Crypto for Advisors: The CLARITY Act failed, but the rules came anyway

A: The SEC has opened a pathway for eligible tokenized U.S.-listed stocks to trade onchain through automated liquidity pools. Qualifying venues don't have to register as exchanges, and certain liquidity providers receive dealer-registration relief for covered activities. Trading is limited to identity-verified participants. The order followed CLARITY’s failed procedural Senate vote by two days. Its scope is narrower than the proposed legislation, which also addresses tokenized securities. It allows a specific market model to develop under existing SEC authority.

It's also a deliberately limited test. Trading is capped at a small fraction of each stock's normal volume, and margin isn't allowed. The relief lasts five years, but the SEC can modify its terms or duration.

Advisors should treat this as a limited market test and require evidence that a product improves access or execution at their clients’ actual trade sizes.

Q: If a client buys a “tokenized stock,” what do they actually own?

A: Some products marketed as “tokenized stocks” provide synthetic exposure to a stock’s returns without conveying shareholder rights. Payments that mirror dividends don't make the holder a shareholder. The SEC's new exemption sets a useful test. To trade on these venues, a token has to carry the same rights as the underlying share: the same dividends, the same votes and the same claim on the company's assets in a liquidation. Synthetic exposure doesn't qualify. If a third party tokenizes a company's stock without the company's involvement, it has to deliver proxy materials to holders. The company also gets 30 days' notice and can block trading on that venue.