On Sept. 17, 2026, the U.S. Securities and Exchange Commission issued an order granting temporary, conditional relief for the on-chain secondary trading of tokenized National Market System (NMS) stocks. The “Innovation Exemption” provides qualifying Tokenized Securities Venues (TSVs) with a five-year exemption from the definition of “exchange” under the Securities Exchange Act of 1934, as amended (the Exchange Act). The order also provides related relief from the Exchange Act definition of “dealer” for certain proprietary liquidity providers.
The order permits a TSV to facilitate trading through permissioned automated market makers and liquidity pools (AMM Liquidity Pools) deployed through auditable smart contracts on a public, permissionless blockchain. The relief is subject to conditions addressing participant access, issuer notice and objection rights, token-holder rights, trading limits, transaction transparency, operational events, public disclosures, books and records, and SEC oversight.
The relief is meaningful but narrow. It does not create a general exemption for tokenized securities, permit primary offerings through a TSV, displace Securities Act registration requirements, or relieve broker-dealers and other regulated participants from requirements that otherwise apply to their activities. The exemptions expire on Sept. 17, 2031.
The order follows earlier Commission and staff actions concerning tokenized securities. As discussed in our August 2026 GT Alert addressing SEC staff no-action relief for digital asset custody, the Commission had been considering an innovation exemption intended to facilitate certain tokenized securities activity. The order now establishes the conditions for one specific form of secondary trading while the Commission considers whether further rulemaking or other relief is appropriate. The Commission is accepting comments under File No. 4-927 but has not specified a comment deadline.
Scope of the Exemption
A TSV is an organization, association, or group of persons that brings together buyers and sellers of tokenized NMS stock by (i) providing one or more AMM Liquidity Pools in which permissioned participants interact and agree to the terms of trades and (ii) setting standards governing access to those pools. A qualifying TSV must be a U.S. person. A TSV that satisfies the order’s conditions is exempt from the Exchange Act definition of “exchange” for the covered activity and therefore would not be required, solely by reason of that activity, to register as a national securities exchange or operate as an alternative trading system. The TSV also would not be treated as a trading center or market center under Regulation NMS with respect to trading conducted under the exemption.
For purposes of the order, “Tokenized NMS Stock” includes an NMS stock tokenized by or on behalf of its issuer, as well as a security tokenized by an unaffiliated third party. The exemption does not extend to a third party’s own security that merely provides synthetic exposure to an NMS stock, including a tokenized linked security or tokenized security-based swap.
This distinction is fundamental. A TSV must verify that a token provides the same economic, dividend, voting, and liquidation rights as the corresponding conventional class of stock. In addition, all offers and sales must be registered under the Securities Act of 1933, as amended, or qualify for an exemption. No primary issuance or initial offering may occur through the TSV.
Issuer Notice and Trading Limits
Before making stock tokenized by an unaffiliated third party available for trading, a TSV must provide written notice to the issuer. The notice must be sent to the physical or email address for the issuer’s principal executive offices identified on the cover page of its Exchange Act reports and must provide current contact information for the issuer to submit an objection. Trading may not begin until at least 30 calendar days after the issuer receives the notice. If the issuer submits a written objection during that period, the TSV may not make the tokenized stock available for trading.
The issuer objection right is a notable feature of the exemption. Issuers may wish to establish procedures for monitoring the addresses listed in their Exchange Act reports and escalating any TSV notice to the personnel responsible. The 30-day period begins upon receipt, and an issuer that does not respond within the prescribed period may lose the ability to prevent trading on that TSV through the order’s objection mechanism.
The order also limits the number of stocks available on a TSV and the volume traded. The limits are based on the classifications under the National Market System Plan to Address Extraordinary Market Volatility (LULD Plan):
- Tier 1 Tokenized NMS Stocks. A TSV may offer no more than 75 Tier 1 symbols. Trading in a particular Tier 1 tokenized NMS stock may not exceed 0.25% of the average daily share volume in the corresponding NMS stock during the prior month.
- Tier 2 Tokenized NMS Stocks. A TSV may offer no more than 250 Tier 2 symbols. Trading in a particular Tier 2 tokenized NMS stock may not exceed 2.5% of the corresponding NMS stock’s average daily share volume during the prior month.
The first volume-threshold exceedance for a particular stock does not require a trading pause. Each subsequent exceedance, however, requires the TSV and its affiliated TSVs to pause trading in that stock for three months, notify participants, and update the venue’s public notice. This stepped approach does not apply to the symbol caps; exceeding a symbol cap places the TSV outside the conditions of the exemption.
Principal TSV Conditions
At least 30 calendar days before beginning operations, a TSV must publish a plain-English notice describing, among other matters, its organizational structure, access standards, eligible assets, tokenization arrangements, technology, fees, conflicts, service providers, trading practices, systems, and risk controls. The TSV must notify the SEC within one business day after publication, retain prior versions online, and update the notice on prescribed timelines.
Other principal conditions include:
- Transaction transparency. The TSV must publish U.S. dollar-denominated transaction data in machine-readable form within 10 minutes and make at least 30 days’ worth of data freely available. Required information includes the trading pair, price, size, time, direction, relevant pool and smart-contract address, daily volume, and end-of-day pool size.
- Trading stoppages and systems events. Trading must stop when trading in the underlying stock is halted or suspended on its primary listing exchange. Major operational events require immediate notice to participants, prompt notice to the SEC, and remediation as soon as reasonably practicable.
- No leverage. Participants may not borrow against or hypothecate securities or crypto assets through the venue, nor may a TSV extend credit for the purchase of tokenized NMS stock.
- Records and oversight. A TSV must maintain detailed records concerning trading, participant screening, fees, volume limits, trading halts, systems events, and public notices in the United States during the exemption and for three years thereafter. Those records must be made promptly available to SEC staff, and the TSV must consent to SEC examination.
Conditional Dealer Relief for Liquidity Providers
The order separately provides a temporary exemption from the Exchange Act definition of “dealer” for a Covered Firm that supplies liquidity in the form of tokenized NMS stock using proprietary capital in an AMM Liquidity Pool operating pursuant to the TSV Exemption. A Covered Firm may also engage in certain activities indicative of dealing, such as quoting prices to customers or entering into agreements to provide committed capital.
Notably, the Commission states that providing liquidity, standing alone, ordinarily would not constitute dealer activity. Reliance on the exemption therefore does not create a presumption that a firm otherwise would be required to register as a dealer.
A Covered Firm must limit its exempt securities activity to qualifying AMM Liquidity Pools, trade solely for its own account, and refrain from holding — or acting as a custodian of — customer assets. It also must maintain specified records, make public disclosures, notify the SEC, consent to oversight, and satisfy statutory-disqualification conditions. Covered Firms remain subject to federal antifraud and antimanipulation provisions, and the relief does not extend to securities activity conducted outside qualifying pools.
Practical Implications
The Innovation Exemption provides a potential launch path for on-chain trading of tokenized public-company stock, but the operational requirements are substantial.
- Operating under the exemption may require compliance infrastructure before launch. Prospective operators may wish to consider implementing entity and affiliate mapping, participant and wallet screening, token-rights verification, issuer-notice procedures, primary-market halt feeds, transaction-reporting infrastructure, cross-affiliate volume surveillance, incident response, and examination-ready recordkeeping before launch.
- Public companies may receive notices regarding third-party tokenization of their stock. Because an issuer may prevent its stock from being made available on a TSV, companies should consider determining who will receive and evaluate notices. They may also wish to evaluate considerations that would inform any decision to object.
- Rights equivalence is a threshold issue. Tokenization arrangements must preserve the full economic, dividend, voting, and liquidation rights of the conventional stock. Synthetic exposure alone is insufficient.
- Existing regulatory obligations continue to apply. Broker-dealers and other regulated participants remain subject to applicable Regulation NMS, FINRA reporting, custody, supervision, capital, and other requirements. The SEC specifically requests comment on whether additional relief is needed for broker-dealers participating in TSVs.
- Trading limits may affect commercial viability. Symbol caps and stock-specific volume limits may constrain liquidity, particularly during the exemption’s early stages. Compliance with the order’s volume limits may require operators to aggregate activity across affiliated TSVs.
Conclusion
The Innovation Exemption marks an important step in the SEC’s development of a regulatory framework for tokenized securities. It provides a live, time-limited environment for permissioned AMM trading of tokenized NMS stocks and targeted proprietary liquidity activity while preserving issuer objection rights, imposing low trading-volume caps, and subjecting venues and liquidity providers to substantial disclosure, transparency, recordkeeping, and oversight conditions.
The order does not authorize unrestricted migration of U.S. equity trading on chain. It creates a controlled market-structure experiment whose practical use may depend on operators’ ability to build the required compliance infrastructure, issuers’ willingness to permit third-party tokenization, regulated intermediaries’ participation within existing obligations, and whether the trading limits permit sufficient liquidity.