US Market: SEC unveils five-year exemption for tokenized stock trading

The U.S. Securities and Exchange Commission (SEC) on Thursday unveiled a long-awaited five-year exemption designed to facilitate the trading of blockchain-based, or tokenised, stocks, marking a significant step toward integrating digital assets with traditional financial markets, Reuters reported.

According to the news agency, the exemption will allow certain platforms that facilitate tokenized stock trading to operate without complying with some requirements that apply to traditional stock exchanges such as the New York Stock Exchange and Nasdaq.

Read more: Global Market: Nikkei gains 1% as AI, chip stocks rally; BOJ hikes rates


The SEC has also provided a temporary exemption from dealer-registration requirements for certain liquidity providers participating in tokenized stock trading. The relief is conditional and is scheduled to expire five years after publication.

Issuers Can Object to Tokenized Listings

Under the SEC framework, platforms known as Tokenized Securities Venues, or TSVs, must notify companies before making tokenized versions of their stocks available for trading.

Companies will have an opportunity to object, and platforms cannot proceed with a tokenized listing if the issuer objects, according to the SEC.

The regulator has also specified that tokenized stocks must provide investors with the same rights and privileges associated with the equivalent traditional shares, including dividend and voting rights.

Synthetic Stock Tokens Excluded

The exemption does not cover synthetic tokens that merely track the price of a stock through derivatives or other financial arrangements.

Instead, the SEC framework focuses on tokenized versions of actual National Market System stocks. The agency said the framework is intended to enable on-chain trading while maintaining conditions aimed at protecting investors and preserving market integrity.

Blockchain Could Change Stock Trading

The crypto industry has argued that tokenized securities could alter how stocks are traded and settled. Blockchain-based trading could potentially support round-the-clock transactions, faster settlement, fractional ownership and greater investor control over assets.

The SEC has similarly identified potential benefits from tokenization, including reduced costs, improved transparency and increased liquidity. However, the agency has imposed conditions on the new trading venues, including limits on the number of securities and trading volumes.

Crypto Firms Prepare for US Market

The regulatory move could open the door for major crypto companies to expand tokenized-stock offerings in the United States.

Reuters reported that Coinbase has indicated plans to launch tokenized stocks in the U.S. once regulatory conditions permit. Robinhood, Kraken and other crypto platforms have already offered tokenized stocks in overseas markets.

The SEC's exemption is temporary and subject to public comment, leaving open the possibility of further changes to the framework. The agency said feedback from market participants will help inform future regulatory action as it considers how on-chain securities trading should develop.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)