Written by: Xiaobing

Two days after the CLARITY Act fell in the Senate with a vote of 49:50, SEC Chair Paul Atkins provided Plan B.

On September 17, the SEC issued Order 34-106402, formally named "Innovation Exemption." This order grants a new category of market participants, "Tokenized Securities Venues" (TSV), a conditional exemption for five years, allowing them to trade tokenized national market system stocks (NMS Stock) on public blockchains through licensed AMM liquidity pools without needing to register as a national securities exchange.

Atkins stated in his announcement: “This step aims to propel the U.S. capital markets into the digital age.”

Nine Conditions: The Framework is Stricter than Expected

The "Innovation Exemption" is not a blank check; the SEC has set nine thresholds for TSV:

U.S. Entity. TSVs must be registered and have an office established in the U.S. Offshore entities are not applicable.

Licensed Access. Each participant (traders and liquidity providers) must be vetted before accessing the platform. Anonymous trading is explicitly prohibited.

Auditable Smart Contracts. All smart contracts must be deployed on public, permissionless distributed ledgers, accessible and auditable to the public.

Complete Shareholder Rights. Holders of tokenized stocks must enjoy the same rights as traditional stockholders, including dividends, voting rights, and participation in corporate actions. Synthetic products are explicitly excluded.

Issuer Notification and Objection Rights. TSV must provide written notice to the issuer 30 days prior to listing a tokenized stock. If the issuer objects, the stock cannot be listed for trading. Silence is considered consent.

Trading Subject and Volume Limits. The number of tradable tokenized stocks and the total trading volume are subject to limits (specific numbers to be refined by the SEC later).

Synchronous Trading Halts. When the underlying NMS stock triggers a trading halt, the tokenized version must also halt trading synchronously.

Sanctions Compliance. TSV must comply with U.S. sanctions regulations and implement relevant access restrictions.

Complete Applicability of Anti-Fraud Provisions. Anti-fraud and anti-manipulation provisions under federal securities laws are fully applicable to tokenized stock trading.

Meanwhile, the SEC has provided a conditional broker registration exemption for liquidity providers of TSV, meaning that institutions injecting capital into AMM pools do not need to register as securities brokers, provided they meet certain conditions.

A Direct Response to the Failure of the CLARITY Act

On September 11, Coinbase CFO Alesia Haas stated at the Goldman Sachs conference that there are three paths to regulatory clarity: Congressional legislation, agency rulemaking, and court case precedents. Coinbase believes that even if the CLARITY Act fails, the agencies can still advance rulemaking at the SEC and CFTC level.

On September 15, the CLARITY Act was rejected by a vote of 49:50.

On September 17, the SEC issued the "Innovation Exemption."

It took only 48 hours from the CLARITY Act's failure to the SEC's action. Atkins fulfilled his promise made on the day of the CLARITY Act vote: “Regardless of whether legislation passes, the SEC will deliver results for investors and innovators.”

When Congress fails to pass laws, administrative agencies can fill the void with exemption orders and administrative rules. This path is faster and more flexible, but also more vulnerable; exemptions can be revoked, and administrative rules can be overturned by the next administration. If the CLARITY Act had passed, the legal status of tokenized securities would have been enshrined in federal law, not easily revocable, whereas an administrative exemption is merely a temporary pass valid for five years.

Who Are the Winners?

Securitize. Its model achieves tokenization directly at the issuer's shareholder registry level, making token holders legal shareholders, completely符合 SEC's requirements. The New York Stock Exchange is collaborating with Securitize to develop a tokenized stock trading platform, and this exemption provides it with much-anticipated federal compliance endorsement.

Coinbase. If it can fulfill its promise to upgrade voting rights and redemption rights to meet the "full shareholder rights" standard, Coinbase will qualify to apply to become a TSV. It has claimed that its token holders have actual ownership of the underlying stocks, which is closer to the line drawn by the SEC than Robinhood’s legal structure.

Robinhood Chain and ARB.

Robinhood's current Stock Token legal structure 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, being a core pillar of its growth narrative.

Once Robinhood upgrades the Stock Token from "Jersey synthetic exposure" to "truly tokenized stocks" that meet SEC requirements, the most natural deployment environment would be Robinhood Chain. The SEC requires that smart contracts be deployed on a "public, permissionless distributed ledger," and Robinhood Chain, built on Arbitrum Orbit, has its underlying settlement revert to Arbitrum One, just meeting this requirement.

If trading of thousands of tokenized U.S. stocks ultimately occurs on Robinhood Chain, the transaction volume and fee revenue on the chain will far exceed the current structure dominated by meme coins. Recall Standard Chartered's $10 price target for ARB, with the core argument being the revenue growth brought by the Orbit chain.

Arc Chain. Circle's Arc chain, with USDC as its native gas, features sub-second finality and compliant privacy layers. If TSV chooses to deploy tokenized stock trading on a public chain, Arc is currently one of the institutional-level options that best meet SEC's requirements for public, permissionless distributed ledgers + auditable smart contracts.

Short-Selling Direction: Pure Synthetic Models. Those tokenized stock products that only provide price exposure and do not grant shareholder rights now face a clear regulatory divide. They cannot participate in the TSV framework, meaning they will continue to operate in a gray area. The SEC's order does not prohibit them but clearly highlights compliance for another class of products.

The SEC has explicitly stated that this is a transitional arrangement, and during the exemption period, actual market data will be collected to decide whether to formulate permanent rules. The SEC has also opened up public comment solicitation.

The five-year window means that from 2026 to 2031, there will be an "experimental sandbox period" for tokenized securities. During this period:

The data on on-chain stock trading volume will provide an empirical basis for future permanent rules. The performance of AMM liquidity pools in securities trading (slippage, price discovery efficiency, manipulation risks) will be tested in reality. How the issuer's objection rights operate in practice (how many companies will actively prevent their stocks from being tokenized?) will also provide policy references.

If the experiment succeeds, after five years, the SEC may convert the exemption into permanent rules, and tokenized stock trading will become a permanent component of the U.S. capital markets. If the experiment fails, or if the political environment changes, TSV will have to shut down or transform once the exemption expires.