The Securities and Exchange Commission released its "innovation exemption" on Thursday, letting certain venues offer onchain trading of tokenized stocks without registering as an exchange. The move follows the Senate's rejection of the Clarity Act, and the exemption runs for five years while the SEC works on permanent rulemaking.
SEC unveils the innovation exemption
The SEC debuted its long-anticipated innovation exemption on Thursday, positioning the measure as a response to the Senate's failure to advance sweeping cryptocurrency legislation. Chair Paul Atkins said the exemption will bring capital markets in the United States into a new digital era by allowing onchain trading of tokenized stocks.
According to The Block: "So today, the Securities and Exchange Commission is taking a significant step forward" toward that goal, Atkins said in a statement, and the exemption takes effect immediately. The public can submit comments while the agency works on more permanent rules.
An SEC spokesperson said on a call with reporters that the five-year exemption had been in the works for over a year and was spurred by market interest. Atkins has been heralding news of the exemption for most of the year as part of the agency's "Project Crypto" push to modernize its rules.
What the exemption covers
The exemption removes certain trading venues, called tokenized securities venues, from the legal definition of an exchange. It also exempts specific liquidity providers from being classified as dealers when they trade stocks or supply liquidity through automated market makers, meaning smart contracts. Those exempt venues still have to comply with sanctions rules, Atkins said, and the exemption excludes synthetics, while issuers can block their securities from trading on a given venue.
A response to the Clarity Act's failure
The SEC's move comes days after the Senate voted 49-50 against the Clarity Act, which would have regulated the digital asset industry comprehensively at the federal level for the first time. A day before releasing the exemption, Atkins warned he would act within the SEC's statutory authority to deliver certainty for investors and told markets to wait for what was coming next.
Before that, the SEC had already been laying groundwork for further crypto rulemaking before the end of the year, including changes to how much liquid capital brokers must hold and to record-keeping and exchange rules for digital assets. Atkins earlier this year outlined a "token taxonomy" to distinguish which cryptocurrencies count as securities, and the SEC and Commodity Futures Trading Commission have said they are coordinating that work under Project Crypto. CFTC Chair Michael Selig said Wednesday his agency is ready to ship its own rules for the same shift in finance.
Source: The Block
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