Finance · updated 1h ago · 2 min read
SEC Chair Paul Atkins Unveils Five-Year Innovation Exemption for Tokenized Stock Trading
SEC approves five-year exemption enabling tokenized stock trading on select on-chain platforms. Exemption creates regulatory path for Tokenized Securities Venues to facilitate secondary trading.
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SEC’s five-year tokenized path
The U.S. Securities and Exchange Commission on Thursday unveiled a long-awaited “innovation exemption” that creates a temporary, five-year regulatory pathway for tokenized stock trading on blockchain-based platforms.
“The U.S. Securities and Exchange Commission on Thursday unveiled its long-awaited exemption”
The SEC’s order allows Tokenized Securities Venues to facilitate secondary trading of tokenized stocks using blockchain-based systems, while also offering liquidity providers a five-year exemption from dealer registration requirements.
SEC Chair Paul Atkins said the exemption is intentionally limited in scope, adding, "We are not cementing today's technology as the standard for tomorrow," as the order expires in five years.
The SEC said the exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards, and it requires that tokenized stocks provide holders with the same rights and privileges as investors who purchase the underlying shares through a brokerage account.
Conditions, limits, and issuer veto
Under the SEC’s framework, platforms must be U.S. persons, synthetic versions of stocks are prohibited, and issuers of the underlying stocks must be notified and given an opportunity to opt out.
The SEC order also includes restrictions on trading activity, including limits on the number of symbols and volume traded, and trading halts on the main stock exchanges would automatically apply to tokenized versions of the same stock.
The SEC said venues must verify that tokenized securities have the same rights and privileges as traditional securities, and it requires written notice and an opportunity to object to the issuer of the underlying stock.
CNBC described the two key points of contention as holders of stock tokens retaining the same rights as traditional equity holdings and companies being able to object to having their securities represented as tokens, while Reuters said platforms would be barred from offering tokenized products if the issuing company objects.
What’s at stake next
The SEC’s move comes two days after the U.S. Senate failed to advance the Clarity Act, and Reuters said the exemption could integrate digital assets more deeply into traditional markets while paving the way for major structural changes to equities markets over the long term.
“The new exemption comes just days after the U.S. Senate failed to advance comprehensive cryptocurrency legislation”
Reuters also reported that prominent crypto players including Coinbase have signaled they plan to launch tokenized stocks in the United States when the rules allow, while Robinhood, Kraken and several other crypto platforms already offer tokenized stocks overseas.
Industry insiders in the American Banker said SEC and CFTC rules may not have the same permanence as legislation passed by Congress and could be more easily changed by future administrations, and it noted that CFTC Chair Michael Selig said the agency will give "CLARITY its breathing room for a vote,".
As the SEC frames the exemption as an interim measure, Atkins said it "must be followed by durable rulemaking" to ensure investors are protected and on-chain markets remain a viable pathway as capital markets evolve.