The SEC has opened a five-year route for tokenized U.S. stock trading, but TD Cowen has found that domestic investors, institutions, and listed companies show little appetite for the products.
TD Cowen said U.S. investors already have efficient access to listed shares, leaving tokenized venues under pressure to offer benefits that outweigh thin liquidity and added operational work.
Reid Noch, vice president of U.S. equity market structure at TD Cowen, wrote in a Friday paper that both retail and institutional demand will likely remain limited during the market’s early stage.
“U.S. investors already have efficient access to the underlying shares,” Noch wrote, adding that tokenized platforms need a compelling benefit to offset their operational complexity and restricted liquidity.
The assessment followed the U.S. Securities and Exchange Commission’s five-year tokenized stock exemption, announced on Sep. 17. The conditional relief lets qualifying Tokenized Securities Venues use permissioned automated market makers and liquidity pools to trade tokenized National Market System stocks.
Eligible liquidity providers can also receive temporary relief from certain dealer-registration requirements. Each participating venue remains subject to limits on the number of stocks it supports and the trading volume processed through the system.
Tokenized stocks must compete with efficient U.S. markets
For American investors, TD Cowen’s concern centers on whether tokenization improves a market that already offers deep liquidity, low-cost brokerage services and fast electronic execution.
Blockchain-based venues could extend stock trading into nights, weekends and holidays. Their automated market makers, or AMMs, would price transactions through asset pools and preset rules instead of matching buyers and sellers in a conventional order book.
In practice, Noch warned that continuous access does not guarantee favorable execution. A pool with limited assets may produce weaker prices, especially when fewer traders and liquidity providers are active outside the main U.S. session.
AMM pricing also places more weight on the amount and composition of assets deposited in each pool. Although a venue may remain technically open around the clock, TD Cowen’s analysis indicates that investors could still prefer established exchanges if the onchain market offers less liquidity or higher trading costs.
U.S. exchanges generally operate their main sessions between 9:30 a.m. and 4 p.m. Eastern Time on weekdays. Several brokers already provide premarket and after-hours access, reducing the value that some domestic traders may place on a separate blockchain venue.
The SEC has attached investor protections to its experiment. Approved tokens must represent NMS stocks and preserve the economic interest, dividends, voting power, and liquidation rights associated with the underlying shares.
Synthetic products that merely follow a company’s stock price do not qualify. As previously covered by crypto.news, the agency’s investor-rights requirements separate qualifying stock tokens from offshore products that may offer economic exposure without making the buyer a shareholder.
Issuer objections could restrict tokenized stock listings
Before a third party tokenizes a company’s shares, the SEC framework requires the proposed venue to notify the issuer. The company then has 30 days to object, according to the TD Cowen paper.
Listed businesses therefore retain some control over whether unrelated operators create blockchain versions of their securities. Trading cannot proceed under the exemption when an issuer objects.
According to Noch, discussions with dozens of issuers found little interest in offering tokenized shares. The group included several companies with large retail investor bases, although crypto-linked businesses such as Figure showed more interest.
“Our conversations with dozens of issuers” revealed minimal demand outside crypto-adjacent companies, Noch wrote.
Figure provides an existing comparison between traditional and blockchain-based shares. Its Nasdaq-listed FIGR stock trades alongside blockchain-native FGRS shares carrying the same economic exposure and voting rights.
During the 24-hour period studied by TD Cowen, conventional FIGR shares accounted for 99.9% of the company’s notional trading. The finding suggests that equal economic and governance rights have not been enough to move meaningful activity away from the Nasdaq-listed security.
Other SEC conditions may also limit how quickly venues can add markets. Smart contracts must be public and auditable, while operators must disclose trading activity, related-party transactions, and key details about their systems.
A venue must also halt a tokenized stock whenever the primary exchange stops trading the underlying shares. As a result, round-the-clock availability would not override an official halt related to volatility, company news or a regulatory issue.
In early September, the SEC also proposed a transfer-agent rule overhaul covering digital ownership records, cybersecurity, asset protection and third-party technology providers. Transfer agents maintain the official shareholder register used for voting, dividends, stock splits and other corporate actions, making their records important when a token claims to represent legal ownership.
Stock perpetuals show stronger demand than tokenized shares
For crypto traders seeking exposure to public companies, TD Cowen found more activity in perpetual futures than in spot stock tokens.
A snapshot of Nvidia-related trading on Binance showed that perpetual futures generated 96% of notional volume, while spot products accounted for 4%. Perpetuals track the price of an asset without transferring ownership of the referenced shares.
The contracts have no fixed expiration date and use recurring funding payments to keep their prices close to the underlying stock. They may also offer leverage, which lets traders control a larger position with less capital but increases liquidation risk when prices move against them.
“As we continue to outline, we see perpetual futures as the stronger demand story,” Noch wrote.
TD Cowen expects platforms to keep adding the products inside and outside the United States, citing retail demand for leverage.
Recent filings support the comparison. On Sep. 18, Coinbase submitted proposals for 50-plus stock perpetuals tied to companies including Nvidia, Microsoft and Tesla. The exchange plans to offer 24-hour trading from Monday through Friday if U.S. regulators clear the contracts.
Coinbase’s proposed products would provide leveraged price exposure without voting rights, dividends or ownership of the referenced shares. Their listing remains subject to regulatory review, and the company has not announced a launch date or complete contract specifications.
Earlier in September, Ondo Finance also asked the SEC and Commodity Futures Trading Commission to apply existing security-futures rules to stock perpetuals. Its Panama-based affiliate had processed $8 billion in cumulative volume within about six weeks, according to Ondo’s regulatory submissions.
Ondo said the offshore platform settles contracts in stablecoins and remains unavailable to American users. Many of its perpetuals reference U.S.-listed companies, allowing eligible non-U.S. traders to follow their stock prices without opening a conventional brokerage account.
