SEC Grants WisdomTree Exemptive Relief for 24/7 Tokenized Mutual Fund Trading: What It Means for Tokenized Securities

The Securities and Exchange Commission has reportedly granted exemptive relief to WisdomTree, permitting its tokenized Treasury money market fund to trade around the clock with instant blockchain-based settlement. If confirmed, this represents one of the most significant regulatory developments for tokenized securities to date—demonstrating that registered investment products can operate on blockchain rails while maintaining full compliance with federal securities law.

This article analyzes the regulatory framework implicated by such relief, what it signals about the SEC’s current posture toward tokenized securities, and what practitioners should consider as the tokenized fund market matures.

Key Takeaways

• Regulatory milestone: The SEC has reportedly used its exemptive authority under the Investment Company Act of 1940 to permit continuous 24/7 trading of registered mutual fund shares—a first for blockchain-based fund distribution.
• Instant settlement pathway: The relief enables atomic settlement on blockchain infrastructure, potentially eliminating T+1 settlement delays for qualifying transactions.
• FINRA coordination required: Broker-dealers facilitating these trades needed concurrent FINRA approval to operate outside traditional equity trading hours.
• Conditions likely imposed: Exemptive relief under the 1940 Act typically comes with specific conditions—practitioners should review the full order once available on SEC EDGAR.
• Template for future applicants: This relief may establish an analytical framework for other asset managers seeking similar treatment for tokenized registered products.

Why This Matters: The Commercial Context

The tokenized Treasury market has grown substantially, with multiple issuers bringing blockchain-based Treasury products to market. Franklin Templeton’s BENJI fund, BlackRock’s BUIDL fund, and offerings from Ondo Finance and others have collectively attracted billions in assets under management. These products appeal to institutional and retail investors seeking:

• Yield on stablecoin holdings without off-ramping to traditional finance
• Transparent, on-chain proof of reserves for Treasury-backed assets
• Programmable money market exposure for DeFi integration
• 24/7 liquidity in a traditionally 9:30-4:00 market

However, most existing tokenized Treasury products have operated through offshore structures or novel legal arrangements that raise questions about regulatory status. WisdomTree’s approach—seeking explicit SEC exemptive relief for a registered mutual fund—represents a different strategy: bringing tokenization fully within the established regulatory framework rather than around it.

The Regulatory Framework for Registered Fund Tokenization

Registered investment companies operating under the Investment Company Act of 1940 (“1940 Act”) face structural constraints that were designed for a different technological era. Understanding these constraints is essential to appreciating the scope of the reported exemptive relief.

Redemption and Settlement Requirements

Section 22(e) of the 1940 Act (15 U.S.C. § 80a-22(e)) generally prohibits registered investment companies from suspending redemption rights or postponing payment for more than seven days, except in limited circumstances. This provision protects investor liquidity but was drafted assuming manual settlement processes.

Rule 22c-1 under the 1940 Act (17 C.F.R. § 270.22c-1) requires open-end funds to sell and redeem shares at the current net asset value (“NAV”). Traditional practice involves calculating NAV once daily at market close (typically 4:00 PM ET), creating an inherent tension with 24/7 trading.

For a tokenized fund trading continuously, questions arise: At what price do transactions execute at 2:00 AM on a Sunday? How frequently must NAV be calculated? The exemptive relief likely addresses these operational questions, though the specific solutions await review of the full order.

The SEC’s Exemptive Authority

Section 6(c) of the 1940 Act (15 U.S.C. § 80a-6(c)) grants the Commission broad exemptive authority:

“The Commission, by rules and regulations upon its own motion, or by order upon application, may conditionally or unconditionally exempt any person, security, or transaction… from any provision or provisions of this subchapter… if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter.”

This is the statutory basis for the reported WisdomTree relief. Importantly, exemptive orders require an individualized determination—they are not automatic and typically include conditions tailored to the applicant’s specific facts.

Liquidity Risk Management

Rule 22e-4 under the 1940 Act (17 C.F.R. § 270.22e-4) requires open-end funds to maintain liquidity risk management programs, including classification of portfolio holdings by liquidity. A money market fund investing primarily in U.S. Treasury securities holds among the most liquid instruments available, which likely supported the SEC’s comfort with continuous trading. Extension of similar relief to funds holding less liquid assets would present more challenging liquidity management questions.

Reported Scope of the Exemptive Relief

Based on available reporting, the WisdomTree exemptive relief reportedly permits:

1. Continuous trading: Fund shares can trade 24 hours per day, 7 days per week, including weekends and federal holidays.
2. Blockchain-based settlement: Transactions settle atomically on blockchain infrastructure rather than through traditional T+1 settlement cycles.
3. Operation within registered fund structure: The product remains a registered investment company subject to 1940 Act investor protections.

FINRA’s reported concurrent approval addresses broker-dealer compliance, permitting member firms to facilitate continuous trading outside the hours traditionally permitted under FINRA’s equity trading rules (Rules 6200-6400 series).

Note: The specific conditions and limitations in the exemptive order are not yet available for review. Practitioners should obtain and analyze the full order from SEC EDGAR before relying on this relief as precedent.

Implications for the Tokenized Securities Ecosystem

For Asset Managers Considering Tokenization

The WisdomTree relief demonstrates that the SEC will entertain exemptive applications for tokenized registered products. Asset managers evaluating this pathway should consider:

Portfolio composition matters. A Treasury money market fund presents an ideal test case because the underlying assets are highly liquid and price continuously in global markets. Funds holding corporate bonds, equities, or alternative assets would raise additional liquidity and valuation questions.

Infrastructure requirements are substantial. Operating a 24/7 fund requires robust blockchain infrastructure, cybersecurity protocols, and operational capabilities that exceed traditional fund administration. The SEC likely scrutinized these capabilities closely.

Timeline and cost. Exemptive relief applications require detailed legal submissions and Commission review. This is not a quick or inexpensive process—budget accordingly.

For Broker-Dealers

Broker-dealers seeking to facilitate tokenized fund trading must address:

Customer protection rules. Rule 15c3-3 under the Securities Exchange Act of 1934 (17 C.F.R. § 240.15c3-3) governs custody of customer securities and funds. Holding tokenized fund shares on blockchain infrastructure raises questions about “possession or control” that broker-dealers must resolve.

Continuous supervision. 24/7 trading requires 24/7 compliance surveillance. Firms must evaluate staffing models and automated monitoring capabilities.

Best execution obligations. FINRA Rule 5310 requires broker-dealers to use reasonable diligence to obtain the best execution for customer orders. In a continuous trading environment, best execution analysis may differ from traditional market hours.

For Digital Asset Platforms

Crypto exchanges and digital asset platforms have long offered 24/7 trading for unregistered tokens. The WisdomTree relief demonstrates a pathway to offer similar trading hours for registered securities—potentially expanding the universe of assets these platforms can support while operating within regulatory frameworks.

Outstanding Questions

Several important questions remain that the full exemptive order may—or may not—address:

• NAV methodology: How is NAV calculated for off-hours transactions? Is there a continuous NAV model, or do transactions execute at a stale price with subsequent adjustment?
• Blockchain specification: Which blockchain infrastructure supports the fund? Are there requirements around decentralization, security, or permissioned access?
• Cross-border considerations: Can non-U.S. investors access the fund through 24/7 trading, and how are eligibility requirements verified on-chain?
• State law implications: Does tokenized fund share distribution implicate state money transmitter licensing requirements? (This remains an unresolved question for many tokenized products.)
• Transfer agent functions: How are transfer agent obligations under Section 17A of the Exchange Act (15 U.S.C. § 78q-1) satisfied when blockchain serves as the share ownership ledger?

What to Watch

Practitioners should monitor several developments:

1. SEC EDGAR filing: The full exemptive order, once posted, will contain the specific conditions and limitations that define the relief’s scope.
2. Follow-on applications: Watch for other asset managers filing similar exemptive applications, which will indicate market appetite and SEC receptivity.
3. Staff guidance: SEC Division of Investment Management staff may issue guidance interpreting the exemptive relief or establishing a framework for similar applications.
4. Operational launch: How the fund actually operates—including any early issues or modifications—will inform expectations for future products.

Practical Implications

For Crypto Founders and Token Issuers

This relief does not directly affect unregistered token offerings, but it signals the SEC’s willingness to accommodate blockchain technology within existing frameworks. Projects considering registered offerings (e.g., under Regulation A+) may find a more receptive regulatory environment for blockchain-based distribution.

For In-House Counsel at Financial Institutions

If your institution is evaluating tokenized Treasury products, understand the distinction between registered products like this WisdomTree fund and offshore or unregistered alternatives. Registered products offer clearer regulatory status but may have different features, fees, or access restrictions.

For Compliance Officers

Review your AML/KYC frameworks for adequacy in 24/7 trading environments. Continuous trading means continuous monitoring obligations—ensure your transaction surveillance capabilities match your operational hours.

For Retail Investors

Tokenized mutual fund shares remain mutual fund shares, subject to the same investment risks as traditional funds. The “tokenization” does not change the underlying economics—it changes the operational wrapper. Understand what you’re buying, not just how you’re buying it.

Conclusion

The SEC’s reported exemptive relief for WisdomTree’s tokenized Treasury money market fund represents a meaningful step toward integrating blockchain infrastructure with the registered securities ecosystem. By permitting 24/7 trading and instant settlement within the 1940 Act framework, the Commission has demonstrated that technological innovation and investor protection need not be mutually exclusive.

For the tokenized securities industry, this relief is both validation and roadmap. It validates the proposition that blockchain-based securities can achieve regulatory compliance. It provides a roadmap—however preliminary—for other issuers seeking to follow.

CryptoLaw.blog will publish a follow-up analysis once the full exemptive order is available on SEC EDGAR, detailing the specific conditions imposed and their implications for practitioners.

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This article is for informational and educational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. Laws and regulations in the cryptocurrency space change rapidly — consult a qualified attorney for advice specific to your situation and jurisdiction. Seth Goettelman is licensed to practice law in Wisconsin and Florida.