France'sfinancial regulator approved operating rules for what will become the country'sfirst stock exchange built entirely on blockchain technology, clearing the pathfor small and mid-sized companies to list tokenized shares for direct retailinvestor trading.France Clears First TokenizedStock Exchange for SME TradingTheAutorité des Marchés Financiers (AMF) signed off on LISESA's 72-page rulebook on October 13. The approval allows LISE to operate asboth a multilateral trading facility and settlement system using distributedledger technology once it receives final authorization from French bankingregulators.LISE willfunction under the European Union's Pilot Regime, an experimental regulatorysandbox launched in 2022 that lets market operators test blockchain-basedtrading infrastructure with certain exemptions from traditional securitiesrules. The platform targets French companies valued below €500 million offeringthem an alternative to conventional exchanges like Euronext."ThePilot Regime is an experimental regulation that allows the creation of marketinfrastructures on which individual investors can trade directly," thedocument states.Traditionalstock exchanges are late to join the tokenized stocks trend, which has beengaining momentum since 2024. Until now, the market has been dominatedby cryptocurrency and CFD platforms, but the industry, projected to beworth $2 trillion within five years, is starting to attract interest fromold-school bourses as well. Among the recent entrants is BoerseStuttgart, while NewZealand’s exchange is also considering a similar move.Trading Without Traditional IntermediariesTheplatform breaks from standard market structure by lettingindividual investors trade tokenized stocks (Titres Tokénisés) directlywithout going through brokerage accounts. Each user receives a digital walletthat records share ownership on the blockchain, cutting out the custody andsettlement layers that typically sit between investors and their holdings.LISE'srules require that retail participants pass a knowledge test coveringblockchain technology and associated risks before gaining trading access. Theplatform will only accept French joint-stock companies and limited partnershipsby shares. At least half of all listed issuers must qualify as small or mediumenterprises (or SMEs) with market capitalizations under €200 million. Totalvalue of all tokenized securities admitted to the platform cannot exceed €6billion, a cap set by the EU's experimental framework.One of thebiggest advocates of tokenized shares at the moment isRobinhood, whose CEO, Vlad Tenev, calls this form of trading thefuture.Settlement Happens in RealTimeLISEcombines trading and settlement functions on a single infrastructure,collapsing the typical two-day gap between trade execution and final ownershiptransfer. The system operates continuously, processing transactions andrecording ownership changes on the blockchain within seconds of order matching.Companieslisting on LISE must convert all outstanding shares into tokenized formrecorded on the platform's distributed ledger. Shareholders wanting to holdshares in traditional registered form would need to remove them from theblockchain system, though LISE can maintain a separate registry for thoseholdings under a mandate from the issuer.Companiesgoing public on LISE can raise capital through either public offerings orprivate placements exempt from prospectus requirements. The platform willhandle subscriptions for new share issuances while simultaneously runningsecondary market trading for already-listed securities.Regulatory Limits onExperimental PlatformFrance'simplementation of the EU Pilot Regime restricts who can access DLT-basedmarkets and what can trade on them. LISE's rules prohibit high-frequencyalgorithmic trading and ban participants from offering direct electronic accessto third parties.Theplatform operates under a three-year experimental window that can extend to sixyears, after which it must either transition to standard regulatory treatmentor shut down. Companies going public on LISE can raise capital through eitherpublic offerings or private placements exempt from prospectus requirements.The rapidrise in the popularity of tokenized stocks over the past several months hasprompted regulators worldwide to respond. For example, the U.S. SEC has shown asupportive approach, with Commissioner Hester Peirce stating that sheis ready to engage in dialogue with the industry. China, on the other hand,aimsto curb asset tokenization, according to Reuters, while ESMA has suggestedthat transferring shares onto the blockchain couldmislead investors.The finalauthorization allowing LISE to begin operations has not yet been granted. Therules approved October 13 will take effect once that clearance comes through.This article was written by Damian Chmiel at www.financemagnates.com.