SEC clears path for tokenized stocks, bringing the market closer to 24/7 trading

SEC clears path for tokenized stocks, bringing the market closer to 24/7 trading. Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsThe SEC is creating a temporary pathway for trading of certain tokenized stocks, provided certain conditions are met.

What happened

Eduardo Munoz | ReutersThe Securities and Exchange Commission on Thursday issued an order creating a regulatory pathway for certain trading venues to issue tokenized representations of publicly traded U. The so-called Innovation Exemption provides certain trading platforms and liquidity providers with the regulatory relief needed to facilitate tokenized stock trading, provided they meet certain conditions. The crypto market structure bill would have established clear rules for how digital assets, including tokenized securities, are classified and regulated.

Critically, this interim measure must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve. With greater adoption, tokenization could change how securities are traded and settled, potentially enabling 24/7 trading and allowing tokenized assets to integrate more easily with blockchain-based financial infrastructure. A stock by any other nameAs companies increasingly explore tokenized stocks and other assets, the push is raising questions about what rights tokens should actually provide for holders.

AMC CEO Adam Aron argued that by creating exposure to AMC stock without the issuing company's involvement, Robinhood and others enabling the practice undermine the traditional relationship between companies and their shareholders. watch nowVIDEO4:2504:25Robinhood CEO responds to AMC CEO Adam Aron’s criticism of tokenized stocksSquawk BoxThe new Innovation Exemption stipulates that stock tokens need to provide holders with the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights.

The wider picture

If the company objects in that 30-day period, the trading venue can not make the tokenized stock available for trading, he added. The long awaited Innovation Exemption comes two days after the Senate voted to block the Clarity Act crypto market structure bill from advancing. Among the requirements, holders of stock tokens must retain the same rights they would have with traditional stocks, and companies must be able to object to having their securities represented as tokens.

In this articleHOODFollow your favorite stocksCREATE FREE ACCOUNTPaul Atkins, Chairman of the U. "The Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards," SEC Chair Paul Atkins said in a statement. Though not a formal rulemaking, the five-year exemption is meant to open up activity in the market that could inform final rules and perhaps even help Congress determine whether new laws are needed.

It's part of the agency's "Project Crypto" initiative, launched last year, to bring America's financial markets onchain. "Instead, it is allowing the market to evolve, monitoring its development, and using that insight to inform a nimbler and future-ready regulatory framework. . . .

What has been reported

"Tokenization — the process of issuing digital representations of publicly traded securities, real world assets or any other form of value on a blockchain network — has become a major topic of interest in the market given the potential for blockchain technology to improve accessibility and liquidity across financial assets. Coinbase, Robinhood, Gemini and Payward's Kraken exchange have launched offshore tokenized equity offerings but have yet to offer it to U. There are potential drawbacks, however, including increased volatility and greater exposure to large price swings when trading activity is thinner.

Companies can object to and prevent their security from trading as a token. Trading platforms should notify the company of their intention to tokenize the shares and wait 30 days after the company receives the notice to start trading the token, according to an SEC spokesperson. Two days after the Clarity Act failed to advance in the Senate, the SEC is moving to build as much of the regulatory rulebook for the crypto industry as its existing authority permits.

Securities and Exchange Commission (SEC), speaks with members of the media after ringing the opening bell at the New York Stock Exchange (NYSE) in New York City, U. The long-awaited move by the securities regulator comes two days after the Clarity Act, crypto's most consequential push for regulatory certainty, failed to advance in the Senate.

What happens next

Now the SEC is moving to define that regulatory boundary through its existing authority. "The Commission is not cementing today's technology as the standard for tomorrow," Atkins said. Thursday's Innovation Exemption includes volume limits to mitigate potential risks and major swings. The debate centers on whether investors should receive the same economic and shareholder rights as they would with traditional shares — particularly voting rights. The issue came into sharper focus after a public fight between the CEOs of Robinhood and AMC over Robinhood's stock-token model.

Despite concerns, the spokesperson said the Commission has had discussions with issuers and that there is growing optimism about the potential of tokenization and that feedback from the issuer community suggests the technology will be adopted in some form. Robinhood said this week it's now moving to address those concerns.