The CS Perspectives In the past quarter, if one had to pick the best-performing major asset class, Bitcoin, as an alternative asset, must be a strong contender. Bitcoin rebounded strongly from a low of USD 58,566 in early July to around USD 81,000 currently, representing an increase of approximately 40%. The digital and crypto asset market sentiment has warmed up, driven in part by evolving regulatory environments in major markets, including the U.S. SEC's recently announced pilot program for on-chain trading of tokenized stocks.
On September 17 this year, the U.S. Securities and Exchange Commission (SEC) announced an "innovation exemption," stating that a Tokenized Stock Venue (TSV) will not be considered a "securities exchange." In the U.S., becoming a stock exchange requires applying to the SEC and meeting various requirements such as capital adequacy and board independence, followed by years of approval processes before operations can commence. With this exemption, current crypto exchanges can begin trading tokenized stocks simply by providing a 30-day public notice and informing the SEC.
The SEC stipulates that tokenized stocks under the pilot program have full parity with underlying stocks in rights such as dividends and voting, and fractional share trading is allowed—meaning investors don't need to buy whole shares. As transactions occur on-chain, investors can store tokenized stocks in their personal wallets and private keys, without relying on brokerage custodial accounts, and can trade 24/7. These provisions are particularly beneficial for investors, especially those outside the U.S. and retail investors. Key restrictions include that the tokenized trading venue must be a U.S. company, and tokenization of stocks must be confirmed by the stock issuer (public company), which retains the right to object to its own stock being tokenized.
Of course, although regulators have given the green light to tokenized stock trading, the most important factor for any exchange remains sufficient liquidity and participation. On the supply side, any stock can be tokenized as long as the public company does not object, so variety won't be an issue. The key factor remains investor participation. Currently, the SEC has set two trading volume limits for tokenized stock trading: for highly liquid stocks such as index components and ETFs, daily trading volume of tokenized stocks cannot exceed 0.25% of the stock's average daily trading volume in the previous month; for other stocks, tokenized trading cannot exceed 2.5% of the prior month's average daily volume. We believe these volume limits will significantly constrain demand from large institutional investors for tokenized stocks, potentially attracting more long-tail retail investors instead. Under these current restrictions, whether sufficient retail participation can be attracted to generate adequate liquidity will be the main factor determining whether tokenized stock trading gains traction.
The announcement of the SEC's "innovation exemption" directly benefits three main areas: first, on-chain exchanges, which may soon launch tokenized stock trading and create some competition with traditional stock exchanges; second, trading entities that can provide liquidity and order flow, including certain online brokers, some of which have already made early moves in tokenized stock trading; and third, on-chain trading infrastructure and conduit providers, including blockchain technology service providers and stablecoin companies. There are already sizable public companies in these three areas, worth investor attention. Chen Yalei, Head of Research, CCB International
*The content of this article represents only the author's personal views and does not reflect the position or opinions of Huaxing Capital, and is provided for readers' reference only, and does not constitute any investment analysis or investment advice.
*The signed and/or unsigned articles published in ET Net represent the authors' personal opinions and do not reflect ET Net's position. ET Net serves as a platform providing free speech.
On September 17 this year, the U.S. Securities and Exchange Commission (SEC) announced an "innovation exemption," stating that a Tokenized Stock Venue (TSV) will not be considered a "securities exchange." In the U.S., becoming a stock exchange requires applying to the SEC and meeting various requirements such as capital adequacy and board independence, followed by years of approval processes before operations can commence. With this exemption, current crypto exchanges can begin trading tokenized stocks simply by providing a 30-day public notice and informing the SEC.
The SEC stipulates that tokenized stocks under the pilot program have full parity with underlying stocks in rights such as dividends and voting, and fractional share trading is allowed—meaning investors don't need to buy whole shares. As transactions occur on-chain, investors can store tokenized stocks in their personal wallets and private keys, without relying on brokerage custodial accounts, and can trade 24/7. These provisions are particularly beneficial for investors, especially those outside the U.S. and retail investors. Key restrictions include that the tokenized trading venue must be a U.S. company, and tokenization of stocks must be confirmed by the stock issuer (public company), which retains the right to object to its own stock being tokenized.
Of course, although regulators have given the green light to tokenized stock trading, the most important factor for any exchange remains sufficient liquidity and participation. On the supply side, any stock can be tokenized as long as the public company does not object, so variety won't be an issue. The key factor remains investor participation. Currently, the SEC has set two trading volume limits for tokenized stock trading: for highly liquid stocks such as index components and ETFs, daily trading volume of tokenized stocks cannot exceed 0.25% of the stock's average daily trading volume in the previous month; for other stocks, tokenized trading cannot exceed 2.5% of the prior month's average daily volume. We believe these volume limits will significantly constrain demand from large institutional investors for tokenized stocks, potentially attracting more long-tail retail investors instead. Under these current restrictions, whether sufficient retail participation can be attracted to generate adequate liquidity will be the main factor determining whether tokenized stock trading gains traction.
The announcement of the SEC's "innovation exemption" directly benefits three main areas: first, on-chain exchanges, which may soon launch tokenized stock trading and create some competition with traditional stock exchanges; second, trading entities that can provide liquidity and order flow, including certain online brokers, some of which have already made early moves in tokenized stock trading; and third, on-chain trading infrastructure and conduit providers, including blockchain technology service providers and stablecoin companies. There are already sizable public companies in these three areas, worth investor attention. Chen Yalei, Head of Research, CCB International
*The content of this article represents only the author's personal views and does not reflect the position or opinions of Huaxing Capital, and is provided for readers' reference only, and does not constitute any investment analysis or investment advice.
*The signed and/or unsigned articles published in ET Net represent the authors' personal opinions and do not reflect ET Net's position. ET Net serves as a platform providing free speech.
