In a move to clear the way for tokenized stock trading, the U.S. Securities and Exchange Commission (SEC) has announced the introduction of temporary exemptions to allow secondary market trading in tokenized securities by automated market makers and liquidity pools.
On Thursday, the SEC issued an order granting an exemption from the traditional requirements for exchanges and dealers to allow so-called “tokenized securities venues” to operate, enabling traders to transact in these automated trading environments.
The exemptive relief carries certain conditions, including limits on the number of stocks and volume that can be traded on these venues, a requirement that tokenized securities provide shareholders with same rights as traditional securities — and, providing issuers with the power to object to their securities being traded in tokenized form, among other restrictions.
“TSVs and the use of distributed ledger technology can offer several benefits to market participants, including enabling investor self-custody, around-the-clock trading, fractional ownership of shares, and near instantaneous settlement, while improving efficiencies and providing greater transparency,” the SEC said in a notice accompanying the order.
As the regulatory environment evolves, the regulator is seeking feedback on the new exemptions, which are set to expire in five years.
“Today’s approval of exemptive relief for on-chain secondary trading on a TSV — known as the ‘innovation exemption’ — marks an important milestone for the commission’s work to open our capital markets for tokenized securities,” said Jamie Selway, director of the SEC’s division of trading and markets, in a statement.