The U.S. Securities and Exchange Commission released an order on September 17, 2026, providing limited, conditional authorization for blockchain-based secondary market transactions involving tokenized National Market System equities. Under the "Innovation Exemption," platforms classified as Tokenized Securities Venues (TSVs) that meet specified criteria are shielded from being categorised as an "exchange" under the Securities Exchange Act of 1934 for a period of five years. The directive also extends comparable exemptions under the Exchange Act's "dealer" classification to certain firms acting as proprietary liquidity providers. Under the directive, a TSV may conduct trading activity via vetted automated market makers and liquidity pools built on verifiable smart contracts running across an open, decentralised blockchain network. Approval of the arrangement carries stipulations covering how participants may access it, the rights of issuers to receive notice and raise objections, protections for token holders, caps on trading activity, requirements for transaction transparency, operational event disclosures, public reporting obligations, recordkeeping standards, and regulatory supervision by the SEC. The measure stops short of broadly exempting tokenized securities, authorising primary offerings via a TSV, overriding Securities Act registration obligations, or freeing broker-dealers and other regulated entities from the compliance standards governing their operations. Those waivers are set to lapse on 17 September 2031. This directive builds on prior regulatory steps taken by the Commission and its staff regarding tokenized securities. Regulators had been reviewing a proposed exemption designed to support certain activities involving tokenised securities. The directive sets out a framework for one particular type of secondary market activity while regulators assess whether additional rulemaking or further relief measures are warranted. Public comments on File No. 4-927 are being gathered by the Commission, though no deadline for submissions has been announced. A TSV is defined as an entity — whether a formal organisation, an association, or a collective — that facilitates connections between buyers and sellers of tokenised NMS stock by operating one or more AMM Liquidity Pools where permissioned participants engage and reach agreement on trade terms, while also establishing the rules that govern how those pools may be accessed. To qualify, a TSV must hold U.S. person status. Any trading system vehicle meeting the specified regulatory conditions falls outside the Exchange Act's definition of an "exchange" for the relevant activity and, on that basis alone, faces no obligation to register as a national securities exchange or function as an alternative trading system. Under the exemption, the TSV would likewise be excluded from classification as either a trading venue or market centre pursuant to Regulation NMS. Under the directive, the term "Tokenized NMS Stock" encompasses both an NMS stock converted into digital tokens by or on behalf of the issuing entity, as well as a security tokenized through an independent third party with no affiliation to the issuer. That carve-out does not apply to a counterparty's own collateral that merely generates synthetic exposure to an NMS stock, whether through a tokenized linked instrument or a tokenized security-based swap. Under the verification process, a TSV must confirm that each token carries equivalent economic entitlements, dividend rights, voting power, and liquidation claims to those of the corresponding standard share class. Any such offerings and transactions involving securities must either be registered pursuant to the Securities Act of 1933, as subsequently amended, or fall within an applicable exemption from those registration requirements. The TSV platform does not permit new securities to be issued or offered for the first time. A TSV is required to deliver formal written notification to the issuer prior to offering any stock tokenized by an independent third party for trading. The notification must be delivered to the postal or electronic address listed for the issuer's head office on the cover page of its Exchange Act filings, and must include up-to-date contact details through which the issuer can submit any objection. A minimum waiting period of 30 calendar days must elapse following the issuer's receipt of the notice before any trades can be executed. Should the issuer lodge a written objection within that window, the TSV is prohibited from listing the tokenized stock on any trading platform. Under the LULD Plan's framework for addressing extraordinary market volatility, restrictions apply to both the quantity of shares accessible on a trading security venue and the overall volume that may change hands. Under Tier 1 Tokenized NMS Stock rules, a trading system venue is permitted to list no more than 75 qualifying symbols, while activity in any individual tokenized security cannot surpass 0.25% of the preceding month's average daily share volume in the corresponding underlying NMS stock. Under the Tier 2 Tokenized NMS Stocks framework, a trading system venue is permitted to list no more than 250 Tier 2 symbols, while activity in any individual tokenized NMS stock is capped at 2.5% of that stock's average daily share volume recorded during the preceding month. When a given stock hits its volume threshold for the first time, no halt in trading is triggered. Any further breach of the threshold obliges the TSV and its connected venues to halt trading in the relevant stock for a three-month period, inform all participants, and revise the publicly available notice. No fewer than 30 days prior to commencing operations, a tokenised securities venue must release a plain-language disclosure covering its corporate structure, eligibility criteria, permitted assets, tokenisation arrangements, technology infrastructure, fee schedules, conflicts of interest, third-party service providers, trading practices, operational systems, and risk management controls. Under the applicable rules, the TSV is required to file a disclosure with the SEC no later than one business day following publication, keep earlier versions accessible online, and revise the notice according to designated deadlines. Transaction data denominated in US dollars must be disclosed in a machine-readable format within ten minutes, with no fewer than thirty days of records kept openly accessible. Mandatory fields encompass the trading pair, transaction price, volume, timestamp, direction, associated liquidity pool, smart-contract address, aggregate daily turnover, and closing pool size. All transactions must be paused whenever the relevant underlying security faces a halt or suspension on its principal exchange. Under the venue's rules, investors are prohibited from using securities or digital assets as collateral for loans, and trading system venues are barred from extending credit to facilitate the acquisition of tokenized NMS shares. During the exemption period and for three years following its conclusion, a TSV is required to keep comprehensive records within the United States and agree to oversight inspections by the SEC. Under the same directive, a qualifying firm that contributes liquidity through tokenised NMS stock via proprietary capital within an AMM Liquidity Pool covered by the TSV exemption receives a provisional carve-out from the Exchange Act's "dealer" classification. According to the Commission, offering liquidity on its own would not typically qualify as dealer activity. Under the applicable rules, a qualifying firm is permitted to engage in exempt securities dealings only through eligible automated market-maker liquidity pools, conduct transactions exclusively on a proprietary basis, and neither hold nor provide custodial services for client assets. Those entities designated as Covered Firms continue to be bound by federal prohibitions on fraud and market manipulation.
