SEC Permits Temporary Tokenized Share Trading Amid Stalled Crypto Agenda

The US Securities and Exchange Commission (SEC) has granted permission for tokenized shares to be traded on public blockchains, albeit temporarily. This decision comes after the Senate's failure to advance the CLARITY Act, which aimed to clarify regulations around crypto.

Under the SEC's Innovation Exemption, approved users can trade blockchain versions of shares listed on US exchanges, provided they hold the same basic rights as conventional shares, including voting rights and dividend rights. Trading could occur outside regular trading hours at an accelerated settlement rate, and investors may be able to store these tokens in eligible digital wallets instead of traditional brokerage accounts.

The exemption, however, has several limitations. Tokenized shares are considered securities, but the facilities that trade them have been granted a temporary reprieve from registering as conventional exchanges. Companies can prevent unrelated third parties from tokenizing their shares, and trading must cease if the stock is halted. The SEC also prohibits initial share offerings, margin, and other forms of borrowed trading.

The exemption will expire on September 17, 2031, unless amended earlier by the SEC. It does not address issues such as what cryptocurrencies fall under the domain of the SEC and CFTC or how stablecoins used to purchase these shares are treated from a tax perspective.