Wall Street Meets SEC Over Crypto Exemptions, Warns of Market Risks

Representatives from JPMorgan, Citadel, and SIFMA met with the SEC’s crypto task force on Tuesday to deliver a stark message: the regulator’s “bold new approach” to digital assets poses significant risks. According to meeting records, the primary concern centered on the SEC’s imminent plans to provide “exemptive relief” for tokenized securities—traditional financial instruments represented on blockchain networks. SIFMA, in materials prepared for the meeting, argued that “broad exemptions for tokenized trading activities could undermine investor protection and lead to market disruptions.” The trade group emphasized that regulatory treatment “should be based on economic characteristics, not on the technology used or categorical labels (e.g., ‘DeFi’).” This stance represents a fundamental challenge to the SEC’s technology-specific regulatory agenda.

The meeting took a particularly ominous turn when SIFMA pointed to concrete market events to illustrate potential dangers. The group specifically cited October’s crypto flash crash—the largest single-day wipeout in crypto history, which triggered $19 billion in liquidations—as “a peek at what could happen should tokenized securities be allowed to trade outside existing securities laws.” By invoking this recent market trauma, Wall Street players framed the debate not as abstract policy but as a matter of immediate financial stability. The absence of comment from JPMorgan, Citadel, and SIFMA following the meeting, as reported, underscores the sensitive nature of these discussions between established financial giants and a regulator charting new territory.

The Wall Street meeting occurred against the backdrop of a decisive regulatory pivot. SEC Chair Paul Atkins recently promised to issue “sweeping innovation exemptions” for the crypto sector by the end of January. These exemptions would offer crypto companies and projects a legal safe harbor, guaranteeing they face no risk of securities law violations for experimenting in designated areas, which are expected to include tokenized securities and DeFi. This aggressive regulatory push is the SEC’s attempt to provide the legal certainty the crypto industry has long demanded, but it is proceeding on a separate track from Congress.

Parallel legislative efforts have effectively stalled. Progress on a comprehensive crypto market structure bill, which would enshrine protections for digital assets in federal law, has “slowed considerably” in the Senate. Earlier negotiations had seen clashes between crypto leaders and other stakeholders, including a specific tension between DeFi advocates and SIFMA over language that would exempt certain decentralized services from legal oversight. While some progress was reportedly made on that front, a more “existential threat” to the bill’s fate emerged: a battle between crypto exchange Coinbase and the traditional banking lobby over the treatment of rewards on stablecoin holdings. With the legislative path blocked, the SEC’s plan to act unilaterally through exemptions has taken on heightened significance, drawing intense scrutiny from traditional market participants.

A key flashpoint in both the SEC meeting and the stalled legislation is the treatment of decentralized finance. The SEC’s stated plans to “carve out some decentralized finance, or DeFi, projects from obligations to comply with U.S. securities laws” were a major topic of concern for SIFMA and its members. This proposed carve-out is contentious because it creates a regulatory distinction based on the decentralized nature of a project’s technology, a approach Wall Street argues is flawed. The divide was evident in the Senate bill negotiations, where DeFi exemption language became a sticking point.

The meeting also revealed a communication gap within the crypto industry itself. A source familiar with the matter indicated that “key DeFi advocates had not been aware Tuesday’s meeting had taken place.” This suggests that while traditional finance was actively lobbying the SEC against DeFi exemptions, the decentralized projects potentially most affected were not at the table. The situation encapsulates the broader conflict: the SEC is attempting to foster innovation through exemptions, traditional finance warns of systemic risk, DeFi advocates seek freedom from traditional oversight, and all this unfolds as Congress remains deadlocked on creating a durable legal framework.