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.

SEC Chair Paul Atkins said the Commission was moving to “facilitate onchain trading of certain tokenized stocks”, following his earlier comments that the administration would continue advancing crypto regulation “with or without” the CLARITY Act, after the Senate failed to advance the legislation earlier this week.

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. Atkins said investors must retain “the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights”.

He added that issuers can “object and prevent their security from trading on a TSV”.

The SEC will publish regular trading data – things like price, trade size and pool activity – to keep the market visible as it studies how TSVs actually behave. 

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.

Uyeda said regulation should focus on outcomes rather than legacy rulebooks, aiming for rules that “can effectively adapt to onchain environments while preserving investor protection”. 

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.