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Major U.S. exchanges are voicing concern as the Securities and Exchange Commission (SEC) considers exemptions that could speed the introduction of tokenized stocks into mainstream markets.
The debate escalated this week after the World Federation of Exchanges (WFE) submitted a letter to the SEC’s Crypto Task Force, warning that broad exemptive relief could distort market structure and give lightly regulated crypto firms a competitive edge.
Major Exchanges Urge Caution as SEC Considers Fast-Track Tokenization Exemptions
The November 21 letter outlines what the WFE describes as mounting “alarm” over platforms offering tokenized versions of U.S. equities without the protections that apply to traditional securities.
Many of these instruments are promoted as equivalents of listed shares but lack legal ownership rights, voting power, or clear channels for investor redress.
The timing is significant, as SEC Chairman Paul Atkins has been working on what he calls an “innovation exemption,” a framework that would permit crypto firms to launch blockchain-based products under conditional relief while the agency finalizes long-term digital-asset rules.
Atkins has argued that tokenization is inevitable and central to the Trump administration’s strategy to position the U.S. as the hub of global digital finance.
The agency is now reviewing proposals for tokenized stocks, bonds, and partnership interests, with major financial institutions already seeking approval.
Tokenized stocks aim to represent traditional shares on a blockchain ledger, enabling round-the-clock global trading, faster settlement, and fractional access.
Some structures replicate a stock’s economic performance without conferring actual ownership, while others attempt to place registered equity directly on-chain.
As securities, these instruments must be registered or fall under targeted SEC exemptions, a decision now at the center of the current debate.
Exchanges argue that the stakes are high. In its letter, the WFE warned that if exemptions are granted too broadly, unregulated crypto platforms could siphon trading activity away from traditional markets, weakening price discovery and creating discrepancies between tokenized and underlying share prices.
The group cited examples from overseas markets where synthetic stock tokens traded at materially different valuations, raising questions about accuracy and investor protection.
The WFE also warned that tokenized equities could disrupt clearinghouse systems built around netting and collateral management, functions designed to reduce systemic risk.
Wrapped stock tokens may also omit voting rights and dividend claims, undermining shareholder protections.
The group cautioned that fast-track exemptions risk creating advantaged classes of firms while sidestepping the public comment processes typically required for major rule changes.
SEC Balances Innovation and Risk as Tokenized Markets Enter Policy Spotlight
Atkins, meanwhile, has continued pushing the agency toward a more permissive stance. Since taking office, he has emphasized that the U.S. must adapt its regulatory models to accommodate on-chain finance.
His broader plan, part of “Project Crypto,” unveiled in July, calls for modernizing securities rules, bringing crypto asset issuance back onshore, and establishing clarity for tokenized instruments.
Regulators are nonetheless exploring ways to modernize market infrastructure without destabilizing existing systems.
One option under discussion would require platforms offering tokenized equities to register as exchanges or alternative trading systems (ATSs), subjecting them to the same investor-protection and surveillance standards as traditional venues.
Clearinghouses such as the DTCC could adopt blockchain-based settlement while keeping existing trading, monitoring, and risk-management functions intact.
The SEC is also considering limited pilot programs or time-bound exemptions that allow market data collection before wider deployment.
The shift toward tokenized shares could significantly reshape how investors access financial markets.
Tokenized shares promise low-cost fractional ownership, continuous trading, and faster settlement, but they also carry new risks, including smart-contract vulnerabilities, cyber threats, and uncertainty around how regulators will treat these assets as frameworks evolve.
The WFE urged the SEC to keep any exemptions narrow, temporary, and tied to strong oversight, including AML controls, governance standards, and asset-segregation requirements.
It encouraged the agency to rely on transparent rulemaking or controlled sandbox programs rather than sweeping exemptions that could shift risk onto the public.
