The Securities and Exchange Commission last month issued an order giving tokenized securities venues a five-year reprieve from having to register as national securities exchanges under the Securities Exchange Act of 1934, permitting trading in tokens representing national market system stock on these systems. The relief, which is being referred to as the Innovation Exemption, was paired with a second order that frees certain firms supplying liquidity to an automated market maker pool on such a venue from broker-dealer registration for the same five-year period, according to Mondaq.
The SEC Innovation Exemption matters because it creates a route for tokenized stock trading outside the framework of registered exchanges and alternative trading systems. Because a tokenized securities venue, or TSV, brings together buyers and sellers of securities, it would ordinarily have to register with the SEC or obtain an exemption, and the order supplies that exemption subject to a series of conditions, including volume limitations.
What the SEC Innovation Exemption covers
The exemption is limited to trading of NMS stocks, which effectively confines it to tokenized equity securities listed on venues such as the NYSE or Nasdaq, while excluding options, warrants and other rights, Mondaq reported. SEC staff have explained that a tokenized security may be backed either by the company that issued the underlying shares or by an unaffiliated third party, and both types can be traded on a TSV that is eligible for the exemption.
A TSV is defined as an entity that matches buyers and sellers of tokenized NMS stock by operating one or more AMM liquidity pools for permissioned participants and setting standards for access to trading on those pools. A venue may list a tokenized NMS stock only when it trades against another tokenized NMS stock, against a non-security crypto asset such as a payment stablecoin from a permitted issuer, or against a tokenized money market fund.
The trading structure has four basic components, according to Mondaq. The stock is tokenized through minting by the issuer or by a custodian of the underlying shares, a liquidity pool holds both the securities tokens and payment tokens such as stablecoins, and an automated market maker, a smart contract, administers the pool, prices trades through a prescribed mechanism, enforces participant permissioning and executes trades.
Conditions attached to the relief
The exemption carries a set of conditions that in some ways substitute for the requirements imposed on registered exchanges and alternative trading systems, Mondaq reported. At least 30 days before beginning operation, a TSV must publish an extensive list of prescribed disclosures on its website, and it must give email notice to the SEC at least one business day before posting.
Issuers retain a veto. If tokenized stock is minted by a third party rather than the issuer, the TSV must give the issuer 30 days' advance notice and may not trade that stock if the issuer objects within that window, and whether issuers will embrace tokenized trading of their shares remains uncertain, since the exemption is unavailable over an issuer's objection. Tokenized stock must also carry the same rights and privileges as the equivalent class of traditional stock, including identical dividends, voting rights and claims on residual assets in liquidation.
The order divides tokenized stock into Tier 1 and Tier 2 categories. Tier 1 covers NMS stocks that sit in the S&P 500 or Russell 1000 indexes, along with certain exchange-traded products whose notional consolidated average daily volume exceeds $2 million, while Tier 2 covers all other NMS stocks that are not rights and warrants. Tier 1 trading on a TSV is capped at 75 symbols and one-quarter of one percent of the prior month's average daily share volume in the relevant stock, and breaching the volume limit in any tokenized stock twice requires the venue to pause trading in that stock for three months.
Operational conditions include halting trading in a tokenized stock whenever trading in the underlying stock stops on the primary listing exchange, immediately notifying participants and promptly notifying the SEC of events with a significant impact on the venue or its participants, and refraining from borrowing securities or paired crypto assets, hypothecating them or extending credit for purchases on the venue. A TSV also may not suggest in any statement that it holds SEC registration, and its public notice must state outright that no such registration exists.
Liquidity providers and accredited investors
In the order, the SEC acknowledges that supplying liquidity to facilitate trading on a TSV would not, in and of itself, make a person a dealer, according to Mondaq. Even so, the order provides an exemption from the dealer definition for covered liquidity providers because of uncertainty about whether their activities could require broker-dealer registration.
That relief is conditioned on the covered firm's activities being limited to trading tokenized stock in an AMM liquidity pool under a TSV exemption. Without an exception or exemption of this kind, Section 15 of the Exchange Act bars a dealer from transacting in securities unless it holds SEC registration.
The order does not provide an exemption from registration under the Securities Act, so offers and sales of tokenized stock on a TSV must be registered or exempt, the SEC states. Because the TSV model does not contemplate Securities Act registration, trades will in practice rely on exemptions under Section 4(a)(2) of the Securities Act or Regulation D, and perhaps Regulation S for offshore investors, meaning only accredited investors may be permissioned to trade on the venue, Mondaq reported.
How venues compare with ATS platforms
Trading of tokenized securities is not limited to TSVs, Mondaq reported. They may also trade on alternative trading systems operated by broker-dealers registered with the SEC, with recording and settlement on a blockchain, and such trading may also run through an on-chain automated market maker similar to a TSV.
The order leaves TSVs facing far lighter regulation than ATSs, which lets a wider range of platform sponsors enter tokenized securities trading, according to Mondaq. In various other aspects of tokenized securities trading there may be little or no distinction between the two models, and atomic settlement, in which both sides of a trade occur in a single indivisible transaction, along with real-time verification of credentials such as KYC and accredited investor status, is not limited to a particular type of platform.
Market participants are already positioning around the new framework. Securitize stated that it would use Solana as its blockchain platform and that its initial offering of tokenized stock would include a number of high-profile stocks, trading on Securitize's registered broker-dealer platform and anticipated to list as well on a digital trading ATS that the New York Stock Exchange is building, according to Mondaq. Nasdaq, for its part, said in published FAQs that, as an issuer itself, it intends for Nasdaq, Inc. to opt out of TSVs.
Comment process and what comes next
SEC Chairman Atkins framed the relief in a September 17, 2026 statement titled "Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking." On October 20, 2026, the staff of the Division of Trading and Markets released a series of Frequently Asked Questions on the Innovation Exemption.
The order solicits comments and may be modified in response to them. In a letter dated October 19, 2026, the Securities Industry and Financial Markets Association flagged a multitude of practical, operational and legal issues for the SEC to consider, according to Mondaq.
Conclusion
The SEC Innovation Exemption establishes a five-year window in which tokenized securities venues can trade tokenized NMS stock without registering as national securities exchanges, and in which qualifying liquidity providers can operate without broker-dealer registration, all subject to conditions that include volume caps, issuer objection rights and accredited-investor limits. The next concrete step is the comment process the order solicits, which has already drawn a detailed response from SIFMA and could lead to modifications of the relief before or during its five-year term.
Frequently Asked Questions
What is the SEC Innovation Exemption for tokenized NMS stock?
It is a five-year exemptive order from the SEC allowing tokenized securities venues to trade tokens representing NMS stock without registering as a national securities exchange under the Exchange Act. A companion order exempts certain liquidity providers to automated market maker pools from broker-dealer registration. The relief is conditioned on volume limits, disclosure, issuer consent and other requirements.
Which stocks can trade on a tokenized securities venue under the exemption?
Only tokenized NMS stocks qualify, effectively equity securities listed on exchanges such as the NYSE or Nasdaq, excluding options, warrants and other rights. Tier 1 covers S&P 500 and Russell 1000 stocks plus certain actively traded exchange-traded products, capped at 75 symbols and 0.25% of prior-month average daily volume per stock. Tier 2 covers other NMS stocks.
Can an issuer block tokenized trading of its stock on a TSV?
Yes. When a third party rather than the issuer mints the tokens, the venue must give the issuer 30 days' advance notice and cannot trade the stock if the issuer objects in that period. The exemption is unavailable over an issuer's objection, and Nasdaq has already said it intends for Nasdaq, Inc. to opt out of TSVs.
Who is allowed to trade on a tokenized securities venue?
In practice, only accredited investors. The order provides no Securities Act registration exemption, so offers and sales must be registered or exempt. Because the TSV model does not contemplate registration, trades will rely on Section 4(a)(2) or Regulation D exemptions, and possibly Regulation S for offshore investors, restricting participation to accredited investors.
How long does the SEC Innovation Exemption last and can it change?
The exemption runs for five years from the order issued last month. The SEC solicited comments on the order and may modify it in response. SIFMA submitted a letter on October 19, 2026 raising practical, operational and legal issues, and SEC staff released FAQs on the exemption on October 20, 2026.