SEC Opens Five-Year Path for On-Chain US Stock Trading

Regulators Open the Door to Tokenized Equity Trading

The US Securities and Exchange Commission (SEC) has introduced a five-year exemption that allows regulated US stocks to trade on blockchain-based venues. This move permits crypto-style trading for traditional equity assets, creating a new pathway for onshore tokenized securities.

The decision came two days after the Senate voted down the CLARITY Act, a comprehensive bill designed to clarify the regulatory framework for digital assets. The procedural vote failed 49-50, falling short of the 60 votes required to advance the legislation. The stalled bill left the crypto industry without a new statutory structure, shifting the focus to actions regulators could take under existing laws.

What the New Exemption Covers

• The SEC created a framework for Tokenized Securities Venues (TSVs), which connect buyers and sellers using automated market makers and liquidity pools on permissioned blockchains.
• Qualifying venues receive temporary relief from being treated as exchanges under the Securities Exchange Act.
• Certain liquidity providers using their own capital also receive relief from dealer-registration requirements.
• The exemptions are set to expire in five years, giving the SEC time to collect trading data before establishing permanent rules.

Context of the Delayed CLARITY Act

SEC Chair Paul Atkins stated that the agency was acting within its statutory authority to facilitate on-chain trading. He noted that the move addresses a specific question about how regulated stocks can utilize blockchain infrastructure, rather than a broad overhaul of market rules. The timing highlights the gap left by the failed congressional vote, which sought to establish comprehensive statutory rules for digital assets.

Key Numbers and Limitations

• Tokenized stocks have reached a record $3.2 billion in market capitalization in offshore markets.
• Monthly decentralized exchange (DEX) volume for these assets has hit $15.75 billion.
• The framework includes symbol and volume caps to constrain the initial rollout.
• Venues are required to maintain transparency, including publishing prices, trade sizes, timestamps, and pool addresses.
• Off-hours liquidity may remain thin, and issuer vetoes could limit initial adoption.

Industry Reaction and Global Impact

Companies that have been building tokenized-equity businesses abroad are watching this development closely. Robinhood’s Crypto General Manager Johann Kerbrat said the exemption signals that tokenization is ready to come to the US. He described the move as a major step that will allow liquid tokenized securities markets to develop onshore. Kraken and Coinbase are among the firms currently offering such products to customers in overseas markets. The move aims to bring offshore activity onshore and expand trading beyond conventional exchange hours.

Why This Matters

The action reflects a broader shift toward 24-hour market operations. Atkins argued that economic events no longer occur neatly within traditional market hours and that investors want the ability to adjust positions when news breaks. Tokenization is seen as a tool for real-time inventory management, which could improve efficiency and reduce settlement failures. It also aims to reduce reliance on intermediaries and lower operational costs while keeping securities protections in place.

Sources

• CryptoSlate

Read also: Crypto.com registers with SEC to trade single-stock futures in the US