SEC eases rules on tokenized stocks, opening door to 24-hour trading

The US Securities and Exchange Commission has sharply eased regulations on "tokenized stocks" — existing shares traded as digital tokens on a blockchain — in a move expected to accelerate the expansion of that market and pave the way for round-the-clock stock trading.

The SEC announced Thursday (local time) that it would grant a five-year exemption from certain securities-exchange regulations to tokenized-stock trading platforms that meet specified conditions, according to the Wall Street Journal. The measure takes effect immediately.

Tokenized stocks are digital token representations of existing shares that allow them to be traded on a blockchain. Under the new rules, any tokenized stock covered by the exemption must carry the same shareholder rights as the underlying share, including dividends and voting rights.

If Apple shares were tokenized, for example, the resulting token would need to confer the dividend and voting rights attached to actual Apple stock — not merely track the share price. Synthetic stock tokens that follow price movements without granting real shareholder rights are excluded from the exemption.

Previously, blockchain-based platforms that brokered tokenized-stock trades could be classified as exchanges under securities law and subjected to the full range of related regulations. Under the new framework, platforms that satisfy SEC-set conditions — including trading transparency and record-keeping requirements — may enter the market free from some of those rules.

The decision came two days after the Senate failed to advance the "Clarity Act," a bill aimed at establishing a clear regulatory framework for the US cryptocurrency market. The SEC is now using its existing authority to put tokenized securities regulation on firmer footing.

SEC Chair Paul Atkins said in a statement that the agency had made "an important step toward leading US capital markets into the digital age by facilitating on-chain trading of some tokenized stocks through the 'innovation exemption' — authority granted by law."

The prospect of tokenized stock trading draws attention because it could enable 24-hour trading unconstrained by conventional market hours, as well as faster settlement.

Concerns have also been raised, however, that if tokenized stocks trade on a separate market from traditional exchanges, liquidity could become fragmented and investor protections weakened. The SEC factored in those concerns by attaching conditions to the exemption, including volume caps, transparency requirements and record-keeping obligations.

Companies also retain the right to block the tokenization of their own shares. Any third party seeking to tokenize a specific company's stock must notify that company 30 days in advance, and the company may veto the transaction.