The US Securities and Exchange Commission (SEC) has postponed its plan to introduce broad exemptions for crypto firms to trade tokenized assets linked to stocks. The delay comes as the SEC considers feedback from stock-exchange officials and other market participants who have expressed concerns over certain aspects of the proposal.
The SEC's staff had been preparing to release the 'innovation exemption' for tokenized stocks, with a draft already reviewed. However, discussions with market participants have led to a reconsideration of the timing. A significant point of contention is the proposal to allow trading of third-party tokens issued without the backing or consent of the public companies involved.
Under the proposed SEC framework, platforms offering tokenized stocks would need to ensure investors receive the same rights as traditional shareholders, including dividends and voting rights. However, former regulators have raised doubts about the feasibility of fulfilling these obligations on pseudonymous blockchain networks.
“If I was a corporate executive, I’d be very concerned about the implications.”
Amanda Fischer, policy director at Better Markets
Not all SEC officials are in favor of allowing third-party token trading. Commissioner Hester Peirce, a known ally of SEC Chairman Paul Atkins, indicated on X that she expects the innovation exemption to be limited and focused on digital representations of existing equity securities.
Concerns have been raised about the potential for tokenized securities to fall into the hands of bad actors overseas, exploiting blockchain loopholes to evade US regulatory oversight. Austin Campbell, a crypto expert, highlighted the risks of tokens being owned by sanctioned entities due to inadequate know-your-customer policies on some platforms.
“You can’t pay a dividend when you don’t know who owns the token, because it might be the North Koreans.”
Austin Campbell, professor at the NYU Stern School of Business
Despite the potential benefits of tokenization, such as faster trade settlements, skepticism remains. Joe Saluzzi of Themis Trading noted a lack of interest from clients in trading tokenized securities in 24/7 markets.
Background
The SEC's proposal to allow tokenized trading of stocks is part of a broader effort to integrate blockchain technology into traditional financial markets. Tokenization promises benefits like faster trade settlements but also poses regulatory challenges, particularly concerning investor protection and market integrity.
The SEC's delay in finalizing the plan underscores the complexities involved in integrating traditional securities with blockchain technology. As the SEC continues to deliberate, market participants will be closely watching for any changes to the proposal and its implications for the crypto and stock markets.
