SEC's Plan B Lands: Tokenized U.S. Stocks Get a Five-Year Innovation Exemption
- Core View: Two days after the CLARITY Act was voted down in the Senate, the SEC swiftly issued an "innovation exemption" order allowing qualifying Tokenized Securities Venues (TSVs) to trade tokenized U.S. stocks on public blockchains without registering as national securities exchanges, filling the legislative vacuum with administrative rules.
- Key Elements:
- The SEC issued Order 34-106402, granting TSVs a conditional five-year exemption to trade tokenized NMS stocks through permissioned AMM pools.
- The exemption comes with nine strict conditions, including U.S. entity registration, permissioned access, auditable smart contracts, full shareholder rights, issuer 30-day notice and objection rights, trading volume caps, synchronized trading halts, and full application of anti-fraud provisions.
- The SEC simultaneously provides a conditional broker registration exemption for TSV liquidity providers, lowering the barrier for institutional participation.
- Potential winners include Securitize (partnered with NYSE), Coinbase, Robinhood Chain/ARB, and Circle's Arc chain; pure synthetic model products are excluded from the compliance framework.
- The exemption period is viewed as an "experimental sandbox period" from 2026 to 2031, during which the SEC will collect on-chain stock trading data, evaluate AMM liquidity pool performance and the practice of issuer objection rights, to decide whether to establish permanent rules.
- The administrative exemption path is faster and more flexible, but notably fragile—exemptions can be revoked, and administrative rules can be overturned by the next administration, unlike the legislative path written into federal law.
Original author: Xiaobing
Two days after the CLARITY Act fell in the Senate by a vote of 49:50, SEC Chairman Paul Atkins unveiled a Plan B.
On September 17, the SEC issued Order 34-106402, officially titled the "Innovation Exemption." The order grants a new class of market participants, "Tokenized Securities Venues" (TSVs), a conditional five-year exemption allowing them to trade tokenized National Market System (NMS) stocks on public blockchains through permissioned AMM liquidity pools without registering as national securities exchanges.
"This step is intended to propel U.S. capital markets into the digital age," Atkins said in a statement.
Nine Conditions: A Framework Stricter Than Expected
The "Innovation Exemption" is not a blank check. The SEC has set nine thresholds for TSVs:
U.S. Entity. A TSV must be incorporated and maintain an office in the United States. Offshore entities do not qualify.
Permissioned Access. Every participant (trader and liquidity provider) must undergo vetting before accessing the platform. Anonymous trading is explicitly prohibited.
Auditable Smart Contracts. All smart contracts must be deployed on public, permissionless distributed ledgers that are publicly inspectable and auditable.
Full Shareholder Rights. Holders of tokenized stocks must enjoy exactly the same rights as holders of traditional stocks, including dividends, voting rights, and participation in corporate actions. Synthetic products are explicitly excluded.
Issuer Notification and Objection Rights. Before listing a tokenized stock, a TSV must provide 30 days' written notice to the issuer. If the issuer objects, the stock may not be listed for trading. Silence is deemed consent.
Trading Scope and Volume Caps. Both the number of tokenized stocks that may be traded and total trading volume are subject to limits (specific figures to be further detailed by the SEC).
Synchronized Halts. When the underlying NMS stock triggers a trading halt, the tokenized version must halt in sync.
Sanctions Compliance. TSVs must comply with U.S. sanctions regulations and implement corresponding access restrictions.
Full Applicability of Anti-Fraud Provisions. The anti-fraud and anti-manipulation provisions under federal securities law apply fully to tokenized stock trading.
At the same time, the SEC provided a conditional broker registration exemption for TSV liquidity providers, meaning institutions that inject capital into AMM pools do not need to register as securities brokers, provided they meet the conditions.
A Direct Response to the CLARITY Act's Failure
On September 11, Coinbase CFO Alesia Haas said at a Goldman Sachs conference that there are three paths to regulatory clarity: congressional legislation, regulators writing their own rules, and court precedents. If the CLARITY Act fails, Coinbase believes that agency-level rulemaking by the SEC and CFTC can still move forward.
On September 15, the CLARITY Act was defeated by a vote of 49:50.
On September 17, the SEC issued the "Innovation Exemption."
Only 48 hours passed from the CLARITY Act's defeat to the SEC's action. Atkins delivered on his promise made on the day of the CLARITY Act vote: "With or without legislation, the SEC will deliver results for investors and innovators."
When Congress cannot pass laws, executive agencies can fill the vacuum with exemption orders and administrative rules. This path is faster and more flexible, but also more fragile—exemption orders can be revoked, and administrative rules can be overturned by the next administration. If the CLARITY Act had passed, the legal status of tokenized securities would have been written into federal law and not easily revoked; an administrative exemption, by contrast, is a temporary pass with a five-year expiration date.
Who Are the Winners?
Securitize. Its model tokenizes directly at the issuer's shareholder registry level, meaning token holders are shareholders in the legal sense, fully complying with SEC requirements. The NYSE is working with Securitize to develop a tokenized stock trading platform, and this exemption order gives it the long-awaited federal-level compliance endorsement.
Coinbase. If it can complete the upgrades to voting and redemption rights as promised, bringing its tokenized stocks up to the "full shareholder rights" standard, Coinbase is eligible to apply to become a TSV. It has already claimed that its token holders have actual ownership of the underlying stocks, placing it closer to the line the SEC has drawn than Robinhood's legal structure.
Robinhood Chain and ARB.
Robinhood's current Stock Token legal structure is non-compliant, but Robinhood has the strongest incentive to upgrade—its tokenized stock business covers over 2,000 stocks and more than 120 countries, serving as a core pillar of its growth narrative.
Once Robinhood upgrades its Stock Tokens from "Jersey-based synthetic exposure" to "genuine tokenized stocks" that meet SEC requirements, the most natural deployment environment would be Robinhood Chain. The SEC requires smart contracts to be deployed on "public, permissionless distributed ledgers," and Robinhood Chain, built on Arbitrum Orbit with settlement ultimately returning to Arbitrum One, precisely satisfies this requirement.
If trading in thousands of tokenized U.S. stocks ultimately occurs on Robinhood Chain, on-chain trading volume and fee revenue would far exceed the current structure dominated by meme coins. Recall Standard Chartered's $10 price target for ARB—its core argument was revenue growth driven by Orbit chains.
Arc Chain. Circle's Arc Chain uses USDC as native gas and features sub-second finality and a compliant privacy layer. If TSVs choose to deploy tokenized stock trading on a public chain, Arc is currently one of the most institution-grade options meeting the SEC's requirements for public, permissionless distributed ledgers plus auditable smart contracts.
Short Thesis: Pure Synthetic Models. Tokenized stock products that offer only price exposure without granting shareholder rights now face a clear regulatory dividing line. They cannot participate in the TSV framework, meaning they will continue to operate in a gray area. The SEC's order does not prohibit them, but it clearly shines the light of compliance on a different category of products.
The SEC has made clear that this is a transitional arrangement—actual market data will be collected during the exemption period to determine whether to establish permanent rules. The SEC has also opened a public comment period.
The five-year window means that 2026 to 2031 will become an "experimental sandbox period" for tokenized securities. During this period:
On-chain stock trading volume data will provide an empirical basis for future permanent rules. The performance of AMM liquidity pools in securities trading (slippage, price discovery efficiency, manipulation risk) will be tested in real conditions. How issuers' objection rights operate in practice (how many companies will proactively block their own stocks from being tokenized?) will also provide policy reference.
If the experiment succeeds, five years from now the SEC may convert the exemption into permanent rules, and tokenized stock trading will become a standing component of U.S. capital markets. If the experiment fails, or if the political environment changes, TSVs will have to shut down or pivot once the exemption expires.
