SEC rolls out long-awaited 'innovation exemption' for tokenized securities venues

The Securities and Exchange Commission on Thursday issued a time-limited "innovation exemption" that lets blockchain-based trading venues list and trade tokenized securities without registering as an exchange under U.S. securities law for five years. The order details how so-called tokenized securities venues (TSVs) can operate pools of assets and use algorithmic automation — including automated market makers and liquidity pools — to facilitate onchain trading of tokens that represent actual ownership of traditional securities. Under the SEC's framework, tokens must confer the same rights as the underlying shares, such as dividend entitlements and voting privileges; instruments that are synthetic derivatives and do not provide ownership are explicitly excluded. The agency set out two tokenization paths: issuance of tokens by the securities issuer itself or tokenization by a third party, provided specified conditions are met. The exemption is conditional and procedural rather than the result of explicit SEC designation: platforms that believe they satisfy the agency's definition and can meet its conditions need only provide notice before commencing tokenization operations. To protect issuers, a TSV must give a 30-day notice before tokenizing another company's securities and allow that issuer an opportunity to object — potentially as simply as stating its opposition. The SEC released the order shortly after a U.S. Senate effort to pass the Digital Asset Market Clarity Act failed to reach the 60-vote threshold, a development cited by Chairman Paul Atkins as removing a prior political constraint. The agency has also recently proposed other crypto-related measures, including a rule on crypto offerings and an overhaul of transfer-agent regulations to accommodate blockchain-based recordkeeping; the SEC is holding a roundtable on around-the-clock trading as part of its broader work on digital market structures.