The Securities and Exchange Commission (SEC) has delayed its plan to introduce broad exemptions for US crypto firms to trade tokenized assets linked to stocks. This decision comes as the agency considers feedback from stock-exchange officials and other market participants who have recently engaged with SEC staff to understand the proposal's details.
The SEC's staff had been preparing to release the so-called innovation exemption for tokenized stocks, with a draft of the plan already reviewed. However, concerns have arisen over a provision allowing the trading of third-party tokens issued without the backing or consent of the public companies involved. This aspect of the proposal has sparked apprehension among some crypto-market experts and trading firms, as it could contradict their expectations.
Under the SEC's proposal, platforms offering tokens would need to ensure investors receive the same rights as regular shareholders, including dividends and voting rights. However, former regulators have highlighted the technical challenges in fulfilling these obligations on pseudonymous blockchain networks. Not all SEC officials support the decision to allow third-party token trading.
“You can’t pay a dividend when you don’t know who owns the token, because it might be the North Koreans. It opens a Pandora’s box.”
Austin Campbell, NYU Stern School of Business
Commissioner Hester Peirce, a long-time ally of SEC Chairman Paul Atkins, expressed on X that she expects the innovation exemption to be "limited in scope" and would "facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in the secondary market today."
Former regulators and market experts have voiced concerns about the SEC's plan. Public companies might face uncertainty in executing normal practices like issuing dividends and counting shareholder votes as tokens with those rights proliferate on the blockchain. Additionally, there is a risk that tokens could end up with bad actors overseas, exploiting blockchain loopholes to evade US regulatory oversight.
Austin Campbell, a crypto expert and former banker now at NYU Stern School of Business, warned that tokenized securities might appear on platforms lacking strict know-your-customer policies, increasing the risk of sanctioned entities owning the tokens. "You can’t pay a dividend when you don’t know who owns the token, because it might be the North Koreans," he said. "It opens a Pandora’s box."
Background
The SEC's delay in implementing the plan reflects the complexities and potential risks associated with tokenized securities. As the agency continues to evaluate feedback, stakeholders will be closely watching for any updates or changes to the proposal.
The SEC's delay in implementing the plan reflects the complexities and potential risks associated with tokenized securities. As the agency continues to evaluate feedback, stakeholders will be closely watching for any updates or changes to the proposal.
