Key Highlights
- Galaxy Research head Alex Thorn said the SEC order contains specific safeguards for tokenized NMS stocks.
- Tokenized venues must ensure holders receive the same rights and privileges as equivalent traditional shares.
- Issuers can veto third-party wrappers by opting out within 30 days after receiving written notice.
Alex Thorn, Galaxy’s head of firmwide research, stated that the U.S. Securities and Exchange Commission’s innovation exemption for tokenized stocks includes specific requirements that differ from characterizations of the order as permitting unregulated synthetic products.
In an X post on September 17, Thorn reviewed SEC release No. 34-106402 and addressed statements made by John Reed Stark, former chief, SEC Office of Internet Enforcement, concerning the order’s scope and conditions.
John Reed Stark had described the plan as allowing third parties to create price-tracking tokens without issuer authorization, firm guarantees of voting rights or dividends, or significant regulation, and compared elements to past DeFi failures. Thorn stated that the order’s text addresses those characterizations directly through the exclusions, rights requirements, issuer veto, venue conditions, volume limits, and transparency mandates.
Requirements for rights and issuer input
According to Thorn, the release requires a tokenized venue to verify that the token provides holders the same rights and privileges as traditional NMS stock of an equivalent class. For third-party wrappers, the order further requires distribution or availability of related proxy materials and other issuer communications at no cost to the issuer or shareholders. Thorn stated that dividends, voting rights, and proxy distribution are required under the text.
Thorn addressed claims that no issuer consent is required. The order provides issuers a unilateral veto. Before a venue can list a third-party wrapper, it must send written notice to the issuer and allow 30 days to opt out.
Venue conditions and oversight
Thorn listed conditions that a venue relying on the exemption must meet. These include status as a U.S. person, compliance with OFAC sanctions, identity verification for every participant in the pool, records of screening methods and wallet-to-address mapping, publication of a public notice at least 30 calendar days before operating, written in plain English.
It also includes notification to the SEC within one business day, 20 calendar days’ advance notice of any material change, concurrent trading halts with any halt or suspension of the underlying on the primary listing exchange, prohibitions on borrowing, hypothecation, permitting hypothecation, or extending credit to buy, a ban on hosting primary issuance, maintenance of books and records in the United States for the term plus three years in human-readable and reasonably usable electronic formats, and consent to examinations by Commission staff at any time.
Thorn also noted that the exemption does not relieve TSVs from the anti-fraud and anti-manipulation provisions of Section 10(b) and Rule 10b-5.
Thorn stated that volume caps are set at 0.25 percent or 2.5 percent of traditionally listed prior-month volume. A venue under the exemption must publish every transaction, symbol, price, size, UTC timestamp, and direction, free and publicly in machine-readable form within 10 minutes, along with additional data.
Context of the exemption
The SEC granted qualifying blockchain-based trading venues a five-year conditional exemption from certain securities-market requirements. The relief applies to qualifying tokenized securities venues handling certain National Market System stocks.
It 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.
Thorn described the order as a five-year, conditional, symbol-capped, and volume-capped exemption from two statutory definitions, accompanied by an open comment file intended to inform permanent rulemaking.
He stated that nothing in existing regulation, including Regulation NMS, is repealed for markets outside these venues. Thorn also noted extensive prior engagement, including meetings with the Crypto Task Force, an April 2025 roundtable, and ongoing solicitation of public comments.
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