WASHINGTON — The Securities and Exchange Commission opened a five-year path for tokenized National Market System (NMS) stocks last week with its Innovation Exemption, allowing certain venues to trade these assets on-chain without registering as a securities exchange. The exemption, issued in an SEC order on Sept. 17, also enables third parties to tokenize stocks under specific conditions.
The new framework requires tokenized stocks to grant holders the same rights as the underlying shares, including dividends and voting rights. This stipulation rules out synthetic stock tokens, which track price without conveying shareholder entitlements, making them non-compliant with the new regulations.
Trading venues must permission users and liquidity pools to qualify for the exemption. The issuer of the underlying security retains the right to reject a tokenization attempt before it can be traded. These mechanics are central to the SEC's approach, with permissioned automated market maker (AMM) liquidity pools appearing key to the framework.
Robinhood chief executive Vlad Tenev said, “Tokenization is coming to America,” following the announcement. However, Robinhood’s existing Stock Tokens are non-compliant in their current form due to their synthetic exposure model. Kraken’s xStocks also fall outside the new rules for the same reason.
Coinbase appears well-positioned under the new guidelines. On Sept. 14, Coinbase CEO Brian Armstrong said the company had “set the standard” with its tokenized stocks. Armstrong confirmed Coinbase’s offerings are not synthetic or debt instruments, but are “real fully-backed securities, redeemable for the underlying shares, with dividends integrated,” and include voting rights.
SEC Commissioner Hester Peirce clarified that the exemption specifically covers one model for trading tokenized securities. She said the commission remains open to considering other models beyond this initial structure.
Bitcoin (BTC) and Ethereum (ETH) prices each rose over 10 percent in the days following the exemption. Uniswap’s native UNI token gained more than 30 percent, reflecting market sentiment that the protocol could become a significant venue for compliant tokenized stock trading.
Ondo Finance’s head of global regulatory affairs, Peter Curley, emphasized the SEC’s Sept. 17 order provides temporary relief from exchange registration for venues trading tokenized NMS stocks through permissioned AMM liquidity pools. The requirements place equal importance on the token’s structure and the trading venue's operational model.
Regulatory clarity for on-chain stock trading is narrow. It focuses on a direct representation model for NMS stocks, ensuring that token holders possess true shareholder rights. This approach differentiates compliant tokenized securities from derivative or synthetic products, establishing a distinct lane for capital market innovation on public blockchains.
