In a major step toward merging traditional finance with blockchain technology, the U.S. Securities and Exchange Commission (SEC) is set to release an “innovation exemption” that would pave the way for tokenized versions of U.S. stocks to trade on crypto platforms.
According to a Bloomberg report, the proposal could drop as soon as this week. The framework forms part of the broader pro-crypto shift under the current administration and SEC leadership, including Chairman Paul Atkins and Commissioner Hester Peirce.
What the Innovation Exemption Would Enable
The exemption aims to create a new regulatory pathway for blockchain-based tokenized stocks and digital representations of publicly traded securities recorded and traded on distributed ledgers.
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Key features include:
- Trading without issuer consent: Third parties could create and offer tokenized versions of stocks even if the underlying company does not endorse or participate.
- On-chain trading on crypto platforms: Tokens could trade on decentralized or crypto-native venues, potentially expanding access beyond traditional brokerages.
- Faster settlement and 24/7 markets: Moving beyond the standard T+2 (or T+1) settlement cycle toward near-instant, around-the-clock trading.
- Fractional ownership and global accessibility: Easier entry for smaller investors and international participants.
However, these tokenized stocks may not carry full traditional shareholder rights, such as voting power or direct dividends, depending on the structure. This development accelerates the tokenization of real-world assets, a rapidly growing sector in crypto.
Tokenized equities could bridge TradFi and DeFi, bringing liquidity, transparency, and efficiency to stock markets while allowing blockchain rails for settlement. Earlier this year, the SEC already approved Nasdaq’s proposal to allow certain securities to trade and settle in tokenized form alongside traditional shares. The innovation exemption would extend similar opportunities to a wider range of crypto platforms and participants.
Proponents view this as a pragmatic way to foster innovation without upending the entire regulatory system. SEC Commissioner Hester Peirce has long advocated for safe experimentation in tokenized securities. In March this year, she indicated an openness to work with Wall Street on emerging exchange-traded fund products tied to cryptocurrencies and tokenization.
On the other hand, critics, including some SEC staff, Citadel Securities, and industry group SIFMA, warn that trading third-party tokens without issuer involvement could weaken investor protections, KYC/AML standards, and market integrity. They argue it risks creating a parallel system with fewer safeguards.
The exemption is expected to include guardrails, such as limits on scale or duration, to allow testing while regulators gather data.
Potential Impact on Markets And Crypto
For investors: Potential for 24/7 stock exposure, lower costs, and new yield or composability opportunities in DeFi.
For crypto projects: A major tailwind for RWA platforms, oracles, compliance infrastructure, and Layer-1/2 networks focused on institutional finance.
For traditional markets, Increased competition and pressure to modernize settlement systems.
This is not expected to transform the entire financial system overnight, but it represents a significant regulatory green light for blockchain in capital markets.
Outlook
The SEC is anticipated to publish the proposal imminently. Public comments, potential adjustments, and phased implementation will likely follow. Market participants will watch closely for details on eligibility, compliance requirements, and how the exemption interacts with existing securities laws.