SEC grants conditional path for tokenized stock trading

The SEC on Sept. 17 issued a temporary exemption that lets qualifying venues trade certain tokenized U.S. stocks through blockchain based liquidity pools, creating a regulated route for stock trading using crypto market infrastructure. The SEC’s announcement describes a permissioned system: eligible participants interact through automated market makers, while the SEC seeks public comment on possible changes.

How would a tokenized stock trade on these venues?

A Tokenized Securities Venue, or TSV, brings buyers and sellers together in one or more automated market maker liquidity pools and sets standards for who can trade. Smart contracts enforce trading terms; an automated market maker sets token prices based on the ratio of assets committed to the pool. The pool works like a shared inventory that participants can trade against.

The SEC requires TSV smart contracts to be auditable and public, and to run on a public, permissionless distributed ledger. But access to the trading pools must be permissioned, so the ledger’s openness does not mean anyone can trade there.

What conditions apply to the SEC’s exemption?

The relief is conditional and limited: tokenized stocks face caps on the number of symbols and trading volume, and a TSV must verify that each token gives holders the same rights and privileges as the equivalent traditional stock. If an unaffiliated third party tokenizes a stock, the venue must notify the issuer in writing and give it an opportunity to object before trading begins.

The SEC also granted a temporary, conditional exemption from the Exchange Act’s dealer definition to certain liquidity providers using their own capital in these pools. The exemptions are set to expire five years after publication of the order.

What changes now, and what comes next?

The order gives qualifying venues and liquidity providers a defined path to conduct this kind of on-chain stock trading, while leaving the venues permissioned and subject to the listed safeguards. The SEC has invited public comment as it considers whether further action is needed. As Axios reported, it remains unclear how many public companies will permit their shares to be traded on these platforms.