Author: The Defiant Team

Translation: Deep Tide TechFlow

Deep Tide Introduction: After the CLARITY act was stalled in the Senate for two days, the SEC and CFTC utilized their existing powers to provide a temporary solution on the same day: tokenized U.S. stocks can be traded on a licensed AMM, and passive software providers can receive exemptions as brokers. This is not permanent legislation, but it is the hardest step forward in a regulatory vacuum; UNI rose nearly 20% in one day, reflecting the market's pricing of this pathway.

On Thursday, the SEC issued a five-year conditional exemption allowing tokenized National Market System (NMS) stocks to be traded on licensed automated market makers (AMMs); on the same morning, the Commodity Futures Trading Commission (CFTC) expanded its introducing broker exemption to all passive software providers. Both actions took place the day after the Senate blocked the CLARITY act and were announced the day following the chairmen’s statements that "we will write rules ourselves without Congressional legislation." Uniswap token UNI rose by 19.8% in 24 hours.

The two major U.S. market regulators issued crypto-related exemptions within hours on Thursday, marking the first concrete implementation of the existing powers invoked by both chairmen after the Senate refused to advance the market structure bill.

The Securities and Exchange Commission (SEC) conditionally exempted a new entity type called "Tokenized Securities Venue" (TSV) from the definition of "exchange," allowing tokenized NMS stocks to be traded on licensed liquidity pools on-chain. The CFTC, through its Market Participants Division, provided guidance indicating that passive software providers do not need to register as introducing brokers.

Both documents are not Congressional legislation and represent temporary arrangements. The SEC's order will expire five years after publication, and the Commission may amend or withdraw it earlier; the non-action stance from staff is only binding on the department that issued the document. On Tuesday, the Senate voted 49 to 50 to block the procedural motion to advance H.R. 3633, falling 11 votes short of the required 60.

"Despite many people's tireless efforts, Congress has still failed to advance the CLARITY act," said SEC Chairman Paul Atkins in a statement accompanying the order. The Commission is "taking significant steps within its statutory authority to bring U.S. capital markets into the digital age," he added, "this transitional measure must be followed by durable rulemaking to ensure that on-chain markets continue to be a viable pathway."

Limits, Tiering, and Trading Halts

The order numbered Release No. 34-106402 exempts the venues from the definition of an exchange under Section 3(a)(1) of the Securities Exchange Act and exempts certain liquidity providers from the definition of a dealer under Section 3(a)(5). It does not exempt from anti-fraud provisions, does not exempt compliance with sanctions from the Office of Foreign Assets Control (OFAC), nor does it exempt Securities Act registration for securities issuance, and does not allow primary issuance.

Trading has limits in place. The venue may list a maximum of 75 Tier 1 securities—defined under the Limit Up-Limit Down Plan, covering S&P 500 and Russell 1000 components and some ETFs—where the transaction volume for each security cannot exceed 0.25% of the average daily trading volume for that security in the previous month. Tier 2 covers the remaining NMS stocks, with a limit of 250 securities and 2.5% of the average daily trading volume. Exceeding the volume limit will trigger a trading halt for that security for three months.

The venue must operate publicly auditable smart contracts on a public blockchain; if the underlying stock is halted on the primary listing exchange, the corresponding tokenized stock must also be halted; and must publish trading data for the past 30 days, expressed in U.S. dollars, updated within 10 minutes, covering fields such as code, price, quantity, time, and direction. The venue must notify the Commission within one business day after publicly announcing its intention to operate under the exemption.

“The approval of on-chain secondary trading exemptions on TSV—referred to as the 'innovation exemption'—is an important milestone for the Commission in opening capital markets for tokenized securities,” said Jamie Selway, Director of the SEC’s Division of Trading and Markets. He had outlined the framework and inter-agency coordination earlier this year.

Issuers Hold Veto Power

The order covers stocks tokenized by issuers themselves as well as stocks tokenized by unrelated third parties. It excludes a category of instruments: "crypto assets issued by third-party issuers representing their own securities to provide synthetic exposure to the underlying securities, such as tokenized linked securities or tokenized securities-based swaps."

Before listing third-party tokenized stocks, the venue must provide written notice to the issuer's primary business office—using the address on their Securities Exchange Act report cover—at least 30 calendar days before trading can begin. If the issuer submits a written objection on or before the 30th day, the listing is prohibited. The venue must revise its public announcement within five business days, indicating that it has received the "Issuer Objection Notice." Tokenized shares must have the same rights to dividends, voting, and claims to residual assets as the underlying stocks; third-party tokenizers must distribute proxy materials to the issuer or shareholders at no charge.

Commissioner Hester Peirce drew boundaries in a separate statement. "This order is not about decentralized finance," she said. "Truly decentralized systems driven by automated software do not trigger the fundamental concerns of securities law." She added, “Investors do not need exemptions to use permissionless smart contracts that mediate peer-to-peer trading,” and the Commission is open to other models outside of what is described in the order.

Commissioner Mark Uyeda stated that this relief allows regulators to observe these venues before writing long-term rules. "The Commission should not impulsively restrict emerging technologies with a distorted legacy legal framework," he said.

Uniswap Labs launched Permissioned Pools in v4 this July, which exactly matches the licensed automated market maker structure envisioned by the order. According to CoinGecko, on Thursday afternoon UNI was priced at $7.37, up 19.8%; Bitcoin was priced at $76,558, up 1.2%.

Phantom Pathway Extended

The CFTC's action expands a previously exclusive position for one company to the entire industry. Staff Letter 26-25 noted that passive software providers that do not register as introducing brokers under Section 4d(g) of the Commodity Exchange Act will not be subject to enforcement; their personnel will also be covered by an exemption under Section 4k(1) on affiliates.

The letter defines passive software providers as: companies that develop and distribute front-end interface software that allows users to submit orders directly to registered futures commission merchants, introducing brokers, and designated contract markets, without the provider itself participating in any trades. This applies under ten conditions, including disclosure of relationships and conflicts of interest with brokers, risk disclosure statements, compliance policies equivalent to those with registered introducing brokers, written commitments to establish joint liability with brokers, as well as agreeing to accept Commission investigations.

This position follows the CFTC's earlier issuance of Letter 26-09 to Phantom Technologies in March. The non-action letter is only reliable by the beneficial party; thus, other providers must meet the conditions in the new letter.

"In March of this year, Phantom became the first passive software provider to receive non-action relief from the CFTC," said Brandon Millman, co-founder and CEO of Phantom, in a statement. "Now the CFTC is opening the same path to other software providers, which is a win for the entire industry."

Parallel but Unequal

Industry groups that had just digested the Senate voting results welcomed the SEC's order and stated they would submit comments.

“The Blockchain Association welcomes the SEC's innovative exemptions, viewing it as a crucial step toward modernizing the U.S. capital markets and paving the way for responsible financial innovation to take root on-chain,” CEO Summer Mersinger said in a statement. The Commission “is recognizing that new technologies and new market structures may require tailored regulatory treatment.”

Crypto Council for Innovation CEO Ji Hun Kim stated that this order “keeps this activity within the boundaries of U.S. regulation and reflects the Commission's validated historical approach: to adapt exemptions for innovative technologies while advancing comprehensive rules—the same model that created alternative trading systems (ATS) and the ETF market.”

Superstate CEO and Compound founder Robert Leshner posted that this order “will open the door to the first onshore, compliant, 24/7 trading of tokenized stocks.” Superstate is an SEC-registered transfer agent that claims to have helped shape the Permissioned Pools standards on Uniswap v4. “I expect that in the coming weeks and months, issuers will rethink products to conform to these rules,” said Leshner.

The Securities Industry and Financial Markets Association (SIFMA) opposed the overly broad exemptions in a letter to the SEC dated November 26, 2025, signed by President and CEO Kenneth Bentsen. Broad or categorical exemptions "risk creating a parallel yet unequal trading ecosystem," the organization stated; entities performing functions substantially similar to those of traditional securities intermediaries should be subject to equivalent regulation. SIFMA stated it could support innovative exemptions with investor limits, trading caps, term limits, and comment procedures for announcements.

The SEC is soliciting comments on the exemption modifications and next steps. The order will be published on SEC.gov and in the Federal Register to set a comment deadline. The agency's proposal on "Regulating Crypto Assets" covers issuance exemptions for crypto asset issuers, with comments due by October 20.