The Securities and Exchange Commission announced an Innovation Exemption establishing a five-year framework for venues to trade tokenized National Market System stocks on-chain without full securities exchange registration. Third parties can also tokenize NMS stocks under specific conditions.
Tokenized stocks must grant holders identical rights and privileges as underlying shares, including dividends and voting rights. Trading venues must implement permissioned user access and liquidity pools. Issuers retain the right to reject tokenization before trading commences.
The exemption distinguishes between fully-backed tokenized shares and synthetic exposures. Tokens that merely track a share's price without conveying shareholder rights do not comply.
Robinhood's Stock Tokens and Kraken's xStocks, in their current synthetic form, fall outside the framework and require re-evaluation for compliance.
Coinbase's tokenized stocks are positioned to meet requirements. Chief executive Brian Armstrong stated on Sept. 14 that the company had "set the standard" with fully-backed, redeemable tokens that integrate dividends and include voting rights.
The SEC's Sept. 17 order grants temporary relief from exchange registration for venues trading tokenized NMS stocks through permissioned automated market maker liquidity pools. Peter Curley, head of global regulatory affairs at Ondo Finance, noted this specific model accommodates the structure.
Commissioner Hester Peirce clarified the exemption addresses one particular model for tokenized securities trading and indicated SEC openness to considering other models.
Market reaction following the announcement was pronounced. Bitcoin and Ethereum each rose over 10 percent in subsequent days. Uniswap's UNI token gained more than 30 percent during the same period.
