Coinbase has formally challenged a proposed SEC measure that would require issuer approval for third-party tokenization of publicly traded stocks. The company submitted its arguments to the SEC’s Crypto Task Force, citing concerns that mandatory issuer consent could hinder secondary market innovation and impact the broader digital asset sector.
Coinbase’s legal challenge and case for secondary markets
In its submission, Coinbase disputes the idea that companies must authorize the creation of digital representations of their shares by independent platforms. The firm points to Section 4(a)(1) of the Securities Act, which enables the resale of securities without issuer involvement under many conditions.
Coinbase references Rule 17Ad-20, governing transfer agents, and argues that U.S. regulatory history supports free transferability of securities after they enter public trading markets. The company claims that established market practices prevent issuers from controlling how shares change hands on secondary markets.
Founded in 2012 and based in San Francisco, Coinbase is a leading cryptocurrency exchange platform serving millions globally. The firm provides services for buying, selling, and managing a wide array of digital assets.
In its communication with the SEC, Coinbase frames the possibility of requiring issuer authorization as granting companies unprecedented veto power over legally permitted investor activity after an initial public offering.
Coinbase warns that such a rule could create protectionist barriers, supporting closed systems managed by incumbent companies. The company maintains that third-party tokenization only reflects existing shares on a blockchain and does not establish a new security, preserving core shareholder rights such as voting and dividends.
Dual framework and potential impact on market innovation
Coinbase advocates for a more flexible “dual framework” approach, which would allow both issuers and third-party platforms to offer tokenized versions of stocks. This model, the company believes, would support market efficiency and keep regulatory momentum moving forward.
The submission notes that recent projects, including Nasdaq’s tokenized trading pilots and tokenization initiatives from the Depository Trust & Clearing Corporation (DTCC), have proceeded without issuer consent mandates. Coinbase cautions that reversing this progress with new restrictive measures could disrupt industry growth.
A flexible regulatory model could enable key market advantages, such as real-time T+0 settlement, round-the-clock trading access, reduced reliance on intermediaries, and enhanced peer-to-peer transfer mechanisms.
According to Coinbase, integrating tokenized stocks within blockchain infrastructure may also allow for greater compatibility with decentralized finance applications, provided these activities stay within compliance boundaries.
The company also highlights a risk that strict consent requirements would push blockchain development outside the United States, potentially limiting the SEC’s ability to supervise evolving market activity.
Coinbase closes by linking its position to the SEC’s proposed “innovation exemption,” urging that regulatory frameworks avoid unnecessary restrictions on access to market modernization initiatives.
