SEC grants temporary exemption for tokenized NMS stock and seeks comment

The SEC issued temporary, conditional exemptive relief from the Exchange Act definition of an exchange for Tokenized Securities Venues, or TSVs. The relief allows TSVs to trade tokenized NMS stock through permissioned automated market makers and liquidity pools. TSVs bring together buyers and sellers through liquidity pools and access standards for permissioned participants. The order limits the number of symbols and the trading volume for tokenized NMS stocks on a TSV. A TSV must verify that each tokenized NMS stock gives holders the same rights and privileges as traditional NMS stock of an equivalent class. A TSV must notify the issuer and provide an opportunity to object before offering stock tokenized by an unaffiliated third party. Smart contracts used by a TSV must be auditable and public. The contracts must be deployed on a public, permissionless distributed ledger. A TSV must stop trading in a tokenized NMS stock when trading in the underlying stock stops on its primary listing exchange. A TSV must publicly disclose its operations and trading activities. The disclosure must also cover the trading activities of its affiliates on the TSV. The order temporarily grants conditional relief from the Exchange Act definition of dealer to liquidity providers in TSV liquidity pools. The relief covers providers that supply tokenized NMS stock with proprietary capital. Those providers may also engage in activities that indicate dealing activity. The exemptions will expire five years after publication. The order solicits public comment on possible modifications and potential next steps. SEC Chairman Paul S. Atkins said the temporary exemption would allow TSVs to trade tokenized NMS stock in a permissioned environment while the Commission considers further action. Jamie Selway said the SEC Division of Trading and Markets is ready to work with parties seeking to operate a TSV and answer questions from investors and market participants. The order will be published on SEC.gov and in the Federal Register.