The U.S. Securities and Exchange Commission (SEC) announced on Thursday that it will provide temporary regulatory relief for the on-chain trading of tokenized U.S. stocks under certain restrictions, allowing qualifying tokenized securities trading platforms to trade select tokenized National Market System (NMS) stocks through licensed automated market makers (AMMs) and liquidity pools. This action marks a significant step by U.S. regulators toward integrating traditional equity markets with blockchain infrastructure, opening new regulatory space for tokenized stocks within the domestic market. Following the announcement, stocks related to cryptocurrency and digital assets broadly advanced.
Robinhood (HOOD.US) rose over 2.9%, Circle (CRCL.US) gained more than 4.5%, Bullish (BLSH.US) climbed over 6%, and Coinbase (COIN.US) was up more than 3.5%. Meanwhile, digital securities tokenization platform Securitize (SECZ.US) surged over 18%. The move comes after the U.S. Senate faced setbacks in advancing crypto market structure legislation. A recent procedural vote failed to secure enough support for the Clarity Act, which aimed to establish a clear regulatory framework for digital assets, prompting the SEC to use its existing statutory authority to introduce the "Innovation Exemption" and provide a regulatory pathway for on-chain trading of certain tokenized equities.
A Regulated Gateway for Tokenized U.S. Equities
According to the SEC's announced framework, qualifying tokenized securities trading platforms can, under a temporary and conditional exemption, conduct trading of tokenized NMS stocks through licensed automated market makers and liquidity pools. NMS stocks refer primarily to equities covered under the U.S. National Market System regulatory regime. The tokenized stocks permitted under this exemption are not synthetic products merely tracking share prices; they must confer rights and interests equivalent to those of traditional NMS stocks of the same class. In essence, the economic rights held by investors must correspond to the underlying traditional stocks, with blockchain serving primarily as the infrastructure for trading, transfer, and settlement. The SEC has previously noted that distributed ledger technology (DLT) allows issuers to tokenize securities in the form of crypto assets, while technologies such as smart contracts and automated market makers are creating new methods of securities trading. The regulator believes these advancements also raise fresh questions about the existing U.S. equity market structure and traditional regulatory frameworks like Regulation NMS.
However, this exemption does not represent a full-scale liberalization of tokenized stock trading. The SEC has imposed limits on the number of equities that can be traded as well as the scale of trading activity, aiming to control potential market risks during the initiative's early phase.
Issuers Must Be Notified Prior to Tokenized Stock Listings
The SEC has also established a series of investor protection and market oversight requirements for tokenized stock platforms. Under the rules, before allowing non-affiliated third parties to trade a particular tokenized NMS stock, the trading platform must provide written notice to the issuer of the underlying stock and offer the issuer an opportunity to raise objections. Additionally, if the underlying stock is suspended on its primary listing exchange, the corresponding tokenized stock must also halt trading simultaneously. This ensures tokenized trading platforms cannot continue to trade around the primary market during a halt caused by major news, abnormal volatility, or other reasons. Furthermore, relevant platforms must publicly disclose their operational methods, trading activities, and the trading activities of affiliated parties to enhance transparency in the on-chain trading market. These requirements indicate that while the SEC is permitting new blockchain technologies and liquidity mechanisms for stock trading, it is striving to maintain regulatory linkage between tokenized stocks and the traditional U.S. equity market, avoiding the creation of a parallel trading system detached from existing market rules.
SEC Chair: Moving U.S. Capital Markets into the Digital Age
SEC Chair Atkins stated that facilitating on-chain trading of select tokenized stocks through the Innovation Exemption represents a pivotal move by the SEC within its existing statutory authority to advance U.S. capital markets toward the digital age. He also emphasized that this action is merely a first step. The SEC will solicit public comment on various aspects of the Innovation Exemption to help the commission assess whether further adjustments to the regulatory regime may be necessary in the future. Atkins has previously expressed a strong willingness to promote the adoption of on-chain infrastructure in U.S. securities markets. He has stated that decentralized finance software such as automated market makers can automate financial market activities, and while existing U.S. securities laws have long been built upon the participation of financial intermediaries, this does not mean the regulatory regime should be designed to artificially add unnecessary intermediaries merely to preserve traditional models. He has also noted that to accommodate on-chain securities trading, U.S. regulators may need to revisit and potentially adjust traditional market structure rules such as Regulation NMS.
The exemption will expire five years after its official publication. During this period, the SEC will observe the actual trading of tokenized stocks, market liquidity, and potential risks, accumulating experience to inform the establishment of a more long-term regulatory framework in the future.
AMMs and Liquidity Pools Enter the Traditional Equity Market
Another noteworthy aspect of this policy is the SEC's permission for qualifying platforms to utilize licensed automated market makers and liquidity pools for trading tokenized stocks. Traditional equity markets rely primarily on exchange order books, market makers, and brokers for trade matching, whereas AMMs can automatically price and execute trades through smart contracts and pooled funds. Liquidity providers deposit assets into pools, and investors can trade directly against these pools without the need for traditional market makers to continuously post bid and ask quotes. In return, liquidity providers typically earn transaction fees. Industry comments received by the SEC had previously proposed establishing a regulatory exemption framework for tokenized securities using AMMs, contingent on conditions such as whitelisting, trading volume caps, and mandatory information disclosure. By allowing qualifying platforms to use "licensed AMMs" for tokenized stock trading, the SEC is ensuring that on-chain trading is not fully open but operates among participants who meet identity verification, compliance, and other regulatory conditions, thereby attempting to combine blockchain's automated trading mechanisms with traditional securities regulatory requirements.
SEC Acts on Regulation as Clarity Act Stalls
The timing of this action has also drawn market attention. Prior to the SEC's announcement, the U.S. Senate failed to advance the Clarity Act to the next stage of consideration. The bill aimed to further clarify the division of regulatory responsibilities and market structure for U.S. digital assets but failed to secure the necessary 60 procedural votes. With comprehensive crypto regulatory legislation facing continued hurdles at the congressional level, the SEC's use of existing securities regulatory powers to advance tokenized stock trading suggests that U.S. digital asset regulation may now proceed along two parallel tracks: on one hand, Congress continues to discuss broader crypto market structure legislation; on the other, regulators like the SEC are taking the lead within the existing legal framework to provide specific rules for certain digital finance activities.
For digital asset-focused companies such as Robinhood, Coinbase, Circle, and Securitize, an expansion of the tokenized securities market could extend potential opportunities beyond cryptocurrency trading into the far larger traditional securities market. Stock tokenization, in particular, if it can achieve longer trading hours, on-chain settlement, and automated liquidity management within a compliant framework, may further blur the boundaries between traditional securities trading and digital asset markets. However, the SEC's current approach remains a trial exemption with strict conditions, limited trading scale, and a five-year duration. Whether tokenized stocks can ultimately generate substantial liquidity, and whether U.S. regulators will extend this framework to more securities and trading platforms in the future, remains to be seen.