The US SEC “gave the green light” to tokenized stock trading! Concept stocks such as Robinhood (HOOD.US) and Circle (CRCL.US), which introduced a five-year innovation exemption, rose collectively

The Zhitong Finance App learned that the US Securities and Exchange Commission (SEC) announced on Thursday that it will provide temporary regulatory exemptions for on-chain transactions of tokenized US stocks under certain restrictions, allowing tokenized securities trading platforms that meet the requirements to trade some tokenized US National Market System (NMS) stocks through licensed automated market makers (AMM) and liquidity pools. This move means that US regulators are taking an important step in promoting the integration of the traditional stock market with blockchain infrastructure, and also opens up a new regulatory space for the development of tokenized stocks in the local US market.

Cryptocurrency and digital asset-related stocks generally rose after the news was announced. Robinhood (HOOD.US) rose more than 2.9%, Circle (CRCL.US) rose more than 4.5%, Bullish (BLSH.US) rose more than 6%, and Coinbase (COIN.US) rose more than 3.5%. Securitize (SECZ.US), a digital securities tokenization platform, rose more than 18%.

The move comes after the US Senate's push for crypto market structure legislation was thwarted. Previously, the Digital Asset Market Clarity Act (Digital Asset Market Clarity Act), which aims to clarify the digital asset regulatory framework, failed to receive sufficient support in the Senate procedural vote, and the SEC then promoted “innovation exemptions” through its own legal authority to provide a regulatory channel for on-chain transactions of some tokenized stocks.

SEC opens regulatory channel for tokenized US stocks

According to the arrangement announced by the SEC, eligible tokenized securities trading platforms can conduct tokenized NMS stock trading through licensed automated market makers and liquidity pools under a temporary and conditional exemption framework.

So-called NMS stocks are mainly stocks included in the US national market system supervision system. The tokenized stocks approved for trading this time are not synthetic products that simply track stock prices; instead, holders need to be given the same rights and benefits as traditional NMS stocks in the same category.

In other words, tokenized stocks held by investors need to correspond to their underlying traditional stocks at the level of economic equity, while blockchain mainly undertakes infrastructure functions such as transactions, transfers, and settlement.

The SEC has previously made it clear that distributed ledger technology (DLT) allows issuers to tokenize securities in the form of cryptographic assets, while technologies such as smart contracts and automated market makers are also creating new ways to trade securities. Regulators believe that the development of these technologies also raises new questions about the existing US stock market structure and traditional regulatory frameworks such as Regulation NMS.

However, this exemption does not mean that the SEC will fully liberalize tokenized stock trading. Regulators are still setting limits on the number of shares that can be traded and the scale of transactions to control market risks that the new mechanism may generate in the early stages.

The issuing company must be notified before listing tokenized shares

The SEC has also set up a series of investor protection and market regulation requirements for tokenized stock platforms.

According to regulations, before allowing an unrelated third party to trade a tokenized NMS stock, the trading platform must issue a written notice to the issuing company corresponding to the underlying stock and give the issuing company an opportunity to raise objections.

If an underlying stock suspends trading on its main listed exchange, the corresponding tokenized stock must also stop trading at the same time. This means that tokenized trading platforms cannot continue to bypass the main market while traditional stocks are suspended due to major news, abnormal fluctuations, or other reasons.

Furthermore, relevant platforms must publicly disclose their operating methods, trading activities, and related parties' trading activities to improve the transparency of the on-chain trading market.

These requirements show that although the SEC allows stock trading to use new blockchain technology and liquidity mechanisms, it is still trying to maintain the regulatory linkage between tokenized stocks and the traditional US stock market to avoid forming a parallel trading system that operates completely outside of existing market rules.

SEC Chairman: Bringing the US Capital Market into the Digital Age

SEC Chairman Atkins said that promoting on-chain trading of some tokenized stocks through “innovation exemptions” is an important step for the SEC to push the US capital market into the digital age within the scope of its existing legal authority.

At the same time, he said that this operation is only the first step. The SEC will seek public comments on various aspects of the innovation exemption to help the Commission assess whether further adjustments to the regulatory system are needed in the future.

Atkins has expressed his intention to push the US securities market to adopt on-chain infrastructure many times before. He once said that decentralized financial software such as automated market makers can automate financial market activities, and existing US securities laws have long been based mainly on financial intermediaries participating in the market, but this does not mean that the regulatory system should artificially add unnecessary intermediate links in order to maintain the traditional intermediary model.

He also pointed out that in order to adapt to on-chain securities transactions, US regulators may need to re-examine or even adjust traditional market structure rules such as Regulation NMS.

This exemption will expire five years after it is officially announced. During this period, the SEC can accumulate experience in establishing a longer-term regulatory system for the future by observing the actual trading conditions, market liquidity, and potential risks of tokenized stocks.

AMM and liquidity pools penetrated the traditional US stock trading system for the first time

Another notable change in policy is that the SEC allows eligible platforms to use licensed automated market makers and liquidity pools to trade tokenized stocks.

The traditional stock market mainly relies on exchange order books, market makers, and brokers to complete transaction matching, while AMM can automatically complete asset pricing and transactions through smart contracts and capital pools.

Liquidity providers deposit assets into the fund pool, and investors can directly trade with the fund pool without the need for traditional market makers to continuously submit trading offers. In return, liquidity providers usually receive transaction fees. Industry opinions received by the SEC have previously been proposed that a regulatory exemption framework can be established for the use of AMM in tokenized securities through conditions such as white lists, transaction volume restrictions, and mandatory disclosure of information.

This time, the SEC allows eligible platforms to use “licensed automated market makers (AMM)” to trade tokenized stocks. This means that on-chain transactions are not completely open, but run between participants that meet authentication, compliance, and other regulatory requirements, thus attempting to combine blockchain automated trading mechanisms with traditional securities regulation requirements.

When the Clarity Act is blocked, the SEC takes the lead in advancing regulatory implementation

The timing of this action has also attracted market attention.

Just before the SEC announced an innovation exemption, the US Senate failed to push the Clarity Act into the next phase of review. The bill aims to further clarify the regulatory division of labor and market structure for US digital assets, but it failed to receive the required 60 votes in a critical procedural vote.

At a time when comprehensive crypto regulation legislation at the congressional level continues to face resistance, the SEC now uses its existing securities regulatory authority to promote tokenized stock trading, which means that US digital asset regulation may temporarily present two parallel paths: on the one hand, Congress continues to discuss broader crypto market structure legislation; on the other hand, regulators such as the SEC are taking the lead in providing specific rules for some digital financial services within the existing legal framework.

For digital asset-related companies such as Robinhood, Coinbase, Circle, and Securitize, once the tokenized securities market expands further, the potential opportunities will also extend from cryptocurrency trading to larger traditional securities markets.

In particular, stock tokenization, if it can achieve longer transaction times, on-chain settlement, and automated liquidity management under a compliance framework in the future, may further blur the boundary between traditional securities trading and the digital asset market.

However, currently the SEC is still adopting an experimental exemption with strict conditions, limiting the scale of transactions, and being valid for five years. It remains to be seen whether tokenized stocks can actually create large-scale liquidity, and whether US regulators will further expand this system to more securities and trading platforms in the future.