The SEC has authorized trading of tokenized stocks in the U.S. What does this mean?

The U.S. Securities and Exchange Commission (SEC) has authorized certain trading platforms to begin trading tokenized versions of U.S. stocks. The decision marks a new step by the regulator toward developing the digital asset market after a bill to regulate crypto assets failed to pass a key vote in the Senate.

Effective September 17, the U.S. regulator granted certain trading platforms a five-year exemption from a number of requirements that apply to stock exchanges. This exemption applies to Tokenized Securities Venues (TSVs) and allows for the issuance of tokens representing shares of public companies.

The exemption applies both to shares tokenized by the public companies themselves and to tokens issued by third parties not directly affiliated with the issuer. However, it does not apply to synthetic tokens, which are essentially instruments such as stock swaps. Such tokens, known as “wrappers,” track the value of shares but do not grant ownership rights to their holders, and have become popular outside the U.S., according to Bloomberg.

The number of tokens available for trading on each platform will be limited. Holders of tokenized shares should receive standard shareholder rights, including dividends and voting rights. Third-party platforms will be required to notify companies of plans to tokenize their shares, and issuers will have the right to object.

“Congress has been unable to advance the Clarity Act [a bill to regulate the crypto market], despite the tireless efforts of many stakeholders. Therefore, today the Securities and Exchange Commission is taking an important step within the authority granted to it by law to bring U.S. capital markets into the digital age by creating the conditions for trading certain tokenized stocks on the blockchain,” said SEC Chairman Paul Atkins.

According to him, the regulator does not intend to establish current technologies as the standard for the future. “The Commission is not establishing today’s technologies as tomorrow’s standard. Instead, it is allowing the market to evolve, monitoring this evolution, and using the data gathered to create a more flexible and forward-looking regulatory framework. <...> It is important that this temporary measure be followed by the full-scale development of rules that ensure blockchain-based markets remain a viable sector as our capital markets continue to evolve,” stated the head of the regulator.

Bitcoin rose by about 1.2% during trading on September 17, reaching $76,650, according to data from CoinMarketCap. Ethereum, the second-largest cryptocurrency by market capitalization, gained 3.2%. The CoinMarketCap cryptocurrency index rose 1.9%.

CNBC noted that Coinbase, Robinhood, Gemini, and Kraken have already launched tokenized stock offerings outside the U.S. Shares of all three companies rose sharply on Thursday: by 4.4%, 3.1%, and 8.4%, respectively.

Bloomberg named Securitize Corp. among the companies that work directly with public companies to bring tokenized shares to the crypto market. Its stock soared 21%.

The regulator's decision came two days after the Clarity Act failed to secure the necessary support in the Senate. The bill was intended to establish rules for the classification and regulation of digital assets, including tokenized securities. Without the passage of the law, a future U.S. administration could simply revoke the exemption granted by the SEC: representatives of the crypto industry have expressed such concerns, Bloomberg notes.

Tokenization involves issuing a digital representation of securities or other assets on a blockchain. Proponents of the technology believe that trading in tokenized stocks could shift to a 24/7 mode, and settlement of transactions could become virtually instantaneous, according to Bloomberg. This could also allow investors to purchase fractional shares of more expensive stocks and use tokenized securities in automated trading via smart contracts.

At the same time, industry representatives also point out potential risks. The Association of Securities and Financial Markets Industry Representatives has warned that the proliferation of tokenized shares could lead to market fragmentation, Bloomberg reports.

This article was AI-translated and verified by a human editor