The U.S. Securities and Exchange Commission (SEC) has made a significant decision that paves the way for tokenized U.S. stocks to be traded on blockchains.
SEC Grants Temporary Trading Permission for Tokenized Shares!
Accordingly, the SEC provided a temporary and conditional exemption, described as an “innovation exemption,” allowing for limited trading of tokenized US stocks in on-chain environments.
With this decision, the SEC granted a temporary exemption to platforms called Tokenized Securities Platforms (TSVs), allowing the trading of tokenized US stocks under certain conditions.
This exemption will be temporary and will expire five years after its publication. The SEC’s five-year conditional exemption allows certain platforms to conduct on-chain trading of tokenized shares.
Traditional Stock Connection Requirement!
One of the key elements of the regulation is maintaining the link between the tokenized asset and the physical stock. According to Reuters, under the new regulation, tokenized shares traded on TSV must be subject to limitations in terms of both trading volume and the number of shares that can be listed.
Under the new framework, only physically backed tokenized shares with the same rights as traditional shares, including dividends and voting rights, are eligible for the exemption, while synthetic assets designed solely to track prices are strictly excluded. In other words, the legal and economic link between the token and the underlying real share must be preserved.
The plan is to involve companies in the process regarding tokenized shares created by third parties. If a third party tokenizes a share, TSV will be obligated to inform the issuing company, and trading may be prohibited if the company exercises its veto right. The requirement to inform the relevant company before the token is listed on the trading platform, and the possibility of blocking the transaction if the company objects, are among the notable aspects of the regulation.
What Does This Mean for the Cryptocurrency Market?
The SEC also requires that the smart contracts used by TSVs be auditable and publicly accessible, and operate on a public, permissionless distributed ledger. In context, the SEC is not limiting the system to entirely closed private blockchains accessible only to banks and financial institutions.
The public, permissionless distributed ledger model mandated by the SEC is technically similar to the working structure of public blockchains like Ethereum and Solana. However, the SEC statement does not directly mention Ethereum or Solana. Therefore, these can be cited as examples of the infrastructure described by the SEC, rather than as specific networks permitted by the decision. Consequently, it is not yet clear which blockchain networks will be preferred by TSVs (Traffic Switching Platforms). Furthermore, the fact that a blockchain is open and auditable does not mean that anyone can transact anonymously on the platform.
*This is not investment advice.
