On September 17, 2026, the Securities and Exchange Commission (the “Commission” or the “SEC”) issued an exemptive order to be known as the “Innovation Exemption.” This Innovation Exemption grants temporary, conditional exemptive relief under Section 36(a)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the onchain trading of tokenized National Market System (“NMS”) stock. It is set to expire on September 17, 2031, five years after publication.

The Innovation Exemption represents the Commission’s latest step in its ongoing effort to facilitate the integration of distributed ledger technology into the U.S. capital markets, granting operative exemptive relief that permits onchain trading of registered equity securities. While the exemption is temporary and subject to significant conditions (outlined below), it appears to signal a meaningful step forward in, as SEC Chairman Paul S. Atkins stated, “bring[ing] America’s capital markets into the digital age.”

The Innovation Exemption grants two forms of relief:

  • The TSV Exemption exempts certain trading venues, termed “Tokenized Securities Venues” or “TSVs,”  from the definition of “exchange” under Section 3(a)(1) of the Exchange Act, allowing TSVs to bring together buyers and sellers of Tokenized NMS stock through permissioned automated market makers and liquidity pools (“AMM Liquidity Pools”). A TSV is defined as 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 Pools 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 Pools.
  • The Covered Firm Exemption exempts certain liquidity providers (referred to as “Covered Firms”) from the definition of “dealer” under Section 3(a)(5) of the Exchange Act when they supply liquidity in the form of Tokenized NMS stock using proprietary capital in an AMM Liquidity Pool.

Notably, the scope of the Innovation Exemption is limited by what qualifies as a tokenized security eligible for trading on a TSV. For purposes of the Innovation Exemption, “Tokenized NMS Stock” means an NMS stock that is (1) a security tokenized by, or on behalf of, the issuer of the underlying NMS stock, or (2) a security tokenized by a third party that is unaffiliated with the issuer of the underlying NMS stock. It does not include securities where a third party issues a crypto asset representing its own security that provides synthetic exposure to an underlying security, such as a tokenized linked security or a tokenized security-based swap. The exclusion of derivative tokenized securities is noteworthy given the recent proliferation of such tokens on offshore platforms, and suggests the Commission is drawing a clear line between tokenization of actual equity interests and the creation of derivative crypto assets that only reference an underlying security.

The exemptions are subject to a number of conditions designed to protect investors and maintain fair and orderly markets, including:

  • Tokenized NMS stock traded on a TSV is subject to limits on the number of symbols and volume traded;
  • A TSV must verify that the Tokenized NMS stock available for trading on the TSV provides holders the same rights and privileges as does traditional NMS stock of an equivalent class;
  • Before making available for trading Tokenized NMS stock that is tokenized by an unaffiliated third party, the TSV must provide written notice and an opportunity to object to the issuer of the underlying NMS stock; and
  • Smart contracts used by a TSV must be auditable, public, and deployed on a public, permissionless distributed ledger.

In addition to the conditions outlined above, market participants considering operating a TSV or providing liquidity as a Covered Firm should note the following operational requirements that must be satisfied before relying on the exemptions:

  • At least 30 calendar days before operating, a TSV must publish a copy of a notice prominently on its publicly available website that includes certain information, and within one business day of publication of the notice, the TSV must provide the Commission written notice that it intends to operate pursuant to the TSV Exemption.
  • A Covered Firm operating pursuant to the Covered Firm Exemption must provide written notice to the Commission of its role as a Covered Firm, and disclose on any public-facing website, if applicable, certain information.