The U.S. Securities and Exchange Commission has granted certain blockchain-based trading platforms a five-year conditional exemption from registering as exchanges when listing and trading tokenized securities.

The SEC announced the long-awaited policy Thursday, giving tokenized securities venues, or TSVs, a framework for conducting onchain securities trading. Eligible platforms can operate automated market makers and liquidity pools under the new “Innovation Exemption.”

The five-year exemption means qualifying TSVs can avoid being treated as exchanges under U.S. securities law during that period, as long as they meet the conditions established by the regulator.

The venues will operate under SEC oversight, maintaining pools of required assets and using automated, algorithm-based systems to coordinate transactions between buyers and sellers. The order also permits tokenization to be carried out by a stock issuer or by an outside party, subject to specific requirements.

SEC Chairman Paul Atkins said the initiative represents a step toward moving U.S. capital markets onto blockchain infrastructure.

“The Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption,’” Atkins said.

SEC Limits Exemption to Tokens Representing Real Ownership

The framework excludes synthetic security tokens that operate as derivatives without giving investors ownership of the underlying shares.

To qualify, a token must represent actual ownership of the stock. Atkins said investors must receive “the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights.”

That requirement could rule out certain derivatives and debt products offered by offshore platforms, including some products associated with Robinhood.

Platforms will not have to obtain an individual designation from the SEC before launching. Instead, a company that believes it qualifies as a TSV and can satisfy the exemption’s requirements only needs to notify the agency before beginning its tokenization operations.

Five-Year Policy Could Precede Permanent Rules

The SEC’s exemption is temporary, with the five-year period intended to give the agency time to assess whether broader action is necessary.

Atkins said the policy allows firms to operate “in a permissioned environment today while the commission considers the need for additional action to facilitate onchain trading.”

He also said the temporary framework “must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve.”

The move comes as tokenization becomes a major area of experimentation for Wall Street. The technology allows traditional assets such as stocks, bonds and investment funds to be represented through blockchain-based tokens.

Financial institutions and asset managers have increasingly explored tokenization, citing the potential for faster settlement, around-the-clock trading and lower costs. Tokenized securities could also become easier to distribute and use as collateral.

Citi analysts have estimated that tokenized assets could grow into a $5.5 trillion market by 2030.

The SEC has also included protections for companies whose securities are being tokenized. A TSV must provide an issuer with 30 days’ notice before tokenizing its securities and give the company an opportunity to object.

According to an SEC official, an issuer could exercise that right simply by stating that it objects to the proposed tokenization.

SEC Acts After Crypto Legislation Stalls

The agency had held back on the initiative while the Senate considered legislation that could have provided a statutory foundation for the policy and other crypto-market measures.

That effort suffered a setback Tuesday when the Digital Asset Market Clarity Act failed to advance after receiving only 49 of the 60 votes required.

Following the vote, Atkins wrote on X that the SEC “will act decisively within the SEC’s statutory authority to deliver certainty for American investors and for the entrepreneurs shaping our technological future.”

“Stay tuned,” Atkins wrote Wednesday, one day before the regulator announced its tokenization exemption.

The SEC has already begun reshaping other parts of its digital-asset framework. Last month, it proposed a major crypto regulation intended to provide a pathway for certain crypto offerings without triggering some securities-related oversight requirements.

On Sept. 1, the agency also proposed its first significant overhaul of transfer-agent rules in four decades, with the changes explicitly accommodating blockchain-based records of securities ownership.

The SEC is also scheduled to host a Thursday roundtable on 24-hour trading, a feature common in cryptocurrency markets that could eventually alter how traditional financial markets operate.

Whether Congress will eventually approve legislation providing a permanent legal foundation for the SEC’s tokenization framework remains uncertain. Until then, the regulator is relying on its existing authority to exempt narrowly defined businesses from portions of its securities rules.

Atkins and the SEC’s two other Republican commissioners are using that authority to advance the agency’s digital-asset initiatives, although future regulatory action could change or reverse the policies established under the current framework.