SEC Approves Tokenised Trading in the US Under 5-Year Exemption

The U.S. Securities and Exchange Commission (SEC) issued a five-year conditional exemption on 17 September, creating a new category called the Tokenized Securities Venue (TSV). This allows regulated entities to list and trade tokenized versions of U.S.-listed equities without registering as exchanges, while exempting liquidity providers from dealer registration under the Exchange Act. The exemption, branded the 'Innovation Exemption,' is paired with a public comment period to determine whether the relief should be made permanent or expanded. SEC Chairman Paul Atkins described the move as a temporary bridge toward durable rulemaking for on-chain markets.

A TSV operates permissioned automated market maker (AMM) liquidity pools on public blockchains, enabling participants to trade against these pools rather than through a central order book. Only tokenized National Market System (NMS) stocks are eligible for now, with each token required to carry identical dividend, voting, and liquidation rights as the underlying share. Synthetic instruments and derivatives are excluded. The order divides eligible stocks into two tiers: Tier 1 includes S&P 500 and Russell 1000 constituents plus eligible ETPs, capped at 75 symbols, while Tier 2 covers remaining NMS stocks up to 250 symbols.

Volume caps apply to each tokenized stock, with Tier 1 tokens limited to 0.25 percent of the underlying stock’s average daily volume (ADV) in the prior month, and Tier 2 tokens capped at 2.5 percent of ADV. Volume is aggregated across affiliated TSVs. A first breach of the volume cap incurs no penalty, but subsequent breaches trigger a mandatory three-month trading pause in the affected symbol. The exemption also addresses issuer concerns by requiring TSVs to notify issuers of third-party tokenization plans and wait 30 days for a potential veto.

The SEC’s Innovation Exemption is one of three recent actions aimed at tokenized securities, following proposals in August and September to accommodate blockchain-based recordkeeping and crypto offerings. Commissioner Hester Peirce highlighted challenges such as thinner overnight order books and wider spreads during a roundtable on 24-hour trading. The exemption provides clarity for U.S. crypto companies but remains vulnerable to reversal by future commissions, though retroactive penalties are unlikely for good-faith compliance.