The U.S. Securities and Exchange Commission has opened a five-year regulatory window for platforms seeking to list and trade tokenized securities on blockchain-based markets without registering as traditional exchanges.
The regulator announced Thursday that companies operating tokenized securities venues, or TSVs, can use automated market makers and liquidity pools to support trading in tokenized securities under a new “Innovation Exemption.”
The exemption is conditional and applies for five years. During that period, qualifying venues will not have to meet the legal definition of an “exchange” under U.S. securities law, provided they follow the conditions outlined by the SEC.
Under the framework, TSVs will operate under SEC oversight while maintaining pools of required assets and using algorithms to coordinate trading between buyers and sellers. The order also establishes rules for tokenizing securities through either the original issuer or a third party.
SEC Chairman Paul Atkins said the initiative is intended to help bring U.S. capital markets further into the digital era.
“The Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption,’” Atkins said.
Tokens Must Represent Underlying Securities
The SEC’s exemption does not extend to synthetic security tokens that operate as derivatives without conveying ownership of the underlying shares.
Instead, eligible tokens must represent actual ownership of the stock. Atkins said token holders must have “the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights.”
That requirement could exclude some derivatives and debt-based products available through offshore platforms, including certain offerings linked to Robinhood.
The SEC will not require each TSV to receive a separate formal designation. Platforms that believe they satisfy the agency’s definition and comply with the exemption can instead submit notice before launching their tokenization operations.
Temporary Framework Could Lead to Permanent Rules
The five-year exemption is designed as an interim measure while the SEC considers broader regulatory action.
Atkins said the policy allows firms to operate “in a permissioned environment today while the commission considers the need for additional action to facilitate onchain trading.”
He added that the exemption “must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve.”
The decision comes as tokenization attracts growing attention across Wall Street. The process involves placing representations of traditional financial assets, including stocks, bonds and investment funds, on blockchain networks.
Financial institutions and asset managers are increasingly exploring tokenization as a way to enable faster settlement, continuous market access and potentially lower transaction costs. The technology could also make securities easier to distribute and use as collateral.
Citi analysts have estimated that tokenized assets could reach a $5.5 trillion market by 2030.
The SEC’s framework also gives issuers an opportunity to object when another party wants to tokenize their securities. A TSV must notify the issuer at least 30 days before tokenizing its securities and provide an opportunity to object.
An agency official said an issuer could potentially satisfy that process simply by informing the TSV that it objects to the tokenization.
SEC Moves Forward After Senate Crypto Bill Stalls
The SEC had previously waited while the Senate considered legislation that could have established a broader legal foundation for crypto market regulation. That legislative path suffered a setback Tuesday when the Digital Asset Market Clarity Act failed to secure enough votes to advance.
The bill received 49 votes, below the 60 needed to proceed.
After the Senate vote, Atkins said on X that the SEC “will act decisively within the SEC’s statutory authority to deliver certainty for American investors and for the entrepreneurs shaping our technological future.”
“Stay tuned,” he wrote Wednesday, one day before the SEC announced the tokenization exemption.
The agency has already taken several steps toward expanding its regulatory framework for digital assets. Last month, it released a major crypto rule proposal intended to provide a pathway for certain crypto offerings without triggering some securities-related oversight requirements.
On Sept. 1, the SEC also proposed its first major revision of transfer-agent rules in 40 years, specifically addressing blockchain-based systems for recording securities ownership.
The regulator is also scheduled to hold a roundtable Thursday focused on 24-hour trading. Continuous trading is common in cryptocurrency markets but could represent a major shift for traditional financial markets.
It remains unclear whether Congress will eventually establish legislation that gives the SEC’s tokenization approach a permanent statutory foundation. For now, the agency is relying on its existing authority to exempt narrowly defined businesses from certain regulatory requirements.
Atkins and the SEC’s two other Republican commissioners are using those powers to advance the agency’s approach to digital-asset markets, although future regulatory changes could alter or reverse policies established through the current exemption.
