On May 27, the SEC granted an application for temporary registration as a clearing agency under Section 17A of the Exchange Act, which the applicant described as making it the first “blockchain-native” firm registered by the SEC to provide clearing and settlement services as a central securities depository. The SEC found the exemption consistent with the public interest, the protection of investors, and the purposes of Section 17A, including the “prompt and accurate clearance and settlement of securities transactions.” The temporary registration is effective for a period not to exceed 18 months, during which the SEC exempted the applicant from the requirements of Sections 17A(b)(3)(A) and (F) of the Exchange Act. The SEC noted that material elements of the clearing agency affecting how it would provide core clearance and settlement services remain undeveloped.

According to the SEC, the application includes novel elements: (i) a plan to operate as a registered clearing agency as a participant of another registered clearing agency; (ii) the use of new technologies to record securities and cash entitlements on a cloud-hosted distributed ledger; (iii) a settlement system oriented around counterparty pairs; and (iv) the use of both margin collection and an optional netting functionality outside of a typical central counterparty structure. The SEC framed the application as “one among a number of efforts” exploring how tokenized securities may foster technological advancements to enhance efficiency while promoting investor protection. The order also outlines a ramp-up period during which the applicant committed not to commence operations sooner than 10 months from the date of approval while it completes certain actions, followed by a period of at least 12 months during which it would limit the number of participants to 10 and not permit enhanced netting. As a registered clearing agency and self-regulatory organization, the applicant would be subject to recordkeeping requirements, supervision and examinations under the Exchange Act throughout the ramp-up period.