[Midterm Elections] Will SEC and CFTC Continue Their Cryptocurrency Policy Drive After the Elections?

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The U.S. midterm elections will be held on November 3 (local time).
The midterm elections are held halfway through the presidential term to elect all members of the House of Representatives and about one-third of the Senate, evaluating the current government and influencing the policy momentum for the remainder of the term.
Major U.S. media outlets such as CBS and The Hill predict that the Democratic Party will regain the majority in the House of Representatives during the midterm elections. In contrast, the Senate is expected to see a tight race between the Republicans and Democrats.
Experts believe that the results of the midterm elections could lead to changes in U.S. digital asset policy.
examines the potential variables in U.S. digital asset policy that may arise after the midterm elections.
There is growing market interest in whether the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) will continue to pursue digital asset-friendly policies after the midterm elections.
After the CLARITY Act, a comprehensive U.S. digital asset bill, was rejected in the Senate's cloture vote last September (local time), the SEC and CFTC have been actively working on their own digital asset regulations.
Cloture is a procedure that typically requires more than 60 votes in favor to end a Senate filibuster and move to a vote in the full chamber.
Even if the Democratic Party controls both the House and Senate in the midterm elections, the rule-making by regulatory agencies will not be halted. However, the burden on regulatory authorities to explain the legal basis for policies and investor protection measures may increase due to enhanced oversight by the Democrats.
SEC Grants Conditional Innovation Exemption for Tokenized Stock Trading
In September, the SEC announced an order temporarily exempting the definition of "exchange" under securities law for tokenized securities trading facilities (TSV). This measure allows facilities that meet certain conditions to trade tokenized securities (token stocks) that have been tokenized using automated market makers (AMM) and liquidity pools for stocks in the National Market System (NMS).
SEC Commissioner Paul Atkins stated in a statement on the same day, "Although the cloture vote on the CLARITY Act was rejected, we support the on-chain trading of some token stocks within our legal authority."
The exemption will apply for five years after its announcement and will be subject to limitations on the number of trading items and trading volume. Holders of tokenized stocks must have the same rights as holders of existing stocks of the same type. If a third party tokenizes the stock, they must notify the original stock issuer in advance and provide an opportunity to raise objections.
Not all securities regulations are exempted. Commissioner Atkins explained that provisions of federal securities laws prohibiting fraud and market manipulation will still apply. He also characterized this measure as a temporary action, stating that follow-up rule-making is necessary for the continued operation of the system.
Businesses should not interpret their notifications as SEC approval. The SEC clarified that being included in the list of businesses that submitted intentions to operate TSV does not confirm compliance with exemption conditions or validate the notification content.
CFTC Reviews Rule-Making Under Existing Commodity Trading Laws
In October, the CFTC announced a notice of proposed rule-making (ANPRM) regarding digital asset trading and markets. This is a procedure to establish a regulatory framework for digital assets based on commodity trading laws.
CFTC Commissioner Michael Selig explained that this ANPRM is the starting point for rule-making aimed at developing a federal digital asset comprehensive bill using existing legal authority. The CFTC is seeking comments on trading practices, compliance standards, and a market registration system specialized for digital asset trading.
The CFTC plans to use the collected comments for future rule-making and follow-up actions. The deadline for submitting comments, as published in the Federal Register, is December 14.
CFTC operational departments previously supplemented Q&A regarding the tokenization of assets that can be invested with customer funds and record-keeping using blockchain technology. This is a process to clarify the application standards of existing regulations, separate from new legislation.
Strengthening Oversight of Policy Decision Processes if Democrats Win
After the midterm elections, such actions by regulatory agencies may become subject to congressional oversight.
However, experts believe that even if the congressional composition is restructured to favor the Democrats after the elections, it will be difficult to halt the existing policy direction of regulatory agencies.
Reuters reported in October that "even if the Democrats control one chamber of Congress, they can strengthen investigations into regulatory agencies and businesses, but it will be difficult to stop regulatory easing by the executive branch."
If the Democrats regain the House while the Republicans maintain the Senate, oversight through hearings and document requests will likely be the focus.
If the Democrats control the Senate as well, they could influence the confirmation hearings for new and incumbent commissioners.
However, to change the legal authority of regulatory agencies, Congress must go through the legislative process. The Congressional Research Service (CRS) explains that legislation changing the structure or authority of an agency requires the president's approval, and if a veto is exercised, congressional action is needed to overturn it.
The follow-up actions of the SEC and CFTC will continue after the elections. The SEC is seeking comments on amendments to the token stock innovation exemption and additional measures. The CFTC's comment collection for rule-making will continue until December, after the elections.

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