The U.S. Securities and Exchange Commission plans to introduce a regulatory exemption framework for tokenized stocks, allowing third parties to issue digital tokens that track stock prices without the authorization of the listed companies, and circulate them on DeFi platforms.

Written by: Bao Yilong

Source: Wall Street Insights

The U.S. Securities and Exchange Commission (SEC) is preparing to issue a regulatory exemption framework for tokenized stocks, a move that could fundamentally reshape the landscape of the U.S. stock market.

On May 18, Bloomberg, citing informed sources, reported that the SEC is expected to formally release the aforementioned "innovation exemption" policy as early as this week, creating a new channel for investors to trade U.S. stocks through digital tokens.

Reportedly, the SEC leans towards allowing trading of a "third-party" token. This token is essentially a synthetic tool that tracks stock prices and can circulate on decentralized crypto platforms even without authorization from the listed companies, but it may not necessarily carry voting rights or dividend rights like common stock.

This move will become one of the most significant regulatory experiments since the Trump administration advocated for loosening crypto regulations. It is worth noting that within the SEC, there are divisions regarding the decision to allow third-party tokenized stock trading, with some officials clearly expressing opposition.

Exemption Framework: Allowing Token Trading Without Issuer's Consent

According to the Wall Street Journal, the SEC has classified tokenized securities into two categories: those tokenized by the issuer or on behalf of the issuer, and those tokenized by third parties with no direct ties to the issuer.

The core point of contention in this exemption policy is the second category—third-party tokenized securities.

This type of tool allows any third party to issue digital tokens that track the stock prices of companies like Apple and Amazon without obtaining the companies' consent, and to circulate them freely on decentralized finance (DeFi) platforms.

DeFi is a subfield in the crypto market valued at about $130 billion, where investors trade, lend, and engage in other operations through protocols running on automated code with minimal human intervention.

The core driving force behind this exemption primarily comes from Commissioner Hester Peirce, a long-time ally of SEC Chairman Paul Atkins.

Peirce raised several questions at the SEC meeting in March this year, including whether the exemption policy should require that "third parties obtain consent from the issuer before tokenizing existing equity securities."

Atkins pledged to usher in a "new era" for the SEC when taking office, ending what is termed "enforcement-style regulation" in the crypto space, and began promoting the concept of "innovation exemptions" early in his tenure.

However, in recent months, both Atkins and Peirce have worked to temper market expectations, characterizing any potential exemptions as limited in scope and gradual measures. Peirce stated in February:

This will be an important step towards integrating tokenized securities into the existing financial system, but it will not change the entire financial system overnight.

An SEC spokesperson stated that the agency has met with hundreds of market participants and widely sought input on how to calibrate new trading rules. Details are still under discussion, and the final plan may still be adjusted before publication.

Industry Layout: Exchanges and Crypto Platforms Accelerate Positioning

The loosening of regulations on tokenized stocks is prompting traditional financial institutions and crypto platforms to accelerate their布局.

Earlier this month, Bullish, a crypto exchange run by former New York Stock Exchange President Tom Farley, spent $4.2 billion to acquire the transfer agent Equiniti.

Transfer agents are responsible for tracking stock ownership records and assisting in the distribution of dividends, making them an important part of the stock market infrastructure.

Meanwhile, the New York Stock Exchange is building a new platform for trading tokenized stocks and ETFs using blockchain technology; Nasdaq has stated that it is developing a token design scheme aimed at giving listed companies greater control over their tokenized stocks.

On the legislative front, last week, the U.S. Senate Banking Committee advanced a landmark digital asset market structure bill—the "Clarity Act."

This bill will establish the Commodity Futures Trading Commission (CFTC) as the primary regulatory agency for most areas of the crypto industry while retaining the SEC's regulatory authority over digital securities.

Market Fragmentation Risks Trigger Multiple Warnings

Although supporters believe that tokenization technology helps achieve near-instant settlement and round-the-clock trading, enhancing market efficiency, concerns from industry insiders and within the SEC cannot be ignored.

Brett Redfearn, president of the tokenization company and former head of the SEC's Trading and Markets Division, pointed out: "If a third party can tokenize Apple or Amazon in the absence of the issuer, then theoretically, there would be no limit to the number of 'packaged versions' of the same company that exist. This could create a new level of market fragmentation, making it difficult for investors to ascertain the actual value of the stocks they hold at any given time."

The Securities Industry and Financial Markets Association (SIFMA) warned in an article last December that the tokenized market may lack fundamental requirements such as market interoperability and price transparency, posing risks of market "fragmentation and disorder."

Heavyweight industry institutions like Citadel and SIFMA have also pressured the SEC, warning that broad exemption policies could undermine Know Your Customer (KYC), Anti-Money Laundering (AML), and other investor protection mechanisms.

Citadel clearly stated in its comments submitted last December that any exemptions should not override core market safeguards.