess. The committee will come back to order following our recess. The gentleman from New York, the chair who is the chair of the Homeland Security Committee, Mr. Garbarino, is now recognized for five minutes.

Thank you very much, Mr. Chairman, and thank you to all the witnesses for being here today. U.S. capital markets are the deepest and most liquid in the world, but the infrastructure beneath them, clearing, settlement, and reconciliation, still relies on systems and processes built decades ago. While reliable, they remain complex, fragmented, and costly. Because of this, there's a growing interest in tokenization as a way to modernize this plumbing. Ms. Mersinger, can you walk us through what tokenization actually changes and how securities move from seller to buyer, and in practical terms, what does that mean for settlement speed, risk, and the overall cost of operating in our markets?

Thank you for that question. Tokenization entails a paradigm shift in the function of our capital markets. Instead of relying on multiple intermediaries to reconcile the ledger and to complete settlement, tokenization collapses that and offers a disintermediated transfer of and settlement of these assets. So the delivery and the payment are happening simultaneously, and it really is a more efficient and certainly lower-cost way of moving these assets.

Thank you very much. Nasdaq has emphasized a commitment to advancing tokenization in a way that preserves investor protection and supports issuers. Mr. Zecca, do you believe tokenized securities can be offered within the same regulatory framework that governs today's equity markets without weakening the core protections?

We do. I think that's actually what we should be aspiring towards because in reality, there's very little difference between the digital way that securities trade and the way that most crypto assets trade and tokenized securities would trade. Obviously, there's peer-to-peer, but by and large, it's in a central limit order book just like we have, and then it's written to the blockchain. So it's something that we can do in the securities market very similarly. You do the trade, it would have the same priority as a normal equity, any other equity. You would have the same rights, the same surveillance, and then you would make a selection and it would go to clearing and you would get it on token form.

How does that approach, what are the implications of that approach for the competitiveness of the U.S. and specifically jobs?

Well, I think there are a couple. One is right now the market is developing overseas with synthetic securities that are not real ownership interests. So the market is developing without us essentially. So bringing that back and giving an opportunity for U.S. investors to participate in a regulated market, I think, is a key one. I also think for issuers, the part that's important to note is for them, I do think that the blockchain provides real advantage because of what we've talked about with what can be on the ledger, whether it's corporate governance, whether it's the proxy process, communication with shareholders. All of that can help avoid some of the bottlenecks and the expensive bottlenecks that exist right now.

Thank you. We're also seeing clear market momentum. Just yesterday, there was a new partnership announced between Invesco and Superstate, another example of how major institutions are embracing tokenization, building on moves we've seen from BlackRock, Franklin Templeton, and JPMorgan. Tokenized treasuries alone have already reached roughly $12 billion, and some estimates say it could be $20 to $30 billion by the end of the year. Many would argue this acceleration reflects a more coordinated and supportive posture from U.S. regulators. Ms. Mersinger, as digital assets evolve toward utility-driven finance and as large asset managers begin putting traditional assets like treasuries on chain, are we truly moving towards a more open 24/7 global market where individual investors have the same access as major institutions?

Yes, that's where we're headed. There's already 24/7 trading, and a lot of this is happening offshore. We need to bring that back into the U.S. and have it available to retail investors here in the U.S.

So this is something new or just an expansion of the existing, just making the current system faster and more efficient?

It's evolution of the current system, making the settlement more fast, lower the cost because there's fewer intermediaries. So it really is just an evolution of our current system to what's going to be a more efficient system.

Are we leading on this? Is the U.S. leading on this right now?

The U.S. is not leading on this right now. We shouldn't take for granted that we are always the leader in financial markets, and I think we have an opportunity here to lay the ground rules so we can step back into the position of leading on with our financial markets in the tokenized space.

Thank you very much. I'm out of time. I'll submit the rest of my questions for answers in writing. I yield back, Mr. Chairman.

The gentleman yields. The chair now recognizes himself. First, I'll start with thanking the witnesses for today's testimony before the committee. And as to this topic, tokenization has the potential to fundamentally modernize how our markets work. It enables these traditional financial assets to be represented on blockchain-based systems. It means faster settlement, lower costs, greater transparency, and expanded access for investors. But today's markets still rely on layers of intermediaries that process, which can delay settlement and increase operational risk. Tokenization, however, introduces the possibility that transactions can be completed in real time. So first question, Ms. Mersinger, how does eliminating the settlement lag impact systemic risk, and how does it shift risk elsewhere in the system?

Thank you. That's a great question. And systemic risk will never be 100 percent eliminated, but instantaneous settlement certainly reduces the overall risk by settling at the same time as the transaction itself is taking place. The SEC has recognized even recently that there is a correlation between settlement speed and counterparty risk. And that's part of the reason they have reduced the settlement times from T+3 to T+1. As you bring down the settlement times, you're moving the payment with the settlement, you're taking a lot of the counterparty risk out of the system.

You know, while our existing securities laws have provided a strong foundation for decades, they're built around a system of identifiable intermediaries, brokers, dealers, exchanges, and clearinghouses. Tokenized markets may not always fit neatly into these categories. So Mr. Bentsen, where are the biggest areas of regulatory uncertainty today that are slowing the development of tokenized markets in the United States?

Thank you, Congressman. So first of all, again, I would say we are seeing securities markets move towards tokenization. It hasn't moved as fast as I think some people thought, but broker-dealers are doing it, custodians are doing it under the existing rules that we have. And I think that's a good thing because those rules have served our markets very well. In fact, if you see in our testimony, we did an analysis, or had one of our law firms do an analysis of mapping the securities rules against tokenized securities, and pretty much across the board, we feel that it can be accomplished and is obviously being done by Nasdaq and DTCC. I think what we have to look at as we're going forward is when we're thinking about things like 24/7, which exist today, exist for retail investors today. We have to be careful we don't end up with unlinked markets or unlinked pools of liquidity that result in price differentiation that's not good for the investor and not good for the issuer. And so I think as these markets grow, we're going to have to pay attention to that, particularly in things like 24/7 trading.

So somewhat of a follow-up to that, Mr. Sabella, to what extent are regulatory uncertainty driving innovation and trading activity offshore as opposed to here in the U.S.?

Thank you for the question. So to be clear, I mean, we sit at the post-trade settlement side, so we don't have as, I think, clear a view in terms of trade execution dynamics as others here may have. But I think one of the biggest issues just comes around access. So effectively, the way you come into U.S. markets today is very broad, it's very expansive, but it's not perfect for everyone. And so I think what we see folks trying to do is expand access through instruments that are offshore and that, as others on this panel have noted, may not exactly be the equity instruments that we want investors to have to access U.S. capital markets.

So what kind of risk would that in fact pose to U.S. market leadership and investor protection?

Well, I think one thing that it does, and again, would defer to others on the panel who follow this a bit more closely, I think, than we do at DTCC, but one of the issues is that breakage of liquidity so that effectively offshore investors aren't getting the same price discovery and frankly, economic and legal benefits that you get when you have an actual tokenized equity instrument in the United States. This is particularly important in insolvency where if you think you're holding something that is not in fact a cash equity interest in an issuer, you're going to end up with less than what people get in traditional markets today.

So of course, tokenization could also expand access to markets through the fractional ownership as well as 24/7 trading. So back to Ms. Mersinger, how might these developments benefit retail investors?

Well, I think it's bringing down the barriers to access, making the being able to access the markets with lower costs. 24/7 means that you have extended hours when you can trade, and certainly that's going to improve access as well. So there are a number of benefits to the system that retail investors will see as benefits to their ability to access capital markets.

Thank you. So that time has expired. Looks like there are no other members who would be asking questions at this point. So again, I want to thank all of our witnesses for today's testimony, very informative, very helpful to the committee. We appreciate you taking your time and your expertise being here with us today. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses, we would ask if you would please respond no later to any of those questions than April 29th of this year. With nothing further before the committee, the hearing is adjourned.