SEC Opens Door to On-Chain Trading of Tokenized Stocks

The US Securities and Exchange Commission (SEC) has taken a significant step towards enabling on-chain stock trading by introducing an 'Innovation Exemption'. This exemption allows certain venues to facilitate trading of tokenized US stocks through permissioned liquidity pools, without being classified as exchanges under the Securities Exchange Act.

Under the order, Tokenized Securities Venues (TSVs) can receive temporary relief to trade tokenized National Market System stocks through permissioned AMMs and liquidity pools. However, there are safeguards in place: tokenized shares must provide holders with the same rights as traditional stock, trading volumes and available securities will be limited, and smart contracts used by TSVs must be publicly auditable on public blockchains.

The SEC also granted conditional relief from dealer registration requirements to certain liquidity providers. Speaking about the exemption was SEC Chairman Paul Atkins: 'The Innovation Exemption... would allow TSVs to trade tokenized NMS stock in a permissioned environment today while the Commission considers the need for additional action to facilitate onchain trading.'

The SEC invites public comment on all aspects of the Innovation Exemption, as it considers further changes.