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Move would let Coinbase offer stock trading via blockchain

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Digital tokens would represent ownership of securities

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Proponents say tokenized equities could cut trading costs

By Hannah Lang

June 17 (Reuters) - Coinbase is seeking a green light

from the U.S. Securities and Exchange Commission to offer

"tokenized equities" to its customers, the crypto exchange's

chief legal officer said in an interview with Reuters.

If granted, the move would allow Coinbase to

effectively offer stock trading via blockchain technology,

placing it in direct competition with retail brokerages such as

Robinhood and Charles Schwab ( SCHW ) and could open an

new business segment for Coinbase.

The concept is a "huge priority," said Paul Grewal, the

chief legal officer of Coinbase.

Tokenizing equities is a process in which shares of a

company are converted into a digital token, similar to how

cryptocurrencies are traded. Instead of holding the securities

directly, investors hold tokens that represent ownership of the

securities.

Proponents have said that tokenized equities could reduce

trading costs, enable faster settlement and facilitate

round-the-clock trading.

Critics have said there are plenty of gaps that need to be

addressed before tokenized equities can be commonly traded. The

World Economic Forum in a report last month pointed to a lack of

sufficient secondary-market liquidity as well as the lack of

clear global standard as two major challenges for adoption.

A representative for the SEC did not immediately respond to

a request for comment.

Currently, tokenized equities are not available for trading in

the United States, but several firms are experimenting with the

concept. Rival crypto exchange Kraken said last month that it is

launching tokens of U.S. equities, called xStocks, which will be

available in select markets outside the United States.

In order to offer tokenized equities in the United States,

Coinbase would either need to be granted a so-called "no action

letter" or exemptive relief from the SEC, in which the

securities regulator would pledge not to pursue an enforcement

action if Coinbase moved forward.

Typically, companies that offer trading in securities have to be

registered as broker-dealers. Coinbase is not registered as a

broker-dealer, and the SEC sued the company in 2023 during

former President Joe Biden's administration, alleging that it

was operating as one without registering with the agency. The

SEC under President Donald Trump's administration dropped that

case this year.

A no action letter would be issued by SEC staff in response

to a request from a company like Coinbase, saying that the SEC

would not object to a certain offering and would not recommend

an enforcement action if a firm were to move forward with that

offering.

Grewal did not say if Coinbase had already submitted an

official request to the SEC or when a potential product launch

might happen.

"With a no action letter, an issuer of a tokenized equity or

a platform that wishes to offer secondary trading in those

equities can have some confidence, some comfort, that the SEC

has adopted its view of why this product is compliant," Grewal

said.

"It's that confidence that has been lacking so far, and I

think really held back a lot of the institutional adoption" of

crypto and blockchain technology, Grewal added.

The move from Coinbase comes as Trump has sought to

overhaul U.S. cryptocurrency policy after courting cash from the

industry on the campaign trail. Trump has appointed

industry-friendly regulators and has hosted industry leaders at

the White House. Cryptocurrencies have reacted favorably, with

bitcoin reaching new all-time highs this year.

The SEC under Trump has dropped lawsuits against a litany of

crypto companies, including Coinbase, Binance and Kraken, and

has instituted a crypto task force charged with devising new

rules for digital assets.