SEC Postpones Implementation of Plan to Allow Cryptocurrency-Based Derivatives of US Stocks

SEC Delays Plan to Exempt US Crypto Firms from Tokenized Asset Trading Rules

The Securities and Exchange Commission (SEC) is delaying a plan to provide broad exemptions for US crypto firms to trade tokenized assets linked to stocks, according to people familiar with the matter. The SEC's staff was preparing to release its so-called innovation exemption for tokenized stocks as soon as this week, but the timing has since been pushed back as the commission weighs input from stock-exchange officials and other market participants.

The SEC's proposal had been reviewed by staff, and a draft of the plan had been prepared. However, the plan has raised concerns among some crypto-market experts and trading firms due to a move to allow for the trading of so-called third-party tokens, which would be issued without the backing or consent of the public companies involved. The SEC hasn't made any decisions to change its draft proposal.

Under the SEC's proposal, platforms offering tokens would need to guarantee investors receive the same rights as regular shareholders, including dividends and voting rights. However, several former regulators have expressed concerns about how companies would technically fulfill those obligations given that tokens change hands on pseudonymous blockchain networks.

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Concerns Over Trading of Third-Party Tokens

Not all SEC officials would support a decision to allow for the trading of third-party tokens, according to people familiar with the matter. Commissioner Hester Peirce, a long-time ally of SEC Chairman Gary Gensler, has expressed concerns about the proposal. She expects the innovation exemption to be "limited in scope" and would "facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in the secondary market today."

Market experts have raised several concerns about the SEC's plan. They fear that public companies might face uncertainty about how to go about normal practices such as issuing dividends and counting shareholder votes as tokens with those rights proliferate on the blockchain. Some have already raised that question with stock exchange officials, according to a Wall Street executive.

Risks of Tokenized Securities

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Another concern is that the tokens could end up in the hands of bad actors overseas using loopholes in blockchain technology to skirt regulatory oversight in the US. Crypto expert Austin Campbell, a professor at the NYU Stern School of Business, warned that tokenized securities could potentially end up on platforms that don’t follow strict know-your-customer policies. That raises the risk that sanctioned entities overseas operating on crypto platforms could own the tokens.

The SEC's decision on the plan is still pending, and it is unclear when a final decision will be made.