SEC has launched a five-year "innovation exemption," allowing eligible platforms to trade tokenized U.S. stocks with full shareholder rights, establishing a limited and conditional compliance pathway for the on-chain securities market in the U.S.

Written by: Xu Chao, Wall Street Journal

The U.S. Securities and Exchange Commission (SEC) announced on September 17 a five-year "innovation exemption" with strict conditions, providing a federal exemption path for tokenized NMS stocks traded on-chain under a licensed AMM model, thereby delineating compliance boundaries for trading tokenized U.S. stocks on-chain. This move bypasses the legislative deadlock in Congress and is interpreted by the market as a critical turning point for the migration of tokenized securities from offshore to the U.S. mainland.

SEC Chair Paul Atkins issued this order two days after the Senate failed to advance the CLARITY Act by a vote of 49 to 50 on September 15, stating clearly: "Regardless of whether there is legislation, the SEC will act within its existing authority. This order does not fully open up tokenized securities but temporarily exempts eligible tokenized securities trading venues from being designated as an "exchange" under the Securities Exchange Act, and provides limited "dealer" definition exemptions for specific liquidity providers.

This policy is favorable for cryptocurrency-native platforms. According to a research report by Morgan Stanley, this exemption framework is expected to expand the product lines and profit margins of crypto-native brokers like Robinhood (HOOD), Coinbase (COIN), and Gemini (GEMI), while increasing competitive pressure on traditional exchanges. Meanwhile, the CFTC on the same day expanded the non-enforcement scope for digital assets, providing a clearer path for wallet and front-end passive software providers to connect to regulated derivatives markets.

However, for platforms such as Robinhood, Coinbase, and Gemini, this framework offers a potential entry point for U.S. business, but it does not automatically permit trading: the platforms must adopt a licensed AMM structure that meets TSV conditions, and existing overseas stock tokens that only provide price exposure without full shareholder rights cannot be directly replicated in the U.S.

Core Contents of the Exemption Framework: What Is Opened Up, What Is Restricted

The core mechanism of this exemption is the establishment of a new type of trading venue - Tokenized Securities Trading Venue (TSV). TSV can match trades among authorized participants through one or more AMM liquidity pools without needing to complete full exchange registration; it can operate by notifying the SEC.

Public chain infrastructure receives official endorsement, but access must be through a licensing system. Smart contracts must be deployed on a public, permissionless distributed ledger that is auditable and publicly accessible; however, participants entering the liquidity pool must undergo qualification reviews. This means the underlying is a public chain, but those entering the pool must pass an entry threshold.

Tokens must carry full shareholder rights, and synthetic tokens are explicitly excluded. Token holders must enjoy the same rights as traditional stocks, including dividends and voting rights. Atkins noted separately in the order: "No Synthetics": synthetic tokens that only provide price exposure and do not confer shareholder rights are not covered by this exemption.

Issuers retain veto rights. Before listing third-party tokenized assets on the TSV, prior written notification must be given to the issuer, allowing them the opportunity to object. If the issuer objects, trading cannot occur; silence is considered consent. This means that if an issuer does not want their stock to appear on TSV, they can opt out directly.

The exemption scope has clear boundaries. The order only provides temporary relief at the definitions of exchange and dealer and does not cover other securities law requirements such as brokerage, custodianship, customer protection, and clearing. Anti-fraud and anti-manipulation provisions fully apply. The number of tradable codes and transaction volumes is capped, and data such as price, quantity, time, pool address, end-of-day pool size, and daily trading volume must be publicly disclosed regularly.

Policy Background: Legislative Impasse Forces Regulatory Action

This exemption is a product of the SEC circumventing the legislative deadlock in Congress within its existing legal authority.

Market analysis suggests that the core obstacle to industry development has consistently been the definition issues of "exchanges" and "dealers" under the Securities Exchange Act. The current rules are designed around order books and registered venues, which, when directly applied to AMMs, either force agreements to transform into traditional exchanges or leave projects suspended in legal uncertainty for extended periods.

SEC Commissioner Mark Uyeda traced this exemption back to historical precedents of the SEC: money market funds, index funds, and ETFs have all undergone limited exemption trials before being incorporated into permanent rules. Congress expanded general exemption authority in the National Securities Markets Improvement Act to respond to situations where current requirements do not fit new market forms.

On the timeline, Atkins incorporated this exemption as an extension of his "Project Crypto" - launched about a year ago, with the goal of enabling federal securities laws to support the market's shift to on-chain. From March to April 2026, NASDAQ, NYSE, and others have been permitted to promote tokenization within existing clearing systems. Meanwhile, the other pathway sought by the industry - not transforming AMMs into traditional exchanges but still supporting secondary trading of listed stocks on-chain - faced opposition to synthetic tokens and was postponed in May.

The legislative path was officially blocked on September 15. The procedural vote for the Senate CLARITY Act failed to reach the required 60 votes for further consideration with a result of 49 to 50. Atkins clarified the next day that, regardless of the legislative outcome, the SEC would take action within its existing authority. Two days later, the exemption order was issued.

Reactions: Differing Statements but Overall Positive

Internal regulatory responses are mixed but generally positive. Atkins positioned the exemption as a "bridge to enduring rules" and cautioned against locking today's technology into tomorrow's permanent standards, simultaneously insisting that compliance aspects must meet four constraints: OFAC sanctions, licensing access, prohibition of synthesis, and the issuer's ability to object.

SEC Commissioner Hester Peirce, in a statement titled "Slumber Number", used the metaphor of Procrustes' bed to emphasize that rules should be measured against actual market conditions.

She also noted that the order itself is unrelated to decentralized finance and stated: "Investors engaging in peer-to-peer transactions using permissionless smart contracts do not need an exemption" - suggesting that truly pure decentralized systems might not trigger the core regulatory logic of securities laws. She further indicated that if a business model already fits within the current Securities Exchange Act framework, it might not require an exemption at all.

The cryptocurrency industry as a whole welcomed this but focused on the details.

Uniswap founder Hayden Adams stated on platform X that for AMMs, the most important aspect of the order on that day was Peirce's accompanying opinion. He believes the exemption applies to the licensed liquidity pools on Uniswap v4, providing a pathway within the U.S. for assets and users needing compliant channels; he mentioned Uniswap would submit a comment letter and suggest improvements.

Coinbase Vice Chairman and former SEC official Ryan VanGrack stated: "As expected, clear rules are arriving. Today's clarity comes from Atkins, not Congress." According to Reuters, several companies, including Coinbase, have stated their intention to launch tokenized stocks in the U.S. once the rules allow.

The impact on traditional brokers and exchanges remains uncertain.

According to research from Morgan Stanley, the exemption framework is overall beneficial to crypto-native platforms but also carries specific uncertainties. Robinhood's existing overseas stock token product provides economic exposure rather than full shareholder rights, leading to structural differences with SEC requirements; Morgan Stanley anticipates that Robinhood will adjust its product structure to meet U.S. regulatory standards. Meanwhile, traditional stock exchanges may face intensified competitive pressure as crypto-native platforms expand into equity assets.

Unresolved Issues: Variables During the Five-Year Observation Period

The exemption lasts for five years, designed as a transitional arrangement rather than a permanent solution.

Uyeda explicitly stated that observable constraints will be imposed on the pilot phase through limits on the number of codes, transaction volume, and public trading data, welcoming feedback accompanied by indicators, case studies, incident analyses, and actual trading records to build a foundation for subsequent long-term rule development.

The future direction of synthetic stock tokens is still unclear. An SEC spokesperson only stated that this response meets the demand for "doing securities tokens in a compliant manner in the U.S." and made no further commitments regarding the handling of synthetic tokens.

The issuer's veto mechanism may delay the launch of certain high-liquidity assets. Companies with the highest trading demand are also the most capable and likely to choose to withdraw. Furthermore, the exemption only addresses exchange and dealer definition issues; compliance pathways for brokers, custodians, and clearing still need subsequent rules to fill the gaps.

Peirce acknowledged in her statement that the order's limitations "may make people yawn" - it is not a pass for the whole market but rather a compliance door that is bounded, conditional, and set for a five-year period.