The SEC issued a five-year "Innovation Exemption" on September 17, granting temporary, conditional relief from exchange registration requirements to Tokenized Securities Venues that trade tokenized NMS stock through permissioned automated market makers and liquidity pools. The order lets qualified venues operate outside the Exchange Act's definition of "exchange" while the Commission gathers data to inform potential permanent rulemaking.
🚨 TODAY: The SEC issued an order granting temporary, conditional exemptive relief to Tokenized Securities Venues from the definition of “exchange” in the Exchange Act to trade tokenized NMS stock using innovative permissioned automated market makers and liquidity pools. pic.twitter.com/VDi7Oty2d9
— U.S. Securities and Exchange Commission (@SECGov) September 17, 2026
SEC Chairman Paul Atkins framed the move as a deliberate first step rather than a final policy.
"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,'" Atkins said. "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."
Jamie Selway, Director of the SEC's Division of Trading and Markets, said the division "stands ready to work with interested parties seeking to operate a TSV and field questions from investors and market participants."
What conditions a TSV must meet to qualify
The exemption is not unconditional. Tokenized NMS stocks traded on a TSV face limits on the number of symbols and total volume traded. A TSV must verify that a tokenized stock provides holders the same rights as traditional NMS stock of an equivalent class, including dividends and voting rights. If a third party unaffiliated with the issuer creates the tokenized version, the TSV must give the underlying issuer written notice and an opportunity to object before listing it.
NMS stock refers to National Market System securities, a designation under Regulation NMS that covers most exchange-listed US equities and subjects them to a unified framework governing order execution, quote transparency, and trade reporting across all US exchanges. Regulation NMS, adopted in 2005, was designed to ensure investors receive the best available price regardless of which exchange executes their trade. Extending that same equivalence requirement to tokenized versions, mandating identical shareholder rights to the underlying stock, is the SEC's mechanism for preventing tokenized products from becoming a lesser, derivative-like instrument that trades under the same corporate name without carrying the same legal claims.
Smart contracts used by a TSV must be auditable, public, and deployed on a public, permissionless distributed ledger. Trading in a tokenized stock must stop immediately if the underlying stock halts on its primary listing exchange. TSVs must also publish ongoing notice about their operations and trading activity, including activity by their own affiliates.
A separate exemption applies to liquidity providers
The order also grants temporary relief from the definition of "dealer" under Section 3(a)(5) of the Exchange Act to liquidity providers supplying proprietary capital to a TSV's AMM pools, even when those providers engage in activities that would otherwise indicate dealing, such as quoting prices to customers.
Under existing securities law, an entity that regularly buys and sells securities for its own account as part of its business typically must register as a broker-dealer, a status carrying substantial capital, recordkeeping, and supervisory requirements. Automated market maker liquidity providers, who supply capital that the AMM's algorithm uses to price and execute trades, function differently from a traditional dealer quoting bid-ask spreads manually, but they perform an economically similar role. Commissioner Mark Uyeda's statement noted this relief is conditioned on disclosure and recordkeeping requirements, suggesting the SEC is treating algorithmic liquidity provision as a distinct activity requiring its own tailored compliance framework rather than either full broker-dealer registration or no oversight at all.
Why the SEC is using exemptive authority instead of new rules
Commissioner Uyeda's statement placed the Innovation Exemption within a specific legal and historical lineage. He pointed to the National Securities Markets Improvement Act, which amended the Exchange Act to give the SEC general exemptive authority, as the legal basis for this kind of temporary, scoped relief.
"Examples of popular products and models that grew from the SEC's initial use of exemptive authority are money market funds, index funds, and exchange-traded funds," Uyeda wrote.
This historical framing carries real weight. Exchange-traded funds, now holding trillions of dollars in assets globally, existed for years under individual SEC exemptive orders before the Commission adopted a generalized ETF rule, Rule 6c-11, in 2019, nearly three decades after the first ETF launched in 1993. Money market funds followed a similar path, operating under case-by-case exemptive relief before Rule 2a-7 codified a permanent regulatory framework in 1983. Uyeda's reference signals that the SEC views tokenized securities trading as following the same multi-year trajectory: temporary relief first, observed market behavior second, permanent rulemaking last, rather than an attempt to regulate the entire category through a single order.
Uyeda specifically credited the framework's development to the Division of Trading and Markets, the Office of General Counsel, and the Crypto Task Force led by Commissioner Hester Peirce.
Data collection built into the exemption's design
The order requires TSVs to make US dollar-denominated transaction data, including price, size, time, pool address, end-of-day pool size, and daily volume, publicly available at regular intervals. Uyeda described this as designed "to reduce information asymmetries, support monitoring, and allow for study of securities trading using the exemption."
This granular, mandated public data disclosure distinguishes the Innovation Exemption from how many earlier financial product exemptions operated, where regulators often relied primarily on the exempted entities' own compliance reporting rather than requiring standardized, publicly accessible trading data streams. The explicit data requirement suggests the SEC intends to build its eventual permanent rulemaking on empirical trading data gathered during this five-year window, rather than on theoretical modeling or industry-submitted comments alone.
The order also imposes volume caps calibrated by limit up, limit down tiers, the same circuit-breaker framework already used to halt trading in conventional equities during extreme volatility, applied here to tokenized versions to keep the exemption's scope controlled while the SEC observes how these venues behave under real trading conditions.
Michael Saylor and other crypto industry figures praised the exemption as a path toward 24/7 onchain trading of shares in companies including Strategy. The exemption's five-year expiration and open public comment period mean its ultimate scope remains subject to change based on how TSVs perform under these initial conditions.
Gunel Ismayilova
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