U.S. SEC Issues Innovation Exemption Approving Trading Of Tokenized Stocks

The U.S. Securities and Exchange Commission (SEC) has issued the much-anticipated innovation exemption for tokenized stock trading. The exemption lasts for five years and officially provides a pathway for traders to trade traditional assets 24/7.

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SEC Issues Innovation Exemption For Tokenized Stock Trading

In a press release, the Commission announced that it had issued an order granting conditional exemptive relief to Tokenized Securities Venues (TSVs) to trade tokenized National Market System (NMS) stock using innovative permissioned automated market makers and liquidity pools.

Notably, the SEC innovation exemption for tokenized stocks lasts for five years and will expire five years after publication. The Commission’s order also solicited public comment on possible modifications to the exemptive relief.

This comes just days after the CLARITY Act cloture vote failed. SEC Chair Paul Atkins said the crypto agenda will still proceed regardless of what happens with the crypto bill. The SEC had earlier released the proposed ‘Reg Crypto’ framework to provide a way for crypto startups to raise funds.

The SEC innovation exemption now provides a pathway for platforms such as top crypto exchanges Coinbase and Robinhood to offer tokenized stocks to their users. Hyperliquid’s HYPE surged on the news, as the perp DEX offers these stocks through its HIP-3 market. Kraken’s parent company, Payward, confirmed that it is bringing Hyperliquid’s HIP-3 markets to its users.

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A ‘Significant Step’ To Bring America’s Capital Markets Onchain

SEC Chair Paul Atkins said the innovation exemption is a significant step toward bringing America’s capital markets into the digital age. He also highlighted that this would allow TSVs to trade tokenized stocks in a permissioned environment while the Commission considers the need for additional action to facilitate onchain trading.

“As we take this important first step, we invite public comment on all aspects of the Innovation Exemption to help inform the Commission as it considers further changes.” The Commission outlined several conditions that TSVs must adhere to.

Firstly, tokenized stocks on these platforms are subject to limits on the number of symbols and volume traded. These platforms must also verify that tokenized stocks provide holders with the same rights and privileges as holders of traditional stock enjoy.

Smart contracts used by the TSVs must be auditable, public and deployed on a public, permissionless distributed ledger. Platforms must stop trading the tokenized stock concurrently with any stoppage of the underlying stock on the primary listing exchange. “A TSV must provide public notice about its operations, trading activities, and the trading activities of its affiliates on the TSV,” the last condition read.

To trade tokenized stocks, check out Best Platforms to Trade Tokenized Stocks