The Securities and Exchange Commission announced a five-year Innovation Exemption on Sept. 17, creating a specific regulatory path for tokenized National Market System (NMS) stocks to trade on-chain. The exemption allows certain venues and third parties to tokenize NMS stocks without registering as a securities exchange, provided they meet strict conditions.
Tokenized stocks must grant holders identical rights as underlying shares, including dividends and voting rights. Trading venues must implement permissioned user access and liquidity pools. The framework explicitly excludes synthetic stock tokens that track price without providing shareholder entitlements.
Robinhood's Stock Tokens and Kraken's xStocks, in their current synthetic forms, do not comply. Both platforms must restructure their tokenized stock offerings to meet the SEC's specifications. Robinhood CEO Vlad Tenev said, "Tokenization is coming to America," following the announcement.
Coinbase's stock tokens are positioned to comply. CEO Brian Armstrong said on Sept. 14 that Coinbase had "set the standard" with fully-backed securities, redeemable for underlying shares, with dividends and voting rights integrated. "They are not synthetic or debt instruments," he said.
The exemption provides temporary relief from exchange registration for venues trading tokenized NMS stocks through permissioned AMM liquidity pools, according to Peter Curley, Ondo Finance's head of global regulatory affairs. SEC Commissioner Hester Peirce emphasized that the exemption targets a particular model for trading tokenized securities and said the agency remains open to considering other models.
A third party can tokenize a stock without direct issuer affiliation, though the issuer retains the option to reject the token before it trades on an eligible venue.
Markets reacted to the news, with Bitcoin and Ethereum prices rising over 10 percent. Uniswap's UNI token gained more than 30 percent in the days following the announcement.
