The cryptocurrency industry has gotten a major boost from the U.S. Securities and Exchange Commission, which today announced a five-year exemption that allows companies to facilitate the trading of blockchain-based tokenized stocks and securities.
It’s a big move that will help to accelerate the SEC’s plan to integrate digital assets into the financial economy. The SEC is offering a five-year exemption to certain platforms, providing them with regulatory relief so long as they meet certain conditions.
The requirements include ensuring that holders of tokenized stocks receive the same rights as they would have with traditional stock holdings, and giving companies the opportunity to object to having digital representations of their securities. In addition, the SEC said it’s giving a similar five-year exemption to liquidity providers, meaning they don’t have to meet the regulatory obligations expected of traditional dealers.
Tokenization, which refers to the process of creating digital representations of publicly-traded securities, or tokenized stocks, that live on blockchain networks, has ignited a lot of interest in the financial community. Proponents of the technology say it could revolutionize financial markets by making it possible for stocks to be traded 24/7 and settled instantly without intermediaries, increasing liquidity and reducing transaction costs. Tokenized stocks also make it easier for investors to retain self-custody of securities, and enable the fractional ownership of individual shares.
According to the SEC, the five-year exemption is necessary because trading platforms that plan to offer tokenized stocks will face significant difficulties in being able to comply with existing federal securities laws. Adhering to those laws would require “potentially burdensome changes” to their business models, it said.
“The Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards,” SEC Chair Paul Atkins said in a statement.
Leading cryptocurrency exchanges Coinbase Global Inc., Robinhood Inc. and Gemini Trust Co. LLC have all launched tokenized stock trading outside the U.S., but have refrained from doing so within it. However, they have indicated a willingness to do so when given the regulatory all-clear. Crypto analysts say the exemption could lead to some major structural changes in the equities markets, and potentially enable crypto companies to challenge traditional brokerages such as Charles Schwab and Morgan Stanley.
It’s perhaps significant that the SEC finally got around to announcing the exemption this week, just days after President Donald Trump’s Clarity Act, which aimed to regulate crypto assets at the federal level and establish the U.S. as a leader in digital asset innovation, was voted down by the Senate. That defeat was seen as a major blow for the crypto industry and for Trump himself, who has championed digital assets and made considerable money from issuing his own memecoin, $TRUMP.
Although the bill failed to pass the Senate, Trump, who emerged as a big supporter of crypto during his election campaign, has been promoting crypto in other ways, mainly by installing pro-crypto people within the SEC. Trump was responsible for hiring Atkins, who replaced the previous SEC Chair Gary Gensler, who was seen as being extremely “anti-crypto.” Last year, Atkins announced a Project Crypto initiative that has the long term goal of bringing America’s financial markets on-chain.
