SEC Opens the Door to Tokenized Stocks With a 5-Year “Innovation Exemption”

The U.S. Securities and Exchange Commission (SEC) has opened a limited regulatory pathway for tokenized U.S. stocks to trade onchain, giving onchain markets a 5-year window to test how securities can move onto public networks.

Yesterday, September 17, the SEC granted temporary, conditional exemptive relief to Tokenized Securities Venues (TSVs), allowing them to avoid the traditional definition of an "exchange" when they facilitate trading in certain tokenized National Market System (NMS) stocks through permissioned automated market makers (AMMs) and liquidity pools.

SEC Chairman Paul Atkins described the move as a step toward bringing U.S. capital markets into the digital age.

He also emphasized that the exemption represents an interim measure that should inform future, more durable rulemaking.

Tokenized Stocks, Not Synthetic Exposure

The framework focuses on tokenized securities that represent actual NMS stocks and give holders the same rights and privileges as traditional shares. That includes dividend and voting rights. The exemption does not cover synthetic tokens that merely track an underlying stock's price without conveying equivalent shareholder rights.

The SEC allows tokens created by the issuer or by an unaffiliated third party, but third-party tokenization comes with an important safeguard. Before a TSV lists a third-party tokenized stock, it must notify the issuer and give the company 30 calendar days to object. An objection prevents the token from trading under the exemption.

AMMs Enter the U.S. Securities Market

TSVs can use permissioned AMM liquidity pools to match buyers and sellers. The model borrows familiar DeFi infrastructure while keeping access to the securities market controlled.

Participants must meet the venue's access requirements, and the venue must comply with applicable registration obligations. The SEC also requires the smart contracts supporting a TSV to remain public, auditable, and deployed on a public, permissionless distributed ledger.

The SEC has also imposed trading limits. A TSV can list up to 75 Tier 1 stocks, which generally cover S&P 500 and Russell 1000 stocks and certain exchange-traded products, with trading capped at 0.25% of the previous month's average daily share volume for each security.

Tier 2 covers other NMS stocks, with a 250-symbol limit and a 2.5% average daily volume cap. Exceeding a security's volume limit triggers a 3-month trading pause. TSVs must also halt a tokenized stock whenever the primary listing exchange halts its underlying stock.

Transparency and Investor Protections

The exemption requires TSVs to publish information about their operations, trading activity, and affiliate activity. They must also make transaction data publicly available in machine-readable form, including the symbol, price, size, time, and direction of trades.

The framework also includes tailored relief for certain liquidity providers that use proprietary capital to supply tokenized stocks to AMM pools. These firms can receive temporary relief from the SEC's dealer definition if they meet specified conditions.

The SEC retains its existing anti-fraud and anti-manipulation requirements, while TSVs must also comply with applicable sanctions requirements.

A Test Before Permanent Rules

The SEC's decision comes as U.S. regulators continue to work toward longer-term crypto market rules. The Senate recently failed to advance the CLARITY Act, prompting Atkins to emphasize that the SEC can use its existing statutory authority while Congress considers legislation.

The Innovation Exemption expires in September 2031. The SEC has also requested public comments on potential modifications and future regulatory steps.

Commissioner Mark Uyeda said the framework will allow the SEC to observe how tokenized markets develop before establishing longer-term rules. Commissioner Hester Peirce similarly described the exemption as a way for market participants to experiment with onchain stock trading while the agency evaluates the technology.

The development also arrives as U.S. equities move toward longer trading hours. Nasdaq is set to add a 9 pm to 4 am overnight session as the market shifts toward a 23-hour, 5-day trading week, with clearing already moving to a 24x5 model.

Crypto markets already operate continuously, but Peirce highlighted the challenges that extended stock-market hours create around liquidity, spreads, surveillance, cybersecurity, staffing, corporate disclosures, and investor protection.

The CFTC also expanded its own crypto-related regulatory relief yesterday, issuing a no-action position for qualifying passive software providers that connect users with registered futures intermediaries without participating in individual transactions.

Together, the actions point toward a U.S. regulatory environment experimenting with how blockchain infrastructure can fit into existing financial markets, while leaving the longer-term rules open for debate.

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