SEC gives tokenized stock platforms five-year exemption

### SEC Grants Five-Year Exemption for Certain Tokenized Stock Trading Platforms

The U.S. Securities and Exchange Commission has created a temporary regulatory pathway for certain platforms seeking to trade tokenized stocks, granting qualifying venues a five-year exemption from specific securities-law requirements.

The SEC announced the “Innovation Exemption” on September 17, allowing eligible Tokenized Securities Venues, or TSVs, to operate without being treated as traditional national securities exchanges under certain provisions of federal law.

The agency also approved a separate five-year exemption from dealer registration requirements for certain liquidity providers involved in tokenized stock markets.

Tokenized stocks are blockchain-based digital representations of traditional securities that can be transferred and traded on distributed ledger networks.

The SEC framework applies to certain tokenized stocks included in the National Market System and permits eligible venues to use permissioned automated market makers and liquidity pools, subject to specified investor-protection requirements.

Under the temporary framework, platforms must establish that a tokenized security gives investors the same rights and privileges attached to the corresponding traditional stock.

Those rights include the ability to receive dividends and exercise voting rights associated with the underlying shares.

The rules also address situations in which a tokenized stock is created by a third party that is not affiliated with the issuer.

Before listing such a token, a qualifying trading venue must notify the company that issued the underlying stock.

The issuer must then have an opportunity to object to the proposed listing, and the platform cannot proceed if the issuer objects.

The exemption does not extend to synthetic tokens that merely provide financial exposure to a stock through derivatives or other arrangements without representing the underlying security itself.

The SEC has also established technical requirements for trading venues covered by the exemption.

Smart contracts used by qualifying platforms must be auditable and publicly deployed on a public, permissionless distributed ledger.

The framework also places limits on the number of securities and the amount of trading that can take place through the exempted venues.

Trading in a tokenized stock must stop if trading in the corresponding traditional stock is halted on its primary listing exchange.

SEC Chairman Paul Atkins said the temporary framework is intended to address regulatory barriers that have made it difficult to develop blockchain-based financial markets while maintaining investor protections and market-integrity standards.

The exemption is scheduled to expire five years after its publication, according to the SEC.

The agency is also requesting public feedback on the framework as it considers whether changes or additional regulatory measures may be appropriate.

The decision could provide cryptocurrency and financial technology companies with greater clarity as they explore tokenized equities in the U.S. market.

Coinbase has previously indicated that it intends to introduce tokenized stocks in the United States when regulatory conditions allow.

Other platforms, including Robinhood and Kraken, have already offered tokenized stock products in markets outside the U.S., according to Reuters.

Supporters of securities tokenization argue that blockchain-based markets could eventually enable features such as around-the-clock trading, faster settlement and lower transaction costs.

Tokenization could also make fractional ownership more accessible and potentially allow investors to hold certain assets through self-custody arrangements.

The SEC has identified transparency and potential self-custody benefits as additional areas of interest associated with blockchain-based securities markets.

However, tokenized stock products available outside the United States have not always provided investors with the same ownership rights, disclosures or protections available through conventional equities.

The SEC’s temporary framework specifically addresses that concern by requiring covered tokenized securities to provide equivalent rights and privileges.

The move comes as the agency works on a broader regulatory approach toward digital assets and blockchain-based financial activity under the Trump administration.

The temporary exemption gives on-chain securities markets an opportunity to develop within defined conditions while the SEC cont