SEC Opens Door to Onchain Stock Trading With New ‘Innovation Exemption’

The regulator has granted temporary relief allowing certain venues to facilitate trading of tokenized US stocks through onchain liquidity pools.

The US Securities and Exchange Commission has introduced an “Innovation Exemption” that’s designed to facilitate secondary trading of tokenized stocks on blockchain-based protocols.

Under the order, which was issued on September 17, Tokenized Securities Venues (TSVs) can receive temporary, conditional relief from being classified as exchanges under the Securities Exchange Act. The venues will be able to facilitate trading of tokenized National Market System stocks through permissioned AMMs (Automated Market Makers) and liquidity pools.

However, it’s important to note that there are a few safeguards that come in place with the exemption. Tokenized shares must provide holders with the same rights as the equivalent traditional stock, while trading volumes and the number of available securities will be limited.

Smart contracts used by TSVs must also be publicly auditable and deployed on public, permissionless blockchains. Trading has to halt whenever the underlying stock is suspended on its primary exchange.