SEC Clears Tokenized Stocks Path With 5-Year Exemption

The SEC's Innovation Exemption lets venues issue tokenized U.S. stocks with full shareholder rights; companies get 30 days to object.

The Securities and Exchange Commission on Thursday issued an order, effective immediately, creating a regulatory pathway for certain trading venues to issue tokenized representations of publicly traded U.S. stocks. The so-called Innovation Exemption gives trading platforms and liquidity providers regulatory relief to facilitate tokenized stock trading, provided they meet conditions including volume limits designed to mitigate volatility risks. SEC Chair Paul Atkins said the 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." The five-year exemption is part of the agency's Project Crypto initiative to bring America's financial markets onchain, and is meant to open market activity that could inform final rules.

With Congress stalling, the SEC is moving to define the regulatory boundary for tokenized securities through its existing authority rather than wait for new law. According to CNBC, Atkins stressed the agency is not locking in today's technology: "The Commission is not cementing today's technology as the standard for tomorrow," he said, while warning that the interim measure "must be followed by durable rulemaking." The exemption arrives amid a turbulent tape for risk assets, as Investor's Business Daily reports futures rebounded Thursday after the Fed's first rate hike since 2023 sent the market lower Wednesday.

Two requirements have emerged as key points of contention in the investment community, per CNBC. First, holders of stock tokens must retain the same rights and privileges as traditional securities, including rights to receive dividends and exercise voting rights. Second, companies must be able to object to having their securities represented as tokens: platforms must notify the company and wait 30 days after the company receives notice before trading begins, and if the company objects within that window, the venue cannot list the token. The debate sharpened after a public fight between Robinhood and AMC, whose CEO Adam Aron argued that creating stock exposure without the issuing company's involvement undermines the traditional relationship between companies and shareholders. Robinhood says it now plans to let token holders redeem tokens 1:1 for underlying shares and add voting rights.

Tokenization — issuing digital representations of securities or other assets on blockchain networks — could change how stocks are traded and settled, potentially enabling 24/7 trading and easier integration with blockchain-based financial infrastructure. Coinbase, Robinhood, Gemini and Kraken have already launched tokenized equity offerings offshore but have yet to offer them to U.S. customers, so the exemption could reshape where that activity lands. CNBC notes the drawbacks include increased volatility and greater exposure to large price swings when trading is thin, which the volume limits aim to contain. An SEC spokesperson said the Commission has had discussions with issuers and that feedback suggests the technology will be adopted in some form. The real test is whether the five-year experiment generates enough market insight — and issuer buy-in — to produce durable rulemaking that keeps onchain markets viable.