The World Federation of Exchanges (WFE) has urged the Securities and Exchange Commission (SEC) to reject broad regulatory relief for crypto companies launching tokenized stock offerings. In a letter dated November 21, the WFE expressed alarm at the increasing number of brokers and crypto trading platforms that are offering or planning to offer tokenized U.S. stocks.
The WFE stated that these products are marketed as stock tokens or equivalents to stocks, when in reality, they are not. This development poses multiple and interconnected risks to investors and the integrity of the market.
The Rise of Tokenized Stocks
Crypto exchanges are seeking to offer tokenized stocks in the U.S., which would allow investors to gain exposure to public companies without directly owning shares. These products are promoted for their faster settlement times compared to traditional stock exchanges and their availability for trading at any time, irrespective of market hours.
SEC's Consideration of Exemptive Relief
SEC Chair Paul Atkins has previously indicated a willingness to consider granting an exemption for crypto companies that are not SEC-registered broker-dealers. The WFE, whose members include Cboe and Nasdaq, stated that while it supports the SEC's use of exemptive relief, it is concerned that a broad application of such relief could introduce significant risks.
The group emphasized that this authority is most effective when used in a targeted manner and should not be employed as a method to bypass or expedite exemptions from long-standing regulatory requirements. While acknowledging tokenization as a likely natural evolution in capital markets and maintaining a pro-innovation stance, the WFE stressed the importance of responsible implementation that safeguards investors and market integrity.
The WFE suggested that a public rule filing to solicit feedback would be a more appropriate approach than pursuing large-scale changes through exemptive relief. Alternatively, the Commission could explore establishing a sandbox regime or another innovation facilitator.
Calls for Stricter Oversight
In August, the WFE joined forces with the European Securities and Markets Authority and the International Organization of Securities Commissions to advocate for stricter oversight of tokenized stocks. At that time, the group argued that these products lacked adequate investor protections.
Potential Impact on Crypto and Blockchain Innovation
Paul Atkins, a former crypto lobbyist, has stated that he is considering an innovation exemption to alleviate certain regulatory burdens for crypto firms. This move could potentially accelerate the introduction of crypto and blockchain products to the market, aligning with President Trump's stated goal of establishing America as the crypto capital of the world.
Industry Moves Towards Tokenized Stocks
Several companies are already making strides in the tokenized stock space. Robinhood Markets began offering tokenized stocks to European investors in June, with plans to extend these offerings to the U.S. Kraken launched a similar service a month prior. Coinbase reportedly sought SEC approval in June to offer tokenized stocks, with its legal chief, Paul Grewal, describing it as a significant priority for the crypto exchange.
Nasdaq also submitted a rule change request to the SEC in September, seeking permission to list tokenized stocks on its exchange.