SEC poised to introduce 'innovation exemption' for blockchain-based stock tokens: Sources
According to reports, the SEC plans to introduce an "innovation exemption" enabling tokenized stock trading, which would allow major corporations such as Nvidia, Apple and Tesla to be traded on decentralized cryptocurrency platforms.
According to reports, the United States Securities and Exchange Commission is preparing to introduce an "innovation exemption" that would permit blockchain-based tokenized trading of publicly traded companies, including those that have not provided consent for third-party tokens to track their stock valuations.
On Monday, Bloomberg published a report indicating the exemption might be announced as soon as this week, which would extend trading of publicly traded firms beyond conventional stock exchanges to include decentralized cryptocurrency trading platforms.
According to the report, the SEC engaged with "hundreds of market participants" to gather input on the optimal approach to structuring regulations for tokenized trading, and put forward the idea that third-party tokens should provide identical benefits as traditional common stock, including voting privileges and dividend payments, or face potential delisting.
The specifics remain under development and may undergo modifications before the exemption is officially announced, Bloomberg's report stated, referencing individuals with knowledge of the situation. According to the sources, SEC Commissioner Hester Peirce spearheaded the initiative to secure an innovation exemption for tokenized stock trading.
Over recent years, blockchain-based tokenization has garnered increasing attention from financial institutions on Wall Street, as it is perceived to offer potentially superior efficiency for trading operations and settlement processes compared to conventional systems.
In January, Intercontinental Exchange, which serves as the parent company of the New York Stock Exchange, announced plans to roll out a tokenization platform enabling round-the-clock trading and settlement of stocks and exchange-traded funds through a blockchain-powered post-trade infrastructure, representing one of the most significant advancements in the tokenization sector thus far.
Earlier this month, Bullish, the cryptocurrency exchange under the leadership of Tom Farley, the former president of NYSE, also enhanced its tokenization infrastructure through the $4.2 billion purchase of transfer agent platform Equiniti.
Advocates of tokenized stock trading have further argued that this technology can advance financial inclusion by providing opportunities for individuals who lack access to United States markets or conventional brokerage platforms to obtain exposure to publicly traded companies such as Nvidia (NVDA), Google (GOOGL) and Tesla (TSLA).
Notwithstanding the anticipated exemption, certain SEC officials are reportedly opposed to the decision to permit tokenized stock trading, the sources indicated.
Cointelegraph contacted the SEC requesting comment but had not received an immediate reply.
Securitize president pushes back against exemption
In the meantime, Brett Redfearn, who serves as president of Securitize, one of the largest crypto-native tokenization platforms, voiced reservations regarding the SEC's anticipated exemption, contending that permitting third parties to tokenize stocks "without an issuer at the table" could result in fragmentation challenges.
According to Redfearn, this could leave investors with greater uncertainty regarding the actual value of their holdings.
The realm of tokenized trading has also extended into the pre-IPO sector, providing investors with opportunities to obtain exposure to highly sought-after private companies prior to their public market debuts.
Nevertheless, certain companies, among them OpenAI and Anthropic, have expressed opposition to unauthorized tokenized stocks that track their corporate valuations.
The SEC's movement toward tokenization follows the Senate Banking Committee's advancement of the CLARITY Act on Thursday, positioning it for a comprehensive Senate floor vote scheduled for next month.
Multiple industry experts, including Kevin O'Leary, the investor from "Shark Tank," have indicated that financial institutions on Wall Street will not completely adopt tokenization until a regulatory framework such as the CLARITY Act is established and questions surrounding ownership are fully resolved.