Tokenization is set to change stock trading. These stocks could get a boost
New permissions from the Securities and Exchange Commission allowing for the trading of tokenized stocks has Wall Street eyeing big gains in different segments of the financial sector. The SEC on Thursday created a temporary regulatory path for certain entities to issue tokenized stocks — which are facsimiles of traditional company shares that can be traded on a blockchain network, similar to cryptocurrencies. Blockchains are digital record systems that use encryption to maintain their accounts rather than a central record-keeping authority like a bank. The news fueled sharp gains for crypto-exposed stocks on Friday. Robinhood jumped more than 7%, while Coinbase and Strategy advanced 10% and 12%, respectively. COIN 5D mountain COIN 5 day “The benefits extend well beyond faster settlement,” Peter Christiansen at Citi wrote in a Thursday note. “At scale, tokenization has the potential to reshape how securities are issued, owned, transferred, financed, and distributed across global capital markets.” Institutional investors, asset managers and stock brokers are all listed by Christiansen as potential beneficiaries of the new tokenization permissions, as are retail shareholders, who could gain from lower minimum entry requirements. “Tokenization could reduce minimum investment sizes, improve access to U.S. securities globally, [and] enable fractional ownership,” he wrote. The rule change follows the stalling out of the Clarity Act in Congress this week, which would have allowed for some stablecoins to generate interest , potentially taking deposits away from banks. The SEC rule — along with a similar rule from the Commodity Futures Trading Commission announced Thursday that restricts enforcement on access to digital assets — comes as something of a consolation prize for the crypto industry, but one that Wall Street still thinks is worth having. “Like the SEC exemption, the relief [from the CFTC] is targeted rather than comprehensive, but reinforces our view that agencies can continue removing barriers to new digital-asset business models even without CLARITY,” Felix Stratmann at Morgan Stanley wrote in a Thursday note. More programmable trading Tokenized stocks can be programmed into trading algorithms in a more direct way than some regular securities, although most stock trading is already carried out by algorithms. The London School of Economics notes that between 60% and 70% of all stock trading is now done algorithmically. This means that exchanges facilitating these more easily programmable trades could become more valuable as a result of the new SEC rules, which agency labels an “innovation exemption.” “We believe the leading beneficiary of the Innovation Exemption is [ Bullish ],” Ed Engel at Compass Point wrote in a Friday note to clients. “With its pending acquisition of Equiniti (#2 transfer agent) BLSH can cross-sell tokenization services such as [automated market maker] liquidity. These liquidity services are 7-figure deals, implying a ~$300m revenue opportunity if BLSH cross-sells 10% of Equiniti’s 3,000 customers.” Other stocks mentioned by Engel that stand to benefit from increased tokenization include Robinhood , Coinbase , Circle Internet , BitGo , Exodus Movement and DeFi Technologies . Morgan Stanley also like Robinhood, Coinbase and Gemini Space Station .
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