Venues can trade tokenized National Market System stock without registering as exchanges, on notice rather than approval. A venue may list at most 75 Tier 1 names, a tier that takes in S&P 500 and Russell 1000 stocks, and trade no more than 0.25 percent of a name's average daily volume in the prior month.
The Securities and Exchange Commission issued an order on Thursday, September 17, letting venues trade tokenized shares of listed US companies without registering as exchanges. The relief runs for five years from publication, applies on notice rather than approval, and carries caps that hold any one venue to a small fraction of the trading in the stocks it lists.
Order 34-106402 creates a category the Commission calls a Tokenized Securities Venue and grants it two exemptions under Section 36(a)(1) of the Exchange Act. The first frees the venue itself from exchange registration. The second says that firms supplying capital to the automated market maker pools on such a venue are not dealers under Section 3(a)(5) by virtue of that activity alone.
The dealer relief matters for how these venues are meant to work. An automated market maker pool needs someone to fund it, and the order acknowledges that supplying that capital can involve conduct indicative of dealing, including pricing and committing capital. Without the exemption, funding a pool could have carried a registration obligation. The relief is subject to the same conditions that apply to the venue itself.
The caps follow the tiers already used by the Limit Up-Limit Down plan. Tier 1 covers stocks in the S&P 500 and the Russell 1000, along with certain exchange-traded products trading above $2 million in notional consolidated average daily volume. A venue may carry at most 75 Tier 1 symbols, and in each of them may trade no more than 0.25 percent of the prior month's average daily volume as reported by the transaction reporting plans. Tier 2 is everything else apart from rights and warrants, and there the limits are 250 symbols and 2.5 percent.
The tighter volume cap therefore sits on the more liquid names. A venue that filled its Tier 1 allowance in a given stock would still account for one share in every four hundred traded in it. Tier 2 permits ten times that share of a smaller company's volume, and a longer list of symbols.
The conditions attached to the relief are specific. A venue has to be a US person and comply with OFAC sanctions programs. Its distributed ledger applications must be auditable, public and deployed on a public, permissionless ledger. It must give 30 calendar days' public notice before operating, and 30 days' notice to an issuer before making a third-party tokenized version of that issuer's stock available, which gives the issuer a window to object. Tokens must carry the same rights as the underlying shares, which rules out synthetic exposure. Trading has to stop when the underlying stock stops. Transaction data in US dollars has to be published in machine-readable form and refreshed within ten minutes. Records are kept for three years and open to Commission examination, and venues cannot finance positions or extend credit.
Chairman Paul Atkins said the order "grants two forms of temporary, conditional exemptive relief under Section 36(a)(1)" and that "this interim measure must be followed by durable rulemaking" if onchain markets are to remain a viable pathway. He also said the Commission "is not cementing today's technology as the standard for tomorrow." Jamie Selway, who directs the Division of Trading and Markets, called the approval "an important milestone for tokenized securities in our capital markets."
Commissioner Mark Uyeda supported the order and treated it as an experiment that ought to produce evidence. "Technological innovation often outpaces rulebooks," he wrote, adding that the Commission "should not impulsively attempt to limit emerging technologies by contorting them into legacy legal frameworks." He asked commenters for metrics, case studies and incident analyses. The Commission is requesting public comment alongside the order.
The order landed two days after the CLARITY Act fell 11 votes short of the 60 needed to open Senate debate, which left the market structure legislation the industry had been waiting on stalled. The Commission has been moving on its own in the meantime, proposing Regulation Crypto in August and completing a rewrite of its transfer agent rules at the start of September.
What the order does not do is settle anything. Relief granted under Section 36(a)(1) is exemptive, not a rule, and it expires five years after publication. Nothing in it obliges the Commission to extend the relief or to finish the rulemaking Atkins says has to follow it.
