SEC Grants Temporary, Conditional Relief to Enable Onchain Trading of Tokenized Stocks

SEC Chair Paul Atkins said the Commission has approved an "Innovation Exemption" designed to facilitate onchain trading in certain tokenized equities, following Congress' failure to advance the CLARITY Act more than a week ago. Issued under Section 36(a)(1) of the Exchange Act, the order provides two temporary, conditional exemptions. It relieves "Tokenized Securities Venues" (TSVs) from being treated as an "exchange" under the Exchange Act, and exempts certain liquidity providers ("regulated entities") from the definition of "dealer." Atkins stressed that federal securities laws' antifraud and antimanipulation provisions apply fully and without exception to securities activity in these markets. The SEC attached multiple investor-protection conditions. TSVs must be U.S.-based, comply with OFAC sanctions, and use a licensing-based access model that limits trading to specified participants. Synthetic products are barred. Tokenized NMS (National Market System) equities must be tokenized either by the underlying issuer or its representative, or by an unrelated third party, and token holders must have the same rights as traditional securityholders, including dividends and voting rights. Issuers also retain the right to object to and prevent their securities from trading on TSVs. Atkins said the Commission is not locking in today's technology as a future standard. Instead, it aims to allow market evolution, observe how it develops, and use the findings to shape a more flexible, forward-looking regulatory framework. The exemption is temporary, and the SEC is seeking public comment on all aspects. Atkins said the transitional approach must be followed by permanent rulemaking so onchain markets remain a viable path as U.S. capital markets continue to evolve.