SEC Approves Innovation Exemption for Limited Onchain Trading of Tokenized US Stocks

On September 17, the U.S. Securities and Exchange Commission issued temporary, conditional exemptive relief allowing Tokenized Securities Venues to facilitate trading in tokenized National Market System stocks through permissioned automated market makers and liquidity pools. The action opens a limited route for secondary onchain trading of qualifying shares, subject to operational and investor-protection conditions set by the agency.

SEC’s conditional exemption covers tokenized NMS stock venues

The SEC announced conditional relief for Tokenized Securities Venues using permissioned automated market makers and liquidity pools to trade tokenized NMS stocks. NMS stocks are securities traded through the U.S. national market system.

The permission is for secondary trading only: it does not authorize primary issuance or initial offerings on a Tokenized Securities Venue.

Separately, the SEC’s order grants conditional relief from the dealer definition to certain liquidity providers deploying proprietary capital. The order keeps that relief within the same framework as the venue exemption and does not provide a broad exemption for onchain market making.

Both exemptions are temporary and will expire five years after publication, according to the order.

Secondary trading is permitted, but issuance and synthetic stock tokens are excluded

The SEC drew a clear boundary around the activity it is permitting: the exemption is confined to secondary trading and does not authorize primary issuance or initial offerings on a Tokenized Securities Venue.

Tokens designed merely to track a share price are outside the order’s scope, as are synthetic instruments that represent exposure to an underlying stock. The relief applies only to qualifying tokenized stock trading under the specified conditions.

Operating conditions and market safeguards

Venues operating under the exemption must comply with symbol and volume limits. The framework also requires token holders to receive shareholder rights equivalent to those attached to the underlying shares and gives issuers opportunities to object.

The SEC further requires public smart contracts that can be audited. Trading halts must be synchronized, a condition intended to ensure an onchain venue does not continue trading a tokenized security when trading in the related market is halted.

Those restrictions make the relief a narrowly defined market-structure experiment, rather than blanket approval for tokenized equity issuance or unrestricted trading of stock-linked crypto instruments.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.