Regulatory Battle Over Tokenized U.S. Stocks Escalates, HSBC Says
HSBC reports that the policy fight over regulating tokenized U.S. equities has intensified, with decentralized finance (DeFi) increasingly in the spotlight as traditional finance (TradFi) and crypto sectors clash.
Citadel Securities has urged the U.S. Securities and Exchange Commission (SEC) to impose exchange obligations on DeFi trading protocols, cautioning that exemptions could lead to a weaker parallel market. In a 13-page letter to the SEC, Citadel argues that many DeFi trading protocols meet the legal definition of exchanges and should be regulated accordingly. Broad exemptions risk enabling regulatory arbitrage and the creation of a shadow market with diminished investor protections.
The SEC Investor Advisory Committee has displayed divergent perspectives on overseeing on-chain equities trading. SEC Chair Paul Atkins emphasizes the importance of compliant pathways, whereas Commissioner Caroline Crenshaw warns about the attendant risks.
From the industry side, Coinbase's Scott Bauguess advocates for regulatory rules tailored specifically to decentralized exchange models. He proposes a sandbox approach that would allow tokenized equity platforms to operate under constrained conditions, enabling regulators to test the boundaries of this new technology.
Tokenization—converting ownership of real-world assets into digital tokens recorded on blockchain—could see equity trading migrate toward fully permissioned and regulated blockchains as regulatory frameworks evolve. HSBC foresees significant market growth and increasing stakes in this space as these developments progress.
