SEC Pumps Brakes On Tokenized US Stock Exemption After Industry Pushback

• The United States Securities and Exchange Commission delayed plans for a broad exemption covering tokenized United States stocks, Bloomberg reported.
• Regulators raised concerns over third-party tokenized shares issued without the consent of the underlying public companies.
• Michael Burry warned last week that the agency’s tokenization push could trigger a “Snow Crash” scenario that should be stopped.

The US Securities and Exchange Commission (SEC) reportedly delayed plans to introduce a broad exemption allowing crypto firms to offer tokenized versions of US stocks, after concerns emerged around how such products would function without company approval.

According to a Bloomberg report on Friday, SEC staff had initially prepared the agency’s proposed “innovation exemption” for release last week. However, the timeline was pushed back as regulators gathered feedback from stock exchange officials and other market participants.

One of the biggest concerns about third-party tokenized stocks was the digital representations of public company shares issued without the companies' consent or involvement, according to the report.

Under the draft proposal, platforms offering tokenized equities would still need to guarantee investors the same rights as traditional shareholders, including dividends and voting rights. But former regulators and market participants questioned how those obligations could be enforced once tokens begin trading across blockchain networks.

Narrow Approach To Tokenized Stocks

SEC Commissioner Hester Peirce attempted to narrow expectations around the proposal, saying that any exemption would likely remain “limited in scope.” On Thursday, Peirce said the framework would facilitate trading only of “digital representations of the same underlying equity security that an investor could purchase in the secondary market today, not synthetics.”

The SEC was preparing to move forward with the exemption last week, but the proposal has since faced pushback from regulators, market participants, and exchange officials over how tokenized shares would function under existing securities rules.

“You can’t pay a dividend when you don’t know who owns the token, because it might be the North Koreans,” Austin Campbell, a crypto expert, former banker, and professor at New York University’s Stern School of Business, told Bloomberg. “It opens a Pandora’s box,” he said. 

Last week, Michael Burry also sounded an alarm on the SEC’s tokenization push, saying it could lead to a “Snow Crash,” saying, “This may be the point in time that needs to be stopped.”

Separately, VanEck Head of Digital Assets Research Matthew Sigel said on Friday that Bitcoin moved lower after “the story broke.” 

Bitcoin’s (BTC) price was trading at $74,652, down over 3% during the past 24 hours. On Stocktwits, the retail sentiment around BTC moved to ‘extremely bearish’ from the ‘bearish’ zone, while chatter around it stayed in the ‘normal’ levels over the past day.

Read also: Strive's Bitcoin-Backed Preferred Shares Hit Record Volume As Strategy's Saylor Calls It 'The Most Interesting Story In Bitcoin Right Now'

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