SEC Grants Five-Year Innovation Exemption for Tokenized Stock Venues

The Securities and Exchange Commission on Sept. 17, 2026, issued an order granting temporary, conditional exemptive relief to Tokenized Securities Venues, each a “TSV,” from the definition of “exchange” in the Securities Exchange Act of 1934 (Exchange Act), permitting the venues to trade tokenized National Market System (NMS) stock using permissioned automated market makers and liquidity pools, together “AMM Liquidity Pools.” According to the SEC’s announcement, the exemptions are set to expire five years after publication, and the order solicits public comment on possible modifications to the relief and potential next steps.

A TSV brings together buyers and sellers of tokenized NMS stock by providing one or more AMM Liquidity Pools through which permissioned participants interact and agree to the terms of a trade, and by setting standards for persons to access trading on those pools. Jamie Selway, Director of the SEC Division of Trading and Markets, called the approval “an important milestone for the Commission’s work to open our capital markets for tokenized securities” and said the division stands ready to work with interested parties seeking to operate a TSV and to field questions from investors and market participants.

Conditions on the Exemptive Relief

The exemption from the “exchange” definition is subject to conditions the Commission said are designed to ensure the relief is in the public interest and consistent with the protection of investors. Tokenized NMS stocks traded on a TSV are subject to limits on the number of symbols and volume traded. A TSV must verify that the tokenized NMS stock made available for trading provides holders the same rights and privileges as traditional NMS stock of an equivalent class. Before making available for trading a tokenized NMS stock tokenized by an unaffiliated third party, a TSV must provide written notice and an opportunity to object to the issuer of the underlying NMS stock. Smart contracts used by a TSV must be auditable, public, and deployed on a public, permissionless distributed ledger. A TSV must stop trading in a tokenized NMS stock concurrently with any stoppage of trading in the underlying NMS stock on the primary listing exchange, and must provide public notice about its operations, trading activities, and the trading activities of its affiliates on the TSV.

The order also temporarily grants a conditional exemption from the definition of “dealer” in Section 3(a)(5) of the Exchange Act to liquidity providers in an AMM Liquidity Pool that supply liquidity in tokenized NMS stock using proprietary capital. Those liquidity providers may also be engaged in additional activities that are indicia of dealing activity, such as quoting pricing to customers or entering into agreements to provide committed capital.

In a statement released with the order, Chairman Paul S. Atkins listed further conditions. A TSV must be a U.S. person and comply with economic and trade sanctions programs administered and enforced by the Office of Foreign Assets Control, and it must set standards of access allowing only certain participants to trade tokenized NMS stock on the venue. Eligible tokenized NMS stock, whether tokenized by or on behalf of the issuer of the underlying NMS stock or by a third party unaffiliated with the issuer, must provide holders the same rights and privileges as the traditional securities, including rights to receive dividends and exercise voting rights. Issuers must have the opportunity to object and prevent their security from trading on a TSV.

Statements on Authority and Rulemaking

Atkins said the order grants two forms of temporary, conditional exemptive relief under Section 36(a)(1) of the Exchange Act: the exemption for TSVs from the “exchange” definition under Section 3(a)(1), and the exemption for the liquidity providers, which his statement called “Covered Firms,” from the “dealer” definition under Section 3(a)(5). He said that, without exception, the anti-fraud and anti-manipulation provisions of the federal securities laws apply in full to all securities activities in these markets.

Atkins said the SEC launched “Project Crypto” a little over a year earlier to modernize the rules under the federal securities laws so that U.S. financial markets could move onchain, and that earlier in the week of the announcement Congress had been unsuccessful in advancing the CLARITY Act. He described the Innovation Exemption as temporary, said the Commission is not cementing today’s technology as the standard for tomorrow, and added: “Critically, this interim measure must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve.”

Commissioner Mark T. Uyeda said in a separate statement that tokenization has the potential to modernize core market infrastructure functions such as issuance, trading, transfer, settlement, and recording ownership, with the potential to reduce costs, enhance transparency, and expand liquidity, particularly for assets that have historically been less liquid. He said Congress gave the Commission general exemptive authority when it enacted the National Securities Markets Improvement Act, which amended the Exchange Act, and that money market funds, index funds, and exchange-traded funds are examples of products and models that grew from earlier uses of that authority.

Uyeda said the exemption is designed to be controlled, subject to symbol limits and volume caps calibrated by limit up, limit down tiers, with conditions including public notice, transaction transparency, stoppage coordination, books and records, and technology safeguards. He said U.S. dollar-denominated transaction data, including price, size, time, pool address, end-of-day pool size, and daily volume, will be publicly available at regular intervals to reduce information asymmetries, support monitoring, and allow for study of securities trading using the exemption. He described the liquidity-provider relief as tailored and intended to provide regulatory clarity when those market participants meet conditions including disclosure and recordkeeping.

Uyeda said the Commission is expressly soliciting feedback on many aspects of the exemption and its current design, and that detailed, data-supported comments, ideally including metrics, case studies, incident analyses, and operational narratives from live or test environments, can help evaluate tradeoffs and shape future proposals. He thanked staff in the Division of Trading and Markets and the Office of the General Counsel, and the Crypto Task Force led by Commissioner Hester Peirce, for their work on the exemption. The order will be published on SEC.gov and in the Federal Register.