SEC Greenlights Tokenized Stocks on Public Blockchains

The SEC has given tokenized stocks a temporary green light in the US equity market. On September 17, the agency issued a 'temporary Innovation Exemption' that grants five years of exemptive relief to Tokenized Securities Venues (TSVs). This allows them to execute trades of tokenized National Market System stocks on public blockchains through permissioned automated market maker liquidity pools.

The exemption carves out a narrow but meaningful lane for TSVs. They can operate permissioned AMM liquidity pools on public, permissionless blockchains, with smart contracts that are auditable and transaction data released regularly. The tokens themselves must confer the same shareholder rights as their traditional counterparts, including dividends and voting rights.

The SEC emphasized the importance of investor protection in issuing this exemption. Commissioner Mark T. Uyeda pointed to tokenization's potential to reduce costs, increase transparency, and improve liquidity, particularly for less liquid assets. The five-year window gives the agency time to observe how these venues perform under real market conditions before deciding whether to make the framework permanent or modify it.