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Federal regulators want to transform how investors trade public equities. The Securities and Exchange Commission (SEC) has unveiled a five-year “innovation exemption” allowing tokenized stocks to trade on public blockchains. Under the new policy, “Tokenized Securities Venues” operating automated market makers will receive relief from registering as traditional stock exchanges. Additionally, liquidity providers contributing proprietary capital will enjoy a temporary exemption from broker-dealer registration requirements.
Tokenization, the process of issuing and transferring traditional assets like stocks and bonds on blockchain, is seen as a way to potentially attract more investors and increase trading capabilities outside of regular stock market hours.
The New York Stock Exchange, Nasdaq and the London Stock Exchange are already planning to launch tokenized stocks. Crypto exchanges Coinbase and Kraken are also planning to offer them to customers. Several crypto exchanges, including Kraken and Robinhood, already offer tokenized stocks to customers in Europe.
Wall Street meets 24/7 markets
Blockchain-based equity markets will unlock unprecedented global trading liquidity. Retail and institutional investors will gain round-the-clock access to public stocks, instant settlement, and self-custody options. Supporters say tokenized stocks give investors more flexibility, allowing them to earn interest or take out instant loans using their shares at any hour. Automated software on blockchain could also pay dividends directly to shareholders, saving companies time and money on administrative costs.
By contrast, skeptics warn that continuous trading will create severe pricing risks. Financial policy experts caution that traditional market off-hours serve as a vital cooling-off period to prevent panic selling during sudden crises. More critically, early offshore platforms demonstrated how fragmented liquidity can severely distort asset values. Because various crypto exchanges issued isolated tokens without standardized redemption mechanisms or clear ties to underlying shares, traders could not easily perform arbitrage to close price gaps — causing stock tokens on some platforms to trade at up to four times, or 300% above, the real stock price on the NYSE or Nasdaq.
Regulatory watchdogs will face steep hurdles monitoring continuous stock markets. Critics argue that waiving standard exchange rules for digital venues weakens market oversight, making price manipulation harder to detect and reducing customer protections. Without traditional opening and closing bells, public companies will also have to rethink how they release earnings reports and major announcements, as market news will trigger immediate overnight price reactions before investors have time to digest the information.
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Strict standards for tokenized shares
Crypto platforms will need to grant full shareholder rights to comply.
Under the SEC rules, tokenized shares must offer the same economic and governance protections as traditional stocks, including voting rights, dividend payouts and liquidation claims. The agency explicitly prohibited synthetic tokenized derivatives and security-based swaps. Furthermore, underlying public companies will receive advance notice and the power to object before third parties list tokenized versions of their shares.
Analysts expect major digital asset firms like Coinbase, Robinhood and Circle to emerge as early winners by expanding custody, tokenization infrastructure and stablecoin settlement.
Built-in guardrails for the blockchain trading pilot
Strict trading volume caps will govern the initial trial phase. The SEC framework restricts eligible assets to listed securities, capping Tier 1 stocks at 75 and 0.25% of the prior month’s average daily share volume and Tier 2 stocks at 250 and 2.5% of average daily volume. This means that for Nvidia (NVDA), one of the most highly traded shares and a Tier 1 stock, qualifying venues could facilitate trading in up to roughly 312,500 tokenized Nvidia shares per day. For comparison, Nvidia has an average volume of 126 million shares per day.
Additionally, venues are barred from hosting initial public offerings, extending margin leverage or executing trade lending during the exemption period. These restrictions will allow regulators to gather operational data on continuous trading without disrupting market stability.
The Kiplinger Letter has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up so you can make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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