US SEC Announces Innovation Exemption for Tokenized Securities, Approves Limited Trading

The US Securities and Exchange Commission (SEC) announced the introduction of an 'Innovation Exemption' that will apply a conditional five-year regulatory exemption for tokenized security trading platforms. Platforms meeting certain criteria can operate tokenized stock trading services without requiring separate exchange designation.

According to CoinDesk, on July 17 (local time), the SEC's Innovation Exemption allows Tokenized Securities Venues (TSVs) to trade tokenized securities using automated market makers (AMMs) and liquidity pools. TSVs can pool underlying assets like stocks under SEC supervision and automatically match buyers and sellers through algorithms.

The SEC also permits both direct tokenization by security issuers and third-party tokenization of existing securities, subject to certain conditions. Platforms utilizing the Innovation Exemption will be exempt from the definition of 'exchange' under US securities law and related registration requirements for five years, provided they notify the SEC before commencing operations upon meeting exemption criteria.

The exemption applies only to tokens representing actual stock ownership. Tokenized stocks covered by the exemption must provide investors with dividend rights and voting rights equivalent to traditional shares. Synthetic securities tokens that merely track stock prices without providing actual ownership are excluded from the exemption, meaning some platforms' tokenized stocks may not qualify for the Innovation Exemption.

SEC Chair Gary Gensler stated, 'The Innovation Exemption is a significant step toward promoting on-chain trading of tokenized stocks and transitioning U.S. capital markets to a digital era,' adding that 'this exemption is a temporary measure designed to allow companies to immediately operate services within approved environments.' Gensler also noted that long-term rulemaking will be necessary for on-chain markets to remain sustainable pathways for capital markets.