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Tokenized Stock Trading Has Been a Big Hit Overseas. So Why Are Some Publicly Traded Companies in America Objecting?
Key Points
Tokenized stocks can be much easier to trade than conventional stocks.
But companies don’t want their shares to be tokenized without their consent.
Robinhood (NASDAQ: HOOD) launched tokenized stock trades in over 120 countries this year, but that new feature hasn't been approved in the U.S. yet. Let's see what tokenized stocks are -- and why some big companies in the U.S. are opposed to the tokenization of their shares.
What are tokenized stocks?
Tokenized stocks are tokens on a blockchain that represent ownership of a conventional stock. These tokens can be traded 24/7 without going through traditional brokerages and can easily cross international borders.
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They can be quickly split into fractional shares and integrated into decentralized finance (DeFi) applications through smart contracts. Blockchain-based transactions are also audited in real time to reduce settlement failures, administrative fraud, and hidden discrepancies.
Why are some companies opposed to tokenized stocks?
Tokenized stocks have clear advantages over conventional stocks, but they don't give investors any voting rights or pay direct cash dividends. That's because investors don't legally own the underlying shares, which are held by a custodian bank in a segregated account.
A growing list of large companies -- including Microsoft, Verizon, and McDonald's -- have filed to bar their shares from being tokenized. They argue that trading platforms don't have the right to issue synthetic versions of their shares without their express consent, that they compromise investor safety, and that they interfere with corporate governance by obfuscating stock ownership. Traditional brokerages, which act as the middlemen for stock trades, also oppose that "permissionless" tokenization.
But could tokenized stocks arrive in the U.S. soon?
In September, the Securities and Exchange Commission (SEC) issued an "innovation exemption" that allowed qualifying platforms -- including Robinhood -- to trade tokenized stocks in the U.S. for up to five years without registering as a stock exchange.
However, the SEC exemption requires that all tokenized shares provide investors with the same rights and privileges as conventional shares -- including cash dividends and voting rights. The trading venue must also issue notices to companies before tokenizing their shares, and companies can block tokenization by filing objections within 30 days.
Considering that nearly two dozen major companies -- most of which are prominent components of the S&P 500 (SNPINDEX: ^GSPC) -- oppose tokenized stocks, it seems doubtful that Robinhood will bring that feature to its domestic investors anytime soon. However, investors should still keep an eye on its overseas growth -- since it could expand Robinhood's total addressable market, boost its per-user revenue, and widen its moat against conventional brokerages.
Leo Sun has positions in Verizon Communications. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Robinhood Markets and Verizon Communications and recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.