SEC Approves Temporary Exemption for Limited Tokenized US Stock Trading

SEC approves a temporary exemption for limited trading of tokenized U.S. stocks on regulated onchain venues.

The U.S. Securities and Exchange Commission has approved a temporary exemption allowing limited trading of tokenized U.S. stocks on certain regulated onchain venues, according to Cointelegraph.

The SEC announced the measure on Sept. 17, describing it as the “Innovation Exemption.” The framework permits Tokenized Securities Venues, or TSVs, to facilitate permissioned trading of tokenized National Market System stocks through automated market makers and liquidity pools.

SEC Sets Conditions for Onchain Stock Trading

The exemption is designed as a temporary and conditional framework rather than a permanent change to securities-market rules. The SEC said eligible TSVs will be subject to limits on the number of stocks and the volume that can be traded.

Tokenized stocks offered through these venues must provide holders with the same rights and privileges as the equivalent traditional shares. Those rights include dividends and voting rights. The SEC also requires a TSV to notify an issuer and provide an opportunity to object when a tokenized stock has been created by an unaffiliated third party.

The rules also require smart contracts used by TSVs to be auditable and public, with deployment on a public, permissionless distributed ledger. Trading in a tokenized stock must stop at the same time as trading in its underlying stock on the primary listing exchange.

The framework does not cover synthetic products that merely track stock prices without representing the corresponding securities. SEC Chairman Paul Atkins said the permitted tokenized stocks must provide holders with the same rights as traditional securities.

Trading Data Will Be Made Public

The SEC's conditions include detailed transparency requirements intended to give regulators and market participants visibility into activity on the new venues.

According to SEC Commissioner Mark Uyeda, TSVs will have to publish U.S.-dollar-denominated transaction information, including prices, trade sizes, timestamps, pool addresses, end-of-day pool sizes and daily trading volumes. Symbol and volume limits will also apply.

The SEC said the data will help it evaluate how tokenized securities trade onchain and inform potential future regulatory decisions. The agency is also requesting public feedback on the framework, including data, case studies and information from live or test environments.

Exemption Set to Last Five Years

The SEC's order also provides temporary relief from the definition of “dealer” under the Securities Exchange Act for certain liquidity providers that use their own capital to supply tokenized stocks to TSV liquidity pools, subject to specified conditions.

The exemptions are set to expire five years after publication of the order. The SEC said the temporary structure is intended to allow the regulator to observe how tokenized stocks are used and traded while considering longer-term rules for onchain securities markets.

For now, the framework provides a defined regulatory pathway for limited permissioned trading of tokenized NMS stocks while the SEC collects market data and seeks public comment on possible modifications and future rules.

writer: Ethan Collins
Crypto Journalist
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