The U.S. Securities and Exchange Commission on Thursday issued an order creating a regulatory pathway for certain trading venues to issue tokenized representations of publicly traded U.S. stocks, effective immediately.
The Innovation Exemption gives qualifying trading platforms and liquidity providers the relief needed to facilitate tokenized stock trading if they meet set conditions. It runs for five years and is not a formal rulemaking.
Two requirements have drawn the most debate. Holders of stock tokens must retain the same rights they would have with traditional equity, including dividends and voting rights. Companies must also be able to object to having their securities represented as tokens.
Trading platforms must notify a company before tokenizing its shares and wait 30 days after the company receives notice to begin trading. If the company objects within that window, the venue cannot make the tokenized stock available, an SEC spokesperson said. The exemption also includes volume limits meant to reduce the risk of major swings.
“The Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards,” SEC Chair Paul Atkins said in a statement.
The order arrives two days after the Clarity Act, the crypto industry’s main push for regulatory certainty, was blocked from advancing in the Senate. That bill would have set rules for how digital assets, including tokenized securities, are classified and regulated. The SEC is now defining that boundary through its existing authority under its “Project Crypto” initiative, launched last year.
Tokenization refers to issuing digital representations of securities or other assets on a blockchain. Wider adoption could change how securities are traded and settled, though it also carries risks including increased volatility.
Coinbase, Robinhood, Gemini and Payward’s Kraken exchange have launched offshore tokenized equity offerings but have not yet offered them to U.S. customers. The rights debate intensified after a public dispute between the chief executives of Robinhood and AMC over Robinhood’s stock-token model. AMC’s Adam Aron argued the practice created exposure to AMC stock without the company’s involvement.
Robinhood said this week it is moving to address those concerns, planning to let stock-token holders redeem their tokens for the underlying shares on a 1:1 basis and to add voting rights.
Atkins said the interim measure must be followed by durable rulemaking to keep onchain markets viable as capital markets evolve.