What to know:
- SEC crypto regulation could pave the way for 24/7 trading of tokenized stocks.
- The SEC may propose an exemption allowing blockchain-based securities to trade beyond traditional market hours.
- The move comes as the CLARITY Act remains stalled in Congress, giving the SEC room to provide interim guidance.
SEC crypto regulation will soon make a significant move that will bring traditional stocks nearer to the digital assets trading world. The SEC is planning to establish a new regulatory framework for crypto-related investment contracts and may propose an exemption that could facilitate round-the-clock trading of tokenized securities.
There is a scheduled meeting by the SEC for Friday when the proposals can be discussed. Individuals who know about the proposal have indicated that the details of the proposal can be made public as early as Friday, even though there may still be some changes to it.
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SEC Crypto Regulation Targets 24/7 Tokenized Stock Trading
A tokenized stock is essentially the regular share of companies, but issued in the form of tokens. Because of blockchain networks’ ability to run all the time, this asset can enable investors to trade stock outside normal trading hours.
This modification will prove itself handy when significant financial information comes out at night or even during weekends. It will create a stronger link between the stock exchange and the cryptocurrency industry, which never closes.
The SEC was expected to issue the exemption in May, but has deferred it on receipt of comments from the exchanges and public companies. The deferral is indicative of the difficulty that regulators have in facilitating blockchain innovation without compromising investor protection.
According to the anticipated rulemaking, companies would have more control over third-party tokens of their securities. Third-party tokens are tokens not issued by the issuer of the underlying security.
Security considerations constitute yet another critical aspect of the proposed changes. The SEC might also impose additional rules aimed at preventing overseas malicious actors from taking advantage of blockchain technology. Certain trading platforms might even be obliged to operate from the US.
“Companies need to play an active role in the process of tokenizing their shares,” noted Brett Redfearn, founder and CEO of tokenization firm Securitize and ex-SEC employee.
SEC Crypto Regulation Takes Lead as CLARITY Act Stalls
The current SEC crypto regulation attempt is occurring while the United States Congress finds itself in an effort to pass digital asset legislation.
The CLARITY Act, which aims at setting up clear regulations for the cryptocurrency market, was not able to advance past the Senate due to an ethics issue with government officials.
Majority Leader of the Senate John Thune is seeking to schedule the procedure for a vote once lawmakers return from recess in September. The fact that lawmakers have very little time left before the midterms makes things difficult.
Hereby, the SEC has a chance to take the initiative and offer at least some guidance.
SEC Crypto Regulation May Not Replace Congressional Action
However, even in the case of the SEC granting this exception, SEC crypto regulation will not hold the same authority as the one established via the passing of laws in Congress.
According to analysts from Jefferies, Andrew Moss and Aqil Taiyeb, regulations can provide clarity, but they can also be reversed by the next government.
In terms of investments, SEC crypto regulations could ultimately allow tokenized stock trading at all times, just like digital currencies. Yet the successful development of tokenized securities will depend on the future crypto regulation introduced by Congress.
The last step taken by the SEC can create closer ties between Wall Street and crypto marketplaces; yet the foundation of these ties needs to be strengthened.
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