Why this investment bank expects little demand for tokenized stocks despite SEC’s new trading rules

Last week the Securities and Exchange Commission established a temporary five-year Innovation Exemption intended to let qualifying tokenized securities venues operate automated market maker (AMM) pools without registering as national exchanges. The exemption also includes conditions under which certain liquidity providers can avoid dealer registration. The move followed the failure of the CLARITY Act to advance, leaving broader crypto market-structure legislation unresolved. TD Cowen, however, expects demand for tokenized stocks in the U.S. to remain modest in the near term. In a research note, Reid Noch, the firm's vice president for U.S. equity market structure, argued that American investors already have efficient access to underlying shares and that tokenized venues must provide a clear advantage to overcome limited liquidity and extra operational complexity. Noch highlighted that round-the-clock trading via AMMs does not guarantee better execution if pools are thin. The SEC’s framework imposes a number of constraints intended to protect the economic equivalence of tokenized shares and limit risks. Tokens must correspond to NMS-listed stocks and preserve economic interests including dividends, voting, and liquidation rights. Third-party tokenizers are required to notify the issuer prior to trading and issuers have a 30-day window to object. Trading volumes for tokenized shares are also capped, which TD Cowen says could make the U.S. approach harder to adopt compared with tokenized offerings available overseas. Issuer appetite is another hurdle identified by TD Cowen. The firm reported that discussions with dozens of issuers, including those with retail-heavy bases, revealed little interest in tokenizing equity outside of crypto-oriented companies like Figure. TD Cowen examined Figure’s dual-listed structure—traditional Nasdaq shares alongside blockchain-native shares with equivalent economic exposure—and found that nearly all trading notional (99.9%) occurred on the traditional listed shares during the sampled 24-hour period. Finally, TD Cowen pointed to derivatives as the more prominent source of crypto-linked stock exposure today. Using a Binance snapshot, the firm observed that 96% of Nvidia-related notional volume came from perpetual futures while only 4% was from spot products. Noch wrote that perpetual futures represent a stronger demand story given retail interest in leveraged products and that platforms are likely to continue expanding those offerings globally and domestically.