The U.S. Securities and Exchange Commission is reportedly preparing to introduce an “innovation exemption” that would allow blockchain-based tokenized trading of public company stocks, including those that do not consent to third-party tokens tracking their share prices. According to a Bloomberg report on Monday, the exemption could be announced as early as this week, opening the door for decentralized crypto platforms to offer tokenized versions of equities listed on traditional exchanges. The decision follows extensive consultations with market participants and aims to modernize securities trading infrastructure.
The proposed exemption would permit third-party platforms to issue tokens representing shares of publicly traded companies, provided those tokens confer the same rights as common stock—such as voting rights and dividends—or risk being delisted. Sources told Bloomberg that SEC Commissioner Hester Peirce has been a leading advocate for this innovation exemption, which represents a major shift in the regulator’s approach to digital assets. However, the details have not yet been finalized and could change before the official announcement.
Several SEC officials are reported to be opposed to the decision, reflecting ongoing internal divisions over how to regulate digital securities. Meanwhile, tokenization platform Securitize has flagged risks associated with enabling third-party platforms to issue tokenized stocks without direct issuer participation. Securitize president Brett Redfearn argued that such a move could lead to fragmentation, leaving investors uncertain about the actual value of their holdings.
Growing Institutional Interest in Tokenization
Blockchain-based tokenization has been gaining traction among Wall Street firms, which see it as a way to improve trading efficiency and settlement speed compared to traditional systems. The New York Stock Exchange’s parent company, Intercontinental Exchange (ICE), announced in January that it would launch a tokenization platform enabling 24/7 trading and settlement of stocks and exchange-traded funds using a blockchain post-trade system. This move is considered one of the most significant developments in the tokenization space to date.
Bullish, the crypto exchange led by former NYSE president Tom Farley, further strengthened its tokenization capabilities earlier this month by acquiring transfer agent platform Equiniti for $4.2 billion. The acquisition underscores the growing competition among exchanges and financial infrastructure providers to capture the potential of tokenized assets.
Proponents of tokenized stock trading argue that it promotes financial inclusion by giving individuals without access to U.S. markets or traditional brokerage accounts the ability to invest in well-known companies such as Nvidia (NVDA), Google (GOOGL), and Tesla (TSLA). The technology also offers the promise of faster settlement, reduced costs, and greater transparency compared to legacy systems.
Concerns Over Third-Party Tokens and Ownership
Despite the potential benefits, the expected exemption has drawn criticism. Brett Redfearn, president of Securitize, warned that enabling third parties to tokenize stocks without issuer involvement could create a fragmented market where investors are unclear about what their shares represent. He stressed that ownership rights and valuation may become ambiguous without a direct link between the token and the underlying issuer.
Tokenized trading has already expanded into the pre-IPO space, allowing investors to gain exposure to private companies before they go public. However, some of these companies—including OpenAI and Anthropic—have opposed unauthorized tokenized stocks that track their valuations. The SEC’s exemption appears to address this tension by setting standards for third-party tokens.
Regulatory Context and the CLARITY Act
The SEC’s tokenization move comes after the Senate Banking Committee advanced the CLARITY Act on Thursday, setting it up for a full Senate floor vote next month. The bill aims to establish a clear regulatory framework for digital securities, which many industry participants believe is necessary for mainstream adoption. “Shark Tank” investor Kevin O’Leary and other pundits have argued that Wall Street firms will not fully embrace tokenization without a robust legal framework and clarity on ownership issues.
The intersection of traditional finance and blockchain technology continues to evolve rapidly. Market participants are watching closely to see how the SEC’s exemption will be implemented and what safeguards will be put in place to protect investors. The outcome could have profound implications for the future of securities trading, potentially reshaping how stocks are issued, traded, and settled worldwide.
Source: Cointelegraph News