SEC grants five-year path for onchain trading of tokenized stocks

The U.S. Securities and Exchange Commission on Sept. 17 granted conditional relief for certain venues to trade tokenized U.S. stocks on public blockchains, creating a limited route for onchain securities trading while preserving issuer and investor protections. The SEC order exempts qualifying Tokenized Securities Venues (TSVs) from the Exchange Act definition of “exchange” and certain liquidity providers from the definition of “dealer.” Both exemptions run for five years after publication.

How does a tokenized stock trade on a TSV?

A TSV brings buyers and sellers together through permissioned automated market makers (AMMs) and liquidity pools. In an AMM, smart contracts set token prices based on the ratio of assets committed to a pool; participants trade against those prices, and the contracts adjust prices as assets enter or leave. The SEC describes this as a mechanism for agreeing trade terms on a public, permissionless distributed ledger, while the venue controls who can access the pool.

The order covers stock tokenized by or on behalf of its issuer, or by an unaffiliated third party. It excludes synthetic tokens that provide exposure to an underlying stock through a linked security or security-based swap. TSVs must verify that eligible tokens confer the same rights and privileges as an equivalent class of traditional stock. SEC Chairman Paul Atkins said those rights include dividends and voting.

What conditions apply before a venue can trade?

The exemption is conditional, not a general authorization for any crypto exchange to list shares. TSVs must be U.S. persons, set participant-access standards and comply with the order’s requirements for public notice, transaction transparency, records and technology safeguards. The SEC fact sheet says a venue must publish an operating notice at least 30 calendar days before it begins operating and notify the Commission within one business day of publication.

Tokenized stocks are also subject to limits on the number of symbols and trading volume. Smart contracts must be auditable and public, and run on a public, permissionless ledger. If a third party tokenizes a stock, the venue must give the underlying issuer written notice and an opportunity to object before trading begins. The TSV must halt token trading when the stock’s primary listing exchange halts trading in the underlying share.

What does the exemption leave unresolved?

The order creates temporary regulatory relief to let the SEC observe these venues as it considers future action; it does not set permanent rules. The Commission is seeking public comment on possible modifications and next steps. It also does not remove the federal securities laws’ anti-fraud and anti-manipulation provisions, which Atkins said continue to apply in full.

For liquidity providers, the separate dealer exemption applies to firms supplying tokenized stock from their own capital in a TSV pool, including firms that quote prices or commit capital, subject to conditions. The SEC’s 60-page order limits that relief to activity tied to tokenized NMS stock trading in pools operating under the TSV exemption. The practical scope will therefore depend on venues meeting the notice, access, asset-rights and trading-limit requirements before they open.