The U.S. Securities and Exchange Commission (SEC) approved a temporary regulatory exemption allowing tokenized U.S. stocks to trade on specialized on-chain venues.
The SEC approved the Innovation Exemption, a temporary framework providing conditional relief from certain regulatory requirements for Tokenized Securities Venues (TSVs), on-chain platforms for trading tokenized securities. These platforms will be able to facilitate trading in tokenized stocks that are part of the U.S. National Market System (NMS) using automated market makers (AMMs) and liquidity pools.
The regulator views the new framework as a controlled experiment designed to study how on-chain infrastructure operates and collect data that could be used to develop permanent rules. According to SEC Commissioner Mark Uyeda, tokenization could transform the infrastructure for issuing, trading, transferring, and settling securities, as well as recording ownership rights. It could potentially reduce costs while increasing transparency and liquidity.
The Innovation Exemption provides TSVs with temporary relief from requirements that could apply if such venues were classified as exchanges under the Securities Exchange Act. The exemption applies only if the conditions established by the SEC are met.
In particular, TSV operators will be required to:
- publish information about how their platforms operate in advance;
- ensure transaction transparency;
- coordinate trading halts;
- maintain and retain documentation required by the regulator;
- comply with technological safeguards for their infrastructure;
- observe limits on the number of available tickers and trading volumes.
The SEC will cap tokenized stock trading volumes, with different limits depending on the securities category under the Limit Up-Limit Down (LULD) system. The SEC therefore plans to limit the scale of the experiment in terms of both the range of tokenized securities available for trading and permitted transaction volumes.
A separate set of requirements covers the disclosure of trading information. At specified intervals, TSVs must publish transaction data in U.S. dollar terms, including the price and size of each trade, the time it took place, and the pool address. They must also disclose the pool size at the end of each day and aggregate daily trading volume. The SEC expects to use this information for market monitoring, reducing information asymmetry, and analyzing how securities trading works through on-chain infrastructure.
The Innovation Exemption also provides separate relief for certain liquidity providers that use their own capital. To qualify, participants must meet specified conditions, including disclosure and recordkeeping requirements.
The framework is temporary and doesn’t establish a permanent regulatory model for tokenized securities in the U.S. The SEC intends to observe how TSVs operate and how market participants behave before developing long-term rules. The Commission also requested feedback on the parameters of the Innovation Exemption, including quantitative metrics, case studies, incident analyses, and data obtained from live or test environments.
The SEC plans to create a comprehensive regulatory framework for digital assets and blockchain infrastructure over the next 5 years, making regulation of the industry and related financial services one of its strategic priorities.
