US securities regulator rolls out five-year exemption for tokenized stock trading

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Sept 17 : The U.S. Securities and Exchange Commission on Thursday unveiled its long-awaited exemption that will allow companies to offer trading in blockchain-based or "tokenized" stocks and other securities, in a major move that could integrate digital assets more deeply into traditional markets. 

The agency is offering a five-year exemption to platforms that facilitate trading of tokenized stocks from many of the rules that apply to the Nasdaq, NYSE and other stock exchanges. 

It is also offering liquidity providers in tokenized stocks a five-year exemption from dealer registration requirements. 

Platforms would be required to notify companies before listing tokenized versions of their stocks, and would be barred from offering those products if the issuer objects, according to an SEC official. 

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"Synthetic" tokens offering exposure to a stock via a derivative or other product would not be permitted.

The crypto industry says tokenizing securities could revolutionize markets by allowing shares to ‌be traded 24/7 and settled instantly, boosting liquidity and reducing transaction costs. They could also allow investor self-custody and fractional ownership of shares, the SEC said.

The SEC said the exemption is necessary because platforms offering tokenized stocks may face substantial challenges complying with the federal securities laws "without potentially burdensome changes" to their business models.

"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," said SEC Chair Paul Atkins in a statement. 

Prominent crypto players including Coinbase have signaled that they plan to launch tokenized stocks in the ​United States when the rules allow. Robinhood, Kraken and several other crypto exchanges already offer tokenized stocks overseas.

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