Tokenized Stocks Need an Authoritative Ownership Rule

By Daniel Okafor

The SEC’s Innovation Exemption permits limited trading of tokenized U.S. stocks on a new venue under a five-year conditional rule. Delanoue’s account gives no effective date or compliance deadline. A separate SEC proposal dated Sept. 1 would modernize transfer-agent rules without naming a required technology.

Delanoue says tokenization enables trading at any hour, broader international access to U.S. markets and more equities changing hands around the clock. He describes tokenized equity as a digital representation of stock ownership, issued and recorded on a blockchain and managed by smart contracts instead of spreadsheets. The structure can increase liquidity and remove the 4 p.m. close and holiday breaks. A trader can transact at 2 a.m.

Which record proves ownership after the trade?

At 2 a.m., the smart contract executes the trade, the blockchain records it and cash may move. The token ledger, transfer agent’s master securityholder file and intermediary books may not update at the same time. The same gap appears when a token is pledged, an intermediary fails or a transfer is disputed.

Delanoue asks: “who legally owns a share once it changes hands?” Current rules do not identify which record controls.

Where execution ends and ownership begins

Execution fills a buy or sell order. Clearing matches the buy and sell, confirms price, quantity and date, and sends eligible transactions through the National Securities Clearing Corporation as a middleman. Settlement delivers securities against cash. Legally effective ownership remains a separate step, and the four stages cannot collapse into one another without losing entitlement and interest tracking.

Most U.S. investors hold a securities entitlement under Article 8 of the Uniform Commercial Code, not the share itself. Only investors registered directly through a transfer agent’s book-entry system appear as named shareholders; tokenized securities may depend on the token’s legal structure.

“Adding a token just changes the structure,” Delanoue writes. Article 8 already governs indirect holdings tier by tier, but does not clearly place tokens in a tier.

What did the 1968 paperwork crisis change?

In 1968, paperwork from massive trading overwhelmed Wall Street back offices, which shut on Wednesdays to process certificates and records. Delanoue says the response went beyond depositories and book-entry transfers. Article 8 emerged in the mid-20th century, then accommodated uncertificated securities in a 1977 revision and created the security-entitlement model in 1994.

Those clearing, custody, recordkeeping and regulatory arrangements established how trades were processed, when settlement became final and how discrepancies were resolved. Delanoue says they ended the paperwork crisis.

Existing laws establish ownership and entitlement rules, but official issuer records do not cross-check master lists with Wall Street clearinghouses or online brokers. He argues that new legal classifications and regulatory standards may be necessary.

What has the SEC released, and what has it proposed?

Delanoue separates two regulatory moves. The released Innovation Exemption allows limited trading of tokenized U.S. stocks on a new venue under the five-year conditional rule. It requires tokenized stock to carry rights and privileges equivalent to traditional stock.

It does not automatically establish a common framework for proving, transferring and enforcing those rights across different infrastructures. The released exemption and proposed changes do not determine which infrastructure proves ownership.

On Sept. 1, the SEC proposed modernizing transfer-agent rules for electronic communications and blockchain. The proposal does not prescribe a technology. It says existing recordkeeping, safeguarding and reporting requirements must be met. The exemption is released; the transfer-agent revisions remain proposed.

Until that hierarchy exists, a desk cannot treat an onchain entry, issuer master file or broker book as conclusive across every workflow.

What three tests should determine control?

Delanoue says any new rule should answer three questions before a record mismatch becomes a dispute:

• Which event legally completes the transfer? It must go beyond execution or technical settlement and register on the issuer’s books.
• Which record controls when the token ledger, master security file, depository record and intermediary books disagree?
• Who has the legal right and duty to correct errors and assign losses?

The test echoes the paperwork-crisis response. Delanoue says the market must apply it preemptively, not after an error: otherwise, “tokenized assets merely transfer without establishing legal ownership.”

What must the operating standards specify?

His proposed architecture is technology-neutral. Universal rules should govern recordkeeping and the timing of event changes regardless of the stack, allowing institutions to compete on cost, access and performance without changing the definition of ownership.

Those standards must specify when a token transfer updates the master securityholder, how the system prevents double counting, how corporate actions reach the true owner and who corrects an error.

The architecture must also record collateral interests, their priority and permitted reuse. That prevents one position from supporting competing claims. Delanoue frames blockchain itself as less important than interoperability among legal structures and recordkeeping systems.

What determines success beyond trading volume?

Trading volume at any hour is not Delanoue’s measure. Success depends on whether tokenized equities can move faster without a market shutdown and whether holders retain access to the rights and responsibilities that make a share a share. The forward test is practical: venues, brokers, transfer agents and clearing systems must agree which record controls before tokenized ownership scales.

Who wrote the analysis?

Joris Delanoue is co-founder and CEO of Fairmint, an SEC-registered transfer agent operating fully onchain. Jørgen Ouaknine holds a PhD in law and works in financial market infrastructure and distributed-ledger technology. He contributed in his personal capacity, and his views do not necessarily represent any organization with which he is affiliated.