SEC Innovation Exemption Opens U.S. Trading in Tokenized Stock
SEC Release No. 34-106402 exempts qualifying tokenized securities venues and liquidity providers from the Exchange Act's "exchange" and "dealer" definitions, letting unaffiliated parties trade tokenized NMS stock.
Per Paul Hastings' analysis, the SEC's Sept. 17 exemptive order (Release No. 34-106402) grants two conditional, five-year Exchange Act exemptions — the alert also cites a 2031 expiration date — that for the first time create a U.S. pathway for secondary trading of tokenized NMS stock on permissioned, AMM-based tokenized securities venues (TSVs). Qualifying venues are exempt from the definition of "exchange," so they need no national securities exchange registration, SRO membership or Regulation NMS compliance, and certain liquidity providers are exempt from the definition of "dealer."
Conditions include smart contracts on a public, permissionless ledger; U.S. personhood with OFAC sanctions compliance; verification that tokens carry identical dividend, voting and liquidation rights; volume caps (75 Tier 1 symbols at 0.25% of prior-month average daily volume; 250 Tier 2 symbols at 2.5%); trading halts mirroring the primary exchange while it is open; and written notice giving issuers 30 calendar days to object.
Why counsel should care: unaffiliated tokens can affect trading in the underlying stock and confuse investors about issuer endorsement, while around-the-clock venue trading and roughly 10-minute trade reporting complicate Regulation FD, insider preclearance and post-close announcement timing. Antifraud rules, including Rule 10b-5, still apply. Watch for issuer opt-out protocols, further SEC tokenization rulemaking, and synthetic tokens trading outside qualifying venues.