GUARDD, founded by Sherwood Neiss who is also the co-founder of Crowdfund Capital Advisors (CCA) and one of the authors of the JOBS Act which approved online capital formation, recently met with the Securities and Exchange Commission (SEC) to discuss secondary trading of tokenized exempt securities.
Exempt securities would include securities issued under Reg A, Reg CF and Reg D. Public securities are moving in the direction of becoming digital securities or tokenized assets and private securities are heading that way as well.
Tokenized securities struggle a bit with semantics but the SEC currently defines these assets as: “a financial instrument enumerated in the definition of “security” under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.”
GUARDD is a Fintech platform that helps private companies raising funds under Reg A+, Reg CF, or Reg D, to publish standardized ongoing disclosures so their securities can trade on Alternative Trading Systems (ATSs) while complying with state “Blue Sky” laws. Securities law in the US leans heavily on disclosure.
GUARDD met with the SEC Crypto Task Force to discuss how the SEC’s crypto rulemaking and secondary trading of tokenized, exempt securities through a Qualified Disclosure Publisher.
GUARDD explained that exempt securities offerings “inherit the same structural trap” even if they are tokenized. The proposal is:
“How QDP-published disclosure can anchor uniform national secondary trading — preempting inconsistent state manual-exemption requirements while preserving state anti-fraud authority — and how this interacts with the CLARITY Act’s taxonomy if enacted.”
In a letter sent to the Commission in June, GUARDD lamented the current environment where currently there is an on-ramp but no exit, regarding to exempt securities, specifically addressing difficulties for securities issued under Reg CF.
GUARDD explained:
“Regulation Crowdfunding provides a decade-long natural experiment in what happens when a primary market is built without secondary infrastructure. Per CCLEAR transaction-level data: more than $2.95 billion has been raised across 10,899 offerings by 9,300+ issuers since 2016 — yet less than 1% of issuers have achieved meaningful secondary liquidity. The largest secondary marketplace for crowdfunded securities has quoted only 25 companies, with roughly $1.4 million in total trading volume, against billions raised in the primary market. One issuer spent more than $90,000 and over a year attempting state-by-state compliance solely to enable lawful secondary trading for its investors. Meanwhile, 257 of these companies went on to attract $5.04 billion in institutional follow-on funding — success their earliest retail investors cannot sell into. Tokenized securities issued under new exemptions will inherit precisely this trap unless the proposing release builds the exit alongside the on-ramp.”
Today, investors in private securities typically understand they may hold limited liquidity opportunities beyond an IPO or an acquisition. Yet markets have developed for Reg D securities that have opened up access for early shareholders to sell shares, if they choose to do so. The environment for Reg CF issuers remains underdeveloped.
GUARDD sees an avenue for boosting liquidity via rulemaking to make disclosure standardized to make it easier for secondary transactions to take place.
GUARDD states:
“Disclosure-based secondary market infrastructure is where those goals converge: it protects investors through current, standardized, verified information, and it makes U.S. venues viable by making U.S.-issued tokens tradable.”
Heightened liquidity is a characteristic of crypto markets that have boosted its popularity for investors (speculators). A tokenized asset or digital security, including those which are private, could benefit from improved options for sellers as well as buyers.
