Original author: Xiao Bing
Two days after the CLARITY Act failed in the Senate by a 49-50 vote, SEC Chairman Paul Atkins presented Plan B.
On September 17, the SEC issued Order 34-106402, officially titled the "Innovation Exemption." This order grants a new class of market participants, called Tokenized Securities Venues (TSVs), a five-year conditional exemption permitting them to trade tokenized National Market System (NMS) stocks on public blockchains through permissioned AMM liquidity pools without registering as a national securities exchange.
Atkins said in the statement: "This step aims to propel the U.S. capital markets into the digital age."
Nine conditions: The framework is stricter than imagined
The "innovation exemption" is not a blank check; the SEC has set nine thresholds for TSV:
U.S. entity. TSV must be incorporated and have an office in the United States. Offshore entities are not eligible.
Access by permission only. Each participant (trader and liquidity provider) must be reviewed before gaining access to the platform. Anonymous trading is explicitly prohibited.
Auditable smart contracts. All smart contracts must be deployed on a public, permissionless distributed ledger, making them openly verifiable and auditable.
Full shareholder rights. Holders of tokenized shares must enjoy exactly the same rights as traditional shares, including dividends, voting rights, and participation in corporate actions. Synthetic products are explicitly excluded.
Issuer Notification and Right to Object. TSV must provide written notice to the issuer at least 30 days prior to listing a tokenized stock. If the issuer objects, the stock shall not be listed for trading. Silence shall be deemed as consent.
Trading instruments and trading volume limits. The number of tradable tokenized stocks and total trading volume are subject to restrictions (specific figures to be finalized by the SEC).
Suspended trading. When the underlying NMS stock triggers a trading halt, the tokenized version must be suspended in sync.
Sanctions compliance. TSV must adhere to U.S. sanctions regulations and implement corresponding access restrictions.
Anti-fraud provisions apply in full. Anti-fraud and anti-manipulation regulations under federal securities laws are fully applicable to tokenized stock trading.
At the same time, the SEC has provided a conditional broker-dealer registration exemption for TSV liquidity providers, meaning that institutions contributing capital to AMM pools do not need to register as securities brokers if they meet certain conditions.
Direct response to the failure of the CLARITY Act
On September 11, Coinbase CFO Alesia Haas said at the Goldman Sachs conference that there are three pathways to regulatory clarity: congressional legislation, agency rulemaking by regulators, and judicial precedent. If the CLARITY Act fails to pass, Coinbase believes that rulemaking by the SEC and CFTC at the agency level can still move forward.
On September 15, the CLARITY Act was defeated by a vote of 49:50.
On September 17, the SEC issued the "Innovation Exemption."
It took only 48 hours from the fall of the CLARITY Act to the SEC’s action. Atkins fulfilled his promise made on the day of the CLARITY Act vote: “The SEC will deliver for investors and innovators, with or without legislation.”
When Congress fails to pass legislation, executive agencies can fill the vacuum with exemptions and administrative rules. This path is faster and more flexible, but also more fragile—exemptions can be revoked, and administrative rules can be overturned by the next administration. If the CLARITY Act passes, the legal status of tokenized securities would be codified into federal law, making it difficult to revoke, whereas administrative exemptions are merely temporary permits valid for five years.
Who are the winners?
Securitize’s model tokenizes shares directly at the issuer’s shareholder register level, making token holders legal shareholders in full compliance with SEC requirements. The New York Stock Exchange is collaborating with Securitize to develop a tokenized stock trading platform, and this exemption provides it with the long-awaited federal regulatory endorsement.
Coinbase. If it can fulfill its promised upgrades to voting and redemption rights to bring its tokenized shares into compliance with the standard of "full shareholder rights," Coinbase is eligible to apply to become a TSV. It has already claimed that its token holders have actual ownership of the underlying shares, placing it closer to the line drawn by the SEC than Robinhood’s legal structure.
Robinhood Chain and ARB.
Robinhood's current legal structure for Stock Tokens is non-compliant, but Robinhood has the strongest incentive to upgrade, as its tokenized stock business covers over 2,000 stocks and more than 120 countries, forming a core pillar of its growth narrative.
Once Robinhood upgrades its Stock Tokens from "Jersey Island synthetic exposure" to truly tokenized stocks compliant with SEC requirements, the most natural deployment environment would be Robinhood Chain. The SEC requires smart contracts to be deployed on a "public, permissionless distributed ledger," and Robinhood Chain, built on Arbitrum Orbit with underlying settlement on Arbitrum One, precisely meets this requirement.
If trading of thousands of tokenized U.S. stocks ultimately occurs on Robinhood Chain, the on-chain transaction volume and fee revenue will far exceed the current structure dominated by meme coins. Recall that Standard Chartered’s $10 price target for ARB was primarily based on revenue growth driven by the Orbit chain.
Arc Chain. Circle’s Arc Chain uses USDC as its native gas, offering sub-second finality and a compliant privacy layer. If TSV chooses to deploy tokenized stock trading on a public blockchain, Arc is currently one of the most institutional-grade options that align with the SEC’s requirements for a public, permissionless distributed ledger with auditable smart contracts.
Short position: Pure synthetic models. Tokenized stock products that provide only price exposure without granting shareholder rights now face a clear regulatory turning point. They are excluded from the TSV framework, meaning they will continue to operate in a gray area. The SEC’s order does not prohibit them, but it clearly directs compliance-focused attention toward other product types.
The SEC explicitly stated that this is a transitional arrangement during which actual market data will be collected to determine whether to establish permanent rules. The SEC has also opened a public comment period.
The five-year window means that 2026 to 2031 will become the "experimental sandbox period" for tokenized securities. During this period:
On-chain stock trading volume data will provide an empirical foundation for future permanent rules. The performance of AMM liquidity pools in securities trading—slippage, price discovery efficiency, and manipulation risks—will be genuinely tested. How the issuer's objection right operates in practice (how many companies will actively prevent their stocks from being tokenized?) will also offer policy insights.
If the experiment succeeds, the SEC may convert the exemption into a permanent rule, making tokenized stock trading a permanent part of the U.S. capital markets. If the experiment fails or the political environment changes, TSV will have to shut down or transform once the exemption expires.