The U.S. Securities and Exchange Commission (SEC) has granted a five-year exemption to platforms that facilitate trading in certain blockchain-based, or tokenized, stocks. This opens a regulatory pathway for digital assets to become more closely integrated with traditional U.S. financial markets.
The SEC announced the temporary “Innovation Exemption” on Sept. 17, allowing qualifying Tokenized Securities Venues, or TSVs, to operate without being treated as traditional stock exchanges under certain provisions of federal securities law. The agency also granted a five-year exemption from dealer registration requirements to certain liquidity providers participating in tokenized stock markets.
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Tokenized stocks are digital representations of securities that can be traded on blockchain networks. The SEC’s order applies to certain tokenized National Market System stocks and permits trading through permissioned automated market makers and liquidity pools, subject to conditions designed to protect investors and market integrity.
Under the exemption, a platform must verify that a tokenized stock provides holders with the same rights and privileges as the corresponding traditional security. Those rights include receiving dividends and exercising voting rights.
Platforms also must notify an issuer before listing a tokenized version of its stock when the token was created by an unaffiliated third party. The issuer must be given an opportunity to object, and a platform cannot proceed with the listing if the issuer objects, according to the SEC.
The exemption does not cover synthetic tokens that provide exposure to a stock through a derivative or another product rather than representing the underlying security.
The SEC also requires smart contracts used by qualifying trading venues to be auditable and publicly deployed on a public, permissionless distributed ledger. Tokenized stocks traded through the venues will face limits on the number of securities and trading volume, while trading must stop when trading in the underlying stock is halted on its primary listing exchange.
SEC Chairman Paul Atkins said the exemption is intended to address regulatory challenges that have limited the development of on-chain markets while maintaining investor protections and market integrity standards.
“The Innovation 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,” Atkins said.
The SEC said the exemptions will expire five years after publication. The agency is also seeking public comment on the temporary framework and possible modifications or further regulatory action.
The decision could give crypto companies a clearer route to offer tokenized equities in the United States. Coinbase has indicated that it plans to launch tokenized stocks in the U.S. when regulations permit, while Robinhood, Kraken and other crypto exchanges already offer tokenized stock products in overseas markets, Reuters reported.
Tokenization proponents have pointed to potential benefits including round-the-clock trading, faster settlement, lower transaction costs, fractional ownership and the ability for investors to hold assets directly. The SEC has also cited potential benefits involving self-custody and transparency.
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At the same time, tokenized stock products offered outside the United States have not always provided investors with the same rights, disclosures and protections associated with traditional equities. The SEC’s new framework specifically requires covered tokenized stocks to provide equivalent rights and privileges.
The exemption comes as the SEC under the Trump administration pursues a broader effort to establish a regulatory framework for digital assets and blockchain-based financial markets. The agency said its temporary approach is intended to allow on-chain markets to develop while it considers longer-term rules.