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Happy Thursday, advisors!

In today’s newsletter, Alex Tapscott of CMCC Global Capital Markets on the rules regulators are writing while Congress stalls, and how long that can hold.

Then, in “Ask an Expert,” Leo Mindyuk of ML Tech on what a client owns when they buy a tokenized stock.

The CLARITY Act failed. Regulatory clarity arrived anyway.

Regulators have provided what Congress could not, providing a short-term boost and creating a longer-term risk.

On Sept. 15, the U.S. Senate had a chance to take a major step toward setting the rules of the road for digital assets and, by extension, the digital economy we are now entering.

The CLARITY Act failed to advance, meaning a comprehensive legislated framework for digital assets — including tokenized money, stocks, bonds, deeds and other assets — and the exchanges, brokers, issuers and intermediaries that deal in them would have to wait.

CLARITY would have strengthened American leadership, benefited the American consumer and, as I argued in CoinDesk not long ago, given banks and other legacy enterprises a clear path to invest, build, compete — and perhaps even win the future of financial services.

There is nothing so powerful as an idea whose time has come. For now, that time has not arrived. But as Congress closed a door, regulators opened a window.

Both the SEC and CFTC moved with remarkable speed. Just two days after CLARITY failed, the SEC issued an “Innovation Exemption” allowing certain venues to trade tokenized U.S.-listed stocks onchain using automated market makers and liquidity pools. Chairman Paul Atkins called it a “bridge toward durable rulemaking.”

The CFTC has also been stripping away practical barriers, providing relief to certain software providers and updating guidance around tokenized investments and blockchain-based recordkeeping.

Congress declined to build the bridge, so regulators like Atkins have started laying planks themselves.

The question now is whether regulatory clarity can substitute for legislative clarity — and, if so, for how long.

Perhaps regulators recognize something Congress has yet to fully accommodate: the genie is already out of the bottle.

New technologies generally need three things to achieve mass adoption: technology that works, products people want and a regulatory environment that allows companies to build. Crypto increasingly has the first two. Regulators are now attempting to provide the third.

The technology is ready for prime time. Solana, for example, can handle the same transaction volume as the equity, fixed-income and foreign exchange markets combined. Platforms like Hyperliquid, which provide real-time, 24/7/365 trading in virtually any market, are beginning to eat into traditional commodities futures markets.

There is also clear product-market fit. Stablecoins are crypto’s first killer app, but they won’t be its last. Once the world gets its hands on digital money, the next thing people will want is a way to save, earn and invest with that money. Tokenized stocks and bonds, along with convenient and easy-to-access onchain markets, will fill that role, and we haven’t even discussed the explosive upside of agentic commerce happening with digital assets.

The missing ingredient to unleash this capability truly has been regulatory clarity.

CLARITY was supposed to be the watershed: the moment crypto companies, banks and others could compete on a level playing field, knowing the rules of the road.

But there is an important difference between regulatory permission and legislative certainty. Regulators can tell companies what they may do today. Legislation provides greater protection against a future administration deciding something different tomorrow.

That distinction matters enormously to a bank, exchange or asset manager committing billions of dollars to infrastructure that may take a decade to pay off.

The future, however, is not something to be predicted. It is something to be achieved.

The key question is how much work can get done in the next two years.

This is an opportunity for the industry to create facts on the ground: products consumers actually use, infrastructure financial institutions depend upon, businesses that employ people and invest capital, and markets that demonstrably work better than what came before.

The deeper blockchain becomes embedded in the productive economy, the harder it will be for any future government — Democratic or Republican — to justify turning back the clock.

That opportunity could still be squandered. If the crypto industry spends this window chasing the same short-term gains that defined past cycles or continues to politicize the technology and alienate those with whom it disagrees, a historic economic opportunity could be lost.

Stripe, Circle, Robinhood and other innovators are unlikely to wait. Incumbent financial institutions face a harder choice: wait for Congress to provide the certainty they would prefer or move under the certainty regulators can provide currently.

Waiting may feel prudent. It may prove considerably riskier.

CLARITY didn’t happen. But clarity, of a sort, is emerging anyway.

The window is open. The industry should push through as many useful innovations and products as it can.

- Alex Tapscott, CEO, CMCC Global Capital Markets

Ask an Expert

Q: What does the SEC's five-year "Innovation Exemption" change after CLARITY stalled?

A: The SEC has opened a pathway for eligible tokenized U.S.-listed stocks to trade onchain through automated liquidity pools. Qualifying venues don't have to register as exchanges, and certain liquidity providers receive dealer-registration relief for covered activities. Trading is limited to identity-verified participants. The order followed CLARITY’s failed procedural Senate vote by two days. Its scope is narrower than the proposed legislation, which also addresses tokenized securities. It allows a specific market model to develop under existing SEC authority.

It's also a deliberately limited test. Trading is capped at a small fraction of each stock's normal volume, and margin isn't allowed. The relief lasts five years, but the SEC can modify its terms or duration.

Advisors should treat this as a limited market test and require evidence that a product improves access or execution at their clients’ actual trade sizes.

Q: If a client buys a “tokenized stock,” what do they actually own?

A: Some products marketed as “tokenized stocks” provide synthetic exposure to a stock’s returns without conveying shareholder rights. Payments that mirror dividends don't make the holder a shareholder. The SEC's new exemption sets a useful test. To trade on these venues, a token has to carry the same rights as the underlying share: the same dividends, the same votes and the same claim on the company's assets in a liquidation. Synthetic exposure doesn't qualify. If a third party tokenizes a company's stock without the company's involvement, it has to deliver proxy materials to holders. The company also gets 30 days' notice and can block trading on that venue.

Advisors should read the documents that set out the client's rights. Check how dividends and votes actually reach the client. Identify whether the token represents direct ownership, an indirect interest in shares held in custody or a contractual claim tied to the stock’s returns. Most important, find out what the client can claim if the tokenization provider fails. Is the client recorded as a shareholder with the transfer agent, or do they hold a claim against a custodian or a special-purpose vehicle?

Q: After verifying the rights, what should advisors test before allocating?

A: I would compare the tokenized share with the conventional share at the client’s actual trade size, including fees and price impact. Check price deviations from the conventional share during stress. In a liquidity pool, the displayed price is only a starting point: an order can move the price by changing the pool’s asset balances. Who supplies that liquidity, and can they keep doing so during volatility?

Then examine custody, transfer restrictions and the documented exit process if a venue closes or the tokenization arrangement ends. Require evidence of a specific benefit. For example, better access, lower total trading costs or settlement that makes funds available sooner. Those benefits should justify the added operational risk and fit the client’s investment objectives.

Keep Reading

  • The UK's Financial Conduct Authority opens its crypto authorization gateway. Firms have until Feb. 28, 2027, to apply for licenses covering stablecoin issuance, trading, custody and staking, ahead of the full regime launching October 2027.
  • Morgan Stanley sets up a Digital Asset Lab to test stablecoins, tokenization and DeFi applications, giving employees a dedicated facility to explore blockchain technology without risk to the bank's core systems.
  • Robinhood will offer weekend trading in select U.S. stocks and ETFs, filling in the remaining gap after launching its 24 Hour Market in 2023.

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