SEC Halts Innovation Exemption For Tokenized Stocks

The US Securities and Exchange Commission has reportedly postponed its plan to allow trading of tokenized stocks after stock exchange officials raised concerns over how the plan would be implemented.

Bloomberg reported on Friday, citing sources familiar with the matter, that the SEC’s “innovation exemption” for crypto-based stocks was expected to be released during the week, with SEC staffers having already reviewed a draft of the tokenized stock trading proposal.

The SEC has reportedly received input from hundreds of market participants on how to best implement the rules, but it has not made a decision to change its proposal.

Under the SEC’s proposal, platforms offering tokenized stocks would need to guarantee investors receive the same rights as traditional shareholders, including dividends and voting rights.

Market participants reportedly raised concerns to the SEC over the potential proliferation of unauthorized third parties issuing tokens without the consent of public companies and how ownership would be verified on semi-pseudonymous blockchains.

The SEC has been more open to crypto-powered financial products under the Trump administration, which has coincided with Wall Street having a growing interest in tokenization and stablecoins.

Data from RWA.xyz shows that $34 billion worth of real-world assets have been tokenized, including $1.55 billion in tokenized equities, but adoption has lagged expectations by Citibank and McKinsey, which respectively predicted in 2022 and 2024 that tokenization would become a multi-trillion-dollar market by 2030. 

Crypto industry supports decision to delay

Crypto industry executives have backed the SEC’s decision to delay the exemption. Carlos Domingo, the CEO of crypto tokenization platform Securitize, said in a post to X on Friday that it is important to ensure the “exemption applies to the right instruments.”

“Better delay it than get it wrong and unleash all sort of problems.”

Related: Kraken parent Payward sees revenue surge as tokenization expands 

Tom Farley, the CEO of crypto exchange Bullish posted to X that the SEC was “realizing that public companies are the only entity who can issue tokens that are a share of stock! Great job delaying and getting this right.”

Source: Tom Farley

The delay came after SEC Commissioner Hester Peirce said on Thursday that she expected the exemption to be “limited in scope” and would only support “digital representations” of equity securities, similar to what investors can currently purchase in the secondary market.

In January, the SEC made distinctions between types of tokenized securities, classifying them into “custodial” and “synthetic” forms.

Custodial tokenized securities are issuer-sponsored tokenized stocks custodied by regulated intermediaries and have full shareholder rights, while synthetic tokenized securities provide price exposure without actual ownership of the underlying shares.

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