The SEC is Opening the Door to Trading Traditional Stocks on the Blockchain

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Last week, the SEC announced a new five-year “Innovation Exemption”, which will allow approved platforms to facilitate trading in “tokenized” versions of US-listed stocks without being subject to some of the rules that apply to traditional stock exchanges. Think of tokenized stocks as digital representations of shares that can be bought and sold using blockchain technology, much like cryptocurrencies. Over those five years, the SEC will consider whether further regulatory changes are needed.

What does that actually mean? According to Hannah Lang at Reuters, the move could bring digital assets much deeper into traditional financial markets– and potentially change how and where investors trade stocks.

• Tokenization could eventually allow shares to trade 24/7 and settle almost instantly. Costs could be reduced, and fractional ownership and self-custody could be made easier.
• It could also bring crypto platforms into much more direct competition with traditional brokerages. Coinbase has signaled plans to launch tokenized stocks in the US, while Robinhood, Kraken, and others already offer them overseas.
• Guardrails will exist. Platforms will have to notify companies before offering tokenized versions of their stocks, and can’t proceed if the company objects. And unlike many tokenized products currently available overseas, stocks offered under the exemption must carry the same rights as traditional shares, including voting and dividend rights.

Our take? Making stocks easier and faster to trade doesn’t exactly make investing safer. Tokenized stocks aren’t unprotected, but some of the rules that apply to traditional stock exchanges are being loosened here, just as investing is becoming more accessible to a wider group of people.

More access can create more opportunity, but it can also expose less-experienced investors to risks they may not fully understand. We’ve already discussed that trend in The Rise of the Working-Class Investor– and the Rush to Sell Them Private Assets.