U.S. SEC to Again Delay 'Innovation Exemption' for Tokenization Amid White House and Wall Street Concerns

The U.S. Securities and Exchange Commission (SEC) is preparing to further delay its much-anticipated "innovation exemption" intended to accelerate the trading of tokenized securities, following concerns raised by both the White House and Wall Street over the proposal's legal foundation and potential market repercussions, according to three industry sources familiar with the matter.

The exemption — which had been expected to be released at least in part as early as this Friday — was designed to lower regulatory barriers for firms seeking to issue and trade tokenized securities on blockchain infrastructure under existing securities laws. Tokenization — the representation of traditional financial instruments such as bonds, equities, and fund shares on a blockchain — has drawn growing interest from major financial institutions; BlackRock launched its BUIDL tokenized money market fund on Ethereum in 2024, and firms including JPMorgan and Franklin Templeton have pursued similar initiatives. The SEC's exemption was viewed by the digital-assets industry as a potential catalyst for broader institutional adoption by clarifying how existing securities frameworks apply to on-chain issuance and trading.

The SEC had scheduled an open meeting this Friday to discuss its broader "Reg Crypto" rulemaking, a separate effort aimed at establishing rules for projects looking to raise capital using tokens. The commission was also expected to share details about the innovation exemption during the same meeting, though not through a formal notice-and-comment process. That Friday meeting was canceled late Thursday.

White House Concerns and Legal Authority Questions

According to one person familiar with the discussions, the White House expressed concern that the proposal could "kick a hornet's nest" while Congress continues to negotiate the Digital Asset Market Clarity Act, potentially complicating the advancement of broader crypto legislation. The Clarity Act, a bipartisan bill, aims to establish a divided regulatory framework for digital assets by drawing a line between securities and commodities and allocating oversight responsibilities between the SEC and the Commodity Futures Trading Commission (CFTC).

The same source indicated that SEC staff have grown increasingly focused on the agency's legal authority to grant such broad relief, including whether it has conducted sufficient economic analysis and followed the required procedural steps to justify an exemption. Industry insiders have been told that this initiative may need to await the outcome of the Clarity Act.

Wall Street Resistance Led by SIFMA

Opposition has also emerged from traditional financial institutions. SIFMA, the Wall Street trade group whose members include major broker-dealers and investment banks, has surfaced as one of the primary forces halting the SEC's initiative, according to an industry source familiar with the discussions. SIFMA did not immediately respond to a request for comment.

The group's concerns revolve around how blockchain-based trading venues would integrate with existing equity-market rules — particularly brokers' obligations to seek best execution for their customers, the source said.

Under the current market structure, Regulation NMS links prices across exchanges and generally requires brokers to execute trades at the best available protected quotation. That framework becomes significantly more complex if tokenized securities trade through decentralized venues or automated market makers (AMMs), where pricing and execution costs may diverge from those of traditional exchanges.

In June, the SEC proposed eliminating Rule 611 of Regulation NMS — commonly known as the Order Protection Rule — a move widely regarded as removing one of the largest regulatory obstacles to tokenized securities trading.

Source: CryptoNewsNet