SEC Grants Five-Year Tokenised Stock AMM Exemption With Full Shareholder Rights Condition
Key points
- The SEC exemption covers NMS (exchange-listed) stocks traded via AMMs, freeing those venues from exchange registration requirements and liquidity providers from dealer registration.
- The exemption lasts five years and includes trading volume caps and limits on the number of stock symbols that may be listed.
- Synthetic stock tokens, where a token represents a different issuer's debt backed one-for-one by the stock, are explicitly excluded; only tokens conferring full shareholder rights qualify.
- Third-party tokens from custodians, brokers, or the DTC can qualify, but the underlying stock issuer must receive 30 days' notice and may object before trading commences.
- AMMs must operate on public permissionless blockchains, while actual trading within those venues is conducted on a permissioned basis.
The US Securities and Exchange Commission has issued an exemption order permitting tokenised exchange-listed stocks, specifically National Market System (NMS) stocks, to be traded through automated market makers (AMMs) without those venues registering as exchanges and without liquidity providers registering as dealers. The exemption runs for five years and is accompanied by a public comment period, with trading volume caps and limits on the number of stock symbols permitted.
The order resolves a question that had generated considerable industry speculation: third-party tokens, meaning tokens issued by a custodian, broker, or entity such as the Depository Trust Company (DTC) rather than the stock issuer itself, can qualify, provided they pass through full shareholder rights including voting. Synthetic instruments, where a token represents a different issuer’s debt backed one-for-one by the underlying stock, are explicitly excluded. The exclusion is directly relevant to a recent dispute involving the chief executive of AMC and Robinhood over that type of structure.
AMMs operating under the exemption must run on public permissionless blockchains, though trading within those venues is conducted in a permissioned manner. Stock issuers retain a material check: any AMM intending to list a third-party token must notify the underlying issuer thirty days before commencing trading, giving issuers the right to object. The practical implication is that token issuers and AMM operators need issuer non-objection, not active sponsorship, to proceed, which opens the market to custodian and broker-issued tokens that can demonstrate genuine rights pass-through.