TD Cowen predicts limited investor interest in tokenized stocks despite SEC's new trading regulations, citing liquidity and operational challenges.
TD Cowen anticipates that demand for tokenized stocks will remain subdued despite recent regulatory changes from the Securities and Exchange Commission (SEC) that could facilitate trading beyond traditional markets.
Limited Investor Interest Expected in Tokenized Stocks, Says TD Cowen
The SEC has introduced an Innovation Exemption, which creates a five-year framework for trading tokenized securities in the U.S. This move is seen as a way to enhance the appeal of tokenized stocks, which have been gaining popularity over the past year. However, TD Cowen does not predict a significant influx of investors into this sector.
According to Reid Noch, the firm’s vice president of U.S. equity market structure, the current market for tokenized stocks is likely to remain small. He stated, “We expect limited near-term adoption among both domestic retail investors and institutions.” He emphasized that U.S. investors already have efficient access to the underlying shares, and tokenized platforms must offer clear advantages to overcome challenges such as liquidity issues and operational complexities.
The SEC’s framework allows trading through automated market makers (AMMs), which manage asset pools and set prices based on predefined rules. While this could enable continuous trading, Noch warns that low liquidity might lead to unfavorable pricing outcomes.
Furthermore, the SEC has outlined strict requirements for tokenized stocks, including the necessity for tokens to represent National Market System (NMS) stocks and to maintain associated rights, such as dividends and voting rights. Issuers must also be notified prior to trading, allowing them a 30-day period to object, which could hinder adoption compared to international tokenized stock offerings.
Interest from issuers appears to be minimal, with few expressing a desire to tokenize their stocks outside of specific crypto-related companies like Figure. Notably, Figure’s shares are traded traditionally, with 99.9% of its trading volume coming from its listed shares rather than its tokenized counterparts.
For crypto traders seeking exposure to stocks, the more significant threat to traditional markets may be from perpetual futures. TD Cowen noted that in a recent analysis, 96% of the notional volume related to Nvidia on Binance came from perpetual futures, indicating a strong demand for leveraged products.
