SEC Creates Five-Year Innovation Exemption for Tokenized Stock Venues

The Securities and Exchange Commission has created a five-year, conditional “Innovation Exemption” allowing certain tokenized securities venues to trade tokenized National Market System stocks without registering as exchanges. The framework permits permissioned automated market makers and liquidity pools, and also provides relief for certain liquidity providers from dealer registration requirements. Eligible tokens must represent direct ownership of the underlying stocks and provide holders traditional rights such as dividends and voting, while synthetic and derivative-like products are excluded. Venues must meet investor-protection, access, sanctions-compliance and anti-fraud requirements, and issuers can block third-party tokenization of their securities. The SEC’s action follows the Senate’s failure to advance the broader CLARITY Act and includes a request for public comment as the agency considers more permanent rules.