The U.S. Securities and Exchange Commission’s temporary tokenization exemption is drawing growing scrutiny as crypto groups, financial industry representatives and legal experts question which blockchains can support tokenized stock trading.
BitGo COO Jody Mettler has urged the industry to take proactive regulatory measures rather than reactive ones, pointing to recent moves by the DTCC as a signal that tokenized securities will face increased oversight. Mettler said significant regulatory shifts often follow major financial changes, and stakeholders should prepare for compliance challenges.
The SEC exemption, introduced in September, requires tokenized securities venues to use auditable smart contracts deployed on public, permissionless blockchains. But the broad definition has triggered competing clarification requests. In a Thursday letter, the Solana Policy Institute urged the SEC to assess who controls validators, transaction approvals and network rules. Hedera, in an October 9 letter, asked the regulator to include public but permissioned networks, where approved entities validate transactions, under the exemption.
Legal and academic voices are also weighing in. Columbia Business School’s Omid Malekan and securities lawyer Gabriel Shapiro warned that centralized operators could retain control while benefiting from the exemption. SIFMA questioned whether issuers should have to opt out of tokenization, while Better Markets called for the SEC to withdraw the exemption entirely and pursue formal rulemaking.
Three firms have notified the SEC of plans to operate tokenized securities venues: TSV LLC intends to use Canton Network, OKXICE plans to use X Layer, and Kephas Corp. intends to operate on Kronos X Public, an Ethereum-compatible Layer 2. An SEC official said firms can begin operating 30 days after filing notices if they meet the exemption’s conditions. The agency does not pre-approve each blockchain and may publish additional FAQs. Broader changes would require Commission action.
Objections to tokenized shares are mounting. As of Friday, 22 of the 62 companies on OKXICE’s original list had objected, with Reuters reporting six additional objections from companies including Wells Fargo, Arm Holdings, and Intuit. The SEC’s temporary exemption runs for five years, through September 17, 2031, and feedback could inform future formal rulemaking.
Current market reaction has been muted, with low trading volume and stagnant price movements as participants await clearer regulatory guidelines.
