SEC again delays tokenization exemption after Wall Street pushback

If you've been hearing the word "tokenization" more often lately, here's why: the federal agency that oversees stock markets was on the verge of making it much easier to trade securities on blockchain technology. Then the plan hit a wall.

The Securities and Exchange Commission has again delayed its planned "innovation exemption" for tokenized securities, a proposal that would have loosened regulatory hurdles for firms looking to issue and trade stocks, bonds and funds on blockchain systems. The exemption had been expected to drop as soon as last Friday, but the SEC canceled the open meeting where it was set to be discussed, industry sources told CoinDesk.

White House worries about congressional fallout

Two forces combined to slow the SEC down. One person familiar with the discussions said the White House worried the proposal could "kick a hornet's nest" while Congress is still negotiating the Digital Asset Market Clarity Act, a broader piece of crypto legislation working its way through Capitol Hill. SEC staff have also grown increasingly focused on whether the agency has the legal authority to issue such sweeping relief, including whether it completed the economic analysis and procedural steps required to justify an exemption.

Industry insiders were told the effort may need to wait for the outcome of the Clarity Act.

SIFMA leads Wall Street's resistance

Resistance also came from traditional finance. SIFMA, the Wall Street trade group whose members include major broker-dealers and investment banks, has emerged as a key force pushing back against the SEC's initiative. The group's concerns center on how blockchain-based trading venues would fit within existing equity market rules, particularly brokers' obligations to find the best price for customers.

Under current rules, a framework called Regulation NMS links prices across exchanges and generally requires brokers to execute trades at the best available price. That system gets complicated if tokenized securities trade through decentralized venues or automated market makers, where pricing and execution costs may look very different from a traditional exchange.

In a June 30 letter to the SEC, SIFMA argued that "these types of significant structural changes should be considered and made through an open and transparent process" with public notice, comment and industry participation, rather than through exemptions or informal relief.

A pattern of delays for a fast-growing market

This is not the first time the exemption has stalled. The SEC appeared ready to release it in May after repeatedly pushing back its own deadline. At the time, concerns arose that the proposal could allow for synthetic security tokens, where an issuer wouldn't necessarily control the underlying security. SEC Commissioner Hester Peirce told CoinDesk she did not expect the exemption to include synthetic tokens, saying she expected it to cover only "digital representations of the same underlying equity security that an investor could purchase."

The delays come as tokenization picks up speed across Wall Street. The Nasdaq and New York Stock Exchange have both unveiled plans for infrastructure to support tokenized securities. The Depository Trust & Clearing Corporation, which serves as the backbone of U.S. securities trading, processed its first live production trades with tokenized securities last month as part of a test phase. Analysts at Citi have projected that tokenized assets could become a $5.5 trillion market by 2030.

For now, the SEC under Chairman Paul Atkins has signaled broad support for bringing securities onto blockchain rails but has yet to resolve the central question: how blockchain markets fit into the existing rules that govern American finance. The innovation exemption remains in limbo, with no new timeline announced.

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