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The US Securities and Exchange Commission (SEC) has reportedly delayed the proposal to allow tokenized stock trading after feedback on the risks of implementation from stock exchanges, crypto companies and investors. Blockchain ownership verification and investor protection were also concerns.
The delay will no doubt impact the process since tokenization is gaining traction. According to RWA.xyz, over $34 billion in real-world assets (RWAs) have already been tokenized globally, with around $1.55 billion in tokenized equities. Regulators are still working on frameworks to accommodate the growth and ensure compliance and investor protection.
The SEC is poised to issue its proposed ‘innovation exemption’ for crypto-based stocks this week, Bloomberg reports. It is said that the draft proposal had been reviewed internally by the staff of the SEC.
It would have provided a platform to launch a regulated path for tokenizing equity trading. But the SEC delayed the release amid concerns about how tokenized shares will work under current securities law.
One particular issue raised was the potential for a third party to create and sell public company shares that had been tokenized without the authorization of the public companies themselves.
Another key issue that came up was the verification of ownership within semi-pseudonymous blockchain systems, including the rights of shareholders and legal enforcement.
The proposed framework would mandate that platforms providing tokenized equities give token holders the same rights as traditional shareholders, such as receiving dividends, voting, and legal protection.
In a recent letter, SEC Commissioner Hester Pierce explained that the exemption is likely to be ‘limited in scope’ and only include ‘digital representations' of equity securities, not free-for-all token sales.
Earlier this year, the SEC also made a distinction between two types of tokenized securities:
Custodial tokenized securities: Backed by the issuer, stored through regulated intermediaries with complete shareholders' rights.
Synthetic tokenized securities: Blockchain-based products that only track price exposure, but not ownership rights.
On Friday, Carlos Domingo, CEO of crypto tokenization platform Securitize, said in a post on X that it is important to ensure the “exemption applies to the right instruments.” “Better delay it than get it wrong and unleash all sorts of problems.”
Tom Farley, the CEO of crypto exchange Bullish, posted to X that the SEC was “realizing that public companies are the only entity that can issue tokens that are a share of stock! Great job delaying and getting this right.”
Also Read: SEC Delays Tokenized US Stock Plan Following Concerns Over Shareholder Rights
The SEC's discussions occurred amid increased institutional activity in blockchain financial infrastructure in the Trump era and crypto-friendly thinking.
Major financial institutions are starting to venture into tokenized bonds, tokenized funds, stablecoins, and blockchain settlement systems. Also, consulting firms like Citibank and McKinsey had forecast that tokenization could become a multi-trillion-dollar industry by 2030.
