SEC creates five-year conditional innovation exemption for onchain trading of tokenized U.S. exchange-listed stocks
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On September 17, 2026, the Securities and Exchange Commission issued a temporary "Innovation Exemption" intended to facilitate onchain secondary trading of tokenized U.S. exchange-listed stocks.1 The order creates a five-year conditional exemption from the definition of "exchange" under the Securities Exchange Act of 19342 for qualifying Tokenized Securities Venues ("TSVs"), and a related exemption from the definition of "dealer" for certain liquidity providers. Unless modified or extended, these exemptions expire September 17, 2031.
Key Takeaways
- The SEC has created a new pathway for onchain secondary trading of Tokenized NMS Stock.
Qualifying TSVs may operate without registering as national securities exchanges or operating as alternative trading systems, subject to extensive disclosure requirements, conditions and volume limits. - Public companies have a right to object to TSVs trading their third-party-tokenized securities.
Before a TSV may trade stock that has been tokenized by an unaffiliated third party, it must give the issuer of the underlying stock 30 calendar days' notice. To prevent trading under the exemption, the issuer must send a written objection to the TSV on or before the 30th calendar day after receiving the notice. - The TSV exemption is limited to Tokenized NMS Stock and does not cover synthetic stock exposure.
Tokenized securities must provide the same economic and governance rights as the corresponding conventional securities. Synthetic products, rights and warrants are excluded. - The framework remains tightly controlled.
TSVs must be U.S. persons3, operate permissioned trading on public blockchain infrastructure, comply with applicable OFAC requirements, observe security- and venue-level volume limits and may not provide leverage or permit hypothecation of assets. Further, the antifraud and antimanipulation provisions of the federal securities laws, such as the obligations under section 10(b) of the Exchange Act and Rule 10b-54 thereunder, still apply to trading on TSVs.
What can trade on a TSV?
A "Tokenized NMS Stock" is a digital token, created using distributed ledger (blockchain) technology, that represents a share of a U.S. exchange-listed stock (an "NMS stock"). It may be created either by or on behalf of the issuer of the underlying stock, or by a third party unaffiliated with the issuer. Qualifying Tokenized NMS Stock must provide holders the same rights and privileges as the equivalent conventional security, including the same economic interest, dividend rights and voting rights.
A TSV can only make Tokenized NMS Stock available for trading in a trading pair. Tokenized NMS Stock can be paired with another Tokenized NMS Stock, a non-security crypto asset such as a stablecoin, or a tokenized money market fund.
The exemption does not cover tokens or other crypto assets that merely provide synthetic exposure to a stock, including tokenized linked securities and tokenized security-based swaps, and rights and warrants are excluded.
No primary issuance or initial offering is permitted on a TSV under the exemption, and all offers and sales of Tokenized NMS Stock must be registered under the U.S. Securities Act of 1933, as amended, or qualify for an exemption from registration
A public issuer can object to a TSV trading its third-party-tokenized stock
One of the most significant features of the Order is the ability of a public company to object to a TSV commencing trading in its third-party-tokenized stock.
Before beginning trading of a third-party-tokenized stock, a TSV must provide written notice to the issuer of the underlying stock at the physical address (or email address, if any) for the issuer's principal executive offices appearing on the cover page of its Exchange Act reports. Trading cannot begin until at least 30 calendar days after the issuer receives the notice. If the issuer objects in writing during that period, the TSV may not make the tokenized stock available for trading under the exemption.
The SEC noted that the objection right allows an issuer to consider the potential risks and benefits of trading its tokenized stock on a TSV. The SEC further noted that issuers may have concerns regarding, for example, maintaining a register of shareholders as a result of onchain transfers and possible price dislocations between tokenized stock and conventionally traded shares.
Public companies whose shares could be candidates for third-party tokenization should therefore consider establishing a process for promptly escalating TSV notices and evaluating whether to object. Relevant considerations may include stock ledger and transfer-agent arrangements, voting and dividend mechanics, corporate actions, cybersecurity and operational risks, investor communications and potential market fragmentation.
The notice-and-objection requirement applies to stock tokenized by an unaffiliated third party and does not apply where the tokenization is undertaken by or on behalf of the issuer.
The Innovation Exemption includes significant trading and operational conditions
The SEC imposed limits designed to constrain the scale of trading conducted under the exemption.
For Tier 1 Tokenized NMS Stocks (including NMS stocks in the S&P 500 or Russell 1000 and certain highly traded exchange-traded products), a TSV may trade no more than 75 symbols, and volume in each security may not exceed 0.25% of the stock's prior-month average daily share volume. For Tier 2 Tokenized NMS Stocks (generally those that are not Tier 1), a TSV may trade no more than 250 symbols, with a 2.5% per-security volume limit. Affiliated TSVs must aggregate their activity for these purposes.
TSVs must use permissioned access, but the relevant smart contracts must be publicly available and deployed on public, permissionless distributed ledgers. A TSV must be a U.S. person and subject to applicable U.S. sanctions requirements, including OFAC restrictions and blocking obligations.5
The framework also limits leverage. A TSV may not borrow securities or crypto assets on the venue, hypothecate or permit hypothecation of assets, or extend credit to participants to purchase Tokenized NMS Stock.
Transaction data must be made publicly available in U.S. dollars and machine-readable form within ten minutes after execution. A TSV also must halt trading in a tokenized stock when trading in the underlying stock is halted or suspended on its primary listing market.
Liquidity providers also receive targeted relief
The Order separately provides conditional relief from the Exchange Act definition of "dealer" for certain firms providing Tokenized NMS Stock to Automated Market Maker ("AMM") Liquidity Pools using proprietary capital. AMM Liquidity Pools typically use programmed rules to establish prices based on the ratio of assets in the pool, generally without directly incorporating external market prices.
A qualifying "Covered Firm" must trade solely for its own account, limit its relevant securities activity to AMM Liquidity Pools operating under the TSV exemption and not hold or custody customer assets. The exemption does not establish that a firm otherwise would be a "dealer"; dealer status outside the exemption remains a facts-and-circumstances inquiry.
What comes next?
The order is expressly temporary. In a September 17, 2026 statement, Chairman Atkins said the Commission is "not cementing today's technology as the standard for tomorrow" and that the interim exemption "must be followed by durable rulemaking."6 The SEC is seeking comment on a number of issues, including the scope of eligible securities, trading and volume limits, transaction reporting, potential Regulation NMS issues for broker-dealer participants and the scope of the liquidity-provider exemption.
The Innovation Exemption follows rule changes adopted by Nasdaq and NYSE earlier in 2026 to permit certain tokenized securities to trade within their existing exchange frameworks.7 Under those frameworks, qualifying tokenized securities are fungible with their traditional counterparts, share the same CUSIP and trading symbol, and trade on the same order book with the same execution priority, with tokenization and post-trade processing occurring through DTC's tokenization pilot. By contrast, trading on a TSV occurs through separate AMM Liquidity Pools, where prices are generally determined algorithmically based on the assets in the pool rather than through the conventional exchange order book. As the SEC acknowledged in the Order, this structure creates the potential for price dislocations between Tokenized NMS Stock traded on a TSV and the corresponding security in traditional form.
The following White & Case attorneys authored this alert: Laura Katherine Mann, Pratin Vallabhaneni and Erica Hogan.
Michelle Mount (White & Case, Associate, Houston) contributed to the development of this publication.
1 Order Granting Temporary Conditional Exemptive Relief for Certain Distributed Ledger Trading Venues and Liquidity Providers for Tokenized NMS Stocks, and Request for Comment, Exchange Act Release No. 34-106402 (Sept. 17, 2026), https://www.sec.gov/files/rules/exorders/2026/34-106402.pdf (the "Order"); see also SEC, Press Release, SEC Issues "Innovation Exemption" to Facilitate the Trading of Tokenized NMS Stock and Request for Comment (Sept. 17, 2026), https://www.sec.gov/newsroom/press-releases/2026-90-sec-issues-innovation-exemption-facilitate-trading-tokenized-nms-stock-request-comment.
2 The U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act").
3 A "U.S. person" means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.
4 The Exchange Act § 10(b), 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5.
5 The Order states that such restrictions include but are not limited to "the prohibition from engaging in transactions with persons on the Specially Designated Nationals and Blocked Persons ("SDN") List and the requirement to block property of SDNs that are in the U.S. person's possession or control."
6 Paul S. Atkins, Chairman, U.S. Securities and Exchange Commission, Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026).
7 The Nasdaq Stock Market LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 2, to Amend the Exchange's Rules to Enable the Trading of Securities on the Exchange in Tokenized Form, Securities Exchange Act Release No. 34-105047, File No. SR-NASDAQ-2025-072 (Mar. 18, 2026); New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Exchange's Rules to Enable the Trading of Securities on the Exchange in Tokenized Form, Securities Exchange Act Release No. 34-105260, File No. SR-NYSE-2026-17 (Apr. 17, 2026).
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