The Securities and Exchange Commission (SEC) had been preparing to introduce its “innovation exemption” for tokenized stocks but has since put that plan on hold, Bloomberg News reported Friday (May 22), citing sources familiar with the matter.
According to the report, the delay comes as the SEC considers input on the plan from stock-exchange officials and other market participants. One area of the plan that has caused concerns is a section that would permit the trading of third-party tokens, which would be issued without the support or permission of the public companies in question.
As covered here last week, tokenization creates digital representations of real-world assets, such as shares or bonds, on a distributed ledger.
“Regulators view the technology as a primary driver for efficiency, potentially streamlining security issuance and asset management while lowering costs and enhancing market resilience,” PYMNTS wrote in a report on a similar plan being floated in the U.K.
The Bloomberg report noted that a decision by the SEC to allow third-party tokens would run counter to the expectations of some crypto-market experts and trading companies. Former regulators and market experts told Bloomberg there are several concerns about the plan.
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For example, many said that publicly traded companies could face uncertainty about how to handle practices like issuing dividends and counting shareholder votes as tokens with those rights show up on the blockchain.
“If I was a corporate executive, I’d be very concerned about the implications,” said Amanda Fischer, policy director at Better Markets and a former senior SEC official under Biden’s administration.
There’s also the concern that the tokens could wind up in the hands of bad actors overseas using loopholes in blockchain technology to get around U.S. regulations.
But Larry Tabb, director of market structure research at Bloomberg Intelligence, said tokenization of stocks brings numerous benefits, like faster settlement of trades.
“Speeding settlement allows traders and investors to more effectively control their cash and collateral,” he wrote in a report Thursday. “Cash from the execution of one trade can be immediately transitioned to another use.”
Joe Saluzzi, a partner at brokerage firm Themis Trading, told Bloomberg that he has seen zero interest among his clients in trading in the 24/7 markets that tokenized securities can offer.
“Nobody is asking for this,” he said.
