Hannah Lang
3 min read
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By Hannah Lang
(Reuters) -Coinbase is seeking a green light from the U.S. Securities and Exchange Commission to offer "tokenized equities" to its customers, the crypto exchange's chief legal officer told Reuters.
If granted, the move would allow Coinbase to effectively offer stock trading via blockchain technology, placing it in direct competition with retail brokerages such as Robinhood and Charles Schwab, and could open a new business segment for Coinbase.
The concept is a "huge priority," said Paul Grewal, Coinbase's chief legal officer.
Tokenizing equities is a process in which shares of a company are converted into a digital token, similar to how cryptocurrencies are traded. Instead of holding the securities directly, investors hold tokens that represent ownership of the securities.
Proponents have said that tokenized equities could reduce trading costs, enable faster settlement, and facilitate around-the-clock trading.
Critics have said there are plenty of gaps that need to be addressed before tokenized equities can be commonly traded. The World Economic Forum, in a report last month, pointed to a lack of sufficient secondary-market liquidity as well as the lack of a clear global standard as two major challenges for adoption.
An SEC representative did not immediately respond to a request for comment.
Currently, tokenized equities are not available for trading in the United States, but several firms are experimenting with the concept. Rival crypto exchange Kraken said last month that it is launching tokens of U.S. equities, called xStocks, which will be available in select markets outside the United States.
To offer tokenized equities in the United States, Coinbase would either need to be granted a "no action letter" or exemptive relief from the SEC, in which the securities regulator would pledge not to pursue an enforcement action if Coinbase moved forward.
Typically, companies that offer trading in securities have to be registered as broker-dealers. The SEC sued the company in 2023 during former President Joe Biden's administration, alleging that it was operating as one without registering with the agency. The SEC under President Donald Trump's administration dropped that case this year.
Coinbase acquired a broker-dealer in 2018, providing it with a license to offer similar services, but that affiliate has not been active.
A no-action letter would be issued by SEC staff in response to a request from a company like Coinbase, saying that the SEC would not object to a certain offering and would not recommend an enforcement action if a firm were to move forward with that offering.
