There’s been much speculation about the form of any potential innovation exemption that the Securities and Exchange Commission (SEC) might grant, with the mystery solved today. The order allows certain tokenized stocks, specifically exchange listed stocks (NMS stocks), to be traded via automated market makers (AMMs), without the AMM venues needing to register as an exchange and without the liquidity providers registering as dealers. The exemption lasts five years with the Commission asking for public comment.
Some of the restrictions include limits on trading volumes and the number of stock symbols that can be traded (see limits later). While the AMMs have to be on public permissionless blockchains, the trading is in a permissioned fashion.
Of late there’s been some controversy, with a spat between the CEO of AMC and Robinhood about synthetic stocks, where the token represents a different issuer’s debt, backed one for one with the actual stock. Those kinds of tokens are not exempt, with tokens needing to provide full rights to qualify. The AMC spat highlights another requirement, that the stock issuer has the right to object, with the AMM required to notify the stock issuer 30 days before commencing trading of a third party token. That also means the exemption is not restricted to issuer sponsored tokens. So DTC tokens or tokens issued by a custodian or broker could qualify, if they pass through full shareholder rights including voting. That’s provided the underlying stock issuer doesn’t object.
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