SEC Greenlights Tokenized Stocks with Strict Conditions

The Securities and Exchange Commission (SEC) has made a significant policy shift by allowing the trading of certain tokenized stocks, effective immediately. The move comes after the failed passage of the CLARITY Act in Congress, which aimed to establish guardrails for crypto assets in the U.S.

Tokenization is the process of representing an asset digitally on a blockchain, and it has been gaining traction in the investing world. However, some argue that tokenized assets come with unique risks, such as increased exposure to bad actors in unregulated spaces.

The SEC's exemption allows for a specific type of tokenized stocks to be traded, namely those that retain investor rights such as voting and dividends. These tokenized U.S. National Market System (NMS) stocks can only be traded through U.S. venues that have established standards for trading participants, limit trading volumes, and make public their activities.

The exemption also requires that trading halt when the primary exchange halts, and leverage is not permitted. Companies that do not want tokenized shares have 30 days to object and prevent their creation.