SEC Allows Tokenized Stocks for Five Years, Bringing 24-Hour Trading Closer

Announced Two Days After the Clarity Act Failed in the Senate

Companies Must Be Notified When Third Parties Tokenize Their Shares

Crypto-Linked Stocks Including Securitize and Robinhood Jump

The U.S. Securities and Exchange Commission on September 17 announced an "innovation exemption" plan allowing tokenized stocks for the next five years. The move came two days after the U.S. Senate voted down the Clarity Act, legislation aimed at creating a broad supervisory framework for the cryptocurrency market.

The SEC's innovation exemption took effect immediately upon announcement. Tokenization refers to converting real-world assets such as stocks, cash, bonds and exchange-traded funds into digital tokens, recording ownership on a blockchain-based platform and then trading them.

The measure covers not only shares listed on U.S. exchanges but also stocks tokenized by third parties. In such cases, however, the number of shares that can be tokenized will be limited, and tokenized securities venues must notify the underlying company. Trading will be prohibited if the company exercises its veto within 30 days.

Synthetic tokens such as security-based swaps and wrappers, which track a stock's price but do not provide the benefits of actual share ownership, are not covered by the exemption.

The SEC plans to use the innovation exemption to push more aggressively for 24-hour stock trading. SEC Chair Paul Atkins said the agency had taken a significant step within its legal authority after Congress failed to pass the Clarity Act despite extensive efforts. He added that tokenized stocks have the potential to make 24-hour trading on the New York Stock Exchange possible.

Shares linked to cryptocurrency trading platforms surged after the SEC announcement. Securitize jumped 14.93% to close at $8.93 in regular trading on the New York Stock Exchange. Robinhood rose 5.16% to $109.81 in regular Nasdaq trading.

Nasdaq asked the SEC in September last year for permission to allow tokenized stock trading. The New York Stock Exchange said earlier this year that it was building a blockchain-based tokenization platform that would enable round-the-clock trading in stocks and ETFs.

But opposition remains strong. The International Monetary Fund said in April that the benefits sought through tokenized platforms could instead make it harder to respond properly to risks in financial markets. Because the platforms are built on crypto-based infrastructure while real-world financial systems are centered on human intervention, market shock absorbers could disappear.

The IMF said tokenized platforms operate around the clock, while central bank market intervention and regulation are designed around business hours. It warned that financial authorities and institutions may not be able to keep pace with the speed of trading on tokenized platforms, leaving too little time to respond.

Lee Mi-ah, Hankyung.com reporter mia@hankyung.com