Crypto firms must not ‘bypass’ regulations, exchanges warn SEC – Why?

Key Takeaways

What is the main fear about tokenized stocks?

They fear granting exemptions would allow crypto firms to bypass rules, resulting in investors getting stock exposure without crucial legal protections of direct ownership.

Which major group is leading the opposition?

The World Federation of Exchanges (WFE) includes exchanges like Nasdaq and Deutsche Börse.

Global stock exchanges are strongly resisting the push by crypto firms to sell “tokenized” stocks to retail investors.

Global stock exchanges vs. the SEC

A coalition, including major U.S. players, formally warned the SEC that granting special regulatory exemptions to these crypto companies would harm everyday investors and compromise market integrity.

In a letter this week, the exchanges opposed the SEC’s potential plan to grant exemptions allowing non-broker-dealer crypto platforms to sell tokens linked to listed equities.

They argue this would let firms “bypass” decades-old rules, offering stock exposure without the crucial legal protections of direct ownership, despite crypto proponents arguing the move is necessary for innovation.

For those unaware, the conflict is focused on the SEC’s proposed “innovation exemption,” which Chair Paul Atkins suggests would give crypto firms relief from existing securities laws to test new business models.

World Federation of Exchanges stands in opposition

However, the World Federation of Exchanges (WFE), including Nasdaq and Deutsche Börse, strongly opposes the relief.

Remarking on the same, WFE CEO Nandini Sukumar urged the SEC, noting, 

“The SEC should avoid granting exemptions to firms attempting to bypass regulatory principles that have safeguarded markets for decades.”

The group argues the exemption risks market integrity and investor protection by allowing unregulated platforms to compete directly with established, compliant exchanges.

The debate’s core involves tokenized equities, crypto tokens pegged to listed stocks.

Crypto firms promote them for easier stock exposure, but the WFE is concerned they lack the fundamental investor protections of owning shares through a registered broker-dealer.

This domestic SEC conflict mirrors a larger global regulatory challenge.

The WFE argues that without a “level playing field” and adherence to the same rules, exemptions create a two-tiered market that compromises investor safety.

James Auliffe of the WFE added that since current equity markets are “very, very efficient,” traditional exchanges have not yet found clear benefits that outweigh the costs of shifting stock trading onto the blockchain.

“We and the crypto platforms should be competing on a level playing field; we should be subject to the same rules.”

What’s more?

This coincided with the Financial Stability Board (FSB) recently warning that uneven global crypto regulation poses a significant risk to financial stability.

Despite progress in regions like the U.S. (with the GENIUS Act for stablecoins) and the EU (MiCA), the FSB notes that the global response remains fragmented, with few jurisdictions fully implementing its 2023 recommendations.

With the stablecoin supply hitting a record $302 billion, the FSB calls 2026 a “critical deadline” to close these gaps.

Ultimately, whether domestic or global, the challenge is ensuring that digital assets are integrated with uniform, strong regulatory safeguards.