Key points

  • The SEC granted temporary conditional relief for venues trading tokenized National Market System stocks through permissioned automated market makers.
  • Eligible tokens must provide the same rights as equivalent traditional shares, while issuers can object to third-party tokenization.
  • The exemption expires five years after publication and remains subject to trading limits, disclosures and synchronized trading halts.

The U.S. Securities and Exchange Commission has created a temporary pathway for approved venues to trade tokenized versions of exchange-listed U.S. stocks. In a September 17 release, the agency said its Innovation Exemption conditionally removes qualifying Tokenized Securities Venues, or TSVs, from the statutory definition of an exchange. The relief is designed for trading tokenized National Market System stocks through permissioned automated market makers and liquidity pools. Reuters independently reported the order the same day.

How the exemption works

A TSV would bring buyers and sellers together by operating one or more permissioned liquidity pools and setting standards for who may access them. The SEC said smart contracts used by a venue must be auditable, publicly available and deployed on a public, permissionless distributed ledger. The structure therefore combines open blockchain infrastructure with controlled participation at the trading layer. It is a defined exemption from existing exchange rules, not a blanket approval for any platform to list digital versions of U.S. shares.

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The order also provides temporary conditional relief from the Exchange Act definition of a dealer for liquidity providers that use their own capital to supply tokenized shares to a qualifying pool. That relief can cover activities such as quoting prices to customers or committing capital. Both exemptions are scheduled to expire five years after publication, while the SEC considers whether longer-term rule changes are appropriate.

Conditions for tokenized shares

The safeguards are central to the framework. Tokenized stock traded on a TSV must give holders the same rights and privileges as the equivalent class of conventional NMS stock. If an unaffiliated third party creates the token, the venue must notify the underlying public company in writing before trading begins and give that issuer an opportunity to object. The SEC also imposed limits on the number of symbols and the volume that may be traded, although its announcement did not specify those numerical thresholds.

Trading in a tokenized stock must stop whenever trading in the underlying share is halted on its primary listing exchange. Venues must also publish information about their operations, trading activity and affiliated trading. Those requirements aim to preserve key market protections while letting the agency observe a new trading model in operation. Reuters reported that synthetic products offering stock exposure through derivatives are not covered by the exemption.

What changes for the market

The decision opens a regulated route for blockchain-based share trading without treating the token as a separate synthetic claim. The SEC release emphasizes legal equivalence between the tokenized instrument and the traditional share, including shareholder rights. That distinction matters because many stock-linked tokens offered outside the United States do not provide the same voting, dividend or disclosure rights as the underlying security.

The exemption does not guarantee that issuers, brokers or investors will adopt the model, and it does not resolve every question around custody, settlement finality or smart-contract risk. Participating venues still must meet the order's conditions and other applicable securities-law obligations. The SEC has requested public comment on possible modifications and next steps. For now, the order creates a limited five-year test in which tokenized U.S. shares can trade through specified onchain systems under federal oversight.

Sources

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