SEC delays tokenization exemption after Wall Street, White House pushback

The SEC is set to further delay its planned innovation exemption for tokenized securities after opposition from the White House and Wall Street, three industry sources said.

The exemption, expected as soon as this Friday, would have eased rules for firms issuing and trading tokenized securities on blockchain rails under existing securities laws. The SEC had scheduled an open meeting this Friday to discuss its separate "Reg Crypto" rulemaking and planned to share details on the innovation exemption at the same session. The commission canceled that meeting late Thursday.

One person familiar with the discussions said the White House worried the proposal could "kick a hornet's nest" while Congress is still negotiating the Digital Asset Market Clarity Act, potentially complicating broader crypto legislation.

The source also said SEC staff have focused on the agency's legal authority to issue such relief, including whether it completed sufficient economic analysis and followed required procedural steps. Industry insiders have been told the effort may need to wait for the Clarity Act's outcome.

SIFMA, the Wall Street trade group whose members include major broker-dealers and investment banks, emerged as one of the main groups blocking the initiative, according to an industry source familiar with the discussions. SIFMA did not immediately respond to a request for comment.

The group centered its concerns on how blockchain-based trading venues would fit within existing equity-market rules, particularly brokers' obligations to seek best execution for customers, the source said.

Under 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 less straightforward if tokenized securities trade through decentralized venues or automated market makers, where pricing and execution costs may differ from traditional exchanges.

In June, the SEC proposed eliminating Rule 611 of Regulation NMS – the Order Protection Rule – a move widely seen as removing one of the biggest regulatory obstacles to tokenized securities trading.

SIFMA has also argued that broader market-structure changes should not be implemented through exemptions or no-action relief, which had been the plan for the SEC's limited tokenization regime.

In a June 30 letter to the SEC, SIFMA said "these types of significant structural changes should be considered and made through an open and transparent process" that allows for public notice, comment and industry participation.

An SEC spokesperson didn't immediately respond to questions about the timing of the new crypto policy.

The SEC previously seemed ready to release the exemption in May of this year, after repeatedly pushing back its self-imposed deadline. At the time, the proposal could have allowed security token issuers to offer assets without necessarily controlling the underlying security.

The possibility that the innovation exemption could allow synthetic security tokens sparked concerns from companies that issue securities.

The SEC ultimately did not release the proposal. Commissioner Hester Peirce told CoinDesk at the time that she did not expect the innovation exemption to include these synthetic tokens. In a social media post, she added that she expected the exemption to allow tokens that "would facilitate trading only of digital representations of the same underlying equity security that an investor could purchase."

The delay comes as tokenization has emerged as one of crypto's fastest-growing trends, drawing Wall Street's attention with the prospect of moving stocks, bonds and funds onto blockchain rails. Exchange giants like the Nasdaq and New York Stock Exchange have unveiled plans for tokenized securities infrastructure, while the Depository Trust & Clearing Corporation processed its first series of live production trades with tokenized securities last month as part of a test phase.

It is potentially a huge market: analysts at Citigroup projected tokenized assets could become a $5.5 trillion market by 2030.

The SEC, under chairman Paul Atkins, has increasingly signaled support for tokenization, framing blockchain rails as a way to modernize financial markets. Debate continues over how those financial assets may come onchain and how blockchain-based markets can fit into the existing U.S. market structure and securities rules.