Key Highlights
- The SEC granted qualifying Tokenized Securities Venues (TSVs) a five-year conditional exemption from certain Exchange Act requirements.
- Eligible venues can use permissioned automated market makers and liquidity pools to trade certain tokenized U.S. stocks.
- The exemption covers tokens representing actual underlying securities, while synthetic stock tokens are excluded.
The U.S. Securities and Exchange Commission (SEC) has granted qualifying blockchain-based trading venues a five-year conditional exemption from certain securities-market requirements, allowing them to facilitate trading in eligible tokenized U.S. stocks under specified conditions.
According to the SEC’s Innovation Exemption announcement published on Thursday, the relief applies to qualifying Tokenized Securities Venues (TSVs) handling certain National Market System (NMS) stocks.
The order provides relief from certain Exchange Act exchange and dealer requirements and permits participating venues to use permissioned automated market makers and liquidity pools.
The exemption is temporary and conditional rather than a permanent regulatory framework for tokenized equities.
Relief covers certain tokenized stocks
The SEC’s order distinguishes between tokenized securities that represent underlying shares and products that only track stock prices. Under the exemption, qualifying venues can facilitate trading in tokens representing actual NMS securities. Synthetic tokens that provide price exposure without representing the underlying security are excluded.
The relief also covers certain liquidity providers that use their own capital in eligible automated market maker pools, subject to the conditions in the order. Participating venues must meet requirements covering the securities they list, access to the platform, trading activity, and the underlying blockchain infrastructure.
Stock issuers can object to listings
Companies whose shares are being tokenized retain a role in the listing process.
Before a venue lists a tokenized version of a company’s stock, the issuer must receive formal notice. If the issuer objects within the period established by the SEC, the venue cannot proceed with the listing.
The tokenized security must also provide holders with the applicable economic and governance rights associated with the underlying shares, including dividends and voting rights.
This requirement differs the products covered by the exemption from synthetic instruments that simply track a stock’s price.
Venues must report trading activity
The exemption includes reporting and transparency requirements for participating venues. Among the information venues must provide are:
- Transaction price, size, and time
- Addresses of liquidity pools
- End-of-day pool balances
- Daily trading volume
The requirements give the SEC visibility into trading activity and the liquidity supporting tokenized stock markets.
The order also places limits on the number of stock symbols and trading volume that qualifying venues can handle under the exemption.
SEC relies on existing exemptive authority
SEC Chairman Paul Atkins said the agency was acting within its existing statutory authority rather than waiting for Congress to establish a separate framework for tokenized securities.
“Today, we are taking a significant step forward, within our statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption.’”
The statement reflects Atkins’ description of the initiative. The SEC has said the exemption is intended to allow tokenized securities markets to operate under defined conditions while the agency gathers information and considers longer-term rules. The order is subject to public comment.
Coinbase calls exemption regulatory clarity
Coinbase Vice Chairman Ryan VanGrack, who previously served as an SEC senior adviser, welcomed the decision. In an X post, he wrote, “As anticipated, clear rules are coming. Today’s clarity comes courtesy of @SECPaulSAtkins, not Congress.”
VanGrack’s comment reflects Coinbase’s assessment of the development rather than an SEC finding about future adoption of tokenized securities.
Coinbase is among the companies that have indicated plans to offer tokenized stocks in the U.S. under an appropriate regulatory framework.
SEC separately reviews transfer-agent rules
The Innovation Exemption follows another SEC initiative involving securities infrastructure and blockchain technology.
On September 1, the SEC proposed changes to transfer-agent rules covering areas including recordkeeping, communications, and securities transfers.
The proposal addresses a different part of the securities market, but both initiatives examine how existing securities rules apply to infrastructure using distributed-ledger technology.
Five-year window leaves longer-term questions
The exemption gives qualifying venues a defined period to operate under the SEC’s conditions, but it does not establish how tokenized stock markets will develop at scale.
Issuers can object to proposed listings, venues must meet the exemption’s requirements, and participating platforms remain subject to reporting and oversight conditions.
It also remains unclear how many companies will permit their shares to be tokenized, how much trading activity will develop through blockchain-based venues, and what permanent rules the SEC may eventually adopt.
For now, the order gives qualifying venues a five-year window to facilitate tokenized stock trading under specified conditions, while the SEC considers a longer-term regulatory framework.
Also Read: Crypto.com Files With SEC to Trade Perpetual Futures on Individual Stocks
