Financial industry group pushes back on tokenized equities, urges SEC to reject crypto firms’ exemptions

A trade association representing financial firms is urging the U.S. Securities and Exchange Commission to deny digital asset companies the opportunity to offer tokenized equities through specific exemptive relief and instead adopt a more transparent approach.

In a letter sent this week to the SEC’s Crypto Task Force, the Securities Industry and Financial Markets Association said its members have “been reading with significant concern” reports that show that digital asset firms are looking to offer tokenized equities and have filed no-action or exemptive relief from the agency to do so. No-action relief means that the SEC staff will not recommend enforcement actions against that firm if it launches those products. 

“SIFMA therefore urges the SEC to reject the firms’ requests for no action or exemptive relief and instead provide for robust public process that allows for meaningful public feedback before it makes any decisions regarding the introduction of new trading and issuance models, as well as other issues that might arise in connection with the SEC’s consideration of policy actions in response to the RFI [request for information],” the association said. 

“These policy questions are simply too important to be addressed purely through immediate no-action or exemptive requests, and such requests should be rejected,” SIFMA added.

Some crypto firms, including Coinbase and Kraken, have shown interest in launching tokenized equities. If they get approval from the SEC, that could allow them to offer blockchain-based trading of traditional stocks and put them in direct competition with other, more traditional finance brokerages. Kraken has said it plans to launch tokenized stock trading of stocks that would be available in Europe, Latin America, Africa, and Asia.

Instead of going through no-action or exemptive relief to launch those products, SIFMA said the agency should require a more transparent process through public comment and engagement from the broader industry. Questions remain on whether firms need to become members of the Financial Industry Regulatory Authority and how investors would be protected, and whether the SEC would be able to “oversee unregistered entities,” SIFMA said.

Multiple firms and individuals have filed written input to the SEC’s Crypto Task Force over the past several months. The task force was created in January and is led by SEC Republican Commissioner Hester Peirce in the wake of the new Trump administration. Since then, the regulator has taken a more open approach to the crypto industry compared to years past.

An expedited process

Separately, the SEC is weighing dozens of proposals for crypto exchange-traded funds from ones tracking SOL to XRP to DOGE.

Eleanor Terrett, host and journalist at Crypto in America, reported on Tuesday that the SEC is starting to create a “generic listing standard” for those ETFs, which could mean that issuers could skip a routine 19b-4 process led by exchanges and therefore speed up the approval process.

One of those issuers, 21Shares, said it had not directly spoken with the SEC about a “proposed universal listing standard for token-based ETFs.”

“If such a framework were to be implemented, it could significantly reduce the current complexity and uncertainty involved in the listing process by removing much of the guesswork and ambiguity inherent in the existing 19b-4 approval procedure,” they said in a statement to The Block.

James Seyffart, Bloomberg Intelligence research analyst, said he assumes at this point that the SEC is having ongoing discussions with exchanges, issuers, and other parties about the new potential framework. A framework could be put in place ahead of the key final October deadline at the SEC, Seyffart added.

“But I think they will have a framework before that because there seems to be a lot of movement right now,” Seyffart told The Block. “[SEC Chair Paul] Atkins and Hester [Peirce] have both publicly stated that this is a priority of the SEC. But time will tell.”

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