The U.S. Securities and Exchange Commission is preparing to advance a new regulatory framework for crypto-related investment contracts, a move that could bring traditional equities closer to the digital asset trading ecosystem. The agency may propose an exemption designed to enable round-the-clock trading of tokenized securities—an area where major financial institutions, including asset managers and investment banks, have already begun exploring blockchain-based settlement and issuance pilot programs.

A scheduled SEC meeting on Friday is expected to include discussion of the proposals. Individuals familiar with the matter indicated that details could be made public as early as Friday, though changes remain possible before any final release.

24/7 Tokenized Stock Trading in Focus

A tokenized stock represents a conventional company share issued in token form on a blockchain network. Because blockchain infrastructure operates continuously, tokenized securities could allow investors to trade equities outside of standard market hours—a capability particularly useful when significant financial disclosures occur during nighttime or weekend periods. Some offshore crypto exchanges have previously offered tokenized versions of U.S. equities, though those products operated without SEC endorsement and drew regulatory scrutiny.

The SEC had been expected to issue the exemption in May but deferred action after receiving comments from exchanges and public companies. The postponement underscores the regulatory challenge of fostering blockchain innovation while maintaining investor protections—particularly as tokenized real-world assets have grown into one of the most actively pursued use cases in digital finance.

Under the anticipated rulemaking, companies would gain greater control over third-party tokens representing their securities—tokens that are not issued by the underlying security's issuer. Security considerations also feature prominently in the proposed changes. The SEC may impose additional requirements aimed at preventing overseas malicious actors from exploiting blockchain technology, and certain trading platforms could be obligated to operate from within the United States.

"Companies need to play an active role in the process of tokenizing their shares," said Brett Redfearn, founder and CEO of tokenization firm Securitize and a former SEC official.

SEC Steps Forward as CLARITY Act Stalls in Congress

The SEC's regulatory push comes as the U.S. Congress continues to grapple with comprehensive digital asset legislation. The CLARITY Act, which seeks to establish a clear regulatory framework for the cryptocurrency market, failed to advance past the Senate due to an ethics issue involving government officials.

Senate Majority Leader John Thune is working to schedule a vote when lawmakers return from recess in September. However, the limited legislative calendar before the midterm elections adds further pressure to an already difficult timeline, creating an opening for the SEC to take the initiative and provide interim guidance.

Regulatory Action No Substitute for Congressional Legislation

Even if the SEC grants the exemption, the resulting regulations would not carry the same authority as legislation enacted by Congress. Jefferies analysts Andrew Moss and Aqil Taiyeb noted that while regulations can deliver clarity, they can also be reversed by a subsequent administration—a consideration that has loomed over SEC crypto policy across recent transitions.

From an investment perspective, SEC crypto regulations could ultimately permit tokenized stock trading on a continuous basis, similar to digital currencies. Nevertheless, the long-term development of tokenized securities will depend on the comprehensive crypto regulation that Congress ultimately passes.

The SEC's latest step could forge closer ties between Wall Street and crypto marketplaces, though the durability of those connections will require a firmer legislative foundation.

Source: Bloomberg