SEC clears path for tokenized stock trading in the US with five-year exemption

• The SEC has issued an order granting conditional exemptive relief to Tokenized Securities Venues to trade tokenized equities in the US.
• The Tokenized Securities Venues bring together buyers and sellers of stocks by providing liquidity pools for eligible participants.
• SEC Chair Paul Atkins said the move allows exchanges to facilitate on-chain trading for US capital markets.

The United States (US) Securities & Exchange Commission (SEC) has announced on Thursday an order granting conditional exemptive relief to Tokenized Securities Venues (TSVs), also known as exchanges, to trade tokenized National Market System (NMS) stock by tapping liquidity pools.

SEC approves innovative exemption for tokenized securities

The SEC said TSVs connect buyers and sellers of tokenized NMS stock by offering one or more automated market maker (AMM) liquidity pools that let eligible participants interact and agree on trade terms. Similarly, they establish clear standards for access to trading on these pools.

SEC Chair Paul Atkins said in a press release the innovation exemption “while temporary, would allow TSVs to trade tokenized NMS stock in a permissioned environment today while the Commission considers the need for additional action to facilitate" on-chain trading.

To clarify, the Commission outlined key conditions TSVs must follow to ensure they operate within the broader securities laws and protect investors; for instance, TSVs must verify the equities offered for on-chain trade offer holders the same rights and privileges accorded to traditional NMS stock of an equivalent class.

Exchanges must provide the SEC with written notice confirming that an unaffiliated third party tokenized the NMS stock. Moreover, the smart contracts used by a TSV must be auditable, public and deployed on a public blockchain. Other conditions include providing the Commission with public notices about its operations and the trading activities of the TVS affiliates.

Dealers in the AMM liquidity pools are also covered by the temporary conditional exemption relief, as their activities are expected to include quoting prices to customers or even entering into agreements to provide committed capital.

The exemption will stay in place for five years, and the public has been asked to provide comments on possible modifications to the exemptive relief.

“The division stands ready to work with interested parties seeking to operate a TSV and field questions from investors and market participants,” Jamie Selway, Director of the SEC Division of Trading and Markets, said in the press release.

The announcement granting exchanges exemptive relief to bring tokenized stocks trading in the US comes as the Senate failed to advance the crypto CLARITY Act. This move reaffirms the SEC’s commitment to provide the industry with much-needed oversight within its existing authority, despite the bill's setback.

Cryptocurrency prices remained relatively calm after the SEC announcement, with Bitcoin (BTC) trading above $76,000, Ethereum (ETH) hovering above $2,450, and Ripple (XRP) reclaiming $1.30 as short-term support.