US SEC opens door for tokenized stock trading in traditional markets

The U.S. Securities and Exchange Commission (SEC) is moving to allow blockchain-based tokenized stocks to enter traditional U.S. securities markets.

On September 17, the SEC released a rule titled the "Innovation Exemption," which permits trading platforms meeting specific criteria to offer tokenized stock trading in the United States. The rule grants these platforms several regulatory exemptions for a period of five years.

The SEC stated that the initiative aims to allow market participants to explore on-chain stock trading in a controlled environment, while enabling regulators to gather experience for developing long-term rules.

Regulating the Tokenized Stock Market

Tokenized stocks are digital certificates generated on blockchains that represent ownership of traditional equity.

Proponents of tokenized stocks argue that, compared with traditional stocks, such products can:

• Enable round-the-clock trading
• Reduce certain transaction costs
• Serve more easily as collateral for financing

Tokenized stocks are not new. U.S. retail brokerage Robinhood has already offered tokenized stock services outside the United States. However, its listed tokens are pegged to shares of publicly traded companies without issuer authorization, drawing widespread criticism.

Recently, AMC Entertainment Holdings CEO Adam Aron publicly criticized token products linked to AMC’s stock, stating that the company had "no involvement" with such products and did not endorse them, describing these trades as a "near-fake market."

Under the SEC's new rules, companies planning to launch tokenized stock businesses in the United States must:

• Provide written notice to the issuers of the underlying stocks
• Give issuers an opportunity to raise objections

Blockchain-based tokens must also grant investors rights identical to those associated with traditional stocks, such as voting rights. If trading is suspended on traditional exchanges, trading of the corresponding tokenized stocks must also cease simultaneously.

This means that issuers such as Robinhood and Payward (parent company of Kraken) will need to adjust their current business models targeting overseas investors to comply with SEC requirements. These institutions previously listed related shares without seeking permission from stock issuers, and investors did not enjoy direct voting rights.

To boost the digital market, the SEC's "Innovation Exemption" rule also provides platforms intending to conduct tokenized stock trading with a five-year exemption from multiple regulatory provisions applicable to traditional exchanges like Nasdaq and the New York Stock Exchange.

John Kehrblatt, head of Robinhood’s cryptocurrency business, welcomed the development, stating that the SEC’s move indicates that tokenization technology is ready to enter the U.S. market and helps develop a domestic liquid tokenized securities market. On September 17, Robinhood’s share price rose by approximately 2.8%, reflecting cautious optimism about the path toward compliance.

Providing a Regulatory Pathway

The SEC introduced the "Innovation Exemption" amid ongoing uncertainty regarding comprehensive legislation for the U.S. digital asset market.

According to the Financial Times, the Digital Asset Market Structure Bill, known as the CLARITY Act, which is under discussion in the U.S. Congress, failed to make further progress in the Senate this week. Consequently, the SEC decided to proactively provide a regulatory pathway for certain tokenized securities transactions within the existing legal framework.

Against this backdrop, the SEC expects to continue playing a more significant role in formulating digital asset regulations. The agency stated that this exemption is a temporary arrangement and does not constitute the final institutional framework for the tokenized securities market. Regulators will continuously monitor the operations of relevant platforms during the five-year exemption period and solicit market feedback to assess whether longer-term regulatory rules are needed.

There are differing views within the industry regarding the appropriate model for tokenized stocks. Carlos Domingo, CEO of digital securities firm Securitize, believes that stock tokenization should modernize traditional methods of equity ownership rather than creating a parallel market without corporate participation.

Prior to the release of the SEC’s latest rules, cases directly issuing corporate equity onto blockchains were rare. Blockchain technology company Figure Technology Solutions directly issued its own equity on a blockchain in February of this year.

Matthieu de Vergnes of tokenization platform Ondo Finance argued that derivatives linked to stocks have long existed, such as equity-linked notes and American Depositary Receipts, which allow U.S. investors to invest in foreign stocks. A more important issue, he said, is how to regulate effectively and ensure that products remain closely tied to real markets.

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