SEC readies tokenized-stock "innovation exemption" plan, unsettling traditional exchanges
The U.S. Securities and Exchange Commission is expected this week to formally roll out an "innovation exemption" framework that would let third parties tokenize U.S.-listed shares such as Apple and Tesla without needing permission from the issuers.
Bloomberg reported on May 18 that the initiative draws on a deregulation-oriented agenda floated in February by pro-crypto commissioners Paul Atkins and Hester Peirce. Coinbase and the Blockchain Association have previously backed the idea in formal letters, urging regulators to allow third-party tokenization.
Market expectations were tempered by Peirce's May 22 guidance, which took a narrower approach. It applies only to onchain equity instruments that fully preserve shareholder rights, and it explicitly excludes synthetic stock tokens that do not confer voting or dividend rights.
Traditional finance views the main consequence of tokenized stocks as market "fragmentation," posing two risks.
First is liquidity fragmentation. If the same stock is tokenized across multiple blockchains and decentralized venues, order flow that once concentrated on NYSE or Nasdaq could be split across many platforms. That dispersion can widen price gaps between venues, increase slippage for large orders, and weaken overall market efficiency.
Second is revenue fragmentation. As trading activity spreads, fees and intermediary income that historically accrued to domestic exchanges may migrate to overseas or competing platforms, with potential implications for national financial competitiveness.
Tiger Research points to South Korea as a cautionary example. Hong Kong-based asset manager CSOP created the SK Hynix 2x Leveraged ETF, which has grown into the world's largest single-stock leveraged ETF, with assets topping 11 billion KRW (about $8 billion). The report argues that if South Korea had launched similar products first via a regulatory sandbox, the management fees and related financial revenues could have stayed onshore.
The report likens the traditional exchange model to a dominant supermall where buyers and sellers gather in one place and the operator captures transactions and fees. Tokenized stocks resemble thousands of street stalls outside the mall, where trading can occur without centralized permission. The result is thinner liquidity at each venue, tougher execution for large trades, and fees spread across many channels.
The report warns that if local exchanges move slowly due to regulatory constraints, platforms in other jurisdictions could capture global capital flows and intermediary revenues.
Signs of fragmentation are already emerging. On May 18, the same day the SEC signaled the framework, open interest in real-world assets (RWA) on the decentralized platform Hyperliquid exceeded $2.6 billion, a record high. With demand rising for 24/7 onchain trading of traditional assets, RWA activity on perpetual DEXs is expected to expand further.
Regulators and financial institutions face a strategic choice: build tokenized-market infrastructure through partnerships, as the New York Stock Exchange has done, or press for tighter limits to defend incumbent revenues. Regulators must balance innovation speed with the risk that domestic fee pools are siphoned off by offshore venues.
Even with an official rollout, the report says the main conflicts are only beginning. Key issues include a renewed "clarity" fight over shareholder rights and how to bring gray-area platforms such as Hyperliquid into the regulatory perimeter. If treated as unlicensed exchanges, enforcement actions could trigger fresh liquidity disruptions and uncertainty.
In the digital-asset era, Tiger Research concludes, institutions and jurisdictions that hesitate risk permanently losing long-standing fee monopolies and financial leadership as capital disperses across an expanding set of venues.
