Under the SEC exemption, a tokenized National Market System stock must grant its holder the same rights and privileges as the matching traditional share. Kan said those protections include an economic interest in the company, dividends, voting power and rights during liquidation.
Synthetic exposure does not qualify under the exemption. An issuer can also object if an unrelated third party tries to tokenize its shares, giving listed companies some control over how their securities appear in blockchain-based markets.
Investor rights separate tokenized stocks from price trackers
Instead of dividing the market into U.S. and offshore products, Kan said investors should examine what each token represents under the law. Two products can track the same listed company while giving their holders very different claims.
One token may represent a direct or beneficial interest in shares held through a regulated structure. Another may function as a contract with an intermediary that promises to follow the stock’s price without making the buyer a shareholder.
The difference can determine whether a holder receives dividends, can vote on company matters or has a claim on assets if the issuer is liquidated. Counterparty exposure may also enter the arrangement when the investor’s claim depends on a platform, custodian or special-purpose entity.
A Sep. 11 examination of tokenized ownership structures found that products can represent direct shares, custodial claims or synthetic contracts. Company rules, securities laws and underwriter restrictions may still limit transfers even when a token moves freely between blockchain addresses.
Kan said many crypto-native products outside the United States provide price exposure or a contractual claim against an intermediary. Under the SEC pathway, an approved NMS stock token must instead preserve the rights carried by the conventional security.
Coinbase CEO Brian Armstrong made a similar distinction on Sep. 14 when he said the exchange’s stock tokens use real securities rather than synthetic assets or debt instruments. Coinbase holds the underlying shares through an offshore special-purpose company and a regulated U.S. broker, according to a report on its fully backed stock tokens.
Verified holders can request redemption of the underlying shares, while dividend proceeds are generally reinvested after taxes and fees. Coinbase’s products, however, remain unavailable to U.S. persons and are not registered under the U.S. Securities Act.
Tokenized stocks can improve access without changing ownership
For eligible users, Kan identified self-custody, fractional ownership, continuous trading and almost immediate settlement as possible benefits. The SEC has also listed such features among the potential gains from moving securities onto blockchain systems.
Trading a stock token around the clock could reduce the limits imposed by regular exchange hours, while fractional units could let investors purchase smaller portions of high-priced shares. Blockchain settlement may also shorten the time between a completed trade and the final transfer of ownership.
Yet Kan cautioned that tokenization alone does not produce a better investment product. A system may use blockchain records while keeping strict permission controls, thin liquidity and several intermediaries between the investor and the underlying share.
“If access remains heavily permissioned, liquidity is shallow and users still face multiple intermediaries, blockchain may mainly modernize the back end without materially changing the front-end experience,” Kan said.
For investors, the practical test is whether the structure reduces the work involved in settlement, record reconciliation and product distribution. Moving a stock record onto a blockchain without removing those costs would change the technology supporting the market but leave the customer experience largely intact.
The ownership record forms another part of the issue. On Sep. 1, the SEC proposed updates to federal transfer-agent rules and forms, which have not received a substantial revision since the late 1970s and early 1980s, according to the agency.
A recent report on blockchain ownership records explained that transfer agents could use distributed-ledger systems as an official record under the proposal. The rule would not automatically turn every stock-linked token into a legal share or give its holder shareholder rights.
The SEC exemption gives institutions room to test products
For banks, brokerages, trading venues and blockchain providers, Kan described the exemption as operational clarity rather than permanent legal certainty.
The order expires five years after publication. It also contains limits covering trading symbols and volume, remains subject to modification and is designed to provide information for later SEC rulemaking.
Those terms give institutions enough regulatory space to develop pilot programs, connect existing systems and test modular infrastructure, Kan said. Firms committing capital over longer periods will still distinguish between a temporary exemptive order and requirements placed in final agency rules or federal law.
The distinction matters for U.S. investors because the SEC is using its authority over securities already covered by the Exchange Act. The agency does not have to wait for Congress to settle every dispute over the classification of crypto assets before testing blockchain systems for instruments that are already treated as securities.
Kan said the approach separates statutory reform from agency-led changes to market structure. Congress can write laws covering the treatment of digital assets across several markets, while the SEC can act within its existing securities mandate.
Congress has left the SEC to use its existing authority
The exemption arrived two days after the Senate failed to advance the Digital Asset Market Clarity Act, or CLARITY Act, during a Sep. 15 procedural vote.
The bill sought to establish a federal market structure for digital assets and divide regulatory responsibilities between the SEC and the Commodity Futures Trading Commission. Its failure did not remove the SEC’s authority over products already classified as securities.
A 50-49 Senate vote left the bill 10 votes short of the 60 required to invoke cloture and open formal debate. Clearing the motion would not have passed the legislation; it would only have allowed senators to begin considering the House-approved measure and possible amendments.
All participating Democrats opposed cloture. Republican Sens. Susan Collins, Josh Hawley, Jerry Moran, and Thom Tillis also voted against the motion, with Tillis changing his vote for procedural reasons that preserved the option to request reconsideration.
