SEC Launches Five-Year Innovation Exemption for Tokenized Stock Trading

Key Takeaways

• The SEC released a five-year innovation exemption, which allows on-chain trading of certain tokenized assets.
• Eligible tokenized securities venues and certain liquidity providers can receive relief from exchange and dealer registration requirements, subject to the exemptions’ conditions.
• The exemption takes effect immediately but excludes synthetic stocks and includes compliance requirements.

The U.S. Securities and Exchange Commission has released its long-anticipated five-year innovation exemption for tokenized securities. This opens a new pathway for certain stocks to trade on-chain, which allows qualifying platforms to facilitate certain on-chain stock trading without registering as national securities exchanges, subject to specified conditions.

The measure was announced by SEC Chair Paul Atkins on September 17, two days after the Senate failed to advance the Clarity Act in a 49-50 procedural vote.

“Today, the Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the Innovation Exemption,” said SEC Chairman Paul S. Atkins in a statement.

The exemption takes effect immediately and is open to public comment, with more permanent rulemaking coming in the coming days, an SEC spokesperson said.

SEC Opens Door to On-Chain Stock Trading

Under the exemption, certain trading venues, called tokenized securities venues, would receive relief from specified exchange registration requirements for covered activities.

Specific liquidity providers using automated market makers, or smart-contract-based trading, would also be exempted from dealer registration requirements, subject to the exemption’s conditions.

Platforms operating under the exemption would have to comply with sanctions rules and other conditions designed to protect investors.

The exemption excludes synthetic stocks, tokens that merely track a company’s share price without representing ownership of the underlying share. Companies would also be able to prevent their securities from trading on covered venues.

SEC Moves Ahead After Clarity Act Stalls

The SEC has been developing the exemption for more than a year. The exemption is part of the SEC’s broader Project Crypto effort to modernize securities rules for blockchain-based markets.

On September 16, Atkins said that he would “act decisively within the SEC’s statutory authority to deliver certainty for American investors and for the entrepreneurs shaping our technological future.”

He argued that the agency wanted a limited framework that would allow tokenized securities to trade on-chain while regulators gather data and develop longer-term rules.

The exemption shows the SEC moving ahead under its existing authority while the Clarity Act remains stalled in the Senate.

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