SEC Prepares Innovation Exemption for Tokenization of Stocks Under Chairman Paul Atkins

The U.S. Securities and Exchange Commission is preparing a forthcoming "innovation exemption" for tokenization that Chairman Paul Atkins described in March as "an innovation exemption to facilitate limited trading of certain tokenized securities with an eye toward developing a long-term regulatory framework."

“SEC's big swing to clear tokenization path isn't likely to get resilience of full rule Former SEC lawyers say that using its power to grant tokenization "innovation" efforts an exemption from securities law isn't as strong as a full-fledged rule”

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SEC Commissioner Hester Peirce said the SEC can grant the leeway without formal rulemaking, telling CoinDesk, "We can do it as a rule, but we don't have to do it as a rule."

@coindesk

CoinDesk reported that former SEC lawyers expect the exemption to be difficult to reverse even if it is narrow and time-limited, and that the SEC is using its standing authority to exempt businesses from securities laws rather than pursuing formal tokenization rulemaking.

CoinDesk also said Atkins later added in May that a future-proofed framework could take the form of notice-and-comment rulemaking addressing the "exchange" definition as applied to onchain trading systems.

The SEC’s tokenization work is framed around how tokens representing securities would carry rights and measures, including shareholder voting abilities, dividend rights and security measures, as the agency crafts its stance on tokens generated by third parties.

Separately, the SEC proposed rescinding two key rules of Regulation NMS—rules 611 and 610(e)—to reduce market participants’ costs and encourage innovation, according to ForkLog.

ForkLog said rule 611 prohibits trades at prices less favorable than the best offers on other platforms, while rule 610(e) limits the display of quotes that block or cross price values on other exchanges.

Cryptonews.net

SEC Chairman Paul Atkins said the rules have been in place for 20 years but have become an obstacle to market development over time, and ForkLog quoted him describing "unintended consequences" that hinder growth.

ForkLog reported that Galaxy Digital’s Alex Thorn argued current rules physically prevent automated market makers (AMM) from trading tokenized stocks, and he said, "An AMM cannot halt a trade because the price is better on Nasdaq."

ForkLog added that the changes are expected to be implemented in the first quarter of 2027, with the SEC potentially launching pilot projects on tokenization and granting participants temporary exemptions from existing rules until then.

CoinDesk reported that Charles Riely, a former assistant regional director in SEC enforcement now at Jenner & Block, said the end goal is ultimately "a statute or rule that provides certainty," and he framed the question as whether the innovation exemption can be a step toward that.

“SEC to Lay Groundwork for Tokenization of Stocks SEC proposes rescinding key rules to boost innovation”

ForkLog

CoinDesk also quoted Riely saying, "The question is whether the innovation exemption can be a step toward that," while describing how exemptions are commission-decided actions that could carry more heft than staff-level positions.

Cryptonews.net said former SEC lawyers believe the SEC’s power to exempt activity from securities laws would still be difficult to reverse, even as agency leaders said the initial policy would be narrow and time-limited.

ForkLog reported that in May, SEC Commissioner Hester Peirce urged the crypto industry to temper expectations regarding an "innovation exemption" for trading tokenized stocks and said the regulator does not plan to allow the issuance of synthetic assets.

Together, the sources depict a path that combines a time-limited tokenization exemption with potential pilot projects and rule rescissions, while CoinDesk warned that interim approaches could be easier to sweep away if SEC leadership changes.