US SEC Introduces Innovation Exemption for Tokenized NMS Stocks On-Chain Trading

The US SEC has introduced an Innovation Exemption for tokenized NMS stocks on-chain trading. This exemption is conditional and will be applied until September 17, 2031, giving a five-year window for the development of permanent rules. According to Paul S. Atkins, Chairman of the SEC, this measure represents 'an important first step' towards creating permanent regulations. The exemption allows tokenized NMS stocks to be traded on-chain through a Tokenized Securities Venue (TSV), provided that certain conditions are met. These include limiting access to participants, ensuring smart contracts used by TSVs can be audited and publicly disclosed, and expanding the blockchain to a permissionless public ledger. Other requirements include capping the number of tradable assets and trading volume, as well as confirming that tokenized stocks have equivalent rights to their underlying shares in terms of dividend distribution and voting power. The SEC has also exempted certain dealers who provide liquidity to TSVs' Automated Market Makers (AMMs) from the definition of 'dealer' under the Securities Exchange Act of 1934. This exemption is not intended to exclude other regulations, such as anti-fraud provisions. The SEC will review public comments and use them to refine the system and develop future rules.