SEC Eyes Tokenized Stocks: A Blockchain Revolution for Wall Street?

The U.S. Securities and Exchange Commission (SEC) is considering a proposal that could fundamentally alter how stocks are traded. The plan involves tokenizing traditional equities like Apple, Tesla, and Nvidia, effectively treating them as digital assets on a blockchain.

This initiative has garnered support from crypto exchanges and fintech platforms, who see it as a way to expand access to equities and streamline trading processes. However, established financial institutions are pushing back, fearing disruption to their existing business models.

What's the Plan?

The SEC is reportedly consulting with market participants on regulatory changes that would enable the tokenization of securities. Nasdaq has already taken a significant step, submitting a rule change filing to permit trading of listed equities and ETPs in tokenized form. The public comment period for this filing concluded on October 14.

SEC Commissioner Hester Peirce, known for her pro-crypto stance, has indicated the regulator's willingness to collaborate with firms seeking to tokenize traditional assets.

Wall Street's Resistance

Despite the potential benefits, the proposal faces strong opposition from Wall Street incumbents, including large banks, brokerages, and clearinghouses like Citadel Securities. These firms argue that tokenization threatens their role in the trading and settlement process.

The World Federation of Exchanges (WFE) has also voiced concerns, claiming that blockchain-based stocks "mimic" equities without offering shareholder rights or market trading safeguards.

Key Considerations

• Regulation: SEC Commissioner Peirce emphasized that tokenized securities must still comply with existing securities regulations.
• Rights and Protections: Nasdaq proposed that tokenized shares should carry the same rights and protections as their underlying securities.
• Industry Experimentation: Financial giants like BlackRock, Franklin Templeton, and KKR have already experimented with tokenizing portions of their funds.

Key Takeaways:

• The SEC is exploring the possibility of tokenizing stocks, potentially allowing them to trade like cryptocurrencies on a blockchain.
• This initiative has support from crypto exchanges and fintech platforms but faces resistance from traditional financial institutions.
• Key regulatory and structural issues need to be addressed to ensure investor protection and market integrity.

The push for blockchain integration in financial markets aligns with a broader "crypto-friendly" agenda, with the SEC emphasizing its commitment to regulatory harmonization in the crypto space.