The World Federation of Exchanges (WFE) and other institutional exchanges have urged the SEC to grant exemptions for tokenized stocks only in a “surgical” and conditional manner. The petition emphasizes risks to market integrity and investor protection while framing the debate between the efficiency promised by tokenization and the regulatory obligations in force under frameworks such as the Securities Act (1933) and the Securities Exchange Act (1934).
Exchanges that are members of the WFE and associations like SIFMA request that any regulatory relief be limited and subject to clear conditions. According to the WFE, allowing broad exemptions carries the risk of “regulatory arbitrage” that would degrade transparency and investor protection. James Auliffe of the WFE summarized the stance: “We and the crypto platforms should be competing on a level playing field, we should be subject to the same rules.”
The exchanges highlight specific risks tied to tokenized stocks. Among the cited risks is the possibility of products that mimic assets without meeting disclosure requirements, which could leave investors in a legal gray area regarding actual ownership. Liquidity fragmentation —when volume is dispersed across multiple platforms— threatens the efficiency of price discovery. Counterparty risks tied to opaque token issuers and the difficulty of claiming rights in the event of a platform bankruptcy are also warned about.
Regulatory response and operational consequences for tokenized stocks
The Commission has shown openness to exploring regulatory pathways, including the program known as “Project Crypto” and the possibility of innovation exemptions, but it calls for balancing efficiency and protection. The discussion includes how to integrate tokenized settlement with central infrastructures such as the Depository Trust & Clearing Corporation (DTCC).
Market participants are pressing for clarity and infrastructure integration. Market participants such as Coinbase have requested approval for trading platforms for tokenized stocks, while traditional exchanges like Nasdaq have proposed regulatory changes to incorporate tokenized securities into their infrastructures. Large managers and banks are also exploring asset tokenization, adding pressure for practical solutions.
At the same time, recent collapses in crypto derivatives platforms that offered similar products have served as precedent to underscore compliance shortfalls that prompted regulatory intervention.
Practical pathways under consideration aim to enable controlled experimentation without sacrificing safeguards. Practical alternatives under consideration include regulatory sandboxes and specialized licensing frameworks to allow controlled experimentation without relinquishing safeguards. These options aim to mitigate regulatory costs and operational risks while maintaining balanced competitive conditions.
The current focus is on whether the SEC will approve conditioned exemptions that allow controlled pilots without eroding fundamental rules.
