I. Overview

On September 17, 2026, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) issued an order granting temporary, conditional exemptive relief under Section 36(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) to facilitate permissioned onchain trading of tokenized NMS stock (the “Order”).¹ The Order is the long anticipated “Innovation Exemption” originally previewed by Chairman Atkins as part of Project Crypto and grants two forms of relief, each with a five-year term and subject to certain conditions:

• Tokenized Securities Venue Exemption: An exemption from the definition of “exchange” in Section 3(a)(1) of the Exchange Act for “Tokenized Securities Venues” (“TSVs”) that trade “Tokenized NMS Stock” through permissioned automated market makers and liquidity pools (“AMM Liquidity Pools”).
• Covered Firm Exemption: An exemption from the definition of “dealer” in Section 3(a)(5) of the Exchange Act for certain liquidity providers (“Covered Firms”) that supply liquidity in the form of Tokenized NMS Stock to an AMM Liquidity Pool using proprietary capital, and that also engages in activities that are otherwise indicia of dealing, such as quoting prices to customers or entering into agreements to provide committed capital to AMM Liquidity Pools.

The Order includes a request for comment on all aspects of the conditional relief. While the Order may be narrower than many expected, Chairman Paul S. Atkins framed the Order as an interim step taken by the SEC “within its statutory authority” after Congress failed to advance the CLARITY Act, and as a bridge toward durable rulemaking.² Commissioner Peirce, while describing the Order as “limited in nature,” viewed it as an opportunity for the Commission and market participants to observe how tokenized NMS stocks may be used or traded onchain and how traditional and onchain markets will interact with each other.³ Commissioner Uyeda separately grounded the action in the Commission’s historical use of exemptive authority to incubate new market structures, citing money market funds, index funds, and exchange-traded funds as precedents.⁴ The Chairman’s and Commissioners’ statements are significant because they signal that rulemaking remains a regulatory objective, thus it is important for market participants to provide feedback so that their input is taken into account in any proposed rule.

II. Tokenized NMS Stock

The Order defines “Tokenized NMS Stock” as an NMS stock that is either: (1) tokenized by, or on behalf of, the issuer of the underlying NMS stock; or (2) tokenized by a third party unaffiliated with that issuer.⁵ As discussed further below, Tokenized NMS Stock made available for trading on a TSV must meet certain conditions, including that it provides holders with the same rights and privileges as does traditional NMS stock of an equivalent class.⁶ Both issuer-sponsored and third-party entitlement models are therefore within scope. Excluded are instruments in which a third party issues its own crypto asset that provides synthetic exposure to an underlying security, including tokenized linked securities and tokenized security-based swaps. 

III. The Tokenized Securities Venue Exemption

The Order creates an exemption from the Exchange Act’s definition of “exchange” for TSVs meeting certain status, eligibility, and ongoing operational requirements (the “TSV Exemption”). The relief is conditional, and a TSV must satisfy all conditions to avail itself of the TSV Exemption. Some requirements are embedded in the definition of a TSV itself and therefore operate as threshold eligibility criteria rather than as separately enumerated conditions (e.g., that access to the TSV must be permissioned).⁷

a. What is a “Tokenized Securities Venue”

A TSV is an “organization, association, or group of persons that brings together buyers and sellers of Tokenized NMS Stock by: (1) providing one or more AMM Liquidity Pool(s) for permissioned participants to interact and agree to terms of a trade and (2) setting standards for persons to access trading on such AMM Liquidity Pool(s).”⁸ To qualify as a TSV, a venue must:

• Make available for trading only a Tokenized NMS Stock that is trading in a pair with another Tokenized NMS Stock, a non-security crypto asset,⁹ or a tokenized money market fund;
• Provide one or more AMM Liquidity Pool(s) for verified or credentialed users and liquidity providers (“TSV Participants”) to interact and agree to the terms of a trade. “A TSV that designates or controls an AMM Liquidity Pool as the means and location for trading Tokenized NMS Stock “provides” the AMM Liquidity Pool for purposes of the TSV definition;”¹⁰ and
• Set standards for persons to access trading on an AMM Liquidity Pool, including: (1) the ability for TSV Participants to enter, display, and receive displayed orders, interact with counterparties, and agree to terms of a trade; and (2) standards allowing only permissioned TSV Participants to access trading and to buy and sell Tokenized NMS Stock on the TSV.¹¹

b. Conditions of the Tokenized Securities Venue Exemption

The Order sets out 12 conditions that “are designed to mitigate risks and challenges that might arise from a TSV performing exchange activities outside the protections offered by the exchange regulatory framework and the national market system.”¹² The following conditions warrant particular attention:

• Limitations on Symbols and Volume: Tokenized NMS Stock traded on a TSV is separated into two tiers: Tier 1 comprises the NMS stocks included in the S&P 500 Index, the Russell 1000 Index, and certain qualifying exchange-traded products; and Tier 2 comprises NMS stocks not included in Tier 1.¹³ A TSV can trade no more than 75 Tier 1 symbols and no more than 0.25 percent of the prior month’s average daily share volume in the relevant NMS stock.¹⁴ Similarly, a TSV can trade no more than 250 Tier 2 symbols and 2.5 percent of the average daily share volume during the prior month in the relevant NMS stock.¹⁵ Both the symbol count and the volume calculation must be aggregated across affiliated TSVs.
• Issuer Notice and Notice of Issuer Objection: If a Tokenized NMS Stock has been tokenized by a third party unaffiliated with the issuer of the underlying NMS stock, the TSV must first deliver written notice to that issuer, and the issuer must have the opportunity to provide written notice of its objection to trading on the TSV.¹⁶ Trading in the Tokenized NMS Stock may not begin until at least 30 calendar days after the issuer receives the notice.  If the issuer objects in writing on or before the thirtieth day, the TSV cannot make that Tokenized NMS Stock available for trading.  A TSV that fails to deliver the notice to the issuer, or that trades a Tokenized NMS Stock over a properly delivered objection, will not qualify for the TSV Exemption with respect to that Tokenized NMS Stock.
• No Primary Issuance and Rights of the Holders of the Tokenized NMS Stock Traded: Every offer and sale of Tokenized NMS Stock under the TSV Exemption must be registered under the Securities Act of 1933 or conducted under an available exemption, and primary issuances and initial offerings may not be conducted on a TSV.¹⁷ Separately, the TSV bears an affirmative verification obligation that each Tokenized NMS Stock affords holders the same rights and privileges as traditional NMS stock of an equivalent class (e.g., right to receive the same dividends or exercise the same voting rights, etc.). 
• Transparency: A TSV must make transaction data freely and publicly available in a machine-readable, U.S. dollar-denominated format covering a rolling 30 day window.¹⁸ The required fields are the symbols for the Tokenized NMS Stock and its paired asset, the transaction price, the transaction size, the transaction time at the AMM Liquidity Pool, and the transaction direction. The TSV must also publish pool-level data: the AMM Liquidity Pool’s smart contract address, daily asset pair share volume, and end-of-day pool size per asset pair.  Critically, this data must reach all market participants at the same time and on the same terms.
• Stoppage of Trading. A TSV must stop trading a Tokenized NMS Stock concurrently with any halt or suspension in the underlying NMS stock on the underlying’s primary listing exchange. TSV Participants must be notified immediately through any regular means of communication, such as the venue’s website, software application, or interface.

The remaining conditions include the following: (1) the distributed ledger applications used by the TSV must be auditable, public, and deployed on a public, permissionless distributed ledger; (2) the TSV must be a U.S. person such that it is subject to U.S. sanctions requirements; (3) the TSV must establish a public notice regime, including publication at least 30 calendar days before operations commence, written notice to Commission staff that it intends to operate pursuant to the TSV Exemption within one business day of publishing the Notice, and a schedule of revised notices keyed to trading changes, material changes, quarterly non-material changes, and the correction of materially inaccurate or incomplete disclosure; (4) the TSV must notify TSV Participants immediately and the Commission promptly of any significant operational event; (5) a prohibition on a TSV’s the use of leverage (e.g., cannot borrow or hypothecate securities or non-security crypto assets on the TSV, or extend credit to a TSV Participant for the purpose of purchasing a Tokenized NMS Stock); (6) a prohibition on making any public or private statement that the TSV is registered with, or that its activities have been approved or endorsed by, the Commission; and (7) detailed books and records obligations.

c. Information that Must Be Included in the Public Notice

A TSV operating under the Exemption must publish a public notice (the “Notice”) addressing 30 items. The Commission frames these disclosures as serving two audiences: (1) market participants, who need sufficient information to decide whether to access a TSV and how to protect their interests once they are trading; and (2) the Commission itself, which will use the Notice to oversee the securities activities of the TSV and monitor developments in the trading of Tokenized NMS Stock. While all of the disclosures are required, several are particularly noteworthy: 

• Permissioned Trading Access Eligibility: The Notice must describe the criteria or standards the TSV uses to grant access to its services, together with its procedures for approving access (e.g., whitelisting or permissioning) and identity verification.¹⁹ The Notice must also describe any conditions or circumstances under which access may be denied or limited, including denials effected for compliance with OFAC sanctions programs and applicable AML/CFT requirements.²⁰  
• Tokenization of Securities: The Notice must describe the Tokenized NMS Stock the TSV makes available, specifying whether each token was created by or on behalf of the issuer of the underlying NMS stock or by a third party unaffiliated with that issuer, and the processes used to effect tokenization.²¹ The Notice must further describe the procedures the TSV uses to evaluate the legal status, technical soundness, and operational integrity of each Tokenized NMS Stock and of the distributed ledger system on which that security is issued and transferred.²²  
• Tokenization: Separately, the Notice must describe the steps the TSV has taken to verify that the Tokenized NMS Stock confers on holders the same rights and privileges as traditional NMS stock of an equivalent class (e.g., audits, certifications, or attestations).²³   
• Fees: The Notice must describe the TSV’s fee structure, encompassing charges, fees, rebates, discounts, and any other form of compensation and its source, including whether and to what extent fees are shared with TSV Participants, and must include or link to any applicable fee or rebate schedule.²⁴ Formulas or protocols used to determine or allocate fees should be identified in the Notice, and where fees or rebates are individually negotiated or otherwise non-standardized, the Notice must describe the variables that drive them.²⁵ 
• Risks: The Notice must describe known material risks to participants or to the integrity of the TSV’s market. The Order supplies an illustrative list of risks that includes: “loss of private keys, compromised wallets, smart contract coding errors or bugs, access control failures, denial-of-service attacks, congestion, impermanent loss, any abusive activity involving MEV²⁶ (e.g., front-running, back-running, sandwich attacks), oracle manipulation, network cyber-attacks, or phishing attacks.”²⁷ Critically, the Notice must explain what actions the TSV takes to mitigate the identified risks and how the TSV would compensate participants for any losses. 
• Policies and Procedures: The Notice is required to identify several categories of policies and procedures applicable to a TSV which include those related to: (1) differences in treatment of TSV Participants; (2) entry of trading interest; (3) creating, modifying, accessing, and funding AMM Liquidity Pools, and trading Tokenized NMS Stocks using AMM Liquidity Pools; (4) the use of offchain trading functionality and where it exists in the trading lifecycle; (5) complaints and disputes; (6) how TSV Participant information is protected; (7) systems safeguards; and (8) clearing procedures and arrangements.  While certain policies and procedures are required, others do not need to be put in place but require disclosure in the Notice, including addressing specific questions that users might have (e.g., if a TSV does not disclose how TSV Participant information is protected, including what information the TSV considers confidential, the Notice must include whether the TSV will share Participant confidential information and personally identifiable information with other parties).

Beyond the above specific items, the Notice must also address several items that fall under the four general topics below:

• Status, Oversight, and Organization: The required disclaimer regarding the TSV’s non-registration status and an acknowledgment that reliance on the TSV Exemption is subject to Commission oversight; an overview of the TSV’s structure and organization, including its products, services, and operations; and any non-exempt activities and Commission registrations.
• Participants, Assets, and Conflicts: The categories of persons eligible to participate on the TSV; the Tokenized NMS Stocks, non-security crypto assets, and tokenized money market funds available for paired trading; any issuer that has provided a timely notice of objection; whether the TSV or any affiliate issued or tokenized Tokenized NMS Stock, and any resulting differences in treatment between such Tokenized NMS Stock and Tokenized NMS Stock issued by unaffiliated third parties; and trading participation by the TSV or its affiliates, including the capacity in which they display or enter trading interest on the TSV.
• Technology and Market Operations: The distributed ledger technology employed, including who may upgrade, modify, suspend, override, or discontinue applications and the methods for doing so; hours of operation; use of external market data and oracles; and practices for displaying trading interest and disseminating post-trade information, together with the service providers supporting TSV functionality.
• Oversight, Controls, and Market Position: Trading oversight for fraudulent or manipulative activity; the circumstances, risk controls, and resumption procedures governing trading stoppages; and whether the TSV may serve as the exclusive or predominant venue for a Tokenized NMS Stock.

IV. The Covered Firm Exemption

a. What is a “Covered Firm”

A “Covered Firm” is a liquidity provider supplying liquidity in the form of Tokenized NMS Stock to a TSV AMM Liquidity Pool using proprietary capital. It may engage in activity carrying indicia of dealing, such as providing pricing to customers, or controlling the pricing and inventory of committed liquidity to AMM Liquidity Pools pursuant to agreements, arrangements, or other understandings. 

b. Conditions of the Covered Firm Exemption

For a TSV Participant to avail itself of the Covered Firm Exemption, it must comply with the following five conditions: 

• TSV-Provided AMM Liquidity Pool: A Covered Firm’s securities activities must be limited to trading Tokenized NMS Stock in an AMM Liquidity Pool operated by a TSV that is relying on the TSV Exemption, although the Covered Firm may transact across more than one qualifying TSV. 
• Proprietary Accounts: The Covered Firm must provide liquidity through a TSV and trade solely for its own account. The Covered Firm may not hold or custody customer assets. 
• Maintenance of Records: A Covered Firm must create and retain records that evidence (i) the Covered Firm’s capacity to maintain liquid assets sufficient to absorb potential trading losses, (ii) any liquidity it supplies to an AMM Liquidity Pool; (iii) any agreement, arrangement or understanding with a TSV to provide liquidity services to an AMM Liquidity Pool; and (iv) any incentives, fees, rebates, or other compensation received for supplying liquidity, including compensation tied to volume thresholds. 
• Disclosures: Where the Covered Firm maintains a public-facing website, it must prominently disclose that it is not registered with the Commission as a broker-dealer. It must also disclose that it may enter into liquidity provision arrangements with a TSV and that it may receive fees or other incentives for providing liquidity to, or achieving volume thresholds in, a TSV-provided AMM Liquidity Pool. 
• Notification: The Covered Firm must notify the Commission in writing of its role as a Covered Firm. The notification must contain an acknowledgment that neither the firm nor any affiliate is statutorily disqualified, the firm’s consent to Commission staff information requests regarding its activities, and an acknowledgment that reliance on the exemption is subject to Commission oversight and that inconsistent operation could result in an enforcement action.

V. What Market Participants Should Consider

Market participants, including those that may not satisfy one or more conditions of the TSV Exemption or the Covered Firm Exemption, should consider engaging with the Commission on whether additional relief is needed or if any conditions should be modified. The Commission has stated that it “intends to monitor closely the use of the exemptions and whether any modifications to the exemptions may be necessary” and has solicited public comment on all aspects of relief.²⁹ The Order is a starting point rather than a final framework and feedback from market participants is likely to shape the regulatory framework that ultimately governs onchain trading of tokenized securities. Firms should take this opportunity to engage with the Commission, through the comment process or direct dialogue with staff, to ensure that their perspective is considered.