SEC rolls out temporary "Innovation Exemption" for tokenized NMS stock trading

The U.S. Securities and Exchange Commission on Thursday approved a temporary, conditional exemptive order allowing tokenized securities venues (TSVs) to trade tokenized National Market System (NMS) stocks without registering as a national securities exchange, the agency said. Dubbed the "Innovation Exemption," the relief permits TSVs to match buyers and sellers of on-chain stock tokens using permissioned automated market makers (AMMs) and liquidity pools. Under the order, a TSV must bring together buyers and sellers by operating one or more AMM-based liquidity pools limited to permissioned participants and by setting eligibility standards for access to trading on those pools. The SEC said the conditions are intended to keep the framework in the public interest and aligned with investor protection. The order also provides a conditional exemption from the dealer definition for liquidity providers that use proprietary capital to supply tokenized NMS stock, including by quoting prices to customers or committing capital. The exemptions are set to expire five years after publication. The SEC is also seeking public comment on potential changes and next steps ahead of publication in the Federal Register. "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 by facilitating onchain trading of certain tokenized stocks through the 'Innovation Exemption,"" SEC Chairman Paul S. Atkins said, adding that the temporary relief allows firms to operate in a permissioned environment while the Commission considers further action. Jamie Selway, director of the SEC Division of Trading and Markets, said the approval "marks an important milestone for the Commission's work to open our capital markets for tokenized securities." The move comes days after the Digital Asset Market Clarity Act stalled in the Senate, leaving the SEC to proceed under its existing statutory authority. It also builds on institutional efforts to develop infrastructure for tokenized equities, including work by ICE and tZERO tied to NYSE tokenized securities initiatives. The agency said it will use public feedback to determine whether additional rulemaking is needed to make on-chain stock trading a permanent feature of U.S. markets.