SEC Readies Framework for Trading Tokenized Versions of Public Equities

The Securities and Exchange Commission is developing an "innovation exemption" that would permit trading of blockchain-based tokens representing shares in publicly traded companies, according to sources familiar with the matter. The agency could announce the framework as early as this week.

The proposal represents a significant shift in how equity markets operate in the United States. Under the plan, firms could issue and trade digital versions of stocks using distributed ledger technology without needing approval from the underlying companies whose shares the tokens track.

Tokenization converts real-world assets — such as company shares or bonds — into digital representations recorded on blockchain networks. Regulators see the technology as a way to boost efficiency in securities issuance and asset management while cutting costs and strengthening market infrastructure.

The United Kingdom recently unveiled a similar blueprint for tokenising assets in wholesale markets, signaling growing regulatory interest in blockchain-based financial infrastructure across major economies.

Financial industry groups have raised alarms about the proposal's potential to splinter equity markets. The Securities Industry and Financial Markets Association warned that without standards for market connectivity and price transparency, tokenized markets could "fragment and become disorderly."

If third parties can tokenize Apple or Amazon without the issuer at the table, there's no theoretical limit on how many wrappers of the same company exist at once, Brett Redfearn, president of tokenization firm Securitize and former director of the SEC's trading and markets division, said.

This could create a whole new level of market fragmentation and could leave investors less certain what their shares are actually worth at any moment.

The move to permit stock trading on crypto infrastructure raises questions about safeguards. This year alone, multiple decentralised finance platforms have suffered hacks draining hundreds of millions in digital assets.

The proposed framework would mark one of the most substantial regulatory experiments in whether equity trading can function safely on blockchain networks without the investor protections embedded in traditional exchanges.

Major market participants including Citadel Securities and SIFMA have cautioned that sweeping exemptions for tokenized equities could undermine critical investor safeguards. Specific concerns centre on know-your-customer verification and anti-money laundering requirements.

The exemption has been framed as a mechanism allowing companies to test tokenized securities without running afoul of US securities law. Yet critics argue that loosening compliance standards could expose investors to risks not present in conventional stock markets.