The U.S. Securities and Exchange Commission has created a five-year exemption that allows certain blockchain-based platforms to list and trade tokenized securities without registering as traditional securities exchanges.
The SEC unveiled the long-awaited framework Thursday, giving tokenized securities venues (TSVs) a clearer route to operating onchain markets. Under the order, qualifying platforms can use automated market makers and liquidity pools to facilitate trading in tokenized securities.
The exemption is conditional and lasts for five years. During that period, eligible venues can avoid being classified as an “exchange” under U.S. securities law as long as they comply with the requirements set by the regulator.
TSVs will operate under SEC supervision, managing pools of assets while relying on algorithms to coordinate transactions between buyers and sellers. The order also establishes conditions for tokenizing securities either directly by their issuers or through third parties.
SEC Chairman Paul Atkins described the move as part of the agency’s effort to bring traditional financial markets onto blockchain infrastructure.
“The Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption,’” Atkins said.
Real Ownership Required
The exemption does not cover synthetic tokens that merely track securities through derivative contracts without representing ownership of the underlying shares.
Instead, eligible tokens must correspond to actual ownership of the stock. Atkins said holders must receive “the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights.”
That condition could prevent certain derivatives and debt products available through offshore platforms, including some offerings associated with Robinhood, from qualifying under the framework.
Platforms will not need to obtain an individual designation from the SEC before launching. Instead, companies that believe they meet the definition of a TSV and satisfy the exemption’s conditions can notify the regulator before starting their tokenization operations.
Exemption Starts With Five Years
The SEC’s new policy is explicitly temporary. Atkins said the framework allows companies to operate “in a permissioned environment today while the commission considers the need for additional action to facilitate onchain trading.”
He also said the temporary exemption “must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve.”
The announcement gives further momentum to tokenization, one of Wall Street’s largest blockchain initiatives. Tokenization involves representing traditional assets, including stocks, bonds and investment funds, as blockchain-based tokens.
Supporters of the technology argue that tokenized securities could move more efficiently between investors and financial platforms while enabling faster settlement, continuous trading and potentially lower costs. Banks, asset managers and financial-market infrastructure providers have increasingly explored the sector. Citi analysts have estimated that the tokenized-asset market could reach $5.5 trillion by 2030.
The SEC’s framework also provides companies with an opportunity to object when their securities are being tokenized by another party. A TSV must give an issuer 30 days’ advance notice before tokenizing its securities, allowing the company to raise an objection.
An SEC official said that objection could simply involve the company stating that it does not agree to the tokenization.
SEC Moves Ahead After CLARITY Act Setback
The SEC had previously held back on the initiative while lawmakers considered legislation that could have provided a broader legal foundation for crypto market policies. That situation changed after the Digital Asset Market Clarity Act failed to advance in the Senate on Tuesday.
The bill received 49 votes, falling short of the 60 votes required to proceed.
Following the setback, Atkins wrote on X on Wednesday that the SEC “will act decisively within the SEC’s statutory authority to deliver certainty for American investors and for the entrepreneurs shaping our technological future.”
“Stay tuned,” Atkins added at the time, before the agency released the tokenization exemption a day later.
The SEC has been advancing several other crypto-related initiatives. Last month, it introduced a major proposal aimed at creating a pathway for certain crypto offerings without triggering specific securities oversight requirements.
On Sept. 1, the regulator proposed its first significant overhaul of transfer-agent rules in four decades. The proposal specifically addressed blockchain-based systems for recording securities ownership.
The SEC is also scheduled to hold a Thursday roundtable examining 24-hour trading, a model widely used in crypto markets that could significantly change how traditional securities markets operate.
It remains uncertain whether Congress will eventually pass legislation providing a statutory foundation for the SEC’s tokenization framework. For now, the agency is relying on its existing authority to exempt narrowly defined businesses from portions of its securities regulations.
Atkins and the SEC’s two other Republican commissioners are using those powers to advance the agency’s digital-asset agenda, although future regulators could potentially modify or reverse policies established through the exemption.
