SEC tests new framework for on-chain trading of certain tokenized stocks

On September 17, 2026, the US Securities and Exchange Commission (SEC) authorized a temporary framework for trading certain tokenized stocks on blockchain-based trading venues. See SEC, SEC Issues “Innovation Exemption” to Facilitate the Trading of Tokenized NMS Stock and Request for Comment, Release No. 2026-90 (Sept. 17, 2026); see also SEC, Order Granting Temporary Conditional Exemptive Relief, File No. 4-927 (Sept. 17, 2026)). Through its “innovation exemption” order, the SEC granted conditional relief to qualifying tokenized securities venues (TSVs) from the “exchange” definition under the Securities Exchange Act of 1934 and separately granted relief from the definition of “dealer” to certain firms that provide liquidity to those venues. (See innovation exemption order at 1 – 2). The exemptions allow qualifying TSVs to facilitate secondary-market trading of tokenized National Market System (NMS) stock through permissioned automated market makers and liquidity pools (AMM liquidity pools). These activities are subject to conditions intended to protect investors and limit the potential effects on traditional securities markets. (See id. at 1 – 3). This framework is temporary and currently expires on September 17, 2031. The SEC requests public comment as it considers whether and how a more permanent framework should follow. (See id. at 56 – 59).

Background and context

The innovation exemption order is the latest step in a broader SEC effort to develop a regulatory framework for crypto assets and securities traded blockchains. During 2025 and early 2026, the SEC issued a series of statements addressing particular crypto activities, including stablecoins, staking, and tokenized securities. (See, e.g., SEC, Statement on Stablecoins (Apr. 4, 2025); SEC, Statement on Offerings and Registrations in Crypto Markets (Apr. 10, 2025); SEC, Statement on Certain Protocol Staking Activities (May 29, 2025); SEC, Statement on Crypto Asset Exchange-Traded Products (July 1, 2025); SEC, Statement on Certain Liquid Staking Activities (Aug. 5, 2025); SEC, Statement on the Custody of Crypto Asset Securities by Broker-Dealers (Sept. 30, 2025)). In January 2026, the SEC staff explained that tokenizing a security does not change its status under the federal securities laws: “[t]he format in which a security is issued . . . does not affect the application of the federal securities laws.” (See SEC, Statement on Tokenized Securities (Jan. 28, 2026)).

The SEC then moved from staff guidance to formal Commission action. In March 2026, the SEC issued an interpretation addressing how federal securities laws apply to different categories of crypto assets and expressly confirmed that “[a] security is a security regardless of whether it is issued, or otherwise represented, off-chain or on-chain.” (See SEC, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 (Mar. 17, 2026)). In August, the SEC proposed Regulation Crypto Assets, which would create a tailored offering framework for certain investment contracts involving crypto assets and expressly “follows the Commission’s March 2026 interpretation.” (See SEC, Regulation Crypto Assets, Securities Act Release No. 33-11434, Exchange Act Release No. 34-106150 (proposed Aug. 18, 2026); SEC, SEC Proposes New Regulation Crypto Assets, Release No. 2026-76 (Aug. 18, 2026). The proposal would establish two Securities Act exemptions for certain investment contracts involving crypto assets and a conditional safe harbor addressing when a crypto asset is no longer subject to an investment contract.) The innovation exemption addresses a different part of the lifecycle: how tokenized assets that remain securities may trade on-chain.

The exemption also followed the US Senate’s September 15, 2026, vote against invoking cloture on the motion to proceed to the Digital Asset Market Clarity Act, which prevented the Senate from moving to consideration of the bill and made the likelihood of its passage before the midterm elections more remote. (See Digital Asset Market Clarity Act, HR 3633, 119th Cong. (2025) (passed by the US House of Representatives in July 2025; Senate cloture vote failed 49 – 50 on September 15, 2026); see also US Senate, Roll Call Vote 119th Congress – 2nd Session, Vote No. 234 (Sept. 15, 2026)). In announcing the order two days later, Chairman Paul S. Atkins expressly referenced Congress’ inability to advance the legislation and described the exemption as an action within the SEC’s existing statutory authority. (See Paul S. Atkins, Chairman, SEC, Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026) (stating that, following Congress’s inability to advance the CLARITY Act, the SEC was acting “within its statutory authority”)).

What does the innovation exemption order allow?

The exemption applies to tokenized NMS stocks, which are generally stocks traded in the US national market system that are represented in tokenized form on a blockchain or other distributed ledger. (Under Regulation NMS, “NMS stock” generally refers to securities for which transaction information is collected and disseminated through the NMS. See 17 CFR § 242.600(b); innovation exemption order at 1 – 2)). Tokenized NMS stocks must represent the underlying stock rather than merely tracking its price. The innovation exemption order does not extend to synthetic products that provide economic exposure to a stock without representing ownership of that stock. (See innovation exemption order at 2 (excluding certain tokenized linked securities and security-based swaps that provide synthetic exposure to NMS stock)). Tokenized securities may trade through a TSV, a trading venue that brings together buyers and sellers through one or more AMM liquidity pools and determines who is permitted to access those pools. (See id. at 6 – 10. The order describes a TSV as a venue that hosts one or more AMM liquidity pools for permissioned participants and establishes standards governing access to those pools.) An AMM uses software to determine the terms on which assets in a liquidity pool can be traded, rather than relying on a traditional order book matching individual buy and sell orders. (See id. at 2 – 3, 7 – 9. An AMM generally uses a smart contract to establish the terms of trades based on the assets held in a liquidity pool, meaning the pool of assets made available for trading through the AMM.) Although the blockchain supporting the TSV must be public and permissionless, trading itself must be permissioned, restricted to participants approved by the TSV. (See id. at 17 – 18. The order distinguishes between a permissionless distributed ledger, which generally may be read or written to without prior authorization, and a permissioned AMM liquidity pool, access to which is controlled by the TSV.)

Temporary relief from the exchange definition

A trading platform that matches buyers and sellers of securities ordinarily may fall within the definition of “exchange” under the Exchange Act and become subject to SEC registration and regulation. (See 15 USC § 78c(a)(1)). The innovation exemption order allows a qualifying TSV to operate without being treated as an exchange, provided that it complies with certain conditions. (See innovation exemption order at 10 – 18). Those conditions include:

• US presence and controlled access. A TSV must qualify as a US person and control who may trade through its AMM liquidity pools. (See id. at 17 – 20).
• Equivalent shareholder rights. Tokenized stock must provide the “same rights and privileges” as the corresponding traditional stock, including dividend, voting, and liquidation rights. (See id. at 21 – 22).
• Secondary-market trading only. “[N]o primary issuance or initial offerings of securities are permitted on a TSV.” (See at 21 – 22).
• Issuer objection rights. If an unaffiliated party tokenizes an issuer’s stock, the TSV must notify the issuer. Trading may begin only after 30 calendar days, and a timely issuer objection prevents listing. (See id. at 20 – 22).
• Trading and market controls. The order limits the number of stocks and trading volume on a TSV, and requires trading in the tokenized stock to stop when trading in the underlying stock is halted or suspended. (See id. at 22 – 27).
• Technology and transparency. Smart contracts must be public and auditable and deployed on a public, permissionless distributed ledger. TSVs are also subject to disclosure, reporting, recordkeeping, and SEC examination requirements. (See id. at 29 – 30).

The innovation exemption order therefore permits a specific on-chain market structure outside the traditional exchange-registration framework, but subject to significant conditions intended to protect investors and preserve links to the traditional market.

Conditional relief for liquidity providers

The innovation exemption order also carves out a temporary exemption from the definition of “dealer” in Section 3(a)(5) of the Exchange Act. (See 15 USC § 78c(a)(5)). It reaches liquidity providers, firms that contribute their own assets to AMM liquidity pools so that others can trade. (See innovation exemption order at 52 – 54). The SEC emphasized that “[l]iquidity provision alone does not constitute engaging in dealer activity.” (See id.) This exemption is relevant where a liquidity provider also engages in activities associated with dealing, such as regularly quoting prices or committing capital. The innovation exemption order refers to qualifying liquidity providers that rely on this relief as “covered firms,” which may provide tokenized NMS stock to a TSV’s AMM liquidity pool using their own capital without being treated as dealers based on the covered activity. Covered firms must satisfy several conditions, including trading for their own account, not holding or custodying customer assets, maintaining specified records and disclosures, and notifying the SEC of their reliance on the exemption. (See id. at 54 – 56).

Looking ahead

The exemptions are currently effective through September 17, 2031, although the SEC may modify them before then. (See id. at 60). The SEC also seeks public comment on whether the exemptions should be changed or made permanent, including comment on the trading limits, the interaction between TSVs and traditional markets, and whether additional regulatory relief is needed. (See id. at 56 – 59). Chairman Atkins described the order as an interim step, stating that “this interim measure must be followed by durable rulemaking.” (See Paul S. Atkins, Chairman, SEC, Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026)). For market participants, the order creates an express pathway for secondary-market trading of tokenized US stocks through blockchain-based venues, but the relief is deliberately narrow. It does not permit primary offerings or synthetic stock products, and requires TSVs to preserve shareholder rights, control access, respect issuer objections, and comply with trading, disclosure, and technology requirements. (See generally innovation exemption order at 14, 17 – 30. The order states that it does not provide relief from other applicable laws, including the federal securities laws’ antifraud and antimanipulation provisions, and imposes conditions related to eligible securities, issuer objections, trading limits, trading stoppages, disclosure, and technology.) The next focus will likely be on how firms use the exemption in practice. TSVs must provide advance public notice before beginning operations, offering an early view of the blockchains, tokenization structures, and AMM models firms intend to use. (See id. at 18 – 20). Issuer responses will also matter because issuers may block certain unaffiliated third-party tokenizations of their stock from trading on a TSV. (See id. at 20 – 21).

The McDermott difference

McDermott’s FinTech & Blockchain Group can help you assess the nuances and implications of this new framework. McDermott’s crypto-exclusive team spends 100% of its time on matters for the crypto and FinTech industries.