Key highlights:
- The SEC has issued a five-year Innovation Exemption allowing qualifying blockchain venues to facilitate trading of tokenized US stocks under certain conditions
- The newly minted framework requires tokenized stocks to maintain the same rights as their traditional counterparts
- Tokenized stocks are booming, with cryptocurrency companies angling to offer the products to US customers
The US Securities and Exchange Commission (SEC) has opened a regulatory pathway for certain tokenized US stocks to trade on blockchain-based venues. Several digital asset providers, tinkering with tokenized stocks overseas, can roll out their offerings to US consumers within the SEC’s framework.
SEC creates five-year pathway for tokenized stocks
The SEC has issued temporary and conditional exemptive relief for Tokenized Securities Venues (TSVs) to facilitate secondary trading of tokenized National Market System stocks. According to the SEC’s
The SEC has retrofitted several conditions to the exemption. Right off the bat, tokenized stocks traded through a TSV face limits on the number of eligible securities and trading volumes, while venues must verify that each token provides holders with the same rights and privileges as the equivalent traditional stock.
Furthermore, smart contracts must be auditable and publicly accessible, with deployment on public blockchains. TSVs must halt trading in a tokenized stock whenever trading in the underlying stock stops on its primary listing exchange.
If an unaffiliated third party tokenizes an NMS stock, the TSV must notify the underlying issuer in writing and provide an opportunity to object before making the tokenized stock available for trading.
SEC forges ahead with crypto regulation despite CLARITY Act disappointment
The Innovation Exemption comes on the heels of the US Senate failing to advance the CLARITY Act on September 15. Following the legislative disappointment, the SEC put out a statement, confirming its intention to roll out regulations for the cryptocurrency industry
despite the Senate’s lax stance.
“I have been unequivocal. With or without legislation, we will act decisively within the SEC’s statutory authority to deliver certainty for American investors and for the entrepreneurs shaping our technological future,” wrote Atkins on X.
Pundits say the SEC’s decision will accelerate the convergence between traditional equities and blockchain infrastructure. Experts opine that the framework will enable instant settlement, self-custody, and fractional ownership.
The development comes as major financial and crypto companies pursue tokenization. Nasdaq, for example, has been developing infrastructure for tokenized trading, while crypto exchanges have already experimented with tokenized equities outside the US with impressive results.
Source: a16z
Source:: SEC Unveils Innovation Exemption for On-Chain Trading of Tokenized Stocks