The U.S. Securities and Exchange Commission has granted temporary, conditional relief to facilitate onchain trading of certain tokenized National Market System stocks. The Innovation Exemption excludes qualifying Tokenized Securities Venues from the Exchange Act definition of an exchange and qualifying liquidity providers, known as Covered Firms, from the definition of a dealer. The measure advances the SEC’s previously outlined plans for tokenized securities trading following Congress’ unsuccessful effort to advance the CLARITY Act. Tokenized Securities Venues must be U.S. persons, comply with Office of Foreign Assets Control sanctions programs and restrict access to eligible participants. They may trade tokenized stocks issued or authorized by the underlying issuer, as well as tokens created by unaffiliated third parties, provided holders receive the same rights and privileges as holders of the traditional securities, including dividend and voting rights. Issuers must also be able to prevent their securities from trading on a venue, while federal anti-fraud and anti-manipulation provisions continue to apply in full. The SEC is seeking public comment on the exemption as it monitors the development of permissioned onchain markets. It said the interim relief must be followed by durable rulemaking and that it will consider whether further action is needed to facilitate onchain trading.

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