Real stocks are finally coming on blockchain. Here’s how the SEC wants it to work

The Securities and Exchange Commission has created a time-limited pathway for regulated platforms to operate markets for tokenized U.S. stocks without registering as national securities exchanges. Under the new 'innovation exemption,' approved Tokenized Securities Venues can let investors trade tokens that represent actual ownership of U.S. shares using blockchain smart contracts and liquidity pools rather than traditional order-book matching. Firms that supply liquidity to those pools can also receive targeted relief from dealer registration rules. The SEC drew a clear distinction between tokens that represent the underlying legal rights of a share and derivative or synthetic products that merely track prices; only the former qualify for the exemption. Tokenized instruments must preserve shareholder entitlements such as voting and dividends. Market software deployed for these venues must be publicly available for audit and run on a public, permissionless blockchain, though access to participate in trading remains permissioned and controlled by the venue. Regulators built multiple guardrails into the experiment. Each qualifying venue faces listing and trading-volume limits: for the most liquid equities a venue may tokenize up to 75 names and handle no more than 0.25% of a stock's average daily trading volume, while a second tier allows up to 250 names and 2.5% of average daily volume. The SEC said those caps are intended to keep the pilot modest while gathering data on the effects of blockchain market structure. The framework also affects issuers. Either an issuer or, under conditions, a third party can create a tokenized entitlement to a company's shares, but venues must notify the issuer 30 days before listing a token created by an unaffiliated party and issuers retain the power to prevent third-party tokenizations. The exemption does not permit leverage or lending on the TSVs, and venues must maintain controlled access even as they use public blockchain infrastructure. Taken together, the SEC's approach permits a constrained trial of crypto-style trading technology for regulated U.S. equities, aiming to let market participants test settlement, portability and alternative liquidity mechanisms while retaining core investor protections and limiting potential market disruption.