Major Exchanges “Alarmed” as SEC Eyes Tokenized Stock Exemptions

Core Viewpoint - Major U.S. exchanges express concern over the SEC's consideration of exemptions that could accelerate the introduction of tokenized stocks into mainstream markets, fearing it may distort market structure and favor lightly regulated crypto firms [1][2]. Group 1: Concerns from Major Exchanges - The World Federation of Exchanges (WFE) submitted a letter to the SEC, highlighting alarm over platforms offering tokenized U.S. equities without the protections of traditional securities [2][5]. - Tokenized instruments are marketed as equivalents to listed shares but lack legal ownership rights, voting power, and clear channels for investor redress [2][3]. - The WFE warns that broad exemptions could lead to unregulated crypto platforms diverting trading activity from traditional markets, undermining price discovery and creating discrepancies between tokenized and underlying share prices [5][6]. Group 2: SEC's Consideration and Framework - SEC Chairman Paul Atkins is developing an "innovation exemption" framework to allow crypto firms to launch blockchain-based products under conditional relief while the SEC finalizes long-term digital-asset regulations [2][3]. - The SEC is reviewing proposals for tokenized stocks, bonds, and partnership interests, with major financial institutions seeking approval for these products [3][4]. - Tokenized stocks aim to represent traditional shares on a blockchain ledger, facilitating global trading, faster settlement, and fractional access [3][4]. Group 3: Market Structure and Systemic Risk - Some tokenized structures replicate a stock's economic performance without granting actual ownership, while others attempt to place registered equity directly on-chain [4]. - The WFE cautions that tokenized equities could disrupt clearinghouse systems designed to manage netting and collateral, potentially increasing systemic risk [6].