The SEC’s tokenized stock exemption: what it permits and what it changes for a client

What the order does

On 17 September 2026 the Commission issued Release 34-106402, which it calls the Innovation Exemption.¹ It grants two temporary exemptions under Section 36(a)(1) of the Exchange Act. The first takes a new kind of venue, a Tokenized Securities Venue, out of the definition of “exchange.” The second takes certain liquidity providers on those venues, which the order calls Covered Firms, out of the definition of “dealer.” Both run from 17 September 2026 until 17 September 2031, and the Commission may change them before then.²

A venue qualifies by doing two things. It provides “one or more AMM Liquidity Pool(s) for permissioned participants to interact and agree to terms of a trade,” and it sets “standards for persons to access trading” in those pools.² An automated market maker is a contract that holds two assets and prices one against the other from the ratio of the quantities it holds. Liquidity providers deposit both assets and receive pool tokens for their share. A buyer puts one asset in and takes the other out; the ratio shifts, and so does the next price. The traders pay a fee, and the providers earn it.

That design is why the exemption exists. A pool prices from its own contents “without directly considering external pricing,” so the order says a venue built on one “may be unable to comply with the trade-through requirements of Rule 611,” the rule that stops a market from filling an order at a worse price than another market shows. It may also struggle with quote reporting under Rule 602 and price increments under Rule 612, since a pool can quote to 18 decimal places. Once exempt, a venue is not an exchange and not an alternative trading system, so “the rules under Regulation NMS applicable to exchanges, ATSs, trading centers, and market centers would not apply to such TSV.”²

What may trade on a venue

Only “Tokenized NMS Stock”: a listed U.S. stock or exchange-traded product tokenized by or for its issuer, or tokenized by a third party unaffiliated with the issuer. The definition then shuts out the most common product in the market today. 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.” Rights and warrants are out too.² The lines come from the SEC staff’s January 2026 statement, which sorted tokenized securities into issuer-sponsored, third-party custodial, and third-party synthetic models.³

Three conditions follow the token onto the venue.

• The same rights. The venue must verify that the token gives holders “the same rights and privileges” as the ordinary share: the same interest in the company, the same dividends, the same votes, and the same share of the company’s assets in a liquidation. A third party that tokenizes another company’s stock must pass along proxy materials “at no cost to the issuer or the shareholders.”
• The company’s veto. Before listing a token made by an unaffiliated third party, the venue must send the company written notice and wait at least 30 calendar days. If the company objects in that time, the venue cannot list the token, and it must say so in its public Notice within five business days.
• No new issuance. “No primary issuance or initial offerings of securities are permitted on a TSV.” Every offer and sale must be registered under the Securities Act or exempt from registration.²

The other side of every trade must be another tokenized listed stock, a crypto asset that is not a security, “e.g., a payment stablecoin issued by a permitted payment stablecoin issuer,” or a tokenized money-market fund. The order grants no relief under the Investment Company Act and notes that tokenized funds “may raise issues” under it.²

Which tokens clients already see could qualify

Set the definition against the programs Ketju keeps files on, and most of what clients see in crypto apps falls outside it.

Two rows need a closer look. Coinbase’s prospectus says “Holders of the Securities do not have direct voting rights” and “Holders will not receive cash dividends”; the issuer takes a 5.0% fee from each dividend and reinvests the rest.⁷ A venue would have to decide whether that is “the same dividends” and “the same voting rights” the order requires. As written, the documents describe something else. The same prospectus bars U.S. persons from holding the certificates at all.

DTC’s tokens “would only be transferable to Registered Wallets,” and only DTC participants may register one.⁸ No document read for this page says how a pool on a venue would hold such a token. For issuer-sponsored stock the switch belongs to the company. Galaxy Digital, whose Class A shares Superstate records on chain, wrote in its quarterly report for the period ended 30 June 2026: “Although we have not yet enabled trading of Tokenized GLXY on automated market maker decentralized exchanges, we may do so in the future.”⁹

Who may trade, and how

The order does not limit who may trade. Participants “may consist of a variety of market participants, such as retail investors (i.e., natural persons), institutional investors, or registered entities such as broker-dealers,” and the Commission found it “in the public interest not to limit the types of participants that may trade on TSVs.”² Each venue decides. It must admit only permissioned participants, for example by letting only allowlisted wallet addresses into a pool, or by coding the token to move only to approved wallets. Its public Notice must describe who is eligible, “including the types of persons that can access the TSV by way of a broker-dealer.”²

The venue itself must be a U.S. person, which puts it under U.S. sanctions rules. It must publish its Notice on its website at least 30 calendar days before operating, and tell the SEC within one business day. Its smart contracts must be “auditable, public, and deployed on a public, permissionless distributed ledger.” It may not borrow, lend, or extend credit to a participant to buy a tokenized stock. It must stop trading a token whenever the stock’s primary listing exchange halts or suspends it.²

It must also publish, free and in machine-readable form, U.S.-dollar data on every trade from the past 30 days, updated within ten minutes: the symbols, price, size, time, and direction, plus each pool’s contract address, daily volume, and end-of-day size.² That feed is the record of what a client paid.

How much may trade

The order caps both breadth and volume, using the tiers of the Limit Up-Limit Down Plan.¹⁰ Tier 1 is every stock in the S&P 500 and the Russell 1000, plus certain exchange-traded products; Tier 2 is the rest.

A venue counts its affiliates’ symbols and volume with its own. The first time it breaks a volume cap on a stock, it need only stay under the cap from then on. Each later breach pauses that stock on the venue for three months. Trading more symbols than the limit takes the venue outside the exemption.²

The caps are small. SEC staff put the 2025 weighted average daily volume of a Tier 1 stock at 3,022,668 shares.² At that average, 0.25 percent is about 7,557 shares a day, across a venue and its affiliates together. The order gives the reason: prices in a pool “could dislocate from the prices of the NMS stock in traditional format,” and the caps limit the harm while the Commission watches.²

What the order does not do

• It does not register or approve a venue. A venue may not say it is “registered” or that its activity has been “approved” or “endorsed” by the Commission. Its Notice must say that it is not registered, that it is not subject to the fair-access rules that bind exchanges, and that it is not subject to Regulation NMS.²
• It does not reach anyone else. It “does not provide an exemption from any other applicable laws,” leaves the anti-fraud and anti-manipulation rules in full force, and “does not apply to nor address the regulatory or registration status of securities activities performed by TSV Participants.”² A broker or adviser that uses a venue keeps every duty it had.
• It does not make liquidity providers into brokers. A Covered Firm must trade “solely for its own account, and must not hold or custody customer assets,” and must say on its website that it is not a registered broker-dealer.²
• It says nothing about SIPC. SIPC “only protects the custody function of the broker dealer.”¹¹ A token in a client’s own wallet is not in a broker’s custody.
• It is not about decentralized finance. Commissioner Peirce wrote: “This order is not about decentralized finance.” In her view, “An investor does not need an exemption to avail herself of permissionless smart contracts that mediate peer-to-peer trading.”¹² The order covers permissioned pools run by a U.S. venue, and nothing wider.

What it changes for a US advisor’s client

Today, nothing. The order took effect on 17 September, and a venue must post its Notice 30 days before it operates, so none could open before 17 October 2026. Ketju had found no published Notice by 30 September.

When venues open, the change is narrow. A client whose wallet a venue approves could trade an issuer-sponsored or custodial token of a listed stock against a stablecoin, at any hour, in a pool on a public chain. The tokens clients meet most often in crypto apps stay where they were. xStocks, Ondo’s tokens, and Robinhood’s Stock Tokens are notes and fall outside the definition, and all four offshore programs, Coinbase’s included, bar U.S. persons in their own documents.

The adviser’s duties do not change, but the market does. The Commission’s 2019 interpretation says an adviser’s duty of care includes “a duty to seek best execution of a client’s transactions where the adviser has the responsibility to select broker-dealers to execute client trades.”¹³ A pool on a venue prices from its own contents and has no trade-through protection, so a client’s price there can differ from the consolidated quote for the same stock in the same minute. The venue’s ten-minute trade feed is where that shows. The order is silent on the Advisers Act and the custody rule; the custody section of the due-diligence guide covers where those questions stand.

Dates and open questions

Chairman Atkins framed the order as a stopgap. “Earlier this week, Congress was unsuccessful in advancing the CLARITY Act,” he wrote, and “this interim measure must be followed by durable rulemaking.”¹⁴ Commissioner Uyeda called it a way to “observe emerging venues and market participants as it considers long-term rules.”¹⁵ The Commission’s ten questions include whether the exemption should be permanent, whether venues should trade other securities, and whether broker-dealers that trade on a venue need relief from Regulation NMS.² The regulatory ledger records each later step.

What the file should record

• The venue’s name, its Notice URL, and the date the Notice was read, and each revised Notice after it.
• Which model the token is, from the issuer’s or tokenizer’s own document, and that it is neither a note nor a swap.
• For a third-party token, that the company received notice and did not object, as the venue’s Notice states.
• The pool’s contract address, and the trade as the venue’s feed reported it, beside the consolidated price at the same time.
• Who holds the wallet’s keys, the client, a broker, or a custodian, and whether SIPC reaches the position.
• Any pause or stop the venue announced while the client held a position.