Global Exchanges Warn: Crypto Exemptions Risk Market Integrity and Fair Play

The U.S. Securities and Exchange Commission (SEC) faces mounting pressure from global financial institutions to avoid granting broad regulatory exemptions to crypto platforms offering tokenized stocks, as concerns over market integrity and investor protection intensify. In a November 21 letter, the World Federation of Exchanges (WFE)-representing major exchanges like Nasdaq, Cboe, and CME Group-urged the SEC to reject requests for "innovation exemptions" that could allow crypto firms to bypass longstanding securities laws. The federation warned that such exemptions risk creating uneven playing fields, where unregistered platforms might siphon order flow from traditional exchanges while evading critical safeguards according to reports.

Tokenized stocks, which represent fractional ownership in traditional equities via blockchain technology, have drawn both interest and scrutiny. Proponents argue they could enhance trading efficiency and accessibility, but critics highlight risks like fragmented liquidity and inconsistent pricing. The WFE emphasized that tokenized stocks are "marketed as stock tokens or the equivalent to stocks when they are not," a distinction it views as critical to maintaining regulatory coherence. The federation supports the SEC's authority to grant exemptions but insists they must be "targeted" and consistent with public interest, not used to fast-track crypto platforms into roles akin to national exchanges without full compliance.

The SEC, under Chair Paul Atkins, has signaled openness to a "sandbox-style" framework that would allow temporary exemptions for crypto firms to pilot tokenized products under supervision according to reports. This approach aligns with broader efforts to position the U.S. as a global crypto hub. However, the WFE and other stakeholders caution that such a framework must avoid creating parallel market structures. "Broad or categorical exemptions risk weakening safeguards and fragmenting liquidity," wrote the Securities Industry and Financial Markets Association (SIFMA) in a November 26 letter to the SEC . SIFMA highlighted how recent crypto market collapses, such as the October 10 sell-off, underscore the dangers of unregulated leverage and lack of circuit breakers, contrasting them with the resilience of SEC-regulated equity markets.

The debate reflects a deeper tension between innovation and regulation. While the SEC's Crypto Task Force explores tailored exemptions, legacy exchanges and advocacy groups stress that core principles-such as fair access, transparency, and investor protections-must not be compromised. For instance, Robinhood's foray into tokenized stocks via European partnerships and Coinbase's pending SEC applications illustrate the growing appetite for blockchain-based trading according to reports. Yet, these initiatives face resistance from incumbents who view them as existential threats. "We should compete on a level playing field," said James Auliffe, head of the WFE's technology working group, emphasizing that tokenization's benefits must outweigh its costs.

The SEC's next steps will shape the future of tokenized markets. If the agency proceeds with its sandbox framework, it must balance fostering innovation with preserving market stability. Critics argue that even well-intentioned exemptions could erode trust in U.S. capital markets, where decades of regulatory guardrails underpin investor confidence. As SIFMA noted, "The strength of U.S. markets lies in their depth, liquidity, and reliability-qualities that cannot be sacrificed for the sake of speed or convenience" .