The Securities and Exchange Commission announced a five-year exemption that allows companies to facilitate trading of blockchain-based tokenized stocks and securities. The move is intended to accelerate the agency's plan to integrate digital assets into the financial economy. Under the exemption, certain platforms receive regulatory relief as long as they meet specific conditions.
Those conditions require platforms to ensure holders of tokenized stocks receive the same rights they would have with traditional stock holdings. Companies must also be given the opportunity to object to having digital representations of their securities traded. The SEC said it is granting a similar five-year exemption to liquidity providers, freeing them from regulatory obligations expected of traditional dealers.
The SEC said the exemption is necessary because trading platforms planning to offer tokenized stocks would face significant difficulty complying with existing federal securities laws. Adhering to those laws would require potentially burdensome changes to their business models, according to the agency. SEC Chair Paul Atkins said the Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards.
Tokenization creates digital representations of publicly traded securities that live on blockchain networks. Proponents say the technology could change financial markets by enabling stocks to be traded 24/7 and settled instantly without intermediaries, which would increase liquidity and reduce transaction costs. Tokenized stocks also make it easier for investors to retain self-custody of securities and allow fractional ownership of individual shares.
Coinbase Global Inc., Robinhood Inc. and Gemini Trust Co. LLC have all launched tokenized stock trading outside the U.S. but have held back from offering it domestically. The companies have indicated a willingness to do so once regulators give clearance. Crypto analysts say the exemption could lead to structural changes in the equities markets and potentially allow crypto companies to challenge traditional brokerages such as Charles Schwab and Morgan Stanley.
The announcement came days after the Senate voted down President Donald Trump's Clarity Act, which sought to regulate crypto assets at the federal level and establish the U.S. as a leader in digital asset innovation. The defeat was seen as a major blow to the crypto industry and to Trump, who has championed digital assets and made considerable money from issuing his own memecoin, $TRUMP. Trump installed pro-crypto officials at the SEC, including Atkins, who replaced former Chair Gary Gensler, who was seen as extremely anti-crypto. Last year, Atkins announced a Project Crypto initiative with the long-term goal of bringing America's financial markets on-chain.
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