SEC launches consultation as it confirms ‘innovation exemption’ for tokenised equities

The SEC on Thursday issued temporary exemptive order covering tokenised securities venues (TSVs), allowing them to trade tokenised National Market System (NMS) stocks through automated market markets and liquidity pools. The exemptions expire five years after publication, the agency said, while at the same time launching a consultation on changes needed to the rules.

“Today, the Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenised stocks through the ‘Innovation Exemption,’” SEC Chairman Paul Atkins said in a statement. “The Innovation Exemption, while temporary, would allow TSVs to trade tokenised NMS stock in a permissioned environment today while the Commission considers the need for additional action to facilitate onchain trading.

“As we take this important first step, we invite public comment on all aspects of the Innovation Exemption to help inform the Commission as it considers further changes.”

The rules provide relief from the definition of “exchange” and “dealer” under the provisions of the Securities Exchange Act of 1934, according to the announcement.

The looser categorisation is subject to conditions such as limits on the number of individual securities and volume traded, verification that rights and privileges related to the securities are transferred, trading is stopped in line with the underlying market, and that proper notice and transparency are provided.

“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 tokenised securities,” said Jamie Selway, Director of the SEC Division of Trading and Markets. “The division stands ready to work with interested parties seeking to operate a TSV and field questions from investors and market participants.”

The Depository Trust & Clearing Corporation’s (DTCC’s) Fund/SERV platform on Wednesday added Ondo Finance subsidiary Oasis Pro Markets as its first tokenisation member, creating a link between tokenised investment funds and traditional US fund distributors.