The U.S. Securities and Exchange Commission (SEC) has postponed a plan that would have provided broad exemptions for U.S. crypto firms to trade tokenized assets linked to stocks, according to multiple sources familiar with the matter.
Sources indicated the SEC was prepared to issue a so-called "innovation exemption" as early as this week to facilitate trading of tokenized shares, with a draft already prepared and reviewed by staff. However, the timeline has been delayed as the SEC weighs feedback from stock exchange officials and other market participants who have discussed the plan's details with SEC staff in recent days.
One area of concern is the SEC's proposal to allow trading of so-called "third-party tokens," which would be issued without the endorsement or consent of the related listed companies. The SEC has not yet made any revisions to its draft proposal.
If the SEC proceeds with allowing third-party token trading, it would contradict the expectations of some crypto market experts and trading firms. Under the SEC's proposal, platforms offering token trading would need to ensure investors receive rights equivalent to those of ordinary shareholders, including dividends and voting rights. However, former regulators note that it remains technically unclear how companies could fulfill these obligations given tokens circulate on anonymized blockchain networks.
Not all SEC officials support the decision to permit third-party token trading, sources revealed. Commissioner Hester Peirce, a long-time ally of former SEC Chairman Paul Atkins, stated on platform X on Thursday that she expects the "innovation exemption" to be "limited in scope" and only "facilitate trading in digital representations of the same underlying equity securities that investors can currently purchase in the secondary market."
Former regulators and market experts have raised multiple concerns about the SEC's plan. Several pointed out that listed companies could face significant uncertainties, such as how to distribute dividends or tally shareholder votes when tokenized rights are dispersed across a blockchain. A Wall Street executive noted that companies have already raised this issue with stock exchange officials.
"If I were a company executive, I would be very concerned about the implications," said Amanda Fischer, a former senior SEC official during the Biden administration and current policy director at Better Markets.
Another concern is that these tokens could end up in the hands of overseas bad actors who might exploit vulnerabilities in blockchain technology to evade U.S. regulation. Austin Campbell, a crypto expert and professor at New York University's Stern School of Business, warned that tokenized securities could appear on platforms that do not rigorously enforce "Know Your Customer" (KYC) policies. This increases the risk of overseas entities under U.S. sanctions holding these tokens through crypto platforms.
"If you don't know who holds the tokens, you can't pay dividends," Campbell stated. "This opens Pandora's box."
Joe Saluzzi, partner at brokerage Themis Trading in Chatham, New Jersey, said he had asked several clients if they were interested in the 24/7 trading offered by tokenized securities and found no demand. "There is simply no market appetite for this type of trading," he said.
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