Tokenized stock exemption: Sources have reported that the Securities and Exchange Commission (SEC) has postponed its consideration of a broader exemption for trading tokenized assets that are tied to U.S. stocks. The agency’s staff had prepared an “innovation exemption” draft for release this week; however, after recent talks with stock exchange officials and market participants, this timeline has been delayed.
What’s behind the pause on tokenized stock exemption?
Third-party tokens are one of the main points of contention that have caused the delay in this discussion, specifically, digital assets issued without the backing or consent of the public companies they represent. In contrast, issuer-sponsored tokenized securities (where a company tokenizes its own shares), third-party tokens enable the creation of a synthetic exposure to stocks like Apple or NVIDIA on blockchain networks without the involvement of either company.
Regulators have expressed concern about whether or not third-party tokens would also convey the same rights as regulated securities (including dividend and voting rights), given that the transfer of ownership of these tokens can occur instantaneously through blockchain networks.
Securitize, Ondo, and Superstate are companies that have developed infrastructure to perform tokenization that incorporates a SEC-registered transfer agent that keeps official records of who owns what securities. However, no path forward has yet been established for third-party issuers.
Differences between original and revised proposals
While the initial draft envisioned a broader sandbox for onchain equities, Hester Peirce (SEC Commissioner) clarified on X that she had “always expected that it’d be limited in scope and would facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in the secondary market today, not synthetics.” In simple words, this approach suggests the exemption may “exclude pure synthetic products that merely track price without offering ownership rights.”
In addition to the limitation, the SEC granted approvals for certain tokenization projects. For example, the Depository Trust and Clearing Corporation (DTCC) has been authorized to tokenize highly liquid assets on pre-approved blockchains under a three-year authorization period. Moreover, the New York Stock Exchange (NYSE) has reportedly been building a platform for tokenized equities that could enable 24/7 trading.
What happens next?
The SEC continues to take feedback from interested industry parties before making a final decision regarding those changes in the original proposal; however, the “exemption” could still be released in a modified form. SEC Chair Paul Atkins, in previous statements, said the agency would soon debut the “innovation exemption,” which he described as a “regulatory sandbox” for onchain equities, though he had set a deadline for the end of last year (2025) that was missed.
