SEC delays innovation exception for US equity token trading after pushback from traditional exchanges

The U.S. Securities and Exchange Commission (SEC) has delayed its planned 'innovation exemption' framework for trading tokenized versions of public equities, originally expected between May 18 and 22. The postponement comes after Nasdaq, NYSE, and other market participants raised concerns about investor protection and potential market fragmentation, particularly over third-party tokenization without issuer consent. The proposed framework would have allowed crypto platforms and decentralized finance protocols to trade blockchain-based representations of stocks, such as tokenized shares of companies like Apple, Tesla, and Nvidia. Key features included 24/7 trading, fractional ownership, and rapid settlement, along with potential relief from certain broker-dealer requirements. The most contentious aspect was enabling third-party tokenization without requiring the company’s approval, meaning someone could create and trade a blockchain version of Tesla stock without Tesla’s involvement. Nasdaq and NYSE, along with other market participants, flagged risks of market fragmentation and uneven competition. Securitize President Brett Redfearn emphasized concerns about fragmentation arising from unregulated third-party tokenization. The SEC has not abandoned the proposal but has shelved it for further internal review, with no new timeline announced. Despite the delay, SEC Chair Gary Gensler has previously expressed support for tokenization, framing it as a natural evolution of capital markets. The postponement introduces uncertainty for investors, as the legal status of trading tokenized equities remains unclear without regulatory guidance. Projects and platforms developing under this framework must now wait for the SEC’s revised approach. The decision reflects broader tensions between crypto-friendly innovation and traditional market safeguards, leaving industry participants in limbo until further notice.