International Stock Exchanges Appeal to SEC
A coalition representing international stock exchanges has formally appealed to the U.S. Securities and Exchange Commission (SEC) to reconsider the special exemptions afforded to cryptocurrency companies involved in tokenized stock offerings. The World Federation of Exchanges (WFE), which comprises prominent members such as the New York Stock Exchange (NYSE), Cboe, and CME Group, expressed its apprehension in a letter addressed to the SEC’s Crypto Task Force last week.
Concerns Over Tokenized Stock Offerings
The organization emphasized that such exemptions should not serve as a shortcut for crypto trading platforms aspiring to operate similarly to national securities exchanges without adhering to comprehensive regulatory standards.
In the correspondence, WFE CEO Nandini Sukumar articulated the federation’s concern regarding the increasing number of brokers and crypto platforms promoting or planning to launch tokenized versions of U.S. stocks. Citing a position paper released in August, the WFE characterized these offerings as misleading, labeling them as “stock tokens” despite them lacking the fundamental qualities of traditional equities.
Regulatory Flexibility and Investor Safety
The letter underscores that while the WFE advocates for regulatory flexibility—specifically exemptive relief—it cautions that widespread application could jeopardize both investor safety and the integrity of the markets.
Exemptive relief is a provision that permits certain entities to circumvent specific regulatory requirements when deemed beneficial for public interest and investor protection by the SEC. This relief can be granted for a limited time or as a permanent solution. While the WFE supports the SEC’s authority to utilize such measures, it insists that these exceptions should be reserved for circumstances where they are crucial for providers to compete equitably and align with public interests and investor safety.
Potential Regulatory Sandbox
As the SEC considers establishing a regulatory sandbox that might allow crypto platforms to test tokenized stock offerings with time-limited exemptions, the WFE’s statement becomes particularly relevant. This potential framework aims to explore how virtual asset markets could function under adjusted regulations.
Earlier in October, SEC Chair Paul Atkins revealed that the agency has been contemplating “innovation exemptions,” which would enable cryptocurrency firms temporary regulatory relief.
Looking Ahead
This new regulatory strategy is anticipated within the coming year and would allow select platforms to trial innovative products like tokenized stocks under SEC oversight, as regulators gauge the necessary long-term policies. Past attempts to introduce tokenized stocks in the U.S. have faced scrutiny, notably Robinhood’s controversial decision to partner with a European firm to offer blockchain-based equities.
Decrypt has sought additional comments from both the SEC and the World Federation of Exchanges regarding this matter.
