SEC to publish tokenized stocks innovation exemption

The U.S. Securities and Exchange Commission plans to publish an innovation exemption as soon as this week that would let regulated institutions pilot tokenized stocks without full registration, according to people familiar with the matter.

Under the expected framework, banks, broker-dealers and exchanges would be able to test tokenized equities and supporting infrastructure in controlled settings while remaining subject to federal securities rules. The exemption would reduce upfront registration requirements and preserve investor protections through supervisory oversight and reporting obligations, according to people familiar with the matter.

The agency has approved related changes in recent months. In March it approved a Nasdaq rule change to support trading of tokenized shares. In April it approved a New York Stock Exchange rule change; the NYSE is building a platform for on-chain trading and settlement and formed a strategic partnership with crypto firm OKX. In December the SEC authorized the Depository Trust & Clearing Corporation to tokenize certain highly liquid assets on pre-approved blockchains for a three-year pilot.

Tokenized securities record ownership and settlement on a distributed ledger, which can shorten settlement times, reduce intermediary costs and allow trading outside standard market hours. Market analysts estimate tokenized assets could grow to between about $2 trillion and more than $10 trillion by 2030.

Regulators have said tokenized instruments remain securities when they meet legal tests and therefore stay subject to federal securities laws. The innovation exemption would not change that classification; instead it would create a limited testing pathway for regulated entities that avoids the full registration process normally required for new securities offerings or trading systems.

Exchanges, clearinghouses and other market participants are developing custody systems, ledger interoperability and compliance tools to support on-chain settlement and reporting. Broader adoption will depend on technical standards for settlement finality, interoperability between blockchains and traditional market infrastructure, and clarity on custody and anti-money laundering obligations.

The published exemption is expected to include eligibility criteria, reporting requirements and limits on the scope and duration of pilots. People familiar with the matter described the exemption this way: “[The exemption] would allow traditional institutions to experiment with blockchain technology without having to comply with a full registration process.” If released this week, the exemption would join prior authorizations as part of changes in how U.S. capital markets test distributed ledger technology.