SEC grants five-year exemption for U.S. tokenized stock trading
The SEC unveiled a five-year exemption allowing platforms to trade tokenized stocks under fewer exchange rules, while setting issuer-consent requirements and excluding synthetic products.
The relief covers platforms that facilitate trading in blockchain-based stocks and other securities, exempting them from many rules applying to the Nasdaq, NYSE and other stock exchanges. Liquidity providers in tokenized stocks will receive a separate five-year exemption from dealer registration requirements.
Key details of the SEC exemption
- The exemption will run for five years for eligible tokenized-stock trading platforms.
- Liquidity providers will receive five-year relief from dealer registration requirements.
- Platforms must notify companies before listing tokenized versions of their shares.
- A platform cannot offer a tokenized stock if the issuer objects.
- “Synthetic” tokens that provide stock exposure through a derivative or another product will not be permitted.
The Securities and Exchange Commission said the exemption is needed because tokenized-stock platforms may face substantial difficulties complying with federal securities laws “without potentially burdensome changes” to their business models.
Investor protections and market standards
The initiative is intended to bring digital assets more deeply into traditional securities markets while maintaining protections for investors and standards for market integrity.
“The Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards,” said SEC Chair Paul Atkins in a statement.
The requirement to notify issuers gives companies the ability to prevent tokenized versions of their stocks from being offered. The prohibition on synthetic products also limits the exemption to tokenized securities rather than derivatives or other instruments that merely track a stock’s performance.
Crypto companies prepare U.S. offerings
The crypto industry says tokenized securities could allow shares to trade 24/7 and settle instantly, potentially increasing liquidity and reducing transaction costs. The SEC said the products could also enable investor self-custody and fractional share ownership.
Coinbase has signaled that it plans to launch tokenized stocks in the United States when regulations permit. Robinhood (NASDAQ: HOOD), Kraken and several other crypto exchanges already offer tokenized stocks overseas.