SEC Unveils 'Innovation Exemption' for Tokenized Stocks on Chain
The US Securities and Exchange Commission (SEC) has introduced an 'Innovation Exemption' rule, allowing certain tokenized stocks to trade directly on-chain. This move comes after Congress failed to advance the CLARITY Act, despite months of negotiation. The SEC said it's been working for over a year to bring clarity to digital assets and end its old policy of 'regulation by enforcement.'
The order grants two specific exemptions: it exempts certain trading venues from being classified as traditional stock exchanges, and it exempts liquidity providers from being classified as dealers under existing securities law. These exemptions remove a major legal grey area that had been discouraging platforms from experimenting with on-chain stock trading in the US.
The exemption is temporary, expiring after five years, and comes with strict conditions: the trading venue must be a US-based entity, traders must be cleared to trade tokenized stocks, synthetic or fake versions of stocks are not allowed, companies whose stock gets tokenized must be notified and can choose to opt out, and tokenized stock must give holders the exact same rights as regular shares bought through a normal brokerage account.
The SEC framed this move as part of its broader effort to keep the US competitive in building next-generation financial infrastructure, even as lawmakers continue struggling to pass comprehensive crypto legislation.