SEC Unveils “Innovation Exemption” to Enable Onchain Trading of Tokenised Stocks

The US Securities and Exchange Commission (SEC) has approved a temporary exemption allowing certain tokenised US stocks to trade on selected onchain venues, marking a significant step towards bringing traditional securities markets onto blockchain infrastructure.

The SEC approved the Innovation Exemption on 17 September, providing temporary relief for Tokenized Securities Venues, or TSVs, from being treated as an “exchange” under the Exchange Act. Certain liquidity providers, known as Covered Firms, will also receive relief from being classified as “dealers” when they meet specified conditions.

The move comes after Congress was unsuccessful in advancing the CLARITY Act earlier this week. SEC Chair Paul Atkins said the Commission was taking a step forward within its existing statutory authority to facilitate onchain trading of certain tokenised stocks.

Today, 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.

SEC Chair Paul Atkins

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Investor Protections Remain in Place

The exemption is not a blanket approval for tokenised equities to trade freely on any blockchain-based platform. TSVs must meet a number of conditions, including being US persons, complying with sanctions requirements and operating permissioned venues where access is restricted to approved participants.

The rules also prohibit synthetic versions of stocks. Eligible tokenised stocks must be issued by, or on behalf of, the underlying issuer, or tokenised by an unaffiliated third party. Investors must retain the same rights and privileges as they would with the traditional security, including dividend and voting rights. Issuers will also have the opportunity to object and prevent their securities from trading on a TSV.

The SEC will also impose trading limits based on limit-up and limit-down tiers, while requiring regular public reporting of transaction data, including price, size, timing, pool addresses and daily volumes. Anti-fraud and anti-manipulation rules will continue to apply in full.

Commissioner Mark Uyeda said the exemption reflects the SEC’s broader use of its exemptive powers to allow new market structures and products to develop while maintaining investor protections.

“The goal should be to focus on outcomes and have technology-neutral regulation,” Uyeda said, adding that regulation should be able to adapt to onchain environments while preserving investor protection and market integrity.

Uyeda also pointed to money market funds, index funds and ETFs as examples of products that benefited from the SEC’s use of exemptive authority in the past. He said the Innovation Exemption would allow the regulator to “experiment responsibly, learn, and translate old protections to new contexts”.

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A Temporary Step Towards Permanent Rules

The SEC has made clear that the exemption is not intended to establish a permanent regulatory framework for tokenised securities.

Instead, the Commission plans to use the exemption to observe how onchain venues and market participants operate and gather data that could inform longer-term rules. The SEC is also seeking public feedback on the framework and its conditions.

Atkins said the exemption is intended to give TSVs a way to operate in a permissioned environment while the SEC considers further action.

The Innovation Exemption, while temporary, would allow TSVs to trade tokenized NMS stock in a permissioned environment today.

SEC Chair Paul Atkins

For the crypto industry, the decision gives tokenised US equities a clearer regulatory pathway, although the initial framework remains limited in scope and subject to strict conditions.