SEC Delaying Plan To Allow Crypto Versions Of US Stocks
The Securities and Exchange Commission (SEC) has decided to delay the release of its much-anticipated “innovation exemption” for tokenized stocks. This decision comes as the SEC considers input from traditional stock exchanges and other market participants who have expressed concerns about the potential impact of the proposed framework. According to a report from Bloomberg, the release of the exemption was expected to happen this week but has been postponed.
Under the leadership of Chair Paul Atkins, the SEC has been working on developing the innovation exemption, which would establish a new regulatory pathway for digital tokens linked to publicly traded company shares to be traded on decentralized crypto platforms. This would allow for trading 24 hours a day, seven days a week, bypassing the restrictions of traditional stock exchanges.
The exemption is part of Atkins’ broader “Project Crypto” initiative, which aims to ease existing restrictions on crypto in line with the pro-crypto agenda of the Trump administration. The SEC was considering allowing third-party tokens, which are digital representations of stocks like Apple, Nvidia, or Tesla, to be issued and traded without the consent of the underlying public companies. This means that outside actors could create blockchain-based wrappers tracking a company’s share price and list them on decentralized finance platforms.
However, these tokens may not come with traditional shareholder rights like voting or dividends. The SEC is reportedly contemplating requiring platforms to provide these rights or risk delisting.
The delay in releasing the exemption is due to feedback from stock-exchange officials and other market participants who have met with SEC staff recently. The World Federation of Exchanges, which represents members such as Nasdaq, Cboe, and CME Group, previously warned the SEC about the potential negative consequences of such exemptions. They expressed concerns that allowing tokenized stocks could dilute existing investor protections and distort competition, giving crypto exchanges a regulatory shortcut not available to traditional markets.
The tokenization debate is taking place amidst differing visions for the future of U.S. equity markets. Nasdaq, for example, recently received SEC approval for its own tokenized securities proposal, which keeps all trades on-exchange with full shareholder rights intact, using the DTCC’s enterprise blockchain. On the other hand, the innovation exemption would create a parallel, crypto-native market that runs alongside the existing system, potentially fragmenting liquidity across multiple third-party token issuers for the same underlying stock.
Overall, the SEC’s decision to delay the release of the innovation exemption reflects the complexity and significance of the issues at hand. As the agency continues to gather feedback and weigh the potential implications, the future of tokenized stocks and the broader crypto market remains uncertain.
