The Securities and Exchange Commission established a five-year Innovation Exemption on Sept. 17, creating a pathway for tokenized National Market System (NMS) stocks to trade on-chain without full securities exchange registration, provided venues meet specific conditions.
Tokenized stocks must grant holders the same rights as underlying shares, including dividends and voting rights. Trading venues must implement permissioned user access and liquidity pools to qualify for the exemption.
The exemption explicitly excludes synthetic stock tokens, which track share prices without conferring shareholder rights. Existing offerings like Robinhood's Stock Tokens and Kraken's xStocks are not compliant in their current forms.
Coinbase's tokenized stock model aligns with the new rules. CEO Brian Armstrong said the company's tokenized stocks are "real fully-backed securities, redeemable for the underlying shares, with dividends integrated" and voting rights included.
Third parties can tokenize a stock without direct issuer affiliation, but the issuer retains veto rights before trading begins. Peter Curley, head of global regulatory affairs at Ondo Finance, noted that the exemption provides temporary relief from exchange registration for venues trading tokenized NMS stocks through permissioned AMM pools.
SEC Commissioner Hester Peirce said the exemption targets a particular tokenized securities model and that the commission remains open to considering other models outside this structure.
