SEC Should Target Tokenized Stock Exemptions, Stock Exchanges Warn

Source: CryptoNewsNet Original Title: SEC tokenized stock exemptions should be targeted, stock exchanges argue Original Link: The US Securities and Exchange Commission shouldn’t grant broad regulatory relief to crypto companies launching tokenized stock offerings, as it risks the market and investors, argues a stock exchange advocacy group.

The World Federation of Exchanges (WFE) said in a letter to the SEC on Friday that it was “alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenized US stocks.”

“These products are marketed as stock tokens or the equivalent to stocks when they are not,” the group said. “This development poses multiple and interconnected risks.”

Multiple crypto exchanges are seeking to offer tokenized stocks in the US, allowing investors to buy exposure to public companies without owning shares. They’re touted as having faster settlements compared to stock exchanges and can be traded at any time, not just during market hours.

Crypto companies that aren’t SEC-registered broker-dealers would have to get an exemption from the agency, and its chair, Paul Atkins, has floated granting one.

Tokenized stock exemption relief must be “targeted,” group says

The WFE, which counts major exchanges as members, said it supports the SEC using exemptive relief, but it is “concerned that the broad use of such relief presents risks to investors and market integrity.”

“We simply believe that this authority is most effective when exercised in a targeted manner and not applied as a means to circumvent or fast-track exemptions to longstanding regulatory requirements,” it added.

The WFE said tokenization “is likely a natural evolution in capital markets” and that it was “pro-innovation,” but that it “must be done in a responsible way that does not put investors or market integrity at risk.”

The group said it would be better for the SEC to make a public rule filing to garner feedback rather than to “seek to make large-scale changes with exemptive relief.”

“Alternatively, the Commission could consider the creation of a sandbox regime or other innovation facilitator,” it added.

In August, the WFE urged the SEC, the European Securities and Markets Authority and the International Organization of Securities Commissions for stricter oversight of tokenized stocks, arguing they lacked investor protections.

SEC weighs exemptions for tokenized stocks

Atkins, a former crypto lobbyist, has said he’s considering an “innovation exemption” to relieve crypto firms from certain regulations, thereby speeding up the process of bringing crypto and blockchain products to market.

“An innovation exemption could help fulfill President Trump’s vision to make America the crypto capital of the planet by encouraging developers, entrepreneurs, and other firms that are willing to comply with certain conditions to innovate with onchain technologies in the United States,” he told a group of crypto executives at a meeting in June.

US trading platforms have begun lining up to offer tokenized stocks under the crypto-friendly SEC. Several platforms began offering tokenized stocks to investors in recent months, with the intention of bringing similar products to the US market.

Non-crypto companies are also getting in on the action. In September, a major exchange requested a rule change with the SEC to allow listing tokenized stocks.