New SEC order opens path for stock tokenization

Sept. 17 (UPI) — The U.S. Securities Exchange Commission approved a temporary rule to allow the limited trading of tokenized stocks on Thursday.

The rule, coined the Innovation Exemption, sets guidelines for tokenized versions of stocks to be traded on certain trading platforms called Tokenized Securities Venues. The commission described the rule as another evolution of stock trading.

“Technological innovation often outpaces rulebooks,” the SEC said in a statement. “At one point, securities transactions were predominantly conducted with paper certificates, but markets and regulators eventually became satisfied that electronic processes were more efficient. The goal should be to focus on outcomes and have technology-neutral regulation, which can effectively adapt to onchain environments while preserving investor protection and market integrity.”

Two requirements for tokenized stock trading under this rule are that the stock token must be treated with the same rights as it would if it were a traditional equity holding and the companies must be allowed to decide if their stocks can be traded as tokens.

“The Innovation Exemption is designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards,” Paul Atkins, SEC chair, said in a statement.

The exemption is a five-year rule that will act as a test run for broader tokenization of the stock market. A tokenized stock market opens the door to a 24-hour trade cycle.

Tokenized stock trading already exists internationally with Coinbase, Robinhood, Gemini and Kraken offering offshore markets. They do not allow trading for U.S. users.

Thursday’s announcement comes two days after the failure of the Clarity Act in the U.S. Senate. The bill seeks to establish regulations for cryptocurrency and other digital assets, including tokenized securities. The Senate voted to block the act from advancing on Tuesday.