The Securities and Exchange Commission has issued a five-year Innovation Exemption allowing certain venues to trade tokenized National Market System (NMS) stocks on-chain without full securities exchange registration.
The exemption establishes strict requirements: tokens must grant holders identical rights to underlying shares, including dividends and voting rights. Trading venues and liquidity pools must be permissioned.
The framework explicitly excludes synthetic stocks, which track price without providing shareholder rights. Robinhood's Stock Tokens and Kraken's xStocks, in their current forms, do not meet the new compliance requirements.
Coinbase's stock tokens align more closely with the rules. Brian Armstrong, Coinbase's chief executive, said the company's tokenized stocks are fully-backed securities, redeemable for underlying shares, with integrated dividends and voting rights.
Peter Curley, head of global regulatory affairs at Ondo Finance, said the SEC's Sept. 17 order provides temporary relief for venues trading tokenized NMS stocks through permissioned AMM liquidity pools.
While a third party can tokenize a stock without issuer affiliation, the issuer retains the right to reject the token before trading. This mechanism ensures issuer consent within the on-chain stock framework.
