On 17 September 2026, the US Securities and Exchange Commission (SEC) issued its ‘Innovation Exemption’.1 The order facilitates onchain trading of tokenised NMS stock in the United States. It exempts qualifying Tokenized Securities Venues (TSVs)2 from the definition of ‘exchange’. TSVs provide trading through automated market makers and liquidity pools on public blockchains. Only permissioned participants may access that trading. A parallel exemption relieves certain liquidity providers from the definition of ‘dealer’. The SEC calls these firms Covered Firms. Both exemptions are temporary and conditional. They run until 17 September 2031.3 Conditions cover symbol and volume caps, issuer notice, smart contract transparency and public disclosure. Only a US person may operate a TSV. Issuers may object when an unaffiliated third party tokenises their shares. The SEC now invites public comment under File No 4-927.
About the order
The SEC issued the order as Release No 34-106402. It relies on section 36(a)(1) of the Securities Exchange Act of 1934 (Exchange Act).4 That section allows the SEC to grant conditional or unconditional exemptions from the Act and its rules. Any exemption must be necessary or appropriate in the public interest and consistent with investor protection.
The order contains two separate forms of relief. The TSV Exemption removes qualifying venues from the definition of ‘exchange’ in section 3(a)(1). The Covered Firm Exemption removes qualifying liquidity providers from the definition of ‘dealer’ in section 3(a)(5).5 J Matthew DeLesDernier, Deputy Secretary, signed the order on behalf of the Commission. The order will be published on SEC.gov and in the Federal Register. SEC staff will be available to answer questions and may publish responses to frequently asked questions.6
SEC statements on the Innovation Exemption
The SEC’s press release of 17 September 2026 carried the following statements.7
“Today, the Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption,’” said SEC Chairman Paul S. Atkins in a statement. “The Innovation Exemption, while temporary, would allow TSVs to trade tokenized NMS stock in a permissioned environment today while the Commission considers the need for additional action to facilitate onchain trading. As we take this important first step, we invite public comment on all aspects of the Innovation Exemption to help inform the Commission as it considers further changes.”
“Today’s approval of exemptive relief for on-chain secondary trading on a TSV – known as the ‘Innovation Exemption’ – marks an important milestone for the Commission’s work to open our capital markets for tokenized securities,” said Jamie Selway, Director of the SEC Division of Trading and Markets. “The division stands ready to work with interested parties seeking to operate a TSV and field questions from investors and market participants.”
Policy background: the SEC Crypto Task Force and Project Crypto
On 21 January 2025, Acting Chairman Mark T Uyeda established the SEC’s Crypto Task Force. Commissioner Hester M Peirce was designated to lead it. The Task Force held public roundtables, including one on secondary market trading on 11 April 2025. It also invited written input from the public.8
On 23 January 2025, the White House issued Executive Order 14178 on digital financial technology.9 The President’s Working Group on Digital Asset Markets published its report on 30 July 2025.10 Chairman Paul S Atkins then launched ‘Project Crypto’. This initiative across the Commission aims to modernise its rules so that US financial markets can move onchain.11
SEC staff issued a Statement on Tokenized Securities on 28 January 2026. It describes tokenisation as creating a digital representation of an asset using distributed ledger technology. The SEC notes that staff statements have no legal force or effect.12 The SEC states that the order draws on public feedback received through these channels. It describes the order as an interim measure while it considers future rulemaking or other action.
What is a Tokenized Securities Venue?
A TSV is an organisation, association or group of persons that brings together buyers and sellers of tokenised NMS stock. It does so in two ways. It provides one or more AMM Liquidity Pools where permissioned participants agree the terms of a trade. It also sets standards for persons to access trading on those pools.13
An automated market maker (AMM) is a smart contract that enforces trading terms. It sets token prices from the ratio of assets committed to a liquidity pool. Liquidity providers deposit assets and receive liquidity pool (LP) tokens in proportion to their share. They usually earn fees paid by users who trade against the pool.
A TSV ‘provides’ a pool when it designates or controls it as the place for trading. Control may include deploying the AMM smart contract, setting pool parameters or fees, or holding the power to pause trading. A person who only encodes a smart contract to whitelist a pool does not provide that pool.14
Access standards may be enforced onchain. A pool may admit only wallet addresses on an allow list. Alternatively, the token itself may restrict transfers to credentialed wallets. If a third party performs permissioning for the TSV, the TSV remains responsible for compliance. A TSV may accept orders and other trading interest, such as indications of interest and requests for quotes.15
Which tokenised NMS stock can trade on a TSV?
An NMS stock is any NMS security other than an option. The order covers two categories. The first is stock tokenised by, or on behalf of, the issuer of the underlying NMS stock. The second is stock tokenised by a third party unaffiliated with that issuer.16
The definition excludes products where a third party issues its own security giving synthetic exposure. Examples include tokenised linked securities and tokenised swaps based on a security. Rights and warrants are also excluded.
Each tokenised NMS stock must trade in a pair. The other leg may be another tokenised NMS stock or a tokenised money market fund. It may also be a crypto asset that is not a security, such as a payment stablecoin from a permitted issuer under the GENIUS Act. The order places no limit on the type of such crypto asset. The TSV decides which assets it makes available, subject to the conditions. The order grants no relief under the Investment Company Act of 1940.17
The SEC’s stated reasons for the TSV Exemption
The SEC states that a TSV may face substantial challenges operating as a national securities exchange or an alternative trading system (ATS) under Regulation NMS. AMM pools set prices from the ratio of pool assets, without directly considering external prices. The SEC states that a TSV may therefore be unable to comply with Rule 611, which guards against trades at prices inferior to protected quotations. On 11 June 2026, the SEC separately proposed to rescind that rule for NMS stocks.18
The SEC also cites Rule 602(a) on collecting and disseminating best bids and offers. A TSV may run several pools with different pairs for one stock, which complicates that task. AMM quotes may also use finer increments than Rule 612 permits. Depending on the blockchain, prices may run to between six and 18 decimal places.
The SEC identifies potential benefits. These include direct custody by investors, trading at any hour, fractional share ownership and almost instant settlement. It adds that permissioning may help screen counterparties for sanctions and money laundering risk.
Legal effect of the TSV Exemption
A TSV that meets every condition is not an exchange for Exchange Act purposes. It need not register as a national securities exchange or operate as an ATS. It is not a ‘trading center’ or ‘market center’ under Regulation NMS. Regulation NMS rules that apply to those categories therefore do not apply to it. The order adds that ‘no presumption that a TSV is an exchange shall arise on the basis of reliance on the TSV Exemption’.19
What the TSV Exemption does not cover
The exemption does not extend to securities activity outside the TSV. A firm registered with the SEC for other business may still operate a TSV. It must keep its registered activity separate, for example by using an affiliate.
The order does not displace the provisions against fraud and manipulation. These include section 10(b) of the Exchange Act and the rules made under it. Securities Act registration requirements continue to apply to offers and sales.20
The exemption is unavailable to any person within a TSV who is subject to statutory disqualification. The exception is where the SEC or a relevant SRO, such as FINRA, has permitted that person to continue.21 The order does not address the registration status of TSV participants. Participants remain subject to their own obligations, including rules on combating money laundering and terrorist financing. The order offers no view on whether a TSV is a ‘digital asset service provider’ under the GENIUS Act.
Conditions of the TSV Exemption
A TSV must satisfy every condition. The SEC states that the conditions are tailored to activities akin to those on registered exchanges and ATSs.
Smart contracts on a public, permissionless ledger
Distributed ledger applications used by a TSV, including smart contracts, must be public and auditable. They must also be deployed on a public, permissionless distributed ledger. ‘Permissionless’ generally means that anyone may read or write to the ledger without authorisation. A permissioned AMM Liquidity Pool may still operate on a permissionless blockchain. TSVs may engage with SEC staff on whether a particular ledger qualifies.22
US person requirement and OFAC sanctions
A TSV must be a US person. The term covers US citizens and permanent resident aliens. It also covers entities organised under US law, including their foreign branches, and any person in the United States. US persons must comply with sanctions programmes administered by the Office of Foreign Assets Control (OFAC). These include the prohibition on dealing with persons on the Specially Designated Nationals and Blocked Persons (SDN) List. They also include the duty to block SDN property in the US person’s possession or control.23
Public Notice and SEC notification timelines
At least 30 calendar days before operating, a TSV must publish a Notice prominently on its public website. The Notice must be written in plain English. Within one business day, the TSV must notify the SEC in writing at tradingandmarkets@sec.gov. That notice must give the TSV’s contact details and the location of the Notice.24
| Event | Deadline |
|---|---|
| Publish initial Notice on website | At least 30 calendar days before operating |
| Notify SEC of intention to operate | Within one business day of publishing the Notice |
| Revise Notice after starting or ending trading in a stock, a volume pause or resumption, or receipt of a timely issuer objection | Within five business days |
| Revise Notice for a material change to operations or disclosures | 20 calendar days before the change |
| Revise Notice for other changes | Within 30 calendar days after the end of the quarter |
| Revise Notice to correct materially inaccurate or incomplete information | Within five business days of discovery |
| Notify SEC of any revised Notice | Within one business day of publication |
Each revision must state which category applies and, where relevant, the date the change takes effect. The TSV must keep every version of its Notice on its website. Where a group of persons forms a TSV, one member may give notices for all.
Issuer Notice and the right to object
Before trading stock tokenised by an unaffiliated third party, the TSV must give written Issuer Notice to the issuer of the underlying NMS stock. The notice goes to the address of the issuer’s principal executive offices shown on the cover page of its Exchange Act reports. It must include the TSV’s contact details for any objection. Trading may not begin until at least 30 calendar days after the issuer receives the notice.
The issuer may deliver a Notice of Issuer Objection on or before the 30th calendar day. If it does, the TSV cannot make that tokenised stock available. The TSV must then amend its public Notice within five business days. A TSV that skips Issuer Notice, or trades despite a timely objection, fails the conditions for that stock.25
The SEC notes that issuer concerns may include maintaining the shareholder register for onchain transfers. They may also include price dislocation affecting the underlying stock.
Holder rights and no primary issuance
All offers and sales of tokenised NMS stock must be registered under the Securities Act of 1933 or exempt from registration. No primary issuance or initial offering of securities may take place on a TSV.
A TSV must verify that each tokenised NMS stock gives holders the same rights and privileges as traditional NMS stock of an equivalent class. According to the order, this includes the same interest in the company and the same dividends. It also includes the same voting rights and the same share of residual assets on liquidation. For stock tokenised by an unaffiliated third party, that third party must pass on proxy materials and other issuer communications at no cost to the issuer or shareholders.26
Symbol and volume caps for Tier 1 and Tier 2 stock
The order divides tokenised NMS stock into two tiers. These mirror Tier 1 and Tier 2 of the National Market System Plan to Address Extraordinary Market Volatility (LULD Plan).27
| Tier 1 | Tier 2 | |
| Stocks covered | NMS stocks in the S&P 500 Index or Russell 1000 Index, plus certain exchange traded products with over US$2 million notional consolidated average daily volume | All other tokenised NMS stock, excluding rights and warrants |
| Maximum symbols traded | 75 | 250 |
| Maximum volume | 0.25 per cent of prior month average daily share volume | 2.5 per cent of prior month average daily share volume |
The volume percentage divides the TSV’s average daily share volume in the tokenised stock by the underlying stock’s average daily share volume. The denominator comes from an effective transaction reporting plan. A TSV must aggregate its volume and symbol counts with those of affiliated TSVs.
The first breach of a volume threshold in a stock requires no action, other than ensuring no further breach. Each later breach requires an immediate pause of three months in that stock. Affiliated TSVs must pause the same stock. Trading in other stocks may continue during the pause. A TSV may also pause voluntarily as it approaches a threshold. After any pause, it must notify participants immediately and amend its Notice within five business days. This stepped approach does not apply to symbol limits. Exceeding a symbol limit means the TSV fails the conditions.
Transaction data within ten minutes
A TSV must publish transaction data free of charge, in US dollars and in a format software can read. The data must cover all transactions in the past 30 days. It must be updated within ten minutes of each trade. Each record must show the symbols of the tokenised stock and its paired asset. It must also show the price, size, time in Coordinated Universal Time (UTC) and direction of the trade. The TSV must also publish pool details, the smart contract address, daily volume per asset pair and pool size at the end of each day. All market participants must receive the data at the same time and on the same terms.28
Trading stoppages linked to the primary listing exchange
A TSV must stop trading a tokenised NMS stock whenever trading in the underlying stock stops on the primary listing exchange. This covers both halts and suspensions. Examples include halts pending material news and suspensions linked to delisting. The TSV must notify participants immediately through its regular channels. It must also record each stoppage in its books and records. If a TSV decides on its own to stop offering a stock, it must notify participants immediately and revise its Notice within five business days.29
Significant operational events
The order defines a significant operational event as ‘an event that has a significant impact on the operation of the TSV or on its participants’. A TSV must notify participants of such an event immediately. It must notify the SEC promptly by email. One example is a known disruption to the systems supporting the TSV. A known system intrusion affecting trading or participant assets also qualifies. The TSV must remedy the event as soon as reasonably practicable and tell participants of the remedy.30
No leverage or lending
A TSV may not borrow or hypothecate securities or crypto assets on the TSV. Nor may it extend credit to participants to buy tokenised NMS stock on the TSV.31
No claims of SEC registration or endorsement
A TSV may not claim, publicly or privately, that it is ‘registered’ with the SEC. Nor may it suggest that the SEC has ‘approved’ or ‘endorsed’ its activities. Its Notice must state that it is not registered with the SEC.
Recordkeeping and SEC examination
A TSV must make and keep current records of trading interest and transactions, priced in US dollars. Records must also cover participant screening and wallet verification, fees and compensation, stoppages, average daily volume per stock, operational events and all notices given. Records must be preserved for the life of the exemption and for three years after it ends. They must be kept in the United States. The TSV must produce them promptly to SEC staff on request. They must be in a format a person can read and in a reasonably usable electronic format. The TSV must consent to examination by SEC staff at any time. Distributed ledger records suffice if the SEC can readily access them in those formats.32
What the TSV Public Notice must disclose
The Notice must address 30 categories, labelled (a) to (dd) in the order.33 They range from ownership and governance to fees and trading surveillance.
The disclaimer must state that the TSV is not registered with the SEC for its TSV activities. It must state that the SEC has not passed upon the merits or accuracy of the Notice. It must state that fair access requirements for exchanges and ATSs do not apply, so unfair denials of access are not subject to SEC review. It must also state that the TSV is not subject to Regulation NMS.
Governance disclosure covers onchain and offchain mechanisms, affiliated TSVs and any governance rights attached to LP tokens. The TSV must identify who can upgrade, modify, suspend, override or cease its smart contracts, and how. It must disclose whether it or its affiliates tokenise stock or trade on the venue, and in what capacity. It must describe any differences in treatment among participants.
Operational disclosure includes pricing models such as x*y=k, hours of operation, oracle use and the display of trading interest. It also covers clearing and settlement arrangements. Risk disclosure must cover known material risks. The order lists examples including artificial intelligence exploits, loss of private keys, smart contract errors, impermanent loss and abusive activity involving maximal extractable value (MEV). The TSV must explain how it mitigates those risks and compensates for losses.
Where a TSV lacks procedures on complaints, confidentiality, MEV, systems safeguards or trading surveillance, it must say so. A TSV that may become the exclusive or predominant venue for a tokenised stock must disclose the associated risks. It must also describe any procedures to address them, such as burning or detokenising the stock.
Covered Firm Exemption: dealer relief for liquidity providers
Section 3(a)(5) of the Exchange Act defines a ‘dealer’ as a person engaged in the business of buying and selling securities for its own account. It excludes persons who trade for their own account but not as part of a regular business. This is known as the ‘trader’ exception. Absent an exception or exemption, a dealer must register with the SEC under section 15.34
The order states: ‘Liquidity provision alone does not constitute engaging in dealer activity’. The SEC anticipates that liquidity providers in AMM pools would typically be traders, absent other indicia of dealing. It recognises uncertainty where a provider quotes prices to customers or controls committed liquidity under agreements. The SEC states that AMM pools cannot operate as designed without committed liquidity.
A Covered Firm is any liquidity provider supplying tokenised NMS stock to an AMM pool using proprietary capital. It may also engage in activity bearing indicia of dealing, such as quoting prices to customers or agreeing to provide committed capital. Reliance on the exemption creates no presumption that the person is a dealer. The Division of Trading and Markets is considering recommending wider amendments to the ‘dealer’ definition.
Scope. A Covered Firm’s securities activities must be limited to trading tokenised NMS stock in AMM pools operating under the TSV Exemption. It may use more than one TSV. Its activities outside securities, such as payment stablecoin activity, are not limited.
Proprietary trading only. It must provide liquidity through a TSV solely for its own account. It must not hold or custody customer assets.
Records. It must keep records showing it holds sufficient liquid assets to cover potential trading losses. Records must also cover liquidity supplied, any liquidity or market making arrangements with a TSV, and any incentives received.
Website disclosure. Any public website must state prominently that the firm is not registered with the SEC as a broker or dealer. It must also disclose that the firm may enter liquidity arrangements with a TSV and may receive fees, tokens or other incentives.
SEC notification. The firm must notify the SEC in writing at tradingandmarkets@sec.gov. The notification must include its name, business model, risk controls and regulatory contact. It must describe its liquidity arrangements and incentives. It must confirm that neither the firm nor any affiliate is subject to statutory disqualification. It must consent to SEC staff information requests and acknowledge SEC oversight and the risk of enforcement action.
Statutory disqualification of the firm or any affiliate bars reliance, unless the SEC or relevant SRO has permitted continued participation. Covered Firms remain subject to the provisions against fraud and manipulation.35
How long do the exemptions last?
Both exemptions are effective from 17 September 2026 until 17 September 2031. The SEC may modify their length or any other aspect under section 36 of the Exchange Act. It may do so where modification is necessary or appropriate in the public interest and consistent with investor protection.3
SEC request for comment under File No 4-927
The SEC seeks comment on all aspects of the exemptions. The order poses ten questions.36 They ask whether the exemptions should be modified or made permanent. They ask how TSV trading may affect the market for the underlying stock. This includes the effect of reporting within ten minutes and overnight trading on exchange opening and closing processes. Other questions ask whether TSVs should trade securities beyond tokenised NMS stock, and whether paired assets should be limited. The SEC also asks whether the tiers and caps are appropriate. It asks whether TSV participants registered as brokers or dealers need relief from Regulation NMS.
Comments may be submitted through the SEC’s online comment form. They may also be sent by email to rule-comments@sec.gov, with File No 4-927 in the subject line. Paper comments go to the Secretary, Securities and Exchange Commission, 100 F Street NE, Washington DC 20549-1090. The SEC asks commenters to use only one method. It posts all comments online without redacting personal identifying information. The order text does not state a closing date for comments.
Practical points for market participants
- Platform operators. At least 30 calendar days must pass between publishing the Notice and starting operations. Only a US person may operate a TSV.
- Firms already registered with the SEC. Registered activity must be kept separate from TSV operations, for example through an affiliate.
- Liquidity providers. The Covered Firm Exemption applies only where the firm notifies the SEC and meets each condition.
- Listed issuers. Issuer Notices go to the principal executive offices address on Exchange Act report cover pages. The objection window closes on the 30th calendar day after receipt.
- Investors. A TSV is not registered with the SEC and is not subject to Regulation NMS. Its Notice discloses risks and conflicts of interest.
- Participants outside the United States. The order does not limit the types of TSV participants. It does not address any participant’s own regulatory status.
Frequently asked questions
Is the Innovation Exemption a new SEC rule?
No. It is an exemptive order under section 36(a)(1) of the Exchange Act. The SEC states that experience under the order may inform future rulemaking.
Can a platform based outside the United States operate a TSV?
The order requires a TSV to be a US person. That term includes entities organised under US law and any person in the United States.
Who can trade on a TSV?
The order does not limit the types of participants. Retail and institutional investors may both participate, subject to the TSV’s permissioning standards.
Can a TSV offer stock tokenised without the issuer’s involvement?
Yes, where an unaffiliated third party tokenised the stock and the issuer has not objected within 30 calendar days of receiving Issuer Notice. Synthetic products such as tokenised linked securities fall outside the order.
Do fraud and manipulation rules still apply?
Yes. The order preserves section 10(b) of the Exchange Act and the rules made under it.
When do the exemptions expire?
On 17 September 2031, unless the SEC modifies them earlier.
References
- SEC, ‘Order Granting Temporary Conditional Exemptive Relief, Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934, from the Definition of “Exchange” in Section 3(a)(1) of the Exchange Act for the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS Stocks and from the Definition of “Dealer” in Section 3(a)(5) of the Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks, and Request for Comment’, Release No 34-106402, File No 4-927 (17 September 2026) (the Order).
- The Order uses US spelling for its defined terms, including ‘Tokenized NMS Stock’ and ‘Tokenized Securities Venue’. This article keeps those spellings for defined terms and quotations and uses British spelling elsewhere.
- The Order, sections V and VII. The SEC press release and fact sheet describe the exemptions as expiring five years after publication.
- Exchange Act, s 36(a)(1); 15 USC 78mm(a)(1); the Order, section I.
- Exchange Act, ss 3(a)(1) and 3(a)(5); 15 USC 78c(a)(1) and 78c(a)(5).
- The Order, sections I and VII; SEC, ‘Fact Sheet: Order Granting Temporary Conditional Exemptive Relief for Trading of Tokenized NMS Stock on Tokenized Securities Venues’ (September 2026).
- SEC, ‘SEC Issues “Innovation Exemption” to Facilitate the Trading of Tokenized NMS Stock and Request for Comment’, Press Release 2026-90 (17 September 2026).
- The Order, section I, nn 11 to 15.
- Executive Order 14178, ‘Strengthening American Leadership in Digital Financial Technology’, 90 FR 8647 (31 January 2025).
- President’s Working Group on Digital Asset Markets, ‘Strengthening American Leadership in Digital Financial Technology’ (30 July 2025).
- Chairman Paul S Atkins, ‘American Leadership in the Digital Finance Revolution’ (31 July 2025); the Order, n 18.
- SEC Divisions of Corporation Finance, Investment Management and Trading and Markets, ‘Statement on Tokenized Securities’ (28 January 2026); the Order, n 2.
- The Order, section I.A.
- The Order, section I.A and nn 28 to 29.
- The Order, section I.A and nn 30 to 31.
- 17 CFR 242.600(b)(64) and (65); the Order, section I and nn 1 to 4.
- The Order, section I.A and nn 22 to 25; Guiding and Establishing National Innovation for U.S. Stablecoins Act, Pub L No 119-27, 139 Stat 419 (2025) (GENIUS Act).
- The Order, section I.B and nn 32 to 35; 17 CFR 242.602(a), 242.611(a) and 242.612; Securities Exchange Act Release No 105655 (11 June 2026), 91 FR 36656.
- The Order, section I.B and nn 37 and 42 to 44.
- The Order, section I.B and nn 45 to 48; 15 USC 78j(b); 17 CFR 240.10b-5.
- Exchange Act, s 3(a)(39); 15 USC 78c(a)(39); the Order, section I.B.
- The Order, section II.A and nn 54 to 55.
- The Order, section II.B and nn 56 to 57; 31 CFR Parts 500 to 599.
- The Order, section II.C and nn 58 to 62.
- The Order, section II.D and nn 63 to 64.
- The Order, section II.E.
- The Order, section II.F and nn 66 to 77; Securities Exchange Act Release No 85623 (11 April 2019), 84 FR 16086.
- The Order, section II.G and nn 78 to 83.
- The Order, section II.H and nn 84 to 85.
- The Order, section II.I and nn 86 to 90.
- The Order, sections II.J and II.K.
- The Order, section II.L and nn 91 to 98.
- The Order, section III.
- Exchange Act, ss 3(a)(5) and 15(a)(1); the Order, section IV and nn 111 to 115.
- The Order, section IV.A and nn 116 to 118.
- The Order, section VI.
