SEC Issues 5-Year Exemption for Tokenized NMS Stock Trading
The Securities and Exchange Commission granted a five-year conditional exemption allowing venues to trade tokenized National Market System stocks using blockchain-based systems.
The U.S. Securities and Exchange Commission has issued an order granting a five-year conditional exemption to certain trading venues from the definition of an “exchange” under the Securities Exchange Act of 1934. This exemption allows for the trading of tokenized National Market System (NMS) stock through innovative systems such as permissioned automated market makers and liquidity pools operating over public, permissionless blockchains.
This development is significant for financial services and technology clients as it creates a formal, albeit temporary, pathway for integrating decentralized finance concepts with the trading of traditional, highly regulated securities. The order signals a willingness by the SEC to accommodate innovation by allowing market participants to experiment with new technologies that could potentially enhance market efficiency and liquidity. Major-firm clients in the fintech and capital markets sectors will need to understand the conditions and limitations of the exemption to assess new business opportunities.
Firms and their counsel should monitor which market participants pursue this exemption and how the SEC supervises these novel trading systems, as the results could inform future permanent rulemaking in digital asset trading.