The U.S. Securities and Exchange Commission (SEC) has authorized limited trading of tokenized stocks on specific on-chain platforms for five years. The regulator issued a temporary conditional exemption known as the Innovation Exemption on September 17.
This applies to so-called Tokenized Securities Venues (TSV), which can facilitate trading of tokenized NMS stocks through automated market makers (AMM) and restricted-access liquidity pools.
The SEC has temporarily exempted these platforms from being classified as an “exchange” under the Securities Exchange Act of 1934. A separate exemption applies to certain liquidity providers using their own capital: if conditions are met, they will not be considered dealers.
A token can be issued by the issuer itself, an entity acting on its behalf, or an independent third party. In all cases, the token holder must receive the same rights as the owner of a regular share of the corresponding class, including the right to dividends and voting.
Synthetic instruments that merely track the stock’s value without granting the corresponding rights of the underlying security are not covered by the exemption.
If tokenization is conducted by an independent third party, the TSV must notify the issuer of the underlying stock in writing in advance. The company will have the opportunity to object and prevent its asset from being traded on the TSV.
Trading Volume
The SEC has set limits on the number of available instruments and trading volume, which will depend on the Limit Up-Limit Down levels used in the U.S. stock market to curb sharp price movements.
Platforms must regularly publish transaction details in dollar terms. SEC Commissioner Mark Uyeda listed the price, size, and time of the transaction, the pool address, its end-of-day size, and daily trading volume.
TSVs are also required to disclose information about their operations, trading activity, and affiliated transactions. The trading system’s smart contracts must be public, auditable, and deployed on a permissionless public blockchain.
If trading of a regular stock is halted on the main exchange, the TSV must simultaneously suspend operations with its tokenized version.
SEC Chairman Paul Atkins emphasized that anti-fraud and anti-manipulation provisions of federal securities laws will continue to fully apply to operations under the new regime. Uyeda described the Innovation Exemption as a controlled mechanism, stating that the SEC will be able to monitor the new platforms and market participants, collect data, and use it in developing long-term rules.
The new exemption does not mean that tokenized stocks cease to be considered securities. In January, the SEC clarified that the asset format and method of recording ownership rights do not change the application of federal law.
The Innovation Exemption only temporarily exempts certain trading platforms and liquidity providers from being classified as exchanges and dealers. The regulator has requested public comments on potential changes to the conditions and further steps for regulating on-chain trading.
Earlier, in March, the Commission allowed Nasdaq to launch trading of tokenized stocks.
Later, the New York Stock Exchange announced a partnership with the RWA platform Securitize.
