The United States Securities and Exchange Commission (SEC) is reportedly preparing to introduce an “innovation exemption” that would permit blockchain-based tokenized trading of public company stocks, including cases where the underlying companies do not consent to the creation of third-party tokens that track their share prices. According to a Bloomberg report published on Monday, the exemption could be announced as early as this week, marking a significant shift in how shares of major corporations can be traded outside traditional stock exchanges.
The SEC has reportedly consulted with hundreds of market participants to determine the optimal regulatory framework for tokenized trading. The proposed exemption would require that third-party tokenized stocks carry the same benefits as common stock, such as voting rights and dividend distributions, or risk being delisted from trading platforms. However, Bloomberg noted that the details have not been finalized and could change before the official exemption is issued.
SEC Commissioner Hester Peirce, known for her pro-innovation stance on digital assets, has led the push for this exemption. Peirce has long advocated for a more flexible regulatory approach to blockchain technology, often arguing that the SEC should provide safe harbors for emerging technologies to develop without fear of enforcement actions. Her involvement signals that the commission is willing to adapt its rules to accommodate the growing demand for tokenization.
Growing Interest in Tokenization from Wall Street
Blockchain-based tokenization has attracted increasing attention from Wall Street firms over the past few years due to its potential to improve trading efficiency and settlement times compared to legacy systems. By representing ownership of traditional assets like stocks or bonds as digital tokens on a blockchain, transactions can be executed around the clock with near-instant settlement, reducing counterparty risk and operational costs.
In January, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, announced plans to launch a tokenization platform that would enable 24/7 trading and settlement of stocks and exchange-traded funds using a blockchain-based post-trade system. This development was widely seen as one of the most significant endorsements of tokenization by a major traditional financial infrastructure provider.
Similarly, Bullish, a crypto exchange led by former NYSE president Tom Farley, recently strengthened its tokenization capabilities. Earlier this month, Bullish completed a $4.2 billion acquisition of Equiniti, a transfer agent platform that handles shareholder records. The acquisition positions Bullish to offer comprehensive tokenized stock services, bridging the gap between traditional finance and crypto markets.
Proponents of tokenized stock trading also highlight its potential to promote financial inclusion. By enabling individuals without direct access to US markets or traditional brokerage accounts to invest in high-profile companies such as Nvidia, Google, and Tesla, the technology could democratize access to equity markets. This aspect has resonated with regulators and industry participants who seek to expand investment opportunities to underserved populations.
Internal Opposition and Criticism
Despite the expected exemption, the decision has not been unanimous within the SEC. Sources familiar with the matter revealed that several SEC officials did not support the move, raising concerns about investor protection, market integrity, and the potential for confusion among shareholders. The disagreement highlights the ongoing tension within the commission over how to regulate digital assets and blockchain applications.
Brett Redfearn, president of Securitize — one of the largest crypto-native tokenization platforms — publicly expressed concerns about the SEC’s direction. In comments to media outlets, Redfearn argued that allowing third parties to tokenize stock “without an issuer at the table” could lead to fragmentation issues. He warned that investors might become uncertain about the true value of their tokenized shares if multiple versions of the same stock exist across different platforms, potentially undermining trust in the market.
Redfearn’s caution mirrors broader industry concerns about the risks of unauthorized tokenization. Some companies have actively opposed the practice. For example, private artificial intelligence firms OpenAI and Anthropic have publicly objected to the creation of tokenized stocks that track their valuations without their consent. These companies argue that unauthorized tokenization could interfere with their own fundraising efforts and create legal ambiguities.
The Broader Regulatory Landscape
The SEC’s tokenization initiative comes amid a series of regulatory developments aimed at clarifying the legal status of digital assets. Last Thursday, the Senate Banking Committee advanced the CLARITY Act, setting the stage for a full Senate vote next month. The CLARITY Act is designed to provide a comprehensive regulatory framework for digital securities, including tokenized assets. Its progress suggests that lawmakers are increasingly focused on establishing clear rules that encourage innovation while protecting investors.
Kevin O’Leary, the “Shark Tank” investor and chairman of O’Leary Ventures, has stated that Wall Street firms will not fully embrace tokenization until a legal framework like the CLARITY Act is in place and ownership issues are resolved. His perspective reflects a common sentiment among traditional finance players who see blockchain potential but demand regulatory certainty before committing significant resources.
As the SEC prepares to finalize its innovation exemption, the debate over tokenized stock trading is likely to intensify. Industry participants, consumer advocates, and policymakers will continue to grapple with questions about consent, transparency, and market structure. The coming weeks will reveal whether the exemption can balance the promise of technological innovation with the need for robust investor safeguards.
Source: Cointelegraph News