SEC Preparing “Innovation Exemption” for Tokenized Securities as Wall Street Buildout Accelerates

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The U.S. Securities and Exchange Commission is preparing an “innovation exemption” that would allow trading platforms to offer digital versions of publicly traded securities under a lighter regulatory structure, Bloomberg Law reported Monday, citing people familiar with the matter. 

The proposal could be released as early as this week, according to the publication. The move would come as major financial infrastructure operators including the Depository Trust and Clearing Corporation, Nasdaq, and Intercontinental Exchange have separately announced plans to build out tokenized securities infrastructure.

Bloomberg Law Reports SEC Framework Could Arrive This Week

The Bloomberg Law report did not detail the full scope of the proposed exemption, but described it as a mechanism that could allow trading platforms to list blockchain-based versions of publicly traded stocks under conditions distinct from existing securities rules. 

SEC Chair Paul Atkins signaled earlier in May that the agency was considering formal rulemaking to accommodate blockchain-based trading and settlement systems, saying existing securities rules do not fit blockchain-based systems that combine exchange, clearing, and settlement functions into a single protocol. 

Atkins argued the SEC should clarify the rules through regulation rather than enforcement actions. He also said the agency is considering rulemaking for on-chain trading systems, blockchain settlement infrastructure, and crypto custody models.

DTCC, Nasdaq, and ICE Have Each Announced Tokenized Securities Plans

Wall Street infrastructure operators have moved in parallel to position themselves for a tokenized securities market. The DTCC, which processes the majority of U.S. securities transactions, said it plans to begin limited production trades of tokenized assets in July ahead of a broader launch in October. The system would allow tokenized versions of stocks and exchange-traded funds backed by assets already held within DTCC’s existing infrastructure.

Nasdaq is developing a framework for companies to issue blockchain-based shares while preserving traditional ownership rights. The SEC approved Nasdaq’s tokenized securities plan in March. 

Intercontinental Exchange, the parent company of the New York Stock Exchange, also announced plans to expand into tokenized stocks and crypto-linked products through a partnership and investment tied to crypto exchange OKX.

Tokenized Stocks Offer Faster Settlement but Critics Flag Liquidity and Investor Protection Risks 

Tokenized stocks are blockchain-based versions of equities that can trade continuously and settle faster than traditional shares. Supporters argue the structure could reduce settlement delays and broaden global market access. 

Critics have raised concerns about liquidity fragmentation and investor protections, Bloomberg Law reported. The combined announcements from DTCC, Nasdaq, and ICE point to a broader effort to apply blockchain technology to the global equity market, which the World Federation of Exchanges valued at approximately $126 trillion as of press. The Bloomberg Law report follows Atkins’s public comments earlier this month.